SANTA CLARA, Calif., Oct. 22 /PRNewswire-FirstCall/ -- SVB Financial Group today announced financial results for the third quarter ended September 30, 2009.
Consolidated net income available to common stockholders for the third quarter of 2009 was $20.6 million, or $0.61 per diluted common share, compared to $7.8 million, or $0.24 per diluted common share, for the second quarter of 2009, and $25.9 million, or $0.77 per diluted common share, for the third quarter of 2008.
Highlights of our third quarter 2009 results included: -- Provision for loan losses of $8.0 million, a decrease of $13.4 million compared to the second quarter of 2009. The decrease was primarily due to: (i) an $11.4 million partial recovery of a single loan that was previously charged off in the first quarter of 2009, (ii) a reduction of required reserves for impaired loans, and (iii) an overall improvement in the credit quality of our loan portfolio. -- A decrease of $23.8 million and $39.3 million in our allowance for loan losses and nonperforming loans, respectively, primarily due to the finalization of the HRJ Capital ("HRJ") transaction, as well as the charge-offs of certain other impaired loans from our software and hardware client portfolios. -- An increase in net interest income (fully taxable equivalent basis) of $5.1 million, primarily due to growth in average investment securities balances of $681.9 million, or 37.2 percent, from purchases of agency-issued collateralized mortgage obligations and U.S. agency securities. -- A decrease of $9.2 million in noninterest expense, primarily due to lower Federal Deposit Insurance Corporation ("FDIC") assessments in the third quarter of 2009 compared to the second quarter of 2009. -- Growth in average deposit balances of $477.8 million, or 5.7 percent, to $8.9 billion, primarily due to the desire among some clients to benefit from the security provided by the FDIC insurance for noninterest-bearing accounts, as well as to the lack of attractive alternative investment opportunities due to the current low interest rate environment. -- A decrease in average loan balances of $235.5 million, or 4.9 percent, reflecting continued efforts by some clients to de-leverage their businesses.
Consolidated net income available to common stockholders for the nine months ended September 30, 2009 was $16.6 million, or $0.50 per diluted common share, compared to $74.2 million, or $2.17 per diluted common share, for the comparable 2008 period.
"While the economy is still vulnerable, interest rates remain low, and we see many challenges ahead, we are doing the right things to deliver the best possible results, given the current environment," said Ken Wilcox, president and CEO of SVB Financial Group. "Credit quality is improving overall, and we were able to satisfactorily resolve a number of outstanding credit issues in the third quarter. We are also seeing signs of relative improvement among our client base, including improving technology sales pipelines among our technology clients, and stabilizing portfolio company valuations. It is too early to know whether we are at the beginning of a sustainable market recovery. Until that becomes clearer, we will continue to focus on leveraging our financial and market strength to further enhance our competitive position and our ability to deliver stable credit performance."
Third Quarter 2009 Summary Three months ended ------------------ % Change from ------------- (Dollars in millions, except share data and ratios) September June September June September 30, 2009 30, 2009 30, 2008* 30, 2009 30, 2008 ---------------- ------- -------- ------- -------- -------- Income Statement: Diluted earnings per common share (1) $0.61 $0.24 $0.77 154.2% (20.8)% Net income attributable to SVBFG (1) 24.2 11.3 25.9 114.2 (6.6) Net income available to common stockholders (1) 20.6 7.8 25.9 164.1 (20.5) Net interest income (1) 96.8 91.7 94.6 5.6 2.3 Provision for loan losses 8.0 21.4 13.7 (62.6) (41.6) Noninterest income 34.3 28.3 40.4 21.2 (15.1) Noninterest expense 79.8 89.0 80.4 (10.3) (0.7) Non-GAAP net income available to common stockholders (1)(2) 20.6 7.8 25.9 164.1 (20.5) Non-GAAP noninterest income, net of noncontrolling interests (2) 29.2 34.4 39.4 (15.1) (25.9) Non-GAAP noninterest expense, net of noncontrolling interests (2) 76.9 86.2 77.6 (10.8) (0.9) Fully Taxable Equivalent: Net interest income (1)(3) $97.4 $92.2 $95.2 5.6% 2.3% Net interest margin (1) 3.70% 3.71% 5.70% (0.3) (35.1) Shares Outstanding: Common 33,202,387 33,142,568 32,735,732 0.2% 1.4% Basic weighted average 33,176,678 32,951,905 32,534,613 0.7 2.0 Diluted weighted average 33,672,491 33,078,367 33,778,095 1.8 (0.3) Balance Sheet: Average total assets (1) $11,410.6 $10,928.0 $7,547.8 4.4% 51.2% Average loans, net of unearned income 4,544.5 4,780.0 4,863.7 (4.9) (6.6) Average interest- earning investment securities 2,514.6 1,832.7 1,396.2 37.2 80.1 Average noninterest- bearing demand deposits 5,373.5 5,132.8 2,826.3 4.7 90.1 Average interest- bearing deposits 3,536.9 3,299.7 1,994.0 7.2 77.4 Average total deposits 8,910.4 8,432.6 4,820.3 5.7 84.9 Average short- term borrowings 42.1 45.8 544.3 (8.1) (92.3) Average long- term debt (1) 912.2 945.4 970.8 (3.5) (6.0) Period-end total assets (1) 12,538.6 11,465.9 8,070.3 9.4 55.4 Period-end loans, net of unearned income 4,655.8 4,844.3 5,285.1 (3.9) (11.9) Period-end investment securities 3,491.3 2,638.4 1,780.0 32.3 96.1 Period-end noninterest- bearing demand deposits 6,422.9 5,551.2 3,231.3 15.7 98.8 Period-end interest- bearing deposits 3,632.7 3,443.4 2,201.3 5.5 65.0 Period-end total deposits 10,055.6 8,994.6 5,432.6 11.8 85.1 Off-Balance Sheet: Average total client investment funds $16,121.5 $16,450.5 $22,036.0 (2.0)% (26.8)% Period-end total client investment funds 16,433.8 15,972.8 21,533.8 2.9 (23.7) Total unfunded credit commitments 4,794.5 4,963.7 5,619.0 (3.4) (14.7) Earnings Ratios: Return on average assets (1)(4) 0.84% 0.42% 1.37% 100.0% (38.7)% Return on average common SVBFG stockholders'' equity (1)(5)(6) 9.94 3.95 14.37 151.6 (30.8) Asset Quality Ratios: Allowance for loan losses as a percentage of total gross loans 1.85% 2.26% 1.13% (18.1)% 63.7% Gross charge- offs as a percentage of average total gross loans (annualized) 4.03 1.82 0.57 121.4 NM Net charge-offs as a percentage of average total gross loans (annualized) 2.75 1.74 0.51 58.0 NM Other Ratios: Total risk- based capital ratio 19.24% 18.46% 14.25% 4.2% 35.0% Operating efficiency ratio (1)(7) 60.61 73.86 59.30 (17.9) 2.2 Period-end loans, net of unearned income, to deposits 46.30 53.86 97.28 (14.0) (52.4) Average loans, net of unearned income, to deposits 51.00 56.68 100.90 (10.0) (49.5) Non-GAAP Ratios: (1)(2) Tangible common equity to tangible assets 6.73% 6.94% 9.06% (3.0)% (25.7)% Tangible common equity to risk- weighted assets 11.44 10.54 9.28 8.5 23.3 Non-GAAP return on average assets (8) 0.84 0.42 1.37 100.0 (38.7) Non-GAAP return on average common SVBFG stockholders'' equity (6)(9) 9.94 3.95 14.37 151.6 (30.8) Non-GAAP operating efficiency ratio 60.79 68.05 57.68 (10.7) 5.4 Other Statistics: Common stock repurchases $- $- $- -% -% Period-end SVB prime lending rate 4.00% 4.00% 5.00% - (20.0) Average SVB prime lending rate 4.00 4.00 5.00 - (20.0) Nine months ended ----------------- (Dollars in millions, except share data and ratios) September September % 30, 2009 30, 2008* Change ------------------ ------- ------- ------ Income Statement: Diluted earnings per common share (1) $0.50 $2.17 (77.0)% Net income attributable to SVBFG (1) 27.3 74.2 (63.2) Net income available to common stockholders (1) 16.6 74.2 (77.6) Net interest income (1) 280.0 272.2 2.9 Provision for loan losses 72.9 29.8 144.6 Noninterest income 57.0 126.7 (55.0) Noninterest expense 256.0 251.1 2.0 Non-GAAP net income available to common stockholders (1)(2) 20.7 78.0 (73.5) Non-GAAP noninterest income, net of noncontrolling interests (2) 88.6 126.6 (30.0) Non-GAAP noninterest expense, net of noncontrolling interests (2) 242.8 239.1 1.5 Fully Taxable Equivalent: Net interest income (1)(3) $281.7 $273.9 2.8% Net interest margin (1) 3.79% 5.85% (35.2) Shares Outstanding: Common 33,202,387 32,735,732 1.4% Basic weighted average 33,033,179 32,295,612 2.3 Diluted weighted average 33,247,740 34,255,320 (2.9) Balance Sheet: Average total assets (1) $10,935.2 $7,153.7 52.9% Average loans, net of unearned income 4,811.5 4,433.7 8.5 Average interest-earning investment securities 1,941.0 1,332.1 45.7 Average noninterest-bearing demand deposits 5,050.3 2,852.9 77.0 Average interest-bearing deposits 3,376.8 1,782.5 89.4 Average total deposits 8,427.2 4,635.4 81.8 Average short-term borrowings 45.0 329.2 (86.3) Average long-term debt (1) 942.4 984.1 (4.2) Period-end total assets (1) 12,538.6 8,070.3 55.4 Period-end loans, net of unearned income 4,655.8 5,285.1 (11.9) Period-end investment securities 3,491.3 1,780.0 96.1 Period-end noninterest-bearing demand deposits 6,422.9 3,231.3 98.8 Period-end interest-bearing deposits 3,632.7 2,201.3 65.0 Period-end total deposits 10,055.6 5,432.6 85.1 Off-Balance Sheet: Average total client investment funds $16,757.8 $21,773.0 (23.0)% Period-end total client investment funds 16,433.8 21,533.8 (23.7) Total unfunded credit commitments 4,794.5 5,619.0 (14.7) Earnings Ratios: Return on average assets (1)(4) 0.33% 1.38% (76.1)% Return on average common SVBFG stockholders'' equity (1)(5)(6) 2.78 14.25 (80.5) Asset Quality Ratios: Allowance for loan losses as a percentage of total gross loans 1.85% 1.13% 63.7% Gross charge-offs as a percentage of average total gross loans (annualized) 3.04 0.67 NM Net charge-offs as a percentage of average total gross loans (annualized) 2.58 0.50 NM Other Ratios: Total risk-based capital ratio 19.24% 14.25% 35.0% Operating efficiency ratio (1)(7) 75.58 62.67 20.6 Period-end loans, net of unearned income, to deposits 46.30 97.28 (52.4) Average loans, net of unearned income, to deposits 57.09 95.65 (40.3) Non-GAAP Ratios: (1)(2) Tangible common equity to tangible assets 6.73% 9.06% (25.7)% Tangible common equity to risk-weighted assets 11.44 9.28 23.3 Non-GAAP return on average assets (8) 0.38 1.46 (74.0) Non-GAAP return on average common SVBFG stockholders'' equity (6)(9) 3.46 14.99 (76.9) Non-GAAP operating efficiency ratio 65.56 59.79 9.7 Other Statistics: Common stock repurchases $- $45.6 (100.0)% Period-end SVB prime lending rate 4.00% 5.00% (20.0) Average SVB prime lending rate 4.00 5.44 (26.5) -------------------------------------- NM- Not meaningful * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to "Changes to Prior Period Balances" section below for more details. Amounts for the three and nine months ended September 30, 2008, have been revised. (1) Balances, results and ratios for all periods presented reflect our adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 470-20 (formerly known as Staff Position ("FSP") Accounting Principles Board Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)) ("FSP APB 14-1"). Refer to "Long-Term Debt" discussion for more details. Amounts for the three and nine months ended September 30, 2008 have been retrospectively adjusted. (2) A reconciliation of non-GAAP calculations to GAAP is provided below under the section "Use of Non-GAAP Financial Measures". (3) Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 35.0 percent. The taxable equivalent adjustments were $0.5 million for the quarter ended September 30, 2009 and $0.6 million for both of the quarters ended June 30, 2009 and September 30, 2008. The taxable equivalent adjustments were $1.7 million for both the nine months ended September 30, 2009 and 2008. (4) Ratio represents annualized consolidated net income attributable to SVB Financial Group ("SVBFG") divided by quarterly average assets and year-to-date average assets. (5) Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders'' equity (excluding preferred equity) and year-to-date average SVBFG stockholders'' equity (excluding preferred equity). (6) Our 2009 adoption of new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51)("SFAS No. 160") required us to reclassify our presentation of noncontrolling interests. (7) The operating efficiency ratio is calculated by dividing noninterest expense by total taxable equivalent net interest income plus noninterest income. (8) Ratio represents non-GAAP annualized consolidated net income attributable to SVBFG (excluding non-tax deductible goodwill impairment charge of $4.1 million recorded in the first quarter of 2009 and non-tax deductible noninterest expense of $3.9 million related to the conversion premium value of certain of our zero-coupon convertible notes that were converted prior to maturity ("Coco Loss") recorded in the second quarter of 2008) divided by quarterly average assets and year-to-date average assets. (9) Ratio represents non-GAAP annualized consolidated net income available to common stockholders (excluding non-tax deductible goodwill impairment charge of $4.1 million recorded in the first quarter of 2009 and non-tax deductible $3.9 million Coco Loss recorded in the second quarter of 2008) divided by quarterly average SVBFG stockholders'' equity (excluding preferred equity) and year-to-date average SVBFG stockholders'' equity (excluding preferred equity). Net Interest Income and Margin
Net interest income, on a fully taxable equivalent basis, was $97.4 million for the third quarter of 2009, compared to $92.2 million for the second quarter of 2009 and $95.2 million for the third quarter of 2008. The following table provides a summary of changes in interest income and interest expense attributable to both volume and rate changes from the second to the third quarter of 2009. Changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate:
Q3''09 compared to Q2''09 --------------------------- Increase (decrease) due to change in --------------------------- (Dollars in thousands) Volume Rate Total ---------------------- ------ ---- ----- Interest income: Short-term investment securities $2 $(120) $(118) Investment securities 6,355 (1,620) 4,735 Loans (3,657) 2,458 (1,199) ------ ----- ------ Increase in interest income, net 2,700 718 3,418 ----- ----- ----- Interest expense: Deposits 410 (1,214) (804) Short-term borrowings (2) (2) (4) Long-term debt (103) (796) (899) ---- ---- ---- Increase (decrease) in interest expense, net 305 (2,012) (1,707) ------ ------ ------ Increase in net interest income $2,395 $2,730 $5,125 ====== ====== ======
The change in net interest income, on a fully taxable equivalent basis, from the second to the third quarter of 2009, was primarily attributable to the following:
-- An increase in interest income of $4.7 million from our interest-earning investment securities portfolio, primarily related to the growth in average balances of $681.9 million due to new investments. These investments were primarily for purchases of agency-issued collateralized mortgage obligations and U.S. agency securities, which were purchased with excess cash as a result of our continued growth in deposits. -- A decrease in interest expense of $0.9 million from our long-term debt, driven by a decrease in interest expense associated with interest rate swap agreements for our 5.70% senior and 6.05% subordinated notes, due to lower London Interbank Offered Rates ("LIBOR"). -- A decrease in interest expense of $0.8 million from interest-bearing deposits due to our decision to lower certain deposit interest rates in the third quarter of 2009 to reflect current market interest rates. -- The above increases were partially offset by a decrease in interest income from our loan portfolio of $1.2 million driven principally by a decrease in average loan balances of $235.5 million, partially offset by an increase in recovered interest from previously charged-off loans. Our average prime-lending rate was 4.00 percent for both the second and third quarters of 2009.
Net interest margin, on a fully taxable equivalent basis, was 3.70 percent for the third quarter of 2009, compared to 3.71 percent for the second quarter of 2009 and 5.70 percent for the third quarter of 2008. The nominal decrease from the second to the third quarter of 2009 was primarily a result of a decline in loan balances and an increase in deposits, which were invested in overnight cash with the Federal Reserve earning 25 basis points throughout the third quarter of 2009. The decline was partially offset by new investments in interest-earning securities.
Net interest margin, on a fully taxable equivalent basis, was 3.79 percent for the nine months ended September 30, 2009, compared to 5.85 percent for the comparable 2008 period. While net interest margin declined year-over-year, net interest income, on a fully taxable equivalent basis, increased to $281.7 million for the nine months ended September 30, 2009, compared to $273.9 million for the comparable 2008 period.
On an average basis, for the third quarter of 2009, 71.0 percent, or $3.3 billion, of our outstanding gross loans were variable-rate loans that adjust at prescribed measurement dates upon a change in our prime-lending rate or other variable indices. This compares to 71.0 percent, or $3.5 billion, for the second quarter of 2009 and 73.4 percent, or $3.7 billion, for the third quarter of 2008.
Investment Securities
Our investment securities portfolio consists of both a fixed income investment portfolio, which primarily represents interest-earning securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business. Total investment securities were $3.5 billion at September 30, 2009, compared to $2.6 billion at June 30, 2009 and $1.8 billion at September 30, 2008. The increase from the second to the third quarter of 2009 was primarily due to purchases of agency-issued collateralized mortgage obligations and U.S. agency securities as part of our overall investment strategy to invest excess cash from our continued growth in deposits.
Average interest-earning investment securities were $2.5 billion for the third quarter of 2009, compared to $1.8 billion for the second quarter of 2009 and $1.4 billion for the third quarter of 2008.
Non-marketable securities were $507.9 million ($211.9 million net of noncontrolling interests) as of September 30, 2009, compared to $478.7 million ($193.6 million net of noncontrolling interests) as of June 30, 2009. The increase from the second to the third quarter of 2009 was primarily attributable to additional capital calls for fund investments in the third quarter of 2009. Reconciliations of our non-GAAP non-marketable securities, net of noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."
Loans
Average loans, net of unearned income, were $4.5 billion for the third quarter of 2009, compared to $4.8 billion for the second quarter of 2009 and $4.9 billion for the third quarter of 2008. The decrease in average loan balances from the second to the third quarter of 2009 came primarily from decreases in loans to software and hardware clients, reflecting continued efforts by some clients to de-leverage their businesses. Period-end loans, net of unearned income, were $4.7 billion at September 30, 2009, compared to $4.8 billion at June 30, 2009 and $5.3 billion at September 30, 2008.
Our nonaccrual loans totaled $72.2 million at September 30, 2009, compared to $111.4 million at June 30, 2009 and $9.1 million at September 30, 2008. The allowance for loan losses related to nonaccrual loans was $23.4 million, $44.6 million and $5.9 million at September 30, 2009, June 30, 2009 and September 30, 2008, respectively. The decrease in nonaccrual loans and related allowance for loan losses from the second to the third quarter of 2009 came primarily from the finalization of the HRJ transaction as well as the charge-offs of other impaired loans from our software and hardware client portfolios.
The following table provides a summary of our concentration of clients with loans individually greater than $20 million by industry sector at September 30, 2009, June 30, 2009 and September 30, 2008:
Loans individually greater than $20 million at ---------------------------------------- (Dollars in thousands, except September 30, June 30, September 30, ratios and client data) 2009 2009 2008 ----------------------------- ---- ---- ---- Technology $458,901 $529,534 $531,897 Private Equity 272,920 247,702 531,630 Life Sciences 45,717 25,376 60,039 Private Client Services 69,652 99,407 99,774 Premium Wineries 20,307 - - All other sectors 21,000 21,000 72,937 ------ ------ ------ Total $888,497 $923,019 $1,296,277 ======== ======== ========== Loans individually greater than $20 million as a percentage of total gross loans 18.9% 18.9% 24.4% Total clients with loans individually greater than $20 million 28 28 40 Loans individually greater than $20 million on nonaccrual status $20,022 $68,029 $- Loans individually greater than $20 million on nonaccrual status as a percentage of total loans greater than $20 million 2.3% 7.4% -%
The decrease in loans individually greater than $20 million from June 30, 2009 to September 30, 2009 was primarily due to clients using cash on their balance sheet to de-leverage their businesses.
The decrease in loans individually greater than $20 million on nonaccrual status from June 30, 2009 to September 30, 2009 was primarily due to the finalization of the HRJ transaction.
Deposits
Average deposits were $8.9 billion for the third quarter of 2009, compared to $8.4 billion for the second quarter of 2009 and $4.8 billion for the third quarter of 2008. The increase in average deposit balances from the second to the third quarter of 2009 came primarily from our noninterest-bearing demand deposits, which grew by $240.6 million to $5.4 billion, and our sweep deposits, which grew by $148.8 million to $1.9 billion.
Growth in average balances of noninterest-bearing deposits in the third quarter of 2009 was primarily due to the desire among some clients to benefit from the security provided by the FDIC insurance for noninterest-bearing accounts, as well as to the lack of attractive alternative investment opportunities due to the current low interest rate environment. Growth in average balances of our sweep deposits in the third quarter of 2009 was primarily due to increases in balances from our corporate technology clients.
Period-end deposits were $10.1 billion at September 30, 2009, compared to $9.0 billion at June 30, 2009 and $5.4 billion at September 30, 2008. The increase at September 30, 2009 compared to June 30, 2009 was primarily driven by a large deposit of approximately $0.9 billion related to client capital calls for investments on the last day of the third quarter of 2009, which was subsequently withdrawn.
Long-Term Debt
Effective January 1, 2009, we adopted the FASB guidance on debt with conversion options (ASC 470-20 formerly known as FSP APB 14-1), which required a change in the accounting treatment for our convertible debt instruments. The standard requires that the proceeds from the issuance of convertible debt instruments be allocated between a liability and an equity component in a manner that reflects the entity''s non-convertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. Historical financial statements for 2007 and 2008 are required to be adjusted retrospectively to conform to the standard''s new accounting treatment for both our zero-coupon convertible subordinated notes, which matured on June 15, 2008 and our 3.875% convertible senior notes due April 15, 2011.
As a result of adopting these requirements, our net income available to common stockholders for both the second and third quarters of 2009 decreased by $0.3 million. Details of certain prior period revised items related to the adoption of this guidance are provided below under the section "Changes to Prior Period Balances."
Noninterest Income
Noninterest income was $34.3 million for the third quarter of 2009, compared to $28.3 million for the second quarter of 2009 and $40.4 million for the third quarter of 2008.
The increase in noninterest income from the second to the third quarter of 2009 was primarily driven by the following factors:
* Net gains on investment securities of $3.9 million for the third quarter of 2009, compared to net losses of $6.8 million for the second quarter of 2009 and net losses of $0.9 million for the third quarter of 2008. The net gains of $3.9 million in the third quarter of 2009 were primarily due to realized gains of $3.1 million from distributions made to our managed funds of funds and unrealized gains of $2.9 million from our managed co-investment funds as a result of higher valuations. These gains were partially offset by impairment losses of $2.2 million primarily from our private equity fund investments, due principally to sustained valuation decreases in underlying portfolio companies. The following table provides a summary of net gains (losses) on investment securities for the three months ended September 30, 2009 and June 30, 2009: Three months ended ------------------- June 30, September 30, 2009 2009 ------------------ ----- Managed Co- Managed (Dollars in Investment Funds Of Debt thousands) Funds Funds Funds Other Total Total ----------- ----------- --------- ----- ----- ----- ----- Unrealized gains (losses) $2,896 $(366) $85 $- $2,615 $(7,362) Realized (losses) gains (342) 3,146 657 (2,171) 1,290 612 ---- ----- --- ------ ----- --- Total gains (losses) on investment securities, net $2,554 $2,780 $742 $(2,171) $3,905 $(6,750) ====== ====== ==== ======= ====== ======= Less: income (losses) attributable to noncontrolling interests, including carried interest 2,328 2,511 41 - 4,880 (6,933) ----- ----- --- --- ----- ------ Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests $226 $269 $701 $(2,171) $(975) $183 ==== ==== ==== ======= ===== ==== As of September 30, 2009, we held investments, either directly or through seven of our managed investment funds, in 437 venture capital and private equity funds, 76 companies and five debt funds. * Net losses on derivative instruments of $1.1 million for the third quarter of 2009, compared to net losses of $2.8 million for the second quarter of 2009 and net gains of $6.5 million for the third quarter of 2008. The following table provides a summary of our net (losses) gains on derivative instruments: Three months ended Nine months ended ------------------ ----------------- September June September September September (Dollars in thousands) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 ----------- ------- ------- ------- ------- ------- Gains (losses) on foreign exchange forward contracts, net: Gains on client foreign exchange forward contracts, net $360 $448 $561 $1,304 $1,767 (Losses) gains on internal foreign exchange forward contracts, net (1) (128) (4,479) 4,452 (2,664) 1,985 ---- ------ ----- ------ ----- Total gains (losses) on foreign exchange forward contracts, net 232 (4,031) 5,013 (1,360) 3,752 Change in fair value of interest rate swap - - (10) (170) 376 Gains on covered call options (2) - - 24 - 402 Net (losses) gains on equity warrant assets (1,322) 1,184 1,445 (593) 8,949 ------ ----- ----- ---- ----- Total (losses) gains on derivative instruments, net $(1,090) $(2,847) $6,472 $(2,123) $13,479 ======= ======= ====== ======= ======= ---------------------- (1) Represents the change in fair value of foreign exchange forward contracts used to economically reduce our foreign exchange exposure related to certain foreign currency denominated loans. Revaluations of foreign currency denominated loans are recorded on the line item "Other" as part of noninterest income, a component of consolidated net income (loss). (2) Represents net gains on covered call options by one of our consolidated sponsored debt funds. The decrease in net (losses) gains on derivative instruments from the second to the third quarter of 2009 was primarily driven by the following factors: o Net losses of $0.1 million from foreign exchange forward contracts hedging our foreign currency denominated loans in the third quarter of 2009, compared to net losses of $4.5 million in the second quarter of 2009. These losses were offset by comparable net gains included in other noninterest income. o Net losses on equity warrant assets of $1.3 million in the third quarter of 2009, compared to net gains of $1.2 million in the second quarter of 2009. The net losses on equity warrant assets of $1.3 million was driven by $1.2 million from warrant terminations, net losses of $0.5 million from the exercise of certain warrant positions and $0.4 million from valuation decreases in our private warrant portfolio. These losses were partially offset by gains of $0.8 million from share price increases of certain investments in our public company warrant portfolio. * A decrease in other noninterest income of $6.6 million, mainly driven by net gains of $0.2 million from revaluation of our foreign currency denominated loans and non-marketable investment securities for the third quarter of 2009, compared to net gains of $5.7 million for the second quarter of 2009. The net gains of $0.2 million for the third quarter of 2009 were primarily due to revaluation gains from one of our private equity fund investments.
Non-GAAP noninterest income, net of noncontrolling interests, was $29.2 million for the third quarter of 2009, compared to $34.4 million for the second quarter of 2009 and $39.4 million for the third quarter of 2008. Reconciliations of our non-GAAP noninterest income and non-GAAP net gains (losses) on investment securities, both of which exclude amounts attributable to noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."
Noninterest Expense
Noninterest expense was $79.8 million for the third quarter of 2009, compared to $89.0 million for the second quarter of 2009 and $80.4 million for the third quarter of 2008.
The following table provides a summary of certain noninterest expense items:
Three months ended Nine months ended --------------------- ------------------- (Dollars in September June September September September thousands) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 ----------- ------- ------- ------- ------- ------- Compensation and benefits: Salaries and wages $26,100 $26,874 $25,480 $81,936 $76,042 Incentive Compensation Plan 6,732 5,520 10,320 17,291 33,180 Employee Stock Ownership Plan - - 1,192 - 4,605 Other employee benefits 12,983 14,553 12,606 41,815 39,611 ------ ------ ------ ------ ------ Total compensation and benefits 45,815 46,947 49,598 141,042 153,438 FDIC assessments 2,589 8,589 671 13,853 1,807 Impairment of goodwill - - - 4,092 - Provision for (reduction of) unfunded credit commitments 65 (1,147) (990) (3,366) (355) Other (1) 31,338 34,623 31,152 100,338 96,167 ------ ------ ------ ------- ------ Total noninterest expense $79,807 $89,012 $80,431 $255,959 $251,057 ======= ======= ======= ======== ======== Full-time equivalent employees 1,259 1,260 1,237 1,259 1,237 ===== ===== ===== ===== ===== ----------------------- (1) Other noninterest expense includes professional services, premises and equipment, net occupancy, business development and travel, correspondent bank fees, and other noninterest expenses. For further details of noninterest expense items, please refer to "Interim Consolidated Statements of Income".
The decrease in noninterest expense from the second to the third quarter of 2009 was primarily attributable to the following:
-- A decrease of $6.0 million in FDIC assessments primarily attributable to a $5.0 million special assessment recorded in the second quarter of 2009, mandated for all banks by the FDIC, as well as from a decrease in fees from lower assessment rates calculated by the FDIC in the third quarter of 2009. -- A decrease of $3.3 million in other noninterest expense. -- A provision for unfunded credit commitments of $0.1 million for the third quarter of 2009, compared to a (reduction of) provision of $1.1 million for the second quarter of 2009. Total unfunded credit commitments were $4.8 billion as of September 30, 2009, compared to $5.0 billion at June 30, 2009.
Non-GAAP noninterest expense, net of noncontrolling interests, was $76.9 million for the third quarter of 2009, compared to $86.2 million for the second quarter of 2009 and $77.6 million for the third quarter of 2008. Reconciliations of our non-GAAP noninterest expense, net of noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."
Income Tax Expense
Effective January 1, 2009, we adopted new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160), which requires us to clearly identify and distinguish between the interests of the Company and the interests of the noncontrolling owners by presenting noncontrolling interests after net income (loss) in our interim consolidated statements of income. As a result, our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net (income) loss attributable to noncontrolling interests.
Our effective tax rate was 41.1 percent for the third quarter of 2009, compared to 38.8 percent for the second quarter of 2009 and 39.2 percent for the third quarter of 2008. The increase in the tax rate from the second to the third quarter of 2009 was primarily attributable to the lower tax impact of tax advantaged investments on our overall pre-tax income as well as the tax impact of higher non-deductible officers'' compensation expense on overall pre-tax income.
Our effective tax rate was 44.2 percent for nine months ended September 30, 2009, compared to 40.9 percent for the comparable 2008 period. The increase in the tax rate was primarily attributable to the tax impact of the $4.1 million non-tax deductible goodwill impairment associated with eProsper in the first quarter of 2009 as well as the tax impact of higher non-deductible officers'' compensation expense on overall pre-tax income.
Credit Quality The following table provides a summary of our allowance for loan losses: Three months ended Nine months ended ------------------- ------------------ (Dollars in thousands, except September June September September September ratios) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 ----------- ---------- -------- ---------- ---------- ---------- Allowance for loan losses, beginning balance $110,473 $110,010 $52,888 $107,396 $47,293 Provision for loan losses 8,030 21,393 13,682 72,889 29,756 Gross loan charge-offs (46,553) (21,898) (7,000) (110,464) (22,306) Loan recoveries 14,763 968 720 16,892 5,547 ------ --- --- ------ ----- Allowance for loan losses, ending balance $86,713 $110,473 $60,290 $86,713 $60,290 ------------- ======= ======== ======= ======= ======= Provision as a percentage of total gross loans (annualized) 0.68% 1.76% 1.02% 2.08% 0.75% Gross loan charge-offs as a percentage of average total gross loans (annualized) 4.03 1.82 0.57 3.04 0.67 Net loan charge-offs as a percentage of average total gross loans (annualized) 2.75 1.74 0.51 2.58 0.50 Allowance for loan losses as a percentage of total gross loans 1.85 2.26 1.13 1.85 1.13 Total gross loans at period-end $4,692,498 $4,886,040 $5,323,323 $4,692,498 $5,323,323 Average total gross loans 4,583,320 4,820,855 4,897,996 4,852,543 4,464,716
Our provision for loan losses was $8.0 million for the third quarter of 2009, a decrease of $13.4 million from the second quarter of 2009. Our provision for loan losses of $8.0 million for the third quarter of 2009 is detailed as follows:
-- Gross loan charge-offs of $46.6 million, primarily from our software, venture capital/private equity and hardware client portfolios. Gross loan charge-offs included $27.4 million of loans that were previously included as nonperforming loans, with specific reserves of $34.9 million. These charge-offs were the primary driver for the $39.3 million decrease in our nonperforming loans from the second to the third quarter of 2009. -- Loan recoveries of $14.8 million, primarily due to a partial recovery of $11.4 million from a loan within our hardware industry portfolio that was charged-off in the first quarter of 2009. The remaining recoveries of $3.4 million were primarily from our life sciences and software client portfolios. -- Our net loan charge-offs of $31.8 million, as a percentage of average total gross loans (annualized) was 2.75 percent for the third quarter of 2009, compared to our allowance for loan losses as a percentage of total gross loans (annualized) of 1.85 percent for the third quarter of 2009. Net loan charge-offs of 2.75 percent for the third quarter of 2009 included the finalization of the HRJ transaction and the charge-offs of certain other impaired loans.
As shown in the table below, we believe our allowance for loan losses of 1.85 percent is indicative of ongoing levels of future charge-offs.
Period end balances at ---------------------- September June September (Dollars in thousands, except ratios) 30, 2009 30, 2009 30, 2008 ------------------------------------- ------- -------- -------- Allowance for loan losses as a percentage of total gross loans 1.85% 2.26% 1.13% Allowance for loan losses for performing loans as a percentage of performing loans 1.37 1.38 1.02 Allowance for loan losses for nonperforming loans as a percentage of nonperforming loans 32.36 40.05 63.31 Allowance for loan losses $86,713 $110,473 $60,290 Allowance for loan losses for performing loans 63,357 65,829 54,347 Allowance for loan losses for nonperforming loans 23,356 44,644 5,943 Total performing loans 4,620,325 4,774,579 5,313,936 Total nonperforming loans 72,173 111,461 9,387
In July 2009, an independent asset management firm announced that it had closed its transaction with HRJ to assume the management of HRJ''s private equity and real estate funds of funds. The finalization of this transaction in the third quarter of 2009 had a favorable impact on our overall allowance for loan losses.
Noncontrolling Interests
Net income attributable to noncontrolling interests was $2.2 million for the third quarter of 2009, compared to a net loss of $9.0 million for the second quarter of 2009 and a net loss of $1.7 million for the third quarter of 2008. Net income attributable to noncontrolling interests of $2.2 million for the third quarter of 2009 was primarily a result of the following:
-- Gains on investment securities (including carried interest) attributable to noncontrolling interests of $4.9 million, stemming mainly from gains of $2.5 million from our managed funds of funds and $2.3 million from our managed co-investment funds. -- Noninterest expense of $2.9 million, principally related to management fees paid by the noncontrolling interests to the general partner entities managed by SVB Capital. Capital
Net income available to common stockholders was reduced by $3.6 million and $3.5 million for the third and second quarters of 2009, respectively, related to dividends and discount amortization in connection with our preferred stock issued under the Capital Purchase Program ("CPP") on December 12, 2008.
Accumulated other comprehensive income increased by $21.0 million to $25.5 million as of September 30, 2009, compared to $4.5 million as of June 30, 2009, primarily due to favorable increases in the fair value of our fixed income investment portfolio due to declining long-term interest rates and improvements in market liquidity.
Additional paid-in-capital increased by $5.9 million to $92.4 million as of September 30, 2009, compared to $86.5 as of June 30, 2009, primarily due to stock option exercises and share-based compensation expenses in the third quarter of 2009.
Outlook for the Year Ending December 31, 2009
Our outlook for the year ending December 31, 2009 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results, except for net loan charge-offs which is specific to the fourth quarter of 2009, of our significant forecasted activities. In general, we do not provide our outlook for selected items where the timing or financial impact are particularly uncertain, or for certain potential unusual or one-time items; however in light of the current uncertain economic environment, we have provided directional guidance on two such elements, specifically net (losses) gains on equity warrant assets and net (losses) gains on investment securities, net of noncontrolling interests. The outlook observations presented below are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties which are discussed below under the caption "Forward-Looking Statements".
For the year ending December 31, 2009, compared to our 2008 results, we currently expect the following outlook:
--------------------------------------------- Current outlook compared to 2008 results as of October 22, 2009 -------------------------------------------------------------------------- Increase at a percentage rate in the low Average loan balances single digits -------------------------------------------------------------------------- Increase at a percentage rate in the Average deposit balances seventies -------------------------------------------------------------------------- Net interest margin Between 3.7% to 4.0% -------------------------------------------------------------------------- Allowance for loan losses Approximately 1.85% of total gross loans as a percentage of gross including existing specific reserves for loans impaired loans -------------------------------------------------------------------------- For the fourth quarter of 2009, net loan charge-offs are expected to be in the range of 1.40% to 1.45% of average total gross loans, excluding any potential net Net loan charge-offs charge-offs related to impaired loans -------------------------------------------------------------------------- Ratio of non-performing loans and assets Lower compared to 2008 levels -------------------------------------------------------------------------- Fees for deposit services, letters of credit and foreign exchange, in Decrease at a percentage rate in the low aggregate single digits -------------------------------------------------------------------------- Decline significantly to approximately one- Client investment fees half of 2008 levels -------------------------------------------------------------------------- Net (losses) gains on equity warrant assets No net gains expected -------------------------------------------------------------------------- Net (losses) gains on investment securities, net of noncontrolling interests* Comparable to 2008 levels -------------------------------------------------------------------------- Noninterest expense* (excluding expenses related to goodwill impairment and Increase at a percentage rate in the low noncontrolling interests) double digits range -------------------------------------------------------------------------- Change in outlook compared to outlook reported as of July 23, 2009 -------------------------------------------------------------------------- Outlook decreased from mid single digits, Average loan balances due to overall market conditions -------------------------------------------------------------------------- Outlook increased from previous outlook from the sixties, due to overall market Average deposit balances conditions -------------------------------------------------------------------------- Net interest margin No change from previous outlook -------------------------------------------------------------------------- Allowance for loan losses Outlook improved due to resolution of certain as a percentage of gross impaired loans and general improvement loans in overall credit quality portfolio -------------------------------------------------------------------------- Net loan charge-offs No change from previous outlook -------------------------------------------------------------------------- Ratio of non-performing Outlook improved due to resolution of loans and assets certain impaired loans -------------------------------------------------------------------------- Fees for deposit services, letters of credit and foreign exchange, in aggregate No change from previous outlook -------------------------------------------------------------------------- Client investment fees No change from previous outlook -------------------------------------------------------------------------- Net (losses) gains on equity warrant assets No change from previous outlook -------------------------------------------------------------------------- Net (losses) gains on investment securities, net of noncontrolling Outlook improved due to overall market interests* conditions -------------------------------------------------------------------------- Noninterest expense* (excluding expenses related to goodwill impairment and Outlook improved from mid teens, due to noncontrolling interests) lower compensation and benefits -------------------------------------------------------------------------- -------------------------- * non-GAAP Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, such as forecasts of our future financial results and condition, expectations for our operations and business, and our underlying assumptions of such forecasts and expectations. In this release, including in the section "Outlook for the Year Ending December 31, 2009" above, we make forward-looking statements discussing management''s expectations about economic conditions, opportunities in the market, our financial, credit and business performance and financial results (and the components of such results) for the year 2009.
Although management believes that the expectations reflected in our forward-looking statements are reasonable and has based these expectations on our beliefs and assumptions, such expectations are not guarantees and may prove to be incorrect. Actual results could differ significantly. Factors that may cause the outlook for the year 2009 and other forward-looking statements herein to change include, among others, the following: (i) accounting changes, as required by U.S. generally accepted accounting principles, (ii) 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, (iii) changes in credit quality of our loan portfolio, (iv) changes in interest rates or market levels or factors affecting them, (v) changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets, (vi) variations from our expectations as to factors impacting our cost structure, and (vii) errors in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity. For additional information about these factors, please refer to our public reports filed with the U.S. Securities and Exchange Commission, including our most recently-filed quarterly or annual report. The forward-looking statements included in this release are made only as of the date of this release. We do not intend, and undertake no obligation, to update these forward-looking statements.
Earnings Conference Call
On October 22, 2009, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the third quarter ended September 30, 2009. The conference call can be accessed by dialing (877) 663-9523 or (404) 665-9482, and referencing the conference ID "35591747". A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at http://www.svb.com/. A replay of the conference call will be available beginning at approximately 6:00 p.m. (Pacific Time) on Thursday, October 22, 2009, through midnight on Tuesday, October 27 2009, by dialing (800) 642-1687 or (706) 645-9291 and referencing conference ID number "35591747". A replay of the audio webcast will also be available on http://www.svb.com/ for 12 months beginning Thursday, October 22, 2009.
About SVB Financial Group
For over 25 years, SVB Financial Group and its subsidiaries, including Silicon Valley Bank, have been dedicated to helping entrepreneurs succeed. SVB Financial Group is a financial holding company that serves companies in the technology, life science, venture capital/private equity and premium wine industries. Offering diversified financial services through Silicon Valley Bank, SVB Analytics, SVB Capital, SVB Global and SVB Private Client Services, SVB Financial Group provides clients with commercial, investment, international and private banking services. The Company also offers funds management, broker-dealer services and asset management, as well as the added value of its knowledge and networks worldwide. Headquartered in Santa Clara, California, SVB Financial Group operates through 27 offices in the U.S. and international operations in China, India, Israel and the United Kingdom. More information on the Company can be found at http://www.svb.com/. (SIVB-F)
Banking services are provided by Silicon Valley Bank, the California bank subsidiary and commercial banking operation of SVB Financial Group, and a member of the FDIC and the Federal Reserve. SVB Private Client Services is a division of Silicon Valley Bank. SVB Financial Group is also a member of the Federal Reserve.
SVB FINANCIAL GROUP AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Three months ended Nine months ended thousands, --------------------- ------------------- except share September June September September September data) 30, 2009 30, 2009 30, 2008* 30, 2009 30, 2008* ------------- ------- ------- ------- ------- ------- Interest income: Loans $83,049 $84,248 $94,256 $255,548 $268,530 Investment securities: Taxable 21,562 16,794 15,321 53,207 43,677 Non-taxable 1,008 1,029 1,106 3,098 3,121 Federal funds sold, securities purchased under agreements to resell and other short-term investment securities 2,367 2,485 2,712 7,228 10,513 --------------- ----- ----- ----- ----- ------ Total interest income 107,986 104,556 113,395 319,081 325,841 -------------- ------- ------- ------- ------- ------- Interest expense: Deposits 4,801 5,605 6,267 17,253 16,908 Borrowings (1) 6,367 7,270 12,517 21,818 36,748 -------------- ----- ----- ------ ------ ------ Total interest expense 11,168 12,875 18,784 39,071 53,656 -------------- ------ ------ ------ ------ ------ Net interest income 96,818 91,681 94,611 280,010 272,185 Provision for loan losses 8,030 21,393 13,682 72,889 29,756 ------------- ----- ------ ------ ------ ------ Net interest income after provision for loan losses 88,788 70,288 80,929 207,121 242,429 -------------- ------ ------ ------ ------- ------- Noninterest income: Foreign exchange fees 7,491 7,617 8,641 22,574 24,446 Deposit service charges 6,906 6,590 6,129 20,319 18,076 Client investment fees 5,527 5,580 13,636 17,355 41,006 Letters of credit and standby letters of credit income 3,019 2,329 3,050 8,240 9,138 Credit card fees 2,300 2,957 1,473 6,696 4,675 Corporate finance fees - - - - 3,640 (Losses) gains on derivative instruments, net (1,090) (2,847) 6,472 (2,123) 13,479 Gains (losses) on investment securities, net 3,905 (6,750) (876) (37,890) (4,949) Other 6,249 12,799 1,913 21,830 17,194 ----- ----- ------ ----- ------ ------ Total noninterest income 34,307 28,275 40,438 57,001 126,705 ------------ ------ ------ ------ ------ ------- Noninterest expense: Compensation and benefits 45,815 46,947 49,598 141,042 153,438 Professional services 12,109 11,263 9,623 35,452 27,556 Premises and equipment 5,892 5,694 5,781 16,993 16,424 FDIC assessments 2,589 8,589 671 13,853 1,807 Net occupancy 4,198 4,843 4,135 13,346 12,825 Business development and travel 2,902 3,403 3,389 9,578 10,575 Correspondent bank fees 2,118 1,963 1,689 5,994 5,011 Impairment of goodwill - - - 4,092 - Loss from cash settlement of conversion premium of zero- coupon convertible subordinated notes - - - - 3,858 Provision for (reduction of) unfunded credit commitments 65 (1,147) (990) (3,366) (355) Other 4,119 7,457 6,535 18,975 19,918 ----- ----- ----- ----- ------ ------ Total noninterest expense 79,807 89,012 80,431 255,959 251,057 ------------ ------ ------ ------ ------- ------- Income before income tax expense 43,288 9,551 40,936 8,163 118,077 Income tax expense (1) 16,879 7,174 16,711 21,605 51,350 ------------ ------ ----- ------ ------ ------ Net income (loss) before noncontrolling interests 26,409 2,377 24,225 (13,442) 66,727 Net (income) loss attributable to noncontrolling interests (2) (2,246) 8,961 1,693 40,708 7,445 ---------------- ------ ----- ----- ------ ----- Net income attributable to SVBFG (1)(2) $24,163 $11,338 $25,918 $27,266 $74,172 ================ ======= ======= ======= ======= ======= Preferred stock dividend and discount accretion (3,555) (3,545) - (10,636) - --------------- ------ ------ --- ------- --- Net income available to common stockholders(1) $20,608 $7,793 $25,918 $16,630 $74,172 ================ ======= ====== ======= ======= ======= Earnings per common share - basic (1) $0.62 $0.24 $0.80 $0.50 $2.30 Earnings per common share - diluted (1) $0.61 $0.24 $0.77 $0.50 $2.17 Weighted average common shares outstanding - basic 33,176,678 32,951,905 32,534,613 33,033,179 32,295,612 Weighted average common shares outstanding - diluted 33,672,491 33,078,367 33,778,095 33,247,740 34,255,320 -------------- * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts, which is included under other noninterest income. Refer to "Changes to Prior Period Balances" section below for more details. Amounts for the three and nine months ended September 30, 2008 have been revised. (1) Balances for all periods presented reflect our adoption of ASC 470-20 (formerly known as FSP APB 14-1). Refer to "Long-Term Debt" discussion for more details. Amounts for the three and nine months ended September 30, 2008 have been retrospectively adjusted. (2) Our 2009 adoption of new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160) required us to reclassify our income statement presentation for noncontrolling interests. SVB FINANCIAL GROUP AND SUBSIDIARIES INTERIM CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except par September June September value, share data and ratios) 30, 2009 30, 2009 30, 2008* --------------------------------- ------- ------- ------- Assets: Cash and due from banks $4,062,298 $3,430,835 $459,517 Federal funds sold, securities purchased under agreements to resell and other short-term investment securities 48,530 278,535 290,996 Investment securities 3,491,281 2,638,380 1,779,978 Loans, net of unearned income 4,655,817 4,844,253 5,285,101 Allowance for loan losses (86,713) (110,473) (60,290) ------------------------- ------- -------- ------- Net loans 4,569,104 4,733,780 5,224,811 --------- --------- --------- --------- Premises and equipment, net of accumulated depreciation and amortization 30,722 30,196 32,344 Goodwill - - 4,092 Accrued interest receivable and other assets 336,668 354,161 278,577 ------------------------------- ------- ------- ------- Total assets (1) $12,538,603 $11,465,887 $8,070,315 ================ =========== =========== ========== Liabilities and total equity: Liabilities: Deposits: Noninterest-bearing demand $6,422,937 $5,551,226 $3,231,281 Negotiable order of withdrawal (NOW) 39,818 31,719 57,231 Money market 1,198,611 1,178,716 1,334,393 Money market deposits in foreign offices 64,701 29,832 - Time 333,870 356,781 387,236 Sweep 1,995,695 1,846,309 422,468 ----- --------- --------- ------- Total deposits 10,055,632 8,994,583 5,432,609 -------------- ---------- --------- --------- Short-term borrowings 52,285 31,340 425,000 Other liabilities 171,166 205,113 175,740 Long-term debt (1) 866,748 909,641 976,189 ------------------ ------- ------- ------- Total liabilities 11,145,831 10,140,677 7,009,538 ----------------- ---------- ---------- --------- SVBFG stockholders'' equity: Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding - - - Preferred stock, Series B Fixed Rate Cumulative Perpetual Preferred Stock, $1,000 liquidation value per share, 235,000 shares authorized; 235,000 shares issued and outstanding, net of discount 223,009 222,391 - Common stock, $0.001 par value, 150,000,000 shares authorized; 33,202,387 shares, 33,142,568 shares and 32,735,732 shares outstanding, respectively 33 33 33 Additional paid-in capital (1) 92,367 86,478 44,359 Retained earnings (1) 726,455 705,847 710,321 Accumulated other comprehensive income (loss) 25,513 4,470 (18,934) ------------------------------- ------ ----- ------- Total SVBFG stockholders'' equity (2) 1,067,377 1,019,219 735,779 Noncontrolling interests (2) 325,395 305,991 324,998 ---------------------------- ------- ------- ------- Total equity (2) 1,392,772 1,325,210 1,060,777 ---------------- --------- --------- --------- Total liabilities and total equity $12,538,603 $11,465,887 $8,070,315 ================================== =========== =========== ========== Capital Ratios: Total risk-based capital ratio 19.24% 18.46% 14.25% Tier 1 risk-based capital ratio 14.60 13.89 9.94 Tier 1 leverage ratio 9.71 9.88 10.80 Tangible common equity to tangible assets ratio (3) 6.73 6.94 9.06 Tangible common equity to risk- weighted assets ratio 11.44 10.54 9.28 Other Period-End Statistics: Loans, net of unearned income-to- deposits ratio 46.30% 53.86% 97.28% Book value per common share (4) $25.43 $24.04 $22.48 Full-time equivalent employees 1,259 1,260 1,237 --------------------------------- * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to "Changes to Prior Period Balances" section below for more details. Amounts for September 30, 2008 have been revised. (1) Balances for all periods presented reflect our adoption of ASC 470-20 (formerly known as FSP APB 14-1). Refer to "Long-Term Debt" discussion for more details. Balances as of September 30, 2008 have been retrospectively adjusted. (2) Our 2009 adoption of new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160) required us to reclassify our balance sheet presentation for noncontrolling interests. (3) Tangible common equity consists of SVBFG stockholders'' equity (excluding preferred equity) less acquired intangibles and goodwill. Tangible assets represent total assets less acquired intangibles and goodwill. (4) Book value per common share is calculated by dividing total SVBFG stockholders'' equity (excluding preferred equity) by total outstanding common shares. SVB FINANCIAL GROUP AND SUBSIDIARIES INTERIM AVERAGE BALANCES, RATES AND YIELDS (Unaudited) Three months ended ------------------ September 30, 2009 ------------------ Interest Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate ---------------------- ------- ------- ---- Interest-earning assets: ------------------------ Federal funds sold, securities purchased under agreements to resell and other short- term investment securities (1) $3,370,898 $2,367 0.28% Investment securities: (2) Taxable 2,412,432 21,562 3.55 Non-taxable (3) 102,142 1,550 6.02 Total loans, net of unearned income (4) 4,544,510 83,049 7.25 --------------------------------------- --------- ------ ---- Total interest-earning assets 10,429,982 108,528 4.12 ----------------------------- ---------- ------- ---- Cash and due from banks 205,084 Allowance for loan losses (114,364) Goodwill - Other assets (5) 889,924 ---------------- ------- Total assets (6) $11,410,626 ================ =========== Funding sources: ---------------- Interest-bearing liabilities: NOW deposits $35,092 $34 0.38% Regular money market deposits 122,809 145 0.47 Bonus money market deposits 1,035,822 1,208 0.46 Money market deposits in foreign offices 68,589 90 0.52 Time deposits 346,714 568 0.65 Sweep deposits 1,927,910 2,756 0.57 -------------- --------- ----- ---- Total interest-bearing deposits 3,536,936 4,801 0.54 Short-term borrowings 42,134 16 0.15 3.875% convertible senior notes (6) 246,065 3,512 5.66 Junior subordinated debentures 55,956 893 6.33 Senior and subordinated notes 552,171 1,767 1.27 Other long-term debt 58,033 179 1.22 -------------------- ------ --- ---- Total interest-bearing liabilities 4,491,295 11,168 0.99 Portion of noninterest-bearing funding sources 5,938,687 --------------------------------------- --------- ------ ---- Total funding sources 10,429,982 11,168 0.42 --------------------- ---------- ------ ---- Noninterest-bearing funding sources: ------------------------------------ Demand deposits 5,373,486 Other liabilities 183,781 SVBFG stockholders'' equity (6) 1,045,340 Noncontrolling interests (7) 316,724 Portion used to fund interest-earning assets (5,938,687) -------------------------------------- ---------- Total liabilities and total equity $11,410,626 ================================== =========== ======= ==== Net interest income and margin (6) $97,360 3.70% ======= ==== Total deposits $8,910,422 ========== Average SVBFG stockholders'' equity as a percentage of average assets 9.16% ==== Reconciliation to reported net interest income: ----------------------------------------------- Adjustments for taxable equivalent basis (542) ---- Net interest income, as reported $96,818 ======= Three months ended ------------------ June 30, 2009 September 30, 2008 * ------------- -------------------- Interest Interest (Dollars in Average Income/ Yield/ Average Income/ Yield/ thousands) Balance Expense Rate Balance Expense Rate ----------- ------- ------- ---- ------- ------- ---- Interest-earning assets: ---------------- Federal funds sold, securities purchased under agreements to resell and other short- term investment securities(1) $3,369,317 $2,485 0.30% $383,009 $2,712 2.82% Investment securities:(2) Taxable 1,729,648 16,794 3.89 1,288,039 15,321 4.73 Non-taxable (3) 103,017 1,583 6.16 108,115 1,701 6.26 Total loans, net of unearned income (4) 4,779,966 84,248 7.07 4,863,706 94,256 7.71 ------------ --------- ------ ---- --------- ------ ---- Total interest- earning assets 9,981,948 105,110 4.23 6,642,869 113,990 6.82 --------------- --------- ------- ---- --------- ------- ---- Cash and due from banks 198,361 241,536 Allowance for loan losses (112,647) (55,998) Goodwill - 4,092 Other assets(5) 860,304 715,326 ------------ ------- ------- Total assets (6) $10,927,966 $7,547,825 ============ =========== ========== Funding sources: ---------------- Interest-bearing liabilities: NOW deposits $40,775 $37 0.36% $42,538 $53 0.50% Regular money market deposits 152,894 175 0.46 139,210 530 1.51 Bonus money market deposits 908,884 1,300 0.57 1,027,018 3,089 1.20 Money market deposits in foreign offices 49,181 78 0.64 - - - Time deposits 368,856 621 0.68 395,970 898 0.90 Sweep deposits 1,779,158 3,394 0.77 389,231 1,697 1.73 --------- --------- ----- ---- ------- ----- ---- Total interest- bearing deposits 3,299,748 5,605 0.68 1,993,967 6,267 1.25 Short-term borrowings 45,846 20 0.17 544,301 3,042 2.22 3.875% convertible senior notes (6) 245,522 3,506 5.73 243,976 3,490 5.69 Junior subordinated debentures 55,938 893 6.40 52,502 514 3.89 Senior and subordinated notes 562,990 2,575 1.83 522,302 4,381 3.34 Other long- term debt 80,945 276 1.37 151,998 1,090 2.85 ----------- ------ --- ---- ------- ----- ---- Total interest- bearing liabilities 4,290,989 12,875 1.20 3,509,046 18,784 2.13 Portion of noninterest- bearing funding sources 5,690,959 3,133,823 ------------- --------- ------ ---- --------- ------ ---- Total funding sources 9,981,948 12,875 0.52 6,642,869 18,784 1.12 ------------- --------- ------ ---- --------- ------ ---- Noninterest-bearing funding sources: ------------------- Demand deposits 5,132,849 2,826,289 Other liabilities 181,421 194,426 SVBFG stockholders'' equity (6) 1,014,192 717,759 Noncontrolling interests (7) 308,515 300,305 Portion used to fund interest- earning assets (5,690,959) (3,133,823) --------------- ---------- ---------- Total liabilities and total equity $10,927,966 $7,547,825 ============ =========== ======= ==== ========== ======= ==== Net interest income and margin(6) $92,235 3.71% $95,206 5.70% ======= ==== ======= ==== Total deposits $8,432,597 $4,820,256 ========== ========== Average SVBFG stockholders'' equity as a percentage of average assets 9.28% 9.51% ==== ==== Reconciliation to reported net interest income: ----------------- Adjustments for taxable equivalent basis (554) (595) ---- ---- Net interest income, as reported $91,681 $94,611 ======= ======= ----------------------- * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts, which is included under other noninterest income. Refer to "Changes to Prior Period Balances" section below for more details. Amounts for the three months ended September 30, 2008 have been revised. (1) Includes average interest-bearing deposits in other financial institutions of $182.7 million, $174.2 million and $90.0 million for the quarters ended September 30, 2009, June 30, 2009, and September 30, 2008, respectively. For each of the quarters ended September 30, 2009 and June 30, 2009, balance also includes $3.1 billion deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate. (2) Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. (3) Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. (4) Nonaccrual loans are reflected in the average balances of loans. (5) Average investment securities of $505.3 million, $470.4 million and $388.2 million for the quarters ended September 30, 2009, June 30, 2009, and September 30, 2008, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities. (6) Balances for all periods presented reflect our adoption of ASC 470-20 (formerly known as FSP APB 14-1). Refer to "Long-Term Debt" discussion for more details. Amounts for the quarter ended September 30, 2008 have been retrospectively adjusted. (7) Our 2009 adoption of new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160) required us to reclassify our presentation of noncontrolling interests. SVB FINANCIAL GROUP AND SUBSIDIARIES INTERIM AVERAGE BALANCES, RATES AND YIELDS (Unaudited) Nine months ended ----------------- September 30, 2009 September 30, 2008 * ------------------ -------------------- Interest Interest (Dollars in Average Income/ Yield/ Average Income/ Yield/ thousands) Balance Expense Rate Balance Expense Rate ------- ------- ---- ------- ------- ---- Interest-earning assets: ---------------- Federal funds sold, securities purchased under agreements to resell and other short- term investment securities (1) $3,190,730 $7,228 0.30% $484,892 $10,513 2.90% Investment securities:(2) Taxable 1,837,141 53,207 3.87 1,231,948 43,677 4.74 Non- taxable(3) 103,839 4,766 6.14 100,184 4,801 6.40 Total loans, net of unearned income(4) 4,811,481 255,548 7.10 4,433,731 268,530 8.09 ------------ --------- ------- ---- --------- ------- ---- Total interest- earning assets 9,943,191 320,749 4.31 6,250,755 327,521 7.00 --------------- --------- ------- ---- --------- ------- ---- Cash and due from banks 241,150 254,856 Allowance for loan losses (112,857) (52,363) Goodwill 1,334 4,092 Other assets(5) 862,354 696,373 ---------- ------- ------- Total assets(6) $10,935,172 $7,153,713 ========== =========== ========== Funding sources: ---------------- Interest-bearing liabilities: NOW deposits $42,653 $120 0.38% $43,888 $161 0.49% Regular money market deposits 151,394 625 0.55 142,787 1,487 1.39 Bonus money market deposits 977,096 4,246 0.58 934,253 8,791 1.26 Money market deposits in foreign offices 60,767 342 0.75 - - - Time deposits 364,024 1,919 0.70 375,914 2,584 0.92 Sweep deposits 1,780,912 10,001 0.75 285,681 3,885 1.82 --------- --------- ------ ---- ------- ----- ---- Total interest- bearing deposits 3,376,846 17,253 0.68 1,782,523 16,908 1.27 Short-term borrowings 44,990 57 0.17 329,198 5,957 2.42 Zero-coupon convertible subordinated notes(6) - - - 93,475 2,418 3.46 3.875% convertible senior notes(6) 245,463 10,523 5.73 156,822 6,639 5.65 Junior subordinated debentures 55,939 2,572 6.15 52,853 1,779 4.50 Senior and subordinated notes 561,064 7,749 1.85 528,565 16,109 4.07 Other long- term debt 79,924 917 1.53 152,339 3,846 3.37 ----------- ------ --- ---- ------- ----- ---- Total interest- bearing liabilities 4,364,226 39,071 1.20 3,095,775 53,656 2.32 Portion of noninterest- bearing funding sources 5,578,965 3,154,980 ------------- --------- ------ ---- --------- ------ ---- Total funding sources 9,943,191 39,071 0.52 6,250,755 53,656 1.15 ------------- --------- ------ ---- --------- ------ ---- Noninterest-bearing funding sources: ------------------- Demand deposits 5,050,329 2,852,851 Other liabilities 183,334 227,628 Discount on zero-coupon convertible subordinated notes (6) - 671 SVBFG stockholders'' equity(6) 1,022,701 695,301 Noncontrolling interests(7) 314,582 281,487 Portion used to fund interest- earning assets (5,578,965) (3,154,980) --------------- ---------- ---------- Total liabilities and total equity $10,935,172 $7,153,713 ============ =========== ======== ==== ========== ======== ==== Net interest income and margin(6) $281,678 3.79% $273,865 5.85% ======== ==== ======== ==== Total deposits $8,427,175 $4,635,374 ========== ========== Average SVBFG stockholders'' equity as a percentage of average assets 9.35% 9.72% ==== ==== Reconciliation to reported net interest income: ----------------- Adjustments for taxable equivalent basis (1,668) (1,680) ------ ------ Net interest income, as reported $280,010 $272,185 ======== ======== ----------------------- * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts, which is included under other noninterest income. Refer to "Changes to Prior Period Balances" section below for more details. Amounts for the nine months ended September 30, 2008 have been revised. (1) Includes average interest-bearing deposits in other financial institutions of $179.0 million and $90.7 million for the nine months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009, balance also includes $2.9 billion deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate. (2) Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. (3) Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. (4) Nonaccrual loans are reflected in the average balances of loans. (5) Average investment securities of $481.1 million and $369.0 million for the nine months ended September 30, 2009 and 2008, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities. (6) Balances for all periods presented reflect our adoption of ASC 470-20 (formerly known as FSP APB 14-1). Refer to "Long-Term Debt" discussion for more details. Amounts for the nine months ended September 30, 2008 have been retrospectively adjusted. (7) Our 2009 adoption of new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160) required us to reclassify our presentation of noncontrolling interests. (Losses) Gains on Derivative Instruments, Net Three months ended ------------------ % Change -------- (Dollars in September June September June September thousands) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 ----------- ------- ------- ------- ------- ------- Gains (losses) on foreign exchange forward contracts, net: Gains on client foreign exchange forward contracts, net (1) $360 $448 $561 (19.6)% (35.8)% (Losses) gains on internal foreign exchange forward contracts, net (2) (128) (4,479) 4,452 (97.1) (102.9) ---- ------ ----- ----- ------ Total gains (losses) on foreign exchange forward contracts, net 232 (4,031) 5,013 (105.8) (95.4) Change in fair value of interest rate swap (3) - - (10) - (100.0) Gains on covered call options, net (4) - - 24 - (100.0) Equity warrant assets: (Losses) gains on exercise, net (506) (42) 1,130 NM (144.8) Change in fair value (5): Cancellations and expirations (1,170) (1,276) (950) (8.3) 23.2 Other changes in fair value 354 2,502 1,265 (85.9) (72.0) --- ----- ----- ----- ----- Total net (losses) gains on equity warrant assets (6) (1,322) 1,184 1,445 NM (191.5) ------ ----- ----- ------ ------ Total (losses) gains on derivative instruments, net $(1,090) $(2,847) $6,472 (61.7)% (116.8)% ======= ======= ====== ===== ====== Nine months ended ----------------- September September % (Dollars in thousands) 30, 2009 30, 2008 Change ---------------------- ------ ------ ------ Gains (losses) on foreign exchange forward contracts, net: Gains on client foreign exchange forward contracts, net (1) $1,304 $1,767 (26.2)% (Losses) gains on internal foreign exchange forward contracts, net (2) (2,664) 1,985 NM ------ ----- ------ Total gains (losses) on foreign exchange forward contracts, net (1,360) 3,752 (136.2) Change in fair value of interest rate swap (3) (170) 376 (145.2) Gains on covered call options, net (4) - 402 (100.0) Equity warrant assets: (Losses) gains on exercise, net (338) 6,321 (105.3) Change in fair value (5): Cancellations and expirations (3,644) (1,895) 92.3 Other changes in fair value 3,389 4,523 (25.1) ----- ----- ----- Total net (losses) gains on equity warrant assets (6) (593) 8,949 (106.6) ---- ----- ------ Total (losses) gains on derivative instruments, net $(2,123) $13,479 (115.8)% ======= ======= ====== --------------------------------- NM- Not meaningful (1) Represents the net gains for foreign exchange forward contracts executed on behalf of clients. (2) Represents the change in the fair value of foreign exchange forward contracts used to economically reduce our foreign exchange exposure risk related to certain foreign currency denominated loans. Revaluations of foreign currency denominated loans are recorded on the line item "Other" as part of noninterest income, a component of consolidated net income. (3) Represents the change in the fair value hedge of the junior subordinated debentures. In December 2008, our counterparty called this swap for settlement in January 2009. As a result, the swap is no longer designated as a hedging instrument. (4) Represents net gains on covered call options by one of our sponsored debt funds. (5) At September 30, 2009, we held warrants in 1,250 companies, compared to 1,285 companies at June 30, 2009 and 1,258 companies at September 30, 2008. (6) Includes net (losses) gains on equity warrant assets held by consolidated investment affiliates. Relevant amounts attributable to noncontrolling interests are reflected in the interim consolidated statements of income under the caption "Net (Income) Loss Attributable to Noncontrolling Interests". Net (Income) Loss Attributable to Noncontrolling Interests (1) Three months ended Nine months ended ------------------ ----------------- (Dollars in September June September September September thousands) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 ----------- --------- --------- --------- --------- --------- Net interest (income) loss(2) $(1) $16 $(129) $29 $(492) Noninterest (income) loss(2) (5,114) 6,153 (1,393) 32,946 (1,946) Noninterest expense(2) 2,872 2,848 2,864 9,107 8,080 Carried interest(3) (3) (56) 351 (1,374) 1,803 -- --- --- ------ ----- Net (income) loss attributable to noncontrolling interests $(2,246) $8,961 $1,693 $40,708 $7,445 ======= ====== ====== ======= ====== ------------------- (1) Our 2009 adoption of new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160) required us to reclassify our presentation of noncontrolling interests. (2) Represents noncontrolling interests share in net interest income, noninterest income, and noninterest expense. (3) Represents the change in the preferred allocation of income we earn as general partners managing two of our managed funds of funds and the preferred allocation earned by the general partner entity managing one of our consolidated sponsored debt funds. Reconciliation of Basic and Diluted Weighted Average Common Shares Outstanding Three months ended Nine months ended ------------------ ----------------- September June September September September (Shares in thousands) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 --------------------- ------- ------- ------- ------- ------- Weighted average common shares outstanding-basic 33,177 32,952 32,535 33,033 32,296 Effect of dilutive securities: Stock options 495 126 994 215 998 Restricted stock awards and units - - 106 - 93 Zero-coupon convertible subordinated notes(1) - - - - 868 Warrants associated with zero-coupon convertible subordinated notes(1) - - - - - 3.875% convertible senior notes(2) - - 143 - - Warrants associated with 3.875% convertible senior notes(2) - - - - - Warrant associated with Capital Purchase Program(3) - - - - - --- --- --- --- --- Total effect of dilutive securities 495 126 1,243 215 1,959 --- --- ----- --- ----- Weighted average common shares outstanding- diluted 33,672 33,078 33,778 33,248 34,255 ====== ====== ====== ====== ====== ------------------------- (1) The dilutive effect of our convertible subordinated notes was calculated using the treasury stock method based on our average share price and was dilutive at an average share price of $33.6277. The associated warrants were dilutive beginning at an average share price of $51.34. These notes and the associated warrants matured on June 15, 2008. (2) The dilutive effect of our convertible senior notes is calculated using the treasury stock method based on our average share price and is dilutive at an average share price of $53.04. The associated warrants are dilutive beginning at an average share price of $64.43. These notes are due on April 15, 2011 and the associated warrants expire ratably commencing on July 15, 2011. (3) The warrant associated with our participation in the CPP is dilutive beginning at an average share price of $49.78. Credit Quality Period end balances at ---------------------- September June September (Dollars in thousands) 30, 2009 30, 2009 30, 2008 ---------------------- ------- ------- ------- Nonperforming loans and assets: Nonperforming loans: Loans past due 90 days or more still accruing interest $- $55 $247 Nonaccrual loans 72,173 111,406 9,140 ------ ------- ----- Total nonperforming loans 72,173 111,461 9,387 Other real estate owned 440 450 1,385 --- --- ----- Total nonperforming assets $72,613 $111,911 $10,772 ======= ======== ======= Nonperforming loans as a percentage of total gross loans 1.54% 2.28% 0.18% Nonperforming assets as a percentage of total assets 0.58 0.98 0.13 Allowance for loan losses $86,713 $110,473 $60,290 As a percentage of total gross loans 1.85% 2.26% 1.13% As a percentage of nonperforming loans 120.15 99.11 642.27 Allowance for loan losses for nonperforming loans $23,356 $44,644 $5,943 As a percentage of total gross loans 0.50% 0.91% 0.11% Allowance for loan losses for performing loans $63,357 $65,829 $54,347 As a percentage of total gross loans 1.35% 1.35% 1.02% Reserve for unfunded credit commitments (1) $11,332 $11,266 $13,091 Total gross loans 4,692,498 4,886,040 5,323,323 Total unfunded credit commitments 4,794,463 4,963,654 5,619,021 --------------------------------------- (1) The "Reserve for Unfunded Credit Commitments" is included as a component of "Other Liabilities". Average Client Investment Funds (1) Three months ended Nine months ended ------------------- ------------------ September June September September September (Dollars in millions) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 --------------------- --------- --------- --------- --------- --------- Client directed investment assets $10,644 $11,039 $12,948 $11,109 $12,819 Client investment assets under management 5,477 5,412 6,406 5,574 6,262 Sweep money market funds - - 2,682 75 2,692 --- --- ----- --- ----- Total average client investment funds $16,121 $16,451 $22,036 $16,758 $21,773 ======= ======= ======= ======= ======= ----------------------- (1) Client Investment Funds are maintained at third party financial institutions.
Average client investment funds decreased by $329.0 million to $16.1 billion for the third quarter of 2009, compared to $16.5 billion for the second quarter of 2009, primarily due to a larger number of clients opting to be covered by FDIC insurance on deposits held in noninterest-bearing deposit accounts rather than invest in other options available in the current low interest rate environment.
Period-end total client investment funds were $16.4 billion at September 30, 2009, compared to $16.0 billion at June 30, 2009 and $21.5 billion at September 30, 2008.
Changes to Prior Period Balances
During the second quarter of 2009, we determined that we had incorrectly recognized certain gains and losses on foreign exchange contracts in prior periods. The cumulative pre-tax effect of the error was $6.2 million, or $3.8 million after-tax and is considered to be immaterial to the prior periods. As such, the affected prior period results have been revised. The table below highlights certain revised prior period items related to this revision and to the adoption of ASC 470-20 (formerly known as FSP APB 14-1):
Three months ended ---------------------- (Dollars in thousands, except per share March December September June March amounts) 31, 2009 31, 2008 30, 2008 30, 2008 31, 2008 ----------- --------- --------- --------- --------- --------- AS REVISED Income Statement ---------------- Interest expense - borrowings $8,181 $10,219 $12,517 $11,695 $12,536 Other noninterest income 2,782 1,858 1,913 5,759 9,522 Income tax expense (benefit) (2,448) 863 16,711 16,291 18,348 Net income (loss) attributable to SVBFG (8,235) 114 25,918 21,014 27,240 Net income (loss) available to common stockholders (11,771) (593) 25,918 21,014 27,240 Earnings (loss) per common share - diluted (0.36) (0.02) 0.77 0.61 0.79 Fully Taxable Equivalent ------------------------ Net interest income (fully taxable equivalent basis) $92,083 $97,024 $95,206 $87,377 $91,283 Net interest margin 3.97% 5.39% 5.70% 5.62% 6.27% Balance Sheet ------------- Cash and due from banks $3,360,199 $1,789,311 $371,425 $303,057 $301,888 Total assets 10,955,015 10,018,280 8,070,315 7,310,010 6,897,163 Long-term debt 964,175 995,423 976,189 969,588 892,516 Additional paid-in capital 71,760 66,201 44,359 20,754 13,975 Retained earnings 697,956 709,726 710,321 684,404 663,963 ADJUSTMENTS DUE TO REVISION OF ERROR Income Statement ---------------- Other noninterest income $(1,971) $(3,239) $(1,309) $578 $187 Income tax expense (benefit) (746) (1,248) (531) 215 65 Net income (loss) attributable to SVBFG (1,225) (1,991) (778) 363 122 Net income (loss) available to common stockholders (1,225) (1,991) (778) 363 122 Earnings (loss) per common share - diluted (0.04) (0.06) (0.02) 0.01 - Balance Sheet ------------- Cash and due from banks $(2,017) $(2,085) $(2,085) $(2,085) $(2,085) Total assets (3,753) (2,528) (537) 241 (122) Retained earnings (3,753) (2,528) (537) 241 (122) ADJUSTMENTS DUE TO ASC 470-20 Income Statement ---------------- Interest expense - borrowings N/A $525 $518 $1,068 $1,303 Income tax expense (benefit) N/A (208) (206) (424) (518) Net income (loss) attributable to SVBFG N/A (317) (312) (644) (785) Net income (loss) available to common stockholders N/A (317) (312) (644) (785) Fully Taxable Equivalent ------------------------ Net interest income (fully taxable equivalent basis) N/A $(525) $(518) $(1,068) $(1,303) Net interest margin N/A (0.03)% (0.03)% (0.07)% (0.09)% Balance Sheet ------------- Total assets N/A $(84) $(93) $(102) $(18) Long-term debt N/A (5,217) (5,757) (6,290) (673) Additional paid-in capital N/A 20,329 20,543 20,754 13,975 Retained earnings N/A (15,196) (14,879) (14,566) (13,993) Year ended ---------- (Dollars in thousands, except per share amounts) December 31, 2007 ------------------------------------------------ ----------------- AS REVISED Income Statement ---------------- Interest expense - borrowings $54,259 Other noninterest income 26,096 Income tax expense (benefit) 84,581 Net income (loss) attributable to SVBFG 120,329 Net income (loss) available to common stockholders 120,329 Earnings (loss) per common share - diluted 3.28 Fully Taxable Equivalent ------------------------ Net interest income (fully taxable equivalent basis) $377,115 Net interest margin 7.19% Balance Sheet ------------- Cash and due from banks $324,510 Total assets 6,692,171 Long-term debt 873,241 Additional paid-in capital 13,167 Retained earnings 669,459 ADJUSTMENTS DUE TO REVISION OF ERROR Income Statement ---------------- Other noninterest income $(415) Income tax expense (benefit) (171) Net income (loss) attributable to SVBFG (244) Net income (loss) available to common stockholders (244) Earnings (loss) per common share - diluted (0.01) Balance Sheet ------------- Cash and due from banks $(889) Total assets (244) Retained earnings (244) ADJUSTMENTS DUE TO ASC 470-20 Income Statement ---------------- Interest expense - borrowings $5,091 Income tax expense (benefit) (2,026) Net income (loss) attributable to SVBFG (3,065) Net income (loss) available to common stockholders (3,065) Fully Taxable Equivalent ------------------------ Net interest income (fully taxable equivalent basis) $(5,091) Net interest margin (0.10)% Balance Sheet ------------- Total assets $(41) Long-term debt (2,013) Additional paid-in capital 13,167 Retained earnings (13,208) Use of Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("GAAP"), we use certain non-GAAP measures (non-GAAP net income, non-GAAP noninterest income, non-GAAP net (losses) gains on investment securities, non-GAAP noninterest expense, and non-GAAP financial ratios) of financial performance. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company''s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
In particular, in this press release, we use certain non-GAAP measures that exclude from net income and certain other financial line items in certain periods:
-- Income and expense attributable to noncontrolling interests - As part of our funds management business, we recognize the entire income or loss from certain funds where we own less than 100 percent. We are required under GAAP to consolidate 100 percent of the results of the funds that we are deemed to control or in which we have a majority ownership. Similarly, we are required under GAAP to consolidate the results of eProsper, of which we own 65 percent. The relevant amounts attributable to investors other than us are reflected under "Net (Income) Loss Attributable to Noncontrolling Interests." Our net income available to common stockholders reported in that section includes only the portion of income or loss related to our ownership interest. -- Non-tax deductible goodwill impairment charge of $4.1 million resulting from changes in our outlook for future financial performance of eProsper. -- Non-tax deductible noninterest expense of $3.9 million related to the conversion premium value of certain of our zero-coupon convertible subordinated notes that were converted prior to their maturity.
In addition, in this press release, we use certain non-GAAP financial ratios that are not required by GAAP or exclude certain financial items from their calculations that are otherwise required under GAAP:
-- Tangible common equity to tangible assets ratio - This ratio is not required by GAAP or applicable bank regulatory requirements, and is used by management to evaluate the adequacy of the Company''s capital levels. Our ratio is calculated by dividing total SVBFG stockholder''s equity, by total assets, after reducing both amounts by acquired intangibles and goodwill. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies. -- Non-GAAP operating efficiency ratio - This ratio excludes certain financial items that are otherwise required under GAAP. It is calculated by dividing noninterest expense (excluding goodwill and the Coco Loss for applicable periods) by total taxable equivalent income, after reducing both amounts by taxable equivalent losses (income) attributable to noncontrolling interests for applicable periods.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures (as applicable), provide meaningful supplemental information regarding our performance by: (i) excluding amounts attributable to noncontrolling interests, where indicated, or certain items that do not occur in every reporting period, or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirement. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, net income or other financial measures prepared in accordance with GAAP. In the financial table below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.
SVB FINANCIAL GROUP AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP NET INCOME (Unaudited) (Dollars in Three months ended Nine months ended thousands, ------------------- ------------------ except share September June September September September amounts) 30, 2009 30, 2009 30, 2008 * 30, 2009 30, 2008 * ------------- --------- --------- ----------- --------- ----------- Net income available to common stockholders $20,608 $7,793 $25,918 $16,630 $74,172 Impairment of goodwill(1) - - - 4,092 - Loss from cash settlement of conversion premium of zero- coupon convertible subordinated notes(2) - - - - 3,858 --- --- --- --- ----- Non-GAAP net income available to common stockholders $20,608 $7,793 $25,918 $20,722 $78,030 ======= ====== ======= ======= ======= Weighted average diluted common shares outstanding 33,672,491 33,078,367 33,778,095 33,247,740 34,255,320 ----------------- * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to "Changes to Prior Period Balances" section for more details. Amounts for the three and nine months ended September 30, 2008 have been revised. (1) Non-tax deductible goodwill impairment charge for eProsper recognized in the first quarter of 2009. (2) Represents the portion of the conversion payment that exceeded the principal amount related to a conversion of $7.8 million of our zero- coupon convertible subordinated notes, which we settled in cash in the second quarter of 2008. This non-tax deductible loss did not have any impact on our tax provision. Non-GAAP noninterest income, net of noncontrolling interests Three months ended Nine months ended (Dollars in ------------------ ----------------- thousands) September June September September September 30, 2009 30, 2009 30, 2008* 30, 2009 30, 2008* --------------------- ------- ------- ------- ------- ------- GAAP noninterest income $34,307 $28,275 $40,438 $57,001 $126,705 Less: income (losses) attributable to noncontrolling interests, including carried interest 5,117 (6,097) 1,042 (31,572) 143 ----- ------ ----- ------- --- Non-GAAP noninterest income, net of noncontrolling interests $29,190 $34,372 $39,396 $88,573 $126,562 ======= ======= ======= ======= ======== ---------------------- * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to "Changes to Prior Period Balances" section for more details. Amounts for the three and nine months ended September 30, 2008 have been revised. Non-GAAP net (losses) gains on investment securities, net of Three months ended Nine months ended noncontrolling ------------------ ----------------- interests (Dollars September June September September September in thousands) 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 ------------------- ------- ------- ------- ------- ------- GAAP net gains (losses) on investment securities $3,905 $ (6,750) $(876) $(37,890) $(4,949) Less: gains (losses) on investment securities attributable to noncontrolling interests, including carried interest 4,880 (6,933) 1,220 (32,491) (227) ----- ------ ----- ------- ---- Non-GAAP net (losses) gains on investment securities, net of noncontrolling interests $(975) $183 $(2,096) $(5,399) $(4,722) ===== ==== ======= ======= ======= Non-GAAP operating efficiency ratio, net of noncontrolling interests (Dollars in Three months ended Nine months ended thousands, except ------------------ ----------------- ratios) September June September September September 30, 2009 30, 2009 30, 2008 30, 2009 30, 2008 ------------------- ------- ------- ------- ------- ------- GAAP noninterest expense $79,807 $89,012 $80,431 $255,959 $251,057 Less: amounts attributable to noncontrolling interests 2,872 2,848 2,864 9,107 8,080 Less: loss from cash settlement of conversion premium of zero-coupon convertible subordinated notes - - - - 3,858 Less: impairment of goodwill - - - 4,092 - --- --- --- ----- --- Non-GAAP noninterest expense, net of noncontrolling interests $76,935 $86,164 $77,567 $242,760 $239,119 ======= ======= ======= ======== ======== GAAP taxable equivalent net interest income $97,361 $92,235 $95,206 $281,678 $273,865 Less: income (losses) attributable to noncontrolling interests 1 (16) 129 (29) 492 --- --- --- --- --- Non-GAAP taxable equivalent net interest income, net of noncontrolling interests 97,360 92,251 95,077 281,707 273,373 Non-GAAP noninterest income, net of noncontrolling interests 29,190 34,372 39,396 88,573 126,562 ------ ------ ------ ------ ------- Non-GAAP taxable equivalent revenue, net of noncontrolling interests $126,550 $126,623 $134,473 $370,280 $399,935 ======== ======== ======== ======== ======== Non-GAAP operating efficiency ratio 60.79% 68.05% 57.68% 65.56% 59.79% ===== ===== ===== ===== ===== Non-GAAP non-marketable securities, net of noncontrolling interests (Dollars in thousands) September 30, June 30, 2009 2009 ------------------------------ ---- ---- GAAP non-marketable securities $507,880 $478,694 Less: noncontrolling interests in non- marketable securities 296,011 285,127 ------- ------- Non-GAAP non-marketable securities, net of noncontrolling interests $211,869 $193,567 ======== ======== Non-GAAP tangible common equity and tangible assets (Dollars in thousands, except ratios) September June September 30, 2009 30, 2009 30, 2008* ------------------------------- ------- ------- ------- GAAP SVBFG stockholders'' equity $1,067,377 $1,019,219 $735,779 Less: Preferred stock 223,009 222,391 - Goodwill - - 4,092 Intangible assets 697 774 1,213 --- --- ----- Tangible common equity $843,671 $796,054 $730,474 ======== ======== ======== GAAP Total assets $12,538,603 $11,465,887 $8,070,315 Less: Goodwill - - 4,092 Intangible assets 697 774 1,213 --- --- ----- Tangible assets $12,537,906 $11,465,113 $8,065,010 =========== =========== ========== Risk-weighted assets $7,376,398 $7,549,912 $7,867,334 Tangible common equity to tangible assets 6.73% 6.94% 9.06% Tangible common equity to risk- weighted assets 11.44 10.54 9.28 ----------------------------------- * Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to "Changes to Prior Period Balances" section for more details. Amounts for September 30, 2008 have been revised.
SVB Financial Group
CONTACT: Meghan O''Leary, Investor Relations of SVB Financial Group,
+1-408-654-6364
Web Site: http://www.svb.com/
