Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - SVB FINANCIAL GROUP | q117earningsrelease8-k.htm |
Exhibit 99.1
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 | |||||||
April 27, 2017 | ||||||||
NASDAQ: SIVB | ||||||||
SVB FINANCIAL GROUP ANNOUNCES 2017 FIRST QUARTER FINANCIAL RESULTS
SANTA CLARA, Calif. — April 27, 2017 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the first quarter ended March 31, 2017.
Consolidated net income available to common stockholders for the first quarter of 2017 was $101.5 million, or $1.91 per diluted common share, compared to $99.5 million, or $1.89 per diluted common share for the fourth quarter of 2016 and $79.2 million, or $1.52 per diluted common share, for the first quarter of 2016.
"Our core business remained healthy in the first quarter with solid loan growth, healthy total client funds growth, higher net interest income and stable credit quality. We are maintaining our positive outlook for 2017 and raising our guidance for net interest income and net interest margin due to the recent interest rate increase," said Greg Becker, President and CEO of SVB Financial Group. "While VC activity remains below recent historic highs as investors intensify their focus on disciplined investing, the brisk pace of first-time fund closings and significant levels of dry powder on the sidelines indicate that investors' appetites are still strong and there is ample capital available for good companies. Overall, our clients continue to perform well and we are seeing healthy momentum in our pipeline that reinforces our positive expectations for the year ahead."
Highlights of our first quarter 2017 results (compared to fourth quarter 2016, unless otherwise noted) included:
• | Average loan balances of $20.1 billion, an increase of $0.8 billion (or 4.2 percent). |
• | Period-end loan balances of $20.4 billion, an increase of $0.5 billion (or 2.7 percent). |
• | Average fixed income investment securities of $21.2 billion, an increase of $0.9 billion (or 4.5 percent). |
• | Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $1.4 billion (or 1.7 percent) to $86.1 billion, with average off-balance sheet client investment funds increasing by $1.2 billion (or 2.6 percent) and average on-balance sheet deposits increasing by $0.2 billion (or 0.7 percent). |
• | Period-end total client funds increased $2.7 billion (or 3.2 percent) to $87.5 billion, with period-end off-balance sheet client investment funds increasing by $0.6 billion (or 1.4 percent) and period-end on-balance sheet deposits increasing by $2.1 billion (or 5.4 percent). |
• | Net interest income (fully taxable equivalent basis) of $310.3 million, an increase of $13.4 million (or 4.5 percent). |
• | Provision for credit losses1 of $30.7 million, compared to $16.5 million. |
• | Gains on investment securities of $16.0 million, compared to $10.0 million. Non-GAAP gains on investment securities, net of noncontrolling interests, were $9.5 million, compared to $5.3 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”) |
• | Gains on equity warrant assets of $6.7 million, compared to $4.6 million. |
• | Noninterest income of $117.7 million, an increase of $4.2 million (or 3.7 percent). Non-GAAP core fee income decreased $2.1 million (or 2.4 percent) to $82.6 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”) |
• | Noninterest expense of $237.6 million, an increase of $2.4 million (or 1.0 percent). |
• | Income tax expense included a $6.1 million benefit related to new accounting guidance for the tax impact associated with employee share-based transactions and a $4.7 million benefit for the return of tax funds related to a prior years' tax return. (See "Income Tax Expense" for further details.) |
(1) | Our consolidated statements of income were modified from prior periods’ presentation to conform to the current period presentation to reflect our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. In prior periods, our provision for unfunded credit commitments was reported separately as a component of noninterest expense. |
First Quarter 2017 Summary
(Dollars in millions, except share data, employees and ratios) | Three months ended | |||||||||||||||||||
March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||||||||||||||
Income statement: | ||||||||||||||||||||
Diluted earnings per common share (1) | $ | 1.91 | $ | 1.89 | $ | 2.12 | $ | 1.78 | $ | 1.52 | ||||||||||
Net income available to common stockholders (1) | 101.5 | 99.5 | 111.1 | 93.0 | 79.2 | |||||||||||||||
Net interest income | 310.0 | 296.6 | 289.2 | 283.3 | 281.4 | |||||||||||||||
Provision for credit losses (2) | 30.7 | 16.5 | 20.0 | 36.7 | 33.5 | |||||||||||||||
Noninterest income | 117.7 | 113.5 | 144.1 | 112.8 | 86.1 | |||||||||||||||
Noninterest expense | 237.6 | 235.2 | 220.8 | 199.9 | 203.9 | |||||||||||||||
Non-GAAP core fee income (3) | 82.6 | 84.6 | 80.5 | 74.5 | 76.5 | |||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (3) | 111.1 | 109.1 | 139.5 | 111.2 | 88.8 | |||||||||||||||
Non-GAAP noninterest expense, net of noncontrolling interests (3) | 237.5 | 234.9 | 220.7 | 199.7 | 204.0 | |||||||||||||||
Fully taxable equivalent: | ||||||||||||||||||||
Net interest income (4) | $ | 310.3 | $ | 296.9 | $ | 289.4 | $ | 283.6 | $ | 281.7 | ||||||||||
Net interest margin | 2.88 | % | 2.73 | % | 2.75 | % | 2.73 | % | 2.67 | % | ||||||||||
Balance sheet: | ||||||||||||||||||||
Average total assets | $ | 45,301.0 | $ | 44,933.7 | $ | 43,451.3 | $ | 43,370.0 | $ | 44,190.2 | ||||||||||
Average loans, net of unearned income | 20,069.3 | 19,260.7 | 18,647.2 | 18,199.3 | 17,012.4 | |||||||||||||||
Average available-for-sale securities | 12,550.3 | 12,505.1 | 12,743.7 | 13,399.3 | 14,692.6 | |||||||||||||||
Average held-to-maturity securities | 8,600.2 | 7,730.5 | 8,003.8 | 8,382.8 | 8,658.7 | |||||||||||||||
Average noninterest-bearing demand deposits | 32,709.4 | 32,663.8 | 30,522.3 | 30,342.4 | 31,219.5 | |||||||||||||||
Average interest-bearing deposits | 7,249.1 | 7,033.7 | 7,387.4 | 7,817.5 | 8,048.6 | |||||||||||||||
Average total deposits | 39,958.5 | 39,697.4 | 37,909.8 | 38,160.0 | 39,268.1 | |||||||||||||||
Average long-term debt | 795.6 | 795.9 | 796.2 | 796.5 | 796.7 | |||||||||||||||
Period-end total assets | 46,413.3 | 44,683.7 | 43,274.0 | 43,132.7 | 43,573.9 | |||||||||||||||
Period-end loans, net of unearned income | 20,427.5 | 19,899.9 | 19,112.3 | 18,833.8 | 17,735.1 | |||||||||||||||
Period-end available-for-sale securities | 12,384.0 | 12,620.4 | 12,665.7 | 13,058.6 | 14,327.1 | |||||||||||||||
Period-end held-to-maturity securities | 8,615.7 | 8,427.0 | 7,791.9 | 8,200.4 | 8,548.2 | |||||||||||||||
Period-end non-marketable and other securities | 635.6 | 622.6 | 625.2 | 664.1 | 668.5 | |||||||||||||||
Period-end noninterest-bearing demand deposits | 33,587.9 | 31,975.5 | 31,029.0 | 30,287.8 | 30,933.3 | |||||||||||||||
Period-end interest-bearing deposits | 7,491.8 | 7,004.4 | 7,160.4 | 7,308.7 | 7,826.5 | |||||||||||||||
Period-end total deposits | 41,079.7 | 38,979.9 | 38,189.4 | 37,596.6 | 38,759.7 | |||||||||||||||
Off-balance sheet: | ||||||||||||||||||||
Average client investment funds | $ | 46,130.2 | $ | 44,966.8 | $ | 43,105.5 | $ | 42,883.3 | $ | 42,471.6 | ||||||||||
Period-end client investment funds | 46,434.8 | 45,797.8 | 43,343.7 | 43,072.4 | 42,273.5 | |||||||||||||||
Total unfunded credit commitments | 16,082.3 | 16,743.2 | 16,297.1 | 15,502.5 | 15,880.2 | |||||||||||||||
Earnings ratios: | ||||||||||||||||||||
Return on average assets (annualized) (5) | 0.91 | % | 0.88 | % | 1.02 | % | 0.86 | % | 0.72 | % | ||||||||||
Return on average SVBFG stockholders’ equity (annualized) (6) | 11.03 | 10.77 | 12.32 | 10.83 | 9.59 | |||||||||||||||
Asset quality ratios: | ||||||||||||||||||||
Allowance for loan losses as a % of total gross loans | 1.18 | % | 1.13 | % | 1.25 | % | 1.29 | % | 1.29 | % | ||||||||||
Allowance for loan losses for performing loans as a % of total gross performing loans | 0.94 | 0.94 | 1.03 | 0.98 | 1.01 | |||||||||||||||
Gross charge-offs as a % of average total gross loans (annualized) | 0.28 | 0.52 | 0.52 | 0.45 | 0.61 | |||||||||||||||
Net charge-offs as a % of average total gross loans (annualized) | 0.25 | 0.44 | 0.48 | 0.43 | 0.49 | |||||||||||||||
Other ratios: | ||||||||||||||||||||
GAAP operating efficiency ratio (7) | 55.57 | % | 57.35 | % | 50.95 | % | 50.48 | % | 55.47 | % | ||||||||||
Non-GAAP operating efficiency ratio (3) | 56.35 | 57.87 | 51.45 | 50.58 | 55.05 | |||||||||||||||
SVBFG CET 1 risk-based capital ratio | 13.05 | 12.80 | 12.75 | 12.43 | 12.38 | |||||||||||||||
Bank CET 1 risk-based capital ratio | 12.75 | 12.65 | 12.77 | 12.57 | 12.57 | |||||||||||||||
SVBFG total risk-based capital ratio | 14.45 | 14.21 | 14.22 | 13.92 | 13.90 | |||||||||||||||
Bank total risk-based capital ratio | 13.80 | 13.66 | 13.83 | 13.65 | 13.66 | |||||||||||||||
SVBFG tier 1 leverage ratio | 8.51 | 8.34 | 8.35 | 8.08 | 7.69 | |||||||||||||||
Bank tier 1 leverage ratio | 7.81 | 7.67 | 7.74 | 7.56 | 7.19 | |||||||||||||||
Period-end loans, net of unearned income, to deposits ratio | 49.73 | 51.05 | 50.05 | 50.09 | 45.76 | |||||||||||||||
Average loans, net of unearned income, to average deposits ratio | 50.23 | 48.52 | 49.19 | 47.69 | 43.32 | |||||||||||||||
2
Book value per common share (8) | $ | 71.80 | $ | 69.71 | $ | 69.02 | $ | 67.38 | $ | 65.40 | ||||||||||
Other statistics: | ||||||||||||||||||||
Average full-time equivalent employees | 2,345 | 2,303 | 2,255 | 2,182 | 2,160 | |||||||||||||||
Period-end full-time equivalent employees | 2,347 | 2,311 | 2,280 | 2,188 | 2,170 | |||||||||||||||
(1) | Included in diluted earnings per common share and net income available to common shareholders for the three months ended March 31, 2017 are tax benefits recognized associated with the adoption of Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting in the first quarter of 2017. This guidance was adopted on a prospective basis with no changes to prior period amounts. (See "Income Tax Expense" for further details) |
(2) | Our consolidated statements of income were modified from prior periods’ presentation to conform to the current period presentation to reflect our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. In prior periods, our provision for unfunded credit commitments was reported separately as a component of noninterest expense. |
(3) | 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 GAAP is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.” |
(4) | Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 35.0 percent. The taxable equivalent adjustments were $0.3 million for each of the quarters ended March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016. |
(5) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets. |
(6) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders’ equity. |
(7) | Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income. |
(8) | 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 basis, was $310.3 million for the first quarter of 2017, compared to $296.9 million for the fourth quarter of 2016. The $13.4 million increase from the fourth quarter of 2016 to the first quarter of 2017, was attributable primarily to the following:
• | An increase in interest income from loans of $10.6 million to $227.3 million for the first quarter of 2017. The increase was related primarily to higher average loan balances and the benefit of higher interest rates, partially offset by the impact of two fewer days in the quarter (compared to the fourth quarter of 2016). Overall loan yields increased 11 basis points reflective primarily of the impact of the 25 basis point increase in the target federal funds rate by the Federal Reserve in December 2016, offset by lower yields from the growth of our lower-yielding private equity/venture capital and Private Bank loan portfolios. Additionally, competition has put downward pressure on the loan yields for newly originated loans and renewals of existing loans primarily in the Private Equity Division, SVB Accelerator practice and Sponsored Finance group. |
• | An increase in interest income from our fixed income investment securities in our available-for-sale ("AFS") and held-to-maturity ("HTM") portfolios of $4.1 million to $90.8 million for the first quarter of 2017. Continued reinvestment of maturing fixed income investments, plus investment of excess cash throughout the quarter, contributed to a $0.9 billion increase in average fixed income investments resulting in increased interest income of $7.6 million, offset by a net increase of $3.5 million in premium amortization expense. Our overall yields from investment securities increased four basis points to 1.74 percent, primarily attributable to higher reinvestment rates, offset by the yield impact from the increase in net premium amortization expense, reflective of the slowdown in prepayments and prepayment estimates for our mortgage-backed securities in the fourth quarter of 2016, due to the sharp increase in market rates, as compared to the first quarter of 2017. |
• | A decrease in interest income from short-term investment securities of $1.1 million for the first quarter of 2017. The decrease was due primarily to a decrease of $1.3 billion in interest-earning cash balances as a result of fixed income investment purchases and loan funding during the quarter, partially offset by the impact of the increase in the target federal funds rate in December 2016. |
Net interest margin, on a fully taxable equivalent basis, was 2.88 percent for the first quarter of 2017, compared to 2.73 percent for the fourth quarter of 2016. Our net interest margin increased due to a shift in the mix of our interest earning assets as well as from the impact of the change in the federal funds target rate, partially offset by the increase in amortization expense and the compression in gross loan yields from competition as previously noted. The change in mix was the result of shifting lower yielding interest-earning cash and cash flows received from fixed income securities during the quarter into higher yielding loans and fixed income investment securities. Average loans and average fixed
3
income investments represented 46 percent and 48 percent, respectively, of interest earning assets for the first quarter of 2017, compared to 44 percent and 47 percent, respectively, for the fourth quarter of 2016.
For the first quarter of 2017, 89.1 percent, or $18.1 billion, of our average gross loans were variable-rate loans that adjust at prescribed measurement dates upon a change in prime-lending rates or other variable-rate indices. However, approximately 10 percent of our variable-rate loans will not reprice in 2017 and, as a result, the impact of increases in short-term interest rates will be delayed for these loans. Average variable-rate gross loans were 88.2 percent, or $17.2 billion, for the fourth quarter of 2016.
Investment Securities
Our investment securities portfolio consists of: (i) an AFS portfolio and a HTM portfolio, both of which represent primarily interest-earning fixed income investment securities and 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) a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business. Our total average fixed income investment securities portfolio increased $0.9 billion, or 4.5 percent, to $21.2 billion for the quarter ended March 31, 2017. Our total period-end fixed income investment securities portfolio decreased $48 million, or 0.2 percent, to $21.0 billion at March 31, 2017. The duration of our fixed income investment securities portfolio was 2.5 years at both March 31, 2017 and December 31, 2016. Non-marketable and other securities increased $13.0 million to $635.6 million ($509.3 million net of noncontrolling interests) at March 31, 2017.
Available-for-Sale Securities
Average AFS securities remained flat at $12.5 billion for the first quarter of 2017, compared to the fourth quarter of 2016. Period-end AFS securities were $12.4 billion at March 31, 2017 compared to $12.6 billion at December 31, 2016. The $0.2 billion decrease in period-end AFS securities balances from the fourth quarter of 2016 to the first quarter of 2017 was due primarily to $0.8 billion in portfolio paydowns and maturities partially offset by purchases of $0.6 billion of agency backed mortgage securities. The weighted-average duration of our AFS securities portfolio was 1.9 years and 2.0 years at March 31, 2017 and December 31, 2016, respectively.
Held-to-Maturity Securities
Average HTM securities were $8.6 billion for the first quarter of 2017, compared to $7.7 billion for the fourth quarter of 2016, reflecting an increase of $0.9 billion. Period-end HTM securities were $8.6 billion at March 31, 2017, compared to $8.4 billion at December 31, 2016. The $0.2 billion increase in period-end HTM security balances from the fourth quarter of 2016 to the first quarter of 2017 was due to new purchases of $0.6 billion primarily in agency backed mortgage securities, partially offset by $0.4 billion in portfolio paydowns and maturities. The weighted-average duration of our HTM securities portfolio was 3.3 years at both March 31, 2017 and December 31, 2016.
Non-Marketable and Other Securities
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, our China joint venture bank, debt funds, private and public portfolio companies and investments in qualified affordable housing projects.
Non-marketable and other securities increased $13.0 million to $635.6 million ($509.3 million net of noncontrolling interests) at March 31, 2017, compared to $622.6 million ($500.1 million net of noncontrolling interests) at December 31, 2016. Reconciliations of our non-GAAP non-marketable and other securities, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures."
Loans
Average loans (net of unearned income) increased by $0.8 billion to $20.1 billion for the first quarter of 2017, compared to $19.3 billion for the fourth quarter of 2016. Period-end loans (net of unearned income) increased by $0.5 billion to $20.4 billion at March 31, 2017, compared to $19.9 billion at December 31, 2016. Average and period-end loan growth came primarily from our private equity/venture capital portfolio reflective of increased utilization of unfunded commitments by our existing private equity/venture capital clients. We also saw an increase in average loan growth from our Life Sciences and Private Bank loan portfolios.
4
Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million increased by $0.4 billion and totaled $9.3 billion and $8.9 billion at March 31, 2017 and December 31, 2016, respectively, which represents 45.4 percent and 44.4 percent of total gross loans, respectively. 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 | ||||||||||||
(Dollars in thousands, except ratios) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Allowance for loan losses, beginning balance | $ | 225,366 | $ | 240,565 | $ | 217,613 | ||||||
Provision for loan losses (1) | 29,679 | 7,073 | 33,341 | |||||||||
Gross loan charge-offs | (14,030 | ) | (25,391 | ) | (26,174 | ) | ||||||
Loan recoveries | 1,792 | 4,054 | 4,813 | |||||||||
Foreign currency translation adjustments | 323 | (935 | ) | 656 | ||||||||
Allowance for loan losses, ending balance | $ | 243,130 | $ | 225,366 | $ | 230,249 | ||||||
Allowance for unfunded credit commitments, beginning balance | 45,265 | 35,924 | 34,415 | |||||||||
Provision for unfunded credit commitments (1) | 1,055 | 9,381 | 134 | |||||||||
Foreign currency translation adjustments | 15 | (40 | ) | (8 | ) | |||||||
Allowance for unfunded credit commitments, ending balance (2) | $ | 46,335 | $ | 45,265 | $ | 34,541 | ||||||
Ratios and other information: | ||||||||||||
Provision for loan losses as a percentage of period-end total gross loans (annualized) | 0.59 | % | 0.14 | % | 0.75 | % | ||||||
Gross loan charge-offs as a percentage of average total gross loans (annualized) | 0.28 | 0.52 | 0.61 | |||||||||
Net loan charge-offs as a percentage of average total gross loans (annualized) | 0.25 | 0.44 | 0.50 | |||||||||
Allowance for loan losses as a percentage of period-end total gross loans | 1.18 | 1.13 | 1.29 | |||||||||
Provision for credit losses (1) | $ | 30,734 | $ | 16,454 | $ | 33,475 | ||||||
Period-end total gross loans | 20,548,651 | 20,024,662 | 17,846,081 | |||||||||
Average total gross loans | 20,189,562 | 19,374,205 | 17,123,718 | |||||||||
Allowance for loan losses for nonaccrual loans | 50,395 | 37,277 | 50,353 | |||||||||
Nonaccrual loans | 138,764 | 118,979 | 113,945 | |||||||||
(1) | Our consolidated statements of income were modified from prior periods’ presentation to conform to the current period's presentation to reflect our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. |
(2) | The “allowance for unfunded credit commitments” is included as a component of “other liabilities.” |
Our allowance for loan losses increased $17.8 million due to increased specific reserves for nonaccrual loans as well as additional reserves related to our period-end loan growth. Three nonaccrual loans contributed $16.7 million to the increase in the allowance for loan losses for nonaccrual loans. As a percentage of total gross loans our allowance for loan losses was 1.18 percent at March 31, 2017 and 1.13 percent at December 31, 2016.
Our provision for credit losses was $30.7 million for the first quarter of 2017, consisting of a provision for loan losses of $29.7 million and a provision for unfunded credit commitments of $1.0 million.
Our provision for loan losses of $29.7 million for the first quarter of 2017, primarily reflects $25.4 million in specific reserves for net new nonaccrual loans and a $5.0 million increase in reserves for period-end loan growth.
Our provision for unfunded credit commitments of $1.0 million for the first quarter of 2017 was primarily driven by the change in composition of the portfolio, partially offset by a decrease of $0.7 billion in unfunded credit commitment balances. The decrease of $8.3 million, from the fourth quarter of 2016, is reflective primarily of the increase in our provision for unfunded credit commitments in the fourth quarter of 2016, as a result of reserve methodology enhancements.
Gross loan charge-offs were $14.0 million for the first quarter of 2017, of which $5.4 million was not specifically reserved for at December 31, 2016. Our early-stage client portfolio had $12.4 million of gross loan charge-offs primarily from our software and internet loan portfolio. Our loan recoveries during the first quarter were $1.8 million.
5
Nonaccrual loans were $138.8 million at March 31, 2017, compared to $119.0 million at December 31, 2016. Our nonaccrual loan balance increased $19.8 million as a result of $34.3 million of new nonaccrual loans, partially offset by $10.2 million of charge-offs. New nonaccrual loans of $34.3 million were mostly attributable to one late-stage client and one early-stage client, both from our software and internet loan portfolio.
The allowance for loan losses for nonaccrual loans increased by $13.1 million to $50.4 million in the first quarter of 2017. The increase includes $22.7 million of new nonaccrual loan reserves, partially offset by $8.6 million of charge-offs. New nonaccrual loan reserves of $22.7 million were mostly attributable to a new late-stage client and an early-stage client as well as increased reserves for one sponsored buyout loan.
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 $86.1 billion for the first quarter of 2017, compared to $84.7 billion for the fourth quarter of 2016. Period-end total client funds were $87.5 billion at March 31, 2017, compared to $84.8 billion at December 31, 2016.
Average Total Client Funds
Average on-balance sheet deposits were $40.0 billion for the first quarter of 2017, compared to $39.7 billion for the fourth quarter of 2016. Average off-balance sheet client investment funds were $46.1 billion for the first quarter of 2017, compared to $45.0 billion for the fourth quarter of 2016. The increase of $1.4 billion in average total client funds from the fourth quarter of 2016 to the first quarter of 2017 was primarily driven by a healthy venture capital funding environment and robust activities in the secondary offering market with Life Sciences and Corporate Finance as our leading portfolio contributors to this growth.
Period-End Total Client Funds
Period-end deposits were $41.1 billion at March 31, 2017, compared to $39.0 billion at December 31, 2016. Period-end client investment funds were $46.4 billion at March 31, 2017, compared to $45.8 billion at December 31, 2016. The increase of $2.7 billion in period-end total client funds from the fourth quarter of 2016 to the first quarter of 2017 was primarily driven by new funds coming from existing clients in our private equity/venture capital portfolio towards the end of the first quarter of 2017. The increase in new funds in our private equity/venture capital portfolio is reflective of M&A and private equity-backed financing activity during the first quarter of 2017 for which distributions are expected in the second quarter of 2017.
Noninterest Income
Noninterest income was $117.7 million for the first quarter of 2017, compared to $113.5 million for the fourth quarter of 2016. Non-GAAP noninterest income, net of noncontrolling interests was $111.1 million for the first quarter of 2017, compared to $109.1 million for the fourth quarter of 2016. (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures.")
The increase of $4.2 million ($2.0 million net of noncontrolling interests) in noninterest income from the fourth quarter of 2016 to the first quarter of 2017 was primarily attributable to higher net gains on our investment securities and equity warrant assets, partially offset by decreases in non-GAAP core fee income. Items impacting noninterest income for the first quarter of 2017 were as follows:
6
• | Gains on investment securities of $16.0 million for the first quarter of 2017, compared to $10.0 million for the fourth quarter of 2016. Net of noncontrolling interests, non-GAAP net gains on investment securities were $9.5 million for the first quarter of 2017, compared to $5.3 million for the fourth quarter of 2016. The non-GAAP net gains, net of noncontrolling interests, of $9.5 million for the first quarter of 2017 were driven by the following: |
◦ | Gains of $5.7 million from our strategic and other investments comprised of gains of $3.4 million related to the partial sale of shares of one of our direct equity investments as well as gains from distributions from our strategic venture capital fund investments, and |
◦ | Gains of $3.6 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the investments held by the funds driven by IPO, M&A and private equity-backed financing activity during the first quarter of 2017. |
As of March 31, 2017, we directly or indirectly (through 4 of our consolidated managed investment funds) held investments in 289 venture capital funds, 85 companies and 4 debt funds.
The following tables provide a summary of non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three months ended March 31, 2017 and December 31, 2016, respectively:
Three months ended March 31, 2017 | ||||||||||||||||||||||||
(Dollars in thousands) | Managed Funds Of Funds | Managed Direct Venture Funds | Debt Funds | Available- For-Sale Securities | Strategic and Other Investments | Total | ||||||||||||||||||
GAAP gains (losses) on investment securities, net | $ | 10,033 | $ | 96 | $ | (431 | ) | $ | 608 | $ | 5,664 | $ | 15,970 | |||||||||||
Less: income attributable to noncontrolling interests, including carried interest allocation | 6,420 | 42 | — | — | — | 6,462 | ||||||||||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | $ | 3,613 | $ | 54 | $ | (431 | ) | $ | 608 | $ | 5,664 | $ | 9,508 | |||||||||||
Three months ended December 31, 2016 | ||||||||||||||||||||||||
(Dollars in thousands) | Managed Funds Of Funds | Managed Direct Venture Funds | Debt Funds | Available- For-Sale Securities | Strategic and Other Investments | Total | ||||||||||||||||||
GAAP gains on investment securities, net | $ | 4,309 | $ | 240 | $ | 147 | $ | 628 | $ | 4,652 | $ | 9,976 | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest allocation | 4,552 | 109 | — | — | — | 4,661 | ||||||||||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | $ | (243 | ) | $ | 131 | $ | 147 | $ | 628 | $ | 4,652 | $ | 5,315 | |||||||||||
• | Net gains on equity warrant assets were $6.7 million for the first quarter of 2017, compared to $4.6 million for the fourth quarter of 2016. Net gains on equity warrant assets of $6.7 million for the first quarter of 2017 were attributable primarily to the following: |
◦ | Net gains of $8.0 million from exercises of equity warrant assets in the first quarter of 2017, compared to net gains of $0.8 million for the fourth quarter of 2016, primarily reflective of increased M&A activity in the first quarter of 2017. |
◦ | Net losses of $0.6 million from changes in warrant valuations in the first quarter of 2017, compared to net gains of $4.3 million for the fourth quarter of 2016, primarily driven by a decline in valuation of one company in our private warrant portfolio of $1.9 million, partially offset by warrant valuation gains in the remaining portfolio. |
At March 31, 2017, we held warrants in 1,762 companies with a total value of $124.2 million. Warrants in 13 companies each had values greater than $1.0 million and collectively represented $29.2 million, or 23.5 percent, of the fair value of the total warrant portfolio at March 31, 2017. The gains from our equity warrant assets resulting from changes in valuations 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.
7
The following table provides a summary of our net gains on equity warrant assets:
Three months ended | ||||||||||||
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Equity warrant assets: | ||||||||||||
Gains on exercises, net | $ | 7,956 | $ | 829 | $ | 6,849 | ||||||
Cancellations and expirations | (634 | ) | (470 | ) | (615 | ) | ||||||
Changes in fair value, net | (632 | ) | 4,280 | 372 | ||||||||
Total net gains on equity warrant assets | $ | 6,690 | $ | 4,639 | $ | 6,606 | ||||||
Non-GAAP core fee income (foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit fees) decreased $2.1 million to $82.6 million for the first quarter of 2017, compared to $84.6 million for the fourth quarter of 2016.
The following table provides a summary of our non-GAAP core fee income:
Three months ended | ||||||||||||
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Non-GAAP core fee income: | ||||||||||||
Foreign exchange fees | $ | 26,247 | $ | 27,185 | $ | 26,966 | ||||||
Credit card fees | 17,730 | 18,979 | 15,507 | |||||||||
Deposit service charges | 13,975 | 13,382 | 12,672 | |||||||||
Client investment fees | 9,026 | 8,260 | 7,995 | |||||||||
Lending related fees | 8,961 | 9,612 | 7,813 | |||||||||
Letters of credit and standby letters of credit fees | 6,639 | 7,230 | 5,589 | |||||||||
Total Non-GAAP core fee income | $ | 82,578 | $ | 84,648 | $ | 76,542 | ||||||
The decrease in non-GAAP core fee income from the fourth quarter of 2016 to the first quarter of 2017 was primarily the result of a decrease in credit card and foreign exchange fees. Credit card fees were higher in the fourth quarter of 2016 primarily due to a one-time reclassification of $1.5 million, in the fourth quarter of 2016, in revenues previously recorded in other noninterest expense related to certain of our merchant services client contracts. Foreign exchange fees decreased $0.9 million reflective of a seasonally higher fourth quarter of 2016. These decreases were partially offset by increases in client investment fees, driven by higher client investment funds balances and improved yields due to increases in general market rates, as well as, an increase in deposit service charges reflective of higher deposit client counts and transaction volumes.
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 $237.6 million for the first quarter of 2017, compared to $235.2 million for the fourth quarter of 2016. The increase of $2.4 million in noninterest expense consisted of an increase in our compensation and benefits expense of $7.3 million offset by lower professional consulting expenses associated with regulatory compliance initiatives and lower project related costs in the first quarter of 2017 compared to fourth quarter of 2016.
8
The following table provides a summary of our compensation and benefits expense:
Three months ended | ||||||||||||
(Dollars in thousands, except employees) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Compensation and benefits: | ||||||||||||
Salaries and wages | $ | 66,859 | $ | 62,095 | $ | 59,386 | ||||||
Incentive compensation plans | 32,674 | 35,105 | 24,966 | |||||||||
Employee stock ownership plan ("ESOP") | 1,145 | 481 | 1,662 | |||||||||
Other employee incentives and benefits (1) | 46,498 | 42,179 | 36,248 | |||||||||
Total compensation and benefits | $ | 147,176 | $ | 139,860 | $ | 122,262 | ||||||
Period-end full-time equivalent employees | 2,347 | 2,311 | 2,170 | |||||||||
Average full-time equivalent employees | 2,345 | 2,303 | 2,160 | |||||||||
(1) | Other employee benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee-related expenses. |
The $7.3 million increase in total compensation and benefits expense consists primarily of the following:
• | An increase of $4.8 million in salaries and wages reflective primarily of annual merit pay raises effective in the first quarter of 2017 and an increase in the number of average full-time equivalent employees ("FTE") by 42 to 2,345 FTEs for the first quarter of 2017, and |
• | An increase of $4.3 million in total other employee incentives and benefits reflective of the following: |
◦ | $6.5 million increase primarily due to first quarter seasonal expense items relating to additional 401(k) matching contributions as a result of the 2016 annual incentive compensation plan payments and employer-related taxes, |
◦ | $1.7 million increase in warrant compensation expenses attributable to realized equity warrant asset gains, and |
◦ | $4.0 million decrease in share-based compensation expense primarily reflective of the increase in performance-based restricted stock unit plan expenses in the fourth quarter of 2016. |
• | A decrease of $2.4 million in incentive compensation plan expenses reflective primarily of higher expenses in the fourth quarter of 2016 as a result of our strong 2016 full year financial performance. |
Non-GAAP noninterest expense, net of noncontrolling interests was $237.5 million for the first quarter of 2017, compared to $234.9 million for the fourth quarter of 2016. Reconciliations of our non-GAAP noninterest expense, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures.”
Income Tax Expense
Our effective tax rate was 33.6 percent for the first quarter of 2017, compared to 35.5 percent for the fourth quarter of 2016. 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 reduction in the effective tax rate for the first quarter of 2017 resulted from the recognition of a tax benefit of $6.1 million due to the adoption and implementation of Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting, in the first quarter of 2017. The new guidance requires tax impacts from employee share-based transactions to be recognized in the provision for income taxes rather than additional paid-in-capital in stockholders' equity required under the previous guidance.
The effective tax rate for the first quarter of 2017 also included a tax benefit of $4.7 million for the return of tax funds related to a prior years’ tax return.
Excluding the impact of these tax items, we expect the annual effective tax rate for 2017 to be comparable to the full-year 2016 effective tax rate.
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) Loss 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 | ||||||||||||
(Dollars in thousands) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Net interest income (1) | $ | (7 | ) | $ | (4 | ) | $ | (3 | ) | |||
Noninterest (income) loss (1) | (5,454 | ) | (4,290 | ) | 3,753 | |||||||
Noninterest expense (1) | 169 | 240 | (91 | ) | ||||||||
Carried interest allocation (2) | (1,105 | ) | (122 | ) | (1,082 | ) | ||||||
Net (income) loss attributable to noncontrolling interests | $ | (6,397 | ) | $ | (4,176 | ) | $ | 2,577 | ||||
(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 $6.4 million for the first quarter of 2017, compared to $4.2 million for the fourth quarter of 2016. Net income attributable to noncontrolling interests of $6.4 million for the first quarter of 2017 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio related to net unrealized valuation increases in the investments held by the funds driven by IPO, M&A and private equity-backed financing activity during the first quarter of 2017.
SVBFG Stockholders’ Equity
Total SVBFG stockholders’ equity increased by $121.8 million to $3.8 billion at March 31, 2017, due to net income of $101.5 million and an increase in additional paid-in capital of $25.8 million attributable primarily to amortization of share-based compensation and common stock issued under employee benefit plans.
Capital Ratios
Capital ratios (CET 1, tier 1, total risk-based capital and tier 1 leverage) for both SVB Financial Group and Silicon Valley Bank increased as of March 31, 2017, compared to the same ratios as of December 31, 2016. The changes are driven by an increase in capital during the first quarter of 2017, primarily from net income. An increase in common stock issuances for employee benefit plans resulting from continued increases in SVB Financial's stock price during the quarter also resulted in a benefit to the capital ratios. The increases in capital were partially offset by higher risk-weighted assets due to period-end loan growth. The increases to the Bank's capital ratios were partially offset by a $20 million cash dividend paid by the Bank to our bank holding company, SVB Financial, during the first quarter of 2017.
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 all capital ratios.
9
Outlook for the Year Ending December 31, 2017
Our outlook for the year ending December 31, 2017 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 our 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. 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, 2017, compared to our full year 2016 results, we currently expect the following outlook: (Note that the outlook below includes: (i) the expected impact of the December 14, 2016 and March 15, 2017 increases of the target federal funds rate by the Federal Reserve of 25 basis points each and no assumptions about any further interest rate changes and (ii) management updates to certain 2017 outlook metrics we previously disclosed on January 26, 2017.)
Current full year 2017 outlook compared to 2016 results (as of April 27, 2017) | Change in outlook compared to outlook reported as of January 26, 2017 | |
Average loan balances | Increase at a percentage rate in the high teens | No change from previous outlook |
Average deposit balances | Increase at a percentage rate in the mid-single digits | Outlook narrowed to mid-single digits from previous outlook of mid-to-high single digits |
Net interest income (1) | Increase at a percentage rate in the high teens | Outlook increased to high teens from previous outlook of low teens |
Net interest margin (1) | Between 2.90% and 3.10% | Outlook increased to 2.90% and 3.10% from previous outlook of 2.80% and 3.00% |
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans | Comparable to 2016 levels | No change from previous outlook |
Net loan charge-offs | Between 0.30% and 0.50% of average total gross loans | No change from previous outlook |
Nonperforming loans as a percentage of total gross loans | Between 0.60% and 0.80% of total gross loans | Outlook increased to 0.60% and 0.80% from previous outlook of 0.50% and 0.70% |
Core fee income (foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees) (2) | Increase at a percentage rate in the high teens | No change from previous outlook |
Noninterest expense (excluding expenses related to noncontrolling interests) (3) (4) | Increase at a percentage rate in the low double digits | Outlook increased to low double digits from previous outlook of high single digits |
(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 2017 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 2017 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. |
10
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 section “Outlook for the Year Ending December 31, 2017” above, we make forward-looking statements discussing management’s expectations 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; and financial results (and the components of such results) for certain quarters in, and for the full year 2017.
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:
• | market and economic conditions, including the interest rate environment, and the associated impact on us; |
• | 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, including the impact of the Volcker Rule. |
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 April 27, 2017, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended March 31, 2017. The conference call can be accessed by dialing (888) 771-4371 or (847) 585-4405, and entering the confirmation “44757337.” 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, April 27, 2017, through 9:59 p.m. (Pacific Time) on Saturday, May 27, 2017, and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering the passcode “44757337#.” A replay of the audio webcast will also be available on www.svb.com for 12 months beginning Thursday, April 27, 2017.
11
About SVB Financial Group
For more than 30 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 and private banking, asset management, private wealth management, brokerage and investment services, funds management and business valuation 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 svb.com.
SVB Financial Group is the holding company for all business units and groups ©2017 SVB Financial Group. All rights reserved. Member Federal Reserve System. SVB>, SVB Financial Group, and Silicon Valley Bank are registered trademarks.
12
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended | ||||||||||||
(Dollars in thousands, except share data) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Interest income: | ||||||||||||
Loans | $ | 227,341 | $ | 216,699 | $ | 197,942 | ||||||
Investment securities: | ||||||||||||
Taxable | 89,803 | 85,816 | 91,050 | |||||||||
Non-taxable | 646 | 541 | 596 | |||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities | 3,136 | 4,277 | 2,070 | |||||||||
Total interest income | 320,926 | 307,333 | 291,658 | |||||||||
Interest expense: | ||||||||||||
Deposits | 1,717 | 1,627 | 1,188 | |||||||||
Borrowings | 9,216 | 9,101 | 9,049 | |||||||||
Total interest expense | 10,933 | 10,728 | 10,237 | |||||||||
Net interest income | 309,993 | 296,605 | 281,421 | |||||||||
Provision for credit losses (1) | 30,734 | 16,454 | 33,475 | |||||||||
Net interest income after provision for credit losses | 279,259 | 280,151 | 247,946 | |||||||||
Noninterest income: | ||||||||||||
Gains (losses) on investment securities, net | 15,970 | 9,976 | (4,684 | ) | ||||||||
Gains on equity warrant assets, net (2) | 6,690 | 4,639 | 6,606 | |||||||||
Foreign exchange fees | 26,247 | 27,185 | 26,966 | |||||||||
Credit card fees | 17,730 | 18,979 | 15,507 | |||||||||
Deposit service charges | 13,975 | 13,382 | 12,672 | |||||||||
Client investment fees | 9,026 | 8,260 | 7,995 | |||||||||
Lending related fees | 8,961 | 9,612 | 7,813 | |||||||||
Letters of credit and standby letters of credit fees | 6,639 | 7,230 | 5,589 | |||||||||
Other (2) | 12,421 | 14,239 | 7,670 | |||||||||
Total noninterest income | 117,659 | 113,502 | 86,134 | |||||||||
Noninterest expense: | ||||||||||||
Compensation and benefits | 147,176 | 139,860 | 122,262 | |||||||||
Professional services | 25,419 | 27,023 | 19,000 | |||||||||
Premises and equipment | 15,858 | 17,641 | 14,984 | |||||||||
Net occupancy | 11,651 | 11,009 | 10,035 | |||||||||
Business development and travel | 9,195 | 10,053 | 12,246 | |||||||||
FDIC and state assessments | 8,682 | 8,661 | 6,927 | |||||||||
Correspondent bank fees | 3,445 | 2,988 | 3,652 | |||||||||
Other | 16,207 | 17,951 | 14,793 | |||||||||
Total noninterest expense (1) | 237,633 | 235,186 | 203,899 | |||||||||
Income before income tax expense | 159,285 | 158,467 | 130,181 | |||||||||
Income tax expense (3) | 51,405 | 54,825 | 53,584 | |||||||||
Net income before noncontrolling interests | 107,880 | 103,642 | 76,597 | |||||||||
Net (income) loss attributable to noncontrolling interests | (6,397 | ) | (4,176 | ) | 2,577 | |||||||
Net income available to common stockholders (3) | $ | 101,483 | $ | 99,466 | $ | 79,174 | ||||||
Earnings per common share—basic (3) | $ | 1.94 | $ | 1.91 | $ | 1.53 | ||||||
Earnings per common share—diluted (3) | 1.91 | 1.89 | 1.52 | |||||||||
Weighted average common shares outstanding—basic | 52,343,571 | 52,134,396 | 51,645,843 | |||||||||
Weighted average common shares outstanding—diluted | 53,179,433 | 52,676,578 | 52,085,387 | |||||||||
(1) | Our consolidated statements of income were modified from prior periods’ presentation to conform to the current period's presentation, which reflects our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. In prior periods, our provision for unfunded credit commitments were reported separately as a component of noninterest expense. |
(2) | Our consolidated statements of income were modified from prior periods’ presentation to conform to the current period's presentation, which reflects a new line item to separately disclose net gains on equity warrant assets. In prior periods, net gains on equity warrant assets were reported as a component of net gains on derivative instruments. We removed the line item "gains on derivative instruments, net" and reclassified all other gains on derivative instruments, net to other noninterest income. |
(3) | Included in income tax expense, net income available to common shareholders, earnings per common share-basic and earnings for common share-diluted, for the three months ended March 31, 2017, are tax benefits recognized associated with the adoption of Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting in the first quarter of 2017. This guidance was adopted on a prospective basis with no change to prior period amounts. (See "Income Tax Expense" for further details) |
13
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value and share data) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Assets: | ||||||||||||
Cash and cash equivalents | $ | 3,795,679 | $ | 2,545,750 | $ | 1,868,512 | ||||||
Available-for-sale securities, at fair value (cost $12,360,744, $12,588,783, and $14,150,695, respectively) | 12,384,007 | 12,620,411 | 14,327,079 | |||||||||
Held-to-maturity securities, at cost (fair value $8,567,817, $8,376,138, and $8,630,952, respectively) | 8,615,695 | 8,426,998 | 8,548,238 | |||||||||
Non-marketable and other securities | 635,550 | 622,552 | 668,497 | |||||||||
Investment securities | 21,635,252 | 21,669,961 | 23,543,814 | |||||||||
Loans, net of unearned income | 20,427,451 | 19,899,944 | 17,735,147 | |||||||||
Allowance for loan losses | (243,130 | ) | (225,366 | ) | (230,249 | ) | ||||||
Net loans | 20,184,321 | 19,674,578 | 17,504,898 | |||||||||
Premises and equipment, net of accumulated depreciation and amortization | 122,304 | 120,683 | 108,570 | |||||||||
Accrued interest receivable and other assets | 675,783 | 672,688 | 548,108 | |||||||||
Total assets | $ | 46,413,339 | $ | 44,683,660 | $ | 43,573,902 | ||||||
Liabilities and total equity: | ||||||||||||
Liabilities: | ||||||||||||
Noninterest-bearing demand deposits | $ | 33,587,934 | $ | 31,975,457 | $ | 30,933,256 | ||||||
Interest-bearing deposits | 7,491,766 | 7,004,411 | 7,826,465 | |||||||||
Total deposits | 41,079,700 | 38,979,868 | 38,759,721 | |||||||||
Short-term borrowings | 5,163 | 512,668 | — | |||||||||
Other liabilities | 629,555 | 618,383 | 506,571 | |||||||||
Long-term debt | 795,465 | 795,704 | 796,570 | |||||||||
Total liabilities | 42,509,883 | 40,906,623 | 40,062,862 | |||||||||
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; 52,427,709 shares, 52,254,074 shares, and 51,701,312 shares outstanding, respectively | 52 | 52 | 52 | |||||||||
Additional paid-in capital | 1,268,507 | 1,242,741 | 1,192,782 | |||||||||
Retained earnings | 2,477,814 | 2,376,331 | 2,072,820 | |||||||||
Accumulated other comprehensive income | 17,958 | 23,430 | 115,390 | |||||||||
Total SVBFG stockholders’ equity | 3,764,331 | 3,642,554 | 3,381,044 | |||||||||
Noncontrolling interests | 139,125 | 134,483 | 129,996 | |||||||||
Total equity | 3,903,456 | 3,777,037 | 3,511,040 | |||||||||
Total liabilities and total equity | $ | 46,413,339 | $ | 44,683,660 | $ | 43,573,902 | ||||||
14
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
Three months ended | |||||||||||||||||||||||||||||||||
March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||||||||||||||||||||||||
(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) | $ | 2,502,930 | $ | 3,136 | 0.51 | % | $ | 3,809,314 | $ | 4,277 | 0.45 | % | $ | 2,130,958 | $ | 2,070 | 0.39 | % | |||||||||||||||
Investment securities: (2) | |||||||||||||||||||||||||||||||||
Available-for-sale securities: | |||||||||||||||||||||||||||||||||
Taxable | 12,550,264 | 45,707 | 1.48 | 12,505,127 | 45,049 | 1.43 | 14,692,632 | 50,083 | 1.37 | ||||||||||||||||||||||||
Held-to-maturity securities: | |||||||||||||||||||||||||||||||||
Taxable | 8,495,674 | 44,096 | 2.10 | 7,663,168 | 40,767 | 2.12 | 8,595,081 | 40,967 | 1.92 | ||||||||||||||||||||||||
Non-taxable (3) | 104,502 | 994 | 3.86 | 67,367 | 832 | 4.91 | 63,603 | 918 | 5.81 | ||||||||||||||||||||||||
Total loans, net of unearned income (4) (5) | 20,069,314 | 227,341 | 4.59 | 19,260,738 | 216,699 | 4.48 | 17,012,435 | 197,942 | 4.68 | ||||||||||||||||||||||||
Total interest-earning assets | 43,722,684 | 321,274 | 2.98 | 43,305,714 | 307,624 | 2.83 | 42,494,709 | 291,980 | 2.76 | ||||||||||||||||||||||||
Cash and due from banks | 354,684 | 323,243 | 402,433 | ||||||||||||||||||||||||||||||
Allowance for loan losses | (234,274 | ) | (234,922 | ) | (225,344 | ) | |||||||||||||||||||||||||||
Other assets (6) | 1,457,940 | 1,539,712 | 1,518,392 | ||||||||||||||||||||||||||||||
Total assets | $ | 45,301,034 | $ | 44,933,747 | $ | 44,190,190 | |||||||||||||||||||||||||||
Funding sources: | |||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||
Interest bearing checking and savings accounts | $ | 394,928 | $ | 75 | 0.08 | % | $ | 341,839 | $ | 65 | 0.08 | % | $ | 313,460 | $ | 61 | 0.08 | % | |||||||||||||||
Money market deposits | 5,525,682 | 1,498 | 0.11 | 5,327,745 | 1,408 | 0.11 | 6,097,575 | 946 | 0.06 | ||||||||||||||||||||||||
Money market deposits in foreign offices | 151,474 | 16 | 0.04 | 148,802 | 16 | 0.04 | 132,171 | 15 | 0.05 | ||||||||||||||||||||||||
Time deposits | 53,811 | 17 | 0.13 | 55,098 | 19 | 0.14 | 67,466 | 23 | 0.14 | ||||||||||||||||||||||||
Sweep deposits in foreign offices | 1,123,217 | 111 | 0.04 | 1,160,180 | 119 | 0.04 | 1,437,953 | 143 | 0.04 | ||||||||||||||||||||||||
Total interest-bearing deposits | 7,249,112 | 1,717 | 0.10 | 7,033,664 | 1,627 | 0.09 | 8,048,625 | 1,188 | 0.06 | ||||||||||||||||||||||||
Short-term borrowings | 67,471 | 120 | 0.72 | 19,265 | 22 | 0.45 | 44,752 | 42 | 0.38 | ||||||||||||||||||||||||
3.50% Senior Notes | 347,008 | 3,142 | 3.67 | 346,927 | 3,141 | 3.60 | 346,693 | 3,140 | 3.64 | ||||||||||||||||||||||||
5.375% Senior Notes | 347,636 | 4,851 | 5.66 | 347,490 | 4,849 | 5.55 | 347,063 | 4,842 | 5.61 | ||||||||||||||||||||||||
Junior Subordinated Debentures | 54,478 | 832 | 6.19 | 54,522 | 831 | 6.06 | 54,654 | 831 | 6.12 | ||||||||||||||||||||||||
6.05% Subordinated Notes | 46,498 | 271 | 2.36 | 46,938 | 258 | 2.19 | 48,295 | 194 | 1.62 | ||||||||||||||||||||||||
Total interest-bearing liabilities | 8,112,203 | 10,933 | 0.55 | 7,848,806 | 10,728 | 0.54 | 8,890,082 | 10,237 | 0.46 | ||||||||||||||||||||||||
Portion of noninterest-bearing funding sources | 35,610,481 | 35,456,908 | 33,604,627 | ||||||||||||||||||||||||||||||
Total funding sources | 43,722,684 | 10,933 | 0.10 | 43,305,714 | 10,728 | 0.10 | 42,494,709 | 10,237 | 0.09 | ||||||||||||||||||||||||
Noninterest-bearing funding sources: | |||||||||||||||||||||||||||||||||
Demand deposits | 32,709,423 | 32,663,752 | 31,219,504 | ||||||||||||||||||||||||||||||
Other liabilities | 612,800 | 614,799 | 624,796 | ||||||||||||||||||||||||||||||
SVBFG stockholders’ equity | 3,732,134 | 3,675,183 | 3,322,362 | ||||||||||||||||||||||||||||||
Noncontrolling interests | 134,474 | 131,207 | 133,446 | ||||||||||||||||||||||||||||||
Portion used to fund interest-earning assets | (35,610,481 | ) | (35,456,908 | ) | (33,604,627 | ) | |||||||||||||||||||||||||||
Total liabilities and total equity | $ | 45,301,034 | $ | 44,933,747 | $ | 44,190,190 | |||||||||||||||||||||||||||
Net interest income and margin | $ | 310,341 | 2.88 | % | $ | 296,896 | 2.73 | % | $ | 281,743 | 2.67 | % | |||||||||||||||||||||
Total deposits | $ | 39,958,535 | $ | 39,697,416 | $ | 39,268,129 | |||||||||||||||||||||||||||
Average SVBFG stockholders’ equity as a percentage of average assets | 8.24 | % | 8.18 | % | 7.52 | % | |||||||||||||||||||||||||||
Reconciliation to reported net interest income: | |||||||||||||||||||||||||||||||||
Adjustments for taxable equivalent basis | (348 | ) | (291 | ) | (322 | ) | |||||||||||||||||||||||||||
Net interest income, as reported | $ | 309,993 | $ | 296,605 | $ | 281,421 | |||||||||||||||||||||||||||
(1) | Includes average interest-earning deposits in other financial institutions of $799 million, $725 million and $566 million; and $1.6 billion, $3.0 billion and $1.5 billion deposited at the Federal Reserve Bank, earning interest at the Fed Funds target rate, for the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively. |
(2) | Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
(3) | Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. |
(4) | Nonaccrual loans are reflected in the average balances of loans. |
(5) | Interest income includes loan fees of $27.2 million, $26.8 million and $25.5 million for the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively. |
(6) | Average investment securities of $658 million, $735 million and $781 million for the quarters ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively, were classified as other assets as they are noninterest-earning assets. These investments consist primarily of non-marketable and other securities. |
15
Reconciliation of Basic and Diluted Weighted Average Common Shares Outstanding
Three months ended | |||||||||
(Shares in thousands) | March 31, 2017 | December 31, 2016 | March 31, 2016 | ||||||
Weighted average common shares outstanding—basic | 52,344 | 52,134 | 51,646 | ||||||
Effect of dilutive securities: | |||||||||
Stock options and employee stock purchase plan | 440 | 300 | 264 | ||||||
Restricted stock units | 395 | 243 | 175 | ||||||
Total effect of dilutive securities | 835 | 543 | 439 | ||||||
Weighted average common shares outstanding—diluted | 53,179 | 52,677 | 52,085 | ||||||
SVB Financial and Bank Capital Ratios
March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||
SVB Financial: | |||||||||
CET 1 risk-based capital ratio | 13.05 | % | 12.80 | % | 12.38 | % | |||
Tier 1 risk-based capital ratio | 13.44 | 13.26 | 12.86 | ||||||
Total risk-based capital ratio | 14.45 | 14.21 | 13.90 | ||||||
Tier 1 leverage ratio | 8.51 | 8.34 | 7.69 | ||||||
Tangible common equity to tangible assets ratio (1) | 8.11 | 8.15 | 7.76 | ||||||
Tangible common equity to risk-weighted assets ratio (1) | 13.12 | 12.89 | 12.82 | ||||||
Silicon Valley Bank: | |||||||||
CET 1 risk-based capital ratio | 12.75 | % | 12.65 | % | 12.57 | % | |||
Tier 1 risk-based capital ratio | 12.75 | 12.65 | 12.57 | ||||||
Total risk-based capital ratio | 13.80 | 13.66 | 13.66 | ||||||
Tier 1 leverage ratio | 7.81 | 7.67 | 7.19 | ||||||
Tangible common equity to tangible assets ratio (1) | 7.66 | 7.77 | 7.55 | ||||||
Tangible common equity to risk-weighted assets ratio (1) | 12.82 | 12.75 | 13.03 | ||||||
(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.” |
16
Loan Concentrations
(Dollars in thousands, except ratios and client data) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million | ||||||||||||
Commercial loans: | ||||||||||||
Software and internet | $ | 1,959,737 | $ | 1,913,125 | $ | 1,939,785 | ||||||
Hardware | 500,186 | 552,460 | 414,191 | |||||||||
Private equity/venture capital | 5,793,533 | 5,260,648 | 4,271,726 | |||||||||
Life science/healthcare | 593,332 | 707,739 | 613,634 | |||||||||
Premium wine (1) | 24,733 | 23,416 | 17,957 | |||||||||
Other | 213,395 | 169,630 | 140,729 | |||||||||
Total commercial loans | 9,084,916 | 8,627,018 | 7,398,022 | |||||||||
Real estate secured loans: | ||||||||||||
Premium wine (1) | 106,665 | 124,261 | 90,162 | |||||||||
Consumer (2) | — | — | — | |||||||||
Other | 20,933 | 21,133 | 21,733 | |||||||||
Total real estate secured loans | 127,598 | 145,394 | 111,895 | |||||||||
Construction loans | 21,527 | 20,280 | — | |||||||||
Consumer loans (2) | 90,859 | 103,469 | 107,610 | |||||||||
Total loans individually equal to or greater than $20 million | $ | 9,324,900 | $ | 8,896,161 | $ | 7,617,527 | ||||||
Loans (individually or in the aggregate) to any single client, less than $20 million | ||||||||||||
Commercial loans: | ||||||||||||
Software and internet | $ | 3,546,059 | $ | 3,755,453 | $ | 3,555,087 | ||||||
Hardware | 608,549 | 636,654 | 650,554 | |||||||||
Private equity/venture capital | 2,643,821 | 2,487,263 | 2,074,363 | |||||||||
Life science/healthcare | 1,189,705 | 1,158,946 | 1,127,132 | |||||||||
Premium wine | 179,101 | 178,218 | 167,319 | |||||||||
Other | 267,517 | 226,828 | 219,514 | |||||||||
Total commercial loans | 8,434,752 | 8,443,362 | 7,793,969 | |||||||||
Real estate secured loans: | ||||||||||||
Premium wine | 566,166 | 554,484 | 564,197 | |||||||||
Consumer | 2,010,464 | 1,925,620 | 1,652,344 | |||||||||
Other | 22,526 | 22,674 | 23,200 | |||||||||
Total real estate secured loans | 2,599,156 | 2,502,778 | 2,239,741 | |||||||||
Construction loans | 49,741 | 44,677 | 74,205 | |||||||||
Consumer loans | 140,102 | 137,684 | 120,639 | |||||||||
Total loans individually less than $20 million | $ | 11,223,751 | $ | 11,128,501 | $ | 10,228,554 | ||||||
Total gross loans | $ | 20,548,651 | $ | 20,024,662 | $ | 17,846,081 | ||||||
Loans individually equal to or greater than $20 million as a percentage of total gross loans | 45.4 | % | 44.4 | % | 42.7 | % | ||||||
Total clients with loans individually equal to or greater than $20 million | 243 | 233 | 207 | |||||||||
Loans individually equal to or greater than $20 million on nonaccrual status | $ | 79,655 | $ | 79,681 | $ | 60,954 | ||||||
(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. |
17
Credit Quality
(Dollars in thousands, except ratios) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Gross nonaccrual, past due, and restructured loans: | ||||||||||||
Nonaccrual loans | $ | 138,764 | $ | 118,979 | $ | 113,945 | ||||||
Loans past due 90 days or more still accruing interest | 60 | 33 | 27 | |||||||||
Total nonperforming loans | 138,824 | 119,012 | 113,972 | |||||||||
OREO and other foreclosed assets | — | — | — | |||||||||
Total nonperforming assets | $ | 138,824 | $ | 119,012 | $ | 113,972 | ||||||
Nonperforming loans as a percentage of total gross loans | 0.68 | % | 0.59 | % | 0.64 | % | ||||||
Nonperforming assets as a percentage of total assets | 0.30 | 0.27 | 0.26 | |||||||||
Allowance for loan losses | $ | 243,130 | $ | 225,366 | $ | 230,249 | ||||||
As a percentage of total gross loans | 1.18 | % | 1.13 | % | 1.29 | % | ||||||
As a percentage of total gross nonperforming loans | 175.14 | 189.36 | 202.02 | |||||||||
Allowance for loan losses for nonaccrual loans | $ | 50,395 | $ | 37,277 | $ | 50,353 | ||||||
As a percentage of total gross loans | 0.25 | % | 0.19 | % | 0.28 | % | ||||||
As a percentage of total gross nonperforming loans | 36.30 | 31.32 | 44.18 | |||||||||
Allowance for loan losses for total gross performing loans | $ | 192,735 | $ | 188,089 | $ | 179,896 | ||||||
As a percentage of total gross loans | 0.94 | % | 0.94 | % | 1.01 | % | ||||||
As a percentage of total gross performing loans | 0.94 | 0.94 | 1.01 | |||||||||
Total gross loans | $ | 20,548,651 | $ | 20,024,662 | $ | 17,846,081 | ||||||
Total gross performing loans | 20,409,827 | 19,905,650 | 17,732,109 | |||||||||
Allowance for unfunded credit commitments (1) | 46,335 | 45,265 | 34,541 | |||||||||
As a percentage of total unfunded credit commitments | 0.29 | % | 0.27 | % | 0.22 | % | ||||||
Total unfunded credit commitments (2) | $ | 16,082,331 | $ | 16,743,196 | $ | 15,880,198 | ||||||
(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 | ||||||||||||
(Dollars in millions) | March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Client directed investment assets | $ | 5,364 | $ | 6,378 | $ | 7,318 | ||||||
Client investment assets under management (2) | 23,047 | 21,503 | 21,731 | |||||||||
Sweep money market funds | 17,719 | 17,086 | 13,423 | |||||||||
Total average client investment funds | $ | 46,130 | $ | 44,967 | $ | 42,472 | ||||||
Period-end Off-Balance Sheet Client Investment Funds(1)
Period-end balances at | ||||||||||||||||||||
(Dollars in millions) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
Client directed investment assets | $ | 5,241 | $ | 5,510 | $ | 6,262 | $ | 7,117 | $ | 7,512 | ||||||||||
Client investment assets under management (2) | 23,292 | 23,115 | 20,819 | 20,508 | 21,431 | |||||||||||||||
Sweep money market funds | 17,902 | 17,173 | 16,263 | 15,447 | 13,331 | |||||||||||||||
Total period-end client investment funds | $ | 46,435 | $ | 45,798 | $ | 43,344 | $ | 43,072 | $ | 42,274 | ||||||||||
(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. |
18
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 noninterest income, non-GAAP net gains on investment securities, non-GAAP non-marketable and other 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.
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) Loss 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:
• | 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. |
• | Non-GAAP operating efficiency ratio — This ratio excludes certain financial items that are otherwise required under GAAP. It is calculated by dividing noninterest expense by total revenue, after adjusting both amounts by income (losses) and expense attributable to noncontrolling interests and adjustments to net interest income for a taxable equivalent basis. |
• | 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. We do not provide our outlook for the expected full year results for these excluded items, which include gains (losses) on investment securities, net, net gains on equity warrant assets and other noninterest income items. |
19
Three months ended | ||||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
GAAP noninterest income | $ | 117,659 | $ | 113,502 | $ | 144,140 | $ | 112,776 | $ | 86,134 | ||||||||||
Less: income (losses) attributable to noncontrolling interests, including carried interest allocation | 6,559 | 4,412 | 4,679 | 1,619 | (2,671 | ) | ||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests | $ | 111,100 | $ | 109,090 | $ | 139,461 | $ | 111,157 | $ | 88,805 | ||||||||||
Three months ended | ||||||||||||||||||||
Non-GAAP core fee income (Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
GAAP noninterest income | $ | 117,659 | $ | 113,502 | $ | 144,140 | $ | 112,776 | $ | 86,134 | ||||||||||
Less: gains (losses) on investment securities, net | 15,970 | 9,976 | 23,178 | 23,270 | (4,684 | ) | ||||||||||||||
Less: net gains on equity warrant assets | 6,690 | 4,639 | 21,558 | 5,089 | 6,606 | |||||||||||||||
Less: other noninterest income | 12,421 | 14,239 | 18,878 | 9,963 | 7,670 | |||||||||||||||
Non-GAAP core fee income | $ | 82,578 | $ | 84,648 | $ | 80,526 | $ | 74,454 | $ | 76,542 | ||||||||||
Three months ended | ||||||||||||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests (Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
GAAP net gains (losses) on investment securities | $ | 15,970 | $ | 9,976 | $ | 23,178 | $ | 23,270 | $ | (4,684 | ) | |||||||||
Less: income (losses) attributable to noncontrolling interests, including carried interest allocation | 6,462 | 4,661 | 4,745 | 1,622 | (2,716 | ) | ||||||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | $ | 9,508 | $ | 5,315 | $ | 18,433 | $ | 21,648 | $ | (1,968 | ) | |||||||||
Three months ended | ||||||||||||||||||||
Non-GAAP operating efficiency ratio, net of noncontrolling interests (Dollars in thousands, except ratios) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
GAAP noninterest expense | $ | 237,633 | $ | 235,186 | $ | 220,773 | $ | 199,939 | $ | 203,899 | ||||||||||
Less: expense attributable to noncontrolling interests | 169 | 240 | 117 | 258 | (91 | ) | ||||||||||||||
Non-GAAP noninterest expense, net of noncontrolling interests | $ | 237,464 | $ | 234,946 | $ | 220,656 | $ | 199,681 | $ | 203,990 | ||||||||||
GAAP net interest income | $ | 309,993 | $ | 296,605 | $ | 289,161 | $ | 283,336 | $ | 281,421 | ||||||||||
Adjustments for taxable equivalent basis | 348 | 291 | 281 | 309 | 322 | |||||||||||||||
Non-GAAP taxable equivalent net interest income | $ | 310,341 | $ | 296,896 | $ | 289,442 | $ | 283,645 | $ | 281,743 | ||||||||||
Less: net interest income attributable to noncontrolling interests | 7 | 4 | 4 | 55 | 3 | |||||||||||||||
Non-GAAP taxable equivalent net interest income, net of noncontrolling interests | $ | 310,334 | $ | 296,892 | $ | 289,438 | $ | 283,590 | $ | 281,740 | ||||||||||
GAAP noninterest income | $ | 117,659 | $ | 113,502 | $ | 144,140 | $ | 112,776 | $ | 86,134 | ||||||||||
Non-GAAP noninterest income, net of noncontrolling interests | $ | 111,100 | $ | 109,090 | $ | 139,461 | $ | 111,157 | $ | 88,805 | ||||||||||
GAAP total revenue | $ | 427,652 | $ | 410,107 | $ | 433,301 | $ | 396,112 | $ | 367,555 | ||||||||||
Non-GAAP taxable equivalent revenue, net of noncontrolling interests | $ | 421,434 | $ | 405,982 | $ | 428,899 | $ | 394,747 | $ | 370,545 | ||||||||||
GAAP operating efficiency ratio | 55.57 | % | 57.35 | % | 50.95 | % | 50.48 | % | 55.47 | % | ||||||||||
Non-GAAP, net of noncontrolling interests operating efficiency ratio | 56.35 | 57.87 | 51.45 | 50.58 | 55.05 | |||||||||||||||
20
Non-GAAP non-marketable and other securities, net of noncontrolling interests (Dollars in thousands) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
GAAP non-marketable and other securities | $ | 635,550 | $ | 622,552 | $ | 625,178 | $ | 664,054 | $ | 668,497 | ||||||||||
Less: amounts attributable to noncontrolling interests | 126,263 | 122,415 | 121,397 | 121,803 | 123,158 | |||||||||||||||
Non-GAAP non-marketable and other securities, net of noncontrolling interests | $ | 509,287 | $ | 500,137 | $ | 503,781 | $ | 542,251 | $ | 545,339 | ||||||||||
SVB Financial Group tangible common equity, tangible assets and risk-weighted assets (Dollars in thousands, except ratios) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
GAAP SVBFG stockholders’ equity | $ | 3,764,331 | $ | 3,642,554 | $ | 3,593,051 | $ | 3,505,578 | $ | 3,381,044 | ||||||||||
Tangible common equity | $ | 3,764,331 | $ | 3,642,554 | $ | 3,593,051 | $ | 3,505,578 | $ | 3,381,044 | ||||||||||
GAAP total assets | $ | 46,413,339 | $ | 44,683,660 | $ | 43,274,037 | $ | 43,132,654 | $ | 43,573,902 | ||||||||||
Tangible assets | $ | 46,413,339 | $ | 44,683,660 | $ | 43,274,037 | $ | 43,132,654 | $ | 43,573,902 | ||||||||||
Risk-weighted assets | $ | 28,691,192 | $ | 28,248,750 | $ | 27,407,756 | $ | 27,145,857 | $ | 26,382,154 | ||||||||||
Tangible common equity to tangible assets | 8.11 | % | 8.15 | % | 8.30 | % | 8.13 | % | 7.76 | % | ||||||||||
Tangible common equity to risk-weighted assets | 13.12 | 12.89 | 13.11 | 12.91 | 12.82 | |||||||||||||||
Silicon Valley Bank tangible common equity, tangible assets and risk-weighted assets (Dollars in thousands, except ratios) | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||
Tangible common equity | $ | 3,508,871 | $ | 3,423,427 | $ | 3,405,028 | $ | 3,359,097 | $ | 3,246,536 | ||||||||||
Tangible assets | $ | 45,807,551 | $ | 44,059,340 | $ | 42,651,702 | $ | 42,522,293 | $ | 42,990,146 | ||||||||||
Risk-weighted assets | $ | 27,368,552 | $ | 26,856,850 | $ | 25,909,301 | $ | 25,691,978 | $ | 24,922,140 | ||||||||||
Tangible common equity to tangible assets | 7.66 | % | 7.77 | % | 7.98 | % | 7.90 | % | 7.55 | % | ||||||||||
Tangible common equity to risk-weighted assets | 12.82 | 12.75 | 13.14 | 13.07 | 13.03 | |||||||||||||||
21