Print page
Email page
Download PDF
« Previous Release | Next Release »
SANTA CLARA, Calif.,, July 23, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- SVB Financial Group (Nasdaq: SIVB) today announced financial results for the second quarter ended June 30, 2009.
(Logo: http://www.newscom.com/cgi-bin/prnh/20060213/SFM027LOGO)
Consolidated net income available to common stockholders for the second quarter of 2009 was $7.8 million, or $0.24 per diluted common share, compared to a net loss applicable to common stockholders of $11.8 million, or $0.36 per diluted common share, for the first quarter of 2009, and net income available to common stockholders of $21.0 million, or $0.61 per diluted common share, for the second quarter of 2008.
Highlights of our second quarter 2009 results included:
-- Provision for loan losses of $21.4 million, a decrease of $22.1 million
compared to the first quarter of 2009.
-- A special assessment fee of $5.0 million, mandated for all banks by the
Federal Deposit Insurance Corporation ("FDIC").
-- A decrease in average loan balances of $336.3 million, or 6.6 percent,
reflecting efforts by some clients to de-leverage their businesses due
to the continuing effects of the downturn in the economic environment.
-- Growth in average deposit balances of $504.9 million, or 6.4 percent, to
$8.4 billion.
-- Growth in period-end investment securities of $606.2 million, or 29.8
percent, primarily due to increases in U.S. agency securities and
agency-issued mortgage-backed securities.
During the second quarter of 2009, we determined that we had incorrectly recognized certain gains and losses on foreign exchange contracts in prior periods. The cumulative pre-tax effect of the error was $6.2 million, or $3.8 million after-tax and is considered to be immaterial to the prior periods. As such, the affected prior period results have been revised as follows: For the three months ended March 31, 2009, net loss increased by $1.2 million, or $0.04 per diluted common share, for the year ended December 31, 2008, net income was reduced by $2.3 million, or $0.07 per diluted common share, and for the year ended December 31, 2007, net income was reduced by $0.2 million, or $0.01 per diluted common share. Details of the revisions are provided below under the section "Changes to Prior Period Balances."
Consolidated net loss applicable to common stockholders for the six months ended June 30, 2009 was $4.0 million, or $0.12 per diluted common share, compared to net income available to common stockholders of $48.3 million, or $1.40 per diluted common share, for the comparable 2008 period.
"Despite the impact of the continued economic downturn on our business and our clients, we are doing everything in our power to manage effectively through this cycle, and we are succeeding" said Ken Wilcox, President and CEO of SVB Financial Group. "We managed credit quality during the quarter to meet our stated expectations. We maintained our strong capital and liquidity positions, while increasing our investment securities portfolio by investing our excess deposits. We also continued to invest in building our business and supporting our clients through their own challenges. While we expect the rest of the year to be challenging, we will continue to make the right decisions to position ourselves to take advantage of an eventual upturn in the economy, whenever it may occur."
Second Quarter 2009 Summary
Three months ended
% Change from
-------------
(Dollars in
millions,
except share
data and June March June March June
ratios) 30, 31, 30, 31, 30,
2009 2009* 2008* 2009 2008
----------- ---- ---- ---- ---- ----
Income
Statement:
Diluted
earnings
(loss)
per
common
share (1) $0.24 $(0.36) $0.61 NM % (60.7)%
Net income
(loss)
attributable
to SVBFG (1) 11.3 (8.2) 21.0 NM (46.2)
Net income
(loss)
available to
common
stockholders
(1) 7.8 (11.8) 21.0 NM (62.9)
Net interest
income (1) 91.7 91.5 86.8 0.2 5.6
Provision
for loan
losses 21.4 43.5 8.4 (50.8) 154.8
Noninterest
income (loss) 28.3 (5.6) 44.5 NM (36.4)
Noninterest
expense 89.0 87.1 87.2 2.2 2.1
Non-GAAP net
income (loss)
available to
common
stockholders
(1)(2) 7.8 (7.7) 24.9 NM (68.7)
Non-GAAP
noninterest
income, net of
noncontrolling
interests (2) 34.4 25.0 43.7 37.6 (21.3)
Non-GAAP
noninterest
expense, net of
noncontrolling
interests (2) 86.2 79.7 80.9 8.2 6.6
Fully Taxable
Equivalent:
Net
interest
income
(1)(3) $92.2 $92.1 $87.4 0.1% 5.5%
Net
interest
margin (1) 3.71% 3.97% 5.62% (6.5) (34.0)
Shares
Outstanding:
Common 33,142,568 32,935,515 32,252,367 0.6% 2.8%
Basic
weighted
average 32,951,905 32,931,714 32,053,749 0.1 2.8
Diluted
weighted
average 33,078,367 32,931,714 34,192,459 0.4 (3.3)
Balance
Sheet:
Average
total
assets (1) $10,928.0 $10,456.4 $7,158.0 4.5% 52.7%
Average
loans, net
of
unearned
income 4,780.0 5,116.3 4,319.9 (6.6) 10.7
Average
interest-
earning
investment
securities 1,832.7 1,464.2 1,336.5 25.2 37.1
Average
noninterest-
bearing
demand
deposits 5,132.8 4,636.6 2,833.0 10.7 81.2
Average
interest-
bearing
deposits 3,299.7 3,291.2 1,815.9 0.3 81.7
Average
total
deposits 8,432.6 7,927.7 4,648.8 6.4 81.4
Average
short-term
borrowings 45.8 47.0 206.0 (2.6) (77.8)
Average
long-term
debt (1) 945.4 970.2 1,096.4 (2.6) (13.8)
Period-end
total
assets (1) 11,465.9 10,955.0 7,310.0 4.7 56.9
Period-end
loans,
net of
unearned
income 4,844.3 5,003.1 4,633.7 (3.2) 4.5
Period-end
investment
securities 2,638.4 2,032.2 1,788.0 29.8 47.6
Period-end
noninterest-
bearing
demand
deposits 5,551.2 5,228.8 2,919.2 6.2 90.2
Period-end
interest-
bearing
deposits 3,443.4 3,253.5 1,944.4 5.8 77.1
Period-end
total
deposits 8,994.6 8,482.3 4,863.6 6.0 84.9
Off-
Balance
Sheet:
Average total
client
investment
funds $16,450.5 $17,701.3 $21,389.3 (7.1)% (23.1)%
Period-end
total client
investment
funds 15,972.8 16,894.7 21,877.9 (5.5) (27.0)
Total
unfunded
credit
commitments 4,963.7 5,072.6 5,034.3 (2.1) (1.4)
Earnings
Ratios:
Return on
average
assets
(1)(4) 0.42% (0.32)% 1.18% NM % (64.4)%
Return on
average common
SVBFG
stockholders'
equity
(1)(5)(6) 3.95 (6.07) 12.41 NM (68.2)
Asset
Quality
Ratios:
Allowance for
loan losses
as a
percentage
of total
gross loans 2.26% 2.18% 1.13% 3.7% 100.0%
Gross charge-
offs as a
percentage of
average total
gross loans
(annualized) 1.82 3.30 0.84 (44.8) 116.7
Net charge-
offs as a
percentage
of average
total gross
loans
(annualized) 1.74 3.21 0.47 (45.8) 270.2
Other
Ratios:
Total risk-
based
capital
ratio 18.46% 18.75% 15.10% (1.5)% 22.3%
Operating
efficiency
ratio (1)(7) 73.86 100.74 66.11 (26.7) 11.7
Period-end
loans,
net of
unearned
income,
to
deposits 53.86 58.98 95.27 (8.7) (43.5)
Average
loans, net
of unearned
income, to
deposits 56.68 64.54 92.92 (12.2) (39.0)
Non-GAAP
Ratios:
(1)(2)
Tangible
common
equity to
tangible
assets 6.94 6.99 9.39 (0.7) (26.1)
Tangible
common
equity to
risk-
weighted
assets 10.54 10.17 9.72 3.6 8.4
Non-GAAP
return on
average
assets (8) 0.42% (0.16)% 1.40% NM % (70.0)%
Non-GAAP return
on average
common SVBFG
stockholders'
equity (6)(9) 3.95 (3.96) 14.69 NM (73.1)
Non-GAAP
operating
efficiency
ratio 68.05 68.02 61.75 - 10.2
Other
Statistics:
Common stock
repurchases $- $- $1.0 -% (100.0)%
Period-end
SVB prime
lending
rate 4.00% 4.00% 5.00% - (20.0)
Average
SVB prime
lending
rate 4.00 4.00 5.08 - (21.3)
(Dollars in
millions, except
share data and Six Months Ended
ratios) June 30, June 30, %
2009 2008* Change
------------------ ---- ---- ------
Income Statement:
Diluted earnings
(loss) per common
share (1) $(0.12) $1.40 (108.6)%
Net income (loss)
attributable to
SVBFG (1) 3.1 48.3 (93.6)
Net income (loss)
available to
common
stockholders (1) (4.0) 48.3 (108.3)
Net interest
income (1) 183.2 177.6 3.2
Provision for loan
losses 64.9 16.1 NM
Noninterest income
(loss) 22.7 86.3 (73.7)
Noninterest
expense 176.2 170.6 3.3
Non-GAAP net
income (loss)
available to
common
stockholders
(1)(2) 0.1 52.1 (99.8)
Non-GAAP
noninterest
income, net of
noncontrolling
interests (2) 59.4 87.2 (31.9)
Non-GAAP
noninterest
expense, net of
noncontrolling
interests (2) 165.8 161.6 2.6
Fully Taxable Equivalent:
Net interest
income (1)(3) $184.3 $178.7 3.1%
Net interest
margin (1) 3.83% 5.94% (35.5)
Shares Outstanding:
Common 33,142,568 32,252,367 2.8%
Basic weighted
average 32,960,239 32,166,820 2.5
Diluted weighted
average 32,960,239 34,347,128 (3.9)
Balance Sheet:
Average total
assets (1) $10,693.5 $6,955.0 53.8%
Average loans, net
of unearned income 4,947.2 4,216.4 17.3
Average interest-
earning investment
securities 1,649.4 1,299.8 26.9
Average
noninterest-
bearing demand
deposits 4,886.1 2,866.3 70.5
Average interest-
bearing deposits 3,295.5 1,675.6 96.7
Average total
deposits 8,181.5 4,541.9 80.1
Average short-term
borrowings 46.4 220.5 (79.0)
Average long-term
debt (1) 957.7 989.4 (3.2)
Period-end total
assets (1) 11,465.9 7,310.0 56.9
Period-end loans,
net of unearned
income 4,844.3 4,633.7 4.5
Period-end
investment
securities 2,638.4 1,788.0 47.6
Period-end
noninterest-
bearing demand
deposits 5,551.2 2,919.2 90.2
Period-end
interest-bearing
deposits 3,443.4 1,944.4 77.1
Period-end total
deposits 8,994.6 4,863.6 84.9
Off-Balance Sheet:
Average total
client investment
funds $17,075.9 $21,641.9 (21.1)%
Period-end total
client investment
funds 15,972.8 21,877.9 (27.0)
Total unfunded
credit commitments 4,963.7 5,034.3 (1.4)
Earnings Ratios:
Return on average
assets (1)(4) 0.06% 1.40% (95.7)%
Return on average
common SVBFG
stockholders'
equity (1)(5)(6) (1.02) 14.15 (107.2)
Asset Quality Ratios:
Allowance for loan
losses as a
percentage of
total gross
loans 2.26% 1.13% 100.0%
Gross charge-offs
as a percentage of
average total
gross loans
(annualized) 2.58 0.73 NM
Net charge-offs as
a percentage of
average total
gross loans
(annualized) 2.50 0.50 NM
Other Ratios:
Total risk-based
capital ratio 18.46% 15.10% 22.3%
Operating
efficiency ratio
(1)(7) 85.09 64.40 32.1
Period-end loans,
net of unearned
income, to
deposits 53.86 95.27 (43.5)
Average loans, net
of unearned
income, to
deposits 60.47 92.83 (34.9)
Non-GAAP Ratios: (1)(2)
Tangible common
equity to tangible
assets 6.94 9.39 (26.1)
Tangible common
equity to risk-
weighted assets 10.54 9.72 8.4
Non-GAAP return on
average assets (8) 0.14% 1.51% (90.7)%
Non-GAAP return on
average common
SVBFG
stockholders'
equity (6)(9) 0.03 15.28 (99.8)
Non-GAAP operating
efficiency ratio 68.04 60.86 11.8
Other Statistics:
Common stock
repurchases $- $45.6 (100.0)%
Period-end SVB
prime lending rate 4.00% 5.00% (20.0)
Average SVB prime
lending rate 4.00 5.66 (29.3)
NM- Not meaningful
* Certain amounts have been revised to reflect the correction of
immaterial errors associated with previously recognized gains and
losses on foreign exchange contracts. Refer to "Changes to Prior Period
Balances" section below for more details. Amounts for the three months
ended March 31, 2009 and June 30, 2008, and the six months ended June
30, 2008 have been retrospectively revised.
(1) Balances, results and ratios for all periods presented reflect our
adoption of FSP APB 14-1. Refer to "Long-Term Debt" discussion for
more details. Amounts for the three and six months ended June 30, 2008
have been retrospectively adjusted.
(2) A reconciliation of non-GAAP calculations to GAAP is provided in the
schedules attached.
(3) 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
for each of the quarters ended June 30, 2009, March 31, 2009, and June
30, 2008, respectively. The taxable equivalent adjustments were $1.1
million for each of the six months ended June 30, 2009 and 2008,
respectively.
(4) Ratio represents annualized consolidated net income (loss)
attributable to SVB Financial Group ("SVBFG") divided by quarterly
average assets and year-to-date average assets.
(5) Ratio represents annualized consolidated net income (loss) available
to common stockholders divided by quarterly average SVBFG
stockholders' equity (excluding preferred equity) and year-to-date
average SVBFG stockholders' equity (excluding preferred equity).
(6) Our 2009 adoption of SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting
Research Bulletin No. 51 ("SFAS No. 160"), requires us to reclassify
our presentation of noncontrolling interests (formerly referred to as
minority interests).
(7) The operating efficiency ratio is calculated by dividing noninterest
expense by total taxable equivalent net interest income plus
noninterest income.
(8) Ratio represents non-GAAP annualized consolidated net income (loss)
attributable to SVBFG (excluding non-tax deductible goodwill
impairment charge of $4.1 million recorded in the first quarter of
2009 and non-tax deductible noninterest expense of $3.9 million
related to the conversion premium value of certain of our zero-coupon
convertible notes that were converted prior to maturity ("Coco Loss")
recorded in the second quarter of 2008) divided by quarterly average
assets and year-to-date average assets.
(9) Ratio represents non-GAAP annualized consolidated net income (loss)
available to common stockholders (excluding non-tax deductible
goodwill impairment charge of $4.1 million recorded in the first
quarter of 2009 and non-tax deductible $3.9 million Coco Loss recorded
in the second quarter of 2008) divided by quarterly average SVBFG
stockholders' equity (excluding preferred equity) and year-to-date
average SVBFG stockholders' equity (excluding preferred equity).
Net Interest Income and Margin
Net interest income, on a fully taxable equivalent basis, was $92.2 million for the second quarter of 2009, compared to $92.1 million for the first quarter of 2009 and $87.4 million for the second quarter of 2008. The following table provides a summary of changes in interest income and interest expense attributable to both volume and rate changes from the first to the second quarter of 2009. Changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate:
Q2'09 compared to Q1'09
-----------------------
Increase (decrease)
due to change in
-------------------
(Dollars in thousands) Volume Rate Total
---------------------- ------ ---- -----
Interest income:
Short-term investment securities $446 $(337) $109
Investment securities 3,878 (1,985) 1,893
Loans (4,827) 824 (4,003)
------ --- ------
Decrease in interest income, net (503) (1,498) (2,001)
---- ------ ------
Interest expense:
Deposits 124 (1,366) (1,242)
Short-term borrowings - (1) (1)
Long-term debt (91) (819) (910)
--- ---- ----
Increase (decrease) in interest
expense, net 33 (2,186) (2,153)
-- ------ ------
(Decrease) increase in net interest
income $(536) $688 $152
===== ==== ====
The change in net interest income, on a fully taxable equivalent basis, from the first to the second quarter of 2009, was primarily attributable to the following:
-- An increase in interest income of $1.9 million from our interest-earning
investment securities portfolio, primarily related to the growth in
average balances of $368.5 million due to new investments. The purchases
were primarily for U.S. agency securities and agency-issued
mortgage-backed securities.
-- A decrease in interest expense of $1.2 million from interest-bearing
deposits due to the full quarter effect of a decrease in deposit
interest rates in the first quarter of 2009.
-- A decrease in interest expense of $0.9 million from our long-term debt,
driven by a decrease in interest expense associated with interest rate
swap agreements for our 5.70% senior and 6.05% subordinated notes, due
to lower London Interbank Offered Rates ("LIBOR").
-- A decrease in interest income from our loan portfolio of $4.0 million
driven principally by a decrease in average loan balances of $336.3
million. Our average prime-lending rate was 4.00 percent for both the
first and second quarters of 2009.
Our net interest margin, on a fully taxable equivalent basis, was 3.71 percent for the second quarter of 2009, compared to 3.97 percent for the first quarter of 2009 and 5.62 percent for the second quarter of 2008. The decrease from the first to the second quarter of 2009 was primarily a result of our continued growth in deposits, which was deposited in overnight funds with the Federal Reserve, as well as purchases of new investments, which were at lower yields due to the lower interest rate environment. These reductions in our net interest margin were partially offset by a decrease in interest expense related to deposits and long-term debt due to declining market rates.
Net interest income, on a fully taxable equivalent basis, was $184.3 million and $178.7 million for the six months ended June 30, 2009 and 2008, respectively. Net interest margin, on a fully taxable equivalent basis, was 3.83 percent for the six months ended June 30, 2009, compared to 5.94 percent for the comparable 2008 period.
On an average basis, for the second quarter of 2009, 71.0 percent, or $3.5 billion, of our outstanding gross loans were variable-rate loans that adjust at prescribed measurement dates upon a change in our prime-lending rate or other variable indices. This compares to 72.8 percent, or $3.7 billion, for the first quarter of 2009 and 73.1 percent, or $3.2 billion, for the second quarter of 2008.
Investment Securities
Our investment securities portfolio consists of both a fixed income investment portfolio, which primarily represents interest-earning securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business. Total investment securities were $2.6 billion at June 30, 2009, compared to $2.0 billion at March 31, 2009 and $1.8 billion at June 30, 2008. The increase from the first to the second quarter of 2009 was primarily due to purchases of U.S. agency securities and agency-issued mortgage-backed securities as part of our overall investment strategy.
Average interest-earning investment securities were $1.8 billion for the second quarter of 2009, compared to $1.5 billion for the first quarter of 2009 and $1.3 billion for the second quarter of 2008.
Non-marketable securities were $478.7 million ($193.6 million net of noncontrolling interests) as of June 30, 2009, compared to $454.5 million ($178.4 million net of noncontrolling interests) as of March 31, 2009. The increase from the first to the second quarter of 2009 was primarily attributable to new investments in the second quarter of 2009. Reconciliations of our non-GAAP non-marketable securities, net of noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."
Loans
Average loans, net of unearned income, were $4.8 billion for the second quarter of 2009, compared to $5.1 billion for the first quarter of 2009 and $4.3 billion for the second quarter of 2008. The decrease in average loan balances from the first to the second quarter of 2009 came primarily from decreases in loans to software and hardware clients, reflecting efforts by some clients to de-leverage their businesses due to the continuing effects of the downturn in the economic environment. Period-end loans, net of unearned income, were $4.8 billion at June 30, 2009, compared to $5.0 billion at March 31, 2009 and $4.6 billion at June 30, 2008.
Our nonaccrual loans totaled $111.4 million at June 30, 2009, compared to $97.6 million at March 31, 2009 and $8.5 million at June 30, 2008. The allowance for loan losses related to nonaccrual loans was $44.0 million, $40.9 million and $2.9 million at June 30, 2009, March 31, 2009 and June 30, 2008, respectively. The increase in nonaccrual loans and related allowance for loan losses from the first to the second quarter of 2009 came primarily from loans within our software and private client services industries.
The following table provides a summary of our concentration of loans individually greater than $20 million by industry sector at June 30, 2009, March 31, 2009 and June 30, 2008:
Loans individually greater than
$20 million at
-------------------------------
(Dollars in thousands, except ratios June 30, March 31, June 30,
and client data) 2009 2009 2008
------------------------------------ ---- ---- ----
Technology $529,534 $493,835 $439,817
Private Equity 247,702 254,348 392,837
Life Sciences 25,376 28,750 66,110
Private Client Services 99,407 102,491 73,876
Premium Wineries - - -
All other sectors 21,000 48,687 87,233
------ ------ ------
Total $923,019 $928,111 $1,059,873
======== ======== ==========
Loans individually greater than
$20 million as a percentage of
total gross loans 18.89% 18.40% 22.71%
Total clients with loans individually
greater than $20 million 28 29 32
Loans individually greater than
$20 million on nonaccrual status $68,029 $64,085 $-
Deposits
Average deposits were $8.4 billion for the second quarter of 2009, compared to $7.9 billion for the first quarter of 2009 and $4.6 billion for the second quarter of 2008. The increase in average deposit balances from the first to the second quarter of 2009 came primarily from our noninterest-bearing demand deposits, which grew by $496.3 million to $5.1 billion.
Growth in average balances in the second quarter of 2009 was primarily due to the following factors: (i) the full quarter effect of our discontinuation of our third-party, off-balance sheet sweep product completed in the first quarter of 2009; and (ii) the desire among some clients to benefit from the security provided by FDIC insurance for noninterest-bearing accounts.
Period-end deposits were $9.0 billion at June 30, 2009, compared to $8.5 billion at March 31, 2009 and $4.9 billion at June 30, 2008.
Long-Term Debt
Effective January 1, 2009, we adopted the Financial Accounting Standards Board ("FASB") Staff Position ("FSP") Accounting Principles Board Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP APB 14-1"), which required a change in the accounting treatment for our convertible debt instruments. The FSP requires that the proceeds from the issuance of convertible debt instruments be allocated between a liability and an equity component in a manner that reflects the entity's non-convertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. Historical financial statements for 2007 and 2008 are required to be adjusted retrospectively to conform to the FSP's new accounting treatment for both our zero-coupon convertible subordinated notes, which matured on June 15, 2008 and our 3.875% convertible senior notes due April 15, 2011.
As a result of adopting the requirements of FSP APB 14-1, our net income available to common stockholders for the second quarter of 2009 decreased by $0.3 million and our net loss attributable to common stockholders for the first quarter of 2009 increased by $0.3 million. Details of certain prior period revised items related to the adoption of FSP APB 14-1 are provided below under the section "Changes to Prior Period Balances."
Noninterest Income (Loss)
Noninterest income was $28.3 million for the second quarter of 2009, compared to noninterest loss of $5.6 million for the first quarter of 2009 and noninterest income of $44.5 million for the second quarter of 2008.
Non-GAAP noninterest income, net of noncontrolling interests, was $34.4 million for the second quarter of 2009, compared to $25.0 million for the first quarter of 2009 and $43.7 million for the second quarter of 2008. Reconciliations of our non-GAAP noninterest income and non-GAAP net losses on investment securities, both of which exclude amounts attributable to noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."
The increase in noninterest income (GAAP basis) from the first to the second quarter of 2009 was primarily driven by the following factors:
-- Net losses on investment securities of $6.8 million for the second
quarter of 2009, compared to net losses of $35.0 million for the first
quarter of 2009 and net gains of $2.0 million for the second quarter of
2008. The net losses of $6.8 million in the second quarter of 2009 were
primarily due to net losses of $7.9 million from our managed
co-investment funds and managed funds of funds due to the continuing
effects of the downturn in the overall economy on valuations of our
investments. These losses were partially offset by net gains of $1.7
million from our debt funds primarily due to realized gains related to
distributions from two of our debt fund investments and unrealized gains
from one of our debt fund investments. The following table provides a
summary of net losses on investment securities for the three months
ended June 30, 2009 and March 31, 2009:
Three months ended
-------------------
March 31,
June 30, 2009 2009
------------- ---------
Managed Co- Managed
(Dollars in Investment Funds Of Debt
thousands) Funds Funds Funds Other Total Total
----------- ----------- --------- ----- ----- ----- -----
Unrealized
(losses) gains $(1,691) $(6,469) $798 $- $(7,362) $(34,792)
Realized
(losses)
gains (907) 1,174 883 (538) 612 (253)
---- ----- --- ---- --- ----
Total (losses)
gains on
investment
securities,
net $(2,598) $(5,295) $1,681 $(538) $(6,750) $(35,045)
======= ======= ====== ===== ======= ========
Less: (losses)
income
attributable
to
noncontrolling
interests,
including
carried
interest (2,414) (4,831) 312 - (6,933) (30,438)
------ ------ --- -- ------ -------
Non-GAAP net
(losses) gains
on investment
securities,
net
of
noncontrolling
interests $(184) $(464) $1,369 $(538) $183 $(4,607)
===== ===== ====== ===== ==== =======
As of June 30, 2009, we held investments, either directly or through seven of our managed investment funds, in 436 venture capital/private equity funds, 77 companies and five debt funds.
-- An increase in other noninterest income of $10.0 million, mainly driven
by net gains of $5.7 million from revaluation of our foreign currency
denominated loans and non-marketable investment securities for the
second quarter of 2009, compared to net losses of $3.6 million for the
first quarter of 2009. The net gains of $5.7 million for the second
quarter of 2009 were primarily due to the weakening of the U.S. dollar
against the Pound Sterling. The net gains of $4.7 million from
revaluation of our foreign currency denominated loans were partially
offset by net losses from foreign exchange forward contracts of $4.5
million, which are included in net (losses) gains on derivative
instruments.
-- Net losses on derivative instruments of $2.8 million for the second
quarter of 2009, compared to net gains of $1.8 million for the first
quarter of 2009 and net gains of $4.4 million for the second quarter of
2008. The following table provides a summary of our net (losses) gains
on derivative instruments:
Three months ended Six months ended
------------------ ----------------
(Dollars in thousands) June 30, March 31, June 30, June 30, June 30,
2009 2009 2008 2009 2008
-------------- ---- ---- ---- ---- ----
(Losses) gains
on foreign
exchange
forward
contracts,
net:
Gains on client
foreign exchange
forward
contracts, net $448 $496 $478 $944 $1,206
(Losses) gains
on internal
foreign
exchange
forward
contracts,
net (1) (4,479) 1,943 624 (2,536) (2,467)
------ ----- --- ------ ------
Total
(losses)
gains on
foreign
exchange
forward
contracts,
net (4,031) 2,439 1,102 (1,592) (1,261)
Change in fair
value of
interest rate
swap - (170) 879 (170) 386
Gains on covered
call options (2) - - 377 - 377
Net gains
(losses) on
equity warrant
assets 1,184 (455) 2,050 729 7,505
----- ---- ----- --- -----
Total (losses)
gains on
derivative
instruments,
net $(2,847) $1,814 $4,408 $(1,033) $7,007
======= ====== ====== ======= ======
(1) Represents the change in fair value of foreign exchange forward
contracts used to economically reduce our foreign exchange exposure
related to certain foreign currency denominated loans. Revaluations of
foreign currency denominated loans are recorded on the line item
"Other" as part of noninterest income (loss), a component of
consolidated net income (loss).
(2) Represents net gains on covered call options by one of our
consolidated sponsored debt funds.
The decrease in net (losses) gains on derivative instruments from the
first to the second quarter of 2009 was primarily driven by the
following factors:
-- Net losses of $4.5 million from foreign exchange forward contracts
hedging our foreign currency denominated loans, which partially offset
net gains of $4.7 million from revaluation of our foreign currency
denominated loans that are included in other noninterest income.
-- Net gains on equity warrant assets of $1.2 million in the second quarter
of 2009, compared to net losses of $0.5 million in the first quarter of
2009. The net gains on equity warrant assets of $1.2 million was driven
by net gains of $3.7 million from share price increases of certain
investments in our public warrant portfolio, partially offset by net
losses of $1.2 million from valuation decreases in our private warrant
portfolio and $1.3 million from warrant terminations.
Noninterest Expense
Noninterest expense was $89.0 million for the second quarter of 2009, compared to $87.1 million for the first quarter of 2009 and $87.2 million for the second quarter of 2008.
Non-GAAP noninterest expense, net of noncontrolling interests, was $86.2 million for the second quarter of 2009, compared to $79.7 million for the first quarter of 2009 and $80.9 million for the second quarter of 2008. Reconciliations of our non-GAAP noninterest expense, net of noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."
The following table provides a summary of certain noninterest expense (GAAP basis) items:
Six months
Three months ended ended
--------------------- ------------
(Dollars in thousands) June 30, March 31, June 30, June 30, June 30,
2009 2009 2008 2009 2008
---------------- ---- ---- ---- ---- ----
Compensation and
benefits:
Salaries and
wages $26,874 $28,962 $24,770 $55,836 $50,562
Incentive
Compensation
Plan 5,520 5,039 11,607 10,559 22,860
Employee Stock
Ownership Plan - - 1,642 - 3,413
Other employee
benefits 14,500 14,279 12,040 28,779 27,005
------ ------ ------ ------ ------
Total
compensation
and benefits 46,894 48,280 50,059 95,174 103,840
FDIC assessments 8,589 2,675 700 11,264 1,136
Impairment of
goodwill - 4,092 - 4,092 -
(Reduction of)
provision for
unfunded credit
commitments (1,147) (2,284) 800 (3,431) 635
Other (1) 34,676 34,377 35,630 69,053 65,015
------ ------ ------ ------ ------
Total noninterest
expense $89,012 $87,140 $87,189 $176,152 $170,626
======= ======= ======= ======== ========
Full-time equivalent
employees 1,260 1,262 1,209 1,260 1,209
===== ===== ===== ===== =====
(1) Other noninterest expense includes professional services, premises and
equipment, net occupancy, business development and travel,
correspondent bank fees, and other noninterest expenses. For further
details of noninterest expense items, please refer to "Interim
Consolidated Statements of Income".
The increase in noninterest expense (GAAP basis) from the first to the second quarter of 2009 was primarily attributable to the following:
-- An increase of $5.9 million in FDIC assessments primarily attributable
to a $5.0 million special five basis point assessment fee, mandated for
all banks by the FDIC.
-- A reduction of provision for unfunded credit commitments of $1.1 million
for the second quarter of 2009, compared to a reduction of provision of
$2.3 million for the first quarter of 2009. The reduction of provision
for unfunded credit commitments of $1.1 million for the second quarter
of 2009 was primarily reflective of a decrease in the balance of our
total unfunded credit commitments and due to lower utilization of
commitments by borrowers. Total unfunded credit commitments were $5.0
billion at June 30, 2009, compared to $5.1 billion at March 31, 2009.
-- A non-tax deductible goodwill impairment charge of $4.1 million recorded
in the first quarter of 2009 resulting from changes in our outlook for
eProsper's future financial performance.
-- A decrease of $1.4 million in compensation and benefits expense,
primarily resulting from higher expenses incurred in the first quarter
of 2009 due to seasonal expenses and other accruals of vacation
benefits.
Income Tax Expense (Benefit)
Effective January 1, 2009, we adopted SFAS No. 160, which requires us to clearly identify and distinguish between the interests of the Company and the interest of the noncontrolling owners by presenting noncontrolling interests after net income (loss) in our interim consolidated statements of income. As a result, our effective tax rate is calculated by dividing income tax expense (benefit) by the sum of income (loss) before income tax expense (benefit) and the net income (loss) attributable to noncontrolling interests.
Our effective tax rate was 38.8 percent for the second quarter of 2009, compared to 22.9 percent for the first quarter of 2009 and 43.7 percent for the second quarter of 2008. The increase in the tax rate from the first to the second quarter of 2009 was primarily attributable to the lower tax impact of tax advantaged investments on our overall pre-tax income.
Our effective tax rate was 60.4 percent for six months ended June 30, 2009, compared to 41.8 percent for the comparable 2008 period. The increase in the tax rate was primarily attributable to the tax impact of the $4.1 million non-tax deductible goodwill impairment associated with eProsper in the first quarter of 2009.
Credit Quality
The following table provides a summary of our allowance for loan losses:
Three months ended Six months ended
------------------ ----------------
(Dollars June March June June June
in 30, 31, 30, 30, 30,
thousands) 2009 2009 2008 2009 2008
----------- ---- ---- ---- ---- ----
Allowance
for $110,010 $107,396 $49,636 $107,396 $47,293
loan
losses,
beginning
balance
Provision
for
loan
losses 21,393 43,466 8,351 64,859 16,074
Gross
loan
charge-offs (21,898) (42,013) (9,098) (63,911) (15,306)
Loan
recoveries 968 1,161 3,999 2,129 4,827
----------- --- ----- ----- ----- -----
Allowance
for
loan
losses,
ending
balance $110,473 $110,010 $52,888 $110,473 $52,888
-------- ======== ======== ======= ======== =======
Provision
as a
percentage
of total
gross
loans
(annualized) 1.76% 3.49% 0.72% 2.68% 0.69%
Gross
loan
charge-offs
as a
percentage
of
average
total
gross
loans
(annualized) 1.82 3.30 0.84 2.58 0.73
Net loan
charge-
offs as a
of
average
total
gross
loans
(annualized) 1.74 3.21 0.47 2.50 0.50
Allowance
for loan
losses as
a
percentage
of total
gross
loans 2.26 2.18 1.13 2.26 1.13
Total
gross
loans at
period-end $4,886,040 $5,045,208 $4,666,989 $44,886,040 $4,666,989
Average
total
gross
loans 4,820,855 5,159,412 4,349,545 4,989,385 4,245,479
Our provision for loan losses of $21.4 million for the second quarter of 2009 was primarily attributable to the following:
-- Gross loan charge-offs of $21.9 million primarily from our life
sciences, software and private client services portfolios.
-- Loan recoveries of $1.0 million, primarily from our software and
hardware industry portfolios.
In July 2009, an independent asset management firm announced that it had closed its transaction with HRJ Capital to assume the management of HRJ's private equity and real estate fund of funds. The transaction included the restructuring of HRJ's debt obligations owed to us. The final terms of the transaction did not have a material impact on our net income or provision for loan losses for the second quarter of 2009. Further, subject to final review of the accounting impact of the transaction, we do not expect the transaction will have any material impact on our net income and provision for loan losses for the third quarter of 2009.
During the third quarter of 2009, we expect to complete a transaction, which will result in a recovery of approximately $11.5 million, on a pre-tax basis, from a single loan previously charged-off in the first quarter of 2009. The final transaction is subject to the satisfaction of various closing conditions.
Noncontrolling Interests
Net loss attributable to noncontrolling interests was $9.0 million for the second quarter of 2009, compared to a net loss of $34.0 million for the first quarter of 2009 and a net loss of $1.5 million for the second quarter of 2008. Net loss attributable to noncontrolling interests of $9.0 million for the second quarter of 2009 was primarily attributable to the following:
-- Losses on investment securities (including carried interest)
attributable to noncontrolling interests of $6.9 million, stemming
mainly from losses of $4.8 million from our managed funds of funds and
$2.4 million from our managed co-investment funds.
-- Noninterest expense of $2.8 million, principally related to management
fees paid by the noncontrolling interests to the general partner
entities managed by SVB Capital.
Capital
Net income available to common stockholders for both the first and second quarters of 2009 was reduced by $3.5 million related to dividends and discount amortization in connection with our preferred stock issued under the Capital Purchase Program ("CPP") on December 12, 2008.
Outlook for the Year Ending December 31, 2009
Our outlook for the year ending December 31, 2009 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. In general, we do not provide our outlook for selected items where the timing or financial impact are particularly uncertain, or for certain potential unusual or one-time items; however in light of the current uncertain economic environment, we have provided directional guidance on two such elements, specifically net gains (losses) from equity warrant assets and net gains (losses) from investments in venture capital/private equity related activities. The outlook observations presented below are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties which are discussed below under the caption "Forward-Looking Statements".
For the year ending December 31, 2009, compared to our 2008 results, we currently expect the following outlook:
Change in outlook
Current outlook compared to
compared to 2008 outlook reported
results as of July as of April 23,
23, 2009 2009
------------------- -----------------
Outlook
decreased from
Increase at a high single
percentage rate digits, due to
in the mid overall market
Average loan balances single digits conditions
--------------------- ---------------- ---------------
Increase at a
percentage
rate in the
sixties;
majority of
growth from
interest-
bearing No change from
Average deposit balances deposits previous outlook
------------------------- ------------- -----------------
Between 3.7% No change from
Net interest margin to 4.0% previous outlook
------------------- ------------ -----------------
Outlook improved
Between 1.40% to as our present
1.45% of total gross expectation is
loans. Range is that the balance
exclusive of of 2009 will
Allowance for loan losses existing specific be reflective
as a percentage of gross reserves for of our second
loans impaired loans quarter results.
------------------------- ------------------- ----------------
Between 1.75% to
1.80% of total
gross loans. Range
is inclusive of net
charge-offs in the
first and second
quarters of 2009
but exclusive of
any potential net
charge-offs related
to loans impaired
as of June 30,
2009. For the third
through fourth
quarters of 2009, we
expect quarterly
net charge-offs
(annualized) of
approximately 1.4%
of total gross
loans, excluding
any potential net
charge-offs related
to loans impaired No change from
Net loan charge-offs as of June 30, 2009 previous outlook
-------------------- -------------------- -----------------
Increase
during 2009
due to
current and
expected
Ratio of non-performing economic No change from
loans and assets conditions previous outlook
------------------------ ------------ -----------------
Outlook declined
from an increase
Fees for deposit services, Decrease at a in the low single
letters of credit and percentage rate digits, due to
foreign exchange, in in the low overall market
aggregate single digits conditions
-------------------------- ---------------- ----------
Decline
significantly to
approximately one-
half of 2008 No change from
Client investment fees levels previous outlook
---------------------- ------------------- -----------------
Net gains (losses) from No net gains No change from
equity warrant assets expected previous outlook
----------------------- ------------ -----------------
Net losses on investment Increase to
securities, net of approximately double No change from
noncontrolling interests* of 2008 levels previous outlook
-------------------------- ------------------- ---------------
Outlook improved
from high teens,
Noninterest expense* due to lower
(excluding expenses compensation and
related to goodwill Increase at a benefits and lower
impairment and percentage rate in than expected FDIC
noncontrolling interests) the mid teens assessment fees
-------------------------- ------------------- -------------------
* non-GAAP
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, such as forecasts of our future financial results and condition, expectations for our operations and business, and our underlying assumptions of such forecasts and expectations. In this release, including in the section "Outlook for the Year Ending December 31, 2009" above, we make forward-looking statements discussing management's expectations about economic conditions, opportunities in the market, our financial, credit and business performance and financial results (and the components of such results) for, and expectations about the impact of transactions on, the third quarter of 2009 and the year 2009.
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 funds or 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, (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, and (viii) challenges in satisfying closing conditions to complete the proposed transaction relating to our expected credit recovery in the third quarter of 2009. 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 July 23, 2009, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the second quarter ended June 30, 2009. The conference call can be accessed by dialing (877) 663-9523 or (404) 665-9482, and referencing the conference ID "20164609". A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at www.svb.com. A replay of the conference call will be available beginning at approximately 6:00 p.m. (Pacific Time) on Thursday, July 23, 2009, through midnight on Thursday, August 6, 2009, by dialing (800) 642-1687 or (706) 645-9291 and referencing conference ID number "20164609." A replay of the audio webcast will also be available on www.svb.com for 12 months beginning Thursday, July 23, 2009.
About SVB Financial Group
For over 25 years, SVB Financial Group and its subsidiaries, including Silicon Valley Bank, have been dedicated to helping entrepreneurs succeed. SVB Financial Group is a financial holding company that serves companies in the technology, life science, venture capital/private equity and premium wine industries. Offering diversified financial services through Silicon Valley Bank, SVB Analytics, SVB Capital, SVB Global and SVB Private Client Services, SVB Financial Group provides clients with commercial, investment, international and private banking services. The Company also offers funds management, broker-dealer services and asset management, as well as the added value of its knowledge and networks worldwide. Headquartered in Santa Clara, California, SVB Financial Group operates through 27 offices in the U.S. and international operations in China, India, Israel and the United Kingdom. More information on the Company can be found at www.svb.com. (SIVB-F)
Banking services are provided by Silicon Valley Bank, the California bank subsidiary and commercial banking operation of SVB Financial Group, and a member of the FDIC and the Federal Reserve. SVB Private Client Services is a division of Silicon Valley Bank. SVB Financial Group is also a member of the Federal Reserve.
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, March 31, June 30, June 30, June 30,
2009 2009* 2008* 2009* 2008*
-------- ---- ---- ---- ---- ----
Interest
income:
Loans $84,248 $88,251 $84,515 $172,499 $174,274
Investment
securities:
Taxable 16,794 14,851 14,586 31,645 28,356
Non-
taxable 1,029 1,061 1,078 2,090 2,015
Federal funds
sold,
securities
purchased
under
agreements to
resell and
other short-
term
investment
securities 2,485 2,376 3,684 4,861 7,801
----------------- ----- ----- ----- ----- -----
Total
interest
income 104,556 106,539 103,863 211,095 212,446
--------- ------- ------- ------- ------- -------
Interest
expense:
Deposits 5,605 6,847 5,372 12,452 10,641
Borrowings
(1) 7,270 8,181 11,695 15,451 24,231
---------- ----- ----- ------ ------ ------
Total
interest
expense 12,875 15,028 17,067 27,903 34,872
--------- ------ ------ ------ ------ ------
Net interest
income 91,681 91,511 86,796 183,192 177,574
Provision for
loan losses 21,393 43,466 8,351 64,859 16,074
------------- ------ ------ ----- ------ ------
Net interest
income after
provision
for loan
losses 70,288 48,045 78,445 118,333 161,500
------------- ------ ------ ------ ------- -------
Noninterest
income
(loss):
Foreign
exchange
fees 7,617 7,466 7,961 15,083 15,805
Deposit
service
charges 6,590 6,823 6,056 13,413 11,947
Client
investment
fees 5,580 6,248 13,648 11,828 27,370
Letters of
credit and
standby
letters of
credit
income 2,329 2,892 3,142 5,221 6,088
Credit card
fees 2,957 1,439 1,502 4,396 3,202
Corporate
finance fees - - - - 3,640
(Losses) gains
on derivative
instruments,
net (2,847) 1,814 4,408 (1,033) 7,007
(Losses)
gains on
investment
securities,
net (6,750) (35,045) 2,039 (41,795) (4,073)
Other 12,799 2,782 5,759 15,581 15,281
----- ------ ----- ----- ------ ------
Total
noninterest
income (loss) 28,275 (5,581) 44,515 22,694 86,267
-------------- ------ ------ ------ ------ ------
Noninterest
expense:
Compensation
and benefits 46,894 48,280 50,059 95,174 103,840
Professional
services 11,258 12,080 9,132 23,338 17,933
FDIC
assessments 8,589 2,675 700 11,264 1,136
Premises and
equipment 5,473 5,407 5,455 10,880 10,643
Net occupancy 4,836 4,305 4,342 9,141 8,690
Business
development
and travel 3,152 3,273 3,764 6,425 7,186
Impairment of
goodwill - 4,092 - 4,092 -
Correspondent
bank fees 1,963 1,913 1,816 3,876 3,322
Loss from
cash
settlement
of
conversion
premium of
zero-coupon
convertible
subordinated
notes - - 3,858 - 3,858
(Reduction
of)
provision
for
unfunded
credit
commitments (1,147) (2,284) 800 (3,431) 635
Other 7,994 7,399 7,263 15,393 13,383
----- ----- ----- ----- ------ ------
Total
noninterest
expense 89,012 87,140 87,189 176,152 170,626
------------ ------ ------ ------ ------- -------
Income
(loss)
before
income
tax
expense
(benefit) 9,551 (44,676) 35,771 (35,125) 77,141
Income tax
expense
(benefit)
(1) 7,174 (2,448) 16,291 4,726 34,639
---------- ----- ------ ------ ----- ------
Net income
(loss) 2,377 (42,228) 19,480 (39,851) 42,502
Net loss
attributable to
noncontrolling
interests (2) 8,961 33,993 1,534 42,954 5,752
---------------- ----- ------ ----- ------ -----
Net income
(loss)
attributable
to SVBFG
(1)(2) $11,338 $(8,235) $21,014 $3,103 $48,254
============= ======= ======= ======= ====== =======
Preferred
stock
dividend
and
discount
accretion (3,545) (3,536) - (7,081) -
---------- ------ ------ -- ------ --
Net income
(loss)
available to
common
stockholders
(1) $7,793 $(11,771) $21,014 $(3,978) $48,254
============= ====== ======== ======= ======= =======
Earnings
(loss) per
common
share -
basic (1) $0.24 $(0.36) $0.66 $(0.12) $1.50
Earnings
(loss)
per
common
share -
diluted
(1) $0.24 $(0.36) $0.61 $(0.12) $1.40
Weighted
average
common
shares
outstanding
- basic 32,951,905 32,931,714 32,053,749 32,960,239 32,166,820
Weighted
average
common
shares
outstanding -
diluted 33,078,367 32,931,714 34,192,459 32,960,239 34,347,128
* Certain amounts have been revised to reflect the correction of
immaterial errors associated with previously recognized gains and
losses on foreign exchange contracts, which is included under other
noninterest income. Refer to "Changes to Prior Period Balances" section
below for more details. Amounts for the three months ended March 31,
2009 and June 30, 2008, and the six months ended June 30, 2008 have
been retrospectively revised.
(1) Balances for all periods presented reflect our adoption of FSP
APB 14-1. Refer to "Long-Term Debt" discussion for more details.
Amounts for the three and six months ended June 30, 2008 have been
retrospectively adjusted.
(2) Our 2009 adoption of SFAS No. 160 requires us to reclassify our income
statement presentation for noncontrolling interests.
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands,
except par value, June 30, March 31, June 30,
share data and ratios) 2009 2009* 2008*
----------------------- ---- ---- ----
Assets:
Cash and due from banks $3,246,560 $3,360,199 $303,057
Federal funds sold, securities
purchased under agreements to
resell and other short-term
investment securities 462,810 286,787 325,723
Investment securities 2,638,380 2,032,157 1,787,996
Loans, net of unearned income 4,844,253 5,003,069 4,633,701
Allowance for loan losses (110,473) (110,010) (52,888)
------------------------- -------- -------- -------
Net loans 4,733,780 4,893,059 4,580,813
--------- --------- --------- ---------
Premises and equipment, net
of accumulated depreciation
and amortization 30,196 29,341 34,787
Goodwill - - 4,092
Accrued interest receivable and
other assets 354,161 353,472 273,542
------------------------------- ------- ------- -------
Total assets (1) $11,465,887 $10,955,015 $7,310,010
================ =========== =========== ==========
Liabilities and total equity:
Liabilities:
Deposits:
Noninterest-bearing demand $5,551,226 $5,228,830 $2,919,205
Negotiable order of
withdrawal (NOW) 31,719 43,802 48,032
Money market 1,178,716 1,061,547 1,131,154
Foreign money market 29,832 45,439 -
Time 356,781 393,433 410,591
Sweep 1,846,309 1,709,273 354,598
----- --------- --------- -------
Total deposits 8,994,583 8,482,324 4,863,580
-------------- --------- --------- ---------
Short-term borrowings 31,340 56,450 330,000
Other liabilities 205,113 163,422 163,911
Long-term debt (1) 909,641 964,175 969,588
------------------ ------- ------- -------
Total liabilities 10,140,677 9,666,371 6,327,079
----------------- ---------- --------- ---------
SVBFG 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 222,391 221,783 -
Common stock, $0.001 par
value, 150,000,000 shares
authorized; 33,142,568
shares, 32,935,515 shares and
32,252,367 shares
outstanding, respectively 33 33 32
Additional paid-in capital (1) 86,478 71,760 20,754
Retained earnings (1) 705,847 697,956 684,404
Accumulated other
comprehensive loss 4,470 (3,162) (13,634)
------------------- ----- ------ -------
Total SVBFG stockholders'
equity (2) 1,019,219 988,370 691,556
Noncontrolling interests (2) 305,991 300,274 291,375
---------------------------- ------- ------- -------
Total equity (2) 1,325,210 1,288,644 982,931
---------------- --------- --------- -------
Total liabilities and
total equity $11,465,887 $10,955,015 $7,310,010
===================== =========== =========== ==========
Capital Ratios:
Total risk-based capital ratio 18.46% 18.75% 15.10%
Tier 1 risk-based capital ratio 13.89 13.67 10.43
Tier 1 leverage ratio 9.88 10.15 10.72
Tangible common equity
to tangible assets
ratio (3) 6.94 6.99 9.39
Tangible common equity to risk-
weighted assets ratio 10.54 10.17 9.72
Other Period-End Statistics:
Loans, net of unearned income-to-
deposits ratio 53.86% 58.98% 95.27%
Book value per common share (4) $24.04 $23.28 $21.44
Full-time equivalent employees 1,260 1,262 1,209
* Certain amounts have been revised to reflect the correction of
immaterial errors associated with previously recognized gains and
losses on foreign exchange contracts. Refer to "Changes to Prior
Period Balances" section below for more details. Amounts for March 31,
2009 and June 30, 2008 have been retrospectively revised.
(1) Balances for all periods presented reflect our adoption of FSP
APB 14-1. Refer to "Long-Term Debt" discussion for more details.
Balances as of June 30, 2008 have been retrospectively adjusted.
(2) Our 2009 adoption of SFAS No. 160 requires us to reclassify our
balance sheet presentation for noncontrolling interests.
(3) Tangible common equity consists of SVB Financial Group ("SVBFG")
stockholders' equity (excluding preferred equity) less acquired
intangibles and goodwill. Tangible assets represent total assets
less acquired intangibles and goodwill.
(4) Book value per common share is calculated by dividing total SVBFG
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
------------------
June 30, 2009
-------------
(Dollars in thousands) Interest
Average Income/ Yield/
Balance Expense Rate
---------------- ------- ------- ----
Interest-earning
assets:
Federal funds
sold,
securities
purchased
under
agreements to
resell and
other short-
term
investment
securities (1) $3,369,317 $2,485 0.30%
Investment
securities: (2)
Taxable 1,729,648 16,794 3.89
Non-taxable (3) 103,017 1,583 6.16
Total loans,
net of
unearned
income (4) 4,779,966 84,248 7.07
------------ --------- ------ ----
Total interest-
earning assets 9,981,948 105,110 4.23
--------------- --------- ------- ----
Cash and due
from banks 198,361
Allowance for loan
losses (112,647)
Goodwill -
Other assets (5) 860,381
---------------- -------
Total assets (6) $10,928,043
================ ===========
Funding sources:
Interest-bearing
liabilities:
NOW deposits $40,775 $37 0.36%
Regular money
market
deposits 152,894 175 0.46
Bonus money
market
deposits 908,884 1,300 0.57
Foreign money
market
deposits 49,181 78 0.64
Time deposits 368,856 621 0.68
Sweep deposits 1,779,158 3,394 0.77
-------------- --------- ----- ----
Total interest-
bearing
deposits 3,299,748 5,605 0.68
Short-term
borrowings 45,846 20 0.17
Zero-coupon
convertible
subordinated
notes (6) - - -
3.875% convertible
senior notes (6) 245,522 3,506 5.73
Junior subordinated
debentures 55,938 893 6.40
Senior and
subordinated
notes 562,990 2,575 1.83
Other long-
term debt 80,945 276 1.37
----------- ------ --- ----
Total interest-
bearing
liabilities 4,290,989 12,875 1.20
Portion of
noninterest-
bearing
funding
sources 5,690,959
------------- --------- ------ ----
Total funding
sources 9,981,948 12,875 0.52
------------- --------- ------ ----
Noninterest-
bearing
funding
sources:
Demand deposits 5,132,849
Other liabilities 181,421
Discount on zero-
coupon
convertible
subordinated
notes (6) -
SVBFG stockholders'
equity (6) 1,014,269
Noncontrolling
interests (7) 308,515
Portion used
to fund
interest-
earning assets (5,690,959)
--------------- ----------
Total
liabilities
and total
equity $10,928,043
============ =========== ======= ====
Net interest
income and
margin (6) $92,235 3.71%
======= ====
Total deposits $8,432,597
==========
Average SVBFG
stockholders'
equity as a
percentage of
average assets 9.28%
====
Reconciliation to
reported net
interest income:
-----------------
Adjustments for
taxable
equivalent basis (554)
----
Net interest
income, as
reported $91,681
=======
Three months ended
------------------
March 31, 2009 June 30, 2008
-------------- -------------
(Dollars in Interest Interest
thousands) Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- ------- ------- ---- ------- ------- ----
Interest-
earning
assets:
Federal funds
sold,
securities
purchased
under
agreements
to resell and
other short-
term
investment
securities
(1) $2,825,988 $2,376 0.34% $597,673 $3,684 2.48%
Investment
securities:
(2)
Taxable 1,357,752 14,851 4.44 1,233,490 14,586 4.76
Non-
taxable
(3) 106,404 1,633 6.22 102,989 1,659 6.48
Total loans,
net of
unearned
income (4) 5,116,252 88,251 7.00 4,319,897 84,515 7.87
------------ --------- ------ ---- --------- ------ ----
Total
interest-
earning
assets 9,406,396 107,111 4.62 6,254,049 104,444 6.72
---------- --------- ------- ---- --------- ------- ----
Cash and
due from
banks 321,282 249,074
Allowance
for loan
losses (111,527) (52,776)
Goodwill 4,048 4,092
Other
assets (5) 836,208 703,591
----------- ------- -------
Total
assets (6) $10,456,407 $7,158,030
=========== =========== ==========
Funding
sources:
Interest-
bearing
liabilities:
NOW
deposits $52,282 $49 0.38% $51,992 $71 0.55%
Regular
money
market
deposits 179,099 305 0.69 152,707 533 1.40
Bonus
money
market
deposits 986,034 1,738 0.71 900,767 2,467 1.10
Foreign
money
market
deposits 64,485 174 1.09 - - -
Time
deposits 376,833 730 0.79 387,981 920 0.95
Sweep
deposits 1,632,420 3,851 0.96 322,420 1,381 1.72
--------- --------- ----- ---- ------- ----- ----
Total
interest-
bearing
deposits 3,291,153 6,847 0.84 1,815,867 5,372 1.19
Short-term
borrowings 47,044 21 0.18 205,983 1,104 2.16
Zero-coupon
convertible
subordinated
notes (6) - - - 133,822 876 2.63
3.875%
convertible
senior notes
(6) 244,789 3,505 5.81 225,976 3,149 5.60
Junior
subordinated
debentures 55,921 786 5.70 53,090 540 4.09
Senior and
subordinated
notes 568,206 3,407 2.43 531,086 4,874 3.69
Other long-
term debt 101,269 462 1.85 152,386 1,152 3.04
----------- ------- --- ---- ------- ----- ----
Total
interest-
bearing
liabilities 4,308,382 15,028 1.41 3,118,210 17,067 2.20
Portion of
noninterest-
bearing
funding
sources 5,098,014 3,135,839
------------- --------- ------ ---- --------- ------ ----
Total
funding
sources 9,406,396 15,028 0.65 6,254,049 17,067 1.10
-------- --------- ------ ---- --------- ------ ----
Noninterest-
bearing
funding
sources:
Demand
deposits 4,636,553 2,832,956
Other
liabilities 184,844 243,316
Discount on
zero-coupon
convertible
subordinated
notes (6) - 336
SVBFG
stockholders'
equity (6) 1,008,102 680,927
Noncontrolling
interests (7) 318,526 282,285
Portion
used to
fund
interest-
earning
assets (5,098,014) (3,135,839)
---------- ---------- ----------
Total
liabilities
and total
equity $10,456,407 $7,158,030
============ =========== ======= ==== ========== ======= ====
Net interest
income and
margin (6) $92,083 3.97% $87,377 5.62%
======= ==== ======= ====
Total
deposits $7,927,706 $4,648,823
========== ==========
Average SVBFG
stockholders'
equity as a
percentage of
average assets 9.64% 9.51%
==== ====
Reconciliation to
reported net
interest income:
-----------------
Adjustments
for taxable
equivalent
basis (572) (581)
---- ----
Net interest
income, as
reported $91,511 $86,796
======= =======
(1) Includes average interest-bearing deposits in other financial
institutions of $174.2 million, $180.0 million and $99.2 million for
the quarters ended June 30, 2009, March 31, 2009, and June 30, 2008,
respectively. For the quarters ended June 30, 2009 and March 31, 2009,
balance also includes $3.1 billion and $2.5 billion, respectively,
deposited at the Federal Reserve Bank, earning interest at the Federal
Funds target rate.
(2) Yields on interest-earning investment securities do not give effect to
changes in fair value that are reflected in other comprehensive
income.
(3) Interest income on non-taxable investment securities is presented on a
fully taxable equivalent basis using the federal statutory tax rate of
35.0 percent for all periods presented.
(4) Nonaccrual loans are reflected in the average balances of loans.
(5) Average investment securities of $470.4 million, $467.0 million and
$373.3 million for the quarters ended June 30, 2009, March 31, 2009,
and June 30, 2008, respectively, were classified as other assets as
they were noninterest-earning assets. These investments primarily
consisted of non-marketable securities.
(6) Balances for all periods presented reflect our adoption of FSP
APB 14-1. Refer to "Long-Term Debt" discussion for more details.
Amounts for the quarter ended June 30, 2008 have been retrospectively
adjusted.
(7) Our 2009 adoption of SFAS No. 160 requires us to reclassify our
presentation of noncontrolling interests.
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
Six months ended
----------------
June 30, 2009 June 30, 2008
------------------------- ------------------------
Interest Interest
(Dollars in Average Income/ Yield/ Average Income/ Yield/
thousands) Balance Expense Rate Balance Expense Rate
----------- ------- ------- ---- ------- ------- ----
Interest-earning
assets:
Federal funds
sold,
securities
purchased
under
agreements to
resell and
other short-
term
investment
securities (1) $3,099,153 $4,861 0.32% $536,392 $7,801 2.92%
Investment
securities: (2)
Taxable 1,544,728 31,645 4.13 1,203,594 28,356 4.74
Non-taxable
(3) 104,701 3,216 6.19 96,175 3,101 6.48
Total loans,
net of
unearned
income (4) 4,947,180 172,499 7.03 4,216,381 174,274 8.31
------------ --------- ------- ---- --------- ------- ----
Total interest-
earning assets 9,695,762 212,221 4.41 6,052,542 213,532 7.09
--------------- --------- ------- ---- --------- ------- ----
Cash and due
from banks 259,482 262,773
Allowance for
loan losses (112,090) (50,526)
Goodwill 2,013 4,092
Other assets(5) 848,361 686,102
------------ ------- -------
Total assets(6) $10,693,528 $6,954,983
============ =========== ==========
Funding sources:
Interest-bearing
liabilities:
NOW deposits $46,496 $86 0.37% $44,570 $108 0.49%
Regular
money market
deposits 165,924 480 0.58 144,596 957 1.33
Bonus money
market
deposits 947,246 3,038 0.65 887,361 5,702 1.29
Foreign
money market
deposits 56,791 252 0.89 - - -
Time deposits 372,823 1,351 0.73 365,776 1,686 0.93
Sweep
deposits 1,706,195 7,245 0.86 233,338 2,188 1.89
--------- --------- ----- ---- ------- ----- ----
Total interest-
bearing
deposits 3,295,475 12,452 0.76 1,675,641 10,641 1.28
Short-term
borrowings 46,442 41 0.18 220,464 2,915 2.66
Zero-coupon
convertible
subordinated
notes (6) - - - 140,729 2,418 3.46
3.875%
convertible
senior notes
(6) 245,157 7,011 5.77 111,415 3,149 5.68
Junior
subordinated
debentures 55,930 1,679 6.05 53,030 1,265 4.80
Senior and
subordinated
notes 565,583 5,982 2.13 531,731 11,728 4.44
Other long-
term debt 91,050 738 1.63 152,511 2,756 3.63
----------- ------ --- ---- ------- ----- ----
Total interest-
bearing
liabilities 4,299,637 27,903 1.31 2,885,521 34,872 2.43
Portion of
noninterest-
bearing
funding
sources 5,396,125 3,167,021
------------- --------- ------ ---- --------- ------ ----
Total funding
sources 9,695,762 27,903 0.58 6,052,542 34,872 1.15
------------- --------- ------ ---- --------- ------ ----
Noninterest-bearing
funding sources:
Demand deposits 4,886,071 2,866,278
Other
liabilities 183,124 244,411
Discount on
zero-coupon
convertible
subordinated
notes (6) - 1,007
SVBFG
stockholders'
equity (6) 1,011,203 685,791
Noncontrolling
interests (7) 313,493 271,975
Portion used
to fund
interest-
earning assets (5,396,125) (3,167,021)
--------------- ---------- ----------
Total
liabilities
and total
equity $10,693,528 $6,954,983
============ =========== ======== ==== ========== ======== ====
Net interest
income and
margin (6) $184,318 3.83% $178,660 5.94%
======== ==== ======== ====
Total deposits $8,181,546 $4,541,919
========== ==========
Average SVBFG
stockholders'
equity as a
percentage of
average assets 9.46% 9.86%
==== ====
Reconciliation to
reported net
interest income:
-----------------------
Adjustments for taxable
equivalent basis (1,126) (1,086)
------ ------
Net interest income, as
reported $183,192 $177,574
======== ========
(1) Includes average interest-bearing deposits in other financial
institutions of $177.1 million and $91.0 million for the six months
ended June 30, 2009 and 2008, respectively. For the six months ended
June 30, 2009, balance also includes $2.8 billion deposited at the
Federal Reserve Bank, earning interest at the Federal Funds target
rate.
(2) Yields on interest-earning investment securities do not give effect to
changes in fair value that are reflected in other comprehensive
income.
(3) Interest income on non-taxable investment securities is presented on a
fully taxable equivalent basis using the federal statutory tax rate of
35.0 percent for all periods presented.
(4) Nonaccrual loans are reflected in the average balances of loans.
(5) Average investment securities of $468.7 million and $359.3 million for
the six months ended June 30, 2009 and 2008, respectively, were
classified as other assets as they were noninterest-earning assets.
These investments primarily consisted of non-marketable securities.
(6) Balances for all periods presented reflect our adoption of FSP
APB 14-1. Refer to "Long-Term Debt" discussion for more details.
Amounts for the six months ended June 30, 2008 have been
retrospectively adjusted.
(7) Our 2009 adoption of SFAS No. 160 requires us to reclassify our
presentation of noncontrolling interests.
(Losses) Gains on Derivative Instruments, Net
Three months ended
------------------
% Change
--------
(Dollars in June 30, March 31, June 30, March 31, June 30,
thousands) 2009 2009 2008 2009 2008
----------- ---- ---- ---- ---- ----
(Losses) gains on
foreign exchange
forward contracts, net:
Gains on client
foreign exchange
forward
contracts, net
(1) $448 $496 $478 (9.7)% (6.3)%
(Losses) gains on
internal foreign
exchange forward
contracts, net
(2) (4,479) 1,943 624 NM NM
------ ----- --- --- ---
Total (losses)
gains on foreign
exchange forward
contracts, net (4,031) 2,439 1,102 NM NM
Change in fair
value of interest
rate swap (3) - (170) 879 (100.0) (100.0)
Gains on covered
call options, net
(4) - - 377 - (100.0)
Equity warrant assets:
(Losses) gains on
exercise, net (42) 210 676 (120.0) (106.2)
Change in fair value (5):
Cancellations
and expirations
(1,276) (1,198) (488) 6.5 161.5
Other changes
in fair value 2,502 533 1,862 NM 34.4
----- --- ----- --- ----
Total net gains
(losses) on equity
warrant assets (6) 1,184 (455) 2,050 NM (42.2)
----- ---- ----- --- -----
Total (losses)
gains on derivative
instruments, net $(2,847) $1,814 $4,408 NM% (164.6)%
======= ====== ====== === ======
Six months ended
June 30, June 30, %
(Dollars in thousands) 2009 2008 Change
---------------------- ---- ---- ------
(Losses) gains on foreign exchange forward
contracts, net:
Gains on client foreign exchange forward
contracts, net (1) $944 $1,206 (21.7)%
(Losses) gains on internal foreign
exchange forward contracts, net (2) (2,536) (2,467) 2.8
------ ------ ---
Total (losses) gains on foreign exchange
forward contracts, net (1,592) (1,261) 26.2
Change in fair value of interest rate swap(3) (170) 386 (144.0)
Gains on covered call options, net (4) - 377 (100.0)
Equity warrant assets:
(Losses) gains on exercise, net 168 5,192 (96.8)
Change in fair value (5):
Cancellations and expirations (2,474) (945) 161.8
Other changes in fair value 3,035 3,258 (6.8)
----- ----- ----
Total net gains (losses) on equity warrant
assets (6) 729 7,505 (90.3)
--- ----- -----
Total (losses) gains on derivative
instruments, net $(1,033) $7,007 (114.7)%
======= ====== ======
NM - Not meaningful
(1) Represents the net gains for foreign exchange forward contracts
executed on behalf of clients.
(2) Represents the change in the fair value of foreign exchange forward
contracts used to economically reduce our foreign exchange exposure
risk related to certain foreign currency denominated loans.
Revaluations of foreign currency denominated loans are recorded on the
line item "Other" as part of noninterest income, a component of
consolidated net income.
(3) Represents the change in the fair value hedge of the junior
subordinated debentures. In December 2008, our counterparty called
this swap for settlement in January 2009. As a result, the swap is no
longer designated as a hedging instrument.
(4) Represents net gains on covered call options by one of our sponsored
debt funds.
(5) At June 30, 2009, we held warrants in 1,285 companies, compared to
1,303 companies at March 31, 2009 and 1,217 companies at June 30,
2008.
(6) Includes net gains (losses) on equity warrant assets held by
consolidated investment affiliates. Relevant amounts attributable to
noncontrolling interests are reflected in the interim consolidated
statements of income under the caption "Net Loss Attributable to
Noncontrolling Interests."
Net Loss Attributable to Noncontrolling Interests (1)
Three months ended Six months ended
------------------ ----------------
June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2009 2009 2008 2009 2008
---------------------- -------- --------- -------- -------- --------
Net interest loss
(income) (2) $16 $14 $(106) $30 $(363)
Noninterest loss
(income) (2) 6,153 31,907 (1,528) 38,060 (553)
Noninterest expense (2) 2,848 3,387 2,457 6,235 5,216
Carried interest (3) (56) (1,315) 711 (1,371) 1,452
--- ------ --- ------ -----
Net loss attributable
to noncontrolling
interests $8,961 $33,993 $1,534 $42,954 $5,752
====== ======= ====== ======= ======
(1) Our 2009 adoption of SFAS No. 160 requires us to reclassify our
presentation of noncontrolling interests.
(2) Represents noncontrolling interests share in net interest income,
noninterest income (loss), and noninterest expense.
(3) Represents the change in the preferred allocation of income we earn as
general partners managing two of our managed funds of funds and the
preferred allocation earned by the general partner entity managing one
of our consolidated sponsored debt funds.
Reconciliation of Basic and Diluted Weighted Average Common Shares Outstanding
Three months ended Six months ended
------------------ ----------------
June 30, March 31, June 30, June 30, June 30,
(Shares in thousands) 2009 2009 2008 2009 2008
--------------------- ---- ---- ---- ---- ----
Weighted average common
shares outstanding-
basic 32,952 32,932 32,054 32,960 32,167
Effect of dilutive
securities:
Stock options 126 - 968 - 984
Restricted stock awards
and units - - 87 - 38
Zero-coupon convertible
subordinated notes
(1) - - 1,083 - 1,158
Warrants associated
with zero-coupon
convertible
subordinated notes
(1) - - - - -
3.875% convertible
senior notes (2) - - - - -
Warrants associated
with 3.875% convertible
senior notes (2) - - - - -
Warrant associated with
Capital Purchase
Program (3) - - - - -
- - - - -
Total effect of
dilutive securities 126 - 2,138 - 2,180
--- --- ----- --- -----
Weighted average common
shares outstanding-
diluted 33,078 32,932 34,192 32,960 34,347
====== ====== ====== ====== ======
(1) The dilutive effect of our convertible subordinated notes was
calculated using the treasury stock method based on our average share
price and was dilutive at an average share price of $33.6277. The
associated warrants were dilutive beginning at an average share price
of $51.34. These notes and the associated warrants matured on June 15,
2008.
(2) The dilutive effect of our convertible senior notes is calculated
using the treasury stock method based on our average share price and
is dilutive at an average share price of $53.04. The associated
warrants are dilutive beginning at an average share price of $64.43.
These notes are due on April 15, 2011 and the associated warrants
expire ratably commencing on July 15, 2011.
(3) The warrant associated with our participation in the CPP is dilutive
beginning at an average share price of $49.78.
Due to the net loss applicable to common stockholders for the three months ended March 31, 2009 and the six months ended June 30, 2009, no potentially dilutive shares were included in the net loss per share calculation as including such shares would be anti-dilutive and reduce the reported net loss per share.
Credit Quality
Period end balances at
----------------------
June 30, March 31, June 30,
(Dollars in thousands) 2009 2009 2008
---------------------- ---- ---- ----
Nonperforming loans and assets:
Nonperforming loans:
Loans past due 90 days or more still
accruing interest $55 $3,516 $1,151
Nonaccrual loans 111,406 97,641 8,497
------- ------ -----
Total nonperforming loans 111,461 101,157 9,648
Other real estate owned 450 1,200 1,612
--- ----- -----
Total nonperforming assets $111,911 $102,357 $11,260
======== ======== =======
Nonperforming loans as a percentage of
total gross loans 2.28% 2.01% 0.21%
Nonperforming assets as a percentage
of total assets 0.98 0.93 0.15
Allowance for loan losses $110,473 $110,010 $52,888
As a percentage of total gross
loans 2.26% 2.18% 1.13%
As a percentage of nonperforming
loans 99.11 108.75 548.18
Reserve for unfunded credit
commitments (1) $11,266 $12,418 $14,081
Total gross loans 4,886,040 5,045,208 4,666,989
Total unfunded credit commitments 4,963,654 5,072,604 5,034,283
(1) The "Reserve for Unfunded Credit Commitments" is included as a
component of "Other Liabilities".
Average Client Investment Funds (1)
Three months ended Six months ended
------------------- -----------------
June 30, March 31, June 30, June 30, June 30,
(Dollars in millions) 2009 2009 2008 2009 2008
--------------------- -------- --------- -------- -------- --------
Client directed investment
assets $11,039 $11,643 $12,734 $11,341 $12,754
Client investment assets
under management 5,412 5,834 6,006 5,623 6,190
Sweep money market funds - 224 2,649 112 2,698
--- --- ----- --- -----
Total average client
investment funds $16,451 $17,701 $21,389 $17,076 $21,642
======= ======= ======= ======= =======
(1) Client Investment Funds are maintained at third party financial
institutions.
Average client investment funds decreased by $1.2 billion to $16.5 billion for the second quarter of 2009, compared to $17.7 billion for the first quarter of 2009, primarily due to a larger number of clients opting to be covered by FDIC insurance on deposits held in noninterest bearing deposit accounts rather than invest in the current low interest rate environment, as well as the full quarter effect of our discontinuation of a third-party, off-balance sheet sweep product completed in the first quarter of 2009.
Period-end total client investment funds were $16.0 billion at June 30, 2009, compared to $16.9 billion at March 31, 2009 and $21.9 billion at June 30, 2008.
Changes to Prior Period Balances
The table below highlights certain revised prior period items related to the revision of certain immaterial gains and losses on foreign exchange contracts that were incorrectly recorded in prior periods and to the adoption of FSP APB 14-1:
Three months ended
----------------------
(Dollars in
thousands,
except per March December September June March
share amounts) 31, 2009 31, 2008 30, 2008 30, 2008 31, 2008
--------------- -------- --------- ---------- -------- --------
AS REVISED
Income Statement
----------------
Interest
expense -
borrowings $8,181 $10,219 $12,517 $11,695 $12,536
Other
noninterest
income 2,782 1,858 1,913 5,759 9,522
Income tax
expense
(benefit) (2,448) 863 16,711 16,291 18,348
Net income
(loss)
attributable to
SVBFG (8,235) 114 25,918 21,014 27,240
Net income
(loss)
available to
common
stockholders (11,771) (593) 25,918 21,014 27,240
Earnings (loss)
per common
share - diluted (0.36) (0.02) 0.77 0.61 0.79
Fully Taxable Equivalent
------------------------
Net interest
income (fully
taxable
equivalent
basis) $92,083 $97,024 $95,206 $87,377 $91,283
Net interest
margin 3.97% 5.39% 5.70% 5.62% 6.27%
Balance Sheet
-------------
Cash and due
from banks $3,360,199 $1,789,311 $371,425 $303,057 $301,888
Total assets 10,955,015 10,018,280 8,070,315 7,310,010 6,897,163
Long-term debt 964,175 995,423 976,189 969,588 892,516
Additional paid-
in capital 71,760 66,201 44,359 20,754 13,975
Retained
earnings 697,956 709,726 710,321 684,404 663,963
ADJUSTMENTS DUE TO REVISION OF ERROR
Income Statement
----------------
Other
noninterest
income $(1,971) $(3,239) $(1,309) $578 $187
Income tax
expense
(benefit) (746) (1,248) (531) 215 65
Net income
(loss)
attributable to
SVBFG (1,225) (1,991) (778) 363 122
Net income
(loss)
available to
common
stockholders (1,225) (1,991) (778) 363 122
Earnings (loss)
per common
share - diluted (0.04) (0.06) (0.02) 0.01 -
Balance Sheet
-------------
Cash and due
from banks $(2,017) $(2,085) $(2,085) $(2,085) $(2,085)
Total assets (3,753) (2,528) (537) 241 (122)
Retained
earnings (3,753) (2,528) (537) 241 (122)
ADJUSTMENTS DUE TO APB 14-1
Income Statement
----------------
Interest
expense -
borrowings N/A $525 $518 $1,068 $1,303
Income tax
expense
(benefit) N/A (208) (206) (424) (518)
Net income
(loss)
attributable to
SVBFG N/A (317) (312) (644) (785)
Net income
(loss)
available to
common
stockholders N/A (317) (312) (644) (785)
Fully Taxable Equivalent
------------------------
Net interest
income (fully
taxable
equivalent
basis) N/A $(525) $(518) $(1,068) $(1,303)
Net interest
margin N/A (0.03)% (0.03)% (0.07)% (0.09)%
Balance Sheet
-------------
Total assets N/A $(84) $(93) $(102) $(18)
Long-term debt N/A (5,217) (5,757) (6,290) (673)
Additional paid-
in capital N/A 20,329 20,543 20,754 13,975
Retained
earnings N/A (15,196) (14,879) (14,566) (13,993)
Year ended
(Dollars in thousands, except per share amounts) December 31, 2007
------------------------------------------------ -----------------
AS REVISED
Income Statement
----------------
Interest expense - borrowings $54,259
Other noninterest income 26,096
Income tax expense (benefit) 84,581
Net income (loss) attributable to SVBFG 120,329
Net income (loss) available to common stockholders 120,329
Earnings (loss) per common share - diluted 3.28
Fully Taxable Equivalent
------------------------
Net interest income (fully taxable equivalent basis) $377,115
Net interest margin 7.19%
Balance Sheet
-------------
Cash and due from banks $324,510
Total assets 6,692,171
Long-term debt 873,241
Additional paid-in capital 13,167
Retained earnings 669,459
ADJUSTMENTS DUE TO REVISION OF ERROR
Income Statement
----------------
Other noninterest income $(415)
Income tax expense (benefit) (171)
Net income (loss) attributable to SVBFG (244)
Net income (loss) available to common stockholders (244)
Earnings (loss) per common share - diluted (0.01)
Balance Sheet
-------------
Cash and due from banks $(889)
Total assets (244)
Retained earnings (244)
ADJUSTMENTS DUE TO APB 14-1
Income Statement
----------------
Interest expense - borrowings $5,091
Income tax expense (benefit) (2,026)
Net income (loss) attributable to SVBFG (3,065)
Net income (loss) available to common stockholders (3,065)
Fully Taxable Equivalent
------------------------
Net interest income (fully taxable equivalent basis) $(5,091)
Net interest margin (0.10)%
Balance Sheet
-------------
Total assets $(41)
Long-term debt (2,013)
Additional paid-in capital 13,167
Retained earnings (13,208)
Use of Non-GAAP Financial Measures
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 (non-GAAP net income (loss), non-GAAP noninterest income, non-GAAP net losses on investment securities, non-GAAP noninterest expense, and non-GAAP financial ratios) of financial performance. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
In particular, in this press release, we use certain non-GAAP measures that exclude from net income and certain other financial line items in certain periods:
-- Income and expense attributable to noncontrolling interests - As part of
our funds management business, we recognize the entire income or loss
from certain funds where we own less than 100 percent. We are required
under GAAP to consolidate 100 percent of the results of the funds that
we are deemed to control or in which we have a majority ownership.
Similarly, we are required under GAAP to consolidate the results of
eProsper, of which we own 65 percent. The relevant amounts attributable
to investors other than us are reflected under "Net Loss
Attributable to Noncontrolling Interests." Our net income (loss)
available to common stockholders reported in that section includes only
the portion of income or loss related to our ownership interest.
-- Non-tax deductible goodwill impairment charge of $4.1 million resulting
from changes in our outlook for future financial performance of
eProsper.
-- Non-tax deductible noninterest expense of $3.9 million related to the
conversion premium value of certain of our zero-coupon convertible notes
that were converted prior to their maturity.
In addition, in this press release, we use certain non-GAAP financial ratios that are not required by GAAP or exclude certain financial items from their calculations that are otherwise required under GAAP:
-- Tangible common equity to tangible assets ratio - This ratio is not
required by GAAP or other applicable bank regulatory requirement, and is
used by management to evaluate the adequacy of the Company's
capital levels. Our ratio is calculated by dividing total SVBFG
stockholder's equity, by total assets, after reducing both amounts
by acquired intangibles and goodwill. The manner in which this ratio is
calculated varies among companies. Accordingly, our ratio is not
necessarily comparable to similar measures of other companies.
-- Non-GAAP operating efficiency ratio - This ratio excludes certain
financial items that are otherwise required under GAAP. It is calculated
by dividing noninterest expense (excluding goodwill and the Coco Loss
for applicable periods) by total taxable equivalent income, after
reducing both amounts by taxable equivalent losses (income) attributable
to noncontrolling interests for applicable periods.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures (as applicable), provide meaningful supplemental information regarding our performance by: (i) excluding amounts attributable to noncontrolling interests, where indicated, or certain items that do not occur in every reporting period, or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirement. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, net income, or other financial measures prepared in accordance with GAAP. In the financial table below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.
SVB FINANCIAL GROUP AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME (LOSS)
(Unaudited)
Three months ended Six months ended
------------------- -----------------
(Dollars in
Thousands, except June 30, March 31, June 30, June 30, June 30,
share amounts) 2009 2009* 2008* 2009 2008*
----------------- -------- --------- -------- -------- --------
Net income
(loss) available
to common
stockholders $7,793 $(11,771) $21,014 $(3,978) $48,254
Impairment of
goodwill (1) - 4,092 - 4,092 -
Loss from cash
settlement of
conversion
premium of zero-
coupon
convertible
subordinated
notes (2) - - 3,858 - 3,858
-- -- ----- -- -----
Non-GAAP net
income (loss)
available to
common
stockholders $7,793 $(7,679) $24,872 $114 $52,112
====== ======= ======= ==== =======
Weighted average
diluted common
shares
outstanding 33,078,367 32,931,714 34,192,459 32,960,239 34,347,128
* Certain amounts have been revised to reflect the correction of
immaterial errors associated with previously recognized gains and losses
on foreign exchange contracts. Refer to "Changes to Prior Period
Balances" section for more details. Amounts for the three months
ended March 31, 2009 and June 30, 2008, and the six months ended June
30, 2008 have been retrospectively revised.
(1) Non-tax deductible goodwill impairment charge for eProsper recognized
in the first quarter of 2009.
(2) Represents the portion of the conversion payment that exceeded the
principal amount related to a conversion of $7.8 million of our zero-
coupon convertible subordinated notes, which we settled in cash in the
second quarter of 2008. This non-tax deductible loss did not have any
impact on our tax provision.
Three months ended Six months ended
------------------ ----------------
Non-GAAP
noninterest
income, net of
noncontrolling
interests
(Dollars in June 30, March 31, June 30, June 30, June 30,
thousands) 2009 2009* 2008* 2009 2008*
--------------- ---- ---- ---- ---- ----
GAAP noninterest
income (loss) $28,275 $(5,581) $44,515 $22,694 $86,267
Less: (losses)
income
attributable to
noncontrolling
interests,
including
carried
interest (6,097) (30,592) 817 (36,689) (899)
------ ------- --- ------- ----
Non-GAAP
noninterest
income, net of
noncontrolling
interests $34,372 $25,011 $43,698 $59,383 $87,166
--------------- ======= ======= ======= ======= =======
* Certain amounts have been revised to reflect the correction of
immaterial errors associated with previously recognized gains and losses
on foreign exchange contracts. Refer to "Changes to Prior Period
Balances" section for more details. Amounts for the three months
ended March 31, 2009 and June 30, 2008, and the six months ended June
30, 2008 have been retrospectively revised.
Three months ended Six months ended
------------------ ----------------
Non-GAAP net gains
(losses) on investment
securities, net of
noncontrolling
interests June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands) 2009 2009 2008 2009 2008
----------------------- ---- ---- ---- ---- ----
GAAP net (losses) gains
on investment
securities $(6,750) $(35,045) $2,039 $(41,795) $(4,073)
Less: (losses) gains
on investment
securities
attributable to
noncontrolling
interests,
including carried
interest (6,933) (30,438) 452 (37,371) (1,447)
------ ------- --- ------- ------
Non-GAAP net gains
(losses) on investment
securities, net of
noncontrolling
interests $183 $(4,607) $1,587 $(4,424) $(2,626)
==== ======= ====== ======= =======
Three months ended Six months ended
------------------ ----------------
Non-GAAP
operating
efficiency ratio,
net of
noncontrolling
interests
(Dollars in
Thousands,
except June 30, March 31, June 30, June 30, June 30,
ratios) 2009 2009 2008 2009 2008
------------------ ---- ---- ---- ---- ----
GAAP noninterest
expense $89,012 $87,140 $87,189 $176,152 $170,626
Less: amounts
attributable to
noncontrolling
interests 2,848 3,387 2,457 6,235 5,216
Less: loss from
cash settlement
of conversion
premium of zero-
coupon
convertible
subordinated
notes - - 3,858 - 3,858
Less:
impairment of
goodwill - 4,092 - 4,092 -
-- ----- -- ----- --
Non-GAAP
noninterest
expense, net of
noncontrolling
interests $86,164 $79,661 $80,874 $165,825 $161,552
======= ======= ======= ======== ========
GAAP taxable
equivalent net
interest income $92,235 92,083 $87,377 $184,318 $178,660
Less: (losses)
income
attributable to
noncontrolling
interests (16) (14) 106 (30) 363
--- --- --- --- ---
Non-GAAP taxable
equivalent net
interest income,
net of
noncontrolling
interests 92,251 92,097 87,271 184,348 178,297
Non-GAAP
noninterest
income, net of
noncontrolling
interests 34,372 25,011 43,698 59,383 87,166
------ ------ ------ ------ ------
Non-GAAP taxable
equivalent
revenue, net of
noncontrolling
interests $126,623 $117,108 $130,969 $243,731 $265,463
======== ======== ======== ======== ========
Non-GAAP
operating
efficiency ratio 68.05% 68.02% 61.75% 68.04% 60.86%
===== ===== ===== ===== =====
Non-GAAP non-marketable securities, net of
noncontrolling interests June 30, March 31,
(Dollars in thousands) 2009 2009
------------------------------------------- ---- ----
GAAP non-marketable securities $478,694 $454,527
Less: noncontrolling interests in non-marketable
securities 285,127 276,122
------- -------
Non-GAAP non-marketable securities, net of
noncontrolling interests $193,567 $178,405
======== ========
Non-GAAP tangible common equity June 30, March 31, June 30,
and tangible assets (Dollars
in Thousands, except
ratios) 2009 2009* 2008*
-------------------------------- ---- ---- ----
SVBFG stockholders' equity $1,019,219 $988,370 $691,556
Less:
Preferred stock 222,391 221,783 -
Goodwill - - 4,092
Intangible assets 774 822 1,340
--- --- -----
Tangible common equity $796,054 $765,765 $686,124
======== ======== ========
Total assets $11,465,887 $10,955,015 $7,310,010
Less:
Goodwill - - 4,092
Intangible assets 774 822 1,340
--- --- -----
Tangible assets $11,465,113 $10,954,193 $7,304,578
=========== =========== ==========
Risk-weighted assets $7,549,912 $7,533,338 $7,060,052
Tangible common equity to
tangible assets 6.94% 6.99% 9.39%
Tangible common equity to risk-
weighted assets 10.54 10.17 9.72
----------------
* Certain amounts have been revised to reflect the correction of
immaterial errors associated with previously recognized gains and losses
on foreign exchange contracts. Refer to "Changes to Prior Period
Balances" section for more details. Amounts for March 31, 2009 and June
30, 2008 have been retrospectively revised.
SOURCE SVB Financial Group
http://www.svb.com
Copyright (C) 2009 PR Newswire. All rights reserved