false0000719739 0000719739 2019-10-24 2019-10-24


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 24, 2019
 
 
SVB Financial Group
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
000-15637
 
91-1962278
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
3003 Tasman Drive, Santa Clara, CA 95054-1191
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408654-7400
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.142-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Exchange on Which Registered
Common Stock, par value $0.001 per share
 
SIVB
 
NASDAQ Global Select Market





Item 2.02.
Results of Operations and Financial Condition.
On October 24, 2019, SVB Financial Group (the “Company”) announced its financial results for the third quarter ended September 30, 2019. A copy of the release and a third quarter earnings letter and presentation are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference. The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Act of 1934, except as expressly stated by specific reference in such filing.
Item 8.01.
Other Events.
On October 24, 2019, SVB Financial Group announced that its Board of Directors has authorized a $350 million common stock repurchase program, as described under the heading "Stock Repurchase Programs" of the Company's third quarter earnings release, which is attached hereto as Exhibit 99.1.
Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits. 
Exhibit No.
Description
 
 
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: October 24, 2019
 
 
 
SVB FINANCIAL GROUP
 
 
 
 
 
 
 
 
By:
 
/s/ KAREN HON
 
 
 
 
Name:
 
Karen Hon
 
 
 
 
Title:
 
Interim Chief Accounting Officer and Principal Accounting Officer






Exhibit 99.1
SVBLOGOA24.GIF
3003 Tasman Drive, Santa Clara, CA 95054
 
 
 
 
 
 
 
Contact:
www.svb.com    
 
 
 
 
 
 
 
Meghan O'Leary
 
 
 
 
 
 
 
 
Investor Relations
For release at 1:00 P.M. (Pacific Time)
 
 
 
 
  
(408) 654-6364
October 24, 2019
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
NASDAQ: SIVB
 
 
 
 
 
 
  
 
SVB FINANCIAL GROUP ANNOUNCES 2019 THIRD QUARTER FINANCIAL RESULTS
Board of Directors authorizes repurchase of up to $350 million of Common Stock
SANTA CLARA, Calif. — October 24, 2019 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the third quarter ended September 30, 2019.
Consolidated net income available to common stockholders for the third quarter of 2019 was $267.3 million, or $5.15 per diluted common share, compared to $318.0 million, or $6.08 per diluted common share, for the second quarter of 2019 and $274.8 million, or $5.10 per diluted common share, for the third quarter of 2018. Consolidated net income available to common stockholders for the nine months ended September 30, 2019 was $874.0 million, or $16.67 per diluted common share, compared to $707.6 million, or $13.15 per diluted common share, for the comparable 2018 period. For the third quarter of 2019, a net loss attributable to SVB Leerink was $1.4 million, or $0.03 per diluted common share. Net income for the nine months ended September 30, 2019 attributable to SVB Leerink was $8.2 million, or $0.16 per diluted common share.
"We delivered strong performance in the third quarter, driven by excellent balance sheet growth, solid core fee income, stable credit and healthy market gains, all of which reflect the continued health of and robust liquidity available to our clients," said Greg Becker, President and CEO of SVB Financial Group. "While declining short-term rates are pressuring net interest income and net interest margin for now, we believe our focus on execution will enable us to drive continued growth and profitability over the long term, with or without help from interest rates."
Highlights of our third quarter 2019 results (compared to second quarter 2019, unless otherwise noted) included:
Average loan balances of $29.8 billion, an increase of $0.4 billion (or 1.4 percent).
Period-end loan balances of $31.1 billion, an increase of $1.9 billion (or 6.3 percent).
Average fixed income investment securities of $25.1 billion, an increase of $2.0 billion (or 8.7 percent).
Period-end fixed income investment securities of $27.3 billion, an increase of $4.5 billion (or 19.6 percent).
Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $7.4 billion (or 5.2 percent) to $150.1 billion.
Period-end total client funds increased $8.9 billion (or 6.1 percent) to $156.0 billion.
Net interest income (fully taxable equivalent basis) of $523.6 million, a decrease of $8.7 million (or 1.6 percent).
Provision for credit losses of $36.5 million, compared to $23.9 million.
Net loan charge-offs of $32.9 million, or 44 basis points of average total gross loans (annualized), compared to $16.6 million, or 23 basis points.
Net gains on investment securities of $29.8 million, compared to $47.7 million. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $15.2 million, compared to $29.1 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Net gains on equity warrant assets of $37.6 million, compared to $48.3 million.
Noninterest income of $294.0 million, a decrease of $39.7 million (or 11.9 percent). Non-GAAP core fee income increased $4.8 million (or 3.1 percent) to $162.2 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Noninterest expense of $391.3 million, an increase of $7.8 million (or 2.0 percent).
Effective tax rate of 28.2 percent compared to 27.3 percent.
GAAP operating efficiency ratio of 48.04 percent, an increase of 361 basis points. Non-GAAP core operating efficiency ratio of 48.05 percent, an increase of 256 basis points. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)




Third Quarter 2019 Summary
(Dollars in millions, except share data, employees and ratios)
 
Three months ended
 
Nine months ended
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Income statement:
 

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
5.15

 
$
6.08

 
$
5.44

 
$
4.96

 
$
5.10

 
$
16.67

 
$
13.15

Net income available to common stockholders
 
267.3

 
318.0

 
288.7

 
266.3

 
274.8

 
874.0

 
707.6

Net interest income
 
520.6

 
529.4

 
512.9

 
514.5

 
493.2

 
1,562.9

 
1,379.5

Provision for credit losses
 
36.5

 
23.9

 
28.6

 
13.6

 
17.2

 
89.0

 
74.2

Noninterest income
 
294.0

 
333.8

 
280.4

 
186.7

 
210.1

 
908.1

 
558.3

Noninterest expense
 
391.3

 
383.5

 
365.7

 
307.6

 
309.4

 
1,140.5

 
880.6

Non-GAAP core fee income (1)
 
162.2

 
157.3

 
154.2

 
146.0

 
131.7

 
473.8

 
369.8

Non-GAAP core fee income, including investment banking revenue and commissions (1)
 
213.0

 
220.5

 
218.1

 
146.0

 
131.7

 
651.6

 
369.8

Non-GAAP noninterest income, net of noncontrolling interests (1)
 
279.4

 
315.0

 
277.1

 
177.9

 
203.4

 
871.6

 
529.1

Non-GAAP noninterest expense, net of noncontrolling interests (1)
 
391.2

 
383.4

 
365.3

 
307.4

 
309.3

 
1,139.8

 
880.3

Fully taxable equivalent:
 

 
 
 
 
 
 
 
 
 


 
 
Net interest income (1) (2)
 
$
523.6

 
$
532.3

 
$
515.8

 
$
517.4

 
$
496.1

 
$
1,571.7

 
$
1,385.8

Net interest margin
 
3.34
%
 
3.68
%
 
3.81
%
 
3.69
%
 
3.62
%
 
3.60
%
 
3.53
%
Balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average total assets
 
$
65,327.7

 
$
60,700.5

 
$
57,528.4

 
$
57,592.3

 
$
56,465.0

 
$
61,214.1

 
$
54,432.7

Average loans, net of unearned income
 
29,822.4

 
29,406.6

 
28,388.1

 
27,477.0

 
26,331.4

 
29,211.0

 
25,008.3

Average available-for-sale securities
 
10,600.4

 
8,205.3

 
6,870.2

 
8,793.7

 
9,589.9

 
8,572.3

 
10,124.7

Average held-to-maturity securities
 
14,534.5

 
14,922.6

 
15,224.0

 
15,691.1

 
15,916.7

 
14,891.2

 
14,764.2

Average noninterest-bearing demand deposits
 
39,146.2

 
38,117.9

 
38,222.7

 
40,106.9

 
40,625.8

 
38,499.0

 
39,473.5

Average interest-bearing deposits
 
18,088.8

 
14,844.3

 
11,491.5

 
8,980.3

 
8,466.5

 
14,832.4

 
8,260.9

Average total deposits
 
57,235.0

 
52,962.2

 
49,714.2

 
49,087.2

 
49,092.2

 
53,331.3

 
47,734.4

Average short-term borrowings
 
22.0

 
189.0

 
353.4

 
1,580.0

 
745.2

 
186.9

 
328.4

Average long-term debt
 
697.1

 
696.8

 
696.6

 
696.3

 
696.1

 
696.8

 
695.8

Period-end total assets
 
68,231.2

 
63,773.7

 
60,160.3

 
56,928.0

 
58,139.7

 
68,231.2

 
58,139.7

Period-end loans, net of unearned income
 
31,064.0

 
29,209.6

 
28,850.4

 
28,338.3

 
27,494.9

 
31,064.0

 
27,494.9

Period-end available-for-sale securities
 
12,866.9

 
7,940.3

 
6,755.1

 
7,790.0

 
9,087.6

 
12,866.9

 
9,087.6

Period-end held-to-maturity securities
 
14,407.1

 
14,868.8

 
15,055.3

 
15,487.4

 
15,899.7

 
14,407.1

 
15,899.7

Period-end non-marketable and other equity securities
 
1,150.1

 
1,079.7

 
975.0

 
941.1

 
896.2

 
1,150.1

 
896.2

Period-end noninterest-bearing demand deposits
 
40,480.6

 
39,331.5

 
39,278.7

 
39,103.4

 
40,473.8

 
40,480.6

 
40,473.8

Period-end interest-bearing deposits
 
19,062.3

 
16,279.1

 
13,048.5

 
10,225.5

 
8,122.3

 
19,062.3

 
8,122.3

Period-end total deposits
 
59,542.9

 
55,610.5

 
52,327.2

 
49,328.9

 
48,596.1

 
59,542.9

 
48,596.1

Period-end short-term borrowings
 
18.9

 
24.3

 
14.5

 
631.4

 
2,631.3

 
18.9

 
2,631.3

Period-end long-term debt
 
697.2

 
697.0

 
696.7

 
696.5

 
696.2

 
697.2

 
696.2

Off-balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average client investment funds
 
$
92,824.9

 
$
89,651.8

 
$
87,414.3

 
$
85,038.8

 
$
79,560.8

 
$
89,963.6

 
$
71,750.0

Period-end client investment funds
 
96,472.3

 
91,495.4

 
88,181.7

 
85,983.8

 
82,085.0

 
96,472.3

 
82,085.0

Total unfunded credit commitments
 
22,274.4

 
20,952.1

 
20,267.5

 
18,913.0

 
18,539.5

 
22,274.4

 
18,539.5

Earnings ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Return on average assets (annualized) (3)
 
1.62
%
 
2.10
%
 
2.04
%
 
1.83
%
 
1.93
%
 
1.91
%
 
1.74
%
Return on average SVBFG stockholders’ equity (annualized) (4)
 
18.27

 
23.29

 
22.16

 
20.61

 
22.46

 
21.16

 
20.56

Asset quality ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Allowance for loan losses as a % of total gross loans
 
0.97
%
 
1.03
%
 
1.03
%
 
0.99
%
 
1.03
%
 
0.97
%
 
1.03
%
Allowance for loan losses for performing loans as a % of total gross performing loans
 
0.81

 
0.85

 
0.83

 
0.86

 
0.86

 
0.81

 
0.86


2



Gross loan charge-offs as a % of average total gross loans (annualized)
 
0.49

 
0.36

 
0.13

 
0.28

 
0.33

 
0.33

 
0.26

Net loan charge-offs as a % of average total gross loans (annualized)
 
0.44

 
0.23

 
0.11

 
0.20

 
0.30

 
0.26

 
0.22

Other ratios:
 

 
 
 
 
 
 
 
 
 

 
 
GAAP operating efficiency ratio (5)
 
48.04
%
 
44.43
%
 
46.10
%
 
43.87
%
 
44.00
%
 
46.15
%
 
45.44
%
Non-GAAP core operating efficiency ratio (1)
 
48.05

 
45.49

 
44.71

 
45.42

 
48.35

 
46.09

 
49.06

Total cost of deposits (annualized) (6)
 
0.38

 
0.36

 
0.23

 
0.09

 
0.06

 
0.33

 
0.05

SVBFG CET 1 risk-based capital ratio
 
12.71

 
12.92

 
12.89

 
13.41

 
13.28

 
12.71

 
13.28

Bank CET 1 risk-based capital ratio
 
11.48

 
12.50

 
12.35

 
12.41

 
11.98

 
11.48

 
11.98

SVBFG total risk-based capital ratio
 
13.70

 
13.97

 
13.94

 
14.45

 
14.34

 
13.70

 
14.34

Bank total risk-based capital ratio
 
12.36

 
13.44

 
13.29

 
13.32

 
12.91

 
12.36

 
12.91

SVBFG tier 1 leverage ratio
 
8.64

 
8.82

 
9.10

 
9.06

 
8.99

 
8.64

 
8.99

Bank tier 1 leverage ratio
 
7.48

 
8.17

 
8.38

 
8.10

 
7.82

 
7.48

 
7.82

Period-end loans, net of unearned income, to deposits ratio
 
52.17

 
52.53

 
55.13

 
57.45

 
56.58

 
52.17

 
56.58

Average loans, net of unearned income, to average deposits ratio
 
52.11

 
55.52

 
57.10

 
55.98

 
53.64

 
54.77

 
52.39

Book value per common share (7)
 
$
114.26

 
$
107.72

 
$
102.11

 
$
97.29

 
$
92.48

 
$
114.26

 
$
92.48

Other statistics:
 

 
 
 
 
 
 
 
 
 

 
 
Average full-time equivalent ("FTE") employees
 
3,413

 
3,287

 
3,228

 
2,873

 
2,778

 
3,309

 
2,623

Period-end full-time equivalent ("FTE") employees
 
3,460

 
3,314

 
3,250

 
2,900

 
2,836

 
3,460

 
2,836

 
(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 these non-GAAP measures to the most closely related GAAP measures is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.”
(2)
Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21.0 percent. The taxable equivalent adjustments were $3.0 million for the quarter ended September 30, 2019, $2.9 million for the quarter ended June 30, 2019, $2.9 million for the quarter ended March 31, 2019, $3.0 million for the quarter ended December 31, 2018 and $2.9 million for the quarter ended September 30, 2018. The taxable equivalent adjustments were $8.8 million and $6.2 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.
(3)
Ratio represents annualized consolidated net income available to common stockholders divided by average assets.
(4)
Ratio represents annualized consolidated net income available to common stockholders divided by average SVB Financial Group ("SVBFG") stockholders’ equity.
(5)
Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income.
(6)
Ratio represents annualized total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits.
(7)
Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares.
Net Interest Income and Margin

Net interest income, on a fully taxable equivalent basis, was $523.6 million for the third quarter of 2019, compared to $532.3 million for the second quarter of 2019. The $8.7 million decrease from the second quarter of 2019 to the third quarter of 2019, was attributable primarily to the following:

A decrease in interest income from loans of $19.8 million to $394.2 million for the third quarter of 2019. The decrease was reflective primarily of $21.7 million in lower interest income earned on gross loans and $4.7 million related to lower loan fees, partially offset by a $4.9 million increase related to $0.4 billion in average loan growth. Overall loan yields decreased 41 basis points to 5.24 percent, driven primarily by an 18 basis point decrease in our gross loan yields reflective primarily of the two 25 basis point decreases in the Federal Funds rate during the third quarter of 2019 as well as by lower LIBOR rates, an 11 basis point decrease due to the continued shift in the mix of our total loan portfolio into our lower yielding private equity/venture capital loans, a six basis point decrease due to a decrease in the level of loan prepayments and a six basis point decrease from the continued compression on our loan yields due to pricing competition,
An $8.0 million increase in interest paid on our interest-bearing deposits due to a $3.2 billion increase in average interest-bearing deposits partially offset by decreases in market rates through the third quarter of 2019, partially offset by
An increase in interest income from our fixed income investment securities of $15.5 million to $163.7 million for the third quarter of 2019. The increase was reflective primarily of higher average fixed income securities of $2.0 billion during the third quarter of 2019 due to deposit growth, and

3



An increase of $2.5 million in interest income from short-term investment securities reflective primarily of a $1.8 billion increase in average interest-earning cash balances, partially offset by decreases in Federal Funds interest rates.
Net interest margin, on a fully taxable equivalent basis, was 3.34 percent for the third quarter of 2019, compared to 3.68 percent for the second quarter of 2019. Our net interest margin decreased due primarily to a 21 basis point change attributable to a shift in the mix of interest earning assets resulting in a decrease in higher yielding loans and an increase in lower yielding cash and investments as a percentage of total interest earning assets as well as the increase of $3.2 billion in average interest bearing deposits. Our net interest margin also saw a seven basis point decrease from a decline in loan yields reflective of the impact of the two 25 basis point Federal Funds rate cuts during the third quarter of 2019 as well as by lower LIBOR rates. Additionally, lower loan yields from decreased prepayment fees as well as the continued compression on our loan yields due to pricing competition impacted our net interest margin by a total of six basis points.
For the third quarter of 2019, approximately 92 percent, or $27.7 billion, of our average gross loans were variable-rate loans that adjust at prescribed measurement dates. Of our variable-rate loans, approximately 65 percent are tied to prime-lending rates and 35 percent are tied to LIBOR.
Investment Securities

Our investment securities portfolio is comprised of: (i) our available-for-sale ("AFS") and held-to-maturity ("HTM") securities portfolios, each consisting of fixed income investments which are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives; and (ii) our non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised. Our total average fixed income investment securities portfolio increased $2.0 billion, or 8.7 percent, to $25.1 billion for the quarter ended September 30, 2019. Our total period-end fixed income investment securities portfolio increased $4.5 billion, or 19.6 percent, to $27.3 billion at September 30, 2019. The weighted-average duration of our fixed income investment securities portfolio was 3.4 years at September 30, 2019 and 3.5 years at June 30, 2019. Our period-end non-marketable and other equity securities portfolio increased $70.3 million to $1.2 billion ($1.0 billion net of noncontrolling interests) at September 30, 2019.

Available-for-Sale Securities

Average AFS securities were $10.6 billion for the third quarter of 2019 compared to $8.2 billion for the second quarter of 2019. Period-end AFS securities were $12.9 billion at September 30, 2019 compared to $7.9 billion at June 30, 2019. The increases in average and period-end AFS security balances from the second quarter of 2019 to the third quarter of 2019 were due to purchases of $5.3 billion of U.S. Treasury securities and agency mortgage backed securities, partially offset by $0.4 billion in portfolio pay downs and maturities. The weighted-average duration of our AFS securities portfolio was 3.2 years at September 30, 2019 and 2.6 years at June 30, 2019.

Held-to-Maturity Securities

Average HTM securities were $14.5 billion for the third quarter of 2019, compared to $14.9 billion for the second quarter of 2019. Period-end HTM securities were $14.4 billion at September 30, 2019 compared to $14.9 billion at June 30, 2019. The decreases in average and period-end HTM security balances from the second quarter of 2019 to the third quarter of 2019 were due primarily to $0.6 billion in portfolio pay downs and maturities, partially offset by $0.1 billion in purchases of municipal bonds. The weighted-average duration of our HTM securities portfolio was 3.6 years at September 30, 2019 and 4.0 years at June 30, 2019.

Non-Marketable and Other Equity Securities

Our non-marketable and other equity securities portfolio increased $0.1 billion to $1.2 billion ($1.0 billion net of noncontrolling interests) at September 30, 2019, compared to $1.1 billion ($0.9 billion net of noncontrolling interests) at June 30, 2019. The increase was primarily attributable to valuation increases in our managed fund of funds investments, an increase in new investments within our qualified housing projects portfolio and an increase in equity securities from exercised equity warrant assets. Reconciliations of our non-GAAP non-marketable and other equity securities, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures."


4



Loans

Average loans (net of unearned income) increased by $0.4 billion to $29.8 billion for the third quarter of 2019, compared to $29.4 billion for the second quarter of 2019. Period-end loans (net of unearned income) increased by $1.9 billion to $31.1 billion at September 30, 2019, compared to $29.2 billion at June 30, 2019. Average and period-end loan growth came primarily from our private equity/venture capital portfolio as well as from our private bank portfolio.

Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million increased to $16.4 billion or 52.6 percent of total gross loans at September 30, 2019, as compared to $14.8 billion or 50.5 percent of total gross loans at June 30, 2019. Further details are provided under the section “Loan Concentrations."
Credit Quality

The following table provides a summary of our allowance for loan losses and our allowance for unfunded credit commitments:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands, except ratios)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Allowance for loan losses, beginning balance
 
$
301,888

 
$
300,151

 
$
286,709

 
$
280,903

 
$
255,024

Provision for loan losses
 
35,985

 
19,148

 
19,436

 
80,954

 
74,088

Gross loan charge-offs
 
(36,820
)
 
(26,435
)
 
(22,205
)
 
(72,255
)
 
(48,220
)
Loan recoveries
 
3,888

 
9,820

 
2,164

 
15,133

 
5,878

Foreign currency translation adjustments
 
(531
)
 
(796
)
 
(391
)
 
(325
)
 
(1,057
)
Allowance for loan losses, ending balance
 
$
304,410

 
$
301,888

 
$
285,713

 
$
304,410

 
$
285,713

Allowance for unfunded credit commitments, beginning balance
 
62,664

 
57,970

 
54,104

 
55,183

 
51,770

Provision for (reduction of) unfunded credit commitments
 
551

 
4,798

 
(2,262
)
 
8,079

 
138

Foreign currency translation adjustments
 
(107
)
 
(104
)
 
(34
)
 
(154
)
 
(100
)
Allowance for unfunded credit commitments, ending balance (1)
 
$
63,108

 
$
62,664

 
$
51,808

 
$
63,108

 
$
51,808

Ratios and other information:
 
 
 
 
 
 
 
 
 
 
Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.46
%
 
0.26
%
 
0.28
%
 
0.35
%
 
0.36
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.49

 
0.36

 
0.33

 
0.33

 
0.26

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.44

 
0.23

 
0.30

 
0.26

 
0.22

Allowance for loan losses as a percentage of period-end total gross loans
 
0.97

 
1.03

 
1.03

 
0.97

 
1.03

Provision for credit losses
 
$
36,536

 
$
23,946

 
$
17,174

 
$
89,033

 
$
74,226

Period-end total gross loans
 
31,229,003

 
29,370,403

 
27,668,829

 
31,229,003

 
27,668,829

Average total gross loans
 
29,979,522

 
29,568,968

 
26,497,171

 
29,373,264

 
25,165,486

Allowance for loan losses for nonaccrual loans
 
53,728

 
53,067

 
49,992

 
53,728

 
49,992

Nonaccrual loans
 
104,045

 
96,641

 
115,162

 
104,045

 
115,162

 
(1)
The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”
Our allowance for loan losses increased $2.5 million to $304.4 million due primarily to an increase in our performing loan reserves of $1.9 million and an increase in reserves for nonaccrual loans of $0.6 million. The increase in our performing reserves was due primarily to period-end loan growth of $1.9 billion, mostly offset by a decrease in the qualitative component of our performing loan reserves reflective of the continued shift in the mix in our loan portfolio to our large, high credit quality private equity/venture capital loans during the quarter. The $0.6 million increase in the reserves for nonaccrual loans was driven primarily by one large loan from our software portfolio. As a percentage of total gross loans, our allowance for loan losses decreased six basis points to 0.97 percent at September 30, 2019, compared to 1.03 percent at June 30, 2019. The six basis point decrease was driven primarily by a five basis point decrease in the qualitative component of our performing loan reserves as a percentage of gross loans as mentioned above.


5



Our provision for credit losses was $36.5 million for the third quarter of 2019, consisting of the following:
A provision for loan losses of $36.0 million, driven primarily by $19.1 million for net new nonaccrual loans, $18.3 million for charge-offs not specifically reserved for and $15.2 million in additional reserves for period-end loan growth, partially offset by a decrease of $13.0 million for the qualitative component of our performing loans as described above and by recoveries of $3.9 million, and
A provision for unfunded credit commitments of $0.5 million, driven primarily by growth in unfunded credit commitments of $1.3 billion, offset mostly by a decrease related to the continued shift in the mix of our unfunded credit facilities to our large, high credit quality private equity/venture capital clients.
Gross loan charge-offs were $36.8 million for the third quarter of 2019, of which $18.3 million was not specifically reserved for at June 30, 2019. Gross loan charge-offs were primarily driven by a $9.4 million charge-off for one mid-stage life science/healthcare portfolio client and $7.6 million for one later stage software client, both of which were previously included in our nonaccrual loan portfolio. The remaining charge-offs came primarily from our early-stage and mid-stage clients.

Nonaccrual loans were $104.0 million at September 30, 2019, compared to $96.6 million at June 30, 2019. Our nonaccrual loan balance increased $7.4 million primarily driven by $53.6 million in new nonaccrual loans, mostly offset by $23.7 million in charge-offs and $22.5 million in repayments. New nonaccrual loans were primarily driven by $37.3 million for one large software client. Charge-offs were primarily driven by $9.4 million for one mid-stage life sciences/healthcare client and $6.8 million for one late stage software client. The $22.5 million in repayments were primarily driven by our Growth stage clients. Nonaccrual loans as a percentage of total gross loans remained relatively flat at 0.34 percent for the third quarter of 2019 compared to 0.33 percent for the second quarter of 2019.

The allowance for loan losses for nonaccrual loans increased $0.6 million to $53.7 million in the third quarter of 2019. The increase was due primarily to new nonaccrual loans, mostly offset by charge-offs and repayments as noted above.
CECL Adoption
Effective January 1, 2020, we will adopt the new accounting standard update (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments) ("ASU 2016-13"), which amends the incurred loss impairment methodology under current GAAP with a methodology that reflects a current expected credit loss ("CECL") measurement to estimate the allowance for credit losses over the contractual life of the financial assets.

During the fourth quarter of 2019, we will continue to finalize our CECL models and related documentation, processes, validation, controls and credit loss estimates. However, based on our analyses to date, utilizing our loan and unfunded credit commitment portfolio composition at September 30, 2019 and the current economic environment, we currently estimate the day 1 combined impact of CECL on our allowance for loan losses and allowance for unfunded credit commitments to be an increase (on a pre-tax basis) of approximately $25 million to $60 million upon adoption of ASU 2016-13 on January 1, 2020 or approximately 7% to 16% of our total combined allowance compared to our reported amount at September 30, 2019. Additionally, based on the credit quality of our existing debt securities portfolio, we do not expect a material allowance for our held-to-maturity and available-for-sale debt security portfolios. The final amounts will be determined and recognized as a day 1 cumulative adjustment to equity on an after tax basis as of January 1, 2020.

The actual amount recorded on January 1, 2020 may be different than the current estimates provided above as the adjustment amounts for our allowance for loan losses and our allowance for unfunded credit commitments will depend on a variety of factors as of the date of adoption, including the size and composition of our loan and unfunded credit commitment portfolios, the portfolios' credit quality, current and forecasted economic conditions, and management adjustments. In addition, the actual adjustment amount to our allowances will be subject to any necessary changes to our models, methodology, and assumptions, or other adjustments.
Client Funds

Our total client funds consist of both on-balance sheet deposits and off-balance sheet client investment funds. Average total client funds were $150.1 billion for the third quarter of 2019, compared to $142.6 billion for the second quarter of 2019, an increase of $7.4 billion, or 5.2 percent. Period-end total client funds were $156.0 billion at September 30, 2019, compared to $147.1 billion at June 30, 2019, an increase of $8.9 billion, or 6.1 percent.


6



Average off-balance sheet client investment funds were $92.8 billion for the third quarter of 2019, compared to $89.7 billion for the second quarter of 2019. Average on-balance sheet deposits were $57.2 billion for the third quarter of 2019 and $53.0 billion for the second quarter of 2019. Period-end off-balance sheet client investment funds were $96.5 billion at September 30, 2019, compared to $91.5 billion at June 30, 2019. Period-end on-balance sheet deposits were $59.5 billion at September 30, 2019, compared to $55.6 billion at June 30, 2019.

The increases in our average and period-end total client funds from the second quarter of 2019 to the third quarter of 2019 were reflective of growth in both on-balance sheet deposits and off-balance sheet client investment funds across all portfolio segments. The leading contributor was our technology client portfolio attributable primarily to a healthy equity funding environment and exit markets for our clients, as well as continued healthy new client acquisition.
In addition, we saw a continued shift in the mix of our on-balance sheet deposits with growth in our interest-bearing deposits reflective of our deposit growth initiatives and continued strong liquidity of our clients. Average noninterest-bearing demand deposits as a percentage of total average on-balance sheet deposits decreased to 68 percent for the third quarter of 2019, compared to 72 percent in the second quarter of 2019, with a corresponding increase in average interest-bearing deposits to 32 percent, compared to 28 percent.
Noninterest Income

Noninterest income was $294.0 million for the third quarter of 2019, compared to $333.8 million for the second quarter of 2019. Non-GAAP noninterest income, net of noncontrolling interests was $279.4 million for the third quarter of 2019, compared to $315.0 million for the second quarter of 2019. (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures.")

The decrease of $39.8 million ($35.6 million net of noncontrolling interests) in noninterest income from the second quarter of 2019 to the third quarter of 2019 was attributable primarily to lower net gains on investment securities and equity warrant assets as well as lower investment banking revenue, partially offset by an increase in our core fee income. Items impacting noninterest income for the third quarter of 2019 were as follows:

Net gains on investment securities
Net gains on investment securities were $29.8 million for the third quarter of 2019, compared to $47.7 million for the second quarter of 2019. Net of noncontrolling interests, non-GAAP net gains on investment securities were $15.2 million for the third quarter of 2019, compared to net gains of $29.1 million for the second quarter of 2019. Non-GAAP net gains, net of noncontrolling interests, of $15.2 million for the third quarter of 2019 were driven by the following:
Gains of $12.5 million from managed funds of funds portfolio, related primarily to net unrealized valuation increases in the private and public company investments held by the funds in the portfolio,
Gains of $8.0 million from our strategic and other investments, comprised primarily of net unrealized valuation increases in private companies held in our strategic venture capital funds, and
Gains of $5.5 million from our managed direct venture funds, related primarily to net unrealized valuation increases in investments held by the funds in the portfolio, partially offset by
Losses of $11.5 million from our public equity securities investments, primarily driven by unrealized losses driven by a decline in value of public equity securities held.

7



The following tables provide a summary of non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three months ended September 30, 2019 and June 30, 2019, respectively:
 
 
Three months ended September 30, 2019
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Sales of AFS Debt Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
SVB Leerink
 
Total
GAAP gains (losses) on investment securities, net
 
$
22,223

 
$
9,668

 
$
(11,488
)
 
$

 
$
187

 
$
8,035

 
$
1,224

 
$
29,849

Less: income attributable to noncontrolling interests, including carried interest allocation
 
9,676

 
4,138

 

 

 

 

 
826

 
14,640

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
12,547

 
$
5,530

 
$
(11,488
)
 
$

 
$
187

 
$
8,035

 
$
398

 
$
15,209

 
 
Three months ended June 30, 2019
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Sales of AFS Debt Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
SVB Leerink
 
Total
GAAP gains (losses) on investment securities, net
 
$
32,335

 
$
4,101

 
$
444

 
$
(275
)
 
$
1,342

 
$
7,311

 
$
2,440

 
$
47,698

Less: income attributable to noncontrolling interests, including carried interest allocation
 
16,852

 
1,711

 

 

 

 

 
35

 
18,598

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
15,483

 
$
2,390

 
$
444

 
$
(275
)
 
$
1,342

 
$
7,311

 
$
2,405

 
$
29,100


Net gains on equity warrant assets

Net gains on equity warrant assets were $37.6 million for the third quarter of 2019, compared to $48.3 million for the second quarter of 2019. Net gains on equity warrant assets for the third quarter of 2019 were attributable primarily to net gains from exercises of $30.0 million driven by healthy gains from IPO activity and $8.0 million of valuation increases in our private company warrant portfolio driven by healthy funding rounds.
 
At September 30, 2019, we held warrants in 2,227 companies with a total fair value of $149.1 million. Warrants in 15 companies each had fair values greater than $1.0 million and collectively represented $43.7 million, or 29.3 percent, of the fair value of the total warrant portfolio at September 30, 2019
The following table provides a summary of our net gains on equity warrant assets:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Equity warrant assets:
 
 
 
 
 
 
 
 
 
 
Gains on exercises, net
 
$
30,047

 
$
40,226

 
$
18,287

 
$
90,357

 
$
42,808

Terminations
 
(481
)
 
(1,045
)
 
(1,432
)
 
(2,931
)
 
(3,158
)
Changes in fair value, net
 
7,995

 
9,166

 
17,286

 
19,787

 
32,743

Total net gains on equity warrant assets
 
$
37,561

 
$
48,347

 
$
34,141

 
$
107,213

 
$
72,393

The gains (or losses) from investment securities from our nonmarketable and other equity securities portfolio as well as our equity warrant assets resulting from changes in valuations (fair values) are currently unrealized, and the extent to which such gains (or losses) will become realized is subject to a variety of factors, including among other things, performance of the underlying portfolio companies, investor demand for IPOs, fluctuations in the underlying valuation of these companies, levels of M&A activity, and legal and contractual restrictions on our ability to sell the underlying securities.

8



Non-GAAP core fee income including investment banking revenue and commissions
Non-GAAP core fee income (client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees) increased $4.8 million to $162.2 million for the third quarter of 2019, compared to $157.3 million for the second quarter of 2019. Non-GAAP core fee income including investment banking revenue and commissions decreased $7.5 million to $213.0 million for the third quarter of 2019, compared to $220.5 million for the second quarter of 2019.
The following table provides a summary of our non-GAAP core fee income:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Non-GAAP core fee income:
 
 
 
 
 
 
 
 
 
 
Client investment fees
 
$
46,679

 
$
45,744

 
$
36,265

 
$
136,905

 
$
88,592

Foreign exchange fees
 
40,309

 
38,506

 
32,656

 
116,863

 
100,560

Credit card fees
 
30,158

 
28,790

 
24,121

 
86,431

 
68,739

Deposit service charges
 
22,482

 
22,075

 
19,588

 
65,496

 
56,081

Lending related fees
 
11,707

 
11,213

 
10,675

 
36,857

 
30,938

Letters of credit and standby letters of credit fees
 
10,842

 
11,009

 
8,409

 
31,205

 
24,938

Total Non-GAAP core fee income
 
$
162,177

 
$
157,337

 
$
131,714

 
$
473,757

 
$
369,848

Investment banking revenue
 
38,516

 
48,694

 

 
137,005

 

Commissions
 
12,275

 
14,429

 

 
40,812

 

Total Non-GAAP core fee income including investment banking revenue and commissions
 
$
212,968

 
$
220,460

 
$
131,714

 
$
651,574

 
$
369,848


Non-GAAP core fee income increased from the second quarter of 2019 to the third quarter of 2019 reflective of an increase across a majority of our core fee income areas led primarily by increases in foreign exchange fees, credit card fees and client investment fees. Foreign exchange fees increased $1.8 million driven by increased trade volumes due to continued increase in the number of clients actively managing currency exposures. Credit card fees increased $1.4 million due primarily to an increase in net interchange fees. Client investment fees increased $0.9 million driven by higher fees reflective of the increases in client investment fund balances.
Non-GAAP core fee income including investment banking revenue and commissions decreased from the second quarter of 2019 to the third quarter of 2019 primarily due to a decrease in investment banking revenue attributable to a decrease in the levels of exit activity in the life science/healthcare IPO market during the third quarter of 2019 compared to the second quarter of 2019. Investment banking revenue was $38.5 million, driven by $31.0 million from public equity underwriting fees, $5.2 million from M&A transactions and $2.3 million from private placements for the third quarter of 2019.
Reconciliations of our non-GAAP noninterest income, non-GAAP net gains on investment securities and non-GAAP core fee income are provided under the section “Use of Non-GAAP Financial Measures.”
Noninterest Expense

Noninterest expense was $391.3 million for the third quarter of 2019, compared to $383.5 million for the second quarter of 2019. The increase of $7.8 million in noninterest expense consisted primarily of an increase in our professional services expense partially offset by a decrease in total compensation and benefits expense in the third quarter of 2019 compared to the second quarter of 2019.

Professional services expense increased $14.4 million, reflective of increased consulting fees during the third quarter of 2019 associated with increased project spend to support our global digital banking, and continued global infrastructure, initiatives.

9



The following table provides a summary of our compensation and benefits expense:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands, except employees)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019

September 30,
2018
Compensation and benefits:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
109,473

 
$
105,799

 
$
84,962

 
$
316,472

 
$
234,832

Incentive compensation plans
 
59,602

 
71,492

 
55,531

 
200,483

 
150,393

Employee stock ownership plan ("ESOP")
 
884

 
1,084

 
1,844

 
3,131

 
4,997

Other employee incentives and benefits (1)
 
63,881

 
64,797

 
53,100

 
194,987

 
152,976

Total compensation and benefits
 
$
233,840

 
$
243,172

 
$
195,437

 
$
715,073

 
$
543,198

Period-end full-time equivalent employees
 
3,460

 
3,314

 
2,836

 
3,460

 
2,836

Average full-time equivalent employees
 
3,413

 
3,287

 
2,778

 
3,309

 
2,623

 
(1)
Other employee incentives and benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant incentive and retention plans, agency fees and other employee-related expenses.
The $9.3 million decrease in total compensation and benefits expense consists primarily of the following:

A decrease of $11.9 million in incentive compensation plans expense attributable primarily to a decrease in our incentive accruals as a result of our 2019 full-year projected financial performance, partially offset by
An increase of $3.7 million in salaries and wages, reflective primarily of an increase in the number of average full-time equivalent employees ("FTE") by 126 to 3,413 FTEs as well as one additional working day of the third quarter of 2019 as compared to the second quarter of 2019.
Income Tax Expense
Our effective tax rate was 28.2 percent for the third quarter of 2019, compared to 27.3 percent for the second quarter of 2019. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and net income attributable to noncontrolling interests. The increase in our effective tax rate was primarily due to a decrease in excess tax benefits received from stock compensation expense reflective primarily of a lower number of stock options exercised and restricted stock units vested during the third quarter as compared to the second quarter. Our annual share based compensation grants occur in the second quarter of each year.
Noncontrolling Interests

Included in net income is income and expense related to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net Income Attributable to Noncontrolling Interests” in our statements of income. The following table provides a summary of net income attributable to noncontrolling interests: 
 
 
Three months ended
 
Nine months ended
(Dollars in thousands)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Net interest income (1)
 
$
(14
)
 
$
(16
)
 
$
(10
)
 
$
(41
)
 
$
(29
)
Noninterest income (1)
 
(4,910
)
 
(12,406
)
 
(2,749
)
 
(19,586
)
 
(20,127
)
Noninterest expense (1)
 
145

 
168

 
154

 
692

 
349

Carried interest allocation (2)
 
(9,658
)
 
(6,330
)
 
(3,943
)
 
(16,966
)
 
(9,034
)
Net income attributable to noncontrolling interests
 
$
(14,437
)
 
$
(18,584
)
 
$
(6,548
)
 
$
(35,901
)
 
$
(28,841
)
 
(1)
Represents noncontrolling interests’ share in net interest income, noninterest income and noninterest expense.
(2)
Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.
Net income attributable to noncontrolling interests was $14.4 million for the third quarter of 2019, compared to $18.6 million for the second quarter of 2019. Net income attributable to noncontrolling interests of $14.4 million for the third quarter of 2019 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds and our managed direct venture funds portfolios, related primarily to net unrealized valuation increases for private and public company investments held by the funds in the portfolio.

10



SVBFG Stockholders’ Equity

Total SVBFG stockholders’ equity increased by $0.3 billion to $5.9 billion at September 30, 2019, compared to $5.6 billion at June 30, 2019, primarily due to net income of $267.3 million and an increase in accumulated other comprehensive income of $54.9 million. The $54.9 million net increase in accumulated other comprehensive income was reflective primarily of a $69.7 million ($50.3 million net of tax) increase in the fair value of our AFS securities portfolio driven by decreases in period-end market interest rates.

Stock Repurchase Programs
On July 1, 2019, we repurchased and retired 25,562 shares of our common stock totaling $5.7 million which represented the completion of our $500 million stock repurchase program originally announced on November 13, 2018.

On October 24, 2019, our Board of Directors authorized a new stock repurchase program that enables us to repurchase up to $350 million of our outstanding common stock. This program expires on October 29, 2020.

Under the stock repurchase program, we may, from time to time and on or before the program’s expiration date, repurchase shares of our outstanding common stock in the open market, in privately-negotiated transactions, or otherwise, subject to applicable laws and regulations. The extent to which we repurchases our shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by us. We may, in our discretion, begin, suspend or terminate repurchases at any time prior to the program’s expiration, without any prior notice. Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit shares to be repurchased when we might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. We expect to finance repurchases under the program with available cash balances.

Capital Ratios

Our regulatory risk-based capital ratios for both SVB Financial Group and Silicon Valley Bank (the "Bank") decreased as of September 30, 2019, compared to the same ratios as of June 30, 2019, primarily as a result of a proportionally higher increase in our risk-weighted assets relative to the increase in our capital for the third quarter of 2019. The increase in risk weighed-weighted assets was due primarily to loan growth and the increase in our fixed income investment securities driven by deposit growth during the third quarter of 2019. The increase in capital was due primarily to net income.
The tier 1 leverage ratios for both SVB Financial Group and the Bank decreased as of September 30, 2019, compared to June 30, 2019, primarily as a result of a proportionally higher increase in our average assets relative to our tier 1 capital. The increase in our average assets were due primarily to increases in our fixed income investment securities, cash and cash equivalents as well as loan growth. The increase in tier 1 capital was due primarily to net income.
Overall, decreases to the Bank's risk-based capital ratios were inclusive of a $336.0 million cash dividend paid by the Bank to our bank holding company, SVB Financial Group, during the third quarter of 2019.
All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations. See the "SVB Financial and Bank Capital Ratios" section, at the end of this release, for details.

11



Outlook for the Year Ending December 31, 2019 and Preliminary 2020 Outlook for Selected Items

Our outlook for the year ending December 31, 2019 and our preliminary outlook for selected items for the year ending December 31, 2020, 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. Except for the items noted below, we do not provide an outlook for certain items (such as gains or losses from warrants and investment securities) where the timing or financial impact are uncertain and/or subject to market or other conditions beyond our control (such as the level of IPO, M&A or general financing activity), or for potential unusual or non-recurring items. Also, as a result of our acquisition of SVB Leerink, we have included guidance for core fee income including investment banking revenue and commissions and noninterest expense inclusive of SVB Leerink's expected full year results as part of the Company. The outlook and the underlying assumptions presented below are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties, which are discussed below under the section “Forward-Looking Statements.”

For the full year ending December 31, 2019, compared to our full year 2018 results, we currently expect the following outlook: (Note that the outlook below includes: (i) the expected impact of the July 31, 2019 and September 18, 2019 decreases of the target Federal Funds rate by the Federal Reserve of 25 basis points each as well as the decreases in the 1- and 3- month LIBOR rates through September 30, 2019, and no assumptions about any further Federal Funds or LIBOR rate changes during 2019, and (ii) management updates to certain 2019 outlook metrics we previously disclosed on July 25, 2019.)
 
Current full year 2019 outlook compared to 2018 results (as of October 24, 2019)
Change in outlook compared to outlook reported as of July 25, 2019
Average loan balances
Increase at a percentage rate in the
mid-teens
No change from previous outlook
Average deposit balances
Increase at a percentage rate in the
low teens
Outlook increased to low teens from previous outlook of low double digits
Net interest income (1)
Increase at a percentage rate in the
low double digits
Outlook decreased to low double digits from previous outlook of low teens
Net interest margin (1)
Between 3.50% and 3.60%
Outlook decreased to between 3.50% and 3.60% from previous outlook of between 3.60% and 3.70%
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans
Comparable to 2018 levels
No change from previous outlook
Net loan charge-offs
Between 0.20% and 0.40%
of average total gross loans
No change from previous outlook
Nonperforming loans as a percentage of total gross loans
Between 0.30% and 0.50%
of total gross loans
No change from previous outlook
Core fee income (client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit fees) (2)
Increase at a percentage rate in the
low twenties
No change from previous outlook
Noninterest expense (excluding expenses related to noncontrolling interests) (3) (4)
Increase at a percentage rate in the
low teens
No change from previous outlook
Effective tax rate (5)
Between 26.0% and 28.0%
No change from previous outlook
 
Current full year 2019 outlook compared to 2018 results, including expected results of SVB Leerink reflective of the completed acquisition on January 4, 2019
Change in outlook compared to outlook reported as of July 25, 2019
Core fee income (client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit fees) including investment banking revenue and commissions (2) (6)
Increase at a percentage rate in the high sixties
Outlook decreased to high sixties from previous outlook of low seventies
Noninterest expense (excluding expenses related to noncontrolling interests) including SVB Leerink's noninterest expenses (3) (4) (6)
Increase at a percentage rate in the mid-thirties
No change from previous outlook

Preliminary 2020 Outlook for Selected Items

Our preliminary full year 2020 outlook for selected items provided below is based on various management assumptions, including: (a) no changes in the Federal Reserve or LIBOR rates, and (b) no material deterioration in the overall economy. For the full year ending December 31, 2020, compared to our full year ending December 31, 2019, expected results, we currently expect the following:

12




average loan balance growth in the low teens,
average deposit balance growth in the low double digits,
net interest income(1) growth in the low single digits,
net interest margin(1) between 3.20% and 3.30%,
net loan charge-offs between 0.20% and 0.40% of average total gross loans,
core fee income(2) growth in the low teens,
core fee income including investment banking revenue and commissions(2)(6) growth in the low teens,
noninterest expense(3)(4) (excluding expenses related to noncontrolling interests) growth in the high single digits, and
noninterest expense including SVB Leerink's noninterest expenses(3)(4)(6) growth in the high single digits.

Our 2020 outlook is preliminary and subject to change.
 
(1)
Our outlook for net interest income and net interest margin is based primarily on management's current forecast of average deposit and loan balances and deployment of surplus cash into investment securities. Such forecasts are subject to change, and actual results may differ, based on market conditions, actual prepayment rates and other factors described under the section "Forward-Looking Statements" below.
(2)
Core fee income is a non-GAAP measure, which represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. As we are unable to quantify such line items that would be required to be included in the comparable GAAP financial measure for the future period presented without unreasonable efforts, no reconciliation for the outlook of non-GAAP core fee income to GAAP noninterest income for fiscal 2019 is included in this release, as we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. See "Use of Non-GAAP Financial Measures" at the end of this release for further information regarding the calculation and limitations of this measure.
(3)
Noninterest expense (excluding expenses related to noncontrolling interests) is a non-GAAP measure, which represents noninterest expense, but excludes expenses attributable to noncontrolling interests. As we are unable to quantify such line items that would be required to be included in the comparable GAAP financial measure for the future period presented without unreasonable efforts, no reconciliation for the outlook of non-GAAP noninterest expense (excluding expenses related to noncontrolling interests) to GAAP noninterest expense for fiscal 2019 is included in this release, as we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. See "Use of Non-GAAP Financial Measures" at the end of this release for further information regarding the calculation and limitations of this measure.
(4)
Our outlook for noninterest expense is partly based on management's current forecast of performance-based incentive compensation expenses. Such forecasts are subject to change, and actual results may differ, based on our performance relative to our internal performance targets.
(5)
Our outlook for our effective tax rate is based on management's current assumptions with respect to, among other things, the Company's earnings, state income tax levels, tax deductions and estimated performance-based compensation activity.
(6)
Investment banking revenue, commissions, and noninterest expense consists of revenue and expenses attributable entirely to SVB Leerink.


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 subject to known and unknown risks and uncertainties, many of which may be beyond our control. 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 addition, forward-looking statements generally can be identified by the use of such words as “becoming,” “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “assume,” “seek,” “expect,” “plan,” “intend,” the negative of such words or comparable terminology. In this release, including our CEO's statement and in the sections “New Accounting Guidance” and “Outlook for the Year Ending December 31, 2019 and Preliminary 2020 Outlook for Selected Items”, we make forward-looking statements discussing management’s expectations for 2019 and 2020 about, among other things, economic conditions; opportunities in the market; the outlook on our clients' performance; our financial, credit, and business performance, including potential investment gains; loan growth, loan mix and loan yields; expense levels; our expected effective tax rate; accounting impact; and financial results (and the components of such results), including the performance results of SVB Leerink for certain quarters in, and for the full years 2019 and 2020.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may not prove to be correct. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-looking statements. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among others:

13



market and economic conditions (including the general condition of the capital and equity markets, and IPO, M&A and financing activity levels) and the associated impact on us (including effects on client demand for our commercial and investment banking and other financial services, as well as on the valuations of our investments);
changes in the volume and credit quality of our loans as well as volatility of our levels of nonperforming assets and charge-offs;
the impact of changes in interest rates or market levels or factors affecting or affected by them, especially on our loan and investment portfolios;
changes in the levels of our loans, deposits and client investment fund balances;
changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets;
variations from our expectations as to factors impacting our cost structure;
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;
variations from our expectations as to factors impacting the timing and level of employee share-based transactions;
variations from our expectations as to factors impacting our estimate of our full-year effective tax rate;
changes in applicable accounting standards and tax laws; and
regulatory or legal changes or their impact on us.

For additional information about these and other factors, please refer to our public reports filed with the U.S. Securities and Exchange Commission, including under the caption "Risk Factors" in our most recent Annual Report filed on Form 10-K. 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 Thursday, October 24, 2019, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended September 30, 2019. The conference call can be accessed by dialing (888) 771-4371 or (847) 585-4405, and entering the confirmation number "48814272".  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 5:30 p.m. (Pacific Time) on Thursday, October 24, 2019, through 9:59 p.m. (Pacific Time) on Sunday, November 24, 2019, and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering the passcode "48814272#". A replay of the audio webcast will also be available on www.svb.com for 12 months beginning on October 24, 2019.

About SVB Financial Group

For more than 35 years, SVB Financial Group (NASDAQ: SIVB) and its subsidiaries have helped innovative companies and their investors move bold ideas forward, fast. SVB Financial Group’s businesses, including Silicon Valley Bank, offer commercial, investment and private banking, asset management, private wealth management, brokerage and investment services and funds management services to companies in the technology, life science and healthcare, private equity and venture capital, and premium wine industries. Headquartered in Santa Clara, California, SVB Financial Group operates in centers of innovation around the world. Learn more at www.svb.com.

SVB Financial Group is the holding company for all business units and groups © 2019 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, SVB LEERINK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group.


14



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three months ended
 
Nine months ended
(Dollars in thousands, except share data)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Interest income:


 
 
 
 
 
 
 
 
Loans

$
394,246

 
$
414,077

 
$
352,353

 
$
1,202,467

 
$
979,724

Investment securities:


 
 
 
 
 
 
 
 
Taxable

149,656

 
134,395

 
142,075

 
410,768

 
403,702

Non-taxable

11,123

 
10,931

 
10,748

 
32,991

 
23,506

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities

28,867

 
26,364

 
8,137

 
74,447

 
20,080

Total interest income

583,892

 
585,767

 
513,313

 
1,720,673

 
1,427,012

Interest expense:


 
 
 
 
 
 
 
 
Deposits

55,106

 
47,150

 
8,042

 
130,163

 
18,409

Borrowings

8,142

 
9,214

 
12,049

 
27,577

 
29,075

Total interest expense

63,248

 
56,364

 
20,091

 
157,740

 
47,484

Net interest income

520,644

 
529,403

 
493,222

 
1,562,933

 
1,379,528

Provision for credit losses

36,536

 
23,946

 
17,174

 
89,033

 
74,226

Net interest income after provision for credit losses

484,108

 
505,457

 
476,048

 
1,473,900

 
1,305,302

Noninterest income:


 
 
 
 
 
 
 
 
Gains on investment securities, net

29,849

 
47,698

 
32,193

 
106,575

 
77,365

Gains on equity warrant assets, net

37,561

 
48,347

 
34,141

 
107,213

 
72,393

Client investment fees
 
46,679

 
45,744

 
36,265

 
136,905

 
88,592

Foreign exchange fees

40,309

 
38,506

 
32,656

 
116,863

 
100,560

Credit card fees

30,158

 
28,790

 
24,121

 
86,431

 
68,739

Deposit service charges

22,482

 
22,075

 
19,588

 
65,496

 
56,081

Lending related fees

11,707

 
11,213

 
10,675

 
36,857

 
30,938

Letters of credit and standby letters of credit fees

10,842

 
11,009

 
8,409

 
31,205

 
24,938

Investment banking revenue
 
38,516

 
48,694

 

 
137,005

 

Commissions
 
12,275

 
14,429

 

 
40,812

 

Other

13,631

 
17,245

 
12,022

 
42,773

 
38,671

Total noninterest income

294,009

 
333,750

 
210,070

 
908,135

 
558,277

Noninterest expense:


 
 
 
 
 
 
 
 
Compensation and benefits

233,840

 
243,172

 
195,437

 
715,073

 
543,198

Professional services

55,202

 
40,830

 
36,542

 
133,018

 
112,080

Premises and equipment

26,775

 
23,911

 
19,858

 
72,386

 
57,576

Net occupancy

16,981

 
16,687

 
13,694

 
49,716

 
40,598

Business development and travel

19,539

 
17,022

 
12,712

 
51,915

 
35,998

FDIC and state assessments

4,881

 
4,483

 
9,550

 
13,343

 
29,306

Other

34,106

 
37,417

 
21,652

 
105,059

 
61,845

Total noninterest expense

391,324

 
383,522

 
309,445

 
1,140,510

 
880,601

Income before income tax expense

386,793

 
455,685

 
376,673

 
1,241,525

 
982,978

Income tax expense

105,075

 
119,114

 
95,308

 
331,624

 
246,561

Net income before noncontrolling interests

281,718

 
336,571

 
281,365

 
909,901

 
736,417

Net income attributable to noncontrolling interests

(14,437
)
 
(18,584
)
 
(6,548
)
 
(35,901
)
 
(28,841
)
Net income available to common stockholders

$
267,281

 
$
317,987

 
$
274,817

 
$
874,000

 
$
707,576

Earnings per common share—basic
 
$
5.19

 
$
6.12

 
$
5.16

 
$
16.80

 
$
13.33

Earnings per common share—diluted
 
5.15

 
6.08

 
5.10

 
16.67

 
13.15

Weighted average common shares outstanding—basic
 
51,544,807

 
51,954,761

 
53,235,090

 
52,025,112

 
53,062,082

Weighted average common shares outstanding—diluted
 
51,858,470

 
52,336,178

 
53,918,973

 
52,430,806

 
53,799,827





15



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited) 

(Dollars in thousands, except par value and share data)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,946,196

 
$
9,020,925

 
$
3,819,141

Available-for-sale securities, at fair value (cost $12,699,542, $7,842,667 and $9,236,301, respectively)
 
12,866,857

 
7,940,322

 
9,087,609

Held-to-maturity securities, at cost (fair value $14,698,802, $15,064,962 and $15,372,238, respectively)
 
14,407,078

 
14,868,761

 
15,899,726

Non-marketable and other equity securities
 
1,150,094

 
1,079,749

 
896,249

Investment securities
 
28,424,029

 
23,888,832

 
25,883,584

Loans, net of unearned income
 
31,063,994

 
29,209,573

 
27,494,915

Allowance for loan losses
 
(304,410
)
 
(301,888
)
 
(285,713
)
Net loans
 
30,759,584

 
28,907,685

 
27,209,202

Premises and equipment, net of accumulated depreciation and amortization
 
146,713

 
141,888

 
121,890

Goodwill
 
137,823

 
137,823

 

Other intangible assets, net
 
52,288

 
55,158

 

Lease right-of-use assets
 
178,532

 
156,347

 

Accrued interest receivable and other assets
 
1,586,068

 
1,465,081

 
1,105,917

Total assets
 
$
68,231,233

 
$
63,773,739

 
$
58,139,734

Liabilities and total equity:
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
40,480,610

 
$
39,331,489

 
$
40,473,774

Interest-bearing deposits
 
19,062,264

 
16,279,051

 
8,122,337

Total deposits
 
59,542,874

 
55,610,540

 
48,596,111

Short-term borrowings
 
18,898

 
24,252

 
2,631,252

Lease liabilities
 
192,543

 
195,326

 

Other liabilities
 
1,731,222

 
1,540,476

 
1,146,109

Long-term debt
 
697,227

 
696,970

 
696,217

Total liabilities
 
62,182,764

 
58,067,564

 
53,069,689

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; 51,555,831 shares, 51,561,719 shares and 53,250,255 shares issued and outstanding, respectively
 
52

 
52

 
53

Additional paid-in capital
 
1,441,730

 
1,421,565

 
1,360,030

Retained earnings
 
4,312,745

 
4,051,194

 
3,672,696

Accumulated other comprehensive income (loss)
 
136,153

 
81,232

 
(108,410
)
Total SVBFG stockholders’ equity
 
5,890,680

 
5,554,043

 
4,924,369

Noncontrolling interests
 
157,789

 
152,132

 
145,676

Total equity
 
6,048,469

 
5,706,175

 
5,070,045

Total liabilities and total equity
 
$
68,231,233

 
$
63,773,739

 
$
58,139,734




16



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
 
 
Three months ended
 
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
(Dollars in thousands, except yield/rate and ratios)
 
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 reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
 
$
7,193,195

 
$
28,867

 
1.59
%
 
$
5,405,899

 
$
26,364

 
1.96
%
 
$
2,548,271

 
$
8,137

 
1.27
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
10,600,449

 
62,121

 
2.32

 
8,205,333

 
45,347

 
2.22

 
9,589,917

 
46,684

 
1.93

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
12,922,438

 
87,535

 
2.69

 
13,350,533

 
89,048

 
2.68

 
14,385,027

 
95,391

 
2.63

Non-taxable (3)
 
1,612,067

 
14,080

 
3.47

 
1,572,056

 
13,836

 
3.53

 
1,531,663

 
13,606

 
3.52

Total loans, net of unearned income (4) (5)
 
29,822,426

 
394,246

 
5.24

 
29,406,620

 
414,077

 
5.65

 
26,331,377

 
352,353

 
5.31

Total interest-earning assets
 
62,150,575

 
586,849

 
3.74

 
57,940,441

 
588,672

 
4.07

 
54,386,255

 
516,171

 
3.77

Cash and due from banks
 
590,391

 
 
 
 
 
542,345

 
 
 
 
 
553,132

 
 
 
 
Allowance for loan losses
 
(308,609
)
 
 
 
 
 
(311,709
)
 
 
 
 
 
(296,177
)
 
 
 
 
Other assets (6)
 
2,895,391

 
 
 
 
 
2,529,409

 
 
 
 
 
1,821,827

 
 
 
 
Total assets
 
$
65,327,748

 
 
 
 
 
$
60,700,486

 
 
 
 
 
$
56,465,037

 
 
 
 
Funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
$
470,601

 
$
102

 
0.09
%
 
$
459,972

 
$
100

 
0.09
%
 
$
572,242

 
$
116

 
0.08
%
Money market deposits
 
15,805,507

 
49,169

 
1.23

 
12,669,422

 
41,249

 
1.31

 
6,704,337

 
7,782

 
0.46

Money market deposits in foreign offices
 
115,590

 
12

 
0.04

 
162,586

 
16

 
0.04

 
218,734

 
22

 
0.04

Time deposits
 
157,218

 
590

 
1.49

 
75,721

 
171

 
0.91

 
74,597

 
35

 
0.19

Sweep deposits in foreign offices
 
1,539,869

 
5,233

 
1.35

 
1,476,614

 
5,614

 
1.52

 
896,558

 
87

 
0.04

Total interest-bearing deposits
 
18,088,785

 
55,106

 
1.21

 
14,844,315

 
47,150

 
1.27

 
8,466,468

 
8,042

 
0.38

Short-term borrowings
 
22,045

 
119

 
2.14

 
188,998

 
1,195

 
2.54

 
745,156

 
4,039

 
2.15

3.50% Senior Notes
 
347,841

 
3,150

 
3.59

 
347,755

 
3,149

 
3.63

 
347,499

 
3,147

 
3.59

5.375% Senior Notes
 
349,216

 
4,873

 
5.54

 
349,048

 
4,870

 
5.60

 
348,557

 
4,863

 
5.54

Total interest-bearing liabilities
 
18,807,887

 
63,248

 
1.33

 
15,730,116

 
56,364

 
1.44

 
9,907,680

 
20,091

 
0.80

Portion of noninterest-bearing funding sources
 
43,342,688

 
 
 
 
 
42,210,325

 
 
 
 
 
44,478,575

 
 
 
 
Total funding sources
 
62,150,575

 
63,248

 
0.40

 
57,940,441

 
56,364

 
0.39

 
54,386,255

 
20,091

 
0.15

Noninterest-bearing funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
 
39,146,184

 
 
 
 
 
38,117,893

 
 
 
 
 
40,625,772

 
 
 
 
Other liabilities
 
1,417,659

 
 
 
 
 
1,232,464

 
 
 
 
 
932,544

 
 
 
 
SVBFG stockholders’ equity
 
5,802,907

 
 
 
 
 
5,477,148

 
 
 
 
 
4,854,440

 
 
 
 
Noncontrolling interests
 
153,111

 
 
 
 
 
142,865

 
 
 
 
 
144,601

 
 
 
 
Portion used to fund interest-earning assets
 
(43,342,688
)
 
 
 
 
 
(42,210,325
)
 
 
 
 
 
(44,478,575
)
 
 
 
 
Total liabilities and total equity
 
$
65,327,748

 
 
 
 
 
$
60,700,486

 
 
 
 
 
$
56,465,037

 
 
 
 
Net interest income and margin
 
 
 
$
523,601

 
3.34
%
 
 
 
$
532,308

 
3.68
%
 
 
 
$
496,080

 
3.62
%
Total deposits
 
$
57,234,969

 
 
 
 
 
$
52,962,208

 
 
 
 
 
$
49,092,240

 
 
 
 
Average SVBFG stockholders’ equity as a percentage of average assets
 
 
 
 
 
8.88
%
 
 
 
 
 
9.02
%
 
 
 
 
 
8.60
%
Reconciliation to reported net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments for taxable equivalent basis
 
 
 
(2,957
)
 
 
 
 
 
(2,905
)
 
 
 
 
 
(2,858
)
 
 
Net interest income, as reported
 
 
 
$
520,644

 
 
 
 
 
$
529,403

 
 
 
 
 
$
493,222

 
 
 
(1)
Includes average interest-earning deposits in other financial institutions of $1.1 billion, $0.9 billion and $0.7 billion; and $5.1 billion, $3.7 billion and $1.4 billion deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate, for the quarters ended September 30, 2019June 30, 2019 and September 30, 2018, respectively.
(2)
Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income or loss.
(3)
Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent for all periods presented.
(4)
Nonaccrual loans are reflected in the average balances of loans.
(5)
Interest income includes loan fees of $39.4 million, $44.1 million and $33.1 million for the quarters ended September 30, 2019June 30, 2019 and September 30, 2018, respectively.
(6)
Average investment securities of $1.2 billion, $1.0 billion and $761 million for the quarters ended September 30, 2019June 30, 2019 and September 30, 2018, respectively, were classified as other assets as they are noninterest-earning assets. These investments consist primarily of non-marketable and other equity securities.

17



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited) 
 
 
Nine months ended
 
 
September 30, 2019
 
September 30, 2018
(Dollars in thousands, except yield/rate and ratios)
 
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)
 
$
5,696,501

 
$
74,447

 
1.75
%
 
$
2,535,749

 
$
20,080

 
1.06
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,572,314

 
142,891

 
2.23

 
10,124,707

 
141,266

 
1.87

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
13,305,424

 
267,877

 
2.69

 
13,597,340

 
262,436

 
2.58

Non-taxable (3)
 
1,585,734

 
41,760

 
3.52

 
1,166,875

 
29,755

 
3.41

Total loans, net of unearned income (4) (5)
 
29,210,960

 
1,202,467

 
5.50

 
25,008,277

 
979,724

 
5.24

Total interest-earning assets
 
58,370,933

 
1,729,442

 
3.96

 
52,432,948

 
1,433,261

 
3.65

Cash and due from banks
 
553,523

 
 
 
 
 
496,658

 
 
 
 
Allowance for loan losses
 
(303,154
)
 
 
 
 
 
(280,102
)
 
 
 
 
Other assets (6)
 
2,592,830

 
 
 
 
 
1,783,148

 
 
 
 
Total assets
 
$
61,214,132

 
 
 
 
 
$
54,432,652

 
 
 
 
Funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
$
491,663

 
$
318

 
0.09
%
 
$
578,313

 
$
338

 
0.08
%
Money market deposits
 
12,540,843

 
112,249

 
1.20

 
6,437,372

 
17,658

 
0.37

Money market deposits in foreign offices
 
142,053

 
43

 
0.04

 
206,924

 
61

 
0.04

Time deposits
 
94,934

 
790

 
1.11

 
59,561

 
71

 
0.16

Sweep deposits in foreign offices
 
1,562,880

 
16,763

 
1.43

 
978,724

 
281

 
0.04

Total interest-bearing deposits
 
14,832,373

 
130,163

 
1.17

 
8,260,894

 
18,409

 
0.30

Short-term borrowings
 
186,930

 
3,519

 
2.52

 
328,425

 
5,053

 
2.06

3.50% Senior Notes
 
347,756

 
9,447

 
3.63

 
347,416

 
9,438

 
3.63

5.375% Senior Notes
 
349,050

 
14,611

 
5.60

 
348,400

 
14,584

 
5.60

Total interest-bearing liabilities
 
15,716,109

 
157,740

 
1.34

 
9,285,135

 
47,484

 
0.68

Portion of noninterest-bearing funding sources
 
42,654,824

 
 
 
 
 
43,147,813

 
 
 
 
Total funding sources
 
58,370,933

 
157,740

 
0.36

 
52,432,948

 
47,484

 
0.12

Noninterest-bearing funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
 
38,498,971

 
 
 
 
 
39,473,468

 
 
 
 
Other liabilities
 
1,327,040

 
 
 
 
 
930,985

 
 
 
 
SVBFG stockholders’ equity
 
5,523,196

 
 
 
 
 
4,602,027

 
 
 
 
Noncontrolling interests
 
148,816

 
 
 
 
 
141,037

 
 
 
 
Portion used to fund interest-earning assets
 
(42,654,824
)
 
 
 
 
 
(43,147,813
)
 
 
 
 
Total liabilities and total equity
 
$
61,214,132

 
 
 
 
 
$
54,432,652

 
 
 
 
Net interest income and margin
 
 
 
$
1,571,702

 
3.60
%
 
 
 
$
1,385,777

 
3.53
%
Total deposits
 
$
53,331,344

 
 
 
 
 
$
47,734,362

 
 
 
 
Average SVBFG stockholders’ equity as a percentage of average assets
 
 
 
 
 
9.02
%
 
 
 
 
 
8.45
%
Reconciliation to reported net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments for taxable equivalent basis
 
 
 
(8,769
)
 
 
 
 
 
(6,249
)
 
 
Net interest income, as reported
 
 
 
$
1,562,933

 
 
 
 
 
$
1,379,528

 
 
 
(1)
Includes average interest-earning deposits in other financial institutions of $0.9 billion for both the nine months ended September 30, 2019 and 2018. The balance also includes $3.9 billion and $1.4 billion deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate for the nine months ended September 30, 2019 and 2018, respectively.
(2)
Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income or loss.
(3)
Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent for all periods presented.
(4)
Nonaccrual loans are reflected in the average balances of loans.
(5)
Interest income includes loan fees of $120.2 million and $100.8 million for the nine months ended September 30, 2019 and 2018, respectively.
(6)
Average investment securities of $1.1 billion and $774 million for the nine months ended September 30, 2019 and 2018, respectively, were classified as other assets as they are noninterest-earning assets. These investments consisted primarily of non-marketable and other equity securities.


18



Reconciliation of Basic and Diluted Weighted Average Common Shares Outstanding 
 
 
Three months ended
 
Nine months ended
(Shares in thousands)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Weighted average common shares outstanding—basic
 
51,545

 
51,955

 
53,235

 
52,025

 
53,062

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
Stock options and employee stock purchase plan
 
203

 
235

 
383

 
238

 
404

Restricted stock units
 
110

 
146

 
301

 
168

 
334

Total effect of dilutive securities
 
313

 
381

 
684

 
406

 
738

Weighted average common shares outstanding—diluted
 
51,858

 
52,336

 
53,919

 
52,431

 
53,800

SVB Financial and Bank Capital Ratios
 
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
SVB Financial:
 
 
 
 
 
 
CET 1 risk-based capital ratio
 
12.71
%
 
12.92
%
 
13.28
%
Tier 1 risk-based capital ratio
 
12.86

 
13.08

 
13.45

Total risk-based capital ratio
 
13.70

 
13.97

 
14.34

Tier 1 leverage ratio
 
8.64

 
8.82

 
8.99

Tangible common equity to tangible assets ratio (1)
 
8.38

 
8.43

 
8.47

Tangible common equity to risk-weighted assets ratio (1)
 
13.04

 
13.13

 
13.00

Silicon Valley Bank:
 
 
 
 
 
 
CET 1 risk-based capital ratio
 
11.48
%
 
12.50
%
 
11.98
%
Tier 1 risk-based capital ratio
 
11.48

 
12.50

 
11.98

Total risk-based capital ratio
 
12.36

 
13.44

 
12.91

Tier 1 leverage ratio
 
7.48

 
8.17

 
7.82

Tangible common equity to tangible assets ratio (1)
 
7.36

 
7.91

 
7.44

Tangible common equity to risk-weighted assets ratio (1)
 
11.82

 
12.72

 
11.70

 
(1)
These are non-GAAP measures. A reconciliation of non-GAAP measures to GAAP is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.”


19



Loan Concentrations
(Dollars in thousands, except ratios and client data)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
Software/internet
 
$
2,320,065

 
$
2,137,296

 
$
2,337,757

Hardware
 
668,093

 
707,571

 
671,773

Private equity/venture capital
 
11,894,626

 
10,528,120

 
9,528,896

Life science/healthcare
 
1,062,852

 
994,340

 
932,958

Premium wine (1)
 
60,680

 
79,474

 
88,019

Other
 
56,856

 
48,285

 
55,986

Total commercial loans
 
16,063,172

 
14,495,086

 
13,615,389

Real estate secured loans:
 
 
 
 
 
 
Premium wine (1)
 
139,218

 
151,695

 
106,136

Consumer (2)
 
32,750

 

 

Other
 

 

 

Total real estate secured loans
 
171,968

 
151,695

 
106,136

Construction loans
 
44,040

 
21,145

 

Consumer loans (2)
 
148,261

 
166,133

 
207,016

Total loans individually equal to or greater than $20 million
 
$
16,427,441

 
$
14,834,059

 
$
13,928,541

Loans (individually or in the aggregate) to any single client, less than $20 million
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
Software/internet
 
$
3,747,602

 
$
3,907,054

 
$
3,979,558

Hardware
 
699,799

 
629,627

 
646,712

Private equity/venture capital
 
4,415,459

 
4,160,218

 
3,840,139

Life science/healthcare
 
1,384,341

 
1,453,423

 
1,444,512

Premium wine
 
174,104

 
156,654

 
139,480

Other
 
343,631

 
390,952

 
221,949

Total commercial loans
 
10,764,936

 
10,697,928

 
10,272,350

Real estate secured loans:
 
 
 
 
 
 
Premium wine
 
611,086

 
602,316

 
580,631

Consumer
 
2,979,296

 
2,805,321

 
2,553,651

Other
 
39,455

 
39,816

 
41,076

Total real estate secured loans
 
3,629,837

 
3,447,453

 
3,175,358

Construction loans
 
73,613

 
92,855

 
81,903

Consumer loans
 
333,176

 
298,108

 
210,677

Total loans individually less than $20 million
 
$
14,801,562

 
$
14,536,344

 
$
13,740,288

Total gross loans
 
$
31,229,003

 
$
29,370,403

 
$
27,668,829

Loans individually equal to or greater than $20 million as a percentage of total gross loans
 
52.6
%
 
50.5
%
 
50.3
%
Total clients with loans individually equal to or greater than $20 million
 
388

 
362

 
347

Loans individually equal to or greater than $20 million on nonaccrual status
 
$
37,294

 
$

 
$
27,872

 
(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.


20



Credit Quality
(Dollars in thousands, except ratios)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
Gross nonaccrual, past due, and restructured loans:
 
 
 
 
 
 
Nonaccrual loans
 
$
104,045

 
$
96,641

 
$
115,162

Loans past due 90 days or more still accruing interest
 
864

 
111

 
163

Total nonperforming loans
 
104,909

 
96,752

 
115,325

OREO and other foreclosed assets
 

 

 

Total nonperforming assets

$
104,909

 
$
96,752

 
$
115,325

Nonperforming loans as a percentage of total gross loans
 
0.34
%
 
0.33
%
 
0.42
%
Nonperforming assets as a percentage of total assets
 
0.15

 
0.15

 
0.20

Allowance for loan losses
 
$
304,410

 
$
301,888

 
$
285,713

As a percentage of total gross loans
 
0.97
%
 
1.03
%
 
1.03
%
As a percentage of total gross nonperforming loans
 
290.17

 
312.02

 
247.75

Allowance for loan losses for nonaccrual loans
 
$
53,728

 
$
53,067

 
$
49,992

As a percentage of total gross loans
 
0.17
%
 
0.18
%
 
0.18
%
As a percentage of total gross nonperforming loans
 
51.21

 
54.85

 
43.35

Allowance for loan losses for total gross performing loans
 
$
250,682

 
$
248,821

 
$
235,721

As a percentage of total gross loans
 
0.80
%
 
0.85
%
 
0.85
%
As a percentage of total gross performing loans
 
0.81

 
0.85

 
0.86

Total gross loans
 
$
31,229,003

 
$
29,370,403

 
$
27,668,829

Total gross performing loans
 
31,124,094

 
29,273,651

 
27,553,504

Allowance for unfunded credit commitments (1)
 
63,108

 
62,664

 
51,808

As a percentage of total unfunded credit commitments
 
0.28
%
 
0.30
%
 
0.28
%
Total unfunded credit commitments (2)
 
$
22,274,418

 
$
20,952,069

 
$
18,539,514

 
(1)
The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”
(2)
Includes unfunded loan commitments and letters of credit.

Average Off-Balance Sheet Client Investment Funds(1) 
 
 
Three months ended
 
Nine months ended
(Dollars in millions)
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Sweep money market funds
 
$
40,321

 
$
40,017

 
$
34,556

 
$
40,048

 
$
30,284

Client investment assets under management (2)
 
42,834

 
40,825

 
36,541

 
40,969

 
33,561

Repurchase agreements
 
9,670

 
8,810

 
8,464

 
8,947

 
7,905

Total average client investment funds
 
$
92,825

 
$
89,652

 
$
79,561

 
$
89,964

 
$
71,750


Period-end Off-Balance Sheet Client Investment Funds(1) 
 
 
Period-end balances at
(Dollars in millions)
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
Sweep money market funds
 
$
42,022

 
$
40,008

 
$
40,686

 
$
38,348

 
$
36,067

Client investment assets under management (2)
 
44,886

 
41,614

 
39,376

 
39,214

 
37,649

Repurchase agreements
 
9,564

 
9,873

 
8,120

 
8,422

 
8,369

Total period-end client investment funds
 
$
96,472

 
$
91,495

 
$
88,182

 
$
85,984

 
$
82,085

 
(1)
Off-Balance sheet client investment funds are maintained at third-party financial institutions.
(2)
These funds represent investments in third-party money market mutual funds and fixed income securities managed by SVB Asset Management.

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 (including, but not limited to, non-GAAP core fee income, non-GAAP core fee income including investment banking revenue and commissions, non-GAAP noninterest income, non-GAAP net gains on

21



investment securities, non-GAAP non-marketable and other equity securities, non-GAAP noninterest expense and non-GAAP financial ratios) of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. 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.

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 for 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 requirements. 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. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. 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.

Additionally, from time to time, we may make reference to the non-GAAP financial metric of Core EPS in our earnings call and other investor presentations. Non-GAAP Core EPS consists of our net income available to common stockholders less gains or losses on investment securities and equity warrant assets, net of tax, divided by our diluted weighted average common shares outstanding. Our management believes this measure to be a useful assessment of our performance as it relates to our core business because it excludes certain financial items where performance is typically subject to market or other conditions beyond our control. A reconciliation of Core EPS to the closest corresponding GAAP measure is not available with respect to future goals due to our inability to provide a quantitative reconciliation to such measure.
In particular, in this press release, we use certain non-GAAP measures that exclude the following 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 certain SVB Capital funds. 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/certain financial line items include 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 and measures that are not required by GAAP or exclude certain financial items from calculations that are otherwise required under GAAP, including:

Non-GAAP core fee income including investment banking revenue and commissions — This measure represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. We do not provide our outlook for the expected full year results for these excluded items, which include net gains or losses on investment securities, net gains or losses on equity warrant assets and other noninterest income items.

Non-GAAP core fee income — This measure represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, as well as our investment banking revenue and commissions, and includes client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees. We do not provide our outlook for the expected full year results for these excluded items, which include net gains or losses on investment securities, net gains or losses on equity warrant assets, investment banking revenue, commissions and other noninterest income items.


22



Non-GAAP core operating efficiency ratio — This ratio excludes income and expenses related to SVB Leerink and certain financial items where performance is typically subject to market or other conditions beyond our control. It is calculated by dividing noninterest expense after adjusting for noninterest expense attributable to SVB Leerink by total revenue after adjusting for net interest income attributable to SVB Leerink, net gains or losses on investment securities and equity warrant assets, investment banking revenue and commissions. Additionally, noninterest expense and total revenue are adjusted for income or losses and expenses attributable to noncontrolling interests and adjustments to net interest income for a taxable equivalent basis. This ratio is used by management to evaluate the operating efficiency of our core banking business.

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 our capital levels. Risk-based capital guidelines require a minimum level of capital as a percentage of risk-weighted assets. Risk-weighted assets are calculated by assigning assets and off-balance sheet items to broad risk categories. 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, if any.
 
 
Three months ended
 
Nine months ended
Non-GAAP core fee income including investment banking revenue and commissions and non-GAAP core fee income (Dollars in thousands)
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
GAAP noninterest income
 
$
294,009


$
333,750


$
280,376

 
$
186,707

 
$
210,070


$
908,135


$
558,277

Less: gains on investment securities, net
 
29,849

 
47,698

 
29,028

 
10,729

 
32,193

 
106,575

 
77,365

Less: net gains on equity warrant assets
 
37,561

 
48,347

 
21,305

 
16,749

 
34,141

 
107,213

 
72,393

Less: other noninterest income
 
13,631

 
17,245

 
11,897

 
13,187

 
12,022

 
42,773

 
38,671

Non-GAAP core fee income including investment banking revenue and commissions
 
$
212,968


$
220,460


$
218,146


$
146,042


$
131,714


$
651,574


$
369,848

Less: investment banking revenue
 
38,516

 
48,694

 
49,795

 

 

 
137,005

 

Less: commissions
 
12,275

 
14,429

 
14,108

 

 

 
40,812

 

Non-GAAP core fee income
 
$
162,177

 
$
157,337


$
154,243


$
146,042


$
131,714


$
473,757


$
369,848

 
 
 
Three months ended
 
Nine months ended
Non-GAAP net gains on investment securities, net of noncontrolling interests (Dollars in thousands)
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
GAAP net gains on investment securities
 
$
29,849

 
$
47,698

 
$
29,028

 
$
10,729

 
$
32,193

 
$
106,575

 
$
77,365

Less: income attributable to noncontrolling interests, including carried interest allocation
 
14,640

 
18,598

 
3,436

 
8,965

 
6,641

 
36,674

 
29,218

Non-GAAP net gains on investment securities, net of noncontrolling interests
 
$
15,209

 
$
29,100

 
$
25,592

 
$
1,764

 
$
25,552

 
$
69,901

 
$
48,147









23



  
 
Three months ended
 
Nine months ended
Non-GAAP core operating efficiency ratio (Dollars in thousands, except ratios)
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
GAAP noninterest expense
 
$
391,324

 
$
383,522

 
$
365,664

 
$
307,592

 
$
309,445

 
$
1,140,510

 
$
880,601

Less: expense attributable to noncontrolling interests
 
145

 
168

 
379

 
173

 
154

 
692

 
349

Non-GAAP noninterest expense, net of noncontrolling interests
 
391,179

 
383,354

 
365,285

 
307,419

 
309,291

 
1,139,818

 
880,252

Less: expense attributable to SVB Leerink
 
55,200

 
61,935

 
60,540

 

 

 
177,675

 

Non-GAAP noninterest expense, net of noncontrolling interests and SVB Leerink
 
$
335,979

 
$
321,419

 
$
304,745

 
$
307,419

 
$
309,291

 
$
962,143

 
$
880,252

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net interest income
 
$
520,644

 
$
529,403

 
$
512,886

 
$
514,460

 
$
493,222

 
$
1,562,933

 
$
1,379,528

Adjustments for taxable equivalent basis
 
2,957

 
2,905

 
2,907

 
2,952

 
2,858

 
8,769

 
6,249

Non-GAAP taxable equivalent net interest income
 
523,601

 
532,308

 
515,793

 
517,412

 
496,080

 
1,571,702

 
1,385,777

Less: income attributable to noncontrolling interests
 
14

 
16

 
11

 
1

 
10

 
41

 
29

Non-GAAP taxable equivalent net interest income, net of noncontrolling interests
 
523,587

 
532,292

 
515,782

 
517,411

 
496,070

 
1,571,661

 
1,385,748

Less: net interest income attributable to SVB Leerink
 
277

 
242

 
442

 

 

 
961

 

Non-GAAP taxable equivalent net interest income, net of noncontrolling interests and SVB Leerink
 
$
523,310

 
$
532,050

 
$
515,340

 
$
517,411

 
$
496,070

 
$
1,570,700

 
$
1,385,748

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP noninterest income
 
$
294,009

 
$
333,750

 
$
280,376

 
$
186,707

 
$
210,070

 
$
908,135

 
$
558,277

Less: income attributable to noncontrolling interests, including carried interest allocation
 
14,568

 
18,736

 
3,248

 
8,839

 
6,692

 
36,552

 
29,161

Non-GAAP noninterest income, net of noncontrolling interests
 
279,441

 
315,014

 
277,128

 
177,868

 
203,378

 
871,583

 
529,116

Less: Non-GAAP net gains on investment securities, net of noncontrolling interests
 
15,209

 
29,100

 
25,592

 
1,764

 
25,552

 
69,901

 
48,147

Less: net gains on equity warrant assets
 
37,561

 
48,347

 
21,305

 
16,749

 
34,141

 
107,213

 
72,393

Less: investment banking revenue
 
38,516

 
48,694

 
49,795

 

 

 
137,005

 

Less: commissions
 
12,275

 
14,429

 
14,108

 

 

 
40,812

 

Non-GAAP noninterest income, net of noncontrolling interests and net of net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions
 
$
175,880

 
$
174,444

 
$
166,328

 
$
159,355

 
$
143,685

 
$
516,652

 
$
408,576

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP total revenue
 
$
814,653

 
$
863,153

 
$
793,262

 
$
701,167

 
$
703,292

 
$
2,471,068

 
$
1,937,805

Non-GAAP taxable equivalent revenue, net of noncontrolling interests, SVB Leerink, net of net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions
 
$
699,190

 
$
706,494

 
$
681,668

 
$
676,766

 
$
639,755

 
$
2,087,352

 
$
1,794,324

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP operating efficiency ratio
 
48.04
%
 
44.43
%
 
46.10
%
 
43.87
%
 
44.00
%
 
46.15
%
 
45.44
%
Non-GAAP core operating efficiency ratio
 
48.05

 
45.49

 
44.71

 
45.42

 
48.35

 
46.09

 
49.06


24



 
 
Period-end balances at
Non-GAAP non-marketable and other equity securities, net of noncontrolling interests (Dollars in thousands)
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
GAAP non-marketable and other equity securities
 
$
1,150,094

 
$
1,079,749

 
$
974,979

 
$
941,104

 
$
896,249

Less: amounts attributable to noncontrolling interests
 
142,182

 
148,270

 
134,130

 
134,962

 
130,995

Non-GAAP non-marketable and other equity securities, net of noncontrolling interests
 
$
1,007,912

 
$
931,479

 
$
840,849

 
$
806,142

 
$
765,254

 
 
Period-end balances at
SVB Financial Group tangible common equity, tangible assets and risk-weighted assets (Dollars in thousands, except ratios)
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
GAAP SVBFG stockholders’ equity
 
$
5,890,680

 
$
5,554,043

 
$
5,342,773

 
$
5,116,209

 
$
4,924,369

Less: intangible assets
 
190,111

 
192,981

 
193,219

 

 

Tangible common equity
 
$
5,700,569

 
$
5,361,062

 
$
5,149,554

 
$
5,116,209

 
$
4,924,369

GAAP total assets
 
$
68,231,233

 
$
63,773,739

 
$
60,160,285

 
$
56,927,979

 
$
58,139,734

Less: intangible assets
 
190,111

 
192,981

 
193,219

 

 

Tangible assets
 
$
68,041,122

 
$
63,580,758

 
$
59,967,066

 
$
56,927,979

 
$
58,139,734

Risk-weighted assets
 
$
43,712,495

 
$
40,843,334

 
$
40,048,892

 
$
38,527,853

 
$
37,889,139

Tangible common equity to tangible assets
 
8.38
%
 
8.43
%
 
8.59
%
 
8.99
%
 
8.47
%
Tangible common equity to risk-weighted assets
 
13.04

 
13.13

 
12.86

 
13.28

 
13.00

 
 
Period-end balances at
Silicon Valley Bank tangible common equity, tangible assets and risk-weighted assets (Dollars in thousands, except ratios)
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
Tangible common equity
 
$
4,918,767

 
$
4,936,520

 
$
4,696,564

 
$
4,554,814

 
$
4,260,685

Tangible assets
 
$
66,824,088

 
$
62,380,814

 
$
58,774,326

 
$
56,047,134

 
$
57,245,029

Risk-weighted assets
 
$
41,597,959

 
$
38,821,244

 
$
38,132,316

 
$
37,104,080

 
$
36,424,091

Tangible common equity to tangible assets
 
7.36
%
 
7.91
%
 
7.99
%
 
8.13
%
 
7.44
%
Tangible common equity to risk-weighted assets
 
11.82

 
12.72

 
12.32

 
12.28

 
11.70


25
SVB Financial Group Q3 2019 Financial Highlights Solid operating environment, effective execution and robust client acquisition drove strong results October 24, 2019 To our Stakeholders: We are pleased to report strong third quarter Earnings per Share of $5.15, Net Income of $267 million and Return on Equity of 18 percent. Our performance is the result of a solid operating environment, effective execution against our strategy and robust client acquisition. Our financial results reflect excellent balance sheet growth, solid core fee income and healthy market-related gains, underpinned by continued stable credit. What makes SVB different: unparalleled access, connections & insights Our strong financial results demonstrate the power of SVB’s place at the center of the global innovation ecosystem and the ways in which our strategy and values reinforce the foundation we’ve laid for long-term growth. Our long- term commitment to innovators and investors enables us to understand their businesses, give advice and solve their problems to improve the probability of their success. The networks and deep relationships we’ve cultivated globally over decades allow us to make meaningful connections for our clients and provide value well beyond the capabilities of a typical bank. Moving forward, our investments in digital enhancements to improve the client experience; geographic expansion; and diversification of our business into complementary areas that increase our value to clients will enable us to remain differentiated over the long term. Q3’19 themes: strong performance and markets, effective execution and positive outlook The following themes summarize our view of our most recent quarter and the current market environment: 1. Healthy markets, the robust liquidity of our clients and our own strong execution are fueling growth in our core business globally. 2. We have achieved our target ~10% net interest income sensitivity 3. Core fee income continues to grow strongly across the board alongside solid contributions from warrants and investment securities. 4. Credit remains stable and the risk profile of our loan portfolio has improved significantly over time. 5. We are maintaining strong capital and liquidity, which gives with the flexibility to adapt to and take advantage of opportunities in a changing environment. Our strong capital position provided the foundation for a new $350 million share repurchase authorization, effective over the next 12 months. 6. Our preliminary 2020 growth outlook is positive, with expectations of solid performance and continued investment in products, people, systems and processes to support our growth in the future. Healthy markets and strong execution continue to fuel growth in our core business Venture Capital investment remained strong in the third quarter for a total of $97 billion invested in nearly 8,000 companies year to date, easily on pace for a second successive year of investment greater than $100 billion, given the trend toward fewer, larger investments. This healthy VC activity was reflected in our strong new client acquisition, with another quarter of more than 1,200 new core commercial clients. This robust client acquisition is consistent with Q2 and continues the trend that has resulted in net client growth of nearly 70 percent since 2015. Our access to the best innovation clients and our ability to increase the likelihood of their success and continue to add value as they grow remain key differentiators for us. 1 Q3 2019 Earnings Highlights


 
Third-quarter exit activity stabilized somewhat following the flood of pent-up IPOs in Q2, but remained strong. VC- backed exit values for 2019 year to date crossed the $200 billion mark for the first time in a decade, with more than 80% of all exits year to date occurring via IPO, another first for the industry. Seventy percent of US venture backed companies that went public during the quarter were SVB Clients. This activity contributed to approximately $38 million in warrant-related gains in the third quarter. VC fundraising reached $30 billion year to date and appears to be on track for another strong year, on top of which, the realized returns to investors from this year’s IPOs will soon be flowing back into the system, ripe for reinvestment. VC net cash flows for the past eight years have been positive, meaning that VCs are receiving capital back from their investments faster than they can re-invest it. The current strong appetite of investors for venture investments and the abundance of capital raised and returned suggests continued strong investment is ahead, albeit in fewer, larger funds. US private equity investment remained strong in the third quarter with the number of deals year to date on pace to match 2018, despite a weaker economic backdrop. As a result, 2019 PE fundraising year to date has already reached full-year 2018 levels. Demand for deals from traditional LPs as well as newer entrants such as sovereign wealth funds remains healthy. This backdrop of continued investment, fundraising and demand provides a healthy environment for our clients and for us, as we continue to execute on our strategy of enhancing client experience, improving employee enablement, enhancing risk management, and driving revenues and scalable, long-term growth. Strong balance sheet and total client funds growth, driven by robust client liquidity Average total client funds growth of 5% to $150 billion primarily reflected growth in technology, with contributions from our private equity/venture capital and international portfolios, due to healthy funding and exit markets for our clients, as well as continued robust new client acquisition.  Average on-balance sheet deposits increased by 8.1 percent to $57.2 billion.  Average interest-bearing deposits grew by 22 percent to $18.1 billion, due to the success of new products related to our deposit growth initiative.  Total deposit costs increased by 2 basis points, as our pricing adjustments were offset by strong volume growth. Our deposit costs remain very low at 38 basis points.  Average non-interest-bearing deposits returned to growth, increasing by $1.0 billion to $39.1 billion. Non- interest-bearing deposits now constitute 68 percent of total deposits, compared to 72 percent in Q2. We are increasing our full-year deposit growth outlook from the low double digits to the low teens, as a result of our better-than-forecast deposit growth, the momentum created by our deposit growth initiatives and the continued strong liquidity of our clients. We expect the majority of deposit growth for the remainder of 2019 to occur in interest-bearing products. Average loans grew by 1.4 percent to $29.8 billion, on track to meet our full-year outlook. Growth was driven primarily by private equity capital call lending, which now constitutes 52 percent of the loan portfolio, and by continued growth in our Private Bank lending. At the same time, liquidity from the strong equity funding environment, and our continued credit discipline, continue to provide headwinds to growth in our technology and life science lending. Despite these pressures, the pace of loan growth for the full year remains on track with our forecast and late-quarter borrowing activity in Q3 has created strong momentum going into Q4, as evidenced by period-end loan growth of $1.9 billion to $31.1 billion during the quarter. Loan yields declined by 41 basis points during the quarter, driven by lower rates, portfolio mix, lower loan prepayment fees and interest recoveries vs. Q2, as well as the market environment. 2 Q3 2019 Earnings Highlights


 
Average fixed income investment securities grew strongly by 8.7 percent to $25.1 billion and yields remained stable at 2.58 percent. New purchases totaled $5.4 billion at 2.43 percent. This represented a decrease of 36 bps from the prior quarter, but was nevertheless accretive to NII and helped to drive our asset sensitivity lower. Maturity yields were 2.43 percent (versus 2.25 percent in the prior quarter). Based on the current level of interest rates, the average tax-effected yield on new investments for the remainder of 2019 could be between 2.15 and 2.25 percent and overall, we expect the yield on the investment portfolio to remain flat. Q3’19 NIM compression driven primarily by strong balance sheet growth Net interest margin and Net interest income declined during the quarter, primarily reflecting strong balance sheet growth, as well as the impact of market rate declines and a number of non-rate related items. Net Interest margin declined by 34 basis points to 3.34 percent. The majority of this decrease – 21 basis points – was due to growth in earning assets. This included growth in interest-bearing deposits and high-quality but lower yielding loan categories, as well as higher cash balances related to our strong client liquidity. Seven basis points were directly related to the impact of lower Prime and LIBOR rates. Another six basis points of decline came from the market environment, including competitive loan yield compression and the impact of interest recoveries in Q2. The majority of our loans tied to LIBOR reset during the quarter, limiting the impact of LIBOR in future quarters, assuming no additional changes in the forward curve. We expect Q4 NIM to be between 3.25% and 3.30%. Net interest income decreased by 1.6 percent to $523.6 million, primarily due to the impact of lower interest rates. Two thirds of this decrease ($11.4 million) was related to the impact of lower Fed Funds rates on prime based loans, cash balances and interest rate swaps and lower rates on LIBOR-indexed loans. The remainder ($9.1 million) was from to non-rate-related items including lower interest recoveries versus Q2. These decreases were partially offset by the impact of strong balance sheet growth during the quarter which contributed an $11.8 million increase in interest income. Consistent with the comments we made in Q2’19, we are reducing our full year 2019 outlook for NII and NIM following two additional decreases in the Fed Funds rate in July and September.  We expect full-year 2019 Net Interest Income growth in the low double digits, versus our prior outlook of the low teens.  We expect full year average 2019 NIM of 3.50% to 3.60%, 10 basis points lower than our prior outlook. We reduced our net interest income sensitivity to our ~10% target We are succeeding in our efforts to manage the impact of rate decreases on our net interest income sensitivity to no more than 10% in a 100 basis point shock scenario. Our primary strategies underlying this effort are interest rate swaps, continued extension of our fixed-income securities portfolio, and adapting our deposit pricing to market rates. We will continue to actively manage asset sensitivity to the 10% target. Based on our expectations for the impact of our balance sheet strategies through the rest of 2019, we are forecasting a $35 to $45 million annualized, pre-tax reduction in NII for each 25 basis point Fed Funds decrease, which equates to approximately 2 percent of our net interest income. This estimate assumes deposit beta on lower rates of between 50 and 70 percent, and continued deposit growth, primarily in interest-bearing accounts. 3 Q3 2019 Earnings Highlights


 
Strong core fee income growth; solid warrant and investment securities gains We continue to see strong growth in our core fee income lines as well as gains from warrants, investment securities and our investment banking business. Our core fee income has grown 28 percent year to date compared to the same period last year, particularly driven by client investment fees, credit cards and foreign exchange. This continued growth in core fee income provides a welcome offset to downward pressure from rates. While our market-driven income streams are harder to predict, we’ve seen very good warrant and investment securities gains year to date, thanks to healthy funding and exit environments for our clients. And while we expect our client markets to remain healthy, we do not anticipate that 2020 warrant and investment securities gains will match 2019 levels. Income from SVB Leerink was slower in the third quarter. Expectations for SVB Leerink revenues are slightly lower for the year as M&A revenues have been weaker than anticipated. However, the market for SVB Leerink continues to grow and they are maintaining consistent market share. We have solid expectations for that business in 2020, assuming the markets remain healthy. Credit remains stable with solid underlying trends; CECL impact manageable Credit quality remained solid in the third quarter, with strong underlying metrics and no change in our outlook for 2019. Our credit performance reflects continued growth in high-quality loan categories, such as Private Equity and Private Bank, as well as the gradual improvement of our risk profile, including the decrease over the years of early stage loans to only 5 percent of our loan portfolio. Based on the high quality and short duration of our loan portfolio, we are expecting the impact of CECL adoption to be primarily reflected in an adjustment to our reserves for funded and unfunded credit commitments related to the requirement to reserve for the life of our Technology and Healthcare loans, versus the one-year reserve horizon in place in the current standard. We estimate that day-one CECL adoption implementation will increase combined reserves by 7 to 16 percent, due to the higher lifetime inherent risk in our technology and life science portfolios. This increase will be reflected in equity. We expect increased volatility in reserves going forward, depending on economic conditions and forecasts. We will continue to refine our estimates in Q4 and are on track for implementation on January 1, 2020. Positive preliminary 2020 outlook; expecting solid growth while continuing to invest in the future In 2020, we expect continued solid performance and opportunities for growth, even without help from interest rates. Our preliminary outlook is based on our expectations for healthy client liquidity and activity, although potentially less robust than in 2019; and stable credit, barring a significant deterioration in the economy. In addition to strong balance sheet and core fee income growth, low single digit net interest income growth, a stabilizing NIM, and credit quality consistent with 2019, we are forecasting non-interest expense growth in the high-single digits. These expectations assume no future interest rate decreases. For 2020, assuming all of our preliminary guidance and the impact of two additional Fed rate decreases in 2019, we expect full year net interest margin between 3.10% and 3.20% and net interest income comparable to 2019 levels. Our actual results will be impacted by a variety of factors, including the mix of interest-bearing to non- interest-bearing deposits, the mix of deposits to off-balance-sheet client funds and certain market-related factors. 4 Q3 2019 Earnings Highlights


 
Summary: solid Q3 performance, positive outlook and long-term growth catalysts Our continued strong performance and the health and liquidity of our clients make us positive about our business and growth prospects. As always, we are keeping a close eye on any challenges that might arise from the health of our markets and the broader markets. Interest rates remain an area of focus but we believe our lower asset sensitivity and flexibility with regard to expense growth will enable us to better manage the impact of a declining rate environment. Competition is as challenging as it has ever been – from banks, non-bank financial service providers and liquidity in the markets. While we continue to take every opportunity to raise our game in the face of competition, in the long run, we believe our unique approach, networks and insights will continue to differentiate us with clients, while our ongoing investments in products and capabilities will enhance our ability compete globally. While the potential impact of an economic downturn on credit is on many people’s minds, in this respect we believe we are better positioned than we have ever been, with fully 79 percent of our assets in high-quality investments and low-credit-loss-experience lending. In addition to these advantages, we have a high-quality, highly liquid balance sheet and a client base that has demonstrated resilience during downturns. We believe the investments we’re making in geographic expansion, enhancement of the digital client experience and diversification of our business, and in with people and systems will provide the foundation for long-term profitable growth and operating leverage. In the meantime, we are enjoying the growth and flexibility enabled by our strong capital and liquidity and are confident in our diversified, high-quality balance sheet. We remain focused on being the most valuable partner to innovators and their investors, ensuring we remain at the heart of the innovation economy globally so that we can continue to see and support the best new companies year after year, and forge deep and lasting bonds with our clients as they grow. We believe this focus on our clients’ success and our ongoing investments in clients, employees, products and revenue growth will enable us to make the most of a cycle, when it comes, further differentiate ourselves as a true value-add partner to our clients, and more deeply entrench our position as the bank of the global innovation economy. Greg Becker President and CEO 5 Q3 2019 Earnings Highlights


 


 
• • • • •


 


 


 


 
• • • • •


 
• • • • •


 
• • •


 
• • • •


 
• •


 
• • • • • • • • • •


 
• • •


 
• • • •


 
• • • • •


 
• • •


 


 
• • •