Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 24, 2019
 
 
SVB Financial Group
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
 
000-15637
 
91-1962278
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
3003 Tasman Drive, Santa Clara, CA 95054-1191
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408) 654-7400
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.142-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

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

 







Item 2.02.
Results of Operations and Financial Condition.
On January 24, 2019, SVB Financial Group (the “Company”) announced its financial results for the fourth quarter and year ended December 31, 2018. A copy of the release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Act of 1934, except as expressly stated by specific reference in such filing.
 
Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits. 
Exhibit No.
Description
 
 
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: January 24, 2019
 
 
 
SVB FINANCIAL GROUP
 
 
 
 
 
 
 
 
By:
 
/s/ KAMRAN HUSAIN
 
 
 
 
Name:
 
Kamran Husain
 
 
 
 
Title:
 
Chief Accounting Officer and Principal Accounting Officer




Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12652604&doc=3    
3003 Tasman Drive, Santa Clara, CA 95054
 
 
 
 
 
 
 
Contact:
www.svb.com    
 
 
 
 
 
 
 
Meghan O'Leary
 
 
 
 
 
 
 
 
Investor Relations
For release at 1:00 P.M. (Pacific Time)
 
 
 
 
  
(408) 654-6364
January 24, 2019
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
NASDAQ: SIVB
 
 
 
 
 
 
  
 
SVB FINANCIAL GROUP ANNOUNCES 2018 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS

SANTA CLARA, Calif. — January 24, 2019 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the fourth quarter and year ended December 31, 2018.

Consolidated net income available to common stockholders for the fourth quarter of 2018 was $266.3 million, or $4.96 per diluted common share, compared to $274.8 million, or $5.10 per diluted common share, for the third quarter of 2018 and $117.2 million, or $2.19 per diluted common share, for the fourth quarter of 2017. Consolidated net income available to common stockholders for the year ended December 31, 2018 was $973.8 million, or $18.11 per diluted common share, compared to $490.5 million, or $9.20 per diluted common share, for the comparable 2017 period. The fourth quarter, and full year, 2018 results included $8.5 million and $9.1 million, respectively, in noninterest expense consisting primarily of legal and consulting fees associated with the acquisition of Leerink Holdings LLC, now SVB Leerink Holdings LLC ("SVB Leerink"), which closed on January 4, 2019.

"Our fourth quarter performance represented a strong close to an outstanding year, during which we delivered double digit balance sheet growth, increased revenues by more than 30 percent and nearly doubled net income" said Greg Becker, President and CEO of SVB Financial Group. "Despite broader market volatility and uncertainty, we believe the current health and historical resilience of our clients; our investments in client experience, employee enablement and process transformation; and our continued effective execution of growth initiatives across the business will enable us to deliver strong performance in 2019."

Highlights of our fourth quarter 2018 results (compared to third quarter 2018, unless otherwise noted) included:
Average loan balances of $27.5 billion, an increase of $1.2 billion (or 4.4 percent).
Period-end loan balances of $28.3 billion, an increase of $0.8 billion (or 3.1 percent).
Average fixed income investment securities of $24.5 billion, a decrease of $1.0 billion (or 4.0 percent).
Period-end fixed income investment securities of $23.3 billion, a decrease of $1.7 billion (or 6.8 percent).
Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $5.5 billion (or 4.3 percent) to $134.1 billion.
Period-end total client funds increased $4.6 billion (or 3.5 percent) to $135.3 billion.
Net interest income (fully taxable equivalent basis) of $517.4 million, an increase of $21.3 million (or 4.3 percent).
Provision for credit losses of $13.6 million, compared to $17.2 million.
Net loan charge-offs of $13.9 million, or 20 basis points of average total gross loans (annualized), compared to $20.0 million, or 30 basis points.
Net gains on investment securities, of $10.7 million, compared to $32.2 million. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $1.8 million, compared to $25.6 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Net gains on equity warrant assets of $16.7 million, compared to $34.1 million.
Noninterest income of $186.7 million, a decrease of $23.4 million (or 11.1 percent). Non-GAAP core fee income increased $14.3 million (or 10.9 percent) to $146.0 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Noninterest expense of $307.6 million, a decrease of $1.8 million (or 0.6 percent).
Effective tax rate of 28.3 percent compared to 25.8 percent.
Repurchase and retirement of 715,207 shares of our common stock totaling $147.1 million.





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

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
4.96

 
$
5.10

 
$
4.42

 
$
3.63

 
$
2.19

 
$
18.11

 
$
9.20

Net income available to common stockholders
 
266.3

 
274.8

 
237.8

 
195.0

 
117.2

 
973.8

 
490.5

Net interest income
 
514.5

 
493.2

 
466.4

 
419.9

 
393.7

 
1,894.0

 
1,420.4

Provision for credit losses
 
13.6

 
17.2

 
29.1

 
28.0

 
22.2

 
87.9

 
92.3

Noninterest income
 
186.7

 
210.1

 
192.7

 
155.5

 
152.3

 
745.0

 
557.2

Noninterest expense
 
307.6

 
309.4

 
305.7

 
265.4

 
264.0

 
1,188.2

 
1,010.7

Non-GAAP core fee income (1)
 
146.0

 
131.7

 
123.1

 
115.0

 
106.4

 
515.9

 
379.0

Non-GAAP noninterest income, net of noncontrolling interests (1)
 
177.9

 
203.4

 
183.2

 
142.5

 
144.5

 
707.0

 
527.8

Non-GAAP noninterest expense, net of noncontrolling interests (1)
 
307.4

 
309.3

 
305.5

 
265.4

 
263.7

 
1,187.7

 
1,009.8

Fully taxable equivalent:
 

 
 
 
 
 
 
 
 
 


 
 
Net interest income (2)
 
$
517.4

 
$
496.1

 
$
468.5

 
$
421.2

 
$
395.3

 
$
1,903.2

 
$
1,423.4

Net interest margin
 
3.69
%
 
3.62
%
 
3.59
%
 
3.38
%
 
3.20
%
 
3.57
%
 
3.05
%
Balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average total assets
 
$
57,592.3

 
$
56,465.0

 
$
54,420.6

 
$
52,367.2

 
$
50,799.4

 
$
55,229.1

 
$
48,380.3

Average loans, net of unearned income
 
27,477.0

 
26,331.4

 
24,858.5

 
23,807.2

 
22,444.1

 
25,630.5

 
21,159.4

Average available-for-sale securities
 
8,793.7

 
9,589.9

 
10,048.4

 
10,748.5

 
12,081.0

 
9,789.2

 
12,424.1

Average held-to-maturity securities
 
15,691.1

 
15,916.7

 
15,112.2

 
13,234.3

 
11,703.0

 
14,997.8

 
9,984.6

Average noninterest-bearing demand deposits
 
40,106.9

 
40,625.8

 
39,814.5

 
37,950.8

 
36,962.0

 
39,633.1

 
35,235.2

Average interest-bearing deposits
 
8,980.3

 
8,466.5

 
8,157.5

 
8,155.3

 
7,811.4

 
8,442.2

 
7,509.9

Average total deposits
 
49,087.2

 
49,092.2

 
47,972.0

 
46,106.1

 
44,773.4

 
48,075.3

 
42,745.1

Average short-term borrowings
 
1,580.0

 
745.2

 
121.1

 
112.1

 
75.2

 
643.9

 
48.5

Average long-term debt
 
696.3

 
696.1

 
695.8

 
695.6

 
743.2

 
695.9

 
766.9

Period-end total assets
 
56,928.0

 
58,139.7

 
55,867.7

 
53,500.8

 
51,214.5

 
56,928.0

 
51,214.5

Period-end loans, net of unearned income
 
28,338.3

 
27,494.9

 
25,996.2

 
24,587.9

 
23,106.3

 
28,338.3

 
23,106.3

Period-end available-for-sale securities
 
7,790.0

 
9,087.6

 
9,593.4

 
10,080.4

 
11,120.7

 
7,790.0

 
11,120.7

Period-end held-to-maturity securities
 
15,487.4

 
15,899.7

 
15,898.3

 
14,548.9

 
12,663.5

 
15,487.4

 
12,663.5

Period-end non-marketable and other equity securities
 
941.1

 
896.2

 
852.5

 
824.9

 
651.1

 
941.1

 
651.1

Period-end noninterest-bearing demand deposits
 
39,103.4

 
40,473.8

 
40,593.3

 
37,515.4

 
36,655.5

 
39,103.4

 
36,655.5

Period-end interest-bearing deposits
 
10,225.5

 
8,122.3

 
8,294.0

 
8,421.2

 
7,598.6

 
10,225.5

 
7,598.6

Period-end total deposits
 
49,328.9

 
48,596.1

 
48,887.3

 
45,936.5

 
44,254.1

 
49,328.9

 
44,254.1

Period-end short-term borrowings
 
631.4

 
2,631.3

 
417.2

 
1,102.1

 
1,033.7

 
631.4

 
1,033.7

Period-end long-term debt
 
696.5

 
696.2

 
696.0

 
695.7

 
695.5

 
696.5

 
695.5

Off-balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average client investment funds
 
$
85,038.8

 
$
79,560.8

 
$
71,311.5

 
$
64,377.7

 
$
57,589.1

 
$
75,072.2

 
$
51,525.5

Period-end client investment funds
 
85,983.8

 
82,085.0

 
75,773.7

 
67,739.2

 
60,329.7

 
85,983.8

 
60,329.7

Total unfunded credit commitments
 
18,913.0

 
18,539.5

 
18,728.4

 
17,170.8

 
17,462.5

 
18,913.0

 
17,462.5

Earnings ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Return on average assets  (annualized) (3)
 
1.83
%
 
1.93
%
 
1.75
%
 
1.51
%
 
0.92
%
 
1.76
%
 
1.01
%
Return on average SVBFG stockholders’ equity (annualized)(4)
 
20.61

 
22.46

 
20.82

 
18.12

 
11.09

 
20.57

 
12.38

Asset quality ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Allowance for loan losses as a % of total gross loans
 
0.99
%
 
1.03
%
 
1.10
%
 
1.11
%
 
1.10
%
 
0.99
%
 
1.10
%
Allowance for loan losses for performing loans as a % of total gross performing loans
 
0.86

 
0.86

 
0.90

 
0.93

 
0.92

 
0.86

 
0.92


2



Gross loan charge-offs as a % of average total gross loans (annualized)
 
0.28

 
0.33

 
0.25

 
0.18

 
0.27

 
0.26

 
0.31

Net loan charge-offs as a % of average total gross loans (annualized)
 
0.20

 
0.30

 
0.22

 
0.15

 
0.23

 
0.22

 
0.27

Other ratios:
 

 
 
 
 
 
 
 
 
 

 
 
GAAP operating efficiency ratio (5)
 
43.87
%
 
44.00
%
 
46.39
%
 
46.13
%
 
48.36
%
 
45.02
%
 
51.11
%
Non-GAAP operating efficiency ratio (1)
 
44.22

 
44.22

 
46.88

 
47.09

 
48.85

 
45.50

 
51.76

Non-GAAP core operating efficiency ratio (1)
 
45.66

 
48.58

 
50.62

 
48.51

 
50.96

 
48.27

 
54.38

SVBFG CET 1 risk-based capital ratio
 
13.41

 
13.28

 
12.92

 
12.87

 
12.78

 
13.41

 
12.78

Bank CET 1 risk-based capital ratio
 
12.41

 
11.98

 
11.76

 
11.90

 
12.06

 
12.41

 
12.06

SVBFG total risk-based capital ratio
 
14.45

 
14.34

 
14.03

 
13.99

 
13.96

 
14.45

 
13.96

Bank total risk-based capital ratio
 
13.32

 
12.91

 
12.72

 
12.88

 
13.04

 
13.32

 
13.04

SVBFG tier 1 leverage ratio
 
9.06

 
8.99

 
8.81

 
8.67

 
8.34

 
9.06

 
8.34

Bank tier 1 leverage ratio
 
8.10

 
7.82

 
7.72

 
7.69

 
7.56

 
8.10

 
7.56

Period-end loans, net of unearned income, to deposits ratio
 
57.45

 
56.58

 
53.18

 
53.53

 
52.21

 
57.45

 
52.21

Average loans, net of unearned income, to average deposits ratio
 
55.98

 
53.64

 
51.82

 
51.64

 
50.13

 
53.31

 
49.50

Book value per common share (6)
 
$
97.29

 
$
92.48

 
$
87.53

 
$
83.43

 
$
79.11

 
$
97.29

 
$
79.11

Other statistics:
 

 
 
 
 
 
 
 
 
 

 
 
Average full-time equivalent ("FTE") employees
 
2,873

 
2,778

 
2,591

 
2,498

 
2,433

 
2,685

 
2,396

Period-end full-time equivalent ("FTE") employees
 
2,900

 
2,836

 
2,626

 
2,512

 
2,438

 
2,900

 
2,438

 
(1)
To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most closely related GAAP measures is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.”
(2)
Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21.0 percent for 2018 and 35.0 percent for 2017. The taxable equivalent adjustments were $3.0 million for the quarter ended December 31, 2018, $2.9 million for the quarter ended September 30, 2018, $2.0 million for the quarter ended June 30, 2018, $1.4 million for the quarter ended March 31, 2018 and $1.6 million for the quarter ended December 31, 2017. The taxable equivalent adjustments were $9.2 million and $3.1 million for the years ended December 31, 2018 and December 31, 2017, respectively.
(3)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets.
(4)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVB Financial Group ("SVBFG") stockholders’ equity.
(5)
Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income.
(6)
Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares.
Net Interest Income and Margin

Net interest income, on a fully taxable equivalent basis, was $517.4 million for the fourth quarter of 2018, compared to $496.1 million for the third quarter of 2018. The $21.3 million increase from the third quarter of 2018 to the fourth quarter of 2018, was attributable primarily to the following:

An increase in interest income from loans of $26.4 million to $378.8 million for the fourth quarter of 2018. The increase was reflective primarily of the impact of $1.2 billion in average loan growth, higher interest rates compared to the third quarter of 2018, and higher loan fee income. Overall loan yields increased 16 basis points, to 5.47 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased 15 basis points to 4.96 percent, as compared to 4.81 percent for the third quarter of 2018, reflective primarily of the full-quarter effect of the Federal Funds target rate increase in September 2018 as well as higher LIBOR rates. Benefits from the rate increases on our gross loan yields in the fourth quarter of 2018 continue to be impacted by pricing competition. Loan fee yields increased 1 basis point, or $2.7 million, primarily due to higher fee income from increased levels of loan prepayments in the quarter,

An increase of $7.0 million in interest income from short-term investment securities reflective primarily of a $1.1 billion increase in average interest-earning Federal Reserve cash balances and higher market rates,

A decrease in interest income from our fixed income investment securities of $3.7 million to $152.0 million for the fourth quarter of 2018. The decrease was reflective of lower average fixed income securities of $1.0 billion

3



offset by higher spreads from the reinvestment of maturing fixed income investment securities at higher-yielding rates throughout 2018. Our overall yield from our fixed income securities portfolio increased 4 basis points to 2.46 percent, primarily attributable to the higher reinvestment rates, and

An increase in interest expense of $8.3 million, due to an increase in our average short-term borrowings balance during the fourth quarter of 2018, due primarily to fund loan growth as a result of the timing of loan funding and deposit activities towards the end of the third quarter of 2018, as well as an increase in interest paid on our interest-bearing money market deposits due to market rate adjustments.

Net interest margin, on a fully taxable equivalent basis, was 3.69 percent for the fourth quarter of 2018, compared to 3.62 percent for the third quarter of 2018. Our net interest margin increased primarily as a result of the impact of rising interest rates on gross loans and fixed income investment securities yields, offset by higher short-term borrowings to primarily fund loan growth and increased rates paid on our interest-bearing deposit accounts.

For the fourth quarter of 2018, approximately 92.6 percent, or $25.6 billion, of our average gross loans were variable-rate loans that adjust at prescribed measurement dates. Of our variable-rate loans, approximately 67.8 percent are tied to prime-lending rates and 32.2 percent are tied to LIBOR.
Investment Securities

Our investment securities portfolio is comprised of: (i) our available-for-sale ("AFS") and held-to-maturity ("HTM") securities portfolios, each consisting of fixed income investments which are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives; and (ii) our non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised. Our total average fixed income investment securities portfolio decreased $1.0 billion, or 4.0 percent, to $24.5 billion for the quarter ended December 31, 2018. Our total period-end fixed income investment securities portfolio decreased $1.7 billion, or 6.8 percent, to $23.3 billion at December 31, 2018. The weighted-average duration of our fixed income investment securities portfolio was 3.8 years at December 31, 2018, and 3.9 years at September 30, 2018. Our period-end non-marketable and other equity securities portfolio increased $44.9 million to $941.1 million ($806.1 million net of noncontrolling interests) at December 31, 2018.

Available-for-Sale Securities

Average AFS securities were $8.8 billion for the fourth quarter of 2018 compared to $9.6 billion for the third quarter of 2018. Period-end AFS securities were $7.8 billion at December 31, 2018 compared to $9.1 billion at September 30, 2018. The decreases in average and period-end AFS security balances from the third quarter of 2018 to the fourth quarter of 2018 were due to $0.9 billion in portfolio pay downs and maturities during the fourth quarter of 2018 and the sale of $0.5 billion of AFS securities comprised of U.S. Treasury and agency-backed mortgage securities during the quarter. The weighted-average duration of our AFS securities portfolio was 2.1 years at both December 31, 2018 and September 30, 2018.

Held-to-Maturity Securities

Average HTM securities were $15.7 billion for the fourth quarter of 2018, compared to $15.9 billion for the third quarter of 2018. Period-end HTM securities were $15.5 billion at December 31, 2018 compared to $15.9 billion and September 30, 2018. The decreases in average and period-end HTM security balances from the third quarter of 2018 to the fourth quarter of 2018 were primarily due to $0.4 billion in portfolio pay downs and maturities during the fourth quarter of 2018. The weighted-average duration of our HTM securities portfolio was 4.7 years at December 31, 2018 and 4.9 years at September 30, 2018.

Non-Marketable and Other Equity Securities

Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, our China joint venture bank, debt funds, private and public portfolio companies and investments in qualified affordable housing projects.
Our non-marketable and other equity securities portfolio increased $44.9 million to $941.1 million ($806.1 million net of noncontrolling interests) at December 31, 2018, compared to $896.2 million ($765.3 million net of noncontrolling

4



interests) at September 30, 2018. The increase was primarily attributable to new investments in qualified affordable housing projects. Reconciliations of our non-GAAP non-marketable and other equity securities, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures."

Loans

Average loans (net of unearned income) increased by $1.2 billion to $27.5 billion for the fourth quarter of 2018, compared to $26.3 billion for the third quarter of 2018. Period-end loans (net of unearned income) increased by $0.8 billion to $28.3 billion at December 31, 2018, compared to $27.5 billion at September 30, 2018. Average and period-end loan growth came primarily from our private equity/venture capital portfolio as well as from our life science/healthcare and private bank portfolios.

Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million increased by $0.6 billion and totaled $14.5 billion or 50.8 percent of total gross loans at December 31, 2018 and $13.9 billion or 50.3 percent of total gross loans at September 30, 2018. 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,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Allowance for loan losses, beginning balance
 
$
285,713

 
$
286,709

 
$
249,010

 
$
255,024

 
$
225,366

Provision for loan losses
 
10,204

 
19,436

 
18,666

 
84,292

 
85,939

Gross loan charge-offs
 
(19,697
)
 
(22,205
)
 
(15,233
)
 
(67,917
)
 
(66,682
)
Loan recoveries
 
5,758

 
2,164

 
2,383

 
11,636

 
8,538

Foreign currency translation adjustments
 
(1,075
)
 
(391
)
 
198

 
(2,132
)
 
1,863

Allowance for loan losses, ending balance
 
$
280,903

 
$
285,713

 
$
255,024

 
$
280,903

 
$
255,024

Allowance for unfunded credit commitments, beginning balance
 
51,808

 
54,104

 
48,172

 
51,770

 
45,265

Provision for (reduction of) unfunded credit commitments
 
3,440

 
(2,262
)
 
3,576

 
3,578

 
6,365

Foreign currency translation adjustments
 
(65
)
 
(34
)
 
22

 
(165
)
 
140

Allowance for unfunded credit commitments, ending balance (1)
 
$
55,183

 
$
51,808

 
$
51,770

 
$
55,183

 
$
51,770

Ratios and other information:
 
 
 
 
 
 
 
 
 
 
Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.14
%
 
0.28
%
 
0.32
%
 
0.30
%
 
0.37
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.28

 
0.33

 
0.27

 
0.26

 
0.31

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.20

 
0.30

 
0.23

 
0.22

 
0.27

Allowance for loan losses as a percentage of period-end total gross loans
 
0.99

 
1.03

 
1.10

 
0.99

 
1.10

Provision for credit losses
 
$
13,644

 
$
17,174

 
$
22,242

 
$
87,870

 
$
92,304

Period-end total gross loans
 
28,511,312

 
27,668,829

 
23,254,153

 
28,511,312

 
23,254,153

Average total gross loans
 
27,646,940

 
26,497,171

 
22,583,693

 
25,790,949

 
21,287,336

Allowance for loan losses for nonaccrual loans
 
37,941

 
49,992

 
41,793

 
37,941

 
41,793

Nonaccrual loans
 
94,142

 
115,162

 
119,259

 
94,142

 
119,259

 
(1)
The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”
Our allowance for loan losses decreased $4.8 million to $280.9 million due primarily to a decrease in reserves for nonaccrual loans of $12.1 million, offset by a net increase in our performing reserves of $7.2 million. The net increase in our performing reserves consisted primarily of an increase in reserves reflective of $0.8 billion in period-end loan growth. As a percentage of total gross loans, our allowance for loan losses decreased four basis points to 0.99 percent

5



at December 31, 2018, compared to 1.03 percent at September 30, 2018. The four basis point decrease was reflective of the decrease in nonaccrual loans as a percentage of our overall loan portfolio.

Our provision for credit losses was $13.6 million for the fourth quarter of 2018, consisting of the following:
A provision for loan losses of $10.2 million, which reflects primarily an increase of $7.2 million in additional reserves for period-end loan growth, $5.0 million in net new specific reserves for nonaccrual loans and $2.7 million for charge-offs not specifically reserved for, partially offset by a decrease of $5.8 million from loan recoveries, and
A provision for unfunded credit commitments of $3.4 million, driven primarily by growth in unfunded credit commitments of $0.4 billion.
Gross loan charge-offs were $19.7 million for the fourth quarter of 2018, of which $2.7 million was not specifically reserved for at September 30, 2018. Gross loan charge-offs included $15.9 million from our software/internet loan portfolio and $3.7 million from our life science/healthcare loan portfolio. Software/internet loan portfolio charge-offs consisted primarily of $5.0 million from one early-stage client and $6.1 million from one mid-stage client.

Nonaccrual loans were $94.1 million at December 31, 2018, compared to $115.2 million at September 30, 2018. Our nonaccrual loan balance decreased $21.1 million primarily as a result of $19.1 million in charge-offs and $18.1 million in repayments, partially offset by $16.1 million in new nonaccrual loans. Charge-offs of $11.1 million were attributable to two clients in our software/internet loan portfolio, as discussed above. New nonaccrual loans of $16.1 million were primarily from loans in our software/internet and life science/healthcare loan portfolios. Nonaccrual loans as a percentage of total gross loans decreased to 0.34 percent for the fourth quarter of 2018 compared to 0.42 percent for the third quarter of 2018.

The allowance for loan losses for nonaccrual loans decreased $12.1 million to $37.9 million in the fourth quarter of 2018. The decrease was due to $17.0 million of charge-offs and $7.5 million in repayments, offset by new nonaccrual loan reserves of $12.4 million.

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 $134.1 billion for the fourth quarter of 2018, compared to $128.7 billion for the third quarter of 2018. Period-end total client funds were $135.3 billion at December 31, 2018, compared to $130.7 billion at September 30, 2018.

Average off-balance sheet client investment funds were $85.0 billion for the fourth quarter of 2018, compared to $79.6 billion for the third quarter of 2018. Average on-balance sheet deposits were $49.1 billion for both the fourth quarter of 2018 and the third quarter of 2018. Period-end off-balance sheet client investment funds were $86.0 billion at December 31, 2018, compared to $82.1 billion at September 30, 2018. Period-end on-balance sheet deposits were $49.3 billion at December 31, 2018, compared to $48.6 billion at September 30, 2018.

The increases in our average and period-end total client funds from the third quarter of 2018 to the fourth quarter of 2018 were reflective primarily of increased balances in our off-balance sheet client investment funds driven primarily by client fund growth across all portfolio segments, with our Life Science and Technology client portfolios as leading contributors, attributable primarily to an equity funding environment that has remained strong, robust activities in the initial public offering ("IPO") and secondary public offering markets as well as continued healthy new client acquisition.
While overall total client funds increased, average on-balance sheet deposits remained relatively flat driven by distribution activities from our China PES client portfolio as well as fund allocation off-balance sheet by our Growth and Corporate Finance client portfolios, partially offset by growth in deposits by our Technology and Life Science portfolio segments driven primarily by recent equity funding activities and new client acquisition. In addition, we saw a continued shift in the mix of our on-balance sheet deposits from noninterest-bearing demand deposits to interest-bearing deposits.

6



Short-term Borrowings

Period-end short-term borrowings decreased $2.0 billion, to $0.6 billion for the fourth quarter of 2018 compared to $2.6 billion for the third quarter of 2018, reflective of the repayment of $2.0 billion in outstanding borrowings during the fourth quarter of 2018.
Noninterest Income

Noninterest income was $186.7 million for the fourth quarter of 2018, compared to $210.1 million for the third quarter of 2018. Non-GAAP noninterest income, net of noncontrolling interests was $177.9 million for the fourth quarter of 2018, compared to $203.4 million for the third quarter of 2018. (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures.")

The decrease of $23.4 million ($25.5 million net of noncontrolling interests) in noninterest income from the third quarter of 2018 to the fourth quarter of 2018 was attributable primarily to lower net gains on investment securities and equity warrant assets partially offset by higher non-GAAP core fee income. Items impacting noninterest income for the fourth quarter of 2018 were as follows:

Gains on investment securities of $10.7 million for the fourth quarter of 2018, compared to $32.2 million for the third quarter of 2018. Net of noncontrolling interests, non-GAAP net gains on investment securities were $1.8 million for the fourth quarter of 2018, compared to net gains of $25.6 million for the third quarter of 2018. Non-GAAP net gains, net of noncontrolling interests, of $1.8 million for the fourth quarter of 2018 were driven by the following:
Gains of $7.4 million from our managed funds of funds portfolio, related primarily to unrealized valuation increases in private company investments, partially offset by unrealized losses in public company investments held by the funds in the portfolio, and
Gains of $4.2 million from our managed direct venture funds portfolio, related primarily to net unrealized valuation increases in private company investments held by the funds in the portfolio, offset by
Losses of $7.4 million from our public equity securities portfolio primarily attributable to $5.2 million in unrealized losses related to a decline in the stock price of one company that had an IPO during the third quarter of 2018, and
Losses of $2.4 million from our strategic and other investments, comprised primarily of losses on the write-off of one direct equity investment partially offset by net unrealized valuation increases in our strategic venture capital 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, 2018 and September 30, 2018, respectively:
 
 
Three months ended December 31, 2018
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Sales of AFS Debt Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
Total
GAAP gains (losses) on investment securities, net
 
$
12,466

 
$
8,125

 
$
(7,388
)
 
$
(740
)
 
$
641

 
$
(2,375
)
 
$
10,729

Less: income attributable to noncontrolling interests, including carried interest allocation
 
5,034

 
3,931

 

 

 

 

 
8,965

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
7,432

 
$
4,194

 
$
(7,388
)
 
$
(740
)
 
$
641

 
$
(2,375
)
 
$
1,764


 
 
Three months ended September 30, 2018
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Sales of AFS Debt Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
Total
GAAP gains on investment securities, net
 
$
12,949

 
$
1,863

 
$
4,372

 
$

 
$
1,473

 
$
11,536

 
$
32,193

Less: income attributable to noncontrolling interests, including carried interest allocation
 
5,914

 
727

 

 

 

 

 
6,641

Non-GAAP gains on investment securities, net of noncontrolling interests
 
$
7,035

 
$
1,136

 
$
4,372

 
$

 
$
1,473

 
$
11,536

 
$
25,552


7




Net gains on equity warrant assets were $16.7 million for the fourth quarter of 2018, compared to $34.1 million for the third quarter of 2018. Net gains on equity warrant assets for the fourth quarter of 2018 were attributable primarily to $14.5 million of valuation increases in our private company warrant portfolio driven by healthy funding rounds and net gains from exercises of $5.1 million of equity warrant assets driven by M&A and IPO activity.
 
At December 31, 2018, we held warrants in 2,095 companies with a total fair value of $149.2 million. Warrants in 18 companies each had fair values greater than $1.0 million and collectively represented $46.9 million, or 31.4 percent, of the fair value of the total warrant portfolio at December 31, 2018
The following table provides a summary of our net gains on equity warrant assets:
 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Equity warrant assets:
 
 
 
 
 
 
 
 
 
 
Gains on exercises, net
 
$
5,102

 
$
18,287

 
$
9,206

 
$
58,186

 
$
48,275

Cancellations and expirations
 
(2,860
)
 
(1,432
)
 
(568
)
 
(5,964
)
 
(4,422
)
Changes in fair value, net
 
14,507

 
17,286

 
3,485

 
36,920

 
10,702

Total net gains on equity warrant assets
 
$
16,749

 
$
34,141

 
$
12,123

 
$
89,142

 
$
54,555

The gains (or losses) from investment securities from our nonmarketable and other equity securities portfolio as well as our equity warrant assets resulting from changes in valuations (fair values) 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.
Non-GAAP core fee income (foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit and standby letters of credit fees) increased $14.3 million to $146.0 million for the fourth quarter of 2018, compared to $131.7 million for the third quarter of 2018.
The following table provides a summary of our non-GAAP core fee income:
 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Non-GAAP core fee income:
 
 
 
 
 
 
 
 
 
 
Foreign exchange fees
 
$
38,252

 
$
32,656

 
$
33,734

 
$
138,812

 
$
115,760

Credit card fees
 
25,333

 
24,121

 
20,444

 
94,072

 
76,543

Deposit service charges
 
20,016

 
19,588

 
15,669

 
76,097

 
58,715

Client investment fees
 
41,768

 
36,265

 
18,565

 
130,360

 
56,136

Lending related fees
 
11,011

 
10,675

 
10,391

 
41,949

 
43,265

Letters of credit and standby letters of credit fees
 
9,662

 
8,409

 
7,593

 
34,600

 
28,544

Total Non-GAAP core fee income
 
$
146,042

 
$
131,714

 
$
106,396

 
$
515,890

 
$
378,963


We saw an increase in non-GAAP core fee income from the third quarter of 2018 to the fourth quarter of 2018 from all core fee areas with strong performance in foreign exchange fees and client investment fees. The increase in foreign exchange fees of $5.6 million was primarily driven by the increase in the weighted average spread attributable to increases in volatility in the currency market during the fourth quarter of 2018. Client investment fees increased $5.5 million driven by higher fees from our off-balance sheet client investment fund products due to increases in client investment fund balances as well as higher market rates.
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.”

8



Noninterest Expense

Noninterest expense was $307.6 million for the fourth quarter of 2018, compared to $309.4 million for the third quarter of 2018. The decrease of $1.8 million in noninterest expense consisted primarily of a decrease in our total compensation and benefits expense offset by increased professional services expenses in the fourth quarter of 2018 compared to the third quarter of 2018.

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

December 31,
2017
Compensation and benefits:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
90,139

 
$
84,962

 
$
69,461

 
$
324,971

 
$
277,148

Incentive compensation plans
 
50,478

 
55,531

 
40,048

 
200,871

 
144,626

Employee stock ownership plan ("ESOP")
 
1,438

 
1,844

 
987

 
6,435

 
4,720

Other employee incentives and benefits (1)
 
41,727

 
53,100

 
46,494

 
194,703

 
179,908

Total compensation and benefits
 
$
183,782

 
$
195,437

 
$
156,990

 
$
726,980

 
$
606,402

Period-end full-time equivalent employees
 
2,900

 
2,836

 
2,438

 
2,900

 
2,438

Average full-time equivalent employees
 
2,873

 
2,778

 
2,433

 
2,685

 
2,396

 
(1)
Other employee incentives and benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant incentive and retention plans, agency fees and other employee-related expenses.
The $11.7 million decrease in total compensation and benefits expense consists primarily of the following:

An increase of $5.2 million in salaries and wages reflective primarily of an increase in the number of average full-time equivalent employees ("FTE") by 95 to 2,873 FTEs for the fourth quarter of 2018,
A decrease of $5.1 million in incentive compensation expense reflective primarily of the change in number of period-end, bonus-eligible FTE, and
A decrease of $11.4 million in other employee incentives and benefits due primarily from a $5.9 million decrease in our deferred compensation plan related to the decline in market valuations in the underlying investment securities in the plan and a $4.1 million decrease in warrant incentive plan expense due to lower warrant gains on equity warrant assets in the fourth quarter of 2018 compared to the third quarter of 2018.

The $10.2 million increase in professional services expense is reflective primarily of increased legal and consulting fees of $8.2 million associated with the acquisition of SVB Leerink.
Overall noninterest expense for the fourth quarter, and full year, 2018 included $8.5 million and $9.1 million, respectively, associated with the acquisition of SVB Leerink and consisted primarily of legal and consulting fees included in our professional services expense.
Income Tax Expense
Our effective tax rate was 28.3 percent for the fourth quarter of 2018, compared to 25.8 percent for the third quarter of 2018. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and net income attributable to noncontrolling interests. Our effective tax rate for the full year 2018 was 26.5 percent compared to 42.0 percent for the full year 2017.
The increase in our effective tax rate for the fourth quarter of 2018 is due primarily to the recognition of tax benefits of $4.6 million in the third quarter of 2018 related primarily to Federal return-to-provision adjustments as well as a $2.7 million decrease in excess tax benefits from share-based compensation in the fourth quarter of 2018, resulting from a decrease in stock option exercises.
The decrease in our effective tax rate for the full year 2018 is primarily due to the lower Federal tax rate related to the Tax Cuts and Jobs Act (the "TCJ Act"), effective January 1, 2018.


9



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,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Net interest income (1)
 
$
(1
)
 
$
(10
)
 
$
(7
)
 
$
(30
)
 
$
(33
)
Noninterest income (1)
 
(2,215
)
 
(2,749
)
 
(6,730
)
 
(22,342
)
 
(25,789
)
Noninterest expense (1)
 
173

 
154

 
296

 
522

 
813

Carried interest allocation (2)
 
(6,624
)
 
(3,943
)
 
(1,013
)
 
(15,658
)
 
(3,663
)
Net income attributable to noncontrolling interests
 
$
(8,667
)
 
$
(6,548
)
 
$
(7,454
)
 
$
(37,508
)
 
$
(28,672
)
 
(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 $8.7 million for the fourth quarter of 2018, compared to $6.5 million for the third quarter of 2018. Net income attributable to noncontrolling interests of $8.7 million for the fourth quarter of 2018 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio, related primarily to net unrealized valuation increases for private company investments held by the funds in the portfolio.
SVBFG Stockholders’ Equity

Total SVBFG stockholders’ equity increased by $0.2 billion to $5.1 billion at December 31, 2018, compared to $4.9 billion at September 30, 2018, due to net income of $266.3 million and a decrease in accumulated other comprehensive loss of $54.3 million reflective primarily of an increase in the fair value of our AFS securities portfolio driven by decreases in period-end market interest rates. The increases were partially offset by a $147.1 million decrease in SVBFG stockholders' equity related to the repurchases of our outstanding common stock. Refer to the "Stock Repurchase Program" section below for further details.

Stock Repurchase Program
On November 13, 2018, SVB Financial Group ("the Company") announced a new program to repurchase up to $500 million of our outstanding common stock. As of December 31, 2018, we repurchased and retired 715,207 shares of our common stock totaling $147.1 million in connection with the repurchase program. The new share repurchase program does not obligate the Company to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by the Company. This program expires on November 15, 2019. Please refer to our Press Release, dated November 13, 2018, as filed with our Form 8-K, for further details regarding the Company's common stock repurchase program.

Capital Ratios

Our regulatory risk-based capital ratios increased as of December 31, 2018, compared to the same ratios as of September 30, 2018, primarily as a result of a proportionally higher increase in capital for the fourth quarter of 2018 relative to the increase in our risk-weighted assets for the fourth quarter of 2018. The increase in capital was reflective primarily by the increase in retained earnings from net income, partially offset by the repurchase of our common stock, as well as a decrease in our accumulated other comprehensive loss reflective of the increase in the valuation of our AFS securities at December 31, 2018. The increase in risk-weighted assets was due primarily to our robust loan growth in the fourth quarter of 2018.
The tier 1 leverage ratios of both SVB Financial Group and Silicon Valley Bank (the "Bank") increased as of December 31, 2018, compared to September 30, 2018, due to proportionally higher capital from net income to average assets growth during the fourth quarter of 2018.

10



Overall, increases to the Bank's risk-based capital and tier 1 leverage ratios were partially offset by a $45.0 million cash dividend paid by the Bank to our bank holding company, SVB Financial Group, during the fourth quarter of 2018.
All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations. See the "SVB Financial and Bank Capital Ratios" section, at the end of this release, for details.

11



Outlook for the Year Ending December 31, 2019

Our outlook for the year ending December 31, 2019 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. Except for the items noted below, we do not provide an outlook for certain items (such as gains or losses from warrants and investment securities) where the timing or financial impact are uncertain and/or subject to market or other conditions beyond our control (such as the level of IPO, M&A or general financing activity), or for potential unusual or non-recurring items. Also, as a result of our acquisition of SVB Leerink, we have included guidance for Core Fee Income and Noninterest Expense inclusive of SVB Leerink's expected full year results as part of the Company. The acquisition will be accounted for as a business combination and accordingly, we will begin consolidating SVB Leerink's financial results in our consolidated financial statements in the first quarter of 2019.

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, 2019, compared to our full year 2018 results, we currently expect the following outlook: (Note that the outlook below includes: (i) the expected impact of the March 22, 2018, June 13, 2018, September 26, 2018 and December 19, 2018, increases of the target Federal Funds rate by the Federal Reserve of 25 basis points each as well as the increases in the 1- and 3- month LIBOR rates through December 31, 2018, and no assumptions about any further Federal Funds or LIBOR rate changes during 2019, and (ii) management updates to the preliminary 2019 outlook for selected items we previously disclosed on October 25, 2018.)
 
Current full year 2019 outlook compared to 2018 results (as of January 24, 2019)
Average loan balances
Increase at a percentage rate in the
mid-teens
Average deposit balances
Increase at a percentage rate in the
high single digits
Net interest income (1)
Increase at a percentage rate in the high teens
Net interest margin (1)
Between 3.80% and 3.90%
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans
Comparable to 2018 levels
Net loan charge-offs
Between 0.20% and 0.40%
of average total gross loans
Nonperforming loans as a percentage of total gross loans
Between 0.30% and 0.50%
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
mid-teens
Effective tax rate (5)
Between 26.0% and 28.0%
 
Current full year 2019 outlook compared to 2018 results, including expected results of SVB Leerink reflective of the completed acquisition on January 4, 2019.
Core fee income (foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees) plus investment banking revenue (2) (6)
Increase at a percentage rate in the high sixties
Noninterest expense (excluding expenses related to noncontrolling interests) including investment banking expenses (3) (4) (6)
Increase at a percentage rate in the mid-thirties
 
(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 2019 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

12



outlook of non-GAAP noninterest expense (excluding expenses related to noncontrolling interests) to GAAP noninterest expense for fiscal 2019 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.
(6)
Investment banking revenue and expenses consist of revenue generated and expenses incurred associated with the investment banking activities of SVB Leerink.


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, 2019”, we make forward-looking statements discussing management’s expectations for 2019 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), including the performance results of SVB Leerink.

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 general condition of the capital and equity markets, and IPO, M&A and financing activity levels) and the associated impact on us (including effects on client demand for our commercial and investment banking and other financial services, as well as on the valuations of our investments);
changes in the volume and credit quality of our loans as well as volatility of our levels of nonperforming assets and charge-offs;
the impact of changes in interest rates or market levels or factors affecting or affected by them, especially on our loan and investment portfolios;
changes in the levels of our loans, deposits and client investment fund balances;
changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets;
variations from our expectations as to factors impacting our cost structure;
changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity;
variations from our expectations as to factors impacting the timing and level of employee share-based transactions;
variations from our expectations as to factors impacting our estimate of our full-year effective tax rate;
changes in applicable accounting standards and tax laws; and
regulatory or legal changes or their impact on us.

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.


13



Earnings Conference Call
On Thursday, January 24, 2019, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended December 31, 2018. The conference call can be accessed by dialing (888) 771-4371 or (847) 585-4405, and entering the confirmation number "48102493".  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 24, 2019, through 11:59 p.m. (Pacific Time) on Saturday, February 23, 2019, and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering the passcode "48102493#". A replay of the audio webcast will also be available on www.svb.com for 12 months beginning on January 24, 2019.

About SVB Financial Group

For more than 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, investment and private banking, asset management, private wealth management, brokerage and investment services and funds management 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 www.svb.com.

SVB Financial Group is the holding company for all business units and groups © 2019 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, SVB LEERINK, 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,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Interest income:


 
 
 
 
 
 
 
 
Loans

$
378,756

 
$
352,353

 
$
279,805

 
$
1,358,480

 
$
1,025,788

Investment securities:


 
 
 
 
 
 
 
 
Taxable

137,903

 
142,075

 
117,365

 
541,605

 
412,133

Non-taxable

11,110

 
10,748

 
3,011

 
34,616

 
5,714

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

15,128

 
8,137

 
4,835

 
35,208

 
21,505

Total interest income

542,897

 
513,313

 
405,016

 
1,969,909

 
1,465,140

Interest expense:


 
 
 
 
 
 
 
 
Deposits

10,897

 
8,042

 
2,458

 
29,306

 
8,676

Borrowings

17,540

 
12,049

 
8,852

 
46,615

 
36,095

Total interest expense

28,437

 
20,091

 
11,310

 
75,921

 
44,771

Net interest income

514,460

 
493,222

 
393,706

 
1,893,988

 
1,420,369

Provision for credit losses

13,644

 
17,174

 
22,242

 
87,870

 
92,304

Net interest income after provision for credit losses

500,816

 
476,048

 
371,464

 
1,806,118

 
1,328,065

Noninterest income:


 
 
 
 
 
 
 
 
Gains on investment securities, net

10,729

 
32,193

 
15,765

 
88,094

 
64,603

Gains on equity warrant assets, net

16,749

 
34,141

 
12,123

 
89,142

 
54,555

Foreign exchange fees

38,252

 
32,656

 
33,734

 
138,812

 
115,760

Credit card fees

25,333

 
24,121

 
20,444

 
94,072

 
76,543

Deposit service charges

20,016

 
19,588

 
15,669

 
76,097

 
58,715

Client investment fees

41,768

 
36,265

 
18,565

 
130,360

 
56,136

Lending related fees

11,011

 
10,675

 
10,391

 
41,949

 
43,265

Letters of credit and standby letters of credit fees

9,662

 
8,409

 
7,593

 
34,600

 
28,544

Other

13,187

 
12,022

 
17,982

 
51,858

 
59,110

Total noninterest income

186,707

 
210,070

 
152,266

 
744,984

 
557,231

Noninterest expense:


 
 
 
 
 
 
 
 
Compensation and benefits

183,782

 
195,437

 
156,990

 
726,980

 
606,402

Professional services

46,755

 
36,542

 
35,604

 
158,835

 
121,935

Premises and equipment

20,342

 
19,858

 
18,000

 
77,918

 
71,753

Net occupancy

14,155

 
13,694

 
12,960

 
54,753

 
48,397

Business development and travel

12,182

 
12,712

 
11,065

 
48,180

 
41,978

FDIC and state assessments

4,970

 
9,550

 
8,715

 
34,276

 
35,069

Correspondent bank fees

3,513

 
3,513

 
3,206

 
13,713

 
12,976

Other

21,893

 
18,139

 
17,475

 
73,538

 
72,145

Total noninterest expense

307,592

 
309,445

 
264,015

 
1,188,193

 
1,010,655

Income before income tax expense

379,931

 
376,673

 
259,715

 
1,362,909

 
874,641

Income tax expense

105,000

 
95,308

 
135,051

 
351,561

 
355,463

Net income before noncontrolling interests

274,931

 
281,365

 
124,664

 
1,011,348

 
519,178

Net income attributable to noncontrolling interests

(8,667
)
 
(6,548
)
 
(7,454
)
 
(37,508
)
 
(28,672
)
Net income available to common stockholders

$
266,264

 
$
274,817

 
$
117,210

 
$
973,840

 
$
490,506

Earnings per common share—basic
 
$
5.01

 
$
5.16

 
$
2.22

 
$
18.35

 
$
9.33

Earnings per common share—diluted
 
4.96

 
5.10

 
2.19

 
18.11

 
9.20

Weighted average common shares outstanding—basic
 
53,125,046

 
53,235,090

 
52,761,821

 
53,077,952

 
52,588,266

Weighted average common shares outstanding—diluted
 
53,684,512

 
53,918,973

 
53,501,851

 
53,771,457

 
53,305,899





15



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

(Dollars in thousands, except par value and share data)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,571,539

 
$
3,819,141

 
$
2,923,075

Available-for-sale securities, at fair value (cost $7,862,311, $9,236,301, and $11,131,008, respectively)
 
7,790,043

 
9,087,609

 
11,120,664

Held-to-maturity securities, at cost (fair value $15,188,236, $15,372,238, and $12,548,280, respectively)
 
15,487,442

 
15,899,726

 
12,663,455

Non-marketable and other equity securities (1)
 
941,104

 
896,249

 
651,053

Investment securities
 
24,218,589

 
25,883,584

 
24,435,172

Loans, net of unearned income
 
28,338,280

 
27,494,915

 
23,106,316

Allowance for loan losses
 
(280,903
)
 
(285,713
)
 
(255,024
)
Net loans
 
28,057,377

 
27,209,202

 
22,851,292

Premises and equipment, net of accumulated depreciation and amortization
 
129,213

 
121,890

 
128,682

Accrued interest receivable and other assets
 
951,261

 
1,105,917

 
876,246

Total assets
 
$
56,927,979

 
$
58,139,734

 
$
51,214,467

Liabilities and total equity:
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
39,103,422

 
$
40,473,774

 
$
36,655,497

Interest-bearing deposits
 
10,225,478

 
8,122,337

 
7,598,578

Total deposits
 
49,328,900

 
48,596,111

 
44,254,075

Short-term borrowings
 
631,412

 
2,631,252

 
1,033,730

Other liabilities
 
1,006,359

 
1,146,109

 
911,755

Long-term debt
 
696,465

 
696,217

 
695,492

Total liabilities
 
51,663,136

 
53,069,689

 
46,895,052

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; 52,586,498 shares, 53,250,255 shares, and 52,835,188 shares outstanding, respectively
 
53

 
53

 
53

Additional paid-in capital
 
1,378,438

 
1,360,030

 
1,314,377

Retained earnings (1)
 
3,791,838

 
3,672,696

 
2,866,837

Accumulated other comprehensive loss
 
(54,120
)
 
(108,410
)
 
(1,472
)
Total SVBFG stockholders’ equity
 
5,116,209

 
4,924,369

 
4,179,795

Noncontrolling interests
 
148,634

 
145,676

 
139,620

Total equity
 
5,264,843

 
5,070,045

 
4,319,415

Total liabilities and total equity
 
$
56,927,979

 
$
58,139,734

 
$
51,214,467

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


16



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
 
 
Three months ended
 
 
December 31, 2018
 
September 30, 2018
 
December 31, 2017
(Dollars in thousands, except yield/rate and ratios)
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
 
$
3,666,985

 
$
15,128

 
1.64
%
 
$
2,548,271

 
$
8,137

 
1.27
%
 
$
2,736,581

 
$
4,835

 
0.70
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
8,793,665

 
43,854

 
1.98

 
9,589,917

 
46,684

 
1.93

 
12,081,001

 
52,620

 
1.73

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
14,114,704

 
94,049

 
2.64

 
14,385,027

 
95,391

 
2.63

 
11,186,642

 
64,745

 
2.30

Non-taxable (3)
 
1,576,415

 
14,062

 
3.54

 
1,531,663

 
13,606

 
3.52

 
516,343

 
4,632

 
3.56

Total loans, net of unearned income (4) (5)
 
27,476,960

 
378,756

 
5.47

 
26,331,377

 
352,353

 
5.31