SVB Financial Group
SVB FINANCIAL GROUP (Form: 8-K, Received: 01/25/2018 16:14:11)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
  FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):  January 25, 2018
 
 
SVB Financial Group
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
000-15637
 
91-1962278
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
3003 Tasman Drive, Santa Clara, CA 95054-1191
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408) 654-7400
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.142-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

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

 







Item 2.02.
Results of Operations and Financial Condition.
On January 25, 2018 , SVB Financial Group (the “Company”) announced its financial results for the fourth quarter and year ended December 31, 2017 . A copy of the release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Act of 1934, except as expressly stated by specific reference in such filing.
 
Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits.  
Exhibit
No.
Description
 
 





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: January 25, 2018
 
 
 
SVB FINANCIAL GROUP
 
 
 
 
 
 
 
 
By:
 
/s/ KAMRAN HUSAIN
 
 
 
 
Name:
 
Kamran Husain
 
 
 
 
Title:
 
Chief Accounting Officer and Principal Accounting Officer






Exhibit Index
 
Exhibit
No.
Description
 
 


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





Exhibit 99.1
SVBLOGOA05.GIF     
3003 Tasman Drive, Santa Clara, CA 95054
 
 
 
 
 
 
 
Contact:
www.svb.com    
 
 
 
 
 
 
 
Meghan O'Leary
 
 
 
 
 
 
 
 
Investor Relations
For release at 1:00 P.M. (Pacific Time)
 
 
 
 
  
(408) 654-6364
January 25, 2018
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
NASDAQ: SIVB
 
 
 
 
 
 
  
 
SVB FINANCIAL GROUP ANNOUNCES 2017 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS

SANTA CLARA, Calif. — January 25, 2018 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the fourth quarter and year ended December 31, 2017 .

Consolidated net income available to common stockholders for the fourth quarter of 2017 was $117.2 million , or $2.19 per diluted common share, compared to $148.6 million , or $2.79 per diluted common share, for the third quarter of 2017 and $99.5 million, or $1.89 per diluted common share, for the fourth quarter of 2016. Consolidated net income available to common stockholders for the year ended December 31, 2017 was $490.5 million, or $9.20 per diluted common share, compared to $382.7 million, or $7.31 per diluted common share, for the comparable 2016 period. The fourth quarter, and full year, 2017 results included a $37.6 million tax expense related to H.R.1, Tax Cuts and Jobs Act (the "TCJ Act"), as well as a pre-tax loss of $8.8 million on the sale of available-for-sale ("AFS") securities in connection with our ongoing treasury and tax management objectives.

"The fourth quarter was an excellent close to an outstanding year, continuing the positive trends of robust growth in loans and client funds, healthy increases in net interest income and net interest margin, solid core fee income, and stable credit," said Greg Becker, President and CEO of SVB Financial Group. "As we enter 2018, our outlook remains positive; this is due to the health and vibrancy of our client base and our expectation that we will see results from our continued investment in growth and client engagement; as well as tailwinds from lower corporate taxes, higher interest rates and the potential for some regulatory relief.”

Highlights of our fourth quarter 2017 results (compared to third quarter 2017, unless otherwise noted) included:
Average loan balances of $ 22.4 billion , an increase of $0.9 billion (or 4.0 percent).
Period-end loan balances of $23.1 billion, an increase of $0.9 billion (or 4.1 percent).
Average fixed income investment securities of $23.8 billion, an increase of $0.6 billion (or 2.8 percent).
Period-end fixed income investment securities of $23.8 billion, an increase of $0.1 billion (or 0.5 percent).
Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $5.0 billion (or 5.2 percent) to $102.4 billion.
Period-end total client funds increased $5.5 billion (or 5.6 percent) to $104.6 billion.
Net interest income (fully taxable equivalent basis) of $395.3 million, an increase of $20.7 million (or 5.5 percent).
Provision for credit losses of $22.2 million, compared to $23.5 million.
Net loan charge-offs of $12.9 million, or 23 basis points of average total gross loans (annualized), compared to $10.5 million, or 19 basis points.
Gains on investment securities of $ 15.8 million , compared to $ 15.2 million . Non-GAAP gains on investment securities, net of noncontrolling interests, were $8.0 million , compared to $9.7 million . (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Gains on equity warrant assets of $12.1 million, compared to $24.9 million .
Noninterest income of $152.3 million, a decrease of $6.5 million (or 4.1 percent). Non-GAAP core fee income increased $3.7 million (or 3.6 percent) to $106.4 million . (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Noninterest expense of $264.0 million , an increase of $6.2 million (or 2.4 percent).
Income tax expense included a one-time expense of $37.6 million associated with the TCJ Act enacted into law on December 22, 2017. (See "Income Tax Expense" for further details.)




Fourth Quarter and Full-Year 2017 Summary
(Dollars in millions, except share data, employees and ratios)
 
Three months ended
 
Year ended
December 31,
2017
 
September 30,
2017
 
June 30,
2017
 
March 31,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Income statement:
 

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share (1)
 
$
2.19

 
$
2.79

 
$
2.32

 
$
1.91

 
$
1.89

 
$
9.20

 
$
7.31

Net income available to common stockholders (1)
 
117.2

 
148.6

 
123.2

 
101.5

 
99.5

 
490.5

 
382.7

Net interest income
 
393.7

 
374.0

 
342.7

 
310.0

 
296.6

 
1,420.4

 
1,150.5

Provision for credit losses (2)
 
22.2

 
23.5

 
15.8

 
30.7

 
16.5

 
92.3

 
106.7

Noninterest income
 
152.3

 
158.8

 
128.5

 
117.7

 
113.5

 
557.2

 
456.6

Noninterest expense (2)
 
264.0

 
257.8

 
251.2

 
237.6

 
235.2

 
1,010.7

 
859.8

Non-GAAP core fee income (3)
 
106.4

 
102.7

 
87.3

 
82.6

 
84.6

 
379.0

 
316.2

Non-GAAP noninterest income, net of noncontrolling interests (3)
 
144.5

 
153.2

 
119.0

 
111.1

 
109.1

 
527.8

 
448.5

Non-GAAP noninterest expense, net of noncontrolling interests (2) (3)
 
263.7

 
257.6

 
251.0

 
237.5

 
234.9

 
1,009.8

 
859.3

Fully taxable equivalent:
 

 
 
 
 
 
 
 
 
 


 
 
Net interest income (4)
 
$
395.3

 
$
374.6

 
$
343.2

 
$
310.3

 
$
296.9

 
$
1,423.4

 
$
1,151.7

Net interest margin
 
3.20
%
 
3.10
%
 
3.00
%
 
2.88
%
 
2.73
%
 
3.05
%
 
2.72
%
Balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average total assets
 
$
50,799.4

 
$
49,795.4

 
$
47,549.4

 
$
45,301.0

 
$
44,933.7

 
$
48,380.3

 
$
43,987.5

Average loans, net of unearned income
 
22,444.1

 
21,584.9

 
20,508.5

 
20,069.3

 
19,260.7

 
21,159.4

 
18,283.6

Average available-for-sale securities
 
12,081.0

 
12,674.6

 
12,393.1

 
12,550.3

 
12,505.1

 
12,424.1

 
13,331.3

Average held-to-maturity securities
 
11,703.0

 
10,467.5

 
9,128.4

 
8,600.2

 
7,730.5

 
9,984.6

 
8,192.2

Average noninterest-bearing demand deposits
 
36,962.0

 
36,578.8

 
34,629.1

 
32,709.4

 
32,663.8

 
35,235.2

 
31,189.2

Average interest-bearing deposits
 
7,811.4

 
7,464.1

 
7,509.6

 
7,249.1

 
7,033.7

 
7,509.9

 
7,569.8

Average total deposits
 
44,773.4

 
44,042.8

 
42,138.6

 
39,958.5

 
39,697.4

 
42,745.1

 
38,759.1

Average long-term debt
 
743.2

 
749.5

 
780.2

 
795.6

 
795.9

 
766.9

 
796.3

Period-end total assets
 
51,214.5

 
50,754.3

 
48,400.4

 
46,413.3

 
44,683.7

 
51,214.5

 
44,683.7

Period-end loans, net of unearned income
 
23,106.3

 
22,189.3

 
20,976.5

 
20,427.5

 
19,899.9

 
23,106.3

 
19,899.9

Period-end available-for-sale securities
 
11,120.7

 
12,603.3

 
12,071.1

 
12,384.0

 
12,620.4

 
11,120.7

 
12,620.4

Period-end held-to-maturity securities
 
12,663.5

 
11,055.0

 
9,938.4

 
8,615.7

 
8,427.0

 
12,663.5

 
8,427.0

Period-end non-marketable and other securities
 
651.1

 
627.5

 
630.7

 
635.6

 
622.6

 
651.1

 
622.6

Period-end noninterest-bearing demand deposits
 
36,655.5

 
36,862.0

 
35,046.4

 
33,587.9

 
31,975.5

 
36,655.5

 
31,975.5

Period-end interest-bearing deposits
 
7,598.6

 
7,950.0

 
7,418.9

 
7,491.8

 
7,004.4

 
7,598.6

 
7,004.4

Period-end total deposits
 
44,254.1

 
44,812.0

 
42,465.3

 
41,079.7

 
38,979.9

 
44,254.1

 
38,979.9

Off-balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average client investment funds
 
$
57,589.1

 
$
53,273.3

 
$
49,109.4

 
$
46,130.2

 
$
44,966.8

 
$
51,525.5

 
$
43,356.8

Period-end client investment funds
 
60,329.7

 
54,241.5

 
51,897.5

 
46,434.8

 
45,797.8

 
60,329.7

 
45,797.8

Total unfunded credit commitments
 
17,462.5

 
16,341.9

 
16,786.8

 
16,082.3

 
16,743.2

 
17,462.5

 
16,743.2

Earnings ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Return on average assets (annualized) (5)
 
0.92
%
 
1.18
%
 
1.04
%
 
0.91
%
 
0.88
%
 
1.01
%
 
0.87
%
Return on average SVBFG stockholders’ equity (annualized) (6)
 
11.09

 
14.59

 
12.75

 
11.03

 
10.77

 
12.38

 
10.90

Asset quality ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Allowance for loan losses as a % of total gross loans
 
1.10
%
 
1.12
%
 
1.12
%
 
1.18
%
 
1.13
%
 
1.10
%
 
1.13
%
Allowance for loan losses for performing loans as a % of total gross performing loans
 
0.92

 
0.92

 
0.93

 
0.94

 
0.94

 
0.92

 
0.94

Gross charge-offs as a % of average total gross loans (annualized)
 
0.27

 
0.23

 
0.49

 
0.28

 
0.52

 
0.31

 
0.53

Net charge-offs as a % of average total gross loans (annualized)
 
0.23

 
0.19

 
0.44

 
0.25

 
0.44

 
0.27

 
0.46

Other ratios:
 

 
 
 
 
 
 
 
 
 

 
 
GAAP operating efficiency ratio (2) (7)
 
48.36
%
 
48.38
%
 
53.32
%
 
55.57
%
 
57.35
%
 
51.11
%
 
53.50
%
Non-GAAP operating efficiency ratio (2) (3)
 
48.85

 
48.82

 
54.32

 
56.35

 
57.87

 
51.76

 
53.70

SVBFG CET 1 risk-based capital ratio
 
12.78

 
12.96

 
13.05

 
13.05

 
12.80

 
12.78

 
12.80


2



Bank CET 1 risk-based capital ratio
 
12.06

 
12.41

 
12.59

 
12.75

 
12.65

 
12.06

 
12.65

SVBFG total risk-based capital ratio
 
13.96

 
14.29

 
14.39

 
14.45

 
14.21

 
13.96

 
14.21

Bank total risk-based capital ratio
 
13.04

 
13.40

 
13.59

 
13.80

 
13.66

 
13.04

 
13.66

SVBFG tier 1 leverage ratio
 
8.34

 
8.34

 
8.40

 
8.51

 
8.34

 
8.34

 
8.34

Bank tier 1 leverage ratio
 
7.56

 
7.59

 
7.66

 
7.81

 
7.67

 
7.56

 
7.67

Period-end loans, net of unearned income, to deposits ratio
 
52.21

 
49.52

 
49.40

 
49.73

 
51.05

 
52.21

 
51.05

Average loans, net of unearned income, to average deposits ratio
 
50.13

 
49.01

 
48.67

 
50.23

 
48.52

 
49.50

 
47.17

Book value per common share (8)
 
$
79.11

 
$
77.00

 
$
74.02

 
$
71.80

 
$
69.71

 
$
79.11

 
$
69.71

Other statistics:
 

 
 
 
 
 
 
 
 
 

 
 
Average full-time equivalent employees
 
2,433

 
2,434

 
2,372

 
2,345

 
2,303

 
2,396

 
2,225

Period-end full-time equivalent employees
 
2,438

 
2,433

 
2,380

 
2,347

 
2,311

 
2,438

 
2,311

 
(1)
Included in diluted earnings per common share and net income available to common stockholders for the three months ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017 and the year ended December 31, 2017, are tax benefits recognized associated with the adoption of Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting in the first quarter of 2017. This guidance was adopted on a prospective basis with no changes to prior period amounts. (See "Income Tax Expense" for further details).
(2)
As of the first quarter of 2017, our consolidated statements of income have been modified from prior periods’ presentation to conform to the current period presentation to reflect our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. In prior periods, our provision for unfunded credit commitments was reported separately as a component of noninterest expense.
(3)
To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most closely related GAAP measures is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.”
(4)
Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 35.0 percent. The taxable equivalent adjustments were $1.6 million for the quarter ended December 31, 2017 , $0.6 million for the quarter ended September 30, 2017 , $0.5 million for the quarter ended June 30, 2017 and $0.3 million for each of the quarters ended March 31, 2017 and December 31, 2016. The taxable equivalent adjustments were $3.1 million and $1.2 million for the years ended December 31, 2017 and December 31, 2016 , respectively.
(5)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average assets.
(6)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average SVBFG stockholders’ equity.
(7)
Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income.
(8)
Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares.
Net Interest Income and Margin

Net interest income, on a fully taxable basis, was $395.3 million for the fourth quarter of 2017, compared to $374.6 million for the third quarter of 2017. The $20.7 million increase from the third quarter of 2017 to the fourth quarter of 2017 , was attributable primarily to the following:

An increase in interest income from loans of $11.4 million to $279.8 million for the fourth quarter of 2017. The increase was reflective primarily of the impact of $0.9 billion in average loan growth and higher interest rates compared to the third quarter of 2017. Interest income from loans also includes an increase in loan fees of $1.2 million reflective of higher amortizing loan balances due to loan growth as well as prepayments. Gross loan yields, excluding loan interest recoveries and loan fees, increased two basis points to 4.32 percent, as compared to 4.30 percent for the third quarter of 2017, reflective primarily of the December 14, 2017 Federal Funds target rate increase. Loan fee yields remained consistent with the third quarter of 2017 resulting in an overall loan yield increase of two basis points, to 4.95 percent.

An increase in interest income from our fixed income investment securities in our AFS and held-to-maturity ("HTM") portfolios of $10.8 million to $122.0 million for the fourth quarter of 2017. The increase in net interest income was primarily reflective of an increase in average fixed income investments of $0.6 billion as well as the continued reinvestment of maturing fixed income investment securities at higher-yielding rates. Our overall yield from our fixed income investment securities portfolio increased 13 basis points to 2.04 percent, primarily attributable to the higher reinvestment rates compared to rates on paydowns and maturities.

A decrease in interest income from short-term investment securities of $1.4 million reflective of a $0.5 billion decrease in average interest-earning Federal Reserve cash balances to fund loan growth and investment purchases.

3



Net interest margin, on a fully taxable equivalent basis, was 3.20 percent for the fourth quarter of 2017 , compared to 3.10 percent for the third quarter of 2017 . Our net interest margin increased primarily as a result of the impact of rising interest rates on our interest-earnings assets as well as a shift in the mix to higher-yielding loans and fixed income investment securities from short-term investment securities and cash.

For the fourth quarter of 2017, approximately 91 percent, or $20.6 billion, of our average gross loans were variable-rate loans that adjust at prescribed measurement dates. Of our variable-rate loans, approximately 64 percent are tied to prime-lending rates and 36 percent are tied to LIBOR.
Investment Securities

Our investment securities portfolio consists primarily of: (i) a fixed income investments in our AFS and HTM securities portfolios, which are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives; and (ii) a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business. Our total average fixed income investment securities portfolio increased $0.6 billion, or 2.8 percent, to $23.8 billion for the quarter ended December 31, 2017. Our total period-end fixed income investment securities portfolio increased $0.1 billion , or 0.5 percent , to $23.8 billion at December 31, 2017 . The duration of our fixed income investment securities portfolio was 3.0 years and 2.7 years at December 31, 2017 and September 30, 2017 , respectively. Our period-end non-marketable and other securities increased $23.6 million to $651.1 million ( $530.6 million net of noncontrolling interests) at December 31, 2017 .

Available-for-Sale Securities

Average AFS securities were $12.1 billion for the fourth quarter of 2017 compared to $12.7 billion for the third quarter of 2017 . Period-end AFS securities were $11.1 billion at December 31, 2017 compared to $12.6 billion at September 30, 2017 . The decreases in average and period-end AFS security balances from the third quarter of 2017 to the fourth quarter of 2017 were due to $0.9 billion in portfolio paydowns, sales and maturities. In connection with our ongoing treasury and tax management objectives, we sold approximately $0.6 billion of mortgage-backed securities in our AFS portfolio resulting in $8.8 million in pre-tax net losses. The proceeds from the sales of these securities were reinvested in HTM securities. The weighted-average duration of our AFS securities portfolio was 1.8 years and 1.9 years at December 31, 2017 and September 30, 2017 , respectively.

Held-to-Maturity Securities

Average HTM securities were $11.7 billion for the fourth quarter of 2017 , compared to $10.5 billion for the third quarter of 2017 . Period-end HTM securities were $12.7 billion at December 31, 2017 , compared to $11.1 billion at September 30, 2017 . The increases in average and period-end HTM security balances from the third quarter of 2017 to the fourth quarter of 2017 were due to new purchases of $2.0 billion primarily in mortgage-backed securities as well as municipal bonds, partially offset by $0.4 billion in portfolio paydowns and maturities. The weighted-average duration of our HTM securities portfolio was 4.0 years and 3.5 years at December 31, 2017 and September 30, 2017 , respectively.

Non-Marketable and Other Securities

Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, our China joint venture bank, debt funds, private and public portfolio companies and investments in qualified affordable housing projects.
Non-marketable and other securities increased $23.6 million to $651.1 million ( $530.6 million net of noncontrolling interests) at December 31, 2017 , compared to $627.5 million ( $506.1 million net of noncontrolling interests) at September 30, 2017 . The increase was primarily attributable to new investments within our qualified affordable housing projects portfolio. Reconciliations of our non-GAAP non-marketable and other securities, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures."


4



Loans

Average loans (net of unearned income) increased by $0.8 billion to $22.4 billion for the fourth quarter of 2017 , compared to $21.6 billion for the third quarter of 2017 . Period-end loans (net of unearned income) increased by $0.9 billion to $23.1 billion at December 31, 2017 , compared to $22.2 billion at September 30, 2017 . We had healthy loan growth across all our market segments with strong growth coming from our software/internet and private equity/venture capital portfolios.

Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million increased by $0.3 billion and totaled $10.5 billion and $10.2 billion at December 31, 2017 and  September 30, 2017 , respectively, which represents 45.1 percent and 45.5 percent of total gross loans, respectively. Further details are provided under the section “Loan Concentrations."
Credit Quality

The following table provides a summary of our allowance for loan losses and our allowance for unfunded credit commitments:
 
 
Three months ended
 
Year ended
(Dollars in thousands, except ratios)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Allowance for loan losses, beginning balance
 
$
249,010

 
$
236,496

 
$
240,565

 
$
225,366

 
$
217,613

Provision for loan losses (1)
 
18,666

 
22,409

 
7,073

 
85,939

 
95,697

Gross loan charge-offs
 
(15,233
)
 
(12,338
)
 
(25,391
)
 
(66,682
)
 
(96,857
)
Loan recoveries
 
2,383

 
1,828

 
4,054

 
8,538

 
12,212

Foreign currency translation adjustments
 
198

 
615

 
(935
)
 
1,863

 
(3,299
)
Allowance for loan losses, ending balance
 
$
255,024

 
$
249,010

 
$
225,366

 
$
255,024

 
$
225,366

Allowance for unfunded credit commitments, beginning balance
 
48,172

 
47,000

 
35,924

 
45,265

 
34,415

Provision for unfunded credit commitments   (1)
 
3,576

 
1,113

 
9,381

 
6,365

 
10,982

Foreign currency translation adjustments
 
22

 
59

 
(40
)
 
140

 
(132
)
Allowance for unfunded credit commitments, ending balance (2)
 
$
51,770

 
$
48,172

 
$
45,265

 
$
51,770

 
$
45,265

Ratios and other information:
 
 
 
 
 
 
 
 
 
 
Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.32
%
 
0.40
%
 
0.14
%
 
0.37
%
 
0.48
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.27

 
0.23

 
0.52

 
0.31

 
0.53

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.23

 
0.19

 
0.44

 
0.27

 
0.46

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

 
1.12

 
1.13

 
1.10

 
1.13

Provision for credit losses   (1)
 
$
22,242

 
$
23,522

 
$
16,454

 
$
92,304

 
$
106,679

Period-end total gross loans
 
23,254,153

 
22,329,829

 
20,024,662

 
23,254,153

 
20,024,662

Average total gross loans
 
22,583,693

 
21,712,866

 
19,374,205

 
21,287,336

 
18,396,256

Allowance for loan losses for nonaccrual loans
 
41,793

 
43,824

 
37,277

 
41,793

 
37,277

Nonaccrual loans
 
119,259

 
124,672

 
118,979

 
119,259

 
118,979

 
(1)
As of the first quarter of 2017, our consolidated statements of income have been modified from prior periods’ presentation to conform to the current period's presentation to reflect our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses.”
(2)
The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”
Our allowance for loan losses increased $6.0 million to $255.0 million due primarily to increased reserves for period-end loan growth. As a percentage of total gross loans, our allowance for loan losses decreased two basis points to 1.10 percent at December 31, 2017, compared to 1.12 percent at September 30, 2017. The decrease of two basis points is reflective primarily of the overall improvement in credit quality of our performing loan portfolio and the decrease in our nonperforming loans as a percentage of total gross loans.


5



Our provision for credit losses was $22.2 million for the fourth quarter of 2017 , consisting of the following:

Our provision for loan losses of $18.7 million , which primarily reflects $10.8 million in net new specific reserves for nonaccrual loans and an $8.2 million increase in reserves for period-end loan growth, and

Our provision for unfunded credit commitments of $3.5 million, which was driven primarily by an increase of $1.1 billion in unfunded credit commitments.

Gross loan charge-offs were $15.2 million for the fourth quarter of 2017 , of which $7.9 million was not specifically reserved for at September 30, 2017. Gross loan charge-offs included $8.8 million from our software/internet loan portfolio and $3.7 million from our hardware portfolio. Charge-offs included $7.6 million from early-stage clients.

Nonaccrual loans were $119.3 million at December 31, 2017 , compared to $124.7 million at September 30, 2017 . Our nonaccrual loan balance decreased $5.4 million as a result of $11.1 million of charge-offs and $10.5 million of repayments, partially offset by $16.2 million of new nonaccrual loans. New nonaccrual loans of $16.2 million were primarily from loans in our software/internet loan portfolios.

The allowance for loan losses for nonaccrual loans decreased by $2.0 million to $41.8 million in the fourth quarter of 2017 . The decrease was due to $10.0 million of charge-offs and reserve releases, partially offset by $8.0 million of new nonaccrual loan reserves. New nonaccrual loan reserves were mostly attributable to clients in our software/internet loan portfolios.

Client Funds

Our total client funds consist of both on-balance sheet deposits and off-balance sheet client investment funds. Average total client funds were $102.4 billion for the fourth quarter of 2017 , compared to $97.3 billion for the third quarter of 2017 . Period-end total client funds were $104.6 billion at December 31, 2017 , compared to $99.1 billion at September 30, 2017 .

Average off-balance sheet client investment funds were $57.6 billion for the fourth quarter of 2017 , compared to $53.3 billion for the third quarter of 2017 . Average on-balance sheet deposits were $44.8 billion for the fourth quarter of 2017 , compared to $44.0 billion for the third quarter of 2017 . Period-end off-balance sheet client investment funds were $60.3 billion at December 31, 2017 , compared to $54.2 billion at September 30, 2017 . Period-end on-balance sheet deposits were $44.3 billion at December 31, 2017 , compared to $44.8 billion at September 30, 2017 .

The increase in our average and period-end total client funds from the third quarter of 2017 to the fourth quarter of 2017 was driven primarily by a healthy equity funding environment across all our segments, robust activities in the initial public offering ("IPO") and secondary public offering markets and strong new client acquisition. Our Life Science, early-stage Technology and China market segments were the leading portfolio contributors to the growth in our average total client funds for the fourth quarter of 2017.
Short-term Borrowings

On December 29, 2017, we borrowed a total of $1.0 billion from our overnight credit facilities to support the short-term liquidity needs of Silicon Valley Bank (the "Bank"). These borrowings were repaid, subsequent to year-end, on January 2, 2018.
Long-term Debt
On December 21, 2017, we redeemed in full the outstanding aggregate principal amount of $51.5 million of our 7.0% junior subordinated deferrable interest debentures due October 15, 2033 ("Junior Subordinated Debentures"), relating to our 7.0% cumulative trust preferred securities.
Noninterest Income

Noninterest income was $152.3 million for the fourth quarter of 2017 , compared to $158.8 million for the third quarter of 2017 . Non-GAAP noninterest income, net of noncontrolling interests was $144.5 million for the fourth quarter of 2017 , compared to $153.2 million for the third quarter of 2017 . (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures.")


6



The decrease of $6.5 million ($8.7 million net of noncontrolling interests) in noninterest income from the third quarter of 2017 to the fourth quarter of 2017 was attributable primarily to lower net gains on equity warrant assets, as well as lower net gains on investment securities driven by the net losses on the sales of fixed income investments in our AFS securities portfolio, as noted above, partially offset by increases in non-GAAP core fee income. Items impacting noninterest income for the fourth quarter of 2017 were as follows:

Gains on investment securities of $15.8 million for the fourth quarter of 2017 , compared to $15.2 million for the third quarter of 2017 . Net of noncontrolling interests, non-GAAP net gains on investment securities were $8.0 million for the fourth quarter of 2017 , compared to $9.7 million for the third quarter of 2017 . The non-GAAP net gains, net of noncontrolling interests, of $8.0 million for the fourth quarter of 2017 were driven by the following:
Gains of $6.3 million from our debt funds portfolio, related to net unrealized valuation increases in the investments held by the funds primarily driven by gains of $5.5 million related to the fund's holdings of Roku, Inc. ("Roku"), which had an IPO during the third quarter of 2017,
Gains of $3.7 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the investments held by the funds in our portfolio,
Gains of $3.6 million from our strategic and other investments, comprised primarily of realized gains from distributions from our strategic venture capital fund investments reflective of M&A activity, and
Losses of $5.6 million from our AFS securities portfolio primarily reflective of $8.8 million of net losses on the sale of approximately $0.6 billion of mortgage-backed securities as mentioned above partially offset by net gains on sales of shares from exercised warrants in public companies upon expiration of lock-up periods during the quarter.
As of December 31, 2017 , we directly or indirectly (through 4 of our consolidated managed investment funds) held investments in 275 venture capital funds, 84 companies and 4 debt funds.
The following tables provide a summary of non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three months ended December 31, 2017 and September 30, 2017 , respectively:
 
 
 
Three months ended December 31, 2017
(Dollars in thousands)
 
Managed
Funds Of
Funds
 
Managed
Direct
Venture
Funds
 
Debt Funds
 
Available-
For-Sale
Securities
 
Strategic
and Other
Investments
 
Total
GAAP gains (losses) on investment securities, net
 
$
10,516

 
$
929

 
$
6,254

 
$
(5,573
)
 
$
3,639

 
$
15,765

Less: income attributable to noncontrolling interests, including carried interest allocation
 
6,863

 
901

 

 

 

 
7,764

Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
$
3,653

 
$
28

 
$
6,254

 
$
(5,573
)
 
$
3,639

 
$
8,001

 
 
 
Three months ended September 30, 2017
(Dollars in thousands)
 
Managed
Funds Of
Funds
 
Managed
Direct
Venture
Funds
 
Debt Funds
 
Available-
For-Sale
Securities
 
Strategic
and Other
Investments
 
Total
GAAP gains (losses) on investment securities, net
 
$
8,446

 
$
729

 
$
2,445

 
$
(101
)
 
$
3,719

 
$
15,238

Less: income attributable to noncontrolling interests, including carried interest allocation
 
5,335

 
161

 

 

 

 
5,496

Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
$
3,111

 
$
568

 
$
2,445

 
$
(101
)
 
$
3,719

 
$
9,742

Net gains on equity warrant assets were $12.1 million for the fourth quarter of 2017 , compared to $24.9 million for the third quarter of 2017 . Net gains on equity warrant assets for the fourth quarter of 2017 were attributable primarily to net gains from exercises of equity warrant assets and included $4.8 million from the exercise of our Roku equity warrant assets. Net gains on equity warrant assets for the third quarter of 2017 , included $15.9 million in gains from our Roku equity warrant assets. See "Investments in Roku, Inc." below for further details.
At December 31, 2017 , we held warrants in 1,868 companies with a total fair value of $123.8 million. Warrants in 14 companies each had fair values greater than $1.0 million and collectively represented $29.1 million, or 23.5 percent, of the fair value of the total warrant portfolio at December 31, 2017 . The gains from our equity warrant

7



assets resulting from changes in valuations are currently unrealized, and the extent to which such gains (or losses) will become realized is subject to a variety of factors, including among other things, performance of the underlying portfolio companies, investor demand for IPOs, fluctuations in the underlying valuation of these companies, levels of M&A activity, and legal and contractual restrictions on our ability to sell the underlying securities.
The following table provides a summary of our net gains on equity warrant assets:
 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Equity warrant assets:
 
 
 
 
 
 
 
 
 
 
Gains on exercises, net
 
$
9,206

 
$
7,449

 
$
829

 
$
48,275

 
$
31,197

Cancellations and expirations
 
(568
)
 
(757
)
 
(470
)
 
(4,422
)
 
(3,015
)
Changes in fair value, net
 
3,485

 
18,230

 
4,280

 
10,702

 
9,710

Total net gains on equity warrant assets
 
$
12,123

 
$
24,922

 
$
4,639

 
$
54,555

 
$
37,892

Investments in Roku, Inc.

We hold, directly (through the exercise of warrants previously held by us) and indirectly (through our interests in certain fund investments), approximately 1.7 million shares of the common stock of Roku. As mentioned above, for the fourth quarter of 2017, we recognized total gains of $10.3 million from both equity warrant assets and investment securities, which was recorded in our consolidated statements of income. For the full year ended December 31, 2017, we recognized total gains of $29.8 million from both equity warrant assets and investment securities in our consolidated statements of income. As of December 31, 2017, an additional $40.5 million of unrealized gains was also recorded in equity on our balance sheet as a result of the exercise of the Roku equity warrants in early October 2017 and is reflective of the increase in Roku’s common stock from the date of exercise through it's close price of $51.78 on December 31, 2017.
Any gains (or losses), realized or unrealized, to be recorded for the first quarter of 2018 will be subject to changes in Roku’s stock price and recorded in our consolidated statements of income under new accounting standards for financial instruments (see “New Accounting Guidance” below). Additionally, the extent to which our current unrealized gains will become realized is subject to a variety of factors, including among other things, the expiration of applicable lock-up agreements, the timing of any actual sales of the securities by us, changes in the market price of the securities, and other market conditions.
Non-GAAP core fee income (foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit fees) increased $3.7 million to $106.4 million for the fourth quarter of 2017 , compared to $102.7 million for the third quarter of 2017 .
The following table provides a summary of our non-GAAP core fee income:
 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Non-GAAP core fee income:
 
 
 
 
 
 
 
 
 
 
Foreign exchange fees
 
$
33,734

 
$
29,671

 
$
27,185

 
$
115,760

 
$
104,183

Credit card fees
 
20,444

 
20,270

 
18,979

 
76,543

 
68,205

Deposit service charges
 
15,669

 
14,508

 
13,382

 
58,715

 
52,524

Client investment fees
 
18,565

 
15,563

 
8,260

 
56,136

 
32,219

Lending related fees
 
10,391

 
15,404

 
9,612

 
43,265

 
33,395

Letters of credit and standby letters of credit fees
 
7,593

 
7,306

 
7,230

 
28,544

 
25,644

Total Non-GAAP core fee income
 
$
106,396

 
$
102,722

 
$
84,648

 
$
378,963

 
$
316,170


The increase in non-GAAP core fee income from the third quarter of 2017 to the fourth quarter of 2017 was primarily the result of overall strong performance in foreign exchange and client investment fees. Foreign exchange fees increased $4.1 million driven by increased trade volumes due to the continued increase in the number of clients actively managing currency exposures. Client investment fees increased $3.0 million driven by higher

8



client investment funds balances. Offsetting these increases was a decrease of $5.0 million in lending related fees due primarily to an adjustment of $4.5 million recorded during the third quarter of 2017 related to fees earned in prior periods from unused lines of credit.
Reconciliations of our non-GAAP noninterest income, non-GAAP net gains on investment securities and non-GAAP core fee income are provided under the section “Use of Non-GAAP Financial Measures.”
Noninterest Expense

Noninterest expense was $264.0 million for the fourth quarter of 2017 , compared to $257.8 million for the third quarter of 2017 . The increase of $6.2 million in noninterest expense consisted primarily of increases in our compensation and benefits expense and professional services in the fourth quarter of 2017 compared to the third quarter of 2017. The overall increase is reflective primarily of the following:

Increase in overall total compensation and benefits expense of $3.7 million. The increase was driven primarily by $3.8 million of higher incentive compensation reflective of our strong 2017 full year performance as well as an increase of $3.7 million in other employee incentives and benefits related primarily to our warrant incentive and deferred compensation expenses. These increases were partially offset by a decrease in salaries and wages reflective primarily of the costs associated with the write-off of an internally developed software system during the third quarter of 2017, and
Increase of $2.6 million in professional services expense reflective primarily of costs associated with our global digital banking initiatives during the fourth quarter of 2017.
The following table provides a summary of our compensation and benefits expense:
 
 
Three months ended
 
Year ended
(Dollars in thousands, except employees)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017

December 31,
2016
Compensation and benefits:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
69,461

 
$
72,799

 
$
62,095

 
$
277,148

 
$
244,470

Incentive compensation plans
 
40,048

 
36,271

 
35,105

 
144,626

 
119,589

Employee stock ownership plan ("ESOP")
 
987

 
1,397

 
481

 
4,720

 
3,159

Other employee incentives and benefits (1)
 
46,494

 
42,796

 
42,179

 
179,908

 
147,052

Total compensation and benefits
 
$
156,990

 
$
153,263

 
$
139,860

 
$
606,402

 
$
514,270

Period-end full-time equivalent employees
 
2,438

 
2,433

 
2,311

 
2,438

 
2,311

Average full-time equivalent employees
 
2,433

 
2,434

 
2,303

 
2,396

 
2,225

 
(1)
Other employee incentives and benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee-related expenses.
Income Tax Expense

On December 22, 2017, the TCJ Act was signed into law. The TCJ Act amends the Internal Revenue Code to lower the federal corporate tax rate to 21 percent from the existing maximum rate of 35 percent, effective for tax years including or commencing January 1, 2018. This requires companies to re-value their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment.
Our effective tax rate was 53.5 percent for the fourth quarter of 2017 , compared to 39.6 percent for the third quarter of 2017 . Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and net income attributable to noncontrolling interests. Our effective tax rate for the full year 2017 was 42.0 percent compared to 39.5 percent for the full year 2016.

9



The increase in our effective tax rate for the fourth quarter, and full year, 2017 was due to one-time increases to tax expense of $33.8 million related to the revaluation of our deferred tax assets and $3.8 million related to investments in low income housing tax credit funds, incorporating the new federal tax rate related to the TCJ Act.
The effective tax rate for the fourth quarter, and full year, 2017 also included the recognition of tax benefits of $3.6 million and $18.0 million, respectively, due to the adoption and implementation of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, in the first quarter of 2017. The new guidance requires tax impacts from employee share-based transactions to be recognized in the provision for income taxes rather than additional paid-in-capital in stockholders' equity required under the previous guidance.
Noncontrolling Interests

Included in net income is income and expense related to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net Income Attributable to Noncontrolling Interests” in our statements of income. The following table provides a summary of net income attributable to noncontrolling interests:  
 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Net interest income (1)
 
$
(7
)
 
$
(9
)
 
$
(4
)
 
$
(33
)
 
$
(66
)
Noninterest income (1)
 
(6,730
)
 
(4,341
)
 
(4,290
)
 
(25,789
)
 
(5,434
)
Noninterest expense (1)
 
296

 
125

 
240

 
813

 
524

Carried interest allocation (2)
 
(1,013
)
 
(1,273
)
 
(122
)
 
(3,663
)
 
(2,605
)
Net income attributable to noncontrolling interests
 
$
(7,454
)
 
$
(5,498
)
 
$
(4,176
)
 
$
(28,672
)
 
$
(7,581
)
 
(1)
Represents noncontrolling interests’ share in net interest income, noninterest income and noninterest expense.
(2)
Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.
Net income attributable to noncontrolling interests was $7.5 million for the fourth quarter of 2017 , compared to $5.5 million for the third quarter of 2017 . Net income attributable to noncontrolling interests of $7.5 million for the fourth quarter of 2017 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio related to net unrealized valuation increases in the investments held by the funds during the fourth quarter of 2017.
SVBFG Stockholders’ Equity

Total SVBFG stockholders’ equity increased by $0.1 billion to $4.2 billion at December 31, 2017 , compared to $4.1 billion at September 30, 2017, due to net income of $117.2 million and an increase in additional paid-in capital of $19.9 million attributable primarily to amortization of share-based compensation and common stock issued under employee benefit plans.

Capital Ratios

Overall, our regulatory risk-based capital ratios decreased as of December 31, 2017 , compared to the same ratios as of September 30, 2017. The decreases in our risk-based capital ratios were the result of proportionally higher increases in risk-weighted assets compared to the increases in our capital during the fourth quarter of 2017. The growth in risk-weighted assets was primarily due to loan growth, higher unused commitments, and an increase in fixed income securities, partially offset by a net increase in capital during the fourth quarter of 2017. Net increase in capital during the fourth quarter of 2017 was primarily driven by net income and stock compensation, partially offset by the redemption of our Junior Subordinated Debentures during the fourth quarter of 2017 at the bank holding company level. Additionally, the decrease in capital in the Bank's capital ratios reflected a $30.0 million cash dividend paid by the Bank to our bank holding company, SVB Financial Group, during the fourth quarter of 2017. The Bank's tier 1 leverage ratio slightly decreased as of December 31, 2017, compared to September 30, 2017, due to average assets growing at a slightly higher rate during the fourth quarter of 2017 compared to capital growth.

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

We adopted two new accounting pronouncements effective on January 1, 2018: (1) Financial Instruments (ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01")) and (2) Revenue Recognition (ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09")).

Financial Instruments. The adoption of the new pronouncement resulted in the elimination of cost method accounting for equity investments and impacted a portion of our nonmarketable and other equity securities that are currently carried at cost. Beginning January 1, 2018, these equity investments are being carried at fair value rather than cost and the difference between cost and fair value at adoption date is being recorded as an adjustment to capital. This ad

10



justment will result in an increase to capital as of January 1, 2018, of approximately $100 million on a pre-tax basis. Any changes in the fair value subsequent to December 31, 2017, will be recorded as unrealized gains or losses in our consolidated statements of income. Currently, we recognize quarterly realized gains or losses from these securities carried at cost only to the extent distributed by the investee or through realized gains from sales of the securities. In addition, changes in the fair value for common stock held in our AFS securities portfolio as a result of exercises of equity warrants will be recorded as unrealized gains or losses in our consolidated statements of income. Currently, we recognize quarterly valuation changes from these equity securities as a component of accumulated other comprehensive income (loss) within our consolidated statements of stockholders' equity. Beginning January 1, 2018, the realized and unrealized gains or losses recognized on all equity securities will be reflected in our consolidated statements of income and will be reflective of changes in the estimate of fair value which will be subject to market or other conditions.
 
Revenue Recognition. The new pronouncement provides a framework for recognizing revenue from contracts with customers that is consistent across all industries. The guidance does not apply to revenue associated with financial instruments, including loans and securities, but does generally apply to contracts underlying our core fees. As a result of our assessment, we did not identify any material changes to the timing or the amounts of our revenue recognition. There will be minor changes in the timing of recognizing fund management fees in noninterest income for a portion of our SVB Capital funds as the fees will be recognized at the time of distribution which typically occurs later in the fund life.


11



Outlook for the Year Ending December 31, 2018

Our outlook for the year ending December 31, 2018 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. Except for the items noted below, we do not provide our outlook for certain items (such as gains or losses from warrants and investment securities) where the timing or financial impact are uncertain and/or subject to market or other conditions beyond our control (such as the level of IPO, M&A or general financing activity), or for potential unusual or non-recurring items. Also, as a result of the passage of the TCJ Act, we have included guidance on our expected effective tax rate. The outlook and the underlying assumptions presented below are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties, which are discussed below under the section “Forward-Looking Statements.”

For the full year ending December 31, 2018, compared to our full year 2017 results, we currently expect the following outlook: (Note that the outlook below includes: (i) the expected impact of the March 15, 2017, June 15, 2017, and December 14, 2017, increases of the target Federal Funds rate by the Federal Reserve of 25 basis points each and no assumptions about any further interest rate changes during 2018, and (ii) management updates to certain 2018 outlook metrics we previously disclosed on October 26, 2017.)
 
Current full year 2018 outlook compared to 2017 results (as of January 25, 2018)
Average loan balances
Increase at a percentage rate in the
mid-teens
Average deposit balances
Increase at a percentage rate in the
mid-single digits
Net interest income (1)
Increase at a percentage rate in the high teens
Net interest margin (1)
Between 3.35% and 3.45%
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans
Comparable to 2017 levels
Net loan charge-offs
Between 0.30% and 0.50%
of average total gross loans
Nonperforming loans as a percentage of total gross loans
Between 0.50% and 0.70%
of total gross loans
Core fee income (foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees) (2)
Increase at a percentage rate in the
 high teens
Noninterest expense (excluding expenses related to noncontrolling interests) (3) (4)
Increase at a percentage rate in the
low double digits
Effective tax rate (5)
Between 27.0% and 30.0%
 
(1)
Our outlook for net interest income and net interest margin is based primarily on management's current forecast of average deposit and loan balances and deployment of surplus cash into investment securities. Such forecasts are subject to change, and actual results may differ, based on market conditions, actual prepayment rates and other factors described under the section "Forward-Looking Statements" below.
(2)
Core fee income is a non-GAAP measure, which represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. As we are unable to quantify such line items that would be required to be included in the comparable GAAP financial measure for the future period presented without unreasonable efforts, no reconciliation for the outlook of non-GAAP core fee income to GAAP noninterest income for fiscal 2018 is included in this release, as we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. See "Use of Non-GAAP Financial Measures" at the end of this release for further information regarding the calculation and limitations of this measure.
(3)
Noninterest expense (excluding expenses related to noncontrolling interests) is a non-GAAP measure, which represents noninterest expense, but excludes expenses attributable to noncontrolling interests. As we are unable to quantify such line items that would be required to be included in the comparable GAAP financial measure for the future period presented without unreasonable efforts, no reconciliation for the outlook of non-GAAP noninterest expense (excluding expenses related to noncontrolling interests) to GAAP noninterest expense for fiscal 2018 is included in this release, as we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. See "Use of Non-GAAP Financial Measures" at the end of this release for further information regarding the calculation and limitations of this measure.
(4)
Our outlook for noninterest expense is partly based on management's current forecast of performance-based incentive compensation expenses. Such forecasts are subject to change, and actual results may differ, based on our performance relative to our internal performance targets.
(5)
Our outlook for our effective tax rate is based on management's current assumptions with respect to, among other things, the Company's earnings, state income tax levels, tax deductions and estimated performance-based compensation activity. Such forecasts are subject to change, and actual results may differ, based on variations of the expected impact of the TCJ Act and other factors described under the section "Forward-Looking Statements" below.


12



Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. Forward-looking statements are statements that are not historical facts, such as forecasts of our future financial results and condition, expectations for our operations and business, and our underlying assumptions of such forecasts and expectations. In addition, forward-looking statements generally can be identified by the use of such words as “becoming,” “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “assume,” “seek,” “expect,” “plan,” “intend,” the negative of such words or comparable terminology. In this release, including our CEO's statement and in the section “Outlook for the Year Ending December 31, 2018”, we make forward-looking statements discussing management’s expectations about, among other things, economic conditions; opportunities in the market; the outlook on our clients' performance; our financial, credit, and business performance, including potential investment gains; loan growth, loan mix and loan yields; expense levels; our expected effective tax rate; and financial results (and the components of such results) for certain quarters in, and for the full year 2018.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may not prove to be correct. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-looking statements. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among others:
 
market and economic conditions, including the interest rate environment, and the associated impact on us;
changes in the volume and credit quality of our loans as well as volatility of our levels of nonperforming assets and charge-offs;
the impact of changes in interest rates or market levels or factors affecting or affected by them, especially on our loan and investment portfolios;
changes in the levels of our loans, deposits and client investment fund balances;
changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets;
variations from our expectations as to factors impacting our cost structure;
changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity;
variations from our expectations as to factors impacting the timing and level of employee share-based transactions;
variations from our expectations as to factors impacting our estimate of our full-year effective tax rate, including the expected impact of the TCJ Act;
changes in applicable accounting standards and tax laws; and
regulatory or legal changes or their impact on us.

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

Earnings Conference Call

On January 25, 2018 , we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended December 31, 2017 . The conference call can be accessed by dialing (888) 771-4371 or (847) 585-4405, and entering the confirmation “46274763.” A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at www.svb.com. A replay of the conference call will be available beginning at approximately 5:30 p.m. (Pacific Time) on Thursday, January 25, 2018 , through 9:59 p.m. (Pacific Time) on Saturday, February 24, 2018, and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering the passcode “46274763#.” A replay of the audio webcast will also be available on www.svb.com for 12 months beginning Thursday, January 25, 2018 .


13



About SVB Financial Group

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

SVB Financial Group is the holding company for all business units and groups © 2018 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group.


14



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three months ended
 
Year ended
(Dollars in thousands, except share data)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
 
December 31,
2017
 
December 31,
2016
Interest income:


 
 
 
 
 
 
 
 
Loans

$
279,805

 
$
268,445

 
$
216,699

 
$
1,025,788

 
$
834,155

Investment securities:


 
 
 
 
 
 
 
 
Taxable

117,365

 
109,443

 
85,816

 
412,133

 
346,937

Non-taxable

3,011

 
1,172

 
541

 
5,714

 
2,234

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

4,835

 
6,211

 
4,277

 
21,505

 
10,070

Total interest income

405,016

 
385,271

 
307,333

 
1,465,140

 
1,193,396

Interest expense:


 
 
 
 
 
 
 
 
Deposits

2,458

 
2,304

 
1,627

 
8,676

 
5,611

Borrowings

8,852

 
8,993

 
9,101

 
36,095

 
37,262

Total interest expense

11,310

 
11,297

 
10,728

 
44,771

 
42,873

Net interest income

393,706

 
373,974

 
296,605

 
1,420,369

 
1,150,523

Provision for credit losses (1)

22,242

 
23,522

 
16,454

 
92,304

 
106,679

Net interest income after provision for credit losses

371,464

 
350,452

 
280,151

 
1,328,065

 
1,043,844

Noninterest income:


 
 
 
 
 
 
 
 
Gains on investment securities, net

15,765

 
15,238

 
9,976

 
64,603

 
51,740

Gains on equity warrant assets, net (2)

12,123

 
24,922

 
4,639

 
54,555

 
37,892

Foreign exchange fees

33,734

 
29,671

 
27,185

 
115,760

 
104,183

Credit card fees

20,444

 
20,270

 
18,979

 
76,543

 
68,205

Deposit service charges

15,669

 
14,508

 
13,382

 
58,715

 
52,524

Client investment fees

18,565

 
15,563

 
8,260

 
56,136

 
32,219

Lending related fees

10,391

 
15,404

 
9,612

 
43,265

 
33,395

Letters of credit and standby letters of credit fees

7,593

 
7,306

 
7,230

 
28,544

 
25,644

Other (2)

17,982

 
15,896

 
14,239

 
59,110

 
50,750

Total noninterest income

152,266

 
158,778

 
113,502

 
557,231

 
456,552

Noninterest expense:


 
 
 
 
 
 
 
 
Compensation and benefits

156,990

 
153,263

 
139,860

 
606,402

 
514,270

Professional services

35,604

 
32,987

 
27,023

 
121,935

 
94,982

Premises and equipment

18,000

 
18,937

 
17,641

 
71,753

 
65,502

Net occupancy

12,960

 
12,660

 
11,009

 
48,397

 
39,928

Business development and travel

11,065

 
10,329

 
10,053

 
41,978

 
40,130

FDIC and state assessments

8,715

 
8,359

 
8,661

 
35,069

 
30,285

Correspondent bank fees

3,206

 
3,162

 
2,988

 
12,976

 
12,457

Other

17,475

 
18,064

 
17,951

 
72,145

 
62,243

Total noninterest expense (1)

264,015

 
257,761

 
235,186

 
1,010,655

 
859,797

Income before income tax expense

259,715

 
251,469

 
158,467

 
874,641

 
640,599

Income tax expense (3)

135,051

 
97,351

 
54,825

 
355,463

 
250,333

Net income before noncontrolling interests

124,664

 
154,118

 
103,642

 
519,178

 
390,266

Net income attributable to noncontrolling interests

(7,454
)
 
(5,498
)
 
(4,176
)
 
(28,672
)
 
(7,581
)
Net income available to common stockholders (3)

$
117,210

 
$
148,620

 
$
99,466

 
$
490,506

 
$
382,685

Earnings per common share—basic (3)
 
$
2.22

 
$
2.82

 
$
1.91

 
$
9.33

 
$
7.37

Earnings per common share—diluted (3)
 
2.19

 
2.79

 
1.89

 
9.20

 
7.31

Weighted average common shares outstanding—basic
 
52,761,821

 
52,704,869

 
52,134,396

 
52,588,266

 
51,915,397

Weighted average common shares outstanding—diluted
 
53,501,851

 
53,304,988

 
52,676,578

 
53,305,899

 
52,348,957

 
(1)
Our consolidated statements of income for the three months and year ended December 31, 2016 were modified from prior periods’ presentation to conform to the current period's presentation, which reflects our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. In prior periods, our provision for unfunded credit commitments were reported separately as a component of noninterest expense.
(2)
Our consolidated statements of income for the three months and year ended December 31, 2016 were modified from prior periods’ presentation to conform to the current period's presentation, which reflects a new line item to separately disclose net gains on equity warrant assets. In prior periods, net gains on equity warrant assets were reported as a component of net gains on derivative instruments. We removed the line item "gains on derivative instruments, net" and reclassified all other gains on derivative instruments, net to other noninterest income.
(3)
Included in income tax expense, net income available to common stockholders, earnings per common share-basic and earnings for common share-diluted, for the three months and year ended December 31, 2017, are tax benefits recognized associated with the adoption of Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting in the first quarter of 2017. This guidance was adopted on a prospective basis with no change to prior period amounts. (See "Income Tax Expense" for further details).


15



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

(Dollars in thousands, except par value and share data)
 
December 31,
2017
 
September 30,
2017
 
December 31,
2016
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,923,075

 
$
3,555,571

 
$
2,545,750

Available-for-sale securities, at fair value (cost $11,131,008, $12,584,564, and $12,588,783, respectively)
 
11,120,664

 
12,603,337

 
12,620,411

Held-to-maturity securities, at cost (fair value $12,548,280, $11,023,415, and $8,376,138, respectively)
 
12,663,455

 
11,055,006

 
8,426,998

Non-marketable and other securities
 
651,053

 
627,469

 
622,552

Investment securities
 
24,435,172

 
24,285,812

 
21,669,961

Loans, net of unearned income
 
23,106,316

 
22,189,327

 
19,899,944

Allowance for loan losses
 
(255,024
)
 
(249,010
)
 
(225,366
)
Net loans
 
22,851,292

 
21,940,317

 
19,674,578

Premises and equipment, net of accumulated depreciation and amortization
 
128,682

 
122,826

 
120,683

Accrued interest receivable and other assets
 
876,246

 
849,761

 
672,688

Total assets
 
$
51,214,467

 
$
50,754,287

 
$
44,683,660

Liabilities and total equity:
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
36,655,497

 
$
36,862,021

 
$
31,975,457

Interest-bearing deposits
 
7,598,578

 
7,950,012

 
7,004,411

Total deposits
 
44,254,075

 
44,812,033

 
38,979,868

Short-term borrowings
 
1,033,730

 
4,840

 
512,668

Other liabilities
 
911,755

 
990,498

 
618,383

Long-term debt
 
695,492

 
749,618

 
795,704

Total liabilities
 
46,895,052

 
46,556,989

 
40,906,623

SVBFG stockholders’ equity:
 
 
 
 
 
 
Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding
 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized; 52,835,188 shares, 52,723,654 shares, and 52,254,074 shares outstanding, respectively
 
53

 
53

 
52

Additional paid-in capital
 
1,314,377

 
1,294,499

 
1,242,741

Retained earnings
 
2,866,837

 
2,749,627

 
2,376,331

Accumulated other comprehensive (loss) income
 
(1,472
)
 
15,634

 
23,430

Total SVBFG stockholders’ equity
 
4,179,795

 
4,059,813

 
3,642,554

Noncontrolling interests
 
139,620

 
137,485

 
134,483

Total equity
 
4,319,415

 
4,197,298

 
3,777,037

Total liabilities and total equity
 
$
51,214,467

 
$
50,754,287

 
$
44,683,660



16



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
 
 
Three months ended
 
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
(Dollars in thousands, except yield/rate and ratios)
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Interest-earning assets :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
 
$
2,736,581

 
$
4,835

 
0.70
%
 
$
3,291,908

 
$
6,211

 
0.75
%
 
$
3,809,314

 
$
4,277

 
0.45
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities: