Though SVB Financial Group reported healthy fourth-quarter earnings growth last week, it presented a gloomy outlook for the first quarter.
Kenneth P. Wilcox, the $6 billion-asset Santa Clara, Calif. company's chief executive and president, said in a conference call late Thursday, that it expects lower revenue growth and a continued increase in expenses to hurt first-quarter results.
For this quarter, it expects to report earnings of 63 to 69 cents a share. Fourth-quarter earnings per share rose 9 cents from a year earlier, to 77 cents.
Mr. Wilcox said that if SVB hits the midpoint of its guidance for the first quarter, its earnings per share would rise 14% from a year earlier. "It strikes me that 14% [growth] should be something that a company could be proud of."
A spokeswoman said Friday that SVB executives were not available for an interview.
James Abbott, an analyst with Friedman, Billings, Ramsey & Co. Inc., said in an interview Friday that he was "discouraged" to hear that SVB expects to report negative operating leverage for the first quarter.
Fourth-quarter noninterest expenses climbed 10.8% from the third quarter and 17.8% from a year earlier, to $83.2 million. Revenue rose 14.8% from the third quarter and 22.3% from a year earlier, to $150.7 million.
Jack Jenkins-Stark, SVB's chief financial officer, said in the conference call that the rise in expenses was "due primarily to an increase in compensation and benefits related in part to increased head count and higher incentive compensation expense."
Last year, according to Mr. Wilcox, the company hired a general counsel, a head of internal audit, a head of compliance, a director of accounting, and "several new senior commercial bankers, investment bankers, and funds managers," contributing greatly to the expense increase.
"Clearly, there's a lot of emphasis on expenses in today's discussion. You can be absolutely sure that we are focused on that issue, as well," Mr. Wilcox said.
The company also expects its net interest margin to drop to a level comparable with the 7.45% it reported in the third quarter.
Its fourth-quarter margin of 7.5% rose from the third quarter to "an altitude requiring oxygen masks for many," Mr. Jenkins-Stark said.
SVB had expected its margin to contract in the fourth quarter, but an unexpected rise in no-interest deposits near the end of the quarter helped the margin expand, he said.
Joe Morford, an analyst at Royal Bank of Canada's RBC Capital Markets said he expects the company to address the expense growth "to deliver positive operating leverage in 2007."
SVB's niche of serving upstart technology-focused companies deserves a longer-term analytical perspective, according to Mr. Morford, whose company has a long-term position in SVB.
