EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

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.

 

5


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