There’s 1 Bank Stock That Buffett Doesn’t Own That He Should  

Berkshire Hathaway (BRK.B) filed its Q1 2022 13F form with the Securities and Exchange Commission on May 16. Warren Buffett’s holding company held six different bank stocks ranging from $41.64 billion invested in Bank of America (BAC) to $390.0 million in Ally Financial (ALLY).

Buffett likes banks so much that Berkshire is the top shareholder in four out of the six banks valued at a combined $593.3 billion. 

One bank that isn’t on the list but should be is California-based SVB Financial (SIVB). Here’s why. 

SIVB Stock Hasn’t Been This Low Since January 2021

As recently as mid-January, the financial holding company, whose subsidiaries include Silicon Valley Bank, SVB Capital, SVB Private, and SVB Securities, was trading near $750. 

However, because of its focus on technology and innovation, SIVB stock is down 35% year-t0-date through May 17 compared to 14.8% for the S&P 500. 

There are a lot of tech stocks -- especially the ones that lose money -- that are down significantly year-to-date. The top 10 holdings of the Vanguard Information Technology ETF (VGT) have an average YTD return of 19,5%, 15.5 percentage points less than SIVB. 

Despite SVB Financial’s long-term track record is better than all six of Buffett’s bank stocks -- SIVB’s five-year total annualized return is 18.54% -- the regional bank stock is nowhere to be found on Berkshire’s 13F.

I wonder why that is? 

For starters, it’s only got a market cap of $25.4 billion. Only Ally Financial (ALLY) has a smaller market cap at $14.2 billion of Buffett's six. Berkshire likes them big. 

Of the 24 analysts covering SIVB, 16 rates it a Buy, 2 Overweight, and 6 Hold with an average target price of $724.91, 59% higher than its current share price. On May 3. Oppenheimer analyst Chris Kotowski upgraded SVB Financial to Outperform from Perform with a $702 price target. At the same time. Argus Research upgraded SIVB to Buy with a $550 price target. 

Either way, analysts see its share price moving higher. 

Bank of America recently produced a list of S&P 500 companies that historically have tended to do well in periods of inflation. SIVB was one of the names on the bank’s list.  

A Few of the SVB Financial Highlights

SVB has grown. 

In 2007, it had $5 billion in average interest-earning assets. Today, that’s up to $207 billion. As recently as 2020, it was only $81 billion, so the growth in the past five quarters is off-the-charts good. 

In the first quarter of 2022, its net interest income grew 15% to $1.09 billion from $947 million in Q4 2021. As a result, its net interest margin (NIM) increased 22 basis points to 2.13%.  

SVB finished the first quarter with $69 billion in total loans. Its return on equity (ROE) in Q1 2022 was 15.28%, 434 basis points higher than its peers. Its return on equity is 529 basis points lower than its ROE in 2018. 

As for the company’s management team, the average tenure at the company is 13 years. CEO Greg Becker’s been at SVB for 28 years. Mike Descheneaux, the President of Silicon Valley Bank, its primary subsidiary, has been at the company for 16 years. 

People like working and developing at the bank and holding company.   

SVB reported its Q1 2022 results in April. Highlights include a 7.2% increase in average loans to $67.1 billion, a 1.6% increase in average total client funds to $396.9 billion, and a 15.2% increase in net interest income to $1.1 billion.

The Bottom Line

On April 19, SVB Financial announced its four main operating businesses: Silicon Valley Bank, SVB Capital, SVB Private, and SVB Securities, which would rebrand under the SVB name.  

“Over the past several years, SVB has invested heavily in our business to build a comprehensive financial services platform to help our clients achieve their goals,” said Greg Becker, President and CEO of SVB. “We have evolved far beyond our roots as a commercial bank for startups. As we approach our 40th year in business, we are using the brand ‘SVB’ to better reflect the full power of our suite of services across our four complementary businesses.”

In the three months ended March 31, Silicon Valley Bank was easily the most significant profit driver of the four operating segments, with a pre-tax income of $662 million. The next largest profit center was SVB Capital, which generated a $45 million pre-tax profit from total average assets of $892 million, good for a 5.0% return on assets, considerably higher than Silicon Valley Bank.

Another reason to like SIVB stock, the company announced on April 22 that it had appointed Kay Matthews to be its Chair of the Board, the first woman appointed to the position. Matthews joined SVB’s board in 2019 after a 36-year career at Ernst & Young. 

Buffett might not like SVB Financial because it’s too small, but I do. SIVB stock is an excellent long-term buy from the banking sector.