Document
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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 23, 2020
 
 
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: (408654-7400
 
 
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. □





Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Exchange on Which Registered
Common Stock, par value $0.001 per share
 
SIVB
 
The Nasdaq Stock Market LLC
 
 
 
 
 
Depositary shares, each representing a 1/40th interest in a share of 5.250% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A
 
SIVBP
 
The Nasdaq Stock Market LLC
Item 2.02.
Results of Operations and Financial Condition.
On January 23, 2020, SVB Financial Group (the “Company”) announced its financial results for the fourth quarter and year ended December 31, 2019. A copy of the release and a fourth quarter earnings letter and presentation are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are 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. 
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 23, 2020
 
 
 
SVB FINANCIAL GROUP
 
 
 
 
 
 
 
 
By:
 
/s/ KAREN HON
 
 
 
 
Name:
 
Karen Hon
 
 
 
 
Title:
 
Interim Chief Accounting Officer and Principal Accounting Officer




Exhibit


Exhibit 99.1
https://cdn.kscope.io/5e8e85c2501bd4d68722c2c60879d798-svblogoa30.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 23, 2020
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
NASDAQ: SIVB
 
 
 
 
 
 
  
 
SVB FINANCIAL GROUP ANNOUNCES 2019 FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS
SANTA CLARA, Calif. — January 23, 2020 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the fourth quarter and year ended December 31, 2019.
Consolidated net income available to common stockholders for the fourth quarter of 2019 was $262.9 million, or $5.06 per diluted common share, compared to $267.3 million, or $5.15 per diluted common share, for the third quarter of 2019 and $266.3 million, or $4.96 per diluted common share, for the fourth quarter of 2018. Consolidated net income available to common stockholders for the year ended December 31, 2019 was $1.1 billion, or $21.73 per diluted common share, compared to $973.8 million, or $18.11 per diluted common share, for the comparable 2018 period. The fourth quarter, and full year, 2019 results included net income attributable to SVB Leerink of $1.3 million and $9.5 million, respectively, or $0.02 and $0.18 per diluted common share, respectively.
"The continued strength of our markets and robust liquidity available to our high-growth clients contributed to another quarter of outstanding growth, profitability and high credit quality -- consistent with our performance throughout the year," said Greg Becker, President and CEO of SVB Financial Group. "Our strong results reinforce our view of the current and tremendous future potential of innovation to drive growth in the global economy. With this in mind, we believe SVB’s unmatched expertise in serving innovation companies and investors, our ongoing investments in products and people to support our clients globally and our consistent ability to execute will drive our continued growth and profitability over the long-term."
Highlights of our fourth quarter 2019 results (compared to third quarter 2019, unless otherwise noted) included:
Average loan balances of $32.0 billion, an increase of $2.2 billion (or 7.3 percent).
Period-end loan balances of $33.2 billion, an increase of $2.1 billion (or 6.8 percent).
Average fixed income investment securities of $26.7 billion, an increase of $1.5 billion (or 6.1 percent).
Period-end fixed income investment securities of $27.9 billion, an increase of $0.6 billion (or 2.1 percent).
Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $6.8 billion (or 4.5 percent) to $156.8 billion.
Period-end total client funds increased $4.9 billion (or 3.2 percent) to $161.0 billion.
Net interest income (fully taxable equivalent basis) of $536.8 million, an increase of $13.2 million (or 2.5 percent).
Provision for credit losses of $17.4 million, compared to $36.5 million.
Net loan charge-offs of $14.4 million, or 18 basis points of average total gross loans (annualized), compared to $32.9 million, or 44 basis points.
Net gains on investment securities of $28.1 million, compared to $29.8 million. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $16.3 million, compared to $15.2 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Net gains on equity warrant assets of $30.9 million, compared to $37.6 million.
Noninterest income of $313.3 million, an increase of $19.3 million (or 6.6 percent). Non-GAAP core fee income increased $5.9 million (or 3.6 percent) to $168.1 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Noninterest expense of $460.8 million, an increase of $69.5 million (or 17.7 percent).
Effective tax rate of 26.4 percent compared to 28.2 percent.




GAAP operating efficiency ratio of 54.40 percent, an increase of 636 basis points. Non-GAAP core operating efficiency ratio of 53.78 percent, an increase of 573 basis points. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Issuance of $350.0 million in depositary shares representing an ownership interest in shares of Series A Preferred Stock.
Early redemption of our $350.0 million 5.375% Senior Notes due September 15, 2020, resulting in an early extinguishment of debt pre-tax loss of $9.0 million included in other noninterest income, or $0.13 per diluted common share for the fourth quarter, and full-year, 2019.
Fourth Quarter and Full-Year 2019 Summary
(Dollars in millions, except share data, employees and ratios)
 
Three months ended
 
Year ended
December 31,
2019
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Income statement:
 

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
5.06

 
$
5.15

 
$
6.08

 
$
5.44

 
$
4.96

 
$
21.73

 
$
18.11

Net income available to common stockholders
 
262.9

 
267.3

 
318.0

 
288.7

 
266.3

 
1,136.9

 
973.8

Net interest income
 
533.7

 
520.6

 
529.4

 
512.9

 
514.5

 
2,096.6

 
1,894.0

Provision for credit losses
 
17.4

 
36.5

 
23.9

 
28.6

 
13.6

 
106.4

 
87.9

Noninterest income
 
313.3

 
294.0

 
333.8

 
280.4

 
186.7

 
1,221.5

 
745.0

Noninterest expense
 
460.8

 
391.3

 
383.5

 
365.7

 
307.6

 
1,601.3

 
1,188.2

Non-GAAP core fee income (1)
 
168.1

 
162.2

 
157.3

 
154.2

 
146.0

 
641.8

 
515.9

Non-GAAP core fee income, including investment banking revenue and commissions (1)
 
241.8

 
213.0

 
220.5

 
218.1

 
146.0

 
893.4

 
515.9

Non-GAAP noninterest income, net of noncontrolling interests (1)
 
301.3

 
279.4

 
315.0

 
277.1

 
177.9

 
1,172.9

 
707.0

Non-GAAP noninterest expense, net of noncontrolling interests (1)
 
460.6

 
391.2

 
383.4

 
365.3

 
307.4

 
1,600.4

 
1,187.7

Fully taxable equivalent:
 

 
 
 
 
 
 
 
 
 


 
 
Net interest income (1) (2)
 
$
536.8

 
$
523.6

 
$
532.3

 
$
515.8

 
$
517.4

 
$
2,108.6

 
$
1,903.2

Net interest margin
 
3.26
%
 
3.34
%
 
3.68
%
 
3.81
%
 
3.69
%
 
3.51
%
 
3.57
%
Balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average total assets
 
$
69,139.0

 
$
65,327.7

 
$
60,700.5

 
$
57,528.4

 
$
57,592.3

 
$
63,211.6

 
$
55,229.1

Average loans, net of unearned income
 
32,008.9

 
29,822.4

 
29,406.6

 
28,388.1

 
27,477.0

 
29,916.2

 
25,630.5

Average available-for-sale securities
 
12,640.5

 
10,600.4

 
8,205.3

 
6,870.2

 
8,793.7

 
9,597.7

 
9,789.2

Average held-to-maturity securities
 
14,023.0

 
14,534.5

 
14,922.6

 
15,224.0

 
15,691.1

 
14,672.3

 
14,997.8

Average noninterest-bearing demand deposits
 
39,627.7

 
39,146.2

 
38,117.9

 
38,222.7

 
40,106.9

 
38,783.5

 
39,633.1

Average interest-bearing deposits
 
20,549.8

 
18,088.8

 
14,844.3

 
11,491.5

 
8,980.3

 
16,273.5

 
8,442.2

Average total deposits
 
60,177.5

 
57,235.0

 
52,962.2

 
49,714.2

 
49,087.2

 
55,057.0

 
48,075.3

Average short-term borrowings
 
18.8

 
22.0

 
189.0

 
353.4

 
1,580.0

 
144.5

 
643.9

Average long-term debt
 
651.7

 
697.1

 
696.8

 
696.6

 
696.3

 
685.4

 
695.9

Period-end total assets
 
71,004.9

 
68,231.2

 
63,773.7

 
60,160.3

 
56,928.0

 
71,004.9

 
56,928.0

Period-end loans, net of unearned income
 
33,164.6

 
31,064.0

 
29,209.6

 
28,850.4

 
28,338.3

 
33,164.6

 
28,338.3

Period-end available-for-sale securities
 
14,014.9

 
12,866.9

 
7,940.3

 
6,755.1

 
7,790.0

 
14,014.9

 
7,790.0

Period-end held-to-maturity securities
 
13,842.9

 
14,407.1

 
14,868.8

 
15,055.3

 
15,487.4

 
13,842.9

 
15,487.4

Period-end non-marketable and other equity securities
 
1,213.8

 
1,150.1

 
1,079.7

 
975.0

 
941.1

 
1,213.8

 
941.1

Period-end noninterest-bearing demand deposits
 
40,841.6

 
40,480.6

 
39,331.5

 
39,278.7

 
39,103.4

 
40,841.6

 
39,103.4

Period-end interest-bearing deposits
 
20,916.2

 
19,062.3

 
16,279.1

 
13,048.5

 
10,225.5

 
20,916.2

 
10,225.5

Period-end total deposits
 
61,757.8

 
59,542.9

 
55,610.5

 
52,327.2

 
49,328.9

 
61,757.8

 
49,328.9

Period-end short-term borrowings
 
17.4

 
18.9

 
24.3

 
14.5

 
631.4

 
17.4

 
631.4

Period-end long-term debt
 
348.0

 
697.2

 
697.0

 
696.7

 
696.5

 
348.0

 
696.5

Off-balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average client investment funds
 
$
96,643.2

 
$
92,824.9

 
$
89,651.8

 
$
87,414.3

 
$
85,038.8

 
$
91,633.5

 
$
75,072.2

Period-end client investment funds
 
99,192.6

 
96,472.3

 
91,495.4

 
88,181.7

 
85,983.8

 
99,192.6

 
85,983.8

Total unfunded credit commitments
 
24,163.2

 
22,274.4

 
20,952.1

 
20,267.5

 
18,913.0

 
24,163.2

 
18,913.0





Earnings ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Return on average assets (annualized) (3)
 
1.51
%
 
1.62
%
 
2.10
%
 
2.04
%
 
1.83
%
 
1.80
%
 
1.76
%
Return on average SVBFG common stockholders’ equity (annualized) (4)
 
17.03

 
18.27

 
23.29

 
22.16

 
20.61

 
20.03

 
20.57

Asset quality ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Allowance for loan losses as a % of total gross loans
 
0.91
%
 
0.97
%
 
1.03
%
 
1.03
%
 
0.99
%
 
0.91
%
 
0.99
%
Allowance for loan losses for performing loans as a % of total gross performing loans
 
0.78

 
0.81

 
0.85

 
0.83

 
0.86

 
0.78

 
0.86

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

 
0.49

 
0.36

 
0.13

 
0.28

 
0.31

 
0.26

Net loan charge-offs as a % of average total gross loans (annualized)
 
0.18

 
0.44

 
0.23

 
0.11

 
0.20

 
0.24

 
0.22

Other ratios:
 

 
 
 
 
 
 
 
 
 

 
 
GAAP operating efficiency ratio (5)
 
54.40
%
 
48.04
%
 
44.43
%
 
46.10
%
 
43.87
%
 
48.26
%
 
45.02
%
Non-GAAP core operating efficiency ratio (1)
 
53.78

 
48.05

 
45.49

 
44.71

 
45.42

 
48.06

 
48.06

Total cost of deposits (annualized) (6)
 
0.31

 
0.38

 
0.36

 
0.23

 
0.09

 
0.32

 
0.06

SVBFG CET 1 risk-based capital ratio
 
12.64

 
12.71

 
12.92

 
12.89

 
13.41

 
12.64

 
13.41

Bank CET 1 risk-based capital ratio
 
11.18

 
11.48

 
12.50

 
12.35

 
12.41

 
11.18

 
12.41

SVBFG total risk-based capital ratio
 
14.30

 
13.70

 
13.97

 
13.94

 
14.45

 
14.30

 
14.45

Bank total risk-based capital ratio
 
12.02

 
12.36

 
13.44

 
13.29

 
13.32

 
12.02

 
13.32

SVBFG tier 1 leverage ratio
 
9.06

 
8.64

 
8.82

 
9.10

 
9.06

 
9.06

 
9.06

Bank tier 1 leverage ratio
 
7.30

 
7.48

 
8.17

 
8.38

 
8.10

 
7.30

 
8.10

Period-end loans, net of unearned income, to deposits ratio
 
53.70

 
52.17

 
52.53

 
55.13

 
57.45

 
53.70

 
57.45

Average loans, net of unearned income, to average deposits ratio
 
53.19

 
52.11

 
55.52

 
57.10

 
55.98

 
54.34

 
53.31

Book value per common share (7)
 
$
125.26

 
$
114.26

 
$
107.72

 
$
102.11

 
$
97.29

 
$
125.26

 
$
97.29

Other statistics:
 

 
 
 
 
 
 
 
 
 

 
 
Average full-time equivalent ("FTE") employees
 
3,522

 
3,413

 
3,287

 
3,228

 
2,873

 
3,362

 
2,685

Period-end full-time equivalent ("FTE") employees
 
3,564

 
3,460

 
3,314

 
3,250

 
2,900

 
3,564

 
2,900

 
(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. The taxable equivalent adjustments were $3.2 million for the quarter ended December 31, 2019, $3.0 million for the quarter ended September 30, 2019, $2.9 million for the quarter ended June 30, 2019, $2.9 million for the quarter ended March 31, 2019 and $3.0 million for the quarter ended December 31, 2018. The taxable equivalent adjustments were $11.9 million and $9.2 million for the years ended December 31, 2019 and December 31, 2018, respectively.
(3)
Ratio represents annualized consolidated net income available to common stockholders divided by average assets.
(4)
Ratio represents annualized consolidated net income available to common stockholders divided by average SVB Financial Group ("SVBFG") common stockholders’ equity.
(5)
Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income.
(6)
Ratio represents annualized total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits.
(7)
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 $536.8 million for the fourth quarter of 2019, compared to $523.6 million for the third quarter of 2019. The $13.2 million increase from the third quarter of 2019 to the fourth quarter of 2019 was attributable primarily to the following:

An increase in interest income from loans of $2.5 million to $396.7 million for the fourth quarter of 2019. The increase was due primarily to a $24.0 million increase from $2.2 billion in average loan growth and $8.0 million in higher loan fees, partially offset by a $30.2 million decrease from lower gross loan yields. Overall loan yields decreased 32 basis points to 4.92 percent, driven primarily by a 39 basis point decrease in our gross loan yields driven primarily by a 30 basis point decrease due to the full quarter impact of the two 25 basis point decreases in the Federal Funds rate during the third and fourth quarters of 2019 as well as by lower LIBOR rates. The decrease in gross loan yields was offset partially by a seven basis point increase in loan fee yields reflective of an increase in prepayments, and

2



An increase in interest income from our fixed income investment securities of $9.5 million to $173.2 million for the fourth quarter of 2019. The increase was reflective primarily of higher average fixed income securities balances of $1.5 billion during the fourth quarter of 2019 due to deposit growth, offset partially by
A decrease of $6.9 million in interest income from short-term investment securities reflective primarily of the decreases in Federal Funds interest rates as well as a $0.6 billion decrease in average interest-earning cash balances, and
An $8.2 million decrease in interest expense reflective of a decrease of $13.3 million of interest paid on our interest-bearing deposits due to market rate decreases offset by an increase in interest paid as a result of growth in our average interest-bearing deposits of $2.5 billion.
Net interest margin, on a fully taxable equivalent basis, was 3.26 percent for the fourth quarter of 2019, compared to 3.34 percent for the third quarter of 2019. The decrease in our net interest margin by eight basis points was due primarily to a 10 basis point decrease attributable to the rate environment as well as a four basis point decrease from the continued compression on our loan yields due to pricing competition. These decreases were offset partially by a five basis point increase due to loan fees from an increase in prepayments.
For the fourth quarter of 2019, approximately 93 percent, or $29.8 billion, of our average gross loans were variable-rate loans that adjust at prescribed measurement dates. Of our variable-rate loans, approximately 66 percent are tied to prime-lending rates and 34 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 increased $1.5 billion, or 6.1 percent, to $26.7 billion for the quarter ended December 31, 2019. Our total period-end fixed income investment securities portfolio increased $0.6 billion, or 2.1 percent, to $27.9 billion at December 31, 2019. The weighted-average duration of our fixed income investment securities portfolio was 3.9 years at December 31, 2019 and 3.4 years at September 30, 2019. Our period-end non-marketable and other equity securities portfolio increased $63.7 million to $1.2 billion ($1.1 billion net of noncontrolling interests) at December 31, 2019.

Available-for-Sale Securities

Average AFS securities were $12.6 billion for the fourth quarter of 2019 compared to $10.6 billion for the third quarter of 2019. Period-end AFS securities were $14.0 billion at December 31, 2019 compared to $12.9 billion at September 30, 2019. The increases in average and period-end AFS security balances from the third quarter of 2019 to the fourth quarter of 2019 were due to purchases of $2.0 billion of U.S. Treasury securities and agency-issued commercial mortgage backed securities, partially offset by $0.9 billion in portfolio pay downs and maturities. The weighted-average duration of our AFS securities portfolio was 3.9 years at December 31, 2019 and 3.2 years at September 30, 2019.

Held-to-Maturity Securities

Average HTM securities were $14.0 billion for the fourth quarter of 2019, compared to $14.5 billion for the third quarter of 2019. Period-end HTM securities were $13.8 billion at December 31, 2019 compared to $14.4 billion at September 30, 2019. The decreases in average and period-end HTM security balances from the third quarter of 2019 to the fourth quarter of 2019 were due primarily to $0.6 billion in portfolio pay downs and maturities. The weighted-average duration of our HTM securities portfolio was 3.9 years at December 31, 2019 and 3.6 years at September 30, 2019.

Non-Marketable and Other Equity Securities

Our non-marketable and other equity securities portfolio increased $63.7 million to $1.2 billion ($1.1 billion net of noncontrolling interests) at December 31, 2019, compared to $1.2 billion ($1.0 billion net of noncontrolling interests) at September 30, 2019. The increase was primarily attributable to net new investments within our qualified housing projects portfolio of $39.4 million and net gains on investment securities of $28.1 million, partially offset by distributions from our fund investments. 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."

3




Loans

Average loans (net of unearned income) increased by $2.2 billion to $32.0 billion for the fourth quarter of 2019, compared to $29.8 billion for the third quarter of 2019. Period-end loans (net of unearned income) increased by $2.1 billion to $33.2 billion at December 31, 2019, compared to $31.1 billion at September 30, 2019. Average and period-end loan growth came primarily from our private equity/venture capital portfolio as well as from our private bank and software portfolios.

Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million increased to $17.8 billion or 53.4 percent of total gross loans at December 31, 2019, as compared to $16.4 billion or 52.6 percent of total gross loans at September 30, 2019. 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,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Allowance for loan losses, beginning balance
 
$
304,410

 
$
301,888

 
$
285,713

 
$
280,903

 
$
255,024

Provision for loan losses
 
13,229

 
35,985

 
10,204

 
94,183

 
84,292

Gross loan charge-offs
 
(20,348
)
 
(36,820
)
 
(19,697
)
 
(92,603
)
 
(67,917
)
Loan recoveries
 
5,905

 
3,888

 
5,758

 
21,038

 
11,636

Foreign currency translation adjustments
 
1,728

 
(531
)
 
(1,075
)
 
1,403

 
(2,132
)
Allowance for loan losses, ending balance
 
$
304,924

 
$
304,410

 
$
280,903

 
$
304,924

 
$
280,903

Allowance for unfunded credit commitments, beginning balance
 
63,108

 
62,664

 
51,808

 
55,183

 
51,770

Provision for unfunded credit commitments
 
4,154

 
551

 
3,440

 
12,233

 
3,578

Foreign currency translation adjustments
 
394

 
(107
)
 
(65
)
 
240

 
(165
)
Allowance for unfunded credit commitments, ending balance (1)
 
$
67,656

 
$
63,108

 
$
55,183

 
$
67,656

 
$
55,183

Ratios and other information:
 
 
 
 
 
 
 
 
 
 
Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.16
%
 
0.46
%
 
0.14
%
 
0.28
%
 
0.30
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.25

 
0.49

 
0.28

 
0.31

 
0.26

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.18

 
0.44

 
0.20

 
0.24

 
0.22

Allowance for loan losses as a percentage of period-end total gross loans
 
0.91

 
0.97

 
0.99

 
0.91

 
0.99

Provision for credit losses
 
$
17,383

 
$
36,536

 
$
13,644

 
$
106,416

 
$
87,870

Period-end total gross loans
 
33,327,704

 
31,229,003

 
28,511,312

 
33,327,704

 
28,511,312

Average total gross loans
 
32,166,620

 
29,979,522

 
27,646,940

 
30,077,343

 
25,790,949

Allowance for loan losses for nonaccrual loans
 
44,859

 
53,728

 
37,941

 
44,859

 
37,941

Nonaccrual loans
 
102,669

 
104,045

 
94,142

 
102,669

 
94,142

 
(1)
The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”
Our allowance for loan losses increased $0.5 million to $304.9 million at December 31, 2019, compared to $304.4 million at September 30, 2019, due primarily to an increase in our performing loan reserves of $9.4 million offset partially by a decrease in reserves for nonaccrual loans of $8.9 million. The increase in our performing reserves was due primarily to period-end loan growth of $2.1 billion. As a percentage of total gross loans, our allowance for loan losses decreased six basis points to 0.91 percent at December 31, 2019, compared to 0.97 percent at September 30, 2019. The six basis point decrease was driven primarily by a four basis point decrease in the reserves for nonaccrual loans as a percentage of gross loans and a two basis point decrease in the qualitative component of our performing loan reserves as a percentage of gross loans reflective of the continued shift in the mix in our loan portfolio to our large, high credit quality private equity/venture capital loans during the quarter.


4



Our provision for credit losses was $17.4 million for the fourth quarter of 2019, consisting of the following:
A provision for loan losses of $13.2 million, driven primarily by $16.3 million in additional reserves for period-end loan growth and $12.6 million for charge-offs not specifically reserved for, offset partially by a decrease of $7.1 million for the qualitative component of our performing loans as described above and by recoveries of $5.9 million, and
A provision for unfunded credit commitments of $4.2 million, driven primarily by growth in unfunded credit commitments of $1.9 billion.
Gross loan charge-offs were $20.3 million for the fourth quarter of 2019, of which $12.6 million was not specifically reserved for at September 30, 2019. Gross loan charge-offs were primarily driven by a $4.5 million charge-off for one early-stage hardware portfolio client, $4.6 million for two software clients and $2.3 million for one later-stage life sciences/healthcare client. The remaining charge-offs came primarily from our early-stage and mid-stage clients.

Nonaccrual loans were $102.7 million at December 31, 2019, compared to $104.0 million at September 30, 2019. Our nonaccrual loan balance decreased $1.3 million primarily driven by $7.7 million in charge-offs and $15.5 million in repayments, mostly offset by $21.9 million in new nonaccrual loans. Charge-offs were primarily driven by $4.2 million for two life sciences/healthcare clients, $2.0 million for one hardware client and $1.4 million for one software/internet client. The $15.5 million in repayments were primarily driven by our early-stage clients. New nonaccrual loans were primarily driven by $7.7 million for one mid-stage software client and $5.0 million for one later-stage life sciences/healthcare client. Nonaccrual loans as a percentage of total gross loans decreased to 0.31 percent for the fourth quarter of 2019 compared to 0.34 percent for the third quarter of 2019.

The allowance for loan losses for nonaccrual loans decreased $8.9 million to $44.9 million in the fourth quarter of 2019. The decrease was due primarily to $7.7 million in charge-offs and $8.3 million in repayments, offset mostly by $7.1 million in new nonaccrual loans as noted above.
CECL Adoption
Effective January 1, 2020, we will adopt the new accounting standard update (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments) ("ASU 2016-13" or "CECL"), which amends the incurred loss impairment methodology with a methodology that reflects a current expected credit loss measurement to estimate the allowance for credit losses over the contractual life of the financial assets.

Utilizing our loan and unfunded credit commitment portfolio composition at December 31, 2019 and the current economic environment, we currently estimate the day one combined impact of CECL on our allowance for loan losses and allowance for unfunded credit commitments to be an increase (on a pre-tax basis) of approximately $40 million to $60 million upon adoption of CECL on January 1, 2020 or approximately 11% to 16% of our total combined allowance compared to our reported amount at December 31, 2019. Additionally, based on the credit quality of our existing debt securities portfolio at December 31, 2019, we currently estimate the day one impact of CECL on our allowance for our HTM municipal bond portfolio to be approximately $0.2 million (on a pre-tax basis). The final amounts will be determined and recognized as a day one cumulative adjustment to equity on an after tax basis as of January 1, 2020.
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 $156.8 billion for the fourth quarter of 2019, compared to $150.1 billion for the third quarter of 2019, an increase of $6.8 billion, or 4.5 percent. Period-end total client funds were $161.0 billion at December 31, 2019, compared to $156.0 billion at September 30, 2019, an increase of $4.9 billion, or 3.2 percent.

Average off-balance sheet client investment funds were $96.6 billion for the fourth quarter of 2019, compared to $92.8 billion for the third quarter of 2019. Average on-balance sheet deposits were $60.2 billion for the fourth quarter of 2019 and $57.2 billion for the third quarter of 2019. Period-end off-balance sheet client investment funds were $99.2 billion at December 31, 2019, compared to $96.5 billion at September 30, 2019. Period-end on-balance sheet deposits were $61.8 billion at December 31, 2019, compared to $59.5 billion at September 30, 2019.

The increases in our average and period-end total client funds from the third quarter of 2019 to the fourth quarter of 2019 were reflective of growth in both on-balance sheet deposits and off-balance sheet client investment funds across

5



all portfolio segments. The leading contributor was our technology client portfolio attributable primarily to a healthy equity funding environment and exit markets for our clients, as well as continued new client acquisition.
In addition, we saw a continued shift in the mix of our on-balance sheet deposits with growth in our interest-bearing deposits reflective of our deposit growth initiatives and continued strong liquidity of our clients. Average noninterest-bearing demand deposits as a percentage of total average on-balance sheet deposits decreased to 66 percent for the fourth quarter of 2019, compared to 68 percent in the third quarter of 2019, with a corresponding increase in average interest-bearing deposits to 34 percent, compared to 32 percent.
Long-term Debt
On December 20, 2019, we redeemed in full the outstanding aggregate principal amount of our $350.0 million 5.375% Senior Notes due 2020 at a redemption price of $358.4 million. The amount paid in excess of the principal amount of the Notes represented a $9.0 million premium due to holders upon early redemption and was recorded as a loss in other noninterest income. The redemption of the Notes was funded, in part, by our issuance of depositary shares representing an ownership interest in shares of Series A Preferred Stock, as described under the section “Preferred Stock” below.
Noninterest Income

Noninterest income was $313.3 million for the fourth quarter of 2019, compared to $294.0 million for the third quarter of 2019. Non-GAAP noninterest income, net of noncontrolling interests, was $301.3 million for the fourth quarter of 2019, compared to $279.4 million for the third quarter of 2019. (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures.")

The increase of $19.3 million ($21.9 million net of noncontrolling interests) in noninterest income from the third quarter of 2019 to the fourth quarter of 2019 was attributable primarily to higher investment banking revenue and non-GAAP core fee income, partially offset by a decrease in gains from our equity warrant assets. Items impacting noninterest income for the fourth quarter of 2019 were as follows:

Net gains on investment securities
Net gains on investment securities were $28.1 million for the fourth quarter of 2019, compared to $29.8 million for the third quarter of 2019. Net of noncontrolling interests, non-GAAP net gains on investment securities were $16.3 million for the fourth quarter of 2019, compared to net gains of $15.2 million for the third quarter of 2019. Non-GAAP net gains, net of noncontrolling interests, of $16.3 million for the fourth quarter of 2019 were driven by the following:
Gains of $7.3 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the private and public company investments held by the funds in the portfolio,
Gains of $6.8 million from our public equity securities investments, primarily driven by unrealized gains driven by increases in value of public equity securities held, and
Gains of $2.8 million from our strategic and other investments, comprised primarily of net unrealized valuation increases in companies held in our strategic venture capital funds.

6



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, 2019 and September 30, 2019, respectively:
 
 
Three months ended December 31, 2019
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
SVB Leerink
 
Total
GAAP gains (losses) on investment securities, net
 
$
14,152

 
$
4,847

 
$
6,829

 
$
118

 
$
2,753

 
$
(604
)
 
$
28,095

Less: income attributable to noncontrolling interests, including carried interest allocation
 
6,814

 
4,549

 

 

 

 
464

 
11,827

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
7,338

 
$
298

 
$
6,829

 
$
118

 
$
2,753

 
$
(1,068
)
 
$
16,268

 
 
Three months ended September 30, 2019
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
SVB Leerink
 
Total
GAAP gains (losses) on investment securities, net
 
$
22,223

 
$
9,668

 
$
(11,488
)
 
$
187

 
$
8,035

 
$
1,224

 
$
29,849

Less: income attributable to noncontrolling interests, including carried interest allocation
 
9,676

 
4,138

 

 

 

 
826

 
14,640

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
12,547

 
$
5,530

 
$
(11,488
)
 
$
187

 
$
8,035

 
$
398

 
$
15,209


Net gains on equity warrant assets

Net gains on equity warrant assets were $30.9 million for the fourth quarter of 2019, compared to $37.6 million for the third quarter of 2019. Net gains on equity warrant assets for the fourth quarter of 2019 were attributable primarily to $18.0 million of valuation increases in our private company warrant portfolio and net gains from exercises of $13.2 million driven by healthy gains from IPO and M&A activity.
 
At December 31, 2019, we held warrants in 2,268 companies with a total fair value of $165.5 million. Warrants in 20 companies each had fair values greater than $1.0 million and collectively represented $57.6 million, or 34.8 percent, of the fair value of the total warrant portfolio at December 31, 2019
The following table provides a summary of our net gains on equity warrant assets:
 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Equity warrant assets:
 
 
 
 
 
 
 
 
 
 
Gains on exercises, net
 
$
13,228

 
$
30,047

 
$
5,102

 
$
107,168

 
$
58,186

Terminations
 
(410
)
 
(481
)
 
(2,860
)
 
(3,502
)
 
(5,964
)
Changes in fair value, net
 
18,047

 
7,995

 
14,507

 
34,412

 
36,920

Total net gains on equity warrant assets
 
$
30,865

 
$
37,561

 
$
16,749

 
$
138,078

 
$
89,142

The gains (or losses) from investment securities from our non-marketable 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.

7



Non-GAAP core fee income including investment banking revenue and commissions
Non-GAAP core fee income (client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees) increased $5.9 million to $168.1 million for the fourth quarter of 2019, compared to $162.2 million for the third quarter of 2019. Non-GAAP core fee income including investment banking revenue and commissions increased $28.8 million to $241.8 million for the fourth quarter of 2019, compared to $213.0 million for the third quarter of 2019.
The following table provides a summary of our non-GAAP core fee income:
 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Non-GAAP core fee income:
 
 
 
 
 
 
 
 
 
 
Client investment fees
 
$
45,163

 
$
46,679

 
$
41,768

 
$
182,068

 
$
130,360

Foreign exchange fees
 
42,399

 
40,309

 
38,252

 
159,262

 
138,812

Credit card fees
 
32,288

 
30,158

 
25,333

 
118,719

 
94,072

Deposit service charges
 
23,704

 
22,482

 
20,016

 
89,200

 
76,097

Lending related fees
 
13,063

 
11,707

 
11,011

 
49,920

 
41,949

Letters of credit and standby letters of credit fees
 
11,464

 
10,842

 
9,662

 
42,669

 
34,600

Total Non-GAAP core fee income
 
$
168,081

 
$
162,177

 
$
146,042

 
$
641,838

 
$
515,890

Investment banking revenue
 
58,172

 
38,516

 

 
195,177

 

Commissions
 
15,534

 
12,275

 

 
56,346

 

Total Non-GAAP core fee income including investment banking revenue and commissions
 
$
241,787

 
$
212,968

 
$
146,042

 
$
893,361

 
$
515,890


Non-GAAP core fee income increased from the third quarter of 2019 to the fourth quarter of 2019 reflective of an increase across a majority of our core fee income areas led primarily by increases in credit card fees and foreign exchange fees. Credit card fees increased $2.1 million due primarily to an increase in net interchange fees. Foreign exchange fees increased $2.1 million driven by increased trade volumes due to continued increase in the number of clients actively managing currency exposures.
Non-GAAP core fee income including investment banking revenue and commissions increased from the third quarter of 2019 to the fourth quarter of 2019 primarily due to an increase in investment banking revenue attributable to an increase in the levels of exit activity in the life science/healthcare IPO market during the fourth quarter of 2019. Investment banking revenue was $58.2 million, driven by $43.9 million from public equity underwriting fees and $15.1 million from M&A transactions for the fourth quarter of 2019.
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 $460.8 million for the fourth quarter of 2019, compared to $391.3 million for the third quarter of 2019. The increase of $69.5 million in noninterest expense consisted primarily of an increase in our compensation and benefits expense, professional services expense and other noninterest expense in the fourth quarter of 2019 compared to the third quarter of 2019.


8



The following table provides a summary of our compensation and benefits expense:
 
 
Three months ended
 
Year ended
(Dollars in thousands, except employees)
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019

December 31,
2018
Compensation and benefits:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
120,028

 
$
109,473

 
$
90,139

 
$
436,500

 
$
324,971

Incentive compensation plans
 
87,590

 
59,602

 
50,478

 
288,073

 
200,871

Employee stock ownership plan ("ESOP")
 
1,066

 
884

 
1,438

 
4,197

 
6,435

Other employee incentives and benefits (1)
 
65,977

 
63,881

 
41,727

 
260,964

 
194,703

Total compensation and benefits
 
$
274,661

 
$
233,840

 
$
183,782

 
$
989,734

 
$
726,980

Period-end full-time equivalent employees
 
3,564

 
3,460

 
2,900

 
3,564

 
2,900

Average full-time equivalent employees
 
3,522

 
3,413

 
2,873

 
3,362

 
2,685

 
(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 $40.8 million increase in total compensation and benefits expense consists primarily of the following:

An increase of $28.0 million in incentive compensation plans expense attributable primarily to a $20.6 million increase in SVB Leerink incentive plan expense as a result of a strong fourth quarter performance as compared to the third quarter and an increase in SVB incentive plan expense reflective of our strong 2019 full year performance, and
An increase of $10.6 million in salaries and wages due primarily to higher nonrecurring compensation costs of $9.9 million incurred during the fourth quarter, with the remaining increase reflective of the increase in average full-time equivalent employees ("FTE") by 109 to 3,522 FTEs.
The increase in professional services expense of $17.3 million, of which $3.4 million was due to nonrecurring costs related to software impairment, was reflective primarily of increased consulting fees during the fourth quarter of 2019 associated with planned increased project spend to support our global digital banking, and continued global infrastructure, initiatives.
The $13.4 million increase in other noninterest expense includes an increase of $5.8 million related to year-end corporate and employee match donations and advertising costs.
Income Tax Expense
Our effective tax rate was 26.4 percent for the fourth quarter of 2019, compared to 28.2 percent for the third quarter of 2019. 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 2019 was 27.2 percent compared to 26.5 percent for the full year 2018.
The decrease in our effective tax rate for the fourth quarter of 2019 was primarily due to benefits recognized for return-to-provision adjustments on our state tax returns and an increase in excess tax benefits from share-based compensation reflective primarily of a higher number of stock options exercised during the fourth quarter.
The increase in our effective tax rate for the full year 2019 is primarily due to a decrease in excess tax benefits from share-based compensation driven by a decrease in the number of stock options exercised during 2019 due to the decline in the stock price from the record highs during 2018.
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: 

9



 
 
Three months ended
 
Year ended
(Dollars in thousands)
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Net interest income (1)
 
$
(31
)
 
$
(14
)
 
$
(1
)
 
$
(72
)
 
$
(30
)
Noninterest income (1)
 
(704
)
 
(4,910
)
 
(2,215
)
 
(20,290
)
 
(22,342
)
Noninterest expense (1)
 
143

 
145

 
173

 
835

 
522

Carried interest allocation (2)
 
(11,368
)
 
(9,658
)
 
(6,624
)
 
(28,334
)
 
(15,658
)
Net income attributable to noncontrolling interests
 
$
(11,960
)
 
$
(14,437
)
 
$
(8,667
)
 
$
(47,861
)
 
$
(37,508
)
 
(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 $12.0 million for the fourth quarter of 2019, compared to $14.4 million for the third quarter of 2019. Net income attributable to noncontrolling interests of $12.0 million for the fourth quarter of 2019 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds and our managed direct venture funds portfolios, related primarily to net unrealized valuation increases for private and public company investments held by the funds in the portfolios.
SVBFG Stockholders’ Equity

Total SVBFG stockholders’ equity increased by $0.6 billion to $6.5 billion at December 31, 2019, compared to $5.9 billion at September 30, 2019, primarily due to net income of $262.9 million and an increase in capital of $340.1 million related to the issuance of preferred stock during the fourth quarter of 2019.
Preferred Stock
On December 9, 2019, SVB Financial Group issued depositary shares representing an ownership interest in 350,000 shares of Series A Preferred Stock with $0.001 par value and liquidation preference of $1,000 per share, or $25 per depositary share, with each depositary share representing a 1/40th ownership interest in a share of the preferred stock. The Series A Preferred Stock has no stated maturity and is not subject to any sinking fund or other obligation of SVB Financial Group. Dividends are approved by the Board of Directors and, if declared, are payable quarterly, in arrears, at a rate per annum equal to 5.25 percent.

As of December 31, 2019, there were 350,000 shares issued and outstanding of Series A Preferred Stock, which had a carrying value of $340.1 million and liquidation preference of $350 million.

Stock Repurchase Programs
On October 24, 2019, our Board of Directors authorized a stock repurchase program that enables us to repurchase up to $350 million of our outstanding common stock. At December 31, 2019, no shares were purchased under the stock repurchase program.
Capital Ratios

Our regulatory risk-based capital ratios and tier 1 leverage ratio increased for SVB Financial Group as of December 31, 2019, compared to the same ratios as of September 30, 2019. The increase in capital ratios is primarily a result of an increase in capital due to net income and our Series A Preferred Stock issuance. The increases were partially offset by an increase in risk-weighted assets and average assets driven primarily by robust loan growth during the fourth quarter of 2019.
Our regulatory risk-based capital ratios and tier 1 leverage ratio decreased for Silicon Valley Bank (the "Bank") as of December 31, 2019, compared to the same ratios as of September 30, 2019. The decrease in capital ratios was driven by the increase in risk-weighted assets driven by loan growth during the fourth quarter of 2019, partially offset by the increase in capital due to net income. Overall, decreases to the Bank's risk-based capital ratios were inclusive of a $100.0 million cash dividend paid by the Bank to our bank holding company, SVB Financial Group, during the fourth quarter of 2019.
All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations. See the "SVB Financial and Bank Capital Ratios" section, at the end of this release, for details.

10



Outlook for the Year Ending December 31, 2020

Our outlook for the year ending December 31, 2020 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. 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, 2020, compared to our full year 2019 results, we currently expect the following outlook: (Note that the outlook below includes: (i) the expected impact of the July 31, 2019, September 18, 2019 and October 30, 2019 decreases of the target Federal Funds rate by the Federal Reserve of 25 basis points each as well as the decreases in the 1- and 3- month LIBOR rates through December 31, 2019, and no assumptions about any further Federal Funds or LIBOR rate changes during 2020, and (ii) management updates to preliminary 2020 outlook for selected items previously disclosed on October 24, 2019.)
 
Current full year 2020 outlook compared to 2019 results (as of January 23, 2020)
Average loan balances
Increase at a percentage rate in the
low teens
Average deposit balances
Increase at a percentage rate in the
mid-teens
Net interest income (1)
Increase at a percentage rate in the
low single digits
Net interest margin (1)
Between 3.10% and 3.20%
Allowance for loan losses as a percentage of total gross loans (2)
Between 0.95% and 1.05%
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 (client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit fees) (3)
Increase at a percentage rate in the
low double digits
Core fee income (client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit fees) including investment banking revenue and commissions (3) (6)
Increase at a percentage rate in the
high single digits
Noninterest expense (excluding expenses related to noncontrolling interests) including SVB Leerink's noninterest expenses (4) (5) (6)
Increase at a percentage rate in the
high single digits
Effective tax rate (7)
Between 26% and 28%
 
(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)
Assumes stable economic conditions throughout the year ended December 31, 2020.
(3)
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 2020 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)
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 2020 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.
(5)
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.
(6)
Investment banking revenue, commissions and noninterest expense consists of revenue and expenses attributable entirely to SVB Leerink.

11



(7)
Our outlook for our effective tax rate is based on management's current assumptions with respect to, among other things, SVB Financial Group's earnings, state income tax levels, tax deductions and estimated performance-based compensation activity.

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 sections “CECL Adoption” and “Outlook for the Year Ending December 31, 2020,” we make forward-looking statements discussing management’s expectations for 2020 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; accounting impact; and financial results (and the components of such results), including the performance results of SVB Leerink for certain quarters in, and for the full year 2020.

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.

Earnings Conference Call
On Thursday, January 23, 2020, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended December 31, 2019. The conference call can be accessed by dialing (888) 771-4371 or (847) 585-4405, and entering the confirmation number "49249172". 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 23, 2020, through 9:59 p.m. (Pacific Time) on Saturday, February 22, 2020 and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering

12



the passcode "49249172#". A replay of the audio webcast will also be available on www.svb.com for 12 months beginning on January 23, 2020.

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 © 2020 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.


13



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three months ended
 
Year ended
(Dollars in thousands, except share data)
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
 
December 31,
2019
 
December 31,
2018
Interest income:


 
 
 
 
 
 
 
 
Loans

$
396,698

 
$
394,246

 
$
378,756

 
$
1,599,165

 
$
1,358,480

Investment securities:


 
 
 
 
 
 
 
 
Taxable

158,083

 
149,656

 
137,903

 
568,851

 
541,605

Non-taxable

11,961

 
11,123

 
11,110

 
44,952

 
34,616

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

21,993

 
28,867

 
15,128

 
96,440

 
35,208

Total interest income

588,735

 
583,892

 
542,897

 
2,309,408

 
1,969,909

Interest expense:


 
 
 
 
 
 
 
 
Deposits

47,509

 
55,106

 
10,897

 
177,672

 
29,306

Borrowings

7,558

 
8,142

 
17,540

 
35,135

 
46,615

Total interest expense

55,067

 
63,248

 
28,437

 
212,807

 
75,921

Net interest income

533,668

 
520,644

 
514,460

 
2,096,601

 
1,893,988

Provision for credit losses

17,383

 
36,536

 
13,644

 
106,416

 
87,870

Net interest income after provision for credit losses

516,285

 
484,108

 
500,816

 
1,990,185

 
1,806,118

Noninterest income:


 
 
 
 
 
 
 
 
Gains on investment securities, net

28,095

 
29,849

 
10,729

 
134,670

 
88,094

Gains on equity warrant assets, net

30,865

 
37,561

 
16,749

 
138,078

 
89,142

Client investment fees
 
45,163

 
46,679

 
41,768

 
182,068

 
130,360

Foreign exchange fees

42,399

 
40,309

 
38,252

 
159,262

 
138,812

Credit card fees

32,288

 
30,158

 
25,333

 
118,719

 
94,072

Deposit service charges

23,704

 
22,482

 
20,016

 
89,200

 
76,097

Lending related fees

13,063

 
11,707

 
11,011

 
49,920

 
41,949

Letters of credit and standby letters of credit fees

11,464

 
10,842

 
9,662

 
42,669

 
34,600

Investment banking revenue
 
58,172

 
38,516

 

 
195,177

 

Commissions
 
15,534

 
12,275

 

 
56,346

 

Other

12,597

 
13,631

 
13,187

 
55,370

 
51,858

Total noninterest income

313,344

 
294,009

 
186,707

 
1,221,479

 
744,984

Noninterest expense:


 
 
 
 
 
 
 
 
Compensation and benefits

274,661

 
233,840

 
183,782

 
989,734

 
726,980

Professional services

72,461

 
55,202

 
46,755

 
205,479

 
158,835

Premises and equipment

24,384

 
26,775

 
20,342

 
96,770

 
77,918

Net occupancy

19,563

 
16,981

 
14,155

 
69,279

 
54,753

Business development and travel

16,997

 
19,539

 
12,182

 
68,912

 
48,180

FDIC and state assessments

5,166

 
4,881

 
4,970

 
18,509

 
34,276

Other

47,520

 
34,106

 
25,406

 
152,579

 
87,251

Total noninterest expense

460,752

 
391,324

 
307,592

 
1,601,262

 
1,188,193

Income before income tax expense

368,877

 
386,793

 
379,931

 
1,610,402

 
1,362,909

Income tax expense

94,061

 
105,075

 
105,000

 
425,685

 
351,561

Net income before noncontrolling interests

274,816

 
281,718

 
274,931

 
1,184,717

 
1,011,348

Net income attributable to noncontrolling interests

(11,960
)
 
(14,437
)
 
(8,667
)
 
(47,861
)
 
(37,508
)
Net income available to common stockholders

$
262,856

 
$
267,281

 
$
266,264

 
$
1,136,856

 
$
973,840

Earnings per common share—basic
 
$
5.10

 
$
5.19

 
$
5.01

 
$
21.90

 
$
18.35

Earnings per common share—diluted
 
5.06

 
5.15

 
4.96

 
21.73

 
18.11

Weighted average common shares outstanding—basic
 
51,587,074

 
51,544,807

 
53,125,046

 
51,914,703

 
53,077,952

Weighted average common shares outstanding—diluted
 
51,959,250

 
51,858,470

 
53,684,512

 
52,310,657

 
53,771,457





14



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

(Dollars in thousands, except par value and share data)
 
December 31,
2019
 
September 30,
2019
 
December 31,
2018
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,781,783

 
$
6,946,196

 
$
3,571,539

Available-for-sale securities, at fair value (cost $13,894,348, $12,699,542 and $7,862,311, respectively)
 
14,014,919

 
12,866,857

 
7,790,043

Held-to-maturity securities, at cost (fair value $14,115,272, $14,698,802 and $15,188,236, respectively)
 
13,842,946

 
14,407,078

 
15,487,442

Non-marketable and other equity securities
 
1,213,829

 
1,150,094

 
941,104

Investment securities
 
29,071,694

 
28,424,029

 
24,218,589

Loans, net of unearned income
 
33,164,636

 
31,063,994

 
28,338,280

Allowance for loan losses
 
(304,924
)
 
(304,410
)
 
(280,903
)
Net loans
 
32,859,712

 
30,759,584

 
28,057,377

Premises and equipment, net of accumulated depreciation and amortization
 
161,876

 
146,713

 
129,213

Goodwill
 
137,823

 
137,823

 

Other intangible assets, net
 
49,417

 
52,288

 

Lease right-of-use assets
 
197,365

 
178,532

 

Accrued interest receivable and other assets
 
1,745,233

 
1,586,068

 
951,261

Total assets
 
$
71,004,903

 
$
68,231,233

 
$
56,927,979

Liabilities and total equity:
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
40,841,570

 
$
40,480,610

 
$
39,103,422

Interest-bearing deposits
 
20,916,237

 
19,062,264

 
10,225,478

Total deposits
 
61,757,807

 
59,542,874

 
49,328,900

Short-term borrowings
 
17,430

 
18,898

 
631,412

Lease liabilities
 
218,847

 
192,543

 

Other liabilities
 
2,041,752

 
1,731,222

 
1,006,359

Long-term debt
 
347,987

 
697,227

 
696,465

Total liabilities
 
64,383,823

 
62,182,764

 
51,663,136

SVBFG stockholders’ equity:
 
 
 
 
 
 
Preferred stock, $0.001 par value, 20,000,000 shares authorized; 350,000 shares issued and outstanding
 
340,138

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized; 51,655,607 shares, 51,555,831 shares and 52,586,498 shares issued and outstanding, respectively
 
52

 
52

 
53

Additional paid-in capital
 
1,470,071

 
1,441,730

 
1,378,438

Retained earnings
 
4,575,601

 
4,312,745

 
3,791,838

Accumulated other comprehensive income (loss)
 
84,445

 
136,153

 
(54,120
)
Total SVBFG stockholders’ equity
 
6,470,307

 
5,890,680

 
5,116,209

Noncontrolling interests
 
150,773

 
157,789

 
148,634

Total equity
 
6,621,080

 
6,048,469

 
5,264,843

Total liabilities and total equity
 
$
71,004,903

 
$
68,231,233

 
$
56,927,979




15



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
 
 
Three months ended
 
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
(Dollars in thousands, except yield/rate and ratios)