SVB FINANCIAL GROUP 
By
Consolidated net income available to common stockholders for the fourth
quarter of 2008 was
Highlights of our fourth quarter 2008 results included:
-- A significant increase in our provision for loan losses, reflecting
the impact of increasing our allowance for loan losses from 1.13
percent to 1.87 percent of total gross loans. The increase was
primarily due to two factors: (i) impact of the continuing
deterioration of the current economic environment; and (ii) the
current estimated impact of loans including loans to HRJ Capital,
L.L.C. and its affiliates ("HRJ");
-- A significant reduction in noninterest expense, primarily from lower
incentive compensation expense, as a result of actual 2008 annual
financial results being below our expectations;
-- A decrease in income from client investment fees, primarily as a
result of lower margins earned on certain products owing to
historically low rates in the short-term fixed income markets;
-- Solid loan growth and exceptional deposit growth, which resulted in
favorable changes to our loan-to-deposit ratio; and
-- Our participation in the Treasury's Capital Purchase Program ("CPP")
whereby we issued $235 million in preferred stock during the fourth
quarter of 2008.
Consolidated net income available to common stockholders for the year
ended
"Our fourth quarter results show we are feeling the effects of current
economic conditions across the board, including in our loan portfolio," said
Fourth Quarter 2008 Summary
(Dollars in Three months ended
millions, % Change from
except share December September December September December
data and 31, 30, 31, 30, 31,
ratios) 2008 2008 2007 2008 2007
Income Statement:
Diluted earnings
per common
share $0.09 $0.80 $0.96 (88.8)% (90.6)%
Net income 3.6 27.0 34.3 (86.7) (89.5)
Net income
available to
common
stockholders 2.9 27.0 34.3 (89.3) (91.5)
Net interest
income 96.9 95.1 97.3 1.9 (0.4)
Provision for
loan losses 67.3 13.7 6.0 391.2 -
Noninterest
income 28.9 41.7 53.2 (30.7) (45.7)
Noninterest
expense 62.9 80.4 83.5 (21.8) (24.7)
Non-GAAP net
income
available
to common
stockholders(1) 2.9 27.0 34.3 (89.3) (91.5)
Non-GAAP
noninterest
expense, net
of minority
interest(1) 59.9 77.6 81.0 (22.8) (26.0)
Fully Taxable
Equivalent:
Net interest
income(2) $97.5 $95.7 $97.6 1.9% (0.1)%
Net interest
margin 5.42% 5.73% 7.04% (5.4) (23.0)
Shares
Outstanding:
Common 32,917,007 32,735,732 32,670,557 0.6% 0.8%
Basic
weighted
average 32,809,705 32,534,613 33,043,715 0.8 (0.7)
Diluted
weighted
average 33,450,626 33,778,095 35,737,870 (1.0) (6.4)
Balance Sheet:
Average total
assets $8,210.8 $7,548.1 $6,329.3 8.8% 29.7%
Average loans,
net of
unearned
income 5,226.7 4,863.7 3,768.0 7.5 38.7
Average
interest-
earning
investment
securities 1,357.5 1,396.2 1,284.0 (2.8) 5.7
Average
noninterest-
bearing
demand
deposits 3,227.0 2,826.3 2,941.2 14.2 9.7
Average
interest-
bearing
deposits 2,446.5 1,994.0 1,265.5 22.7 93.3
Average
total
deposits 5,673.5 4,820.3 4,206.8 17.7 34.9
Average
short-term
borrowings 232.5 544.3 116.9 (57.3) 98.9
Average
long-term
debt 973.5 976.8 863.4 (0.3) 12.8
Period-end
total
assets 10,023.2 8,070.9 6,692.5 24.2 49.8
Period-end
loans, net
of unearned
income 5,506.3 5,285.1 4,151.7 4.2 32.6
Period-end
investment
securities 1,786.1 1,780.0 1,602.6 0.3 11.5
Period-end
noninterest-
bearing
demand
deposits 4,420.0 3,231.3 3,226.9 36.8 37.0
Period-end
interest-
bearing
deposits 3,053.5 2,201.3 1,384.3 38.7 120.6
Period-end
total
deposits 7,473.5 5,432.6 4,611.2 37.6 62.1
Off-Balance
Sheet:
Average total
client
investment
funds $21,038.0 $22,036.0 $21,520.4 (4.5)% (2.2)%
Period-end
total
client
investment
funds 18,579.7 21,533.8 22,192.1 (13.7) (16.3)
Total
unfunded
credit
commitments 5,630.5 5,619.0 4,938.6 0.2 14.0
Earnings
Ratios:
Return on
average
assets(3) 0.18% 1.42% 2.15% (87.3)% (91.6)%
Return on
average
common
stockholders'
equity(3) 1.56 15.09 19.94 (89.7) (92.2)
Asset Quality
Ratios:
Allowance for
loan losses
as a
percentage
of total
gross loans 1.87% 1.13% 1.13% 65.5% 65.5%
Gross charge-
offs as a
percentage
of total
gross loans
(annualized) 1.83 0.52 0.44 251.9 315.9
Net charge-
offs as a
percentage
of total
gross loans
(annualized) 1.71 0.47 0.28 263.8 510.7
Other Ratios:
Total risk-
based capital
ratio 17.62% 14.25% 16.02% 23.6% 10.0%
Tangible
common
equity to
tangible
assets(4) 7.53 9.20 10.12 (18.2) (25.6)
Operating
efficiency
ratio(5) 49.77 58.51 55.34 (14.9) (10.1)
Period-end
loans, net
of unearned
income,
to deposits 73.68 97.28 90.04 (24.3) (18.2)
Average loans,
net of
unearned
income, to
deposits 92.12 100.90 89.57 (8.7) 2.8
Non-GAAP
Ratios:(1)
Non-GAAP
return on
average
assets(6) 0.18% 1.42% 2.15% (87.3)% (91.6)%
Non-GAAP
return on
average
common
stockholders'
equity(6) 1.56 15.09 19.94 (89.7) (92.2)
Non-GAAP
operating
efficiency
ratio (7) 44.33 56.91 55.32 (22.1) (19.9)
Other
Statistics:
Common stock
repurchases $- $- $49.4 -% (100.0)%
Period-end
SVB prime
lending rate 4.00% 5.00% 7.25% (20) (44.8)
Average SVB
prime lending
rate 4.20 5.00 7.54 (16.0) (44.3)
Period-end
full-time
equivalent
employees 1,244 1,237 1,141 0.6% 9.0%
Year ended
(Dollars in millions, except
share data and ratios) December 31, December 31,
2008 2007 % Change
Income Statement:
Diluted earnings per
common share $2.33 $3.37 (30.9) %
Net income 79.8 123.6 (35.4)
Net income available to
common stockholders 79.1 123.6 (36.0)
Net interest income 372.0 380.9 (2.3)
Provision for loan losses 97.0 16.8 477.4
Noninterest income 156.1 221.4 (29.5)
Noninterest expense 314.0 346.5 (9.4)
Non-GAAP net income available
to common stockholders (1) 83.0 133.8 (38.0)
Non-GAAP noninterest expense,
net of minority interest (1) 299.0 318.6 (6.2)
Fully Taxable Equivalent:
Net interest income (2) $374.3 $382.2 (2.1) %
Net interest margin 5.78% 7.29% (20.7)
Shares Outstanding:
Common 32,917,007 32,670,557 0.8 %
Basic weighted average 32,425,307 33,949,654 (4.5)
Diluted weighted average 34,014,581 36,737,507 (7.4)
Balance Sheet:
Average total assets $7,419.8 $6,020.1 23.3 %
Average loans, net of
unearned income 4,633.0 3,522.3 31.5
Average interest-earning
investment securities 1,338.5 1,364.5 (1.9)
Average noninterest-bearing
demand deposits 2,946.9 2,864.2 2.9
Average interest-bearing
deposits 1,949.4 1,098.1 77.5
Average total deposits 4,896.3 3,962.3 23.6
Average short-term borrowings 304.9 320.1 (4.7)
Average long-term debt 984.3 665.6 47.9
Period-end total assets 10,023.2 6,692.5 49.8
Period-end loans, net of
unearned income 5,506.3 4,151.7 32.6
Period-end investment
securities 1,786.1 1,602.6 11.5
Period-end noninterest-bearing
demand deposits 4,420.0 3,226.9 37.0
Period-end interest-bearing
deposits 3,053.5 1,384.3 120.6
Period-end total deposits 7,473.5 4,611.2 62.1
Off-Balance Sheet:
Average total client
investment funds $21,590.0 $20,434.0 5.7 %
Period-end total client
investment funds 18,579.7 22,192.1 (16.3)
Total unfunded credit
commitments 5,630.5 4,938.6 14.0
Earnings Ratios:
Return on average assets (3) 1.08% 2.05% (47.3)%
Return on average common
stockholders' equity (3) 11.20 18.47 (39.4)
Asset Quality Ratios:
Allowance for loan losses
as a percentage of total
gross loans 1.87% 1.13% 65.5%
Gross charge-offs as a
percentage of total gross
loans (annualized) 0.86 0.46 87.0
Net charge-offs as a percentage
of total gross loans
(annualized) 0.73 0.29 151.7
Other Ratios:
Total risk-based capital ratio 17.62% 16.02% 10.0%
Tangible common equity to
tangible assets (4) 7.53 10.12 (25.6)
Operating efficiency ratio (5) 59.19 57.40 3.1
Period-end loans, net of
unearned income, to deposits 73.68 90.04 (18.2)
Average loans, net of unearned
income, to deposits 94.62 88.90 6.4
Non-GAAP Ratios: (1)
Non-GAAP return on average
assets (6) 1.13% 2.22% (49.1) %
Non-GAAP return on average
common stockholders'
equity (6) 11.75 19.99 (41.2)
Non-GAAP operating efficiency
ratio (7) 55.53 56.46 (1.6)
Other Statistics:
Common stock repurchases $45.6 $146.8 (68.9) %
Period-end SVB prime
lending rate 4.00% 7.25% (44.8)
Average SVB prime lending rate 5.13 8.05 (36.3)
Period-end full-time
equivalent employees 1,244 1,141 9.0 %
(1) A reconciliation of non-GAAP calculations to GAAP is provided in the
schedules attached.
(2) Interest income on non-taxable investments is presented on a fully
taxable equivalent basis using the federal statutory income tax rate
of 35.0 percent. The taxable equivalent adjustments were $0.6
million, $0.6 million and $0.4 million for the quarters ended
December 31, 2008, September 30, 2008, and December 31, 2007,
respectively. The taxable equivalent adjustments were $2.3 million
and $1.3 million for the years ended December 31, 2008 and 2007,
respectively.
(3) Ratios represent annualized consolidated net income divided by
quarterly average assets/equity and annual average assets/equity,
respectively.
(4) Tangible common equity consists of total stockholders' equity
(excluding unrealized gains and losses from our fixed income
investments) less acquired intangibles and goodwill. Tangible assets
represent total assets (excluding unrealized gains and losses from
our fixed income investments) less acquired intangibles and
goodwill.
(5) The operating efficiency ratio is calculated by dividing noninterest
expense by total taxable equivalent income.
(6) Ratios represent non-GAAP annualized consolidated net income
(excluding the non-tax deductible $3.9 million Coco Loss recorded in
the second quarter of 2008, and goodwill impairment charges of $10.2
million, net of tax, recorded in the second quarter of 2007) divided
by quarterly average assets/equity and annual average assets/equity,
respectively.
(7) The non-GAAP operating efficiency ratio is calculated by dividing
noninterest expense (excluding (i) the non-tax deductible $3.9
million Coco Loss, (ii) goodwill impairment charges of $17.2 million
recorded in the second quarter of 2007 and (iii) the portion of
noninterest expense attributable to minority interests of $3.0
million, $2.9 million and $2.5 million for the quarters ended
December 31, 2008, September 30, 2008, and December 31, 2007,
respectively and $11.1 million and $10.7 million for the years ended
December 31, 2008 and 2007, respectively) by total taxable
equivalent income (excluding taxable equivalent (loss) income
attributable to minority interests of $(8.7) million, $1.2 million
and $4.4 million for the quarters ended December 31, 2008, September
30, 2008 and December 31, 2007, respectively and $(8.0) million and
$39.3 million for the years ended December 31, 2008 and 2007,
respectively).
Net Interest Income and Margin
Net interest income was
Q4'08 Compared to Q3'08
Three Months Ended December 31,
Increase (Decrease) Due to Change in
(Dollars in thousands) Volume Rate Total
Interest income:
Short-term investment
securities $1,018 $(1,671) $(653)
Investment securities (442) (37) (479)
Loans 6,810 (5,404) 1,406
Increase (decrease) in interest
income, net 7,386 (7,112) 274
Interest expense:
Deposits 1,388 (634) 754
Short-term borrowings (1,336) (917) (2,253)
Long-term debt (337) 285 (52)
Decrease in interest
expense, net (285) (1,266) (1,551)
Increase (decrease) in net
interest income $7,671 $(5,846) $1,825
The increase in net interest income, on a fully taxable equivalent basis, from the third to the fourth quarter of 2008, was primarily attributable to the following:
-- A decrease in interest expense of $2.3 million from our short-term
borrowings due to a decrease in average balances of $311.8 million.
The decrease in the average short-term borrowings was due to an
increase in deposits, which resulted from our decision to utilize
our own on-balance sheet sweep product introduced in 2007, and to
discontinue offering a third-party, off-balance sheet product.
-- A net increase in interest income from our loan portfolio of $1.4
million driven principally by an increase in average loans of $363.0
million. The impact of increased loan balances was partially offset
by a 43 basis points decrease in loan yields due primarily to
decreases totaling 100 basis points in our prime-lending rate during
the fourth quarter of 2008 in response to certain Federal Reserve
rate decreases. Our average prime-lending rate was 4.20 percent for
the fourth quarter of 2008, compared to an average of 5.00 percent
for the third quarter of 2008. Our prime-lending rate at December
31, 2008 was 4.00 percent, compared to 5.00 percent at September 30,
2008.
-- An increase in interest expense of $0.8 million from nearly all
interest-bearing deposits, primarily due to growth in the average
balances from all our deposit products, with particularly strong
growth from our Eurodollar sweep deposit product. These increases
were partially offset by decreases in interest expense driven by
declining short-term market interest rates.
-- A decrease in interest income of $0.7 million from our short-term
investment securities portfolio primarily driven by declining short-
term market interest rates.
Our net interest margin, on a fully taxable equivalent basis, was 5.42 percent for the fourth quarter of 2008, compared to 5.73 percent for the third quarter of 2008 and 7.04 percent for the fourth quarter of 2007. The decrease from the third to the fourth quarter of 2008 was primarily due to reductions in our prime-lending rate during the fourth quarter of 2008, which we lowered in response to certain Federal Reserve rate cuts, as well as decreases in interest income from our short-term investment portfolio, primarily due to lower short-term market interest rates. These reductions in our net interest margin were partially offset by a decrease in interest expense from reduced short-term borrowings.
Net interest income, on a fully taxable equivalent basis, was
On an average basis, for the fourth quarter of 2008, 74.2 percent, or
Loans
Average loans, net of unearned income, were
Deposits
Average deposits were
The fourth quarter 2008 average and period-end deposit growth was primarily due to the following factors: (i) our decision to utilize our own on-balance sheet sweep product introduced in 2007, and to discontinue offering a third-party, off-balance sheet product, (ii) our efforts to increase the competitiveness of our on-balance sheet product set and (iii) the desire for some clients to benefit from the security provided by FDIC insurance in noninterest-bearing accounts.
Noninterest Income
Noninterest income was
-- Net losses on investment securities of $9.8 million for the fourth
quarter of 2008, compared to a loss of $0.9 million for the third
quarter of 2008 and a gain of $6.1 million for the fourth quarter of
2007. The increase in net losses of $8.9 million from the third to
the fourth quarter of 2008 was primarily due to effects of the
continued downturn in the economy and pressures on valuations for
venture capital investments. Net losses on investment securities of
$9.8 million for the fourth quarter of 2008 were comprised of the
following:
-- Net unrealized losses of $7.2 million, primarily due to lower
valuations of investments within our managed funds.
-- Realized losses of $3.5 million in our managed co-investment
funds due to realization of previously recorded unrealized
losses, and
-- Realized gains of $0.9 million in our managed funds of funds
and sponsored debt funds due to net gains from distributions.
Three months ended
December 31, September
(Dollars in 2008 30, 2008
thousands) Managed Co- Managed Sponsored
Investment Funds Of Debt
Funds Funds Funds Other Total Total
Unrealized
losses $(849) $(5,576) $(689) $(93) $(7,207) $(721)
Realized (losses)
gains (3,536) 634 228 53 (2,621) (155)
Total losses on
investment
securities,
net $(4,385) $(4,942) $(461) $(40) $(9,828) $(876)
Less: losses
(income)
attributable
to minority
interests,
including
carried
interest 4,078 4,495 129 - 8,702 (1,220)
Non-GAAP net
losses on
investment
securities,
net of
minority
interest $(307) $(447) $(332) $(40) $(1,126) $(2,096)
Reconciliations of our non-GAAP net losses on investment securities,
net of minority interest, are provided under the section "Use of
Non-GAAP Financial Measures".
As of December 31, 2008, we held investments, either directly or
through seven of our managed investment funds, in 438 private equity
funds, 71 companies and five sponsored debt funds.
-- A decrease in client investment fee income of $4.1 million,
primarily as a result of lower margins earned on certain products
owing to historically low rates in the short-term fixed income
markets.
-- A decrease in net gains on derivative instruments of $1.4 million.
The following table provides a summary of our net gains on
derivative instruments:
Three months ended
(Dollars in thousands) December 31, September 30, December 31,
2008 2008 2007
Gains on foreign exchange
forward contracts, net:
Gains (losses) on client
foreign exchange forward
contracts, net $2,466 $561 $(109)
Gains on internal
foreign exchange forward
contracts, net 3,200 4,452 686
Total gains on foreign
exchange forward
contracts, net 5,666 5,013 577
Change in fair value of
interest rate swap (2,232) (10) (418)
Gains on covered call
options, net - 24 -
Net gains on equity
warrant assets 1,592 1,445 8,262
Total gains on derivative
instruments, net $5,026 $6,472 $8,421
The decrease in net gains on derivative instruments from the third to the fourth quarter of 2008 was primarily driven by the following factors:
-- Net losses from changes in the fair value of our interest rate swap.
In December 2008, our counterparty called this swap for settlement
in January 2009. As a result we de-designated the swap as a hedging
instrument in December 2008.
-- Higher gains of $1.9 million on client foreign exchange forward
contracts primarily due to the strengthening of the U.S. dollar
against currencies hedged by our clients. In addition, we recognized
$3.2 million from internal foreign exchange forward contracts
hedging our foreign currency denominated loans, which offset net
losses of $4.7 million from revaluation of our foreign currency
denominated loans that are included in other noninterest income.
Non-GAAP noninterest income, net of minority interest, was
Noninterest Expense
Noninterest expense was
-- A decrease in compensation and benefits expense of $24.6 million,
primarily attributable to decreases aggregating $23.6 million for
Incentive Compensation Plan (ICP) expenses and Employee Stock
Ownership Plan (ESOP) expenses, as a result of actual 2008 annual
financial results being below our expectations.
-- We recorded a provision for unfunded credit commitments of $1.6
million for the fourth quarter of 2008, compared to a reduction of
the provision of $1.0 million for the third quarter of 2008. The
provision for unfunded credit commitments of $1.6 million for the
fourth quarter of 2008 was primarily reflective of the expected
impact from the continuing deterioration in overall economic
conditions.
-- An increase in professional services expense of $2.3 million
primarily due to consulting fees related to certain infrastructure
projects.
Non-GAAP noninterest expense, net of minority interest, was
Income Tax Expense
Our effective tax rate for the year ended
Credit Quality
The following table provides a summary of our allowance for loan losses:
(Dollars in Three months ended Year ended
thousands) December September December December December
31, 30, 31, 31, 31,
2008 2008 2007 2008 2007
Allowance for
loan losses,
beginning
balance $60,290 $52,888 $44,225 $47,293 $42,747
Provision for
loan losses 67,257 13,682 5,971 97,013 16,836
Gross loan
charge-offs (25,509) (7,000) (4,664) (47,815) (19,378)
Loan
recoveries 1,658 720 1,761 7,205 7,088
Allowance for
loan losses,
ending
balance $103,696 $60,290 $47,293 $103,696 $47,293
Provision as
a percentage
of total
gross loans
(annualized) 4.82% 1.02% 0.57% 1.75% 0.40%
Gross
charge-offs
as a
percentage
of total
gross loans
(annualized) 1.83 0.52 0.44 0.86 0.46
Net
charge-offs
as a
percentage
of total
gross loans
(annualized) 1.71 0.47 0.28 0.73 0.29
Allowance for
loan losses
as a
percentage of
total gross
loans 1.87% 1.13% 1.13% 1.87% 1.13%
Total gross
loans at
period-
end $5,551,636 $5,323,323 $4,178,098 $5,551,636 $4,178,098
Our provision for loan losses was
Gross charge-offs of
We have collected approximately
Our results for the fourth quarter of 2008 include our best estimate of the inherent and probable losses related to HRJ and other credit matters. However, in the event that there are any material developments changes related to the HRJ or other credit portfolio matters between the date of this release and the filing of our Form 10-K for the year 2008 with the Securities and Exchange Commission ("SEC"), certain of our financial results for the fourth quarter of 2008 and full year 2008 could change.
Minority Interest in Consolidated Affiliates
Minority interest in net losses of consolidated affiliates was
-- Net investment losses, including carried interest, of $4.5 million
and $4.1 million from our managed funds of funds and our managed co-
investment funds, respectively.
-- Noninterest expense of $3.0 million, principally related to
management fees paid by our managed funds to our general partner
entities at SVB Capital for funds management.
Minority interest in capital of consolidated affiliates decreased by
Capital
On
Additional paid-in-capital increased by
Weighted-average diluted common shares outstanding decreased by 327,469
shares from the third to the fourth quarter of 2008, primarily due to a
decrease in the dilutive impact of our outstanding stock options related to
the decline in our share price during the fourth quarter of 2008, as well as a
decrease in the dilutive impact from our
Outlook for the Year Ending
While forecasting future financial results is challenging in any economic environment, preparing our outlook for 2009 with any precision is particularly difficult in light of the current economic environment. We expect 2009 to be a tough year for our economy and the markets that we serve. Nonetheless, we believe our solid capital and liquidity base are sufficient to position us to withstand the downturn in our economy and continue to support our clients.
Our outlook for the year ending
For the year ending
Average Loan Balances
We expect average loan balances to increase at a percentage rate in the mid-teens. A significant amount of the increase relates to the full-year effect of our loan growth in 2008. We expect flat to declining balances from capital call lines of credit owing to diminished use of the facilities in a year in which investment levels are likely to be declining.
Average Deposit Balances
We expect average deposit balances to increase at a percentage rate in the high thirties. A significant amount of the increase relates to the full-year effect of our deposit growth in 2008, particularly the fourth quarter 2008 impact of the inflow of certain off-balance sheet funds to our balance sheet. Additionally, we expect the majority of the increase will be in interest- bearing deposits.
Net Interest Margin
We expect our net interest margin in 2009 to range from 4.7% to 5.0%. Our outlook assumes no changes in our own Prime rate and the market expectations for LIBOR and short-term treasury yields. The majority of the expected decrease in 2009 in comparison to 2008 relates to the full-year effect of certain Fed Funds rate decreases in 2008. The significant increase in our interest-earning assets in the fourth quarter of 2008, while accretive to net interest income, is expected to compress our net interest margin. The increase in interest-earning assets resulted from the inflow of certain off-balance sheet deposits to our balance sheet. Given the current low interest rate environment, we expect that these interest-earning assets will contribute to the overall expected compression of our net interest margin. Additionally, our assumptions are dependent on our expected mix of deposits across our product suite.
Credit Quality
We expect our credit quality to be under continued pressure in 2009 due to the downturn in the economy and expectations of a continued downturn. Additionally, declining mergers and acquisitions ("M&A") and venture capital investment activity is also expected to affect our credit quality.
We expect our allowance for loan losses to be approximately 1.4% of total
gross loans in 2009, exclusive of existing specific reserves for impaired
loans, which is comparable to our allowance for loan losses at
Net loan charge-offs are expected to be approximately 1.3% of total gross loans in 2009, excluding any potential charge-offs related to currently impaired loans.
We also expect our ratios of non-performing loans and assets to increase during 2009 due to current and expected economic conditions.
Fees -- Deposit Services, Letters of Credit, and Foreign Exchange
We expect fees for deposit services, letters of credit, and foreign exchange, in aggregate, to increase at a percentage rate in the mid-single digits. The slowing growth in comparison to 2008 is reflective of continued negative pressures on the economy.
Client Investment Fees
We expect client investment fees to decline significantly to approximately one-half of 2008 levels. The decline is primarily due to lower expected levels of average off-balance sheet client investments and lower margins earned on certain products owing to historically low rates in the short-term fixed income markets.
The main driver of the decrease in average off-balance sheet client investments is our decision to discontinue certain client sweep money market funds offered by third parties and direct those balances to our on-balance sheet deposit products and other investment solutions. Additionally, the expected decrease relates to limited IPOs and venture funding as a result of weaknesses in our current economic environment.
Net Gains on Equity Warrant Assets
We expect net gains on equity warrant assets to decline modestly in 2009 compared to 2008. The expected decline is due to the continuation of a virtually non-existent IPO market and continued pressure on M&A activity and levels of venture capital investments.
Net (Losses) on Investments in Venture Capital Related Activities, Net of Minority Interests
We expect net losses on investments in venture capital related activities, net of minority interests, to increase modestly in 2009 compared to 2008. As with equity warrant assets, the expected decline is due to the continuation of a virtually non-existent IPO market and continued pressure on M&A activity and levels of venture capital investments.
Noninterest Expense (Non-GAAP)
We expect noninterest expense, excluding expenses related to minority interests and the convertible debt loss in 2008, hereinafter referred to as "Non-GAAP noninterest expense", to increase at a percentage rate in the low twenties. The increase in 2009 is primarily driven by an expected increase in compensation and benefits expenses compared to 2008, and our continued investment in building our core business.
Our Non-GAAP noninterest expense declined 6.14% in 2008 primarily due to lower levels of incentive related compensation, which resulted from not meeting expected targeted net income goals, and to our better-than-expected success in controlling other expense growth in 2008. The combination of expense control that exceeded our targets for the year and low compensation expense in the fourth quarter of 2008 contributed to the decline in Non-GAAP noninterest expense, which is not reflective of normalized expense trends.
Accounting Treatment for Convertible Notes
Our 2009 adoption of an accounting pronouncement related to the accounting
for certain convertible instruments (the Financial Accounting Standards Board
("FASB") issued FASB Staff Position ("FSP") Accounting Principles Board
("APB") Opinion No. 14-1), will require historical financial statements for
2007 and 2008 to be adjusted to conform to the FSP's new accounting treatment
for both our Zero-Coupon Convertible Subordinated Notes due
-- A reduction of $16.8 million to our January 1, 2007 beginning
retained earnings.
-- Retrospective reduction to our diluted earnings per common share for
2007 and 2008 of $0.06 and $0.09, respectively.
-- Expected reduction to our diluted earnings per common share for 2009
of $0.04.
Accounting Treatment for the Treasury's Capital Purchase Program
As a result of our participation in the CPP, the full year 2009 impact on
earnings per common share will be a decrease in the range of
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
are statements that are not historical facts, such as forecasts of our future
financial results and condition, expectations for our operations and business,
and our underlying assumptions of such forecasts and expectations. In this
release, particularly in the section "Outlook for the Year Ending
Although management believes that the expectations reflected in our forward-looking statements are reasonable and has based these expectations on our beliefs and assumptions, such expectations are not guarantees and may prove to be incorrect. Actual results could differ significantly. Factors that may cause the outlook for the year 2009 and other forward-looking statements herein to change include, among others, the following: (i) accounting changes, as required by U.S. generally accepted accounting principles, (ii) continued deterioration or other changes in the state of the economy or the markets in which we conduct business or are served by us, (iii) changes in credit quality of our loan portfolio, (iv) changes in interest rates or market levels or factors affecting them, (v) changes in the performance or equity valuations of companies in which we have invested or hold derivative instruments or equity warrant assets, (vi) variations from our expectations as to factors impacting our cost structure, and (vii) errors 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. For additional information about these factors, please refer to our public reports filed with the U.S. Securities and Exchange Commission, including our most recently-filed quarterly or annual report. The forward- looking statements included in this release are made only as of the date of this release. We do not intend, and undertake no obligation, to update these forward-looking statements.
Earnings Conference Call
On
About SVB Financial Group
For 25 years, SVB Financial Group and its subsidiaries, including Silicon
Valley Bank, have been dedicated to helping entrepreneurs succeed. SVB
Financial Group is a financial holding company that serves companies in the
technology, life science, venture capital/private equity and premium wine
industries. Offering diversified financial services through Silicon Valley
Bank, SVB Analytics, SVB Capital, SVB Global and SVB Private Client Services,
SVB Financial Group provides clients with commercial, investment,
international and private banking services. The Company also offers funds
management, broker-dealer services, asset management and a wide range of
financial services for companies of all sizes and stages, as well as the added
value of its knowledge and networks worldwide. Headquartered in
Banking services are provided by Silicon Valley Bank, the
ADD: /FIRST AND FINAL ADD -- AQTH002 -- SVB Financial Group Earnings/
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in
thousands, Three months ended Year ended
except December September December December December
share 31, 30, 31, 31, 31,
data) 2008 2008 2007 2008 2007
Interest
income:
Loans $95,662 $94,256 $94,377 $364,192 $361,903
Investment
securities:
Taxable 14,789 15,321 14,313 58,466 61,303
Non-
taxable 1,140 1,106 672 4,261 2,364
Federal funds
sold,
securities
purchased.
under
agreement
to resell
and other
short-term
investment
securities 2,059 2,712 5,156 12,572 17,816
Total interest
income 113,650 113,395 114,518 439,491 443,386
Interest
expense:
Deposits 7,021 6,267 4,957 23,929 13,285
Borrowings 9,694 11,999 12,276 43,553 49,168
Total interest
expense 16,715 18,266 17,233 67,482 62,453
Net interest
income 96,935 95,129 97,285 372,009 380,933
Provision for
loan losses 67,257 13,682 5,971 97,013 16,836
Net interest
income after
provision
for loan
losses 29,678 81,447 91,314 274,996 364,097
Noninterest
income:
Client
investment
fees 9,492 13,636 13,981 50,498 51,794
Foreign
exchange
fees 8,660 8,641 7,972 33,106 25,750
Deposit
service
charges 6,034 6,129 4,843 24,110 15,554
Gains on
derivative
instruments,
net 5,026 6,472 8,421 18,505 23,935
Letter of
credit and
standby
letter of
credit
income 2,868 3,050 2,752 12,006 11,115
Corporate
finance
fees - - 2,631 3,640 14,199
(Losses)
gains on
investment
securities,
net (9,828) (876) 6,113 (14,777) 46,724
Other 6,647 4,695 6,476 29,060 32,313
Total
noninterest
income 28,899 41,747 53,189 156,148 221,384
Noninterest
expense:
Compensation
and
benefits(1) 24,977 49,598 52,115 178,415 213,892
Professional
services 11,924 9,623 9,232 39,480 32,905
Premises and
equipment 5,759 5,781 4,936 22,183 19,756
Net
occupancy 4,482 4,135 4,591 17,307 20,829
Business
development
and travel 4,831 3,389 3,516 15,406 12,263
Correspondent
bank fees 1,617 1,689 1,342 6,628 5,713
Telephone 1,406 1,373 1,370 5,276 5,404
Data
processing
services 960 1,082 901 4,235 3,841
Loss from
cash
settlement
of
conversion
premium of
zero-coupon
convertible
subordinated
notes - - - 3,858 -
Provision for
(reduction of)
unfunded
credit
commitments 1,607 (990) 1,571 1,252 (1,207)
Impairment
of goodwill - - - - 17,204
Other 5,367 4,751 3,903 19,947 15,869
Total
noninterest
expense 62,930 80,431 83,477 313,987 346,469
Income before
minority
interest in
net loss
(income) of
consolidated
affiliates
and income
tax expense (4,353) 42,763 61,026 117,157 239,012
Minority
interest in
net loss
(income) of
consolidated
affiliates 11,694 1,693 (1,957) 19,139 (28,596)
Income before
income tax
expense 7,341 44,456 59,069 136,296 210,416
Income tax
expense 3,703 17,448 24,803 56,452 86,778
Net income $3,638 $27,008 $34,266 $79,844 $123,638
Preferred
stock
dividend and
discount
accretion (707) - - (707) -
Net income
available to
common
stockholders $2,931 $27,008 $34,266 $79,137 $123,638
Earnings per
common share
- basic $0.09 $0.83 $1.04 $2.44 $3.64
Earnings per
common share
- diluted $0.09 $0.80 $0.96 $2.33 $3.37
Weighted
average
common
shares
outstanding
- basic 32,809,705 32,534,613 33,043,715 32,425,307 33,949,654
Weighted
average
common
shares
outstanding
- diluted 33,450,626 33,778,095 35,737,870 34,014,581 36,737,507
(1) Compensation and benefits included share-based payments of $2.7
million, $3.5 million and $2.9 million for the quarters ended
December 31, 2008, September 30, 2008, and December 31, 2007,
respectively, and $13.6 million and $14.9 million for the years
ended December 31, 2008 and 2007, respectively.
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands,
except par value, December 31, September 30, December 31,
share data and ratios) 2008 2008 2007
Assets:
Cash and due from banks $1,791,396 $373,510 $325,399
Federal funds sold,
securities purchased
under agreement to resell
and other short-term
investment securities 647,414 379,088 358,664
Investment securities 1,786,100 1,779,978 1,602,574
Loans, net of unearned
income 5,506,253 5,285,101 4,151,730
Allowance for loan
losses (103,696) (60,290) (47,293)
Net loans 5,402,557 5,224,811 4,104,437
Premises and equipment,
net of accumulated
depreciation and
amortization 30,589 32,344 38,628
Goodwill 4,092 4,092 4,092
Accrued interest
receivable and
other assets 361,060 277,122 258,662
Total assets $10,023,208 $8,070,945 $6,692,456
Liabilities, Minority
Interest and
Stockholders' Equity:
Liabilities:
Deposits:
Noninterest-bearing
demand $4,419,965 $3,231,281 $3,226,859
Negotiable order
of withdrawal (NOW) 58,133 57,231 35,909
Money market 1,213,086 1,334,393 941,242
Foreign money
market 53,123 - -
Time 379,200 387,236 335,110
Sweep 1,349,965 422,468 72,083
Total deposits 7,473,472 5,432,609 4,611,203
Short-term borrowings 62,120 425,000 90,000
Other liabilities 176,653 175,740 199,243
Long-term debt 1,000,640 981,946 875,254
Total liabilities 8,712,885 7,015,295 5,775,700
Minority interest in
capital of consolidated
affiliates 320,356 324,998 240,102
Stockholders' equity:
Preferred stock, $0.001
par value, 20,000,000
shares authorized; no
shares issued and
outstanding - - -
Preferred stock, Series B
Fixed Rate Cumulative
Perpetual Preferred
Stock, $1,000
liquidation value per
share, 235,000 shares
authorized; 235,000
shares issued and
outstanding, net
of discount 221,185 - -
Common stock, $0.001
par value, 150,000,000
shares authorized;
32,917,007 shares,
32,735,732 shares and
32,670,557 shares
outstanding, respectively 33 33 33
Additional paid-in capital 45,872 23,816 -
Retained earnings 728,666 725,737 682,911
Accumulated other
comprehensive loss (5,789) (18,934) (6,290)
Total stockholders' equity 989,967 730,652 676,654
Total liabilities,
minority interest and
stockholders' equity $10,023,208 $8,070,945 $6,692,456
Capital Ratios:
Total risk-based
capital ratio 17.62% 14.25% 16.02%
Tier 1 risk-based
capital ratio 12.54 9.94 11.07
Tier 1 leverage ratio 13.12 10.80 11.91
Other Period-End
Statistics:
Tangible common equity
to tangible assets ratio 7.53 9.20 10.12
Loans, net of unearned
income-to-deposits ratio 73.68% 97.28% 90.04%
Book value per common share (1) $22.95 $22.32 $20.71
Full-time equivalent employees 1,244 1,237 1,141
(1) Book value per common share is calculated by dividing total
stockholders' equity (excluding preferred equity) by total outstanding
common shares.
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
Three months ended
December 31, 2008
(Dollars in thousands) Interest
Average Income/ Yield/
Balance Expense Rate
Interest-earning assets:
Federal funds sold,
securities purchased under
agreement to resell and other
short-term investment
securities (1) $574,295 $2,059 1.43%
Investment securities:
