Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 26, 2018
 
 
SVB Financial Group
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
000-15637
 
91-1962278
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
3003 Tasman Drive, Santa Clara, CA 95054-1191
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408) 654-7400
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.142-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

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

 







Item 2.02.
Results of Operations and Financial Condition.
On July 26, 2018, SVB Financial Group (the “Company”) announced its financial results for the second quarter ended June 30, 2018. A copy of the release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Act of 1934, except as expressly stated by specific reference in such filing.
 
Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits. 
Exhibit
No.
Description
 
 





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: July 26, 2018
 
 
 
SVB FINANCIAL GROUP
 
 
 
 
 
 
 
 
By:
 
/s/ KAMRAN HUSAIN
 
 
 
 
Name:
 
Kamran Husain
 
 
 
 
Title:
 
Chief Accounting Officer and Principal Accounting Officer






Exhibit Index
 
Exhibit
No.
Description
 
 


*
This exhibit is intended to be furnished and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934.



Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12371860&doc=3    
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
July 26, 2018
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
NASDAQ: SIVB
 
 
 
 
 
 
  
 
SVB FINANCIAL GROUP ANNOUNCES 2018 SECOND QUARTER FINANCIAL RESULTS

SANTA CLARA, Calif. — July 26, 2018 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the second quarter ended June 30, 2018.

Consolidated net income available to common stockholders for the second quarter of 2018 was $237.8 million, or $4.42 per diluted common share, compared to $195.0 million, or $3.63 per diluted common share, for the first quarter of 2018 and $123.2 million, or $2.32 per diluted common share, for the second quarter of 2017. Consolidated net income available to common stockholders for the six months ended June 30, 2018 was $432.8 million, or $8.05 per diluted common share, compared to $224.7 million, or $4.22 per diluted common share, for the comparable 2017 period.

"Robust client liquidity, rising interest rates and healthy valuation gains from our VC-related investments and equity warrant assets helped drive another quarter of exceptional performance and further improvements to our 2018 outlook," said Greg Becker, President and CEO of SVB Financial Group. "These results were underpinned by strong fundamentals, a healthy pipeline and positive conditions for our clients." 
Highlights of our second quarter 2018 results (compared to first quarter 2018, unless otherwise noted) included:
Average loan balances of $24.9 billion, an increase of $1.1 billion (or 4.4 percent).
Period-end loan balances of $26.0 billion, an increase of $1.4 billion (or 5.7 percent).
Average fixed income investment securities of $25.2 billion, an increase of $1.2 billion (or 4.9 percent).
Period-end fixed income investment securities of $25.5 billion, an increase of $0.9 billion (or 3.5 percent).
Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $8.8 billion (or 8.0 percent) to $119.3 billion.
Period-end total client funds increased $11.0 billion (or 9.7 percent) to $124.7 billion.
Net interest income (fully taxable equivalent basis) of $468.5 million, an increase of $47.3 million (or 11.2 percent).
Provision for credit losses of $29.1 million, compared to $28.0 million.
Net loan charge-offs of $13.5 million, or 22 basis points of average total gross loans (annualized), compared to $8.8 million, or 15 basis points.
Gains on investment securities, net, of $36.1 million, compared to $9.1 million. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $26.4 million, compared to non-GAAP net losses on investment securities, net of noncontrolling interests, of $3.8 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Gains on equity warrant assets of $19.1 million, compared to $19.2 million.
Noninterest income of $192.7 million, an increase of $37.2 million (or 23.9 percent). Non-GAAP core fee income increased $8.1 million (or 7.1 percent) to $123.1 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Noninterest expense of $305.7 million, an increase of $40.3 million (or 15.2 percent).
Effective tax rate of 24.5 percent compared to 27.5 percent.





Second Quarter 2018 Summary
(Dollars in millions, except share data, employees and ratios)
 
Three months ended
 
Six months ended
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Income statement:
 

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
4.42

 
$
3.63

 
$
2.19

 
$
2.79

 
$
2.32

 
$
8.05

 
$
4.22

Net income available to common stockholders
 
237.8

 
195.0

 
117.2

 
148.6

 
123.2

 
432.8

 
224.7

Net interest income
 
466.4

 
419.9

 
393.7

 
374.0

 
342.7

 
886.3

 
652.7

Provision for credit losses
 
29.1

 
28.0

 
22.2

 
23.5

 
15.8

 
57.1

 
46.5

Noninterest income
 
192.7

 
155.5

 
152.3

 
158.8

 
128.5

 
348.2

 
246.2

Noninterest expense
 
305.7

 
265.4

 
264.0

 
257.8

 
251.2

 
571.2

 
488.9

Non-GAAP core fee income (1)
 
123.1

 
115.0

 
106.4

 
102.7

 
87.3

 
238.1

 
169.8

Non-GAAP noninterest income, net of noncontrolling interests (1)
 
183.2

 
142.5

 
144.5

 
153.2

 
119.0

 
325.7

 
230.1

Non-GAAP noninterest expense, net of noncontrolling interests (1)
 
305.5

 
265.4

 
263.7

 
257.6

 
251.0

 
571.0

 
488.5

Fully taxable equivalent:
 

 
 
 
 
 
 
 
 
 


 
 
Net interest income (2)
 
$
468.5

 
$
421.2

 
$
395.3

 
$
374.6

 
$
343.2

 
$
889.7

 
$
653.5

Net interest margin
 
3.59
%
 
3.38
%
 
3.20
%
 
3.10
%
 
3.00
%
 
3.49
%
 
2.94
%
Balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average total assets
 
$
54,420.6

 
$
52,367.2

 
$
50,799.4

 
$
49,795.4

 
$
47,549.4

 
$
53,399.6

 
$
46,431.4

Average loans, net of unearned income
 
24,858.5

 
23,807.2

 
22,444.1

 
21,584.9

 
20,508.5

 
24,335.8

 
20,290.1

Average available-for-sale securities
 
10,048.4

 
10,748.5

 
12,081.0

 
12,674.6

 
12,393.1

 
10,396.5

 
12,471.2

Average held-to-maturity securities
 
15,112.2

 
13,234.3

 
11,703.0

 
10,467.5

 
9,128.4

 
14,178.4

 
8,865.8

Average noninterest-bearing demand deposits
 
39,814.5

 
37,950.8

 
36,962.0

 
36,578.8

 
34,629.1

 
38,887.8

 
33,674.5

Average interest-bearing deposits
 
8,157.5

 
8,155.3

 
7,811.4

 
7,464.1

 
7,509.6

 
8,156.4

 
7,380.1

Average total deposits
 
47,972.0

 
46,106.1

 
44,773.4

 
44,042.8

 
42,138.6

 
47,044.2

 
41,054.6

Average long-term debt
 
695.8

 
695.6

 
743.2

 
749.5

 
780.2

 
695.7

 
787.9

Period-end total assets
 
55,867.7

 
53,500.8

 
51,214.5

 
50,754.3

 
48,400.4

 
55,867.7

 
48,400.4

Period-end loans, net of unearned income
 
25,996.2

 
24,587.9

 
23,106.3

 
22,189.3

 
20,976.5

 
25,996.2

 
20,976.5

Period-end available-for-sale securities
 
9,593.4

 
10,080.4

 
11,120.7

 
12,603.3

 
12,071.1

 
9,593.4

 
12,071.1

Period-end held-to-maturity securities
 
15,898.3

 
14,548.9

 
12,663.5

 
11,055.0

 
9,938.4

 
15,898.3

 
9,938.4

Period-end non-marketable and other equity securities
 
852.5

 
824.9

 
651.1

 
627.5

 
630.7

 
852.5

 
630.7

Period-end noninterest-bearing demand deposits
 
40,593.3

 
37,515.4

 
36,655.5

 
36,862.0

 
35,046.4

 
40,593.3

 
35,046.4

Period-end interest-bearing deposits
 
8,294.0

 
8,421.2

 
7,598.6

 
7,950.0

 
7,418.9

 
8,294.0

 
7,418.9

Period-end total deposits
 
48,887.3

 
45,936.5

 
44,254.1

 
44,812.0

 
42,465.3

 
48,887.3

 
42,465.3

Off-balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average client investment funds
 
$
71,311.5

 
$
64,377.7

 
$
57,589.1

 
$
53,273.3

 
$
49,109.4

 
$
67,844.6

 
$
47,619.8

Period-end client investment funds
 
75,773.7

 
67,739.2

 
60,329.7

 
54,241.5

 
51,897.5

 
75,773.7

 
51,897.5

Total unfunded credit commitments
 
18,728.4

 
17,170.8

 
17,462.5

 
16,341.9

 
16,786.8

 
18,728.4

 
16,786.8

Earnings ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Return on average assets (annualized) (3)
 
1.75
%
 
1.51
%
 
0.92
%
 
1.18
%
 
1.04
%
 
1.63
%
 
0.98
%
Return on average SVBFG stockholders’ equity (annualized) (4)
 
20.82

 
18.12

 
11.09

 
14.59

 
12.75

 
19.51

 
11.91

Asset quality ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Allowance for loan losses as a % of total gross loans
 
1.10
%
 
1.11
%
 
1.10
%
 
1.12
%
 
1.12
%
 
1.10
%
 
1.12
%
Allowance for loan losses for performing loans as a % of total gross performing loans
 
0.90

 
0.93

 
0.92

 
0.92

 
0.93

 
0.90

 
0.93

Gross loan charge-offs as a % of average total gross loans (annualized)
 
0.25

 
0.18

 
0.27

 
0.23

 
0.49

 
0.21

 
0.39

Net loan charge-offs as a % of average total gross loans (annualized)
 
0.22

 
0.15

 
0.23

 
0.19

 
0.44

 
0.18

 
0.34

Other ratios:
 

 
 
 
 
 
 
 
 
 

 
 
GAAP operating efficiency ratio (5)
 
46.39
%
 
46.13
%
 
48.36
%
 
48.38
%
 
53.32
%
 
46.27
%
 
54.39
%
Non-GAAP operating efficiency ratio (1)
 
46.88

 
47.09

 
48.85

 
48.82

 
54.32

 
46.98

 
55.28

SVBFG CET 1 risk-based capital ratio
 
12.92

 
12.87

 
12.78

 
12.96

 
13.05

 
12.92

 
13.05


2



Bank CET 1 risk-based capital ratio
 
11.76

 
11.90

 
12.06

 
12.41

 
12.59

 
11.76

 
12.59

SVBFG total risk-based capital ratio
 
14.03

 
13.99

 
13.96

 
14.29

 
14.39

 
14.03

 
14.39

Bank total risk-based capital ratio
 
12.72

 
12.88

 
13.04

 
13.40

 
13.59

 
12.72

 
13.59

SVBFG tier 1 leverage ratio
 
8.81

 
8.67

 
8.34

 
8.34

 
8.40

 
8.81

 
8.40

Bank tier 1 leverage ratio
 
7.72

 
7.69

 
7.56

 
7.59

 
7.66

 
7.72

 
7.66

Period-end loans, net of unearned income, to deposits ratio
 
53.18

 
53.53

 
52.21

 
49.52

 
49.40

 
53.18

 
49.40

Average loans, net of unearned income, to average deposits ratio
 
51.82

 
51.64

 
50.13

 
49.01

 
48.67

 
51.73

 
49.42

Book value per common share (6)
 
$
87.53

 
$
83.43

 
$
79.11

 
$
77.00

 
$
74.02

 
$
87.53

 
$
74.02

Other statistics:
 

 
 
 
 
 
 
 
 
 

 
 
Average FTE ("full-time equivalent") employees
 
2,591

 
2,498

 
2,433

 
2,434

 
2,372

 
2,545

 
2,358

Period-end FTE ("full-time equivalent") employees
 
2,626

 
2,512

 
2,438

 
2,433

 
2,380

 
2,626

 
2,380

 
(1)
To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most closely related GAAP measures is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.”
(2)
Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21.0 percent for 2018 and 35.0 percent for 2017. The taxable equivalent adjustments were $2.0 million for the quarter ended June 30, 2018, $1.4 million for the quarter ended March 31, 2018, $1.6 million for the quarter ended December 31, 2017, $0.6 million for the quarter ended September 30, 2017 and $0.5 million for the quarter ended June 30, 2017. The taxable equivalent adjustments were $3.4 million and $0.8 million for the six months ended June 30, 2018 and June 30, 2017, respectively.
(3)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets.
(4)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVB Financial Group ("SVBFG") stockholders’ equity.
(5)
Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income.
(6)
Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares.
Net Interest Income and Margin

Net interest income, on a fully taxable equivalent basis, was $468.5 million for the second quarter of 2018, compared to $421.2 million for the first quarter of 2018. The $47.3 million increase from the first quarter of 2018 to the second quarter of 2018, was attributable primarily to the following:

An increase in interest income from loans of $33.2 million to $330.3 million for the second quarter of 2018. The increase was reflective primarily of the impact of $1.1 billion in average loan growth and higher interest rates compared to the first quarter of 2018. Overall loan yields increased 27 basis points, to 5.33 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased 20 basis points to 4.72 percent, as compared to 4.52 percent for the first quarter of 2018, reflective primarily of the full-quarter effect of the Federal Funds target rate increase in March 2018 as well as continued increases in LIBOR rates. Loan fee yields increased 10 basis points, or $7.9 million, primarily due to higher accelerated fee income from increased loan prepayments.

An increase in interest income from our fixed income investment securities in our available-for-sale ("AFS") and held-to-maturity ("HTM") portfolios of $16.0 million to $146.9 million for the second quarter of 2018. The increase was reflective of higher spreads from the continued reinvestment of maturing fixed income investment securities at higher-yielding rates as well as growth in average fixed income securities of $1.2 billion. Our overall yield from our fixed income securities portfolio increased 13 basis points to 2.34 percent, primarily attributable to the higher reinvestment rates compared to rates on paydowns and maturities.

Partially offset by an increase in interest expense of $2.3 million, due primarily to an increase in interest paid on our interest-bearing money market deposits as a result of market rate adjustments.

Net interest margin, on a fully taxable equivalent basis, was 3.59 percent for the second quarter of 2018, compared to 3.38 percent for the first quarter of 2018. Our net interest margin increased primarily as a result of the impact of rising interest rates as well as a shift in the mix of our interest-earning assets to loans and fixed income investment securities from our interest earning cash and other short-term investment securities.

For the second quarter of 2018, approximately 91.6 percent, or $22.9 billion, of our average gross loans were variable-rate loans that adjust at prescribed measurement dates. Of our variable-rate loans, approximately 66.1 percent are tied to prime-lending rates and 33.9 percent are tied to LIBOR.

3



Investment Securities

Our investment securities portfolio is comprised of: (i) our AFS and HTM securities portfolios, each consisting of fixed income investments which are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives; and (ii) our non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised. Our total average fixed income investment securities portfolio increased $1.2 billion, or 4.9 percent, to $25.2 billion for the quarter ended June 30, 2018. Our total period-end fixed income investment securities portfolio increased $0.9 billion, or 3.5 percent, to $25.5 billion at June 30, 2018. The duration of our fixed income investment securities portfolio was 3.7 years at June 30, 2018, and 3.4 years at March 31, 2018. Our period-end non-marketable and other equity securities portfolio increased $27.6 million to $852.5 million ($722.3 million net of noncontrolling interests) at June 30, 2018.

Available-for-Sale Securities

Average AFS securities were $10.1 billion for the second quarter of 2018 compared to $10.7 billion for the first quarter of 2018. Period-end AFS securities were $9.6 billion at June 30, 2018 compared to $10.1 billion at March 31, 2018. The decreases in average and period-end AFS security balances from the first quarter of 2018 to the second quarter of 2018 were due to $0.9 billion in portfolio paydowns and maturities during the second quarter of 2018 partially offset by purchases of $0.4 billion in U.S. Treasury securities. The weighted-average duration of our AFS securities portfolio was 2.1 years at June 30, 2018 and 1.9 years at March 31, 2018.

Held-to-Maturity Securities

Average HTM securities were $15.1 billion for the second quarter of 2018, compared to $13.2 billion for the first quarter of 2018. Period-end HTM securities were $15.9 billion at June 30, 2018, compared to $14.5 billion at March 31, 2018. The increases in average and period-end HTM security balances from the first quarter of 2018 to the second quarter of 2018 were due to new purchases of $1.3 billion primarily in mortgage-backed securities and $0.5 billion in municipal bonds, partially offset by $0.5 billion in portfolio paydowns and maturities. The weighted-average duration of our HTM securities portfolio was 4.7 years at June 30, 2018 and 4.5 years at March 31, 2018.

Non-Marketable and Other Equity Securities

Our non-marketable and other equity 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.
Our non-marketable and other equity securities portfolio increased $27.6 million to $852.5 million ($722.3 million net of noncontrolling interests) at June 30, 2018, compared to $824.9 million ($699.4 million net of noncontrolling interests) at March 31, 2018. The increase was primarily attributable to new investments within our qualified affordable housing projects portfolio. Reconciliations of our non-GAAP non-marketable and other equity securities, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures."

Loans

Average loans (net of unearned income) increased by $1.1 billion to $24.9 billion for the second quarter of 2018, compared to $23.8 billion for the first quarter of 2018. Period-end loans (net of unearned income) increased by $1.4 billion to $26.0 billion at June 30, 2018, compared to $24.6 billion at March 31, 2018. Average and period-end loan growth came primarily from our private equity/venture capital portfolio as well as from our private bank and life science/healthcare portfolios.

Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million increased by $1.0 billion and totaled $12.6 billion or 48.3 percent of total gross loans at June 30, 2018 and $11.6 billion or 46.9 percent of total gross loans at March 31, 2018. Further details are provided under the section “Loan Concentrations."

4



Credit Quality

The following table provides a summary of our allowance for loan losses and our allowance for unfunded credit commitments:
 
 
Three months ended
 
Six months ended
(Dollars in thousands, except ratios)
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Allowance for loan losses, beginning balance
 
$
274,294

 
$
255,024

 
$
243,130

 
$
255,024

 
$
225,366

Provision for loan losses
 
27,656

 
26,996

 
15,185

 
54,652

 
44,864

Gross loan charge-offs
 
(15,428
)
 
(10,587
)
 
(25,081
)
 
(26,015
)
 
(39,111
)
Loan recoveries
 
1,926

 
1,788

 
2,535

 
3,714

 
4,327

Foreign currency translation adjustments
 
(1,739
)
 
1,073

 
727

 
(666
)
 
1,050

Allowance for loan losses, ending balance
 
$
286,709

 
$
274,294

 
$
236,496

 
$
286,709

 
$
236,496

Allowance for unfunded credit commitments, beginning balance
 
52,823

 
51,770

 
46,335

 
51,770

 
45,265

Provision for unfunded credit commitments
 
1,424

 
976

 
621

 
2,400

 
1,676

Foreign currency translation adjustments
 
(143
)
 
77

 
44

 
(66
)
 
59

Allowance for unfunded credit commitments, ending balance (1)
 
$
54,104

 
$
52,823

 
$
47,000

 
$
54,104

 
$
47,000

Ratios and other information:
 
 
 
 
 
 
 
 
 
 
Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.42
%
 
0.44
%
 
0.29
%
 
0.42
%
 
0.43
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.25

 
0.18

 
0.49

 
0.21

 
0.39

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.22

 
0.15

 
0.44

 
0.18

 
0.34

Allowance for loan losses as a percentage of period-end total gross loans
 
1.10

 
1.11

 
1.12

 
1.10

 
1.12

Provision for credit losses
 
$
29,080

 
$
27,972

 
$
15,806

 
$
57,052

 
$
46,540

Period-end total gross loans
 
26,160,782

 
24,745,752

 
21,103,946

 
26,160,782

 
21,103,946

Average total gross loans
 
25,014,587

 
23,956,784

 
20,632,237

 
24,488,608

 
20,412,123

Allowance for loan losses for nonaccrual loans
 
53,677

 
44,261

 
40,558

 
53,677

 
40,558

Nonaccrual loans
 
124,842

 
116,667

 
120,172

 
124,842

 
120,172

 
(1)
The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”
Our allowance for loan losses increased $12.4 million to $286.7 million due primarily to reserves for the $1.4 billion in period-end loan growth as well as a net increase in reserves for our nonaccrual loans, offset by a decrease in reserves for performing loans. As a percentage of total gross loans, our allowance for loan losses decreased one basis point to 1.10 percent at June 30, 2018, compared to 1.11 percent at March 31, 2018. The one basis point decrease was reflective primarily of a decrease in reserves for our performing loans from certain reserve methodology enhancements made as a result of the continued improvement of the credit quality of our large loans, partially offset by an increase in our nonaccrual loan reserves.

Our provision for credit losses was $29.1 million for the second quarter of 2018, consisting of the following:

a provision for loan losses of $27.7 million, which reflects primarily an increase of $13.4 million in net new specific reserves for nonaccrual loans, additional reserves of $12.5 million for period-end loan growth and $11.4 million for charge-offs not specifically reserved, offset by a decrease in reserves of $12.5 million reflective of the methodology enhancements mentioned above, and
a provision for unfunded credit commitments of $1.4 million, driven primarily increased reserves of $4.5 million from growth in unfunded credit commitment balances of $1.6 billion, offset by a decrease in reserves of $3.5 million reflective of the methodology enhancements mentioned above.
Gross loan charge-offs were $15.4 million for the second quarter of 2018, of which $11.4 million was not specifically reserved for at March 31, 2018. Gross loan charge-offs included $13.4 million from our software/internet loan portfolio

5



and consisted primarily of $8.7 million for one sponsor-led buyout loan with the remaining $4.7 million primarily from early-stage clients.

Nonaccrual loans were $124.8 million at June 30, 2018, compared to $116.7 million at March 31, 2018. Our nonaccrual loan balance increased $8.1 million as a result of $29.1 million of new nonaccrual loans offset by $16.5 million of repayments and $4.5 million of charge-offs. New nonaccrual loans were primarily from loans in our software/internet and life science/healthcare loan portfolios. Nonaccrual loans as a percentage of total gross loans remained consistent at 0.48 percent for the second quarter of 2018 compared to 0.47 percent for the first quarter of 2018.

The allowance for loan losses for nonaccrual loans increased by $9.4 million to $53.7 million in the second quarter of 2018. The increase was due to $23.0 million of new nonaccrual loan reserves, partially offset by $13.6 million of charge-offs and reserve releases. New nonaccrual loan reserves were mostly attributable to clients in our software/internet and life science/healthcare loan portfolios.

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 $119.3 billion for the second quarter of 2018, compared to $110.5 billion for the first quarter of 2018. Period-end total client funds were $124.7 billion at June 30, 2018, compared to $113.7 billion at March 31, 2018.

Average off-balance sheet client investment funds were $71.3 billion for the second quarter of 2018, compared to $64.4 billion for the first quarter of 2018. Average on-balance sheet deposits were $48.0 billion for the second quarter of 2018, compared to $46.1 billion for the first quarter of 2018. Period-end off-balance sheet client investment funds were $75.8 billion at June 30, 2018, compared to $67.7 billion at March 31, 2018. Period-end on-balance sheet deposits were $48.9 billion at June 30, 2018, compared to $45.9 billion at March 31, 2018.

The increases in our average and period-end total client funds from the first quarter of 2018 to the second quarter of 2018 were driven primarily by a strong equity funding environment, robust activities in the initial public offering ("IPO") and secondary public offering markets and healthy new client acquisition. Our Life Sciences, Corporate Finance, Early Stage Technology and Private Equity Division market segments were the leading portfolio contributors to total client funds growth for the second quarter of 2018.
Short-term Borrowings

On June 30, 2018, we borrowed a total of $400 million from our overnight credit facilities to support the short-term liquidity needs of Silicon Valley Bank (the "Bank"). These borrowings were repaid, subsequent to quarter-end, on July 2, 2018.
Noninterest Income

Noninterest income was $192.7 million for the second quarter of 2018, compared to $155.5 million for the first quarter of 2018. Non-GAAP noninterest income, net of noncontrolling interests was $183.2 million for the second quarter of 2018, compared to $142.5 million for the first quarter of 2018. (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures.")

The increase of $37.2 million ($40.7 million net of noncontrolling interests) in noninterest income from the first quarter of 2018 to the second quarter of 2018 was attributable primarily to higher net gains on investment securities and higher client investment fees. Items impacting noninterest income for the second quarter of 2018 were as follows:

Gains on investment securities of $36.1 million for the second quarter of 2018, compared to $9.1 million for the first quarter of 2018. Net of noncontrolling interests, non-GAAP net gains on investment securities were $26.4 million for the second quarter of 2018, compared to net losses of $3.8 million for the first quarter of 2018. The non-GAAP net gains, net of noncontrolling interests, of $26.4 million for the second quarter of 2018 were driven by the following:
Gains of $18.1 million from our strategic and other investments, comprised primarily of net unrealized valuation increases in both private and public company investments held in our strategic venture capital funds, and

6



Gains of $7.7 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the public company investments held by the funds in the portfolio.
The following tables provide a summary of non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three months ended June 30, 2018 and March 31, 2018, respectively:
 
 
Three months ended June 30, 2018
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
Total
GAAP gains (losses) on investment securities, net
 
$
17,531

 
$
(423
)
 
$
140

 
$
726

 
$
18,140

 
$
36,114

Less: income attributable to noncontrolling interests, including carried interest allocation
 
9,793

 
(139
)
 

 

 
18

 
9,672

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
7,738

 
$
(284
)
 
$
140

 
$
726

 
$
18,122

 
$
26,442


 
 
Three months ended March 31, 2018
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
Total
GAAP gains (losses) on investment securities, net
 
$
19,073

 
$
1,919

 
$
(22,282
)
 
$
(2,299
)
 
$
12,647

 
$
9,058

Less: income attributable to noncontrolling interests, including carried interest allocation
 
12,197

 
708

 

 

 

 
12,905

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
6,876

 
$
1,211

 
$
(22,282
)
 
$
(2,299
)
 
$
12,647

 
$
(3,847
)

Net gains on equity warrant assets were $19.1 million for the second quarter of 2018, compared to $19.2 million for the first quarter of 2018. Net gains on equity warrant assets for the second quarter of 2018 were attributable primarily to net gains from exercises of $8.9 million of equity warrant assets driven by IPO and M&A activity and $11.0 million of valuation increases in our private company warrant portfolio.
 
At June 30, 2018, we held warrants in 1,967 companies with a total fair value of $143.7 million. Warrants in 15 companies each had fair values greater than $1.0 million and collectively represented $38.6 million, or 26.8 percent, of the fair value of the total warrant portfolio at June 30, 2018
The following table provides a summary of our net gains on equity warrant assets:
 
 
Three months ended
 
Six months ended
(Dollars in thousands)
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Equity warrant assets:
 
 
 
 
 
 
 
 
 
 
Gains on exercises, net
 
$
8,875

 
$
9,927

 
$
3,121

 
$
20,509

 
$
11,345

Cancellations and expirations
 
(826
)
 
(922
)
 
(571
)
 
(1,726
)
 
(1,129
)
Changes in fair value, net
 
11,012

 
10,186

 
8,270

 
19,469

 
7,294

Total net gains on equity warrant assets
 
$
19,061

 
$
19,191

 
$
10,820

 
$
38,252

 
$
17,510

The gains from investment securities from our nonmarketable and other equity securities portfolio as well as 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



Non-GAAP core fee income (foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit and standby letters of credit fees) increased $8.1 million to $123.1 million for the second quarter of 2018, compared to $115.0 million for the first quarter of 2018.
The following table provides a summary of our non-GAAP core fee income:
 
 
Three months ended
 
Six months ended
(Dollars in thousands)
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Non-GAAP core fee income:
 
 
 
 
 
 
 
 
 
 
Foreign exchange fees
 
$
34,077

 
$
33,827

 
$
26,108

 
$
67,904

 
$
52,355

Credit card fees
 
22,926

 
21,692

 
18,099

 
44,618

 
35,829

Deposit service charges
 
18,794

 
17,699

 
14,563

 
36,493

 
28,538

Client investment fees
 
29,452

 
22,875

 
12,982

 
52,327

 
22,008

Lending related fees
 
9,528

 
10,735

 
8,509

 
20,263

 
17,470

Letters of credit and standby letters of credit fees
 
8,347

 
8,182

 
7,006

 
16,529

 
13,645

Total Non-GAAP core fee income
 
$
123,124

 
$
115,010

 
$
87,267

 
$
238,134

 
$
169,845


The increase in non-GAAP core fee income from the first quarter of 2018 to the second quarter of 2018 was primarily the result of strong performance in client investment fees as well as increased credit card fees and deposit service charges. Client investment fees increased $6.6 million driven by higher fees from our sweep products due to increases in client investment fund balances as well as higher market rates. Credit card fees increased $1.2 million due to higher interchange fee income reflective of increased transaction volumes. Deposit service charges increased $1.1 million driven by higher volumes of our transaction-based fee products.
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 $305.7 million for the second quarter of 2018, compared to $265.4 million for the first quarter of 2018. The increase of $40.3 million in noninterest expense consisted primarily of an increase in our total compensation and benefits and professional services expenses in the second quarter of 2018 compared to the first quarter of 2018.

The following table provides a summary of our compensation and benefits expense:
 
 
Three months ended
 
Six months ended
(Dollars in thousands, except employees)
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018

June 30,
2017
Compensation and benefits:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
76,831

 
$
73,039

 
$
68,029

 
$
149,870

 
$
134,888

Incentive compensation plans
 
52,473

 
42,389

 
35,633

 
94,862

 
68,307

Employee stock ownership plan ("ESOP")
 
1,909

 
1,244

 
1,191

 
3,153

 
2,335

Other employee incentives and benefits (1)
 
50,742

 
49,134

 
44,120

 
99,876

 
90,619

Total compensation and benefits
 
$
181,955

 
$
165,806

 
$
148,973

 
$
347,761

 
$
296,149

Period-end full-time equivalent employees
 
2,626

 
2,512

 
2,380

 
2,626

 
2,380

Average full-time equivalent employees
 
2,591

 
2,498

 
2,372

 
2,545

 
2,358

 
(1)
Other employee incentives and 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 $16.2 million increase in total compensation and benefits expense consists primarily of the following:

An increase of $10.1 million in incentive compensation expense reflective primarily of our strong full-year expected performance as well as an increase in FTE, and
An increase of $3.8 million in salaries and wages reflective primarily of the full-quarter impact of merit increases effective towards the end of the first quarter of 2018, an increase in the number of average full-time equivalent

8



employees ("FTE") by 93 to 2,591 FTEs for the second quarter of 2018 and a $1.0 million write-off in capitalized salaries in connection with regulatory relief reform, offset by higher deferred loan origination costs capitalized due to increased loan origination volume in the second quarter of 2018.

The $18.1 million increase in professional services expense is reflective primarily of higher project spend on corporate strategic initiatives as well as a $6.0 million write-off for capitalized costs related to Comprehensive Capital Analysis and Review ("CCAR") preparation in connection with the Economic Growth, Regulatory Relief and Consumer Protection Act, which includes regulatory reform of the Systematically Important Financial Institution ("SIFI") threshold from $50 billion to $250 billion.
Income Tax Expense
Our effective tax rate was 24.5 percent for the second quarter of 2018, compared to 27.5 percent for the first quarter of 2018. 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 decrease in our effective tax rate for the second quarter of 2018 is due primarily to a $9.4 million increase in the recognition of excess tax benefits from share-based compensation in the second quarter of 2018 compared to the first quarter of 2018 which is reflective of the vesting, exercise activities of employees and increase in our stock price.
Noncontrolling Interests

Included in net income is income and expense related to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net Income Attributable to Noncontrolling Interests” in our statements of income. The following table provides a summary of net income attributable to noncontrolling interests: 
 
 
Three months ended
 
Six months ended
(Dollars in thousands)
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Net interest income (1)
 
$
(10
)
 
$
(9
)
 
$
(10
)
 
$
(19
)
 
$
(17
)
Noninterest income (1)
 
(7,856
)
 
(9,522
)
 
(9,264
)
 
(17,378
)
 
(14,718
)
Noninterest expense (1)
 
227

 
(32
)
 
223

 
195

 
392

Carried interest allocation (2)
 
(1,589
)
 
(3,502
)
 
(272
)
 
(5,091
)
 
(1,377
)
Net income attributable to noncontrolling interests
 
$
(9,228
)
 
$
(13,065
)
 
$
(9,323
)
 
$
(22,293
)
 
$
(15,720
)
 
(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 $9.2 million for the second quarter of 2018, compared to $13.1 million for the first quarter of 2018. Net income attributable to noncontrolling interests of $9.2 million for the second quarter of 2018 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio, related primarily to net unrealized valuation increases for public company investments held by the funds in the portfolio.
SVBFG Stockholders’ Equity

Total SVBFG stockholders’ equity increased by $0.3 billion to $4.7 billion at June 30, 2018, compared to $4.4 billion at March 31, 2018, due to net income of $237.8 million and an increase in additional paid-in capital of $20.0 million attributable primarily to amortization of share-based compensation partially offset by a decrease in the fair value of our AFS securities portfolio of $10.8 million, net of tax, driven by increases in period-end market interest rates.

Capital Ratios

Our regulatory risk-based capital ratios for SVB Financial Group increased modestly as of June 30, 2018, compared to the same ratios as of March 31, 2018, primarily as a result of a proportionally higher increase in capital from net income compared to the increase in risk-weighted assets for the second quarter of 2018. The increase in risk-weighted assets was primarily due to our robust loan growth for the second quarter of 2018. Overall, the Bank's risk-based capital ratios decreased, reflecting a $30.0 million cash dividend paid by the Bank to our bank holding company, SVB Financial Group, during the second quarter of 2018.


9



Both SVB Financial Group and the Bank's tier 1 leverage ratios slightly increased as of June 30, 2018, compared to March 31, 2018, due to proportionally higher capital from net income to average assets growth during the second quarter of 2018.

All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations. See the "SVB Financial and Bank Capital Ratios" section, at the end of this release, for details.

10



Outlook for the Year Ending December 31, 2018

Our outlook for the year ending December 31, 2018 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. Except for the items noted below, we do not provide an outlook for certain items (such as gains or losses from warrants and investment securities) where the timing or financial impact are uncertain and/or subject to market or other conditions beyond our control (such as the level of IPO, M&A or general financing activity), or for potential unusual or non-recurring items. Also, as a result of the passage of the Tax Cuts and Jobs Act ("TCJ Act"), we have included guidance on our expected effective tax rate. 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, 2018, compared to our full year 2017 results, we currently expect the following outlook: (Note that the outlook below includes: (i) the expected impact of the March 22, 2018 and June 13, 2018 increases of the target Federal Funds rate by the Federal Reserve of 25 basis points each as well as the increases in the 1- and 3- month LIBOR rates through June 30, 2018, and no assumptions about any further Federal Funds or LIBOR rate changes during 2018, and (ii) management updates to certain 2018 outlook metrics we previously disclosed on April 26, 2018.)
 
Current full year 2018 outlook compared to 2017 results (as of July 26, 2018)
Change in outlook compared to outlook reported as of April 26, 2018
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
low teens
Outlook increased to low teens from previous outlook of low double digits
Net interest income (1)
Increase at a percentage rate in the mid-thirties
Outlook increased to mid-thirties from previous outlook of low thirties
Net interest margin (1)
Between 3.55% and 3.65%
Outlook increased to between 3.55% and 3.65% from previous outlook of between 3.50% and 3.60%
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans
Comparable to 2017 levels
No change from previous outlook
Net loan charge-offs
Between 0.20% and 0.40%
of average total gross loans
Outlook decreased to between 0.20% and 0.40% from previous outlook of between 0.30% and 0.50%
Nonperforming loans as a percentage of total gross loans
Between 0.40% and 0.60%
of total gross loans
Outlook decreased to between 0.40% and 0.60% from previous outlook of between 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
 low thirties
Outlook increased to low thirties from previous outlook of high twenties
Noninterest expense (excluding expenses related to noncontrolling interests) (3) (4)
Increase at a percentage rate in the
low teens
Outlook increased to low teens from previous outlook of low double digits
Effective tax rate (5)
Between 26.0% and 28.0%
Outlook decreased to between 26.0% and 28.0% from previous outlook of between 27.0% and 30.0%
 
(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 2018 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 2018 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.

11



(5)
Our outlook for our effective tax rate is based on management's current assumptions with respect to, among other things, the Company's earnings, state income tax levels, tax deductions and estimated performance-based compensation activity. Such forecasts are subject to change, and actual results may differ, based on variations of the expected impact of the TCJ Act and other factors described under the section "Forward-Looking Statements" below.


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, 2018”, 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 2018.

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, including the expected impact of the TCJ Act;
changes in applicable accounting standards and tax laws; and
regulatory or legal changes or their impact on us.

For additional information about these and other factors, please refer to our public reports filed with the U.S. Securities and Exchange Commission, including under the caption "Risk Factors" in our most recent Annual Report filed on Form 10-K. The forward-looking statements included in this release are made only as of the date of this release. We do not intend, and undertake no obligation, to update these forward-looking statements.

Earnings Conference Call
On Thursday, July 26, 2018, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended June 30, 2018. The conference call can be accessed by dialing (888) 771-4371 or (847) 585-4405, and entering the confirmation number "47244493".  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, July 26, 2018, through 9:59 p.m. (Pacific Time) on Saturday,

12



August 25, 2018, and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering the passcode "47244493#". A replay of the audio webcast will also be available on www.svb.com for 12 months beginning on July 26, 2018.

About SVB Financial Group

For 35 years, SVB Financial Group (NASDAQ: SIVB) and its subsidiaries have helped innovative companies and their investors move bold ideas forward, fast. SVB Financial Group’s businesses, including Silicon Valley Bank, offer commercial 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 © 2018 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group.


13



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three months ended
 
Six months ended
(Dollars in thousands, except share data)
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Interest income:


 
 
 
 
 
 
 
 
Loans

$
330,298

 
$
297,073

 
$
250,197

 
$
627,371

 
$
477,538

Investment securities:


 
 
 
 
 
 
 
 
Taxable

137,150

 
124,477

 
95,522

 
261,627

 
185,325

Non-taxable

7,666

 
5,092

 
885

 
12,758

 
1,531

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

6,187

 
5,756

 
7,323

 
11,943

 
10,459

Total interest income

481,301

 
432,398

 
353,927

 
913,699

 
674,853

Interest expense:


 
 
 
 
 
 
 
 
Deposits

6,270

 
4,097

 
2,197

 
10,367

 
3,914

Borrowings

8,588

 
8,438

 
9,034

 
17,026

 
18,250

Total interest expense

14,858

 
12,535

 
11,231

 
27,393

 
22,164

Net interest income

466,443

 
419,863

 
342,696

 
886,306

 
652,689

Provision for credit losses

29,080

 
27,972

 
15,806

 
57,052

 
46,540

Net interest income after provision for credit losses

437,363

 
391,891

 
326,890

 
829,254

 
606,149

Noninterest income:


 
 
 
 
 
 
 
 
Gains on investment securities, net

36,114

 
9,058

 
17,630

 
45,172

 
33,600

Gains on equity warrant assets, net

19,061

 
19,191

 
10,820

 
38,252

 
17,510

Foreign exchange fees

34,077

 
33,827

 
26,108

 
67,904

 
52,355

Credit card fees

22,926

 
21,692

 
18,099

 
44,618

 
35,829

Deposit service charges

18,794

 
17,699

 
14,563

 
36,493

 
28,538

Client investment fees

29,452

 
22,875

 
12,982

 
52,327

 
22,008

Lending related fees

9,528

 
10,735

 
8,509

 
20,263

 
17,470

Letters of credit and standby letters of credit fees

8,347

 
8,182

 
7,006

 
16,529

 
13,645

Other

14,390

 
12,259

 
12,811

 
26,649

 
25,232

Total noninterest income

192,689

 
155,518

 
128,528

 
348,207

 
246,187

Noninterest expense:


 
 
 
 
 
 
 
 
Compensation and benefits

181,955

 
165,806

 
148,973

 
347,761

 
296,149

Professional services

46,813

 
28,725

 
27,925

 
75,538

 
53,344

Premises and equipment

19,173

 
18,545

 
18,958

 
37,718

 
34,816

Net occupancy

13,288

 
13,616

 
11,126

 
26,904

 
22,777

Business development and travel

12,095

 
11,191

 
11,389

 
23,286

 
20,584

FDIC and state assessments

10,326

 
9,430

 
9,313

 
19,756

 
17,995

Correspondent bank fees

3,277

 
3,410

 
3,163

 
6,687

 
6,608

Other

18,812

 
14,694

 
20,399

 
33,506

 
36,606

Total noninterest expense

305,739

 
265,417

 
251,246

 
571,156

 
488,879

Income before income tax expense

324,313

 
281,992

 
204,172

 
606,305

 
363,457

Income tax expense

77,287

 
73,966

 
71,656

 
151,253

 
123,061

Net income before noncontrolling interests

247,026

 
208,026

 
132,516

 
455,052

 
240,396

Net income attributable to noncontrolling interests

(9,228
)
 
(13,065
)
 
(9,323
)
 
(22,293
)
 
(15,720
)
Net income available to common stockholders

$
237,798

 
$
194,961

 
$
123,193

 
$
432,759

 
$
224,676

Earnings per common share—basic
 
$
4.48

 
$
3.69

 
$
2.34

 
$
8.17

 
$
4.28

Earnings per common share—diluted
 
4.42

 
3.63

 
2.32

 
8.05

 
4.22

Weighted average common shares outstanding—basic
 
53,064,224

 
52,883,063

 
52,536,927

 
52,974,143

 
52,440,783

Weighted average common shares outstanding—diluted
 
53,776,035

 
53,685,216

 
53,194,031

 
53,731,719

 
53,180,390





14



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

(Dollars in thousands, except par value and share data)
 
June 30,
2018
 
March 31,
2018
 
June 30,
2017
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,712,101

 
$
2,619,384

 
$
3,854,244

Available-for-sale securities, at fair value (cost $9,717,156, $10,189,071, and $12,053,305, respectively)
 
9,593,366

 
10,080,384

 
12,071,052

Held-to-maturity securities, at cost (fair value $15,493,995, $14,229,439, and $9,910,504, respectively)
 
15,898,263

 
14,548,856

 
9,938,371

Non-marketable and other equity securities (1)
 
852,505

 
824,936

 
630,670

Investment securities
 
26,344,134

 
25,454,176

 
22,640,093

Loans, net of unearned income
 
25,996,192

 
24,587,944

 
20,976,466

Allowance for loan losses
 
(286,709
)
 
(274,294
)
 
(236,496
)
Net loans
 
25,709,483

 
24,313,650

 
20,739,970

Premises and equipment, net of accumulated depreciation and amortization
 
117,603

 
127,054

 
121,947

Accrued interest receivable and other assets
 
984,424

 
986,523

 
1,044,125

Total assets
 
$
55,867,745

 
$
53,500,787

 
$
48,400,379

Liabilities and total equity:
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
40,593,302

 
$
37,515,355

 
$
35,046,371

Interest-bearing deposits
 
8,293,993

 
8,421,177

 
7,418,920

Total deposits
 
48,887,295

 
45,936,532

 
42,465,291

Short-term borrowings
 
417,246

 
1,102,140

 
470

Other liabilities
 
1,062,391

 
1,206,660

 
1,145,154

Long-term debt
 
695,972

 
695,731

 
749,429

Total liabilities
 
51,062,904

 
48,941,063

 
44,360,344

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; 53,210,627 shares, 52,922,219 shares, and 52,684,159 shares outstanding, respectively
 
53

 
53

 
53

Additional paid-in capital
 
1,346,586

 
1,326,998

 
1,283,485

Retained earnings (1)
 
3,397,879

 
3,160,081

 
2,601,007

Accumulated other comprehensive (loss) income
 
(86,865
)
 
(71,686
)
 
14,890

Total SVBFG stockholders’ equity
 
4,657,653

 
4,415,446

 
3,899,435

Noncontrolling interests
 
147,188

 
144,278

 
140,600

Total equity
 
4,804,841

 
4,559,724

 
4,040,035

Total liabilities and total equity
 
$
55,867,745

 
$
53,500,787

 
$
48,400,379

 
(1)
Effective January 1, 2018, we adopted Accounting Standard update ("ASU") 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, resulting in the reclassification of public equity securities out of our AFS securities portfolio into our non-marketable and other equity securities portfolio. In addition, upon adoption of this guidance, equity investments carried at cost in our non-marketable and other equity securities portfolio were remeasured, and are carried, at fair value. This guidance was adopted using the modified retrospective method with a cumulative adjustment to opening retained earnings. As such, prior period amounts have not been restated.


15



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
 
 
Three months ended
 
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
(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)
 
$
2,346,820

 
$
6,187

 
1.06
%
 
$
2,713,976

 
$
5,756

 
0.86
%
 
$
3,903,377

 
$
7,323

 
0.75
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
10,048,423

 
46,606

 
1.86

 
10,748,512

 
47,976

 
1.81

 
12,393,079

 
48,271

 
1.56

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
13,969,843

 
90,544

 
2.60

 
12,415,508

 
76,501

 
2.50

 
8,964,785

 
47,251

 
2.11

Non-taxable (3)
 
1,142,311

 
9,704

 
3.41

 
818,818

 
6,446

 
3.19

 
163,622

 
1,361

 
3.34

Total loans, net of unearned income (4) (5)
 
24,858,503

 
330,297

 
5.33

 
23,807,212

 
297,073

 
5.06

 
20,508,541

 
250,197

 
4.89

Total interest-earning assets
 
52,365,900

 
483,338

 
3.70

 
50,504,026

 
433,752

 
3.48

 
45,933,404

 
354,403

 
3.10

Cash and due from banks
 
534,908

 
 
 
 
 
400,256

 
 
 
 
 
356,884

 
 
 
 
Allowance for loan losses
 
(280,679
)
 
 
 
 
 
(263,086
)
 
 
 
 
 
(250,167
)
 
 
 
 
Other assets (6)
 
1,800,517

 
 
 
 
 
1,726,046

 
 
 
 
 
1,509,243

 
 
 
 
Total assets
 
$
54,420,646

 
 
 
 
 
$
52,367,242

 
 
 
 
 
$
47,549,364

 
 
 
 
Funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities: