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8-K - FORM 8-K - SVB FINANCIAL GROUP | q215earningsrelease8-k.htm |
Exhibit 99.1
3003 Tasman Drive, Santa Clara, CA 95054 | Contact: | |||||||
www.svb.com | Meghan O'Leary | |||||||
Investor Relations | ||||||||
For release at 1:00 P.M. (Pacific Time) | (408) 654-6364 | |||||||
July 23, 2015 | ||||||||
NASDAQ: SIVB |
SVB FINANCIAL GROUP ANNOUNCES 2015 SECOND QUARTER FINANCIAL RESULTS
SANTA CLARA, Calif. — July 23, 2015 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the second quarter ended June 30, 2015.
Consolidated net income available to common stockholders for the second quarter of 2015 was $86.1 million, or $1.66 per diluted common share, compared to $88.5 million, or $1.71 per diluted common share, for the first quarter of 2015, and $51.0 million, or $1.04 per diluted common share, for the second quarter of 2014. Consolidated net income available to common stockholders for the six months ended June 30, 2015 was $174.7 million, or $3.37 per diluted common share, compared to $141.9 million, or $2.96 per diluted common share, for the comparable 2014 period.
“Outstanding venture capital investment securities and warrant gains, strong core fee income growth and continued exceptional client liquidity drove our solid second quarter results," said Greg Becker, President and CEO of SVB Financial Group. "While competition and low rates persist, SVB’s unique platform and ability to help our clients succeed in meaningful ways at every stage of development remain significant competitive advantages and we believe they will continue to drive our long-term growth."
Highlights of our second quarter 2015 results (compared to first quarter 2015, unless otherwise noted) included:
• | Average loan balances (net of unearned income) of $14.3 billion, an increase of $0.3 billion (or 2.1 percent). |
• | Average investment securities, excluding non-marketable and other securities, of $21.4 billion, an increase of $0.3 billion (or 1.4 percent). |
• | Average total client funds (consisting of both on-balance sheet deposits and off-balance sheet client investment funds) of $72.8 billion, an increase of $5.3 billion (or 7.9 percent) with average on-balance sheet deposits increasing by $1.1 billion (or 3.2 percent) and average off-balance sheet client investment funds increasing by $4.2 billion (or 12.6 percent). |
• | Net interest income (fully taxable equivalent basis) of $244.2 million, an increase of $4.8 million (or 2.0 percent). |
• | Net interest margin of 2.58 percent, a decrease of 6 basis points. |
• | Provision for loan losses of $26.5 million, compared to $6.5 million. |
• | Gains on investment securities of $25.0 million, compared to $33.3 million. Non-GAAP gains on investment securities, net of noncontrolling interests, were $15.9 million, compared to $19.1 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures”.) |
• | Gains on equity warrant assets of $23.6 million, compared to $20.3 million. |
• | Non-GAAP core fee income increased $7.9 million (or 13.6 percent) to $66.1 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures”.) |
• | Noninterest expense of $194.1 million, an increase of $3.6 million (or 1.9 percent). |
• | Certain amounts as of and for the three months ended March 31, 2015 have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (Accounting Standards Update 2015-02, "Consolidation" ("ASU 2015-02")). See page 3 for additional information. |
Second Quarter 2015 Summary
(Dollars in millions, except share data, employees and ratios) | Three months ended | Six months ended | ||||||||||||||||||||||||||
June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | June 30, 2015 | June 30, 2014 | ||||||||||||||||||||||
Income statement: | ||||||||||||||||||||||||||||
Diluted earnings per common share (1) | $ | 1.66 | $ | 1.71 | $ | 1.13 | $ | 1.24 | $ | 1.04 | $ | 3.37 | $ | 2.96 | ||||||||||||||
Net income available to common stockholders (1) | 86.1 | 88.5 | 58.0 | 64.0 | 51.0 | 174.7 | 141.9 | |||||||||||||||||||||
Net interest income | 243.8 | 238.9 | 234.7 | 220.6 | 205.0 | 482.7 | 401.3 | |||||||||||||||||||||
Provision for loan losses | 26.5 | 6.5 | 40.4 | 16.6 | 1.9 | 33.0 | 2.4 | |||||||||||||||||||||
Noninterest income (2) | 126.3 | 123.5 | 167.6 | 80.2 | 14.2 | 249.8 | 324.4 | |||||||||||||||||||||
Noninterest expense (1) (2) | 194.1 | 190.5 | 186.1 | 179.8 | 170.9 | 384.7 | 341.4 | |||||||||||||||||||||
Non-GAAP net income available to common stockholders (1) (3) | 86.1 | 88.5 | 69.4 | 64.0 | 51.0 | 174.7 | 141.9 | |||||||||||||||||||||
Non-GAAP diluted earnings per common share (1) (3) | 1.66 | 1.71 | 1.36 | 1.24 | 1.04 | 3.37 | 2.96 | |||||||||||||||||||||
Non-GAAP core fee income (3) | 66.1 | 58.2 | 55.3 | 53.3 | 50.0 | 124.3 | 100.9 | |||||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (1) (2) (3) | 117.7 | 109.4 | 104.3 | 75.3 | 49.5 | 227.1 | 173.0 | |||||||||||||||||||||
Non-GAAP noninterest expense, net of noncontrolling interests (1) (2) (3) | 193.9 | 190.2 | 180.5 | 175.0 | 165.7 | 384.1 | 332.8 | |||||||||||||||||||||
Fully taxable equivalent: | ||||||||||||||||||||||||||||
Net interest income (4) | $ | 244.2 | $ | 239.3 | $ | 235.2 | $ | 221.0 | $ | 205.4 | $ | 483.5 | $ | 402.1 | ||||||||||||||
Net interest margin | 2.58 | % | 2.65 | % | 2.66 | % | 2.73 | % | 2.79 | % | 2.61 | % | 2.95 | % | ||||||||||||||
Balance sheet: | ||||||||||||||||||||||||||||
Average total assets (2) | $ | 39,448.0 | $ | 38,225.6 | $ | 37,590.2 | $ | 34,598.3 | $ | 31,745.6 | $ | 38,840.2 | $ | 29,767.6 | ||||||||||||||
Average loans, net of unearned income (2) | 14,320.9 | 14,048.3 | 12,703.4 | 11,439.5 | 11,080.6 | 14,185.3 | 10,925.0 | |||||||||||||||||||||
Average available-for-sale securities (5) | 13,797.7 | 13,571.2 | 13,526.5 | 12,446.8 | 13,397.3 | 13,685.1 | 12,826.3 | |||||||||||||||||||||
Average held-to-maturity securities (5) | 7,639.8 | 7,569.8 | 7,115.3 | 5,775.6 | 1,793.7 | 7,605.0 | 901.8 | |||||||||||||||||||||
Average noninterest-bearing demand deposits (2) | 26,723.3 | 25,173.4 | 23,701.1 | 21,502.5 | 19,472.5 | 25,952.7 | 18,183.7 | |||||||||||||||||||||
Average interest-bearing deposits | 8,232.7 | 8,688.8 | 8,889.0 | 8,223.8 | 7,704.6 | 8,459.5 | 7,252.8 | |||||||||||||||||||||
Average total deposits (2) | 34,956.1 | 33,862.2 | 32,590.0 | 29,726.3 | 27,177.1 | 34,412.2 | 25,436.5 | |||||||||||||||||||||
Average long-term debt | 802.8 | 694.3 | 453.8 | 454.2 | 454.7 | 748.8 | 455.0 | |||||||||||||||||||||
Period-end total assets (1) (2) | 40,236.1 | 38,611.8 | 39,340.0 | 36,037.2 | 33,307.8 | 40,236.1 | 33,307.8 | |||||||||||||||||||||
Period-end loans, net of unearned income (2) | 14,261.4 | 14,447.7 | 14,384.3 | 12,017.2 | 11,348.7 | 14,261.4 | 11,348.7 | |||||||||||||||||||||
Period-end available-for-sale securities | 14,495.8 | 13,746.9 | 13,540.7 | 13,333.4 | 11,672.8 | 14,495.8 | 11,672.8 | |||||||||||||||||||||
Period-end held-to-maturity securities | 7,735.9 | 7,816.8 | 7,421.0 | 6,662.0 | 5,463.9 | 7,735.9 | 5,463.9 | |||||||||||||||||||||
Period-end non-marketable and other securities (1) (2) | 645.5 | 664.4 | 1,728.1 | 1,702.2 | 1,756.0 | 645.5 | 1,756.0 | |||||||||||||||||||||
Period-end noninterest-bearing demand deposits (2) | 27,734.7 | 25,796.1 | 24,583.7 | 22,461.1 | 20,235.5 | 27,734.7 | 20,235.5 | |||||||||||||||||||||
Period-end interest-bearing deposits | 7,892.2 | 8,135.0 | 9,759.8 | 8,662.1 | 8,117.0 | 7,892.2 | 8,117.0 | |||||||||||||||||||||
Period-end total deposits (2) | 35,627.0 | 33,931.1 | 34,343.5 | 31,123.1 | 28,352.5 | 35,627.0 | 28,352.5 | |||||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||||||
Average client investment funds | $ | 37,869.5 | $ | 33,625.1 | $ | 31,868.1 | $ | 30,988.2 | $ | 30,152.6 | $ | 35,747.3 | $ | 28,643.9 | ||||||||||||||
Period-end client investment funds | 40,084.5 | 35,169.8 | 32,367.7 | 31,143.9 | 30,376.0 | 40,084.5 | 30,376.0 | |||||||||||||||||||||
Total unfunded credit commitments | 15,808.2 | 15,485.5 | 14,705.8 | 14,631.6 | 13,570.0 | 15,808.2 | 13,570.0 | |||||||||||||||||||||
Earnings ratios: | ||||||||||||||||||||||||||||
Return on average assets (annualized) (1) (2) (6) | 0.88 | % | 0.94 | % | 0.61 | % | 0.73 | % | 0.64 | % | 0.91 | % | 0.96 | % | ||||||||||||||
Non-GAAP return on average assets (annualized) (1) (2) (3) | 0.88 | 0.94 | 0.73 | 0.73 | 0.64 | 0.91 | 0.96 | |||||||||||||||||||||
Return on average SVBFG stockholders’ equity (annualized) (1) (7) | 11.40 | 12.38 | 8.14 | 9.30 | 8.52 | 11.87 | 12.72 | |||||||||||||||||||||
Non-GAAP return on average SVBFG stockholders’ equity (annualized) (1) (3) | 11.40 | 12.38 | 9.74 | 9.30 | 8.52 | 11.87 | 12.72 | |||||||||||||||||||||
Asset quality ratios: | ||||||||||||||||||||||||||||
Allowance for loan losses as a % of total gross loans | 1.34 | % | 1.15 | % | 1.14 | % | 1.07 | % | 1.06 | % | 1.34 | % | 1.06 | % | ||||||||||||||
Allowance for loan losses for performing loans as a % of total gross performing loans | 0.99 | 0.99 | 1.04 | 1.05 | 1.02 | 0.99 | 1.02 | |||||||||||||||||||||
Gross charge-offs as a % of average total gross loans (annualized) | 0.13 | 0.16 | 0.15 | 0.37 | 0.23 | 0.14 | 0.50 | |||||||||||||||||||||
Net charge-offs as a % of average total gross loans (annualized) | 0.05 | 0.11 | 0.13 | 0.28 | 0.17 | 0.08 | 0.45 | |||||||||||||||||||||
Other ratios: | ||||||||||||||||||||||||||||
GAAP operating efficiency ratio (1) (2) (8) | 52.45 | % | 52.57 | % | 46.24 | % | 59.77 | % | 77.99 | % | 52.51 | % | 47.04 | % | ||||||||||||||
Non-GAAP operating efficiency ratio (1) (2) (3) | 53.57 | 54.56 | 53.19 | 59.08 | 64.99 | 54.06 | 57.85 | |||||||||||||||||||||
SVBFG CET 1 risk-based capital ratio (2) (9) | 12.54 | 11.92 | — | — | — | 12.54 | — | |||||||||||||||||||||
Bank CET 1 risk-based capital ratio (9) | 12.87 | 12.36 | — | — | — | 12.87 | — | |||||||||||||||||||||
SVBFG total risk-based capital ratio (2) (9) | 14.15 | 13.46 | 13.92 | 14.97 | 15.36 | 14.15 | 15.36 | |||||||||||||||||||||
Bank total risk-based capital ratio (9) | 13.93 | 13.35 | 12.12 | 13.06 | 13.41 | 13.93 | 13.41 | |||||||||||||||||||||
SVBFG tier 1 leverage ratio (2) (9) | 7.95 | 7.92 | 7.74 | 8.22 | 8.74 | 7.95 | 8.74 | |||||||||||||||||||||
Bank tier 1 leverage ratio (9) | 7.39 | 7.43 | 6.64 | 7.05 | 7.51 | 7.39 | 7.51 | |||||||||||||||||||||
Period-end loans, net of unearned income, to deposits ratio (2) | 40.03 | 42.58 | 41.88 | 38.61 | 40.03 | 40.03 | 40.03 | |||||||||||||||||||||
Average loans, net of unearned income, to average deposits ratio | 40.97 | 41.49 | 38.98 | 38.48 | 40.77 | 41.22 | 42.95 | |||||||||||||||||||||
Book value per common share (1) (10) | $ | 59.29 | $ | 58.16 | $ | 55.24 | $ | 53.48 | $ | 52.69 | $ | 59.29 | $ | 52.69 | ||||||||||||||
Other statistics: | ||||||||||||||||||||||||||||
Average full-time equivalent employees | 1,959 | 1,955 | 1,907 | 1,850 | 1,768 | 1,957 | 1,751 | |||||||||||||||||||||
Period-end full-time equivalent employees | 1,964 | 1,965 | 1,914 | 1,881 | 1,786 | 1,964 | 1,786 |
2
(1) | Amounts and ratios for periods prior to March 31, 2015 have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects ("ASU 2014-01"). |
(2) | Amounts and ratios as of and for the three months ended March 31, 2015 have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts and ratios prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
(3) | To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures. A reconciliation of these non-GAAP measures to GAAP is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.” |
(4) | Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 35.0 percent. The taxable equivalent adjustments were $0.4 million for each of the quarters ended June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014, and June 30, 2014. The taxable equivalent adjustments were $0.8 million and $0.9 million for the six month periods ended June 30, 2015 and 2014, respectively. |
(5) | Three and six months ended June 30, 2014 average balances are reflective of the re-designation from available-for-sale to held-to-maturity effective June 1, 2014. |
(6) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average assets. |
(7) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average SVBFG stockholders’ equity. |
(8) | Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income. |
(9) | Ratios as of June 30, 2015 and March 31, 2015 reflect the adoption of the Basel III Capital Rules in effect beginning January 1, 2015. Ratios for prior periods represent the previous capital rules under Basel I. |
(10) | Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares. |
Impact of Adopting New Accounting Guidance
In the second quarter of 2015, we elected to early adopt the new accounting guidance included in ASU 2015-02, which amends the consolidation requirements for certain legal entities. Historically, 21 of our SVB Capital funds have been consolidated into our financial statements. As a result of the new guidance, we meet the ASU 2015-02 criteria to not have to consolidate certain funds and as such we deconsolidated 16 entities associated with our SVB Capital funds management business. The deconsolidation of these entities resulted in the removal of the noncontrolling assets, liabilities and equity interest portion of these funds from our consolidated financial statements. As such, our consolidated financial results reflect SVB Financial Group's ("SVB Financial") ownership and not the entire funds' balances and activities, which is consistent with our historical non-GAAP financial measures presentation of our funds business activities net of noncontrolling interests for consolidated funds. See non-GAAP reconciliations under the section “Use of Non-GAAP Financial Measures” for non-GAAP financial measures reflecting the exclusion of amounts attributable to noncontrolling interests.
We applied the accounting guidance as of the beginning of the fiscal year of adoption, January 1, 2015, and revised our financial statements as of and for the three months ended March 31, 2015. Upon adoption, we deconsolidated 16 entities, which reduced our total assets and total equity (which includes SVBFG stockholders' equity plus Noncontrolling interests) by $1.1 billion and $1.2 billion, respectively, primarily as a result of the reduction of our non-marketable and other securities and noncontrolling interests, respectively. Additionally, income before income tax expense for the three months ended March 31, 2015 decreased by $42.9 million, primarily as a result of a decrease in gains on investment securities, net, offset by a corresponding reduction to net income attributable to noncontrolling interests, with no impact to net income available to common stockholders. SVB Financial continues to consolidate its interest in five SVB Capital funds that did not meet the criteria to be deconsolidated. The noncontrolling interests related to these five funds approximate $138 million and $142 million as of June 30, 2015 and March 31, 2015, respectively. See page 21 for supplemental tables highlighting the impact of adopting ASU 2015-02.
Selected adjustments to previously reported amounts as of and for the three months ended March 31, 2015 are as follows:
Interim Consolidated Balance Sheet Items
March 31, 2015 | ||||||||||||
(Dollars in thousands) | As previously reported | Adjustment | As revised | |||||||||
Non-marketable and other securities | $ | 1,706,873 | $ | (1,042,485 | ) | $ | 664,388 | |||||
Total assets | 39,695,990 | (1,084,155 | ) | 38,611,835 | ||||||||
Total SVBFG stockholders' equity | 2,971,637 | 55 | 2,971,692 | |||||||||
Noncontrolling interests | 1,305,594 | (1,163,318 | ) | 142,276 | ||||||||
Total equity (includes SVBFG stockholders' equity plus Noncontrolling interests) | 4,277,231 | (1,163,263 | ) | 3,113,968 |
3
Interim Consolidated Statement of Income Items
Three months ended March 31, 2015 | ||||||||||||
(Dollars in thousands) | As previously reported | Adjustment | As revised | |||||||||
Gains on investment securities, net | $ | 83,159 | $ | (49,896 | ) | $ | 33,263 | |||||
Total noninterest income | 172,018 | (48,494 | ) | 123,524 | ||||||||
Total noninterest expense | 196,108 | (5,567 | ) | 190,541 | ||||||||
Net income attributable to noncontrolling interests | (56,766 | ) | 42,892 | (13,874 | ) | |||||||
Net income available to common stockholders | 88,516 | — | 88,516 |
Net Interest Income and Margin
Net interest income, on a fully taxable equivalent basis, was $244.2 million for the second quarter of 2015, compared to $239.3 million for the first quarter of 2015 and $205.4 million for the second quarter of 2014. The following table provides a summary of changes in interest income and interest expense attributable to both volume and rate from the first quarter of 2015 to the second quarter of 2015. Changes that are not solely due to either volume or rate (principally changes in the number of days from quarter to quarter) are allocated in proportion to the percentage changes in average volume and average rate:
Q2'15 compared to Q1'15 | ||||||||||||
Increase (decrease) due to change in | ||||||||||||
(Dollars in thousands) | Volume | Rate | Total | |||||||||
Interest income: | ||||||||||||
Short-term investment securities | $ | 393 | $ | (342 | ) | $ | 51 | |||||
AFS / HTM investment securities | 355 | 2,937 | 3,292 | |||||||||
Loans | 4,055 | (2,304 | ) | 1,751 | ||||||||
Increase in interest income, net | 4,803 | 291 | 5,094 | |||||||||
Interest expense: | ||||||||||||
Deposits | (62 | ) | (699 | ) | (761 | ) | ||||||
Short-term borrowings | (11 | ) | 12 | 1 | ||||||||
Long-term debt | 1,308 | (284 | ) | 1,024 | ||||||||
Increase (decrease) in interest expense, net | 1,235 | (971 | ) | 264 | ||||||||
Increase in net interest income | $ | 3,568 | $ | 1,262 | $ | 4,830 |
The increase in net interest income, on a fully taxable equivalent basis, from the first quarter of 2015 to the second quarter of 2015, was primarily attributable to the following:
• | An increase in interest income from our fixed income securities in our available-for-sale ("AFS") and held-to-maturity ("HTM") portfolios of $3.3 million to $85.8 million for the second quarter of 2015. The increase was primarily reflective of a decrease in premium amortization expense of $3.2 million due to a slowdown in prepayments during the quarter as a result of market rate increases. The overall yield on our fixed income investment securities portfolio increased 2 basis points, driven primarily by the benefit of lower premium amortization expense, partially offset by an increase in the number of days in the second quarter of 2015 (compared to the first quarter of 2015). The remaining unamortized premium balance as of June 30, 2015 and March 31, 2015 was $23.4 million (net of discounts of $82.1 million) and $16.4 million (net of discounts of $85.9 million), respectively. |
• | An increase in interest income from loans of $1.8 million to $167.3 million for the second quarter of 2015. The increase was primarily reflective of the increase in average loan balances of $272.6 million as well as an increase in the number of days in the second quarter of 2015 (compared to the first quarter of 2015), offset by a decrease in loan yields. Our overall loan yields decreased by 10 basis points, to 4.68 percent from 4.78 percent, primarily reflective of an 8 basis point decrease in gross loan yields, primarily reflective of the overall low market rate environment and continued competition in the marketplace as well as a shift in the mix of our overall loan portfolio. Our average loan growth during the second quarter of 2015 was primarily driven by our Private Bank loan portfolio, which saw strong growth towards the end of the first quarter of 2015 with continued growth through the second quarter of 2015. Private Bank loans, on average, tend to have lower yields. |
4
Net interest margin, on a fully taxable equivalent basis, was 2.58 percent for the second quarter of 2015, compared to 2.64 percent for the first quarter of 2015 and 2.79 percent for the second quarter of 2014. The decline in our net interest margin, from the first quarter of 2015 to the second quarter of 2015, was primarily reflective of the decrease in gross loan yields as outlined above.
For the second quarter of 2015, 83.6 percent or $12.1 billion, of our average outstanding gross loans were variable-rate loans that adjust at prescribed measurement dates upon a change in prime-lending rates or other variable-rate indices. This compares to 83.0 percent or $11.8 billion, for the first quarter of 2015, and 79.3 percent or $9.0 billion, for the second quarter of 2014.
Investment Securities
Our investment securities portfolio consists of : i) an available-for-sale portfolio and a held-to-maturity portfolio, both of which primarily represent interest-earning fixed income investment securities and are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives; and (ii) a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business. Our total period-end fixed income investment securities portfolio increased by $0.7 billion, or 3.1 percent, to $22.2 billion at June 30, 2015. New investments of $1.5 billion included $1.2 billion in U.S. Treasuries and the remainder were primarily in Government National Mortgage Association ("GNMA") backed securities, as part of our continued focus on limiting our duration risk. The duration of our fixed income investment securities portfolio was 2.8 years at June 30, 2015 compared to 2.7 years at March 31, 2015. Non-marketable and other securities decreased by $18.9 million to $645.5 million ($517.0 million net of noncontrolling interests) at June 30, 2015.
Available-for-Sale Securities
Average AFS securities were $13.8 billion for the second quarter of 2015, compared to $13.6 billion for the first quarter of 2015, an increase of $0.2 billion. Average AFS securities were $13.4 billion for the second quarter of 2014. Period-end AFS securities were $14.5 billion at June 30, 2015, $13.7 billion at March 31, 2015 and $11.7 billion at June 30, 2014. The increase in period-end AFS securities balances from the first quarter of 2015 to the second quarter of 2015 was primarily due to purchases of $1.2 billion in fixed rate U.S. Treasury securities, partially offset by paydowns and maturities of $0.4 billion. An increase in market interest rates at period-end resulted in a decrease in the fair value of our AFS securities portfolio of $45.5 million. The $45.5 million decrease in fair value is reflected as a $27.3 million (net of tax) decrease in accumulated other comprehensive income.
Held-to-Maturity Securities
Average HTM securities were $7.6 billion for each of the first and second quarters of 2015, and $1.8 billion for the second quarter of 2014. Period-end HTM securities were $7.7 billion at June 30, 2015, $7.8 billion at March 31, 2015 and $5.5 billion at June 30, 2014. The decrease in period-end balances from the first quarter of 2015 to the second quarter of 2015 were reflective of paydowns and maturities of $0.4 billion, partially offset by new investments of $0.3 billion, primarily in GNMA agency-issued mortgage securities.
Non-Marketable and Other Securities
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, debt funds and private and public portfolio companies.
Non-marketable and other securities decreased by $18.9 million to $645.5 million ($517.0 million net of noncontrolling interests) at June 30, 2015, compared to $664.4 million ($534.5 million net of noncontrolling interests) at March 31, 2015 and $1.8 billion ($490.3 million net of noncontrolling interests) at June 30, 2014. The $18.9 million decrease was primarily due to distributions received from our strategic venture capital fund investments, partially offset by valuation increases in our managed funds of funds. Reconciliations of our non-GAAP non-marketable and other securities, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures."
5
Loans
Average loans (net of unearned income) increased by $0.3 billion to $14.3 billion for the second quarter of 2015, compared to $14.0 billion for the first quarter of 2015 and $11.1 billion for the second quarter of 2014. Period-end loans, (net of unearned income) decreased by $186.3 million to $14.3 billion at June 30, 2015, compared to $14.4 billion at March 31, 2015 and $11.3 billion at June 30, 2014. The increase in average loans was reflective of strong loan growth from our Private Bank loan portfolio towards the end of the first quarter of 2015 with continued growth through the second quarter of 2015. The decrease in period-end loans was primarily driven by the repayment of capital call lines near the end of the second quarter 2015.
Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million decreased by $0.9 billion and totaled $5.2 billion, $6.1 billion and $3.9 billion at June 30, 2015, March 31, 2015 and June 30, 2014, respectively, which represents 36.3 percent, 42.2 percent and 33.8 percent of total gross loans, respectively. Further details are provided under the section “Loan Concentrations."
Credit Quality
The following table provides a summary of our allowance for loan losses:
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in thousands, except ratios) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Allowance for loan losses, beginning balance | $ | 167,875 | $ | 165,359 | $ | 123,542 | $ | 165,359 | $ | 142,886 | ||||||||||
Provision for loan losses | 26,513 | 6,452 | 1,947 | 32,965 | 2,441 | |||||||||||||||
Gross loan charge-offs | (4,734 | ) | (5,487 | ) | (6,382 | ) | (10,221 | ) | (27,532 | ) | ||||||||||
Loan recoveries | 2,990 | 1,551 | 1,621 | 4,541 | 2,933 | |||||||||||||||
Allowance for loan losses, ending balance | $ | 192,644 | $ | 167,875 | $ | 120,728 | $ | 192,644 | $ | 120,728 | ||||||||||
Provision for loan losses as a percentage of period-end total gross loans (annualized) | 0.74 | % | 0.18 | % | 0.07 | % | 0.46 | % | 0.04 | % | ||||||||||
Gross loan charge-offs as a percentage of average total gross loans (annualized) | 0.13 | 0.16 | 0.23 | 0.14 | 0.50 | |||||||||||||||
Net loan charge-offs as a percentage of average total gross loans (annualized) | 0.05 | 0.11 | 0.17 | 0.08 | 0.45 | |||||||||||||||
Allowance for loan losses as a percentage of period-end total gross loans | 1.34 | 1.15 | 1.06 | 1.34 | 1.06 | |||||||||||||||
Period-end total gross loans | $ | 14,370,930 | $ | 14,554,854 | $ | 11,437,300 | $ | 14,370,930 | $ | 11,437,300 | ||||||||||
Average total gross loans | 14,427,039 | 14,150,758 | 11,166,021 | 14,289,662 | 11,010,328 |
Our provision for loan losses was $26.5 million for the second quarter of 2015, compared to $6.5 million for the first quarter of 2015. The provision of $26.5 million was primarily driven by an increase of $27.1 million in the reserve for impaired loans and $1.7 million in net charge-offs, offset by a $2.4 million reduction due to the decrease in period-end loan balances. The increase in the reserve for impaired loans was primarily reflective of two newly impaired software and internet loans, resulting in specific reserves of $21.1 million.
Gross loan charge-offs of $4.7 million for the second quarter of 2015 primarily came from an early-stage client loan within our life science and healthcare loan portfolio.
Our allowance for loan losses as a percentage of total gross loans increased to 1.34 percent at June 30, 2015, compared to 1.15 percent at March 31, 2015. The 19 basis point increase in our allowance for loan losses as a percentage of total gross loans is a result of the increase in our reserve for impaired loans due to larger impaired loan balances as noted above. Our allowance for loan losses for total gross performing loans as a percentage of total gross performing loans remained unchanged at 0.99 percent at June 30, 2015.
Our impaired loans totaled $100.8 million at June 30, 2015, compared to $42.4 million at March 31, 2015. Our impaired loan balance increased $58.4 million, primarily as a result of $63.4 million in newly impaired loans, partially offset by $5.0 million in repayments. Newly impaired loans included $47.2 million from two software and internet clients. The allowance for loan losses related to impaired loans was $50.9 million at June 30, 2015, compared to $23.8 million at March 31, 2015.
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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 $72.8 billion for the second quarter of 2015, compared to $67.5 billion for the first quarter of 2015 and $57.3 billion for the second quarter of 2014. Period-end total client funds were $75.7 billion at June 30, 2015, compared to $69.0 billion at March 31, 2015 and $58.7 billion at June 30, 2014.
Deposits
Average deposits were $35.0 billion for the second quarter of 2015, compared to $33.9 billion for the first quarter of 2015 and $27.2 billion for the second quarter of 2014. Period-end deposits were $35.6 billion at June 30, 2015, compared to $33.9 billion at March 31, 2015 and $28.4 billion at June 30, 2014. Both average and period-end noninterest-bearing demand deposits increased during the second quarter of 2015, primarily from our venture capital-backed early-stage and private equity/venture capital clients, resulting from strong equity funding rounds and exit activity, respectively, during the quarter. Approximately 27% of our average deposit growth was attributable to new client additions.
Off-Balance Sheet Client Investment Funds
Average off-balance sheet client investment funds were $37.9 billion for the second quarter of 2015, compared to $33.6 billion for the first quarter of 2015 and $30.2 billion for the second quarter of 2014. Period-end client investment funds were $40.1 billion at June 30, 2015, compared to $35.2 billion at March 31, 2015 and $30.4 billion at June 30, 2014. The increase in period-end off-balance sheet client investment funds from the first quarter of 2015 to the second quarter of 2015 was primarily attributable to our clients' utilization of our off-balance sheet products managed by SVB Asset Management, reflective of the capital raising activity of our early-stage and mid-to-late-stage clients, as well as our clients' increased utilization of our sweep money market and repurchase agreement funds.
Noninterest Income
Noninterest income was $126.3 million for the second quarter of 2015, compared to $123.5 million for the first quarter of 2015 and $14.2 million for the second quarter of 2014. Non-GAAP noninterest income, net of noncontrolling interests was $117.7 million for the second quarter of 2015, compared to $109.4 million for the first quarter of 2015 and $49.5 million for the second quarter of 2014. (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures".)
The increase of $2.8 million ($8.3 million net of noncontrolling interests) in noninterest income from the first quarter of 2015 to the second quarter of 2015 was primarily driven by an increase in net gains on equity warrant assets and higher fee income in our foreign exchange and credit card businesses, partially offset by decreases in net gains on investment securities.
Items impacting the change in noninterest income from the first quarter of 2015 to the second quarter of 2015 were as follows:
• | Gains on investment securities of $25.0 million for the second quarter of 2015, compared to gains of $33.3 million for the first quarter of 2015. Net of noncontrolling interests, non-GAAP net gains on investment securities were $15.9 million for the second quarter of 2015 compared to net gains of $19.1 million for the first quarter of 2015. The non-GAAP net gains, net of noncontrolling interests, of $15.9 million for the second quarter of 2015 were primarily driven by the following: |
◦ | Gains of $9.5 million from our strategic and other investments, primarily driven by strong distributions from our strategic venture capital fund investments. |
◦ | Gains of $5.4 million from our managed funds of funds, primarily related to unrealized valuation adjustments. |
As of June 30, 2015, we directly or indirectly (through 5 of our consolidated managed investment funds) held investments in 304 venture capital funds, 87 companies and 5 debt funds.
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The following tables provide a summary of non-GAAP net gains on investment securities, net of noncontrolling interests for the three months ended June 30, 2015 and March 31, 2015, respectively:
Three months ended June 30, 2015 | ||||||||||||||||||||||||
(Dollars in thousands) | Managed Funds Of Funds | Managed Direct Venture Funds | Debt Funds | Available- For-Sale Securities | Strategic and Other Investments | Total | ||||||||||||||||||
Total gains on investment securities, net | $ | 14,281 | $ | 869 | $ | 183 | $ | 141 | $ | 9,501 | $ | 24,975 | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest | 8,913 | 123 | — | — | — | 9,036 | ||||||||||||||||||
Non-GAAP net gains on investment securities, net of noncontrolling interests | $ | 5,368 | $ | 746 | $ | 183 | $ | 141 | $ | 9,501 | $ | 15,939 | ||||||||||||
Three months ended March 31, 2015 (Revised) (1) | ||||||||||||||||||||||||
(Dollars in thousands) | Managed Funds Of Funds | Managed Direct Venture Funds | Debt Funds | Available- For-Sale Securities | Strategic and Other Investments | Total | ||||||||||||||||||
Total gains on investment securities, net | $ | 10,659 | $ | 11,669 | $ | 916 | $ | 2,596 | $ | 7,423 | $ | 33,263 | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest | 7,139 | 7,032 | — | — | — | 14,171 | ||||||||||||||||||
Non-GAAP net gains on investment securities, net of noncontrolling interests | $ | 3,520 | $ | 4,637 | $ | 916 | $ | 2,596 | $ | 7,423 | $ | 19,092 |
(1) | Amounts for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
• | Net gains on derivative instruments were $16.3 million for the second quarter of 2015, compared to $39.7 million for the first quarter of 2015. The following table provides a summary of our net gains on derivative instruments: |
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in thousands) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Net gains on equity warrant assets | $ | 23,616 | $ | 20,278 | $ | 12,329 | $ | 43,894 | $ | 37,702 | ||||||||||
(Losses) gains on foreign exchange forward contracts, net: | ||||||||||||||||||||
Gains (losses) on client foreign exchange forward contracts, net | 787 | (507 | ) | 170 | 280 | 472 | ||||||||||||||
(Losses) gains on internal foreign exchange forward contracts, net (1) | (8,174 | ) | 20,018 | 538 | 11,844 | (491 | ) | |||||||||||||
Total (losses) gains on foreign exchange forward contracts, net | (7,387 | ) | 19,511 | 708 | 12,124 | (19 | ) | |||||||||||||
Net gains (losses) on other derivatives (2) | 88 | (60 | ) | (262 | ) | 28 | (741 | ) | ||||||||||||
Total gains on derivative instruments, net | $ | 16,317 | $ | 39,729 | $ | 12,775 | $ | 56,046 | $ | 36,942 |
(1) | Represents the change in fair value of foreign exchange forward contracts used to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments. The change in fair value of our foreign exchange forward contracts is offset by the revaluation of foreign currency denominated instruments which are included in the line item "Other" within noninterest income. |
(2) | Primarily represents the change in fair value of our client interest rate derivatives and our interest rate swaps. |
◦ | Net gains of $16.3 million on derivative instruments for the second quarter of 2015 were primarily attributable to the following: |
•Net gains on equity warrant assets of $23.6 million resulted from the following:
◦ | Net gains of $14.6 million from the exercise of equity warrant assets, compared to net gains of $4.0 million for the first quarter of 2015. The net gains were primarily reflective of $13.9 million in realized gains from one company in our public company warrant portfolio. |
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◦ | Net gains of $9.1 million from changes in warrant valuations in the second quarter of 2015 compared to net gains of $16.5 million for the first quarter of 2015. The warrant valuation gains were primarily from our private company warrant portfolio. |
At June 30, 2015, we held warrants in 1,587 companies with a total value of $122.5 million. Of the 1,587 companies, 25 companies made up approximately 36 percent of the fair value of the portfolio at June 30, 2015. The gains from our equity warrants that are from changes in warrant valuations are currently unrealized, and the extent 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.
• | Net losses of $8.2 million on internal foreign exchange forward contracts used to economically reduce our foreign exchange exposure to foreign currency denominated instruments for the second quarter of 2015, compared to net gains of $20.0 million for the first quarter of 2015. The net losses of $8.2 million were offset by net gains of $8.3 million from the revaluation of foreign currency denominated instruments that are included in the line item "Other" within noninterest income. |
• | Net gains of $0.8 million on client foreign exchange forward contracts, compared to net losses of $0.5 million for the first quarter of 2015. The $1.3 million increase from net losses to net gains was primarily reflective of the depreciation of the U.S. dollar during the second quarter of 2015. The net gains of $0.8 million were offset by net losses of $0.8 million from the revaluation of foreign currency denominated cash that are included in the line item "Other" within noninterest income. |
Non-GAAP core fee income (foreign exchange fees, credit card fees, deposit service charges, lending related fees, letters of credit fees and client investment fees) increased $7.9 million to $66.1 million for the second quarter of 2015, compared to $58.2 million for the first quarter of 2015 and $50.0 million for the second quarter of 2014. Reconciliations of our non-GAAP noninterest income, non-GAAP core fee income and non-GAAP net gains on investment securities discussed in this section are provided under the section “Use of Non-GAAP Financial Measures.”
The following table provides a summary of our non-GAAP core fee income:
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in thousands) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Non-GAAP core fee income: | ||||||||||||||||||||
Foreign exchange fees | $ | 22,364 | $ | 17,678 | $ | 17,928 | $ | 40,042 | $ | 35,124 | ||||||||||
Credit card fees | 14,215 | 12,090 | 10,249 | 26,305 | 20,531 | |||||||||||||||
Deposit service charges | 11,301 | 10,736 | 9,611 | 22,037 | 19,218 | |||||||||||||||
Lending related fees | 8,163 | 8,022 | 5,876 | 16,185 | 12,179 | |||||||||||||||
Letters of credit and standby letters of credit fees | 4,772 | 5,202 | 2,810 | 9,974 | 6,950 | |||||||||||||||
Client investment fees | 5,264 | 4,482 | 3,519 | 9,746 | 6,937 | |||||||||||||||
Total Non-GAAP core fee income | $ | 66,079 | $ | 58,210 | $ | 49,993 | $ | 124,289 | $ | 100,939 |
The increase in non-GAAP core fee income from the first quarter of 2015 to the second quarter of 2015 was primarily attributable to the following:
◦ | An increase of $4.7 million in foreign exchange fees as a result of continued strong growth in transaction volumes. |
◦ | An increase of $2.1 million in credit card fees primarily reflective of an increase in credit card interchange fee income as a result of increased transaction volumes. |
◦ | An increase of $0.8 million in client investment fees driven by increased client utilization of our off-balance sheet products. |
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Noninterest Expense
Noninterest expense was $194.1 million for the second quarter of 2015, compared to $190.5 million for the first quarter of 2015 and $170.9 million for the second quarter of 2014. The increase of $3.6 million in noninterest expense was primarily driven by a $9.1 million increase in compensation and benefits, partially offset by a $5.3 million decrease in the provision for unfunded credit commitments, reflective of a reduction of the reserve for unfunded credit commitments for the second quarter of 2015. The reduction in the reserve is reflective of a change in the composition of our unfunded credit commitment portfolio, which resulted in a decrease in the reserve rate.
The following table provides a summary of our compensation and benefits expense:
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in thousands, except employees) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Compensation and benefits: | ||||||||||||||||||||
Salaries and wages | $ | 51,648 | $ | 51,425 | $ | 45,157 | $ | 103,073 | $ | 89,510 | ||||||||||
Incentive compensation plan | 37,234 | 26,376 | 25,561 | 63,610 | 50,336 | |||||||||||||||
ESOP | 2,635 | 2,167 | 2,185 | 4,802 | 3,858 | |||||||||||||||
Other employee benefits (1) | 33,398 | 35,802 | 26,917 | 69,200 | 58,623 | |||||||||||||||
Total compensation and benefits | $ | 124,915 | $ | 115,770 | $ | 99,820 | $ | 240,685 | $ | 202,327 | ||||||||||
Period-end full-time equivalent employees | 1,964 | 1,965 | 1,786 | 1,964 | 1,786 | |||||||||||||||
Average full-time equivalent employees | 1,959 | 1,955 | 1,768 | 1,957 | 1,751 |
(1) | Other employee benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee-related expenses. |
The $9.1 million increase in total compensation and benefits expense primarily consists of the following:
• | An increase of $10.9 million in expense relating to incentive compensation plans, which reflects our current expectation that we will exceed our internal performance targets for 2015. |
• | A decrease of $2.4 million in total other employee benefits primarily attributable to a decrease of $4.3 million in 401(k) employer matching contributions and the associated payroll taxes, made in the first quarter of 2015, offset by increases in other employee related benefits. |
Non-GAAP noninterest expense, net of noncontrolling interests was $193.9 million for the second quarter of 2015, compared to $190.2 million for the first quarter of 2015 and $165.7 million for the second quarter of 2014. Reconciliations of our non-GAAP noninterest expense, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures.”
Income Tax Expense
Our effective tax rate was 39.0 percent for the second quarter of 2015, compared to 41.6 percent for the first quarter of 2015 and 41.4 percent for the second quarter of 2014.
The decrease in our effective tax rate for the second quarter of 2015 was primarily due to a decrease in the unremitted earnings tax liability of SVB India Finance Private Limited ("SVBIF") upon the completion of its sale during the quarter, in addition to recognition of tax benefits from net operating loss carryforwards related to a previously disposed business line.
For periods prior to January 1, 2015, pursuant to the adoption of ASU 2014-01, (i) amortization expense related to our low income housing tax credits was reclassified from Other noninterest expense to Income tax expense, (ii) additional amortization, net of the associated tax benefits, was recognized in Income tax expense as a result of our adoption of the proportional amortization method and (iii) net deferred tax assets, related to our low income housing tax investments, were written-off. The cumulative effect on retained earnings upon adoption of this guidance on January 1, 2015 was a reduction of $4.7 million. The adoption of this guidance did not have a material impact on net income or earnings per share for the three and six months ended June 30, 2014.
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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.
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) Loss Attributable to Noncontrolling Interests” in our statements of income. The following table provides a summary of net income attributable to noncontrolling interests:
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in thousands) | June 30, 2015 | March 31, 2015 (Revised) (3) | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Net interest (income) loss (1) | $ | (2 | ) | $ | (2 | ) | $ | 5 | $ | (4 | ) | $ | (3 | ) | ||||||
Noninterest (income) loss (1) | (7,382 | ) | (14,053 | ) | 43,961 | (21,435 | ) | (158,177 | ) | |||||||||||
Noninterest expense (1) | 242 | 292 | 5,267 | 534 | 8,588 | |||||||||||||||
Carried interest (loss) income (2) | (1,174 | ) | (111 | ) | (8,636 | ) | (1,285 | ) | 6,784 | |||||||||||
Net (income) loss attributable to noncontrolling interests | $ | (8,316 | ) | $ | (13,874 | ) | $ | 40,597 | $ | (22,190 | ) | $ | (142,808 | ) |
(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. |
(3) | Amounts for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
Net income attributable to noncontrolling interests was $8.3 million for the second quarter of 2015, compared to $13.9 million for the first quarter of 2015 and a net loss of $40.6 million for the second quarter of 2014. Net income attributable to noncontrolling interests of $8.3 million for the second quarter of 2015 was primarily a result of the following:
• | Net gains on investment securities (including carried interest) attributable to noncontrolling interests of $9.0 million, primarily from gains of $8.9 million from our managed funds of funds mainly due to valuation increases, and |
• | Noninterest expense of $0.2 million, primarily related to management fees paid by the noncontrolling interests of the consolidated SVB Capital funds to our subsidiaries that serve as the GP. |
SVBFG Stockholders’ Equity
Total SVBFG stockholders’ equity increased by $79.4 million to $3.1 billion at June 30, 2015, primarily due to net income of $86.1 million and an increase in additional paid-in capital of $22.1 million attributable to amortization of share-based compensation and stock option exercises during the quarter. The increases were partially offset by a decrease in our accumulated other comprehensive income from $92.7 million to $63.9 million at June 30, 2015, which was primarily driven by a $45.5 million decrease in the fair value of our available-for-sale securities portfolio ($27.3 million, net of tax), reflective of an increase in period-end market interest rates compared to the prior quarter end.
Capital Ratios
SVB Financial’s capital ratios (CET 1, tier 1 and total risk-based capital and tier 1 leverage) increased as of June 30, 2015, compared to the same ratios as of March 31, 2015. The increases reflect quarterly earnings, which increased our capital, and a decrease in period end loans, which reduced our risk-weighted assets. Silicon Valley Bank’s (the “Bank”) risk-based capital ratios increased as a result of quarterly earnings and a decrease in period-end loans. The decrease in the Bank’s tier 1 leverage ratio was due to an increase in quarterly average assets, which was partially offset by quarterly earnings.
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 all capital ratios.
Capital ratios as of March 31, 2015 have been revised to reflect the adoption of ASU 2015-02. See page 22 for the impact of the adoption of this guidance on previously reported March 31, 2015 capital ratios.
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Outlook for the Year Ending December 31, 2015
Our outlook for the year ending December 31, 2015 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. Except for the items noted below, we do not provide our outlook for certain items (such as gains (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 year ending December 31, 2015, compared to our 2014 results, we currently expect the following outlook:
Current full year 2015 outlook compared to 2014 results (as of July 23, 2015) | Change in outlook compared to outlook reported as of April 23, 2015 | |
Average loan balances | Increase at a percentage rate in the mid-twenties | No change from previous outlook |
Average deposit balances | Increase at a percentage rate in the high twenties | Outlook decreased from a percentage rate in the low thirties |
Net interest income (1) | Increase at a percentage rate in the high teens | No change from previous outlook |
Net interest margin (1) | Between 2.40% and 2.60% | No change from previous outlook |
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans | Comparable to 2014 levels | No change from previous outlook |
Net loan charge-offs | Between 0.30% and 0.50% of average total gross loans | No change from previous outlook |
Nonperforming loans as a percentage of total gross loans | Between 0.60% and 1.00% of total gross loans | Outlook increased from comparable to 2014 levels |
Core fee income (foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees) (2) | Increase at a percentage rate in the low twenties | Outlook increased from a percentage rate in the mid-teens |
Noninterest expense (excluding expenses related to noncontrolling interests) (2) (3) | Increase at a percentage rate in the low double digits | Outlook increased from a percentage rate in the high single digits |
(1) | Our outlook for net interest income and net interest margin is primarily based 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) | These are non-GAAP measures. See "Use of Non-GAAP Financial Measures" at the end of this release for further information regarding the calculation and limitations of these measures. |
(3) | 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. |
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,” “seek,” “expect,” “plan,” “intend,” the negative of such words or comparable terminology. In this release, including in the section “Outlook for the Year Ending December 31, 2015” above, we make forward-looking statements discussing management’s expectations about, among other things, economic conditions; opportunities in the market; the outlook on our clients' performance; our financial, credit, and business performance, including potential investment gains; loan growth, loan mix and loan yields; expense levels; and financial results (and the components of such results) for certain quarters in, and for the full year 2015.
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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: (i) deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business or are served by us (including the levels of IPOs and M&A activities); (ii) changes in the volume and credit quality of our loans; (iii) the impact of changes in interest rates or market levels or factors affecting or affected by them, especially on our loan and investment portfolios; (iv) changes in our deposit levels; (v) changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets; (vi) variations from our expectations as to factors impacting our cost structure; (vii) 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; (viii) accounting changes, as required by GAAP; and (ix) regulatory or legal changes or their impact on us, including the impact of the Volcker Rule. 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 July 23, 2015, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended June 30, 2015. The conference call can be accessed by dialing (888) 424-8151 or (847) 585-4422, and entering the passcode “5883913.” A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at www.svb.com. A replay of the conference call will be available beginning at approximately 5:30 p.m. (Pacific Time) on Thursday, July 23, 2015, through 11:59 p.m. (Pacific Time) on August 22, 2015, and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering the passcode “5883913.” A replay of the audio webcast will also be available on www.svb.com for 12 months beginning Thursday, July 23, 2015.
About SVB Financial Group
For more than 30 years, SVB Financial Group (NASDAQ: SIVB) and its subsidiaries have helped innovative companies and their investors move bold ideas forward, fast. SVB Financial Group serves companies in technology-related, life science & healthcare, private equity/venture capital, and premium wine industries. Along with commercial banking products and services provided by Silicon Valley Bank, the company offers investment advisory, asset management, private wealth management and brokerage services. We also offer non-banking products and services, such as funds management, private equity/venture capital investment and business valuation services, through our other subsidiaries and divisions. Headquartered in Santa Clara, Calif., SVB Financial Group operates in centers of innovation in the U.S. and around the world. Learn more at svb.com.
Banking services are provided by Silicon Valley Bank, Member FDIC. SVB Financial Group and Silicon Valley Bank are members of the Federal Reserve System.
13
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in thousands, except share data) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Interest income: | ||||||||||||||||||||
Loans (1) | $ | 167,252 | $ | 165,501 | $ | 147,680 | $ | 332,753 | $ | 295,852 | ||||||||||
Investment securities: | ||||||||||||||||||||
Taxable | 84,613 | 81,274 | 63,424 | 165,887 | 117,844 | |||||||||||||||
Non-taxable | 741 | 772 | 794 | 1,513 | 1,590 | |||||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) | 1,320 | 1,269 | 1,943 | 2,589 | 3,579 | |||||||||||||||
Total interest income | 253,926 | 248,816 | 213,841 | 502,742 | 418,865 | |||||||||||||||
Interest expense: | ||||||||||||||||||||
Deposits | 1,182 | 1,943 | 3,068 | 3,125 | 5,972 | |||||||||||||||
Borrowings (1) | 8,973 | 7,948 | 5,808 | 16,921 | 11,600 | |||||||||||||||
Total interest expense | 10,155 | 9,891 | 8,876 | 20,046 | 17,572 | |||||||||||||||
Net interest income | 243,771 | 238,925 | 204,965 | 482,696 | 401,293 | |||||||||||||||
Provision for loan losses | 26,513 | 6,452 | 1,947 | 32,965 | 2,441 | |||||||||||||||
Net interest income after provision for loan losses | 217,258 | 232,473 | 203,018 | 449,731 | 398,852 | |||||||||||||||
Noninterest income: | ||||||||||||||||||||
Gains (losses) on investment securities, net (1) | 24,975 | 33,263 | (57,320 | ) | 58,238 | 166,592 | ||||||||||||||
Foreign exchange fees | 22,364 | 17,678 | 17,928 | 40,042 | 35,124 | |||||||||||||||
Gains on derivative instruments, net | 16,317 | 39,729 | 12,775 | 56,046 | 36,942 | |||||||||||||||
Credit card fees | 14,215 | 12,090 | 10,249 | 26,305 | 20,531 | |||||||||||||||
Deposit service charges | 11,301 | 10,736 | 9,611 | 22,037 | 19,218 | |||||||||||||||
Lending related fees | 8,163 | 8,022 | 5,876 | 16,185 | 12,179 | |||||||||||||||
Client investment fees | 5,264 | 4,482 | 3,519 | 9,746 | 6,937 | |||||||||||||||
Letters of credit and standby letters of credit fees | 4,772 | 5,202 | 2,810 | 9,974 | 6,950 | |||||||||||||||
Other (1) | 18,916 | (7,678 | ) | 8,762 | 11,238 | 19,962 | ||||||||||||||
Total noninterest income | 126,287 | 123,524 | 14,210 | 249,811 | 324,435 | |||||||||||||||
Noninterest expense: | ||||||||||||||||||||
Compensation and benefits | 124,915 | 115,770 | 99,820 | 240,685 | 202,327 | |||||||||||||||
Professional services (1) | 18,950 | 18,747 | 21,113 | 37,697 | 42,302 | |||||||||||||||
Premises and equipment | 11,787 | 12,657 | 12,053 | 24,444 | 23,635 | |||||||||||||||
Business development and travel | 9,764 | 11,112 | 9,249 | 20,876 | 19,443 | |||||||||||||||
Net occupancy | 8,149 | 7,313 | 7,680 | 15,462 | 15,000 | |||||||||||||||
FDIC and state assessments | 5,962 | 5,789 | 4,945 | 11,751 | 9,073 | |||||||||||||||
Correspondent bank fees (1) | 3,337 | 3,368 | 3,274 | 6,705 | 6,477 | |||||||||||||||
(Reduction of) provision for unfunded credit commitments | (3,061 | ) | 2,263 | 2,185 | (798 | ) | 3,308 | |||||||||||||
Other (1) (2) | 14,309 | 13,522 | 10,625 | 27,831 | 19,787 | |||||||||||||||
Total noninterest expense | 194,112 | 190,541 | 170,944 | 384,653 | 341,352 | |||||||||||||||
Income before income tax expense | 149,433 | 165,456 | 46,284 | 314,889 | 381,935 | |||||||||||||||
Income tax expense (2) | 54,974 | 63,066 | 35,928 | 118,040 | 97,224 | |||||||||||||||
Net income before noncontrolling interests | 94,459 | 102,390 | 10,356 | 196,849 | 284,711 | |||||||||||||||
Net (income) loss attributable to noncontrolling interests (1) | (8,316 | ) | (13,874 | ) | 40,597 | (22,190 | ) | (142,808 | ) | |||||||||||
Net income available to common stockholders | $ | 86,143 | $ | 88,516 | $ | 50,953 | $ | 174,659 | $ | 141,903 | ||||||||||
Earnings per common share—basic (2) | $ | 1.68 | $ | 1.74 | $ | 1.06 | $ | 3.42 | $ | 3.02 | ||||||||||
Earnings per common share—diluted (2) | 1.66 | 1.71 | 1.04 | 3.37 | 2.96 | |||||||||||||||
Weighted average common shares outstanding—basic | 51,268,197 | 51,008,680 | 48,168,275 | 51,139,154 | 47,024,645 | |||||||||||||||
Weighted average common shares outstanding—diluted | 51,875,715 | 51,719,086 | 49,044,949 | 51,788,344 | 47,987,024 |
(1) | Amounts for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
(2) | Amounts for periods prior to March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
14
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value and share data) | June 30, 2015 | March 31, 2015 | June 30, 2014 | |||||||||
Assets: | ||||||||||||
Cash and cash equivalents (1) | $ | 2,625,550 | $ | 1,254,530 | $ | 2,649,831 | ||||||
Available-for-sale securities, at fair value (cost $14,414,219, $13,619,702, and $11,613,679, respectively) | 14,495,759 | 13,746,923 | 11,672,790 | |||||||||
Held-to-maturity securities, at cost (fair value $7,730,811, $7,869,653 and $5,454,996, respectively) | 7,735,891 | 7,816,797 | 5,463,920 | |||||||||
Non-marketable and other securities (1) (2) | 645,506 | 664,388 | 1,755,990 | |||||||||
Investment securities | 22,877,156 | 22,228,108 | 18,892,700 | |||||||||
Loans, net of unearned income (1) | 14,261,430 | 14,447,683 | 11,348,711 | |||||||||
Allowance for loan losses | (192,644 | ) | (167,875 | ) | (120,728 | ) | ||||||
Net loans | 14,068,786 | 14,279,808 | 11,227,983 | |||||||||
Premises and equipment, net of accumulated depreciation and amortization | 88,284 | 82,724 | 71,465 | |||||||||
Accrued interest receivable and other assets (1) | 576,342 | 766,665 | 465,792 | |||||||||
Total assets | $ | 40,236,118 | $ | 38,611,835 | $ | 33,307,771 | ||||||
Liabilities and total equity: | ||||||||||||
Liabilities: | ||||||||||||
Noninterest-bearing demand deposits (1) | $ | 27,734,720 | $ | 25,796,125 | $ | 20,235,549 | ||||||
Interest-bearing deposits | 7,892,245 | 8,134,989 | 8,116,998 | |||||||||
Total deposits | 35,626,965 | 33,931,114 | 28,352,547 | |||||||||
Short-term borrowings | 2,537 | 77,766 | 4,910 | |||||||||
Other liabilities (1) (2) | 614,690 | 686,070 | 562,658 | |||||||||
Long-term debt | 802,454 | 802,917 | 454,462 | |||||||||
Total liabilities | 37,046,646 | 35,497,867 | 29,374,577 | |||||||||
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; 51,461,496 shares, 51,095,341 shares and 50,695,206 shares outstanding, respectively | 51 | 51 | 51 | |||||||||
Additional paid-in capital (1) | 1,162,508 | 1,140,458 | 1,092,582 | |||||||||
Retained earnings (2) | 1,824,626 | 1,738,483 | 1,528,000 | |||||||||
Accumulated other comprehensive income (1) | 63,917 | 92,700 | 50,276 | |||||||||
Total SVBFG stockholders’ equity | 3,051,102 | 2,971,692 | 2,670,909 | |||||||||
Noncontrolling interests (1) | 138,370 | 142,276 | 1,262,285 | |||||||||
Total equity | 3,189,472 | 3,113,968 | 3,933,194 | |||||||||
Total liabilities and total equity | $ | 40,236,118 | $ | 38,611,835 | $ | 33,307,771 |
(1) | Amounts as of March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
(2) | Amounts for periods prior to March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
15
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
Three months ended | |||||||||||||||||||||||||||||||||
June 30, 2015 | March 31, 2015 | June 30, 2014 | |||||||||||||||||||||||||||||||
(Dollars in thousands, except yield/rate and ratios) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||||||||||||
Federal reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) | $ | 2,128,460 | $ | 1,320 | 0.25 | % | $ | 1,499,891 | $ | 1,269 | 0.34 | % | $ | 3,210,218 | $ | 1,943 | 0.24 | % | |||||||||||||||
Investment securities: (2) | |||||||||||||||||||||||||||||||||
Available-for-sale securities: | |||||||||||||||||||||||||||||||||
Taxable | 13,797,718 | 46,698 | 1.36 | 13,571,213 | 44,009 | 1.32 | 13,342,544 | 53,915 | 1.62 | ||||||||||||||||||||||||
Non-taxable (3) | — | — | — | — | — | — | 54,721 | 815 | 5.97 | ||||||||||||||||||||||||
Held-to-maturity securities: | |||||||||||||||||||||||||||||||||
Taxable | 7,558,646 | 37,915 | 2.01 | 7,486,164 | 37,265 | 2.02 | 1,765,204 | 9,509 | 2.16 | ||||||||||||||||||||||||
Non-taxable (3) | 81,144 | 1,141 | 5.64 | 83,591 | 1,188 | 5.76 | 28,494 | 406 | 5.72 | ||||||||||||||||||||||||
Total loans, net of unearned income (4) (5) | 14,320,875 | 167,252 | 4.68 | 14,048,285 | 165,501 | 4.78 | 11,080,602 | 147,680 | 5.35 | ||||||||||||||||||||||||
Total interest-earning assets | 37,886,843 | 254,326 | 2.69 | 36,689,144 | 249,232 | 2.75 | 29,481,783 | 214,268 | 2.91 | ||||||||||||||||||||||||
Cash and due from banks | 316,577 | 239,905 | 60,373 | ||||||||||||||||||||||||||||||
Allowance for loan losses | (180,130 | ) | (171,222 | ) | (128,465 | ) | |||||||||||||||||||||||||||
Other assets (6) | 1,424,733 | 1,467,813 | 2,331,939 | ||||||||||||||||||||||||||||||
Total assets | $ | 39,448,023 | $ | 38,225,640 | $ | 31,745,630 | |||||||||||||||||||||||||||
Funding sources: | |||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||
NOW deposits | $ | 230,891 | $ | 48 | 0.08 | % | $ | 228,532 | $ | 124 | 0.22 | % | $ | 159,316 | $ | 155 | 0.39 | % | |||||||||||||||
Money market deposits | 6,034,187 | 909 | 0.06 | 5,956,920 | 1,532 | 0.10 | 5,338,785 | 2,561 | 0.19 | ||||||||||||||||||||||||
Money market deposits in foreign offices | 188,399 | 18 | 0.04 | 207,502 | 20 | 0.04 | 201,821 | 38 | 0.08 | ||||||||||||||||||||||||
Time deposits | 93,387 | 38 | 0.16 | 111,017 | 60 | 0.22 | 150,731 | 92 | 0.24 | ||||||||||||||||||||||||
Sweep deposits in foreign offices | 1,685,870 | 169 | 0.04 | 2,184,821 | 207 | 0.04 | 1,853,930 | 222 | 0.05 | ||||||||||||||||||||||||
Total interest-bearing deposits | 8,232,734 | 1,182 | 0.06 | 8,688,792 | 1,943 | 0.09 | 7,704,583 | 3,068 | 0.16 | ||||||||||||||||||||||||
Short-term borrowings | 26,345 | 13 | 0.20 | 43,618 | 12 | 0.11 | 4,554 | — | — | ||||||||||||||||||||||||
3.50% Senior Notes | 349,712 | 3,137 | 3.60 | 240,909 | 2,126 | 3.58 | — | — | — | ||||||||||||||||||||||||
5.375% Senior Notes | 348,515 | 4,837 | 5.57 | 348,456 | 4,835 | 5.63 | 348,284 | 4,830 | 5.56 | ||||||||||||||||||||||||
Junior Subordinated Debentures | 54,787 | 833 | 6.10 | 54,830 | 832 | 6.15 | 54,962 | 848 | 6.19 | ||||||||||||||||||||||||
6.05% Subordinated Notes | 49,757 | 153 | 1.23 | 50,133 | 143 | 1.16 | 51,470 | 130 | 1.01 | ||||||||||||||||||||||||
Total interest-bearing liabilities | 9,061,850 | 10,155 | 0.45 | 9,426,738 | 9,891 | 0.43 | 8,163,853 | 8,876 | 0.44 | ||||||||||||||||||||||||
Portion of noninterest-bearing funding sources | 28,824,993 | 27,262,406 | 21,317,930 | ||||||||||||||||||||||||||||||
Total funding sources | 37,886,843 | 10,155 | 0.11 | 36,689,144 | 9,891 | 0.11 | 29,481,783 | 8,876 | 0.12 | ||||||||||||||||||||||||
Noninterest-bearing funding sources: | |||||||||||||||||||||||||||||||||
Demand deposits | 26,723,333 | 25,173,444 | 19,472,542 | ||||||||||||||||||||||||||||||
Other liabilities | 490,847 | 571,736 | 398,492 | ||||||||||||||||||||||||||||||
SVBFG stockholders’ equity | 3,031,699 | 2,900,330 | 2,397,386 | ||||||||||||||||||||||||||||||
Noncontrolling interests | 140,294 | 153,392 | 1,313,357 | ||||||||||||||||||||||||||||||
Portion used to fund interest-earning assets | (28,824,993 | ) | (27,262,406 | ) | (21,317,930 | ) | |||||||||||||||||||||||||||
Total liabilities and total equity | $ | 39,448,023 | $ | 38,225,640 | $ | 31,745,630 | |||||||||||||||||||||||||||
Net interest income and margin | $ | 244,171 | 2.58 | % | $ | 239,341 | 2.64 | % | $ | 205,392 | 2.79 | % | |||||||||||||||||||||
Total deposits | $ | 34,956,067 | $ | 33,862,236 | $ | 27,177,125 | |||||||||||||||||||||||||||
Average SVBFG stockholders’ equity as a percentage of average assets | 7.69 | % | 7.59 | % | 7.55 | % | |||||||||||||||||||||||||||
Reconciliation to reported net interest income: | |||||||||||||||||||||||||||||||||
Adjustments for taxable equivalent basis | (400 | ) | (416 | ) | (427 | ) | |||||||||||||||||||||||||||
Net interest income, as reported | $ | 243,771 | $ | 238,925 | $ | 204,965 |
(1) | Includes average interest-earning deposits in other financial institutions of $445 million, $509 million and $342 million; and $1.6 billion, $0.9 billion and $2.5 billion deposited at the Federal Reserve Bank, earning interest at the Fed Funds target rate, for the quarters ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively. |
(2) | Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
(3) | Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. |
(4) | Nonaccrual loans are reflected in the average balances of loans. |
(5) | Interest income includes loan fees of $23.7 million, $23.0 million and $21.3 million for the quarters ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively. |
(6) | Average investment securities of $0.8 billion, $0.8 billion and $1.8 billion for the quarters ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively, were classified as other assets as they are noninterest-earning assets. These investments primarily consist of non-marketable and other securities. |
16
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
Six months ended | ||||||||||||||||||||||
June 30, 2015 | June 30, 2014 | |||||||||||||||||||||
(Dollars in thousands, except yield/rate and ratios) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) | $ | 1,815,912 | $ | 2,589 | 0.29 | % | $ | 2,848,215 | $ | 3,579 | 0.25 | % | ||||||||||
Investment securities: (2) | ||||||||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||
Taxable | 13,685,091 | 90,707 | 1.34 | 12,758,090 | 108,335 | 1.71 | ||||||||||||||||
Non-taxable (3) | — | — | — | 68,177 | 2,040 | 6.03 | ||||||||||||||||
Held-to-maturity securities: | ||||||||||||||||||||||
Taxable | 7,522,605 | 75,180 | 2.02 | 887,478 | 9,509 | 2.16 | ||||||||||||||||
Non-taxable (3) | 82,361 | 2,329 | 5.70 | 14,326 | 406 | 5.71 | ||||||||||||||||
Total loans, net of unearned income (4) (5) | 14,185,333 | 332,753 | 4.73 | 10,925,007 | 295,852 | 5.46 | ||||||||||||||||
Total interest-earning assets | 37,291,302 | 503,558 | 2.72 | 27,501,293 | 419,721 | 3.08 | ||||||||||||||||
Cash and due from banks | 278,453 | 161,862 | ||||||||||||||||||||
Allowance for loan losses | (175,700 | ) | (134,734 | ) | ||||||||||||||||||
Other assets (6) | 1,446,153 | 2,239,200 | ||||||||||||||||||||
Total assets | $ | 38,840,208 | $ | 29,767,621 | ||||||||||||||||||
Funding sources: | ||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||
NOW deposits | $ | 229,718 | $ | 172 | 0.15 | % | $ | 155,050 | $ | 291 | 0.38 | % | ||||||||||
Money market deposits | 5,995,766 | 2,441 | 0.08 | 4,962,911 | 4,973 | 0.20 | ||||||||||||||||
Money market deposits in foreign offices | 197,898 | 38 | 0.04 | 196,796 | 84 | 0.09 | ||||||||||||||||
Time deposits | 102,154 | 98 | 0.19 | 159,343 | 192 | 0.24 | ||||||||||||||||
Sweep deposits in foreign offices | 1,933,967 | 376 | 0.04 | 1,778,665 | 432 | 0.05 | ||||||||||||||||
Total interest-bearing deposits | 8,459,503 | 3,125 | 0.07 | 7,252,765 | 5,972 | 0.17 | ||||||||||||||||
Short-term borrowings | 34,934 | 25 | 0.14 | 4,768 | — | — | ||||||||||||||||
3.50% Senior Notes | 295,611 | 5,263 | 4.62 | — | — | — | ||||||||||||||||
5.375% Senior Notes | 348,486 | 9,672 | 5.60 | 348,256 | 9,658 | 5.59 | ||||||||||||||||
Junior Subordinated Debentures | 54,808 | 1,665 | 6.13 | 54,984 | 1,687 | 6.19 | ||||||||||||||||
6.05% Subordinated Notes | 49,944 | 296 | 1.20 | 51,717 | 255 | 0.99 | ||||||||||||||||
Total interest-bearing liabilities | 9,243,286 | 20,046 | 0.44 | 7,712,490 | 17,572 | 0.46 | ||||||||||||||||
Portion of noninterest-bearing funding sources | 28,048,016 | 19,788,803 | ||||||||||||||||||||
Total funding sources | 37,291,302 | 20,046 | 0.11 | 27,501,293 | 17,572 | 0.13 | ||||||||||||||||
Noninterest-bearing funding sources: | ||||||||||||||||||||||
Demand deposits | 25,952,670 | 18,183,692 | ||||||||||||||||||||
Other liabilities | 531,067 | 397,354 | ||||||||||||||||||||
SVBFG stockholders’ equity | 2,966,378 | 2,249,425 | ||||||||||||||||||||
Noncontrolling interests | 146,807 | 1,224,660 | ||||||||||||||||||||
Portion used to fund interest-earning assets | (28,048,016 | ) | (19,788,803 | ) | ||||||||||||||||||
Total liabilities and total equity | $ | 38,840,208 | $ | 29,767,621 | ||||||||||||||||||
Net interest income and margin | $ | 483,512 | 2.61 | % | $ | 402,149 | 2.95 | % | ||||||||||||||
Total deposits | $ | 34,412,173 | $ | 25,436,457 | ||||||||||||||||||
Average SVBFG stockholders’ equity as a percentage of average assets | 7.64 | % | 7.56 | % | ||||||||||||||||||
Reconciliation to reported net interest income: | ||||||||||||||||||||||
Adjustments for taxable equivalent basis | (816 | ) | (856 | ) | ||||||||||||||||||
Net interest income, as reported | $ | 482,696 | $ | 401,293 |
(1) | Includes average interest-earning deposits in other financial institutions of $477 million and $330 million for the six months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014, balance also includes $1.3 billion and $2.3 billion, respectively, deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate. |
(2) | Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
(3) | Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. |
(4) | Nonaccrual loans are reflected in the average balances of loans. |
(5) | Interest income includes loan fees of $46.7 million and $45.6 million for the six months ended June 30, 2015 and 2014, respectively. |
(6) | Average investment securities of $1.2 billion and $1.7 billion for the six months ended June 30, 2015 and 2014, respectively, were classified as other assets as they are noninterest-earning assets. These investments primarily consisted of non-marketable and other securities. |
17
Gains on Equity Warrant Assets
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in thousands) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Equity warrant assets (1): | ||||||||||||||||||||
Gains on exercises, net | $ | 14,584 | $ | 4,043 | $ | 3,553 | $ | 24,190 | $ | 21,955 | ||||||||||
Cancellations and expirations | (114 | ) | (292 | ) | (429 | ) | (406 | ) | (516 | ) | ||||||||||
Changes in fair value, net | 9,146 | 16,527 | 9,205 | 20,110 | 16,263 | |||||||||||||||
Total net gains on equity warrant assets (2) | $ | 23,616 | $ | 20,278 | $ | 12,329 | $ | 43,894 | $ | 37,702 |
(1) | At June 30, 2015, we held warrants in 1,587 companies, compared to 1,525 companies at March 31, 2015 and 1,383 companies at June 30, 2014. The total value of our warrant portfolio was $123 million at June 30, 2015 compared to $124 million at March 31, 2015, and $89 million at June 30, 2014. Of the 1,587 companies, 25 companies made up approximately 36 percent of the fair value of the portfolio at June 30, 2015. |
(2) | Net gains on equity warrant assets are included in the line item “Gains on derivative instruments, net” as part of noninterest income. |
Reconciliation of Basic and Diluted Weighted Average Common Shares Outstanding
Three months ended | Six months ended | ||||||||||||||
(Shares in thousands) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | ||||||||||
Weighted average common shares outstanding—basic | 51,268 | 51,009 | 48,168 | 51,139 | 47,025 | ||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options and employee stock purchase plan | 410 | 445 | 569 | 420 | 601 | ||||||||||
Restricted stock units | 198 | 265 | 308 | 229 | 361 | ||||||||||
Total effect of dilutive securities | 608 | 710 | 877 | 649 | 962 | ||||||||||
Weighted average common shares outstanding—diluted | 51,876 | 51,719 | 49,045 | 51,788 | 47,987 |
SVB Financial and Bank Capital Ratios
June 30, 2015 | March 31, 2015 | June 30, 2014 | |||||||
SVB Financial Group: | |||||||||
CET 1 risk-based capital ratio (1) (2) | 12.54 | % | 11.92 | % | — | % | |||
Tier 1 risk-based capital ratio (2) (3) | 13.15 | 12.53 | 14.42 | ||||||
Total risk-based capital ratio (2) (3) | 14.15 | 13.46 | 15.36 | ||||||
Tier 1 leverage ratio (2) (3) | 7.95 | 7.92 | 8.74 | ||||||
Tangible common equity to tangible assets ratio (2) (4) | 7.58 | 7.70 | 8.02 | ||||||
Tangible common equity to risk-weighted assets ratio (2) (4) | 12.81 | 12.30 | 14.49 | ||||||
Silicon Valley Bank: | |||||||||
CET 1 risk-based capital ratio (1) | 12.87 | % | 12.36 | % | — | % | |||
Tier 1 risk-based capital ratio (3) | 12.87 | 12.36 | 12.45 | ||||||
Total risk-based capital ratio (3) | 13.93 | 13.35 | 13.41 | ||||||
Tier 1 leverage ratio (3) | 7.39 | 7.43 | 7.51 | ||||||
Tangible common equity to tangible assets ratio (4) | 7.40 | 7.60 | 7.21 | ||||||
Tangible common equity to risk-weighted assets ratio (4) | 13.16 | 12.77 | 12.62 |
(1) | As of March 31, 2015, Common Equity Tier 1 ("CET 1") is a new ratio requirement under the Basel III Capital Rules and represents, common stock, plus related surplus and retained earnings, plus limited amounts of majority interest in the form of common stock, less certain regulatory deductions, divided by total risk-weighted assets. |
(2) | Ratios as of March 31, 2015 have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Ratios prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
(3) | Ratios as of June 30, 2015 and March 31, 2015 reflect the adoption of the Basel III Capital Rules in effect beginning January 1, 2015. Ratios for prior periods represent the previous capital rules under Basel I. |
(4) | These are non-GAAP measures. A reconciliation of non-GAAP measures to GAAP is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.” |
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Loan Concentrations
(Dollars in thousands, except ratios and client data) | June 30, 2015 | March 31, 2015 | June 30, 2014 | |||||||||
Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million | ||||||||||||
Commercial loans: | ||||||||||||
Software and internet | $ | 1,643,110 | $ | 1,810,914 | $ | 1,489,770 | ||||||
Hardware | 524,983 | 501,456 | 484,240 | |||||||||
Private equity/venture capital | 2,093,557 | 3,068,021 | 1,286,736 | |||||||||
Life science & healthcare | 585,608 | 477,396 | 336,154 | |||||||||
Premium wine (1) | 30,182 | 27,882 | 39,153 | |||||||||
Other | 97,920 | 94,311 | 57,686 | |||||||||
Total commercial loans | 4,975,360 | 5,979,980 | 3,693,739 | |||||||||
Real estate secured loans: | ||||||||||||
Premium wine (1) | 96,935 | 80,091 | 89,137 | |||||||||
Consumer (2) | — | — | 20,000 | |||||||||
Other | 22,333 | 22,533 | 23,133 | |||||||||
Total real estate secured loans | 119,268 | 102,624 | 132,270 | |||||||||
Consumer loans (2) | 115,000 | 63,000 | 35,118 | |||||||||
Total loans individually equal to or greater than $20 million | $ | 5,209,628 | $ | 6,145,604 | $ | 3,861,127 | ||||||
Loans (individually or in the aggregate) to any single client, less than $20 million | ||||||||||||
Commercial loans: | ||||||||||||
Software and internet | $ | 3,382,966 | $ | 3,102,833 | $ | 2,761,054 | ||||||
Hardware | 533,453 | 575,169 | 670,399 | |||||||||
Private equity/venture capital (3) | 1,930,275 | 1,487,725 | 1,383,864 | |||||||||
Life science & healthcare | 903,447 | 934,167 | 840,774 | |||||||||
Premium wine | 162,561 | 159,799 | 137,288 | |||||||||
Other | 158,485 | 197,202 | 189,473 | |||||||||
Total commercial loans | 7,071,187 | 6,456,895 | 5,982,852 | |||||||||
Real estate secured loans: | ||||||||||||
Premium wine | 535,691 | 533,695 | 458,537 | |||||||||
Consumer | 1,340,106 | 1,208,637 | 964,197 | |||||||||
Other | 11,250 | 17,230 | 7,500 | |||||||||
Total real estate secured loans | 1,887,047 | 1,759,562 | 1,430,234 | |||||||||
Construction loans | 91,436 | 85,906 | 76,389 | |||||||||
Consumer loans | 111,632 | 106,887 | 86,698 | |||||||||
Total loans individually less than $20 million | $ | 9,161,302 | $ | 8,409,250 | $ | 7,576,173 | ||||||
Total gross loans | $ | 14,370,930 | $ | 14,554,854 | $ | 11,437,300 | ||||||
Loans individually equal to or greater than $20 million as a percentage of total gross loans | 36.3 | % | 42.2 | % | 33.8 | % | ||||||
Total clients with loans individually equal to or greater than $20 million | 155 | 167 | 121 | |||||||||
Loans individually equal to or greater than $20 million on nonaccrual status | $ | 63,310 | $ | 27,525 | $ | — |
(1) | Premium wine clients can have loan balances included in both commercial loans and real estate secured loans, the combination of which are equal to or greater than $20 million. |
(2) | Consumer loan clients can have loan balances included in both real estate secured loans and other consumer loans, the combination of which are equal to or greater than $20 million. |
(3) | Amounts as of March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
19
Credit Quality
(Dollars in thousands, except ratios) | June 30, 2015 | March 31, 2015 | June 30, 2014 | |||||||||
Gross nonperforming, past due, and restructured loans: | ||||||||||||
Impaired loans | $ | 100,802 | $ | 42,382 | $ | 22,346 | ||||||
Loans past due 90 days or more still accruing interest | 47 | 3,099 | 93 | |||||||||
Total nonperforming loans | $ | 100,849 | $ | 45,481 | $ | 22,439 | ||||||
OREO and other foreclosed assets | — | 545 | 1,745 | |||||||||
Total nonperforming assets | $ | 100,849 | $ | 46,026 | $ | 24,184 | ||||||
Nonperforming loans as a percentage of total gross loans | 0.70 | % | 0.31 | % | 0.20 | % | ||||||
Nonperforming assets as a percentage of total assets | 0.25 | 0.12 | 0.07 | |||||||||
Allowance for loan losses | $ | 192,644 | $ | 167,875 | $ | 120,728 | ||||||
As a percentage of total gross loans | 1.34 | % | 1.15 | % | 1.06 | % | ||||||
As a percentage of total gross nonperforming loans | 191.02 | 369.11 | 538.03 | |||||||||
Allowance for loan losses for impaired loans | $ | 50,865 | $ | 23,822 | $ | 4,681 | ||||||
As a percentage of total gross loans | 0.35 | % | 0.16 | % | 0.04 | % | ||||||
As a percentage of total gross nonperforming loans | 50.44 | 52.38 | 20.86 | |||||||||
Allowance for loan losses for total gross performing loans | $ | 141,779 | $ | 144,053 | $ | 116,047 | ||||||
As a percentage of total gross loans | 0.99 | % | 0.99 | % | 1.01 | % | ||||||
As a percentage of total gross performing loans | 0.99 | 0.99 | 1.02 | |||||||||
Total gross loans (3) | $ | 14,370,930 | $ | 14,554,854 | $ | 11,437,300 | ||||||
Total gross performing loans (3) | 14,270,081 | 14,509,373 | 11,414,861 | |||||||||
Reserve for unfunded credit commitments (1) | 35,617 | 38,628 | 33,319 | |||||||||
As a percentage of total unfunded credit commitments | 0.23 | % | 0.25 | % | 0.25 | % | ||||||
Total unfunded credit commitments (2) | $ | 15,808,209 | $ | 15,485,514 | $ | 13,569,982 |
(1) | The “reserve for unfunded credit commitments” is included as a component of “other liabilities.” |
(2) | Includes unfunded loan commitments and letters of credit. |
(3) | Amounts as of March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
Average Off-Balance Sheet Client Investment Funds(1)
Three months ended | Six months ended | |||||||||||||||||||
(Dollars in millions) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||
Client directed investment assets | $ | 7,847 | $ | 7,017 | $ | 7,513 | $ | 7,432 | $ | 7,347 | ||||||||||
Client investment assets under management (2) | 19,261 | 17,712 | 16,135 | 18,486 | 14,836 | |||||||||||||||
Sweep money market funds | 10,761 | 8,896 | 6,504 | 9,829 | 6,461 | |||||||||||||||
Total average client investment funds | $ | 37,869 | $ | 33,625 | $ | 30,152 | $ | 35,747 | $ | 28,644 |
Period-end Off-Balance Sheet Client Investment Funds(1)
Period-end balances at | ||||||||||||||||||||
(Dollars in millions) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | |||||||||||||||
Client directed investment assets | $ | 8,047 | $ | 7,344 | $ | 6,158 | $ | 6,491 | $ | 6,979 | ||||||||||
Client investment assets under management (2) | 20,394 | 17,956 | 18,253 | 17,423 | 17,001 | |||||||||||||||
Sweep money market funds | 11,643 | 9,870 | 7,957 | 7,230 | 6,396 | |||||||||||||||
Total period-end client investment funds | $ | 40,084 | $ | 35,170 | $ | 32,368 | $ | 31,144 | $ | 30,376 |
(1) | Off-Balance sheet client investment funds are maintained at third-party financial institutions. |
(2) | These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. |
20
Impact of Adoption of ASU 2015-02, "Consolidation" on Interim Consolidated Statement of Income
Three months ended March 31, 2015 | ||||||||||||
(Dollars in thousands) | As previously reported | Adjustment | As revised | |||||||||
Interest income: | ||||||||||||
Loans | $ | 165,458 | $ | 43 | $ | 165,501 | ||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities | 1,285 | (16 | ) | 1,269 | ||||||||
Interest expense: | ||||||||||||
Borrowings | 7,956 | (8 | ) | 7,948 | ||||||||
Net interest income | 238,890 | 35 | 238,925 | |||||||||
Noninterest income: | ||||||||||||
Gains on investment securities, net | 83,159 | (49,896 | ) | 33,263 | ||||||||
Other | (9,080 | ) | 1,402 | (7,678 | ) | |||||||
Total noninterest income | 172,018 | (48,494 | ) | 123,524 | ||||||||
Noninterest expense: | ||||||||||||
Professional services | 24,185 | (5,438 | ) | 18,747 | ||||||||
Correspondent bank fees | 3,421 | (53 | ) | 3,368 | ||||||||
Other noninterest expense | 13,598 | (76 | ) | 13,522 | ||||||||
Total noninterest expense | 196,108 | (5,567 | ) | 190,541 | ||||||||
Income before income tax expense | 208,348 | (42,892 | ) | 165,456 | ||||||||
Net income before noncontrolling interests | 145,282 | (42,892 | ) | 102,390 | ||||||||
Net income attributable to noncontrolling interests | (56,766 | ) | 42,892 | (13,874 | ) |
Impact of Adoption of ASU 2015-02, "Consolidation" on Interim Consolidated Balance Sheet
March 31, 2015 | ||||||||||||
(Dollars in thousands) | As previously reported | Adjustment | As revised | |||||||||
Assets: | ||||||||||||
Cash and cash equivalents | $ | 1,308,003 | $ | (53,473 | ) | $ | 1,254,530 | |||||
Non-marketable and other securities | 1,706,873 | (1,042,485 | ) | 664,388 | ||||||||
Loans, net of unearned income | 14,439,574 | 8,109 | 14,447,683 | |||||||||
Accrued interest receivable and other assets | 762,971 | 3,694 | 766,665 | |||||||||
Total assets | $ | 39,695,990 | $ | (1,084,155 | ) | $ | 38,611,835 | |||||
Liabilities and total equity: | ||||||||||||
Liabilities: | ||||||||||||
Noninterest-bearing demand deposits | $ | 25,716,586 | $ | 79,539 | $ | 25,796,125 | ||||||
Other liabilities | 686,501 | (431 | ) | 686,070 | ||||||||
Total liabilities | 35,418,759 | 79,108 | 35,497,867 | |||||||||
SVBFG stockholders’ equity: | ||||||||||||
Additional paid-in capital | 1,140,435 | 23 | 1,140,458 | |||||||||
Accumulated other comprehensive income | 92,668 | 32 | 92,700 | |||||||||
Total SVBFG stockholders’ equity | 2,971,637 | 55 | 2,971,692 | |||||||||
Noncontrolling interests | 1,305,594 | (1,163,318 | ) | 142,276 | ||||||||
Total equity | 4,277,231 | (1,163,263 | ) | 3,113,968 | ||||||||
Total liabilities and total equity | $ | 39,695,990 | $ | (1,084,155 | ) | $ | 38,611,835 |
21
Impact of Adoption of ASU 2015-02, "Consolidation" on Other Financial Measures
Three months ended March 31, 2015 | ||||||||||||
(Dollars in thousands, except ratios) | As previously reported | Adjustment | As revised | |||||||||
Other financial measures: | ||||||||||||
Non-GAAP net gains on investment securities, net of noncontrolling interests | $ | 19,555 | $ | (463 | ) | $ | 19,092 | |||||
Noncontrolling interests- net interest income | (35 | ) | 33 | (2 | ) | |||||||
Noncontrolling interests- noninterest income | (66,895 | ) | 52,842 | (14,053 | ) | |||||||
Noncontrolling interests- noninterest expense | 5,463 | (5,171 | ) | 292 | ||||||||
Noncontrolling interests- carried interest income | 4,701 | (4,812 | ) | (111 | ) | |||||||
Net income attributable to noncontrolling interests | (56,766 | ) | 42,892 | (13,874 | ) | |||||||
Non-GAAP noninterest income, net of noncontrolling interests | 109,824 | (464 | ) | 109,360 | ||||||||
Non-GAAP noninterest expense, net of noncontrolling interests | 190,645 | (396 | ) | 190,249 | ||||||||
Ratios: | ||||||||||||
GAAP operating efficiency ratio | 47.73 | % | 4.84 | % | 52.57 | % | ||||||
Non-GAAP operating efficiency ratio | 54.61 | (0.05 | ) | 54.56 | ||||||||
SVBFG CET 1 risk-based capital ratio | 12.21 | (0.29 | ) | 11.92 | ||||||||
SVBFG tier 1 risk-based capital ratio | 12.42 | 0.11 | 12.53 | |||||||||
SVBFG total risk-based capital ratio | 13.38 | 0.08 | 13.46 | |||||||||
SVBFG tier 1 leverage ratio | 7.71 | 0.21 | 7.92 | |||||||||
SVBFG tangible common equity to tangible assets ratio | 7.49 | 0.21 | 7.70 | |||||||||
SVBFG tangible common equity to risk-weighted assets ratio | 12.60 | (0.30 | ) | 12.30 |
22
Use of Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures (including, but not limited to, non-GAAP net income, non-GAAP core fee income, non-GAAP noninterest income, non-GAAP net gains on investment securities, non-GAAP non-marketable and other securities, non-GAAP noninterest expense and non-GAAP financial ratios) of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures (as applicable), provide meaningful supplemental information regarding our performance by: (i) excluding amounts attributable to noncontrolling interests for which we effectively do not receive the economic benefit or cost of, where indicated, or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, net income or other financial measures prepared in accordance with GAAP. In the financial tables below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.
In particular, in this press release, we use certain non-GAAP measures that exclude the following from net income and certain other financial line items in certain periods:
• | Income and expense attributable to noncontrolling interests — As part of our funds management business, we recognize the entire income or loss from certain funds where we own less than 100 percent. We are required under GAAP to consolidate 100 percent of the results of certain SVB Capital funds. We adopted the new accounting guidance related to our consolidated variable interest entities (ASU 2015-02) effective January 1, 2015. See page 3 for additional information. The relevant amounts attributable to investors other than us are reflected under “Net Income Attributable to Noncontrolling Interests.” Our net income available to common stockholders/certain financial line items include only the portion of income or loss related to our ownership interest. |
• | Pre-tax net losses for the fourth quarter of 2014 of $13.9 million ($11.4 million, net of tax) from the pending sale of SVBIF at December 31, 2014. |
In addition, in this press release, we use certain non-GAAP financial ratios and measures that are not required by GAAP or exclude certain financial items from their calculations that are otherwise required under GAAP, including:
• | Tangible common equity to tangible assets ratio; tangible common equity to risk-weighted assets ratio — These ratios are not required by GAAP or applicable bank regulatory requirements, and are used by management to evaluate the adequacy of our capital levels. Risk-based capital guidelines require minimum level of capital as a percentage of risk-weighted assets. Risk-weighted assets are calculated by assigning assets and off-balance sheet items to broad risk categories. Our ratios are calculated by dividing total SVBFG stockholders’ equity, by total assets or total risk-weighted assets, as applicable, after reducing amounts by acquired intangibles, if any. |
• | Non-GAAP return on average assets ratio; Non-GAAP return on average SVBFG stockholders’ equity ratio — These ratios exclude certain financial items that are otherwise required under GAAP. Our ratios are calculated by dividing non-GAAP net income available to common stockholders (annualized) by average assets or average SVBFG stockholders’ equity, as applicable. |
• | Non-GAAP operating efficiency ratio — This ratio excludes certain financial items that are otherwise required under GAAP. It is calculated by dividing noninterest expense by total revenue, after adjusting both amounts by |
23
income and expense attributable to noncontrolling interests, adjustments to net interest income for a taxable equivalent basis and the losses noted above for applicable periods.
• | Non-GAAP core fee income — This measure represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. We do not provide our outlook for the expected full year results for these excluded items, which include gains on investment securities, net, gains on derivative instruments, net, and other noninterest income items. |
Three months ended | Six months ended | |||||||||||||||||||||||||||
Non-GAAP net income and earnings per share (Dollars in thousands, except share data) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||||||||
Net income available to common stockholders (1) | $ | 86,143 | $ | 88,516 | $ | 57,990 | $ | 63,977 | $ | 50,953 | $ | 174,659 | $ | 141,903 | ||||||||||||||
Less: net losses on SVBIF Sale Transaction (2) | — | — | 13,934 | — | — | — | — | |||||||||||||||||||||
Tax impact from net losses on SVBIF Sale Transaction | — | — | (5,398 | ) | — | — | — | — | ||||||||||||||||||||
Tax impact of undistributed earnings of SVBIF | — | — | 2,900 | — | — | — | — | |||||||||||||||||||||
Non-GAAP net income available to common stockholders (1) | $ | 86,143 | $ | 88,516 | $ | 69,426 | $ | 63,977 | $ | 50,953 | $ | 174,659 | $ | 141,903 | ||||||||||||||
GAAP earnings per common share — diluted (1) | $ | 1.66 | $ | 1.71 | $ | 1.13 | $ | 1.24 | $ | 1.04 | $ | 3.37 | $ | 2.96 | ||||||||||||||
Less: net losses on SVBIF Sale Transaction (2) | — | — | 0.28 | — | — | — | — | |||||||||||||||||||||
Tax impact from net losses on SVBIF Sale Transaction | — | — | (0.11 | ) | — | — | — | — | ||||||||||||||||||||
Tax impact of undistributed earnings of SVBIF | — | — | 0.06 | — | — | — | — | |||||||||||||||||||||
Non-GAAP earnings per common share — diluted (1) | $ | 1.66 | $ | 1.71 | $ | 1.36 | $ | 1.24 | $ | 1.04 | $ | 3.37 | $ | 2.96 | ||||||||||||||
Weighted average diluted common shares outstanding | 51,875,715 | 51,719,086 | 51,528,150 | 51,570,771 | 49,044,949 | 51,788,344 | 47,987,024 |
(1) | Amounts for periods prior to March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
(2) | Pre-tax net losses of $13.9 million on the pending sale of SVBIF are included in other noninterest income at December 31, 2014. |
Three months ended | Six months ended | |||||||||||||||||||||||||||
Non-GAAP return on average assets (annualized) and average SVBFG stockholders' equity (annualized) (Dollars in thousands, except ratios) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||||||||
Net income available to common stockholders (1) | $ | 86,143 | $ | 88,516 | $ | 57,990 | $ | 63,977 | $ | 50,953 | $ | 174,659 | $ | 141,903 | ||||||||||||||
Non-GAAP net income available to common stockholders (1) | $ | 86,143 | $ | 88,516 | $ | 69,426 | $ | 63,977 | $ | 50,953 | $ | 174,659 | $ | 141,903 | ||||||||||||||
Average Assets (2) | $ | 39,448,023 | $ | 38,225,640 | $ | 37,590,186 | $ | 34,598,285 | $ | 31,745,630 | $ | 38,840,208 | $ | 29,767,621 | ||||||||||||||
Return on average assets (annualized) (1) (2) | 0.88 | % | 0.94 | % | 0.61 | % | 0.73 | % | 0.64 | % | 0.91 | % | 0.96 | % | ||||||||||||||
Non-GAAP return on average assets (annualized) (1) (2) | 0.88 | 0.94 | 0.73 | 0.73 | 0.64 | 0.91 | 0.96 | |||||||||||||||||||||
Average SVBFG stockholders' equity (annualized) (2) | $ | 3,031,699 | $ | 2,900,330 | $ | 2,827,512 | $ | 2,729,862 | $ | 2,397,386 | $ | 2,966,378 | $ | 2,249,425 | ||||||||||||||
Return on average SVBFG stockholders' equity (annualized) (1) | 11.40 | % | 12.38 | % | 8.14 | % | 9.30 | % | 8.52 | % | 11.87 | % | 12.72 | % | ||||||||||||||
Non-GAAP return on average SVBFG stockholders' equity (annualized) (1) | 11.40 | 12.38 | 9.74 | 9.30 | 8.52 | 11.87 | 12.72 |
(1) | Amounts and ratios for periods prior to March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
(2) | Amounts and ratios for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
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Three months ended | Six months ended | |||||||||||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (Dollars in thousands) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||||||||
GAAP noninterest income (1) | $ | 126,287 | $ | 123,524 | $ | 167,637 | $ | 80,167 | $ | 14,210 | $ | 249,811 | $ | 324,435 | ||||||||||||||
Less: income (losses) attributable to noncontrolling interests, including carried interest (1) | 8,556 | 14,164 | 77,320 | 4,911 | (35,325 | ) | 22,720 | 151,393 | ||||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (1) | $ | 117,731 | $ | 109,360 | $ | 90,317 | $ | 75,256 | $ | 49,535 | $ | 227,091 | $ | 173,042 | ||||||||||||||
Less: net losses on SVBIF Sale Transaction | — | — | 13,934 | — | — | — | — | |||||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests and excluding net losses on SVBIF Sale Transaction (1) | $ | 117,731 | $ | 109,360 | $ | 104,251 | $ | 75,256 | $ | 49,535 | $ | 227,091 | $ | 173,042 |
(1) | Amounts as of and for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised. See page 3 for additional information. |
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Non-GAAP core fee income (Dollars in thousands) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||||||||
GAAP noninterest income (1) | $ | 126,287 | $ | 123,524 | $ | 167,637 | $ | 80,167 | $ | 14,210 | $ | 249,811 | $ | 324,435 | ||||||||||||||
Less: gains (losses) on investment securities, net (1) | 24,975 | 33,263 | 94,787 | 5,644 | (57,320 | ) | 58,238 | 166,592 | ||||||||||||||||||||
Less: gains on derivative instruments, net | 16,317 | 39,729 | 33,365 | 26,538 | 12,775 | 56,046 | 36,942 | |||||||||||||||||||||
Less: other noninterest income (loss) (1) | 18,916 | (7,678 | ) | (15,861 | ) | (5,361 | ) | 8,762 | 11,238 | 19,962 | ||||||||||||||||||
Non-GAAP core fee income | $ | 66,079 | $ | 58,210 | $ | 55,346 | $ | 53,346 | $ | 49,993 | $ | 124,289 | $ | 100,939 |
(1) | Amounts for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised. See page 3 for additional information. |
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Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests (Dollars in thousands) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||||||||
GAAP net gains (losses) on investment securities (1) | $ | 24,975 | $ | 33,263 | $ | 94,787 | $ | 5,644 | $ | (57,320 | ) | $ | 58,238 | $ | 166,592 | |||||||||||||
Less: income (losses) attributable to noncontrolling interests, including carried interest (1) | 9,036 | 14,171 | 78,225 | 6,757 | (35,240 | ) | 23,207 | 151,312 | ||||||||||||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests (1) | $ | 15,939 | $ | 19,092 | $ | 16,562 | $ | (1,113 | ) | $ | (22,080 | ) | $ | 35,031 | $ | 15,280 |
(1) | Amounts for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised. See page 3 for additional information. |
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Non-GAAP operating efficiency ratio, net of noncontrolling interests (Dollars in thousands, except ratios) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||||||||||
GAAP noninterest expense (1) (2) | $ | 194,112 | $ | 190,541 | $ | 186,067 | $ | 179,761 | $ | 170,944 | $ | 384,653 | $ | 341,352 | ||||||||||||||
Less: expense attributable to noncontrolling interests (2) | 242 | 292 | 5,536 | 4,743 | 5,267 | 534 | 8,588 | |||||||||||||||||||||
Non-GAAP noninterest expense, net of noncontrolling interests (1) (2) | $ | 193,870 | $ | 190,249 | $ | 180,531 | $ | 175,018 | $ | 165,677 | $ | 384,119 | $ | 332,764 | ||||||||||||||
GAAP net interest income (2) | $ | 243,771 | $ | 238,925 | $ | 234,737 | $ | 220,565 | $ | 204,965 | $ | 482,696 | $ | 401,293 | ||||||||||||||
Adjustments for taxable equivalent basis | 400 | 416 | 417 | 416 | 427 | 816 | 856 | |||||||||||||||||||||
Non-GAAP taxable equivalent net interest income (2) | $ | 244,171 | $ | 239,341 | $ | 235,154 | $ | 220,981 | $ | 205,392 | $ | 483,512 | $ | 402,149 | ||||||||||||||
Less: income (losses) attributable to noncontrolling interests (2) | 2 | 2 | 21 | 9 | (5 | ) | 4 | 3 | ||||||||||||||||||||
Non-GAAP taxable equivalent net interest income, net of noncontrolling interests (2) | $ | 244,169 | $ | 239,339 | $ | 235,133 | $ | 220,972 | $ | 205,397 | $ | 483,508 | $ | 402,146 | ||||||||||||||
GAAP noninterest income (2) | $ | 126,287 | $ | 123,524 | $ | 167,637 | $ | 80,167 | $ | 14,210 | $ | 249,811 | $ | 324,435 | ||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests and excluding net losses on SVBIF Sale Transaction (2) | 117,731 | 109,360 | 104,251 | 75,256 | 49,535 | 227,091 | 173,042 | |||||||||||||||||||||
GAAP total revenue (2) | $ | 370,058 | $ | 362,449 | $ | 402,374 | $ | 300,732 | $ | 219,175 | $ | 732,507 | $ | 725,728 | ||||||||||||||
Non-GAAP taxable equivalent revenue, net of noncontrolling interests and excluding net losses on SVBIF Sale Transaction (2) | $ | 361,900 | $ | 348,699 | $ | 339,384 | $ | 296,228 | $ | 254,932 | $ | 710,599 | $ | 575,188 | ||||||||||||||
GAAP operating efficiency ratio (2) | 52.45 | % | 52.57 | % | 46.24 | % | 59.77 | % | 77.99 | % | 52.51 | % | 47.04 | % | ||||||||||||||
Non-GAAP, net of noncontrolling interests and excluding net losses on SVBIF Sale Transaction operating efficiency ratio (2) | 53.57 | 54.56 | 53.19 | 59.08 | 64.99 | 54.06 | 57.85 |
(1) | Amounts for periods prior to March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
(2) | Amounts and ratios for the three months ended March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts and ratios prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
Non-GAAP non-marketable and other securities, net of noncontrolling interests (Dollars in thousands) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | |||||||||||||||
GAAP non-marketable and other securities (1) (2) | $ | 645,506 | $ | 664,388 | $ | 1,728,140 | $ | 1,702,218 | $ | 1,755,990 | ||||||||||
Less: amounts attributable to noncontrolling interests (2) | 128,539 | 129,921 | 1,216,344 | 1,200,903 | 1,265,651 | |||||||||||||||
Non-GAAP non-marketable and other securities, net of noncontrolling interests (2) | $ | 516,967 | $ | 534,467 | $ | 511,796 | $ | 501,315 | $ | 490,339 |
(1) | Amounts for periods prior to March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
(2) | Amounts as of March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). See page 3 for additional information. |
SVB Financial Group tangible common equity, tangible assets and risk-weighted assets (Dollars in thousands, except ratios) | June 30, 2015 | March 31, 2015 (Revised)(3) | December 31, 2014 | September 30, 2014 | June 30, 2014 | |||||||||||||||
GAAP SVBFG stockholders’ equity (1) | $ | 3,051,102 | $ | 2,971,692 | $ | 2,813,072 | $ | 2,718,109 | $ | 2,670,909 | ||||||||||
Tangible common equity (1) | $ | 3,051,102 | $ | 2,971,692 | $ | 2,813,072 | $ | 2,718,109 | $ | 2,670,909 | ||||||||||
GAAP total assets (1) | $ | 40,236,118 | $ | 38,611,835 | $ | 39,339,950 | $ | 36,037,159 | $ | 33,307,771 | ||||||||||
Tangible assets (1) | $ | 40,236,118 | $ | 38,611,835 | $ | 39,339,950 | $ | 36,037,159 | $ | 33,307,771 | ||||||||||
Risk-weighted assets (2) | $ | 23,815,512 | $ | 24,151,737 | $ | 21,755,091 | $ | 19,482,333 | $ | 18,429,007 | ||||||||||
Tangible common equity to tangible assets (1) | 7.58 | % | 7.70 | % | 7.15 | % | 7.54 | % | 8.02 | % | ||||||||||
Tangible common equity to risk-weighted assets (1) (2) | 12.81 | 12.30 | 12.93 | 13.95 | 14.49 |
(1) | Amounts for periods prior to March 31, 2015, and ratios have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
(2) | Amounts and ratios as of June 30, 2015 and March 31, 2015 reflect the adoption of the Basel III Capital Rules in effect beginning January 1, 2015. Amounts and ratios for prior periods represent the previous capital rules under Basel I. |
(3) | Amounts and ratios as of March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts and ratios prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
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Silicon Valley Bank tangible common equity, tangible assets and risk-weighted assets (Dollars in thousands, except ratios) | June 30, 2015 | March 31, 2015 | December 31, 2014 | September 30, 2014 | June 30, 2014 | |||||||||||||||
Tangible common equity (1) (3) | $ | 2,930,554 | $ | 2,886,173 | $ | 2,399,411 | $ | 2,320,613 | $ | 2,279,833 | ||||||||||
Tangible assets (1) (3) | $ | 39,612,481 | $ | 37,974,587 | $ | 37,607,973 | $ | 34,359,839 | $ | 31,633,637 | ||||||||||
Risk-weighted assets (2) | $ | 22,277,020 | $ | 22,602,065 | $ | 21,450,480 | $ | 19,144,527 | $ | 18,059,726 | ||||||||||
Tangible common equity to tangible assets (1) (3) | 7.40 | % | 7.60 | % | 6.38 | % | 6.75 | % | 7.21 | % | ||||||||||
Tangible common equity to risk-weighted assets (1)(2) (3) | 13.16 | 12.77 | 11.19 | 12.12 | 12.62 |
(1) | Amounts for periods prior to March 31, 2015, and ratios have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). |
(2) | Amounts and ratios as of June 30, 2015 and March 31, 2015 reflect the adoption of the Basel III Capital Rules in effect beginning January 1, 2015. Amounts and ratios for prior periods represent the previous capital rules under Basel I. |
(3) | Amounts and ratios as of March 31, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts and ratios prior to January 1, 2015 have not been revised for the adoption of this guidance. See page 3 for additional information. |
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