Exhibit 99.1
3003 Tasman Drive, Santa Clara, CA 95054
www.svb.com
For release at 1:00 P.M. (Pacific Time) April 21, 2011 |
Contact: Meghan O’Leary | |||||
Investor Relations | ||||||
NASDAQ: SIVB | (408) 654-6364 |
SVB FINANCIAL GROUP ANNOUNCES 2011 FIRST QUARTER FINANCIAL RESULTS
SANTA CLARA, Calif. — April 21, 2011 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the first quarter ended March 31, 2011.
Consolidated net income available to common stockholders for the first quarter of 2011 was $33.0 million, or $0.76 per diluted common share, compared to $17.5 million, or $0.41 per diluted common share, for the fourth quarter of 2010, and $18.6 million, or $0.44 per diluted common share, for the first quarter of 2010.
“SVB’s performance in the first quarter reflects our strong execution and growing strength across our business. We delivered solid loan growth for the third quarter in a row, high credit quality, record high net interest income, and strong gains from our venture capital investments,” said Ken Wilcox, CEO of SVB Financial Group. “The advantage of SVB’s unique model and focus on the innovation sector was clear throughout the recent downturn, as we avoided the systemic problems that continue to hamper the broader banking industry. We believe that our first quarter results offer further evidence that we are well-equipped to deliver high-quality, sustainable growth now and in the future.”
Highlights of our first quarter 2011 results (compared to fourth quarter 2010, unless otherwise noted) included:
• | An increase in net interest income (fully taxable equivalent basis) of $15.8 million, primarily due to higher investment yields and higher average balances of our available-for-sale securities. |
• | An increase in our net interest margin to 2.96 percent for the first quarter of 2011, compared to 2.74 percent for the fourth quarter of 2010. |
• | A negative provision for loan losses of $3.0 million for the first quarter of 2011, compared to a provision of $15.5 million for the fourth quarter of 2010. The negative provision was due to higher net loan recoveries recognized in the first quarter of 2011 and overall improved credit performance across our client portfolio. |
• | An increase in average loan balances of $304.9 million, or 6.1 percent, to $5.3 billion for the first quarter of 2011. |
• | An increase in average available-for-sale securities of $1.8 billion, or 26.9 percent. |
• | An increase in average deposit balances of $1.4 billion, or 10.3 percent, to $14.7 billion for the first quarter of 2011. |
First Quarter 2011 Summary
Three months ended | ||||||||||||||||||||
% change from | ||||||||||||||||||||
(Dollars in millions, except share data and ratios) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
December 31, 2010 |
March 31, 2010 |
|||||||||||||||
Income statement: |
||||||||||||||||||||
Diluted earnings per common share |
$ | 0.76 | $ | 0.41 | $ | 0.44 | 85.4 | % | 72.7 | % | ||||||||||
Net income available to common stockholders |
33.0 | 17.5 | 18.6 | 88.6 | 77.4 | |||||||||||||||
Net interest income |
120.3 | 104.5 | 100.8 | 15.1 | 19.3 | |||||||||||||||
(Reduction of) provision for loan losses |
(3.0 | ) | 15.5 | 10.7 | (119.4 | ) | (128.0 | ) | ||||||||||||
Noninterest income |
90.0 | 71.9 | 49.3 | 25.2 | 82.6 | |||||||||||||||
Noninterest expense |
117.4 | 115.9 | 98.6 | 1.3 | 19.1 | |||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (1) |
46.4 | 52.1 | 35.4 | (10.9 | ) | 31.1 | ||||||||||||||
Non-GAAP noninterest expense, net of noncontrolling interests (1) |
114.0 | 112.6 | 95.3 | 1.2 | 19.6 | |||||||||||||||
Fully taxable equivalent: |
||||||||||||||||||||
Net interest income (2) |
$ | 120.8 | $ | 105.0 | $ | 101.4 | 15.0 | % | 19.1 | % | ||||||||||
Net interest margin |
2.96 | % | 2.74 | % | 3.30 | % | 8.0 | (10.3 | ) | |||||||||||
Shares outstanding: |
||||||||||||||||||||
Common |
42,697,828 | 42,268,201 | 41,526,122 | 1.0 | % | 2.8 | % | |||||||||||||
Basic weighted average |
42,482,037 | 42,067,453 | 41,404,501 | 1.0 | 2.6 | |||||||||||||||
Diluted weighted average |
43,426,306 | 42,802,817 | 42,291,467 | 1.5 | 2.7 | |||||||||||||||
Balance sheet: |
||||||||||||||||||||
Average total assets |
$ | 17,950.2 | $ | 16,526.2 | $ | 13,565.4 | 8.6 | % | 32.3 | % | ||||||||||
Average loans, net of unearned income |
5,312.1 | 5,007.1 | 4,115.6 | 6.1 | 29.1 | |||||||||||||||
Average available-for-sale securities |
8,725.2 | 6,878.1 | 4,010.1 | 26.9 | 117.6 | |||||||||||||||
Average noninterest-bearing demand deposits |
9,147.5 | 8,016.1 | 6,710.9 | 14.1 | 36.3 | |||||||||||||||
Average interest-bearing deposits |
5,519.0 | 5,280.9 | 4,256.3 | 4.5 | 29.7 | |||||||||||||||
Average total deposits |
14,666.5 | 13,297.0 | 10,967.2 | 10.3 | 33.7 | |||||||||||||||
Average short-term borrowings |
39.9 | 56.4 | 44.7 | (29.3 | ) | (10.7 | ) | |||||||||||||
Average long-term debt |
1,210.3 | 1,225.2 | 862.4 | (1.2 | ) | 40.3 | ||||||||||||||
Period-end total assets |
18,618.3 | 17,527.8 | 14,125.2 | 6.2 | 31.8 | |||||||||||||||
Period-end loans, net of unearned income |
5,651.2 | 5,521.7 | 4,205.2 | 2.3 | 34.4 | |||||||||||||||
Period-end available-for-sale securities |
9,500.8 | 7,918.0 | 4,347.3 | 20.0 | 118.5 | |||||||||||||||
Period-end non-marketable securities |
798.1 | 721.5 | 591.7 | 10.6 | 34.9 | |||||||||||||||
Period-end noninterest-bearing demand deposits |
9,524.7 | 9,011.5 | 7,012.3 | 5.7 | 35.8 | |||||||||||||||
Period-end interest-bearing deposits |
5,805.6 | 5,325.4 | 4,501.0 | 9.0 | 29.0 | |||||||||||||||
Period-end total deposits |
15,330.3 | 14,336.9 | 11,513.3 | 6.9 | 33.2 | |||||||||||||||
Off-balance sheet: |
||||||||||||||||||||
Average total client investment funds |
$ | 16,812.1 | $ | 16,298.4 | $ | 15,068.6 | 3.2 | % | 11.6 | % | ||||||||||
Period-end total client investment funds |
17,035.4 | 16,893.7 | 15,058.5 | 0.8 | 13.1 | |||||||||||||||
Total unfunded credit commitments |
6,268.1 | 6,270.5 | 5,251.3 | (0.0 | ) | 19.4 | ||||||||||||||
Earnings ratios: |
||||||||||||||||||||
Return on average assets (annualized) (3) |
0.75 | % | 0.42 | % | 0.55 | % | 78.6 | % | 36.4 | % | ||||||||||
Return on average common SVBFG stockholders’ equity (annualized) (4) |
10.18 | 5.37 | 6.47 | 89.6 | 57.3 | |||||||||||||||
Asset quality ratios: |
||||||||||||||||||||
Allowance for loan losses as a percentage of total gross loans |
1.44 | % | 1.48 | % | 1.61 | % | (2.7 | )% | (10.6 | )% | ||||||||||
Gross charge-offs as a percentage of average total gross loans (annualized) |
0.33 | 0.84 | 2.07 | (60.7 | ) | (84.1 | ) | |||||||||||||
Net (recoveries) charge-offs as a percentage of average total gross loans (annualized) |
(0.19 | ) | 0.57 | 1.46 | (133.3 | ) | (113.0 | ) | ||||||||||||
Other ratios: |
||||||||||||||||||||
Total risk-based capital ratio |
16.86 | % | 17.35 | % | 20.72 | % | (2.8 | )% | (18.6 | )% | ||||||||||
Operating efficiency ratio (5) |
55.72 | 65.52 | 65.44 | (15.0 | ) | (14.9 | ) | |||||||||||||
Period-end loans, net of unearned income, to deposits |
36.86 | 38.51 | 36.53 | (4.3 | ) | 0.9 | ||||||||||||||
Average loans, net of unearned income, to deposits |
36.22 | 37.66 | 37.53 | (3.8 | ) | (3.5 | ) | |||||||||||||
Non-GAAP ratios: |
||||||||||||||||||||
Tangible common equity to tangible assets (1) |
7.05 | % | 7.27 | % | 8.30 | % | (3.0 | )% | (15.1 | )% | ||||||||||
Tangible common equity to risk-weighted assets (1) |
13.14 | 13.54 | 16.01 | (3.0 | ) | (17.9 | ) | |||||||||||||
Non-GAAP operating efficiency ratio (1) |
68.16 | 71.67 | 69.72 | (4.9 | ) | (2.2 | ) | |||||||||||||
Other statistics: |
||||||||||||||||||||
Period-end SVB prime lending rate |
4.00 | % | 4.00 | % | 4.00 | % | — | % | — | % | ||||||||||
Average SVB prime lending rate |
4.00 | 4.00 | 4.00 | — | — | |||||||||||||||
Average full-time equivalent employees |
1,389 | 1,353 | 1,270 | 2.7 | 9.4 | |||||||||||||||
Period-end full-time equivalent employees |
1,396 | 1,357 | 1,271 | 2.9 | 9.8 |
(1) | To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures. A reconciliation of non-GAAP calculations to GAAP is provided below under the section “Use of Non-GAAP Financial Measures.” |
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(2) | Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 35.0 percent. The taxable equivalent adjustments were $0.5 million for each of the quarters ended March 31, 2011, December 31, 2010 and March 31, 2010. |
(3) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets. |
(4) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders’ equity. |
(5) | The operating efficiency ratio is calculated by dividing noninterest expense by total taxable equivalent net interest income plus noninterest income. |
Net Interest Income and Margin
Net interest income, on a fully taxable equivalent basis, was $120.8 million for the first quarter of 2011, compared to $105.0 million for the fourth quarter of 2010 and $101.4 million for the first quarter of 2010. The following table provides a summary of changes in interest income and interest expense attributable to both volume and rate from the fourth quarter of 2010 to the first quarter of 2011. Changes that are not solely due to either volume or rate (principally changes in the number of days from quarter to quarter) are allocated in proportion to the percentage changes in average volume and average rate:
Q1’11 compared to Q4’10 | ||||||||||||
Increase (decrease) due to change in | ||||||||||||
(Dollars in thousands) |
Volume | Rate | Total | |||||||||
Interest income: |
||||||||||||
Short-term investment securities |
$ | (665 | ) | $ | 151 | $ | (514 | ) | ||||
Available-for-sale securities |
7,589 | 7,865 | 15,454 | |||||||||
Loans |
3,932 | (3,480 | ) | 452 | ||||||||
Increase in interest income, net |
10,856 | 4,536 | 15,392 | |||||||||
Interest expense: |
||||||||||||
Deposits |
99 | (457 | ) | (358 | ) | |||||||
Short-term borrowings |
(7 | ) | (4 | ) | (11 | ) | ||||||
Long-term debt |
(60 | ) | 40 | (20 | ) | |||||||
Increase (decrease) in interest expense, net |
32 | (421 | ) | (389 | ) | |||||||
Increase in net interest income |
$ | 10,824 | $ | 4,957 | $ | 15,781 | ||||||
The increase in net interest income, on a fully taxable equivalent basis, from the fourth quarter of 2010 to the first quarter of 2011, was primarily attributable to the following:
• | An increase in interest income of $15.5 million from our available-for-sale securities portfolio, primarily due to higher investment yields and higher average balances from purchases of $2.0 billion of fixed-rate securities and paydowns of $174.9 million of lower-yielding variable-rate securities in the first quarter of 2011. |
• | An increase in interest income of $0.5 million from our loan portfolio mainly attributable to growth in average loan balances of $304.9 million, partially offset by a decrease in overall yield on the loan portfolio, as well as the impact of two fewer days in the first quarter of 2011 compared to fourth quarter of 2010. |
Net interest margin, on a fully taxable equivalent basis, was 2.96 percent for the first quarter of 2011, compared to 2.74 percent for the fourth quarter of 2010 and 3.30 percent for the first quarter of 2010. The increase from the fourth quarter of 2010 to the first quarter of 2011 was primarily due to a shift in our overall asset mix to a higher proportion of loans and available-for-sale securities (higher-yielding assets), resulting from the investment of excess cash from deposit growth.
For the first quarter of 2011, 71.8 percent, or $3.9 billion, of our average outstanding gross loans were variable-rate loans that adjust at prescribed measurement dates upon a change in our prime-lending rate or other variable indices. This compares to 73.5 percent, or $3.9 billion, for the fourth quarter of 2010 and 70.1 percent, or $2.9 billion, for the first quarter of 2010. For the first quarter of 2011, average variable-rate available-for-sale securities
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were $2.9 billion, or 33.3 percent of our available-for-sale securities portfolio, compared to $2.5 billion, or 36.7 percent in the fourth quarter of 2010. These securities have variable coupons that are indexed to and change with movements in the one-month LIBOR rate.
Investment Securities
Our investment securities portfolio consists of both an available-for-sale securities portfolio, which represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business.
Available-for-Sale Securities
Our available-for-sale securities portfolio is a fixed income investment portfolio that is managed to maximize portfolio yield over the long-term in a manner consistent with our liquidity, credit diversification and asset/liability strategies.
Average available-for-sale securities increased by $1.8 billion to $8.7 billion for the first quarter of 2011, compared to $6.9 billion for the fourth quarter of 2010 and $4.0 billion for the first quarter of 2010. Period-end available-for-sale securities were $9.5 billion at March 31, 2011, compared to $7.9 billion at December 31, 2010, and $4.3 billion at March 31, 2010. The period-end increase of $1.6 billion from December 31, 2010 to March 31, 2011 was primarily due to purchases of new investments of $2.2 billion in the first quarter of 2011, partially offset by paydowns of $601.1 million in securities. The purchases of new investments of $2.2 billion in the first quarter of 2011 were comprised of $2.0 billion in fixed-rate securities, mainly fixed-rate agency-issued mortgage-backed securities and collateralized mortgage obligations, and $152.8 million in variable rate agency-issued collateralized mortgage obligations. The paydowns of $601.1 million in securities were comprised of $426.2 million in fixed-rate securities, mainly fixed-rate U.S. agency debentures, and $174.9 million in variable-rate agency-issued collateralized mortgage obligations.
Non-Marketable Securities
Our non-marketable securities portfolio primarily represents venture capital investments managed by SVB Capital, investments in sponsored debt funds and other strategic investments as part of our investment funds management business. They include funds of funds, co-investment funds and debt funds, as well as direct equity investments in portfolio companies and fund investments.
Period-end non-marketable securities were $798.1 million ($310.1 million net of noncontrolling interests) as of March 31, 2011, compared to $721.5 million ($298.1 million net of noncontrolling interests) as of December 31, 2010 and $591.7 million ($246.8 million net of noncontrolling interests) as of March 31, 2010. The increase from the fourth quarter of 2010 to the first quarter of 2011 was primarily attributable to additional capital calls for fund investments in the first quarter of 2011, as well as gains from our managed funds of funds. Reconciliations of our non-GAAP non-marketable securities, net of noncontrolling interests, are provided below under the section “Use of Non-GAAP Financial Measures.”
Loans
Average loans, net of unearned income, were $5.3 billion for the first quarter of 2011, compared to $5.0 billion for the fourth quarter of 2010 and $4.1 billion for the first quarter of 2010. Period-end loans, net of unearned income, were $5.7 billion at March 31, 2011, compared to $5.5 billion at December 31, 2010 and $4.2 billion at March 31, 2010. The increase in average loan balances from the fourth quarter of 2010 to the first quarter of 2011 came primarily from software industry and SVB Private Bank clients.
Our nonperforming loans totaled $34.5 million at March 31, 2011, compared to $39.5 million at December 31, 2010 and $50.8 million at March 31, 2010. The allowance for loan losses related to impaired loans was $6.9 million for both March 31, 2011 and December 31, 2010, and $9.5 million at March 31, 2010.
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The following table provides a summary of loans (individually or in the aggregate) to any single client, equal to or greater than $20 million, by industry sector at March 31, 2011, December 31, 2010 and March 31, 2010:
Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million at |
||||||||||||
(Dollars in thousands, except ratios and client data) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Commercial loans: |
||||||||||||
Software |
$ | 321,461 | $ | 329,297 | $ | 229,445 | ||||||
Hardware |
97,215 | 85,760 | 111,856 | |||||||||
Clean technology |
94,107 | 37,920 | — | |||||||||
Venture capital/private equity |
416,459 | 409,398 | 197,121 | |||||||||
Life science |
210,175 | 189,565 | 22,000 | |||||||||
Premium wine (1) |
6,200 | 6,500 | 15,172 | |||||||||
Other |
111,744 | 134,602 | — | |||||||||
Total commercial loans |
1,257,361 | 1,193,042 | 575,594 | |||||||||
Real estate secured loans: |
||||||||||||
Premium wine (1) |
47,022 | 47,314 | 61,532 | |||||||||
Consumer loans (2) |
19,960 | — | 40,209 | |||||||||
Total real estate secured loans |
66,982 | 47,314 | 101,741 | |||||||||
Consumer loans (2) |
40,121 | 39,200 | 37,247 | |||||||||
Total |
$ | 1,364,464 | $ | 1,279,556 | $ | 714,582 | ||||||
Loans individually equal to or greater than $20 million as a percentage of total gross loans |
23.9 | % | 23.0 | % | 16.9 | % | ||||||
Total clients with loans individually equal to or greater than $20 million |
43 | 38 | 25 | |||||||||
Loans individually equal to or greater than $20 million on nonaccrual status |
$ | — | $ | — | $ | 20,336 | ||||||
Loans individually equal to or greater than $20 million on nonaccrual status as a percentage of total loans greater than $20 million |
— | % | — | % | 2.8 | % |
(1) | Premium Wine clients can have loan balances included in both commercial loans and real estate secured loans, the combination of which are equal to or greater than $20 million. |
(2) | Consumer loan clients can have loan balances included in both real estate secured loans and other consumer loans, the combination of which are equal to or greater than $20 million. |
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Credit Quality
The following table provides a summary of our allowance for loan losses:
Three months ended | ||||||||||||
(Dollars in thousands, except ratios) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Allowance for loan losses, beginning balance |
$ | 82,627 | $ | 74,369 | $ | 72,450 | ||||||
(Reduction of) provision for loan losses |
(3,047 | ) | 15,504 | 10,745 | ||||||||
Gross loan charge-offs |
(4,322 | ) | (10,637 | ) | (21,180 | ) | ||||||
Loan recoveries |
6,793 | 3,391 | 6,256 | |||||||||
Allowance for loan losses, ending balance |
$ | 82,051 | $ | 82,627 | $ | 68,271 | ||||||
(Reduction of) provision as a percentage of total gross loans (annualized) |
(0.22 | )% | 1.10 | % | 1.03 | % | ||||||
Gross loan charge-offs as a percentage of average total gross loans (annualized) |
0.33 | 0.84 | 2.07 | |||||||||
Net loan (recoveries) charge-offs as a percentage of average total gross loans (annualized) |
(0.19 | ) | 0.57 | 1.46 | ||||||||
Allowance for loan losses as a percentage of period-end total gross loans |
1.44 | 1.48 | 1.61 | |||||||||
Total gross loans at period-end |
$ | 5,698,898 | $ | 5,567,205 | $ | 4,238,848 | ||||||
Average total gross loans |
5,355,895 | 5,048,428 | 4,149,183 |
We had a negative provision for loan losses of $3.0 million for the first quarter of 2011, compared to a provision of $15.5 million for the fourth quarter of 2010. The negative provision of $3.0 million was due to higher net loan recoveries recognized in the first quarter of 2011 and overall improved credit performance across our client portfolio. These reductions were partially offset by an increase in allowance for the increase in period-end loans. Gross loan charge-offs of $4.3 million for the first quarter of 2011 were primarily from our early-stage life science client portfolio. Loan recoveries of $6.8 million for the first quarter of 2011 were primarily from our software client portfolio.
Our allowance for loan losses as a percentage of total gross loans decreased from 1.48 percent at December 31, 2010 to 1.44 percent at March 31, 2011, primarily due to a reduction in the reserve for our performing loans. Our allowance for loan losses for total gross performing loans as a percentage of total gross performing loans was 1.33 percent at March 31, 2011, compared to 1.37 percent at December 31, 2010.
Deposits
Average deposits were $14.7 billion for the first quarter of 2011, compared to $13.3 billion for the fourth quarter of 2010 and $11.0 billion for the first quarter of 2010. Period-end deposits were $15.3 billion at March 31, 2011, compared to $14.3 billion at December 31, 2010 and $11.5 billion at March 31, 2010. The increase in average deposits from the fourth quarter of 2010 to the first quarter of 2011 came primarily from increases in our noninterest bearing demand deposits, which increased by $1.1 billion to $9.1 billion. The overall increase in our deposit balances was primarily due to the continued lack of attractive market investment opportunities for our deposit clients.
Noninterest Income
Noninterest income was $90.0 million for the first quarter of 2011, compared to $71.9 million for the fourth quarter of 2010 and $49.3 million for the first quarter of 2010. Non-GAAP noninterest income, net of noncontrolling interests was $46.4 million for the first quarter of 2011, compared to $52.1 million for the fourth quarter of 2010 and $35.4 million for the first quarter of 2010. Reconciliations of our non-GAAP noninterest income and non-GAAP net gains on investment securities, both of which exclude amounts attributable to noncontrolling interests, are provided below under the section “Use of Non-GAAP Financial Measures.”
The increase of $18.1 million in noninterest income (on a GAAP basis) from the fourth quarter of 2010 to the first quarter of 2011 was primarily driven by the following factors:
• | Net gains on investment securities of $51.3 million for the first quarter of 2011, compared to net gains of $25.9 million for the fourth quarter of 2010. The net gains of $51.3 million for the first quarter of 2011 were due to net gains of $47.3 million from our managed funds (which includes our managed co-investment funds and managed funds of funds) related mainly to an increase in valuations, as well as gains from liquidity events and distributions. |
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As of March 31, 2011, we held investments, either directly or through ten of our managed investment funds, in 449 funds that are primarily venture capital funds, 66 companies and five debt funds.
The following tables provide a summary of net gains on investment securities, net of noncontrolling interests, for the three months ended March 31, 2011 and December 31, 2010, respectively:
Three months ended March 31, 2011 | ||||||||||||||||||||||||
(Dollars in thousands) |
Managed
Co- Investment Funds |
Managed Funds Of Funds |
Debt Funds | Available- For-Sale Securities |
Strategic and Other Investments |
Total | ||||||||||||||||||
Total gains on investment securities, net |
$ | 3,946 | $ | 43,392 | $ | 2,288 | $ | 62 | $ | 1,649 | $ | 51,337 | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest |
3,886 | 39,210 | 289 | — | — | 43,385 | ||||||||||||||||||
Non-GAAP net gains on investment securities, net of noncontrolling interests |
$ | 60 | $ | 4,182 | $ | 1,999 | $ | 62 | $ | 1,649 | $ | 7,952 | ||||||||||||
Three months ended December 31, 2010 | ||||||||||||||||||||||||
(Dollars in thousands) |
Managed Co- Investment Funds |
Managed Funds Of Funds |
Debt Funds | Available- For-Sale Securities |
Strategic and Other Investments |
Total | ||||||||||||||||||
Total gains on investment securities, net |
$ | 10,175 | $ | 11,023 | $ | 2,369 | $ | 350 | $ | 2,023 | $ | 25,940 | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest |
9,678 | 9,727 | 22 | — | — | 19,427 | ||||||||||||||||||
Non-GAAP net gains on investment securities, net of noncontrolling interests |
$ | 497 | $ | 1,296 | $ | 2,347 | $ | 350 | $ | 2,023 | $ | 6,513 | ||||||||||||
• | Net gains on derivative instruments were $0.6 million for the first quarter of 2011, compared to net gains of $5.0 million for the fourth quarter of 2010. The following table provides a summary of our net gains on derivative instruments: |
Three months ended | ||||||||||||
(Dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
(Losses) gains on foreign exchange forward contracts, net: |
||||||||||||
Gains on client foreign exchange forward contracts, net |
$ | 475 | $ | 662 | $ | 309 | ||||||
(Losses) gains on internal foreign exchange forward contracts, net (1) |
(2,568 | ) | 532 | 2,029 | ||||||||
Total (losses) gains on foreign exchange forward contracts, net |
(2,093 | ) | 1,194 | 2,338 | ||||||||
Net (losses) gains on loan conversion options |
(1,352 | ) | 280 | — | ||||||||
Net gains (losses) on equity warrant assets |
3,996 | 3,483 | (356 | ) | ||||||||
Total gains on derivative instruments, net |
$ | 551 | $ | 4,957 | $ | 1,982 | ||||||
(1) | Represents the change in fair value of foreign exchange forward contracts used to economically reduce our foreign exchange exposure related to certain foreign currency denominated loans. Revaluations of foreign currency denominated loans are recorded in the line item “Other” as part of noninterest income, a component of consolidated net income. |
The key changes in factors affecting net gains on derivative instruments from the fourth quarter of 2010 to the first quarter of 2011 were as follows:
• | Net losses of $2.6 million on foreign exchange forward contracts for our foreign currency denominated loans in the first quarter of 2011, compared to net gains of $0.5 million in the fourth quarter of 2010. The net losses of $2.6 million in the first quarter of 2011 were primarily due to the weakening of the U.S. dollar against the Euro and Pound Sterling, and were offset by net gains of $2.7 million from the revaluation of foreign currency denominated loans that are included in the line item “Other” as part of noninterest income (as discussed below). |
7
• | Net losses on loan conversion options of $1.4 million for the first quarter of 2011, compared to net gains of $0.3 million for the fourth quarter of 2010. The $1.4 million loss for the first quarter of 2011 was primarily due to valuation decreases of certain loan client positions. We receive loan facilities with convertible options in connection with negotiating certain credit facilities. |
• | Net gains on equity warrant assets of $4.0 million for the first quarter of 2011, compared to net gains of $3.5 million for the fourth quarter of 2010. The net gains on equity warrant assets of $4.0 million for the first quarter of 2011 were driven by $2.6 million from valuation increases in our warrant portfolio and $2.0 million from the exercise of certain warrant positions, partially offset by $0.6 million from warrant cancellations and expirations. |
The above increases in noninterest income were partially offset by the following:
• | A decrease in deposit service charges of $2.3 million, primarily due to the recognition of an additional $2.4 million in the fourth quarter of 2010, as a result of moving from a cash to an accrual basis in the fourth quarter of 2010 in accordance with GAAP for recognizing these fees. |
• | A decrease in other noninterest income of $0.5 million, mainly driven by a decrease in unused commitment fees of $1.4 million as a result of moving from a cash to an accrual basis in the fourth quarter of 2010 in accordance with GAAP for recognizing these fees, as well as a decrease of $1.2 million in loan syndication fees. These decreases were partially offset by net gains of $2.7 million from revaluation of our foreign currency denominated loans for first quarter of 2011, compared to net losses of $0.4 million for the fourth quarter of 2010. |
Noninterest Expense
Noninterest expense was $117.4 million for the first quarter of 2011, compared to $115.9 million for the fourth quarter of 2010 and $98.6 million for the first quarter of 2010.
The following table provides a summary of certain noninterest expense items:
Three months ended | ||||||||||||
(Dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Compensation and benefits: |
||||||||||||
Salaries and wages |
$ | 33,807 | $ | 29,921 | $ | 29,182 | ||||||
Incentive compensation plan |
15,655 | 17,091 | 10,952 | |||||||||
Employee stock ownership plan (ESOP) |
5,354 | 2,142 | 2,282 | |||||||||
Other employee benefits (1) |
20,816 | 17,459 | 17,414 | |||||||||
Total compensation and benefits |
75,632 | 66,613 | 59,830 | |||||||||
Professional services |
12,987 | 18,765 | 12,098 | |||||||||
FDIC assessments |
3,475 | 3,225 | 5,049 | |||||||||
(Reduction of) provision for unfunded credit commitments |
(900 | ) | 1,522 | (1,507 | ) | |||||||
Other (2) |
26,241 | 25,766 | 23,106 | |||||||||
Total noninterest expense |
$ | 117,435 | $ | 115,891 | $ | 98,576 | ||||||
Period-end full-time equivalent employees |
1,396 | 1,357 | 1,271 | |||||||||
Average full-time equivalent employees |
1,389 | 1,353 | 1,270 |
(1) | Other employee benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee related expenses. |
(2) | Other noninterest expense includes premises and equipment, net occupancy, business development and travel, correspondent bank fees and other noninterest expenses. For further details of noninterest expense items, please refer to the section “Interim Consolidated Statements of Income” provided below. |
8
The key factors affecting the changes in noninterest expense from the fourth quarter of 2010 to the first quarter of 2011 were as follows:
• | An increase in compensation and benefits expense of $9.0 million, primarily as a result of the following: |
• | An increase of $3.9 million in salaries and wages expense primarily due to seasonal expenses of vacation benefits, as well as an increase in the number of average full-time equivalent employees (“FTE”), which increased by 36 to 1,389 FTEs for the first quarter of 2011, compared to 1,353 FTEs for the fourth quarter of 2010. |
• | An increase of $6.3 million in additional ESOP contributions and 401(k) employer matching contributions made as a result of 2010 incentive compensation payouts received by employees during the first quarter of 2011. |
• | A decrease of $5.8 million in professional services expense, primarily due to the following: |
• | A decrease of $3.3 million in consulting fees, primarily due to an increase in IT activities in the fourth quarter of 2010 to maintain and enhance IT infrastructure and to support new initiatives. |
• | A decrease of $2.0 million in legal fees, primarily due to increased loan activities in the fourth quarter of 2010 to support bank lending activities and new initiatives. |
• | A reduction of provision for unfunded credit commitments of $0.9 million in the first quarter of 2011, compared to a provision of $1.5 million in the fourth quarter of 2010. The reduction of provision of $0.9 million in the first quarter of 2011 was primarily due to overall improved credit performance across our client portfolio. |
Non-GAAP noninterest expense, net of noncontrolling interests, was $114.0 million for the first quarter of 2011, compared to $112.6 million for the fourth quarter of 2010 and $95.3 million for the first quarter of 2010. Reconciliations of our non-GAAP noninterest expense, net of noncontrolling interests, are provided below under the section “Use of Non-GAAP Financial Measures.”
Income Tax Expense
Our effective tax expense rate was 40.8 percent for the first quarter of 2011, compared to 38.6 percent for the fourth quarter of 2010 and 38.4 percent for the first quarter of 2010. The increase in the tax rate from the fourth quarter of 2010 to the first quarter of 2011 was primarily attributable to the lower tax impact of tax advantaged investments on our overall pre-tax income.
Our effective tax expense rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests.
Noncontrolling Interests
Three months ended | ||||||||||||
(Dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Net interest (income) loss (1) |
$ | (7 | ) | $ | (8 | ) | $ | 7 | ||||
Noninterest income (1) |
(42,371 | ) | (19,751 | ) | (14,283 | ) | ||||||
Noninterest expense (1) |
3,481 | 3,298 | 3,231 | |||||||||
Carried interest (2) |
(1,191 | ) | (34 | ) | 392 | |||||||
Net income attributable to noncontrolling interests |
$ | (40,088 | ) | $ | (16,495 | ) | $ | (10,653 | ) | |||
(1) | Represents noncontrolling interests share in net interest income, noninterest income and noninterest expense. |
9
(2) | Represents the change in the preferred allocation of income we earn as general partners managing our managed funds, the preferred allocation earned by the general partner entity managing one of our consolidated sponsored debt funds, and the preferred allocation earned by the limited partners of two of our managed funds of funds. |
Net income attributable to noncontrolling interests was $40.1 million for the first quarter of 2011, compared to $16.5 million for the fourth quarter of 2010 and $10.7 million for the first quarter of 2010. Net income attributable to noncontrolling interests of $40.1 million for the first quarter of 2011 was primarily a result of the following:
• | Net gains on investment securities (including carried interest) attributable to noncontrolling interests of $43.4 million, stemming mainly from gains of $39.2 million from our managed funds of funds and $3.9 million from our managed co-investment funds. |
• | Noninterest expense of $3.5 million, primarily related to management fees paid by the noncontrolling interests to the Company’s subsidiaries that serve as general partner. |
SVBFG Stockholders’ Equity
Total SVBFG stockholders’ equity increased by $39.2 million to $1.3 billion at March 31, 2011, primarily due to net income of $33.0 million in the first quarter of 2011 and an increase in additional-paid-in-capital of $21.1 million primarily from stock option exercises during the first quarter of 2011. These increases were partially offset by a decrease in accumulated other comprehensive income of $14.9 million, primarily due to decreases in the fair value of our available-for-sale securities portfolio as a result of increases in market rates.
Subsequent Event
Our $250 million 3.875% Convertible Senior Notes matured on April 15, 2011. Based on the conversion terms of these notes, on April 15, 2011, we made an aggregate conversion settlement payment in cash and shares of our common stock. The total value of both cash and shares as of the payment date was $260.4 million. Of the $260.4 million, we paid $250.0 million in cash, representing the total principal amount of the notes converted, and issued 187,760 shares of our common stock, valued at $10.4 million, representing the portion of the conversion premium value that exceeded the total principal amount of the notes. In connection with this conversion settlement payment, we exercised call options pursuant to a call-spread arrangement with third-parties, under which the third parties delivered to us 186,736 shares of our common stock, valued at $10.3 million. Accordingly, there will be no significant net impact on our results of operations or total stockholders’ equity in the second quarter of 2011 with respect to settling the conversion premium value.
10
Outlook for the Year Ending December 31, 2011
Our outlook for the year ending December 31, 2011 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. In general, we do not provide our outlook for items where the timing or financial impact are particularly uncertain, or for certain potential unusual or one-time items; nevertheless, we have provided guidance on two such items, specifically net gains (losses) on equity warrant assets and net gains on investment securities, net of noncontrolling interests. The outlook assumptions presented below are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties which are discussed below under the caption “Forward-Looking Statements.”
For the year ending December 31, 2011, compared to our full year 2010 results, we currently expect the following outlook:
Current full year 2011 outlook compared to 2010 results (as of April 21, 2011)
|
Change in outlook compared to outlook reported as of January 20, 2011
| |||
Average loan balances
|
Increase at a percentage rate in the mid twenties
|
No change from previous outlook
| ||
Average deposit balances | Increase at a percentage rate in the low double digits | Outlook increased from high single digits due to the continued lack of attractive market investment opportunities for our clients
| ||
Net interest income | Increase at a percentage rate in the mid twenties | Outlook increased from high teens due to higher than expected average balances and yields for available-for-sale securities
| ||
Net interest margin
|
Between 3.30% and 3.40%
|
No change from previous outlook
| ||
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans
|
Between 1.25% and 1.35% | Outlook improved from between 1.30% and 1.40% due to improvement in the overall credit quality of our clients | ||
Net loan charge-offs | Lower than 0.50% of average total gross loans | Outlook improved from comparable to 2010 levels of $34.5 million due to higher than expected recoveries and lower gross charge-offs in the first quarter of 2011
| ||
Nonperforming loans as a percentage of total gross loans
|
Lower than 2010 levels of 0.71% | Outlook improved from comparable to 2010 levels of 0.71% due to improvement in the overall credit quality of our clients
| ||
Fees for deposit services, letters of credit, business credit card, client investment, and foreign exchange, in aggregate
|
Increase at the percentage rate in the high single digits | No change from previous outlook | ||
Net gains (losses) on equity warrant assets | Between $7 million and $10 million | Outlook improved from comparable to 2010 levels of $6.6 million due to improvement in the economy
| ||
Net gains on investment securities, net of noncontrolling interests*
|
Between $13 million and $16 million | Outlook improved from between $4 million and $8 million due to improvement in the economy | ||
Noninterest expense* (excluding expenses related to noncontrolling interests) | Increase at a percentage rate in the mid teens | Outlook increased from low double digits due to increased expectations for incentive compensation as a result of stronger than expected financial performance in the first quarter of 2011, as well as increased financial performance expectations for the remainder of 2011
|
* | Non-GAAP |
11
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, such as forecasts of our future financial results and condition, expectations for our operations and business, and our underlying assumptions of such forecasts and expectations. In this release, including the section “Outlook for the Year Ending December 31, 2011” above and the quoted remarks from our CEO regarding the banking environment and our future growth, we make forward-looking statements discussing management’s expectations about economic conditions; opportunities in the market; the outlook for our clients; our financial, credit (including the adequacy of our allowance for loan losses and relationship of allowance for loan losses to perceived economic conditions and credit quality), and business performance; expense levels; and financial results (and the components of such results) for the year 2011.
Although management believes that the expectations reflected in our forward-looking statements are reasonable and has based these expectations on our beliefs and assumptions, such expectations are not guarantees and may prove to be incorrect. Actual results could differ significantly. Factors that may cause the outlook for the year 2011 and other forward-looking statements herein to change include, among others, the following: (i) deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business or are served by us (including the levels of initial public offerings and mergers & acquisitions activities), (ii) changes in the volume and credit quality of our loans, (iii) changes in interest rates or market levels or factors affecting them, (iv) changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets, (v) variations from our expectations as to factors impacting our cost structure, (vi) changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity, (vii) accounting changes, as required by U.S. generally accepted accounting principles, and (viii) regulatory or legal changes, especially those related to the recent financial services reform legislation. For additional information about these factors, please refer to our public reports filed with the U.S. Securities and Exchange Commission, including our most recently-filed quarterly or annual report. The forward-looking statements included in this release are made only as of the date of this release. We do not intend, and undertake no obligation, to update these forward-looking statements.
Earnings Conference Call
On April 21, 2011, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the first quarter ended March 31, 2011. The conference call can be accessed by dialing (877) 663-9523 or (404) 665-9482, and referencing the conference ID “59310808.” A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at www.svb.com. A replay of the conference call will be available beginning at approximately 6:00 p.m. (Pacific Time) on Thursday, April 21, 2011, through midnight on Tuesday, April 26, 2011, by dialing (800) 642-1687 or (706) 645-9291 and referencing conference ID number “59310808.” A replay of the audio webcast will also be available on www.svb.com for 12 months beginning Thursday, April 21, 2011.
About SVB Financial Group
For over 25 years, SVB Financial Group and its subsidiaries, including Silicon Valley Bank, have been dedicated to helping entrepreneurs succeed. SVB Financial Group is a financial holding company that serves companies in the technology, life science, venture capital/private equity and premium wine industries. Offering diversified financial services through Silicon Valley Bank, SVB Analytics, SVB Capital, SVB Global and SVB Private Bank, SVB Financial Group provides clients with commercial, investment, international and private banking services. The Company also offers funds management, broker-dealer services and asset management, as well as the added value of its knowledge and networks worldwide. Headquartered in Santa Clara, California, SVB Financial Group operates through 26 offices in the U.S. as well as through offices internationally in China, India, Israel and the United Kingdom. More information on the Company can be found at www.svb.com. (SIVB-F)
Banking services are provided by Silicon Valley Bank, the California bank subsidiary and commercial banking operation of SVB Financial Group, and a member of the FDIC and the Federal Reserve. SVB Private Bank is a division of Silicon Valley Bank. SVB Financial Group is also a member of the Federal Reserve.
12
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended | ||||||||||||
(Dollars in thousands, except share data) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Interest income: |
||||||||||||
Loans |
$ | 89,776 | $ | 89,324 | $ | 73,942 | ||||||
Available-for-sale securities: |
||||||||||||
Taxable |
41,382 | 25,929 | 32,267 | |||||||||
Non-taxable |
941 | 940 | 970 | |||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
2,002 | 2,516 | 2,840 | |||||||||
Total interest income |
134,101 | 118,709 | 110,019 | |||||||||
Interest expense: |
||||||||||||
Deposits |
3,105 | 3,463 | 3,665 | |||||||||
Borrowings |
10,697 | 10,728 | 5,514 | |||||||||
Total interest expense |
13,802 | 14,191 | 9,179 | |||||||||
Net interest income |
120,299 | 104,518 | 100,840 | |||||||||
(Reduction of) provision for loan losses |
(3,047 | ) | 15,504 | 10,745 | ||||||||
Net interest income after provision for loan losses |
123,346 | 89,014 | 90,095 | |||||||||
Noninterest income: |
||||||||||||
Gains on investment securities, net |
51,337 | 25,940 | 16,004 | |||||||||
Foreign exchange fees |
10,497 | 9,943 | 8,861 | |||||||||
Deposit service charges |
7,117 | 9,386 | 7,225 | |||||||||
Credit card fees |
3,817 | 3,832 | 2,687 | |||||||||
Client investment fees |
3,661 | 4,458 | 3,940 | |||||||||
Letters of credit and standby letters of credit income |
2,710 | 2,613 | 2,511 | |||||||||
Gains on derivative instruments, net |
551 | 4,957 | 1,982 | |||||||||
Other |
10,264 | 10,735 | 6,063 | |||||||||
Total noninterest income |
89,954 | 71,864 | 49,273 | |||||||||
Noninterest expense: |
||||||||||||
Compensation and benefits |
75,632 | 66,613 | 59,830 | |||||||||
Professional services |
12,987 | 18,765 | 12,098 | |||||||||
Premises and equipment |
5,912 | 6,372 | 5,784 | |||||||||
Business development and travel |
5,653 | 5,695 | 4,286 | |||||||||
Net occupancy |
4,650 | 4,910 | 4,688 | |||||||||
FDIC assessments |
3,475 | 3,225 | 5,049 | |||||||||
Correspondent bank fees |
2,163 | 2,247 | 1,948 | |||||||||
(Reduction of) provision for unfunded credit commitments |
(900 | ) | 1,522 | (1,507 | ) | |||||||
Other |
7,863 | 6,542 | 6,400 | |||||||||
Total noninterest expense |
117,435 | 115,891 | 98,576 | |||||||||
Income before income tax expense |
95,865 | 44,987 | 40,792 | |||||||||
Income tax expense |
22,770 | 11,005 | 11,582 | |||||||||
Net income before noncontrolling interests |
73,095 | 33,982 | 29,210 | |||||||||
Net income attributable to noncontrolling interests |
(40,088 | ) | (16,495 | ) | (10,653 | ) | ||||||
Net income available to common stockholders |
$ | 33,007 | $ | 17,487 | $ | 18,557 | ||||||
Earnings per common share—basic |
$ | 0.78 | $ | 0.42 | $ | 0.45 | ||||||
Earnings per common share—diluted |
0.76 | 0.41 | 0.44 | |||||||||
Weighted average common shares outstanding—basic |
42,482,037 | 42,067,453 | 41,404,501 | |||||||||
Weighted average common shares outstanding—diluted |
43,426,306 | 42,802,817 | 42,291,467 |
13
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value, share data and ratios) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Assets: |
||||||||||||
Cash and due from banks |
$ | 2,073,848 | $ | 2,672,725 | $ | 4,614,434 | ||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
276,212 | 403,707 | 77,269 | |||||||||
Cash and cash equivalents |
2,350,060 | 3,076,432 | 4,691,703 | |||||||||
Available-for-sale securities |
9,500,828 | 7,917,967 | 4,347,308 | |||||||||
Non-marketable securities |
798,064 | 721,520 | 591,692 | |||||||||
Investment securities |
10,298,892 | 8,639,487 | 4,939,000 | |||||||||
Loans, net of unearned income |
5,651,170 | 5,521,737 | 4,205,245 | |||||||||
Allowance for loan losses |
(82,051 | ) | (82,627 | ) | (68,271 | ) | ||||||
Net loans |
5,569,119 | 5,439,110 | 4,136,974 | |||||||||
Premises and equipment, net of accumulated depreciation and amortization |
46,161 | 44,545 | 34,966 | |||||||||
Accrued interest receivable and other assets |
354,034 | 328,187 | 322,606 | |||||||||
Total assets |
$ | 18,618,266 | $ | 17,527,761 | $ | 14,125,249 | ||||||
Liabilities and total equity: |
||||||||||||
Liabilities: |
||||||||||||
Deposits: |
||||||||||||
Noninterest-bearing demand |
$ | 9,524,698 | $ | 9,011,538 | $ | 7,012,310 | ||||||
Negotiable order of withdrawal (NOW) |
70,242 | 69,287 | 47,840 | |||||||||
Money market |
2,369,820 | 2,272,883 | 1,462,661 | |||||||||
Money market deposits in foreign offices |
95,019 | 98,937 | 73,326 | |||||||||
Time |
315,835 | 382,830 | 331,981 | |||||||||
Sweep |
2,954,705 | 2,501,466 | 2,585,176 | |||||||||
Total deposits |
15,330,319 | 14,336,941 | 11,513,294 | |||||||||
Short-term borrowings |
35,415 | 37,245 | 39,895 | |||||||||
Other liabilities |
200,768 | 196,037 | 163,187 | |||||||||
Long-term debt |
1,204,733 | 1,209,260 | 859,713 | |||||||||
Total liabilities |
16,771,235 | 15,779,483 | 12,576,089 | |||||||||
SVBFG stockholders’ equity: |
||||||||||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding |
— | — | — | |||||||||
Common stock, $0.001 par value, 150,000,000 shares authorized; 42,697,828 shares, 42,268,201 shares and 41,526,122 shares outstanding, respectively |
43 | 42 | 42 | |||||||||
Additional paid-in capital |
443,453 | 422,334 | 398,510 | |||||||||
Retained earnings |
860,838 | 827,831 | 751,472 | |||||||||
Accumulated other comprehensive income |
9,240 | 24,143 | 23,456 | |||||||||
Total SVBFG stockholders’ equity |
1,313,574 | 1,274,350 | 1,173,480 | |||||||||
Noncontrolling interests |
533,457 | 473,928 | 375,680 | |||||||||
Total equity |
1,847,031 | 1,748,278 | 1,549,160 | |||||||||
Total liabilities and total equity |
$ | 18,618,266 | $ | 17,527,761 | $ | 14,125,249 | ||||||
Capital ratios: |
||||||||||||
Total risk-based capital ratio |
16.86 | % | 17.35 | % | 20.72 | % | ||||||
Tier 1 risk-based capital ratio |
13.38 | 13.63 | 16.21 | |||||||||
Tier 1 leverage ratio |
7.65 | 7.96 | 8.99 | |||||||||
Tangible common equity to tangible assets ratio (1) |
7.05 | 7.27 | 8.30 | |||||||||
Tangible common equity to risk-weighted assets ratio |
13.14 | 13.54 | 16.01 | |||||||||
Other period-end statistics: |
||||||||||||
Loans, net of unearned income-to-deposits ratio |
36.86 | % | 38.51 | % | 36.53 | % | ||||||
Book value per common share (2) |
$ | 30.76 | $ | 30.15 | $ | 28.26 | ||||||
Full-time equivalent employees |
1,396 | 1,357 | 1,271 |
(1) | Tangible common equity consists of SVBFG stockholders’ equity less acquired intangibles. Tangible assets represent total assets less acquired intangibles. |
(2) | Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares. |
14
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
Three months ended | ||||||||||||||||||||||||||||||||||||
March 31, 2011 | December 31, 2010 | March 31, 2010 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
Average balance |
Interest income/ expense |
Yield/ rate |
Average balance |
Interest income/ expense |
Yield/ rate |
Average balance |
Interest income/ expense |
Yield/ rate |
|||||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) |
$ | 2,538,941 | $ | 2,002 | 0.32 | % | $ | 3,340,219 | $ | 2,516 | 0.30 | % | $ | 4,316,307 | $ | 2,840 | 0.27 | % | ||||||||||||||||||
Available-for-sale securities: (2) |
||||||||||||||||||||||||||||||||||||
Taxable |
8,628,837 | 41,382 | 1.94 | 6,781,708 | 25,929 | 1.52 | 3,911,183 | 32,267 | 3.35 | |||||||||||||||||||||||||||
Non-taxable (3) |
96,375 | 1,448 | 6.09 | 96,393 | 1,447 | 5.96 | 98,957 | 1,492 | 6.11 | |||||||||||||||||||||||||||
Total loans, net of unearned income (4) |
5,312,050 | 89,776 | 6.85 | 5,007,127 | 89,324 | 7.08 | 4,115,558 | 73,942 | 7.29 | |||||||||||||||||||||||||||
Total interest-earning assets |
16,576,203 | 134,608 | 3.30 | 15,225,447 | 119,216 | 3.11 | 12,442,005 | 110,541 | 3.60 | |||||||||||||||||||||||||||
Cash and due from banks |
266,097 | 240,561 | 237,691 | |||||||||||||||||||||||||||||||||
Allowance for loan losses |
(87,980 | ) | (80,347 | ) | (78,050 | ) | ||||||||||||||||||||||||||||||
Other assets (5) |
1,195,884 | 1,140,539 | 963,791 | |||||||||||||||||||||||||||||||||
Total assets |
$ | 17,950,204 | $ | 16,526,200 | $ | 13,565,437 | ||||||||||||||||||||||||||||||
Funding sources: |
||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||||||||||||||
NOW deposits |
$ | 76,282 | $ | 77 | 0.41 | % | $ | 54,645 | $ | 58 | 0.42 | % | $ | 61,809 | $ | 64 | 0.42 | % | ||||||||||||||||||
Money market deposits |
2,361,971 | 1,576 | 0.27 | 2,264,060 | 1,573 | 0.28 | 1,383,716 | 1,034 | 0.30 | |||||||||||||||||||||||||||
Money market deposits in foreign offices |
135,967 | 112 | 0.33 | 108,215 | 89 | 0.33 | 62,037 | 53 | 0.35 | |||||||||||||||||||||||||||
Time deposits |
342,341 | 377 | 0.45 | 369,766 | 419 | 0.45 | 323,476 | 493 | 0.62 | |||||||||||||||||||||||||||
Sweep deposits |
2,602,487 | 963 | 0.15 | 2,484,240 | 1,324 | 0.21 | 2,425,258 | 2,021 | 0.34 | |||||||||||||||||||||||||||
Total interest-bearing deposits |
5,519,048 | 3,105 | 0.23 | 5,280,926 | 3,463 | 0.26 | 4,256,296 | 3,665 | 0.35 | |||||||||||||||||||||||||||
Short-term borrowings |
39,927 | 16 | 0.16 | 56,399 | 27 | 0.19 | 44,668 | 15 | 0.14 | |||||||||||||||||||||||||||
5.375% senior notes |
347,617 | 4,809 | 5.61 | 347,571 | 4,811 | 5.49 | — | — | — | |||||||||||||||||||||||||||
3.875% convertible notes |
249,509 | 3,554 | 5.78 | 248,917 | 3,547 | 5.65 | 247,195 | 3,526 | 5.78 | |||||||||||||||||||||||||||
Junior subordinated debentures |
55,533 | 834 | 6.09 | 55,577 | 830 | 5.92 | 55,967 | 569 | 4.12 | |||||||||||||||||||||||||||
Senior and subordinated notes |
552,363 | 1,411 | 1.04 | 567,362 | 1,432 | 1.00 | 551,932 | 1,336 | 0.98 | |||||||||||||||||||||||||||
Other long-term debt |
5,261 | 73 | 5.63 | 5,797 | 81 | 5.54 | 7,335 | 68 | 3.76 | |||||||||||||||||||||||||||
Total interest-bearing liabilities |
6,769,258 | 13,802 | 0.83 | 6,562,549 | 14,191 | 0.86 | 5,163,393 | 9,179 | 0.72 | |||||||||||||||||||||||||||
Portion of noninterest-bearing funding sources |
9,806,945 | 8,662,898 | 7,278,612 | |||||||||||||||||||||||||||||||||
Total funding sources |
16,576,203 | 13,802 | 0.34 | 15,225,447 | 14,191 | 0.37 | 12,442,005 | 9,179 | 0.30 | |||||||||||||||||||||||||||
Noninterest-bearing funding sources: |
||||||||||||||||||||||||||||||||||||
Demand deposits |
9,147,491 | 8,016,091 | 6,710,928 | |||||||||||||||||||||||||||||||||
Other liabilities |
235,924 | 226,930 | 176,283 | |||||||||||||||||||||||||||||||||
SVBFG stockholders’ equity |
1,314,811 | 1,291,361 | 1,162,929 | |||||||||||||||||||||||||||||||||
Noncontrolling interests |
482,720 | 429,269 | 351,904 | |||||||||||||||||||||||||||||||||
Portion used to fund interest-earning assets |
(9,806,945 | ) | (8,662,898 | ) | (7,278,612 | ) | ||||||||||||||||||||||||||||||
Total liabilities and total equity |
$ | 17,950,204 | $ | 16,526,200 | $ | 13,565,437 | ||||||||||||||||||||||||||||||
Net interest income and margin |
$ | 120,806 | 2.96 | % | $ | 105,025 | 2.74 | % | $ | 101,362 | 3.30 | % | ||||||||||||||||||||||||
Total deposits |
$ | 14,666,539 | $ | 13,297,017 | $ | 10,967,224 | ||||||||||||||||||||||||||||||
Average SVBFG stockholders’ equity as a percentage of average assets |
7.32 | % | 7.81 | % | 8.57 | % | ||||||||||||||||||||||||||||||
Reconciliation to reported net interest income: |
||||||||||||||||||||||||||||||||||||
Adjustments for taxable equivalent basis |
(507 | ) | (507 | ) | (522 | ) | ||||||||||||||||||||||||||||||
Net interest income, as reported |
$ | 120,299 | $ | 104,518 | $ | 100,840 | ||||||||||||||||||||||||||||||
(1) | Includes average interest-bearing deposits in other financial institutions of $253.2 million, $245.6 million and $169.9 million for the quarters ended March 31, 2011, December 31, 2010 and March 31, 2010, respectively. For the quarters ended March 31, 2011, December 31, 2010 and March 31, 2010, balance also includes $1.9 billion, $2.7 billion and $4.1 billion, respectively, deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate. |
(2) | Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
(3) | Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. |
(4) | Nonaccrual loans are reflected in the average balances of loans. |
(5) | Average investment securities of $774.0 million, $748.4 million and $599.6 million for the quarters ended March 31, 2011, December 31, 2010 and March 31, 2010, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities. |
15
Gains (losses) on Equity Warrant Assets
Three months ended | ||||||||||||||||||||
% change | ||||||||||||||||||||
(Dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
December 31, 2010 |
March 31, 2010 |
|||||||||||||||
Equity warrant assets: |
||||||||||||||||||||
Gains on exercise, net |
$ | 2,024 | $ | 425 | $ | 849 | NM | % | 138.4 | % | ||||||||||
Change in fair value (1): |
||||||||||||||||||||
Cancellations and expirations |
(581 | ) | (449 | ) | (1,782 | ) | 29.4 | (67.4 | ) | |||||||||||
Other changes in fair value |
2,553 | 3,507 | 577 | (27.2 | ) | NM | ||||||||||||||
Total net gains (losses) on equity warrant assets (2) |
$ | 3,996 | $ | 3,483 | $ | (356 | ) | 14.7 | % | NM | % | |||||||||
NM—Not meaningful.
(1) | At March 31, 2011, we held warrants in 1,164 companies, compared to 1,157 companies at December 31, 2010 and 1,161 companies at March 31, 2010. |
(2) | Includes net gains (losses) on equity warrant assets held by consolidated investment affiliates. Relevant amounts attributable to noncontrolling interests are reflected in the interim consolidated statements of income under the caption “Net Income Attributable to Noncontrolling Interests.” |
Reconciliation of Basic and Diluted Weighted Average Common Shares Outstanding
Three months ended | ||||||||||||
(Shares in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Weighted average common shares outstanding—basic |
42,482 | 42,067 | 41,405 | |||||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
707 | 636 | 751 | |||||||||
Restricted stock awards and units |
149 | 100 | 135 | |||||||||
3.875% convertible notes (1) |
88 | — | — | |||||||||
Warrants associated with 3.875% convertible notes (1) |
— | — | — | |||||||||
Total effect of dilutive securities |
944 | 736 | 886 | |||||||||
Weighted average common shares outstanding—diluted |
43,426 | 42,803 | 42,291 | |||||||||
(1) | The dilutive effect of our convertible senior notes is calculated using the treasury stock method based on our average share price and is dilutive at an average share price of $53.04. The associated warrants are dilutive beginning at an average share price of $64.43. These notes matured on April 15, 2011 and the associated warrants expire ratably commencing on July 15, 2011. |
16
Credit Quality
Period end balances at | ||||||||||||
(Dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Nonperforming loans and assets: |
||||||||||||
Gross nonperforming loans: |
||||||||||||
Loans past due 90 days or more still accruing interest |
$ | 13 | $ | 44 | $ | 184 | ||||||
Impaired loans |
34,506 | 39,426 | 50,649 | |||||||||
Total gross nonperforming loans |
$ | 34,519 | $ | 39,470 | $ | 50,833 | ||||||
Nonperforming loans as a percentage of total gross loans |
0.61 | % | 0.71 | % | 1.20 | % | ||||||
Nonperforming assets as a percentage of total assets |
0.19 | 0.23 | 0.36 | |||||||||
Allowance for loan losses |
$ | 82,051 | $ | 82,627 | $ | 68,271 | ||||||
As a percentage of total gross loans |
1.44 | % | 1.48 | % | 1.61 | % | ||||||
As a percentage of total gross nonperforming loans |
237.70 | 209.34 | 134.30 | |||||||||
Allowance for loan losses for impaired loans |
$ | 6,882 | $ | 6,936 | $ | 9,496 | ||||||
As a percentage of total gross loans |
0.12 | % | 0.12 | % | 0.22 | % | ||||||
As a percentage of total gross nonperforming loans |
19.94 | 17.57 | 18.68 | |||||||||
Allowance for loan losses for total gross performing loans |
$ | 75,169 | $ | 75,691 | $ | 58,775 | ||||||
As a percentage of total gross loans |
1.32 | % | 1.36 | % | 1.39 | % | ||||||
As a percentage of total gross performing loans |
1.33 | 1.37 | 1.40 | |||||||||
Reserve for unfunded credit commitments (1) |
$ | 16,515 | $ | 17,414 | $ | 11,824 | ||||||
Total gross loans |
5,698,898 | 5,567,205 | 4,238,848 | |||||||||
Total gross performing loans |
5,664,379 | 5,527,735 | 4,188,015 | |||||||||
Total unfunded credit commitments |
6,268,087 | 6,270,505 | 5,251,336 |
(1) | The “reserve for unfunded credit commitments” is included as a component of “other liabilities.” |
Average Client Investment Funds (1)
Three months ended | ||||||||||||
(Dollars in millions) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
Client directed investment assets |
$ | 9,337 | $ | 9,218 | $ | 9,389 | ||||||
Client investment assets under management |
7,475 | 7,080 | 5,680 | |||||||||
Total average client investment funds |
$ | 16,812 | $ | 16,298 | $ | 15,069 | ||||||
(1) | Client investment funds are maintained at third party financial institutions. |
Period-end total client investment funds were $17.0 billion at March 31, 2011, compared to $16.9 billion at December 31, 2010 and $15.1 billion at March 31, 2010. The increase in average total client investment funds from the fourth quarter of 2010 to the first quarter of 2011 was primarily due to an increase in client investment assets under management, mainly attributable to a steadily improving funding environment for both private and public clients, as well as our increased efforts to move funds off the balance sheet.
Use of Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures (non-GAAP noninterest income, non-GAAP net gains on investment securities, non-GAAP operating efficiency ratio, non-GAAP non-marketable securities, non-GAAP noninterest expense, and non-GAAP financial ratios) of financial performance. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
17
In particular, in this press release, we use certain non-GAAP measures that exclude from net income and certain other financial line items in certain periods:
• | Income and expense attributable to noncontrolling interests—as part of our funds management business, we recognize the entire income or loss from certain funds where we own less than 100 percent. We are required under GAAP to consolidate 100 percent of the results of the funds that we are deemed to control or in which we have a majority ownership. The relevant amounts attributable to investors other than us are reflected under “Net Income Attributable to Noncontrolling Interests.” Our net income available to common stockholders includes only the portion of income or loss related to our ownership interest. |
In addition, in this press release, we use certain non-GAAP financial ratios that are not required by GAAP or exclude certain financial items from their calculations that are otherwise required under GAAP, including:
• | Tangible common equity to tangible assets ratio; tangible common equity to risk-weighted assets ratio—these ratios are not required by GAAP or applicable bank regulatory requirements, and are used by management to evaluate the adequacy of the Company’s capital levels. Our ratios are calculated by dividing total SVBFG stockholders’ equity, by total assets or total risk-weighted assets, as applicable, after reducing amounts by acquired intangibles. The manner in which this ratio is calculated varies among companies. Accordingly, our ratios are not necessarily comparable to similar measures of other companies. |
• | Non-GAAP operating efficiency ratio—this ratio excludes certain financial items that are otherwise required under GAAP. It is calculated by dividing noninterest expense by total taxable equivalent income, after reducing both amounts by taxable equivalent income attributable to noncontrolling interests for applicable periods. |
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures (as applicable), provide meaningful supplemental information regarding our performance by: (i) excluding amounts attributable to noncontrolling interests which we effectively do not receive the economic benefit or cost of, where indicated, or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirement. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, net income or other financial measures prepared in accordance with GAAP. In the financial tables below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.
Three months ended | ||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
GAAP noninterest income |
$ | 89,954 | $ | 71,864 | $ | 49,273 | ||||||
Less: income attributable to noncontrolling interests, including carried interest |
43,562 | 19,785 | 13,891 | |||||||||
Non-GAAP noninterest income, net of noncontrolling interests |
$ | 46,392 | $ | 52,079 | $ | 35,382 | ||||||
Three months ended | ||||||||||||
Non-GAAP net gains on investment securities, net of noncontrolling interests (dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
GAAP net gains on investment securities |
$ | 51,337 | $ | 25,940 | $ | 16,004 | ||||||
Less: gains on investment securities attributable to noncontrolling interests, including carried interest |
43,385 | 19,427 | 12,778 | |||||||||
Non-GAAP net gains on investment securities, net of noncontrolling interests |
$ | 7,952 | $ | 6,513 | $ | 3,226 | ||||||
18
Three months ended | ||||||||||||
Non-GAAP operating efficiency ratio, net of noncontrolling interests (dollars in thousands, except ratios) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
GAAP noninterest expense |
$ | 117,435 | $ | 115,891 | $ | 98,576 | ||||||
Less: amounts attributable to noncontrolling interests |
3,481 | 3,298 | 3,231 | |||||||||
Non-GAAP noninterest expense, net of noncontrolling interests |
$ | 113,954 | $ | 112,593 | $ | 95,345 | ||||||
GAAP taxable equivalent net interest income |
$ | 120,806 | $ | 105,025 | $ | 101,362 | ||||||
Less: income (loss) attributable to noncontrolling interests |
7 | 8 | (7 | ) | ||||||||
Non-GAAP taxable equivalent net interest income, net of noncontrolling interests |
120,799 | 105,017 | 101,369 | |||||||||
Non-GAAP noninterest income, net of noncontrolling interests |
46,392 | 52,079 | 35,382 | |||||||||
Non-GAAP taxable equivalent revenue, net of noncontrolling interests |
$ | 167,191 | $ | 157,096 | $ | 136,751 | ||||||
Non-GAAP operating efficiency ratio |
68.16 | % | 71.67 | % | 69.72 | % | ||||||
Non-GAAP non-marketable securities, net of noncontrolling interests (dollars in thousands) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
GAAP non-marketable securities |
$ | 798,064 | $ | 721,520 | $ | 591,692 | ||||||
Less: noncontrolling interests in non-marketable securities |
488,013 | 423,400 | 344,890 | |||||||||
Non-GAAP non-marketable securities, net of noncontrolling interests |
$ | 310,051 | $ | 298,120 | $ | 246,802 | ||||||
Non-GAAP tangible common equity and tangible assets (dollars in thousands, except ratios) |
March 31, 2011 |
December 31, 2010 |
March 31, 2010 |
|||||||||
GAAP SVBFG stockholders’ equity |
$ | 1,313,574 | $ | 1,274,350 | $ | 1,173,480 | ||||||
Less: intangible assets |
749 | 847 | 979 | |||||||||
Tangible common equity |
$ | 1,312,825 | $ | 1,273,503 | $ | 1,172,501 | ||||||
GAAP total assets |
$ | 18,618,266 | $ | 17,527,761 | $ | 14,125,249 | ||||||
Less: intangible assets |
749 | 847 | 979 | |||||||||
Tangible assets |
$ | 18,617,517 | $ | 17,526,914 | $ | 14,124,270 | ||||||
Risk-weighted assets |
$ | 9,994,763 | $ | 9,406,677 | $ | 7,324,526 | ||||||
Tangible common equity to tangible assets |
7.05 | % | 7.27 | % | 8.30 | % | ||||||
Tangible common equity to risk-weighted assets |
13.14 | 13.54 | 16.01 |
19