SVB Financial Group Announces 2009 Fourth Quarter and Year-End Financial Results
SANTA CLARA, Calif., Jan. 21, 2010 /PRNewswire-FirstCall/ -- SVB Financial Group (Nasdaq: SIVB) today announced financial results for the fourth quarter and year ended December 31, 2009.
Consolidated net income available to common stockholders for the fourth quarter of 2009 was $6.0 million, or $0.16 per diluted common share, compared to $20.6 million, or $0.61 per diluted common share, for the third quarter of 2009, and a net loss applicable to common stockholders of $0.6 million, or $0.02 per diluted common share, for the fourth quarter of 2008. Consolidated net income for the fourth quarter of 2009 included a non-cash charge of $11.4 million related to our redemption of preferred stock issued under the U.S. Treasury's TARP Capital Purchase Program ("CPP"). Excluding the $11.4 million charge, net income for the fourth quarter of 2009 was $17.5 million, or $0.47 per diluted common share. (See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures" provided below).
Highlights of our fourth quarter 2009 results included:
- We issued and sold through a public offering during the fourth quarter of 2009 7,965,568 shares of common stock at an offering price of $38.50 per share, which resulted in net proceeds of $292.1 million.
- On December 23, 2009, we redeemed $235 million in preferred shares, plus accrued and unpaid dividends, under the CPP, which resulted in a non-cash charge of $11.4 million in the fourth quarter of 2009.
- Provision for loan losses of $17.3 million, an increase of $9.3 million compared to the third quarter of 2009. Our provision for loan losses in the third quarter of 2009 was inclusive of an $11.4 million recovery from a single loan. Gross charge-offs decreased to $33.1 million for the fourth quarter of 2009, compared to $46.6 million for the third quarter of 2009.
- An increase in net interest income (fully taxable equivalent basis) of $5.3 million, primarily due to growth in average investment securities balances of $780.7 million, or 31.0 percent, reflecting continued investment of excess liquidity resulting from our continued growth in deposits.
- Growth in average deposit balances of $972.5 million, or 10.9 percent, primarily due to the current low interest rate environment, as well as our clients' desire to maintain short-term liquidity.
- A decrease in average loan balances of $176.5 million, or 3.9 percent, reflecting continued efforts by some clients to deleverage their businesses. Although loan balances have decreased, we continue to make new loans, adding 165 new loan clients in the fourth quarter of 2009, resulting in $380.7 million in new funded loans.
Consolidated net income available to common stockholders for the year ended December 31, 2009 was $22.7 million, or $0.66 per diluted common share, compared to $73.6 million, or $2.16 per diluted common share, for 2008. Consolidated net income for the year ended December 31, 2009 included a non-tax deductible charge of $11.4 million related to TARP repayment in the fourth quarter of 2009 and a non-tax deductible goodwill impairment charge of $4.1 million recorded in the first quarter of 2009. Excluding these charges, net income for the year ended December 31, 2009 was $38.2 million, or $1.12 per diluted common share. (See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures" provided below).
"We are pleased to see continued improvements across our business, including higher credit quality, stronger fee income and higher interest income," said Ken Wilcox, President and CEO of SVB Financial Group. "Our strong capital and liquidity position has allowed us to continue making the right decisions for our business and for shareholders throughout this recession. In the meantime, we remain poised to take advantage of increases in market activity or interest rates, when they eventually come."
Fourth Quarter 2009 Summary
Three months ended |
Year ended |
||||||||||||||||
% Change from |
|||||||||||||||||
(Dollars in millions, except share data and ratios) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
September 30, 2009 |
December 31, 2008 |
December 31, 2009 |
December 31, 2008 |
% Change |
|||||||||
Income Statement: |
|||||||||||||||||
Diluted earnings (loss) per common share |
$ 0.16 |
$ 0.61 |
$ (0.02) |
(73.8) |
% |
NM |
% |
$ 0.66 |
$ 2.16 |
(69.4) |
% |
||||||
Net income attributable to SVBFG |
20.7 |
24.2 |
0.1 |
(14.5) |
NM |
48.0 |
74.3 |
(35.4) |
|||||||||
Net income (loss) available to common stockholders |
6.0 |
20.6 |
(0.6) |
(70.9) |
NM |
22.7 |
73.6 |
(69.2) |
|||||||||
Net interest income |
102.1 |
96.8 |
96.4 |
5.5 |
5.9 |
382.2 |
368.6 |
3.7 |
|||||||||
Provision for loan losses |
17.3 |
8.0 |
71.0 |
116.3 |
(75.6) |
90.2 |
100.7 |
(10.4) |
|||||||||
Noninterest income |
40.7 |
34.3 |
25.7 |
18.7 |
58.4 |
97.7 |
152.4 |
(35.9) |
|||||||||
Noninterest expense |
87.9 |
79.8 |
61.8 |
10.2 |
42.2 |
343.9 |
312.9 |
9.9 |
|||||||||
Non-GAAP net income (loss) available to common stockholders (1) |
17.5 |
20.6 |
(0.6) |
(15.0) |
NM |
38.2 |
77.4 |
(50.6) |
|||||||||
Non-GAAP diluted earnings (loss) per common share (1) |
0.47 |
0.61 |
(0.02) |
(23.0) |
NM |
1.12 |
2.28 |
(50.9) |
|||||||||
Non-GAAP noninterest income, net of noncontrolling interests (1) |
34.1 |
29.2 |
34.3 |
16.8 |
(0.6) |
122.6 |
160.9 |
(23.8) |
|||||||||
Non-GAAP noninterest expense, net of noncontrolling interests (1) |
84.6 |
76.9 |
58.8 |
10.0 |
43.9 |
327.3 |
297.9 |
9.9 |
|||||||||
Fully Taxable Equivalent: |
|||||||||||||||||
Net interest income (2) |
$ 102.7 |
$ 97.4 |
$ 97.0 |
5.4 |
% |
5.9 |
% |
$ 384.4 |
$ 370.9 |
3.6 |
% |
||||||
Net interest margin |
3.57 |
% |
3.70 |
% |
5.39 |
% |
(3.5) |
(33.8) |
3.73 |
% |
5.72 |
% |
(34.8) |
||||
Shares Outstanding: |
|||||||||||||||||
Common |
41,338,569 |
33,202,387 |
32,917,007 |
24.5 |
% |
25.6 |
% |
41,338,569 |
32,917,007 |
25.6 |
% |
||||||
Basic weighted average |
36,475,992 |
33,176,678 |
32,809,705 |
9.9 |
11.2 |
33,900,956 |
32,425,307 |
4.6 |
|||||||||
Diluted weighted average |
37,214,321 |
33,672,491 |
33,450,626 |
10.5 |
11.3 |
34,182,771 |
34,014,581 |
0.5 |
|||||||||
Balance Sheet: |
|||||||||||||||||
Average total assets |
$ 12,487.1 |
$ 11,410.6 |
$ 8,209.1 |
9.4 |
% |
52.1 |
% |
$ 11,326.3 |
$ 7,418.3 |
52.7 |
% |
||||||
Average loans, net of unearned income |
4,368.0 |
4,544.5 |
5,226.7 |
(3.9) |
(16.4) |
4,699.7 |
4,633.0 |
1.4 |
|||||||||
Average interest-earning investment securities |
3,295.3 |
2,514.6 |
1,357.5 |
31.0 |
142.7 |
2,282.3 |
1,338.5 |
70.5 |
|||||||||
Average noninterest-bearing demand deposits |
5,998.4 |
5,373.5 |
3,227.0 |
11.6 |
85.9 |
5,289.3 |
2,946.9 |
79.5 |
|||||||||
Average interest-bearing deposits |
3,884.5 |
3,536.9 |
2,446.5 |
9.8 |
58.8 |
3,504.8 |
1,949.4 |
79.8 |
|||||||||
Average total deposits |
9,882.9 |
8,910.4 |
5,673.5 |
10.9 |
74.2 |
8,794.1 |
4,896.3 |
79.6 |
|||||||||
Average short-term borrowings |
49.5 |
42.1 |
232.5 |
17.6 |
(78.7) |
46.1 |
304.9 |
(84.9) |
|||||||||
Average long-term debt |
868.9 |
912.2 |
968.0 |
(4.7) |
(10.2) |
923.9 |
980.7 |
(5.8) |
|||||||||
Period-end total assets |
12,841.4 |
12,538.6 |
10,018.3 |
2.4 |
28.2 |
12,841.4 |
10,018.3 |
28.2 |
|||||||||
Period-end loans, net of unearned income |
4,548.1 |
4,655.8 |
5,506.3 |
(2.3) |
(17.4) |
4,548.1 |
5,506.3 |
(17.4) |
|||||||||
Period-end investment securities |
4,491.8 |
3,491.3 |
1,786.1 |
28.7 |
151.5 |
4,491.8 |
1,786.1 |
151.5 |
|||||||||
Period-end noninterest-bearing demand deposits |
6,299.0 |
6,422.9 |
4,420.0 |
(1.9) |
42.5 |
6,299.0 |
4,420.0 |
42.5 |
|||||||||
Period-end interest-bearing deposits |
4,032.9 |
3,632.7 |
3,053.5 |
11.0 |
32.1 |
4,032.9 |
3,053.5 |
32.1 |
|||||||||
Period-end total deposits |
10,331.9 |
10,055.6 |
7,473.5 |
2.7 |
38.2 |
10,331.9 |
7,473.5 |
38.2 |
|||||||||
Off-Balance Sheet: |
|||||||||||||||||
Average total client investment funds |
$ 16,101.1 |
$ 16,121.5 |
$ 21,038.0 |
(0.1) |
% |
(23.5) |
% |
$ 16,593.6 |
$ 21,590.0 |
(23.1) |
% |
||||||
Period-end total client investment funds |
15,597.8 |
16,433.8 |
18,579.7 |
(5.1) |
(16.0) |
15,597.8 |
18,579.7 |
(16.0) |
|||||||||
Total unfunded credit commitments |
5,338.7 |
4,794.5 |
5,630.5 |
11.4 |
(5.2) |
5,338.7 |
5,630.5 |
(5.2) |
|||||||||
Earnings Ratios: |
|||||||||||||||||
Return on average assets (3) |
0.66 |
% |
0.84 |
% |
0.01 |
% |
(21.4) |
% |
NM |
% |
0.42 |
% |
1.00 |
% |
(58.0) |
% |
|
Return on average common SVBFG stockholders' equity (4) |
2.44 |
9.94 |
(0.31) |
(75.5) |
NM |
2.68 |
10.38 |
(74.2) |
|||||||||
Asset Quality Ratios: |
|||||||||||||||||
Allowance for loan losses as a percentage of total gross loans |
1.58 |
% |
1.85 |
% |
1.93 |
% |
(14.6) |
% |
(18.1) |
% |
1.58 |
% |
1.93 |
% |
(18.1) |
% |
|
Gross charge-offs as a percentage of average total gross loans (annualized) |
2.98 |
4.03 |
1.93 |
(26.1) |
54.4 |
3.03 |
1.02 |
197.1 |
|||||||||
Net charge-offs as a percentage of average total gross loans (annualized) |
2.84 |
2.75 |
1.80 |
3.3 |
57.8 |
2.64 |
0.87 |
NM |
|||||||||
Other Ratios: |
|||||||||||||||||
Total risk-based capital ratio |
19.94 |
% |
19.23 |
% |
17.58 |
% |
3.7 |
% |
13.4 |
% |
19.94 |
% |
17.58 |
% |
13.4 |
% |
|
Operating efficiency ratio (5) |
61.29 |
60.61 |
50.40 |
1.1 |
21.6 |
71.33 |
59.80 |
19.3 |
|||||||||
Period-end loans, net of unearned income, to deposits |
44.02 |
46.30 |
73.68 |
(4.9) |
(40.3) |
44.02 |
73.68 |
(40.3) |
|||||||||
Average loans, net of unearned income, to deposits |
44.20 |
51.00 |
92.12 |
(13.3) |
(52.0) |
53.44 |
94.62 |
(43.5) |
|||||||||
Non-GAAP Ratios: (1) |
|||||||||||||||||
Tangible common equity to tangible assets |
8.78 |
% |
6.73 |
% |
7.64 |
% |
30.5 |
% |
14.9 |
% |
8.78 |
% |
7.64 |
% |
14.9 |
% |
|
Tangible common equity to risk-weighted assets |
15.05 |
11.43 |
9.31 |
31.7 |
61.7 |
15.05 |
9.31 |
61.7 |
|||||||||
Non-GAAP return on average assets (6) |
1.02 |
0.84 |
0.01 |
21.4 |
NM |
0.56 |
1.05 |
(46.7) |
|||||||||
Non-GAAP return on average common SVBFG stockholders' equity (7) |
7.05 |
9.94 |
(0.31) |
(29.1) |
NM |
4.51 |
10.93 |
(58.7) |
|||||||||
Non-GAAP operating efficiency ratio |
61.84 |
60.79 |
44.76 |
1.7 |
38.2 |
64.56 |
56.07 |
15.1 |
|||||||||
Other Statistics: |
|||||||||||||||||
Common stock repurchases |
$ - |
$ - |
$ - |
- |
% |
- |
% |
$ - |
$ 45.6 |
(100.0) |
% |
||||||
Period-end SVB prime lending rate |
4.00 |
% |
4.00 |
% |
4.00 |
% |
- |
- |
4.00 |
% |
4.00 |
% |
- |
||||
Average SVB prime lending rate |
4.00 |
4.00 |
4.20 |
- |
(4.8) |
4.00 |
5.13 |
(22.0) |
|||||||||
NM- |
Not meaningful |
|
(1) |
A reconciliation of non-GAAP calculations to GAAP is provided below under the section "Use of Non-GAAP Financial Measures". |
|
(2) |
Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 35.0 percent. The taxable equivalent adjustments were $0.5 million, $0.5 million and $0.6 million for the quarters ended December 31, 2009, September 30, 2009 and December 31, 2008, respectively. The taxable equivalent adjustments were $2.2 million and $2.3 million for the years ended December 31, 2009 and 2008, respectively. |
|
(3) |
Ratio represents annualized consolidated net income attributable to SVB Financial Group ("SVBFG") divided by quarterly average assets and annual average assets. |
|
(4) |
Ratio represents annualized consolidated net income (loss) available to common stockholders divided by quarterly average SVBFG stockholders' equity (excluding preferred equity) and annual average SVBFG stockholders' equity (excluding preferred equity). |
|
(5) |
The operating efficiency ratio is calculated by dividing noninterest expense by total taxable equivalent net interest income plus noninterest income. |
|
(6) |
Ratio represents non-GAAP annualized consolidated net income attributable to SVBFG (excluding a non-tax deductible charge of $11.4 million related to TARP repayment in the fourth quarter of 2009, a 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 annual average assets. |
|
(7) |
Ratio represents non-GAAP annualized consolidated net income (loss) available to common stockholders (excluding a non-tax deductible charge of $11.4 million related to TARP repayment in the fourth quarter of 2009, a 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 annual average SVBFG stockholders' equity (excluding preferred equity). |
|
Net Interest Income and Margin
Net interest income, on a fully taxable equivalent basis, was $102.7 million for the fourth quarter of 2009, compared to $97.4 million for the third quarter of 2009 and $97.0 million for the fourth 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 third to the fourth 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:
Q4'09 compared to Q3'09 |
|||||||
Increase (decrease) due to change in |
|||||||
(Dollars in thousands) |
Volume |
Rate |
Total |
||||
Interest income: |
|||||||
Short-term investment securities |
$ 264 |
$ (69) |
$ 195 |
||||
Investment securities |
6,919 |
(170) |
6,749 |
||||
Loans |
(3,241) |
450 |
(2,791) |
||||
Increase in interest income, net |
3,942 |
211 |
4,153 |
||||
Interest expense: |
|||||||
Deposits |
407 |
(1,115) |
(708) |
||||
Short-term borrowings |
3 |
(4) |
(1) |
||||
Long-term debt |
(215) |
(239) |
(454) |
||||
Increase (decrease) in interest expense, net |
195 |
(1,358) |
(1,163) |
||||
Increase in net interest income |
$ 3,747 |
$ 1,569 |
$ 5,316 |
||||
The change in net interest income, on a fully taxable equivalent basis, from the third to the fourth quarter of 2009, was primarily attributable to the following:
- An increase in interest income of $6.7 million from our interest-earning investment securities portfolio, primarily related to the growth in average balances of $780.7 million due to new investments. These investments were primarily purchases of agency-issued collateralized mortgage obligations, agency-issued mortgage-backed securities and U.S. agency securities, which were purchased with excess liquidity resulting from our continued growth in deposits.
- A decrease in interest expense of $0.7 million from interest-bearing deposits, primarily due to our decision to lower certain deposit interest rates in the third and fourth quarters of 2009 to reflect current market interest rates.
- A decrease in interest expense of $0.5 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 income from our loan portfolio of $2.8 million driven principally by a decrease in average loan balances of $176.5 million. Our average prime-lending rate was 4.00 percent for both the third and fourth quarters of 2009.
Net interest margin, on a fully taxable equivalent basis, was 3.57 percent for the fourth quarter of 2009, compared to 3.70 percent for the third quarter of 2009 and 5.39 percent for the fourth quarter of 2008. The decrease from the third to the fourth quarter of 2009 was primarily a result of a decline in loan balances and an increase in deposits. Consistent with our liquidity and investment strategies, we invested excess liquidity resulting from our continued growth in deposits in overnight cash with the Federal Reserve earning 25 basis points throughout the fourth quarter of 2009. The decline was partially offset by an increase in investments in interest-earning investment securities. While our net interest margin declined quarter-over-quarter, net interest income, on a fully taxable equivalent basis, increased by $5.3 million to $102.7 million for the fourth quarter of 2009, compared to $97.4 million for the third quarter of 2009.
Net interest margin, on a fully taxable equivalent basis, was 3.73 percent and 5.72 percent for the years ended December 31, 2009 and 2008, respectively. While our net interest margin declined year-over-year, net interest income, on a fully taxable equivalent basis, increased to $384.4 million for 2009, compared to $370.9 million for 2008.
On an average basis, for the fourth quarter of 2009, 70.4 percent, or $3.1 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 $3.3 billion, for the third quarter of 2009 and 74.2 percent, or $4.0 billion, for the fourth quarter of 2008.
Investment Securities
Our investment securities portfolio consists of both a fixed income investment portfolio, which primarily represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business. Total investment securities were $4.5 billion at December 31, 2009, compared to $3.5 billion at September 30, 2009 and $1.8 billion at December 31, 2008. The increase from the third to the fourth quarter of 2009 was primarily in the fixed income investment portfolio due to securities purchased with excess liquidity resulting from our continued growth in deposits.
Average interest-earning investment securities were $3.3 billion for the fourth quarter of 2009, compared to $2.5 billion for the third quarter of 2009 and $1.4 billion for the fourth quarter of 2008. Period-end interest-earning investment securities were $3.9 billion at December 31, 2009, compared to $3.0 billion at September 30, 2009 and $1.3 billion at December 31, 2008.
Non-marketable securities were $553.5 million ($233.0 million net of noncontrolling interests) as of December 31, 2009, compared to $507.9 million ($211.9 million net of noncontrolling interests) as of September 30, 2009 and $467.2 million ($169.1 million net of noncontrolling interests) as of December 31, 2008. The increase from the third to the fourth quarter of 2009 was primarily attributable to additional capital calls for fund investments in the fourth 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 $4.4 billion for the fourth quarter of 2009, compared to $4.5 billion for the third quarter of 2009 and $5.2 billion for the fourth quarter of 2008. The decrease in average loan balances from the third to the fourth quarter of 2009 came primarily from decreases in loans to hardware, software and life science clients, reflecting continued efforts by some clients to deleverage their businesses. Although loan balances have decreased, we continue to make new loans, adding 165 new loan clients in the fourth quarter of 2009, resulting in $380.7 million in new funded loans.
Period-end loans, net of unearned income, were $4.5 billion at December 31, 2009, compared to $4.7 billion at September 30, 2009 and $5.5 billion at December 31, 2008.
Our nonperforming loans totaled $52.7 million at December 31, 2009, compared to $72.2 million at September 30, 2009 and $87.2 million at December 31, 2008. The allowance for loan losses related to nonperforming loans was $8.9 million, $23.4 million and $25.9 million at December 31, 2009, September 30, 2009 and December 31, 2008, respectively. The decrease in nonperforming loans and related allowance for loan losses from the third to the fourth quarter of 2009 came primarily from the charge-offs of impaired loans from our hardware and private client services portfolios.
The following table provides a summary of our loans individually greater than $20 million by industry sector at December 31, 2009, September 30, 2009 and December 31, 2008:
Loans individually greater than $20 million at |
||||||||
(Dollars in thousands, except ratios and client data) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
|||||
Technology |
$ 356,072 |
$ 458,901 |
$ 567,867 |
|||||
Private Equity |
371,728 |
272,920 |
352,065 |
|||||
Life Sciences |
45,667 |
45,717 |
54,201 |
|||||
Private Client Services |
87,179 |
69,652 |
105,176 |
|||||
Premium Wineries |
76,786 |
20,307 |
20,310 |
|||||
All other sectors |
20,125 |
21,000 |
50,500 |
|||||
Total |
$ 957,557 |
$ 888,497 |
$ 1,150,119 |
|||||
Loans individually greater than $20 million as a percentage of total gross loans |
20.9 |
% |
18.9 |
% |
20.7 |
% |
||
Total clients with loans individually greater than $20 million |
32 |
28 |
36 |
|||||
Loans individually greater than $20 million on nonaccrual status |
$ 20,407 |
$ 20,022 |
$ 66,715 |
|||||
Loans individually greater than $20 million on nonaccrual status as a percentage of total loans greater than $20 million |
2.1 |
% |
2.3 |
% |
5.8 |
% |
||
Deposits
Average deposits were $9.9 billion for the fourth quarter of 2009, compared to $8.9 billion for the third quarter of 2009 and $5.7 billion for the fourth quarter of 2008. The increase in average deposit balances from the third to the fourth quarter of 2009 came primarily from our noninterest-bearing demand deposits, which grew by $624.9 million to $6.0 billion.
Growth in average balances of noninterest-bearing deposits in the fourth quarter of 2009 was primarily due to the continued low interest rate environment, as well as our clients' desire to maintain short-term liquidity.
Period-end deposits were $10.3 billion at December 31, 2009, compared to $10.1 billion at September 30, 2009 and $7.5 billion at December 31, 2008.
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 third and fourth quarters of 2009 decreased by $0.3 million. Details of certain prior period revised items related to the adoption of this guidance are provided under the section "Changes to Prior Period Balances."
Noninterest Income
Noninterest income was $40.7 million for the fourth quarter of 2009, compared to $34.3 million for the third quarter of 2009 and $25.7 million for the fourth quarter of 2008. The increase in noninterest income from the third to the fourth quarter of 2009 was primarily driven by the following factors:
- Net gains on investment securities of $6.7 million for the fourth quarter of 2009, compared to net gains of $3.9 million for the third quarter of 2009 and net losses of $9.8 million for the fourth quarter of 2008. The net gains of $6.7 million for the fourth quarter of 2009 were primarily due to unrealized gains of $5.8 million from our managed co-investment funds as a result of higher valuations, and realized gains of $3.6 million from distributions to our managed funds of funds. These gains were partially offset by realized losses of $3.0 million from our managed co-investment funds due to closures and asset sales at three portfolio companies. The following table provides a summary of net gains (losses) on investment securities for the three months ended December 31, 2009 and September 30, 2009:
Three months ended |
|||||||||||||
December 31, 2009 |
September 30, 2009 |
||||||||||||
(Dollars in thousands) |
Managed Co-Investment Funds |
Managed Funds Of Funds |
Debt Funds |
Other |
Total |
Total |
|||||||
Unrealized gains |
$ 5,819 |
$ 184 |
$ 467 |
$ 205 |
$ 6,675 |
$ 2,615 |
|||||||
Realized (losses) gains |
(3,022) |
3,633 |
376 |
(981) |
6 |
1,290 |
|||||||
Total gains (losses) on investment securities, net |
$ 2,797 |
$ 3,817 |
$ 843 |
$ (776) |
$ 6,681 |
$ 3,905 |
|||||||
Less: income attributable to noncontrolling interests, including carried interest |
1,925 |
3,856 |
72 |
- |
5,853 |
4,880 |
|||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests |
$ 872 |
$ (39) |
$ 771 |
$ (776) |
$ 828 |
$ (975) |
|||||||
As of December 31, 2009, we held investments, either directly or through nine of our managed investment funds, in 446 venture capital and private equity funds, 73 companies and five debt funds. |
|
|
|
Three months ended |
Year ended |
||||||||||
(Dollars in thousands) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
December 31, 2009 |
December 31, 2008 |
||||||
Gains (losses) on foreign exchange forward contracts, net: |
|||||||||||
Gains on client foreign exchange forward contracts, net |
$ 426 |
$ 360 |
$ 2,466 |
$ 1,730 |
$ 4,233 |
||||||
Gains (losses) on internal foreign exchange forward contracts, net (1) |
406 |
(128) |
3,200 |
(2,258) |
5,185 |
||||||
Total gains (losses) on foreign exchange forward contracts, net |
832 |
232 |
5,666 |
(528) |
9,418 |
||||||
Change in fair value of interest rate swap |
- |
- |
(2,232) |
(170) |
(1,856) |
||||||
Gains on covered call options (2) |
- |
- |
- |
- |
402 |
||||||
Net gains (losses) on equity warrant assets |
538 |
(1,322) |
1,592 |
(55) |
10,541 |
||||||
Total gains (losses) on derivative instruments, net |
$ 1,370 |
$ (1,090) |
$ 5,026 |
$ (753) |
$ 18,505 |
||||||
(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. |
|
(2) |
Represents net gains on covered call options by one of our consolidated sponsored debt funds. |
|
The increase in net gains (losses) on derivative instruments from the third to the fourth quarter of 2009 was primarily driven by the following factors:
- Net gains on equity warrant assets of $0.5 million for the fourth quarter of 2009, compared to net losses of $1.3 million for the third quarter of 2009. The net gains on equity warrant assets of $0.5 million for the fourth quarter of 2009 were primarily driven by net gains of $1.3 million from the exercise of certain warrant positions, partially offset by $0.9 million from warrant cancellations and expirations. Included in the net gains of $1.3 million from the exercise of warrants is a gain of $1.1 million from a single warrant position.
- Net gains of $0.4 million from foreign exchange forward contracts hedging our foreign currency denominated loans in the fourth quarter of 2009, compared to net losses of $0.1 million in the third quarter of 2009.
Non-GAAP noninterest income, net of noncontrolling interests, was $34.1 million for the fourth quarter of 2009, compared to $29.2 million for the third quarter of 2009 and $34.3 million for the fourth 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 $87.9 million for the fourth quarter of 2009, compared to $79.8 million for the third quarter of 2009 and $61.8 million for the fourth quarter of 2008.
The following table provides a summary of certain noninterest expense items:
Three months ended |
Year ended |
||||||||||
(Dollars in thousands) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
December 31, 2009 |
December 31, 2008 |
||||||
Compensation and benefits: |
|||||||||||
Salaries and wages |
$ 26,481 |
$ 26,100 |
$ 27,116 |
$ 108,417 |
$ 103,157 |
||||||
Incentive Compensation Plan |
7,872 |
6,732 |
(8,782) |
25,163 |
24,398 |
||||||
Employee Stock Ownership Plan |
- |
- |
(4,370) |
- |
235 |
||||||
Other employee benefits |
14,236 |
12,983 |
9,913 |
56,051 |
49,525 |
||||||
Total compensation and benefits |
48,589 |
45,815 |
23,877 |
189,631 |
177,315 |
||||||
FDIC assessments |
3,182 |
2,589 |
1,644 |
17,035 |
3,451 |
||||||
Impairment of goodwill |
- |
- |
- |
4,092 |
- |
||||||
Provision for (reduction of) unfunded credit commitments |
1,999 |
65 |
1,607 |
(1,367) |
1,252 |
||||||
Other (1) |
34,137 |
31,338 |
34,702 |
134,475 |
130,869 |
||||||
Total noninterest expense |
$ 87,907 |
$ 79,807 |
$ 61,830 |
$ 343,866 |
$ 312,887 |
||||||
Full-time equivalent employees |
1,258 |
1,259 |
1,244 |
1,258 |
1,244 |
||||||
(1) |
Other noninterest expense includes professional services, premises and equipment, net occupancy, business development and travel, correspondent bank fees, loss from cash settlement of conversion premium of zero-coupon convertible subordinated notes, and other noninterest expenses. For further details of noninterest expense items, please refer to "Interim Consolidated Statements of Income". |
|
The increase in noninterest expense from the third to the fourth quarter of 2009 was primarily attributable to the following:
- An increase of $2.8 million in compensation and benefits expense, primarily resulting from a $1.3 million increase in expenses relating to our warrant incentive plan and retention plan, mainly due to net proceeds from warrants, and a $1.1 million increase in incentive compensation related expenses.
- A provision for unfunded credit commitments of $2.0 million for the fourth quarter of 2009, compared to a provision of $0.1 million for the third quarter of 2009. The provision for unfunded credit commitments of $2.0 million for the fourth quarter of 2009 was primarily reflective of an increase in the balance of our total unfunded credit commitments, which increased to $5.3 billion as of December 31, 2009, compared to $4.8 billion at September 30, 2009.
Non-GAAP noninterest expense, net of noncontrolling interests, was $84.6 million for the fourth quarter of 2009, compared to $76.9 million for the third quarter of 2009 and $58.8 million for the fourth 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 39.6 percent for the fourth quarter of 2009, compared to 41.1 percent for the third quarter of 2009. The decrease in the tax rate from the third to the fourth quarter of 2009 was primarily attributable to the higher impact of tax advantaged investments, partially offset by the tax impact of higher non-deductible officers' compensation expense on overall pre-tax income.
Our effective tax rate was 42.3 percent for the year ended December 31, 2009, compared to 41.3 percent for 2008. 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 |
Year ended |
|||||||||||
(Dollars in thousands, except ratios) |
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||
Allowance for loan losses, beginning balance |
$ 86,713 |
$ 110,473 |
$ 60,290 |
$ 107,396 |
$ 47,293 |
|||||||
Provision for loan losses |
17,291 |
8,030 |
70,957 |
90,180 |
100,713 |
|||||||
Gross loan charge-offs |
(33,106) |
(46,553) |
(25,509) |
(143,570) |
(47,815) |
|||||||
Loan recoveries |
1,552 |
14,763 |
1,658 |
18,444 |
7,205 |
|||||||
Allowance for loan losses, ending balance |
$ 72,450 |
$ 86,713 |
$ 107,396 |
$ 72,450 |
$ 107,396 |
|||||||
Provision as a percentage of total gross loans (annualized) |
1.50 |
% |
0.68 |
% |
5.08 |
% |
1.97 |
% |
1.81 |
% |
||
Gross loan charge-offs as a percentage of average total gross loans (annualized) |
2.98 |
4.03 |
1.93 |
3.03 |
1.02 |
|||||||
Net loan charge-offs as a percentage of average total gross loans (annualized) |
2.84 |
2.75 |
1.80 |
2.64 |
0.87 |
|||||||
Allowance for loan losses as a percentage of total gross loans |
1.58 |
1.85 |
1.93 |
1.58 |
1.93 |
|||||||
Total gross loans at period-end |
$ 4,582,966 |
$ 4,692,498 |
$ 5,551,636 |
$ 4,582,966 |
$ 5,551,636 |
|||||||
Average total gross loans |
4,402,909 |
4,583,320 |
5,266,916 |
4,739,210 |
4,666,025 |
|||||||
Our provision for loan losses was $17.3 million for the fourth quarter of 2009, an increase of $9.3 million from the third quarter of 2009. Our provision for loan losses in the third quarter of 2009 was inclusive of an $11.4 million recovery from a single loan.
Gross loan charge-offs of $33.1 million for the fourth quarter of 2009, primarily came from our software and hardware client portfolios. Gross loan charge-offs included $17.0 million of loans that were previously included as nonperforming loans.
Our allowance for loan losses decreased from $107.4 million at December 31, 2008 to $72.5 million at December 31, 2009. The decrease in allowance for loan losses is reflective of continuing improvement in credit quality trends in our loan portfolio since the second quarter of 2009 as indicated by several factors including the following:
- A 52.7 percent decrease in nonperforming loans from a peak of $111.5 million at June 30, 2009 to $52.7 million at December 31, 2009.
- A 25 percent decrease in classified loans from the second quarter of 2009 to the fourth quarter of 2009.
- A majority of the net charge-offs were from nonperforming loans that had previously been specifically reserved for – for 2009 we identified specific reserves of $51 million and saw related net charge-offs of $53 million. Other net charge-offs were concentrated in our early-stage portfolio with a small amount of charge-offs coming from our private client services portfolio.
Additionally, while loans greater than $10 million represented a significant source of loan losses in 2009, the size of loans added to the classified portfolio during the latter half of 2009 were less than $10 million with the largest addition being $8.8 million and the largest addition to nonperforming loans in the fourth quarter of 2009 was $1 million. Our overall percentage of allowance for loan losses decreased from a high of 2.26 percent at June 30, 2009, to 1.58 percent at December 31, 2009 due almost entirely to the successful resolution of the large nonperforming loans and the fact that new additions to nonperforming loans have been smaller in size and are expected to maintain that trend into 2010.
As such, we believe that our current allowance for loan losses of $72.5 million (1.58 percent of total gross loans) is adequate and indicative of ongoing levels of future net charge-offs. The following table provides a summary of our credit quality information:
Period end balances at |
||||||||
(Dollars in thousands, except ratios) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
|||||
Allowance for loan losses as a percentage of total gross loans |
1.58 |
% |
1.85 |
% |
1.93 |
% |
||
Allowance for loan losses for performing loans as a percentage of total gross performing loans |
1.40 |
1.37 |
1.49 |
|||||
Allowance for loan losses for nonperforming loans as a percentage of total gross nonperforming loans |
16.83 |
32.36 |
29.70 |
|||||
Allowance for loan losses |
$ 72,450 |
$ 86,713 |
$ 107,396 |
|||||
Allowance for loan losses for total gross performing loans |
63,582 |
63,357 |
81,485 |
|||||
Allowance for loan losses for total gross nonperforming loans |
8,868 |
23,356 |
25,911 |
|||||
Total gross performing loans |
4,530,283 |
4,620,325 |
5,464,387 |
|||||
Total gross nonperforming loans |
52,683 |
72,173 |
87,249 |
|||||
Noncontrolling Interests
Net income attributable to noncontrolling interests was $3.3 million for the fourth quarter of 2009, compared to net income of $2.2 million for the third quarter of 2009 and a net loss of $11.7 million for the fourth quarter of 2008. Net income attributable to noncontrolling interests of $3.3 million for the fourth quarter of 2009 was primarily a result of the following:
- Gains on investment securities (including carried interest) attributable to noncontrolling interests of $5.9 million, stemming mainly from gains of $3.9 million from our managed funds of funds and $1.9 million from our managed co-investment funds.
- Noninterest expense of $3.3 million, principally related to management fees paid by the noncontrolling interests to the general partner entities managed by SVB Capital.
SVBFG Stockholders' Equity
In the fourth quarter of 2009, we closed a public offering of 7,965,568 shares of common stock at an offering price of $38.50 per share. We received net proceeds of $292.1 million after deducting underwriting discounts and commissions.
On December 23, 2009, the Company redeemed in full 235,000 outstanding shares of preferred stock, for $235 million, plus $1.2 million of accrued and unpaid dividends, from the U.S. Treasury under the CPP. The redemption of the preferred shares resulted in a non-cash charge of $11.4 million in the fourth quarter of 2009.
Net income available to common stockholders was reduced by $14.7 million and $3.6 million for the fourth and third quarters of 2009, respectively, related to dividends and discount amortization in connection with our preferred stock issued under the CPP on December 12, 2008 and the subsequent repayment on December 23, 2009.
Accumulated other comprehensive income decreased by $19.6 million to $5.9 million as of December 31, 2009, compared to $25.5 million as of September 30, 2009, primarily due to decreases in the fair value of our fixed income investment portfolio as a result of increases in long-term interest rates.
Additional paid-in-capital increased by $297.1 million to $389.5 million as of December 31, 2009, compared to $92.4 million as of September 30, 2009, primarily due to the closing of our public offering on November 24, 2009.
Outlook for the Year Ending December 31, 2010
Our outlook for the year ending December 31, 2010 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. 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, nevertheless, we have provided directional guidance on two such items, specifically net gains (losses) on equity warrant assets and net gains (losses) 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, 2010, compared to our 2009 results, we currently expect the following outlook:
Current outlook compared to 2009 results (as of January 21, 2010) |
||
Average loan balances |
Comparable to 2009 levels |
|
Average deposit balances |
Increase at a percentage rate in the low double digits |
|
Net interest income |
Increase at a percentage rate in the mid teens |
|
Net interest margin |
Between 3.60% - 4.00% |
|
Allowance for loan losses as a percentage of period end gross loans |
Comparable to fourth quarter 2009 levels |
|
Net loan charge-offs |
Decline from 2009 levels |
|
Nonperforming loans as a percentage of total gross loans |
At levels lower than fourth quarter 2009 levels |
|
Fees for deposit services, letters of credit, business credit card, client investment, and foreign exchange, in aggregate |
Increase at a percentage rate in the mid single digits |
|
Net gains (losses) on equity warrant assets |
Comparable to 2009 levels |
|
Net gains (losses) on investment securities, net of noncontrolling interests* |
Improvement from 2009 levels |
|
Noninterest expense* (excluding expenses related to goodwill impairment and noncontrolling interests) |
Increase at a percentage rate in the high teens to low twenties |
|
* 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, 2010" above, we make forward-looking statements discussing management's expectations about economic conditions, opportunities in the market, our financial, credit (including our allowance for loan losses) and business performance and financial results (and the components of such results) for the year 2010.
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 2010 and other forward-looking statements herein to change include, among others, the following: (i) deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business or are served by us (including the levels of initial public offering and mergers & acquisitions activities), (ii) changes in credit quality of our loan portfolio, (iii) changes in interest rates or market levels or factors affecting them, (iv) changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets, (v) variations from our expectations as to factors impacting our cost structure, (vi) changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity, and (vii) accounting changes, as required by U.S. generally accepted accounting principles. 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 January 21, 2010, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the fourth quarter and year ended December 31, 2009. The conference call can be accessed by dialing (877) 663-9523 or (404) 665-9482, and referencing the conference ID "51134160". A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at www.svb.com. A replay of the conference call will be available beginning at approximately 6:00 p.m. (Pacific Time) on Thursday, January 21, 2010, through midnight on Tuesday, January 26, 2010, by dialing (800) 642-1687 or (706) 645-9291 and referencing conference ID number "51134160". A replay of the audio webcast will also be available on www.svb.com for 12 months beginning Thursday, January 21, 2010.
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. For management reporting purposes, we report the results of our operations through four operating segments: Global Commercial Bank, Relationship Management, SVB Capital, and Other Business Services. Our Other Business Services group consists of Sponsored Debt Funds & Strategic Investments and SVB Analytics. 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 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) |
|||||||||||
Three months ended |
Year ended |
||||||||||
(Dollars in thousands, except share data) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
December 31, 2009 |
December 31, 2008 |
||||||
Interest income: |
|||||||||||
Loans |
$ 80,258 |
$ 83,049 |
$ 95,662 |
$ 335,806 |
$ 364,192 |
||||||
Investment securities: |
|||||||||||
Taxable |
28,329 |
21,562 |
14,789 |
81,536 |
58,466 |
||||||
Non-taxable |
996 |
1,008 |
1,140 |
4,094 |
4,261 |
||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
2,562 |
2,367 |
2,059 |
9,790 |
12,572 |
||||||
Total interest income |
112,145 |
107,986 |
113,650 |
431,226 |
439,491 |
||||||
Interest expense: |
|||||||||||
Deposits |
4,093 |
4,801 |
7,021 |
21,346 |
23,929 |
||||||
Borrowings |
5,912 |
6,367 |
10,219 |
27,730 |
46,967 |
||||||
Total interest expense |
10,005 |
11,168 |
17,240 |
49,076 |
70,896 |
||||||
Net interest income |
102,140 |
96,818 |
96,410 |
382,150 |
368,595 |
||||||
Provision for loan losses |
17,291 |
8,030 |
70,957 |
90,180 |
100,713 |
||||||
Net interest income after provision for loan losses |
84,849 |
88,788 |
25,453 |
291,970 |
267,882 |
||||||
Noninterest income: |
|||||||||||
Foreign exchange fees |
8,161 |
7,491 |
8,660 |
30,735 |
33,106 |
||||||
Deposit service charges |
7,344 |
6,906 |
6,034 |
27,663 |
24,110 |
||||||
Client investment fees |
4,344 |
5,527 |
9,492 |
21,699 |
50,498 |
||||||
Letters of credit and standby letters of credit income |
2,093 |
3,019 |
2,868 |
10,333 |
12,006 |
||||||
Credit card fees |
2,618 |
2,300 |
1,550 |
9,314 |
6,225 |
||||||
Corporate finance fees |
- |
- |
- |
- |
3,640 |
||||||
Gains (losses) on derivative instruments, net |
1,370 |
(1,090) |
5,026 |
(753) |
18,505 |
||||||
Gains (losses) on investment securities, net |
6,681 |
3,905 |
(9,828) |
(31,209) |
(14,777) |
||||||
Other |
8,131 |
6,249 |
1,858 |
29,961 |
19,052 |
||||||
Total noninterest income |
40,742 |
34,307 |
25,660 |
97,743 |
152,365 |
||||||
Noninterest expense: |
|||||||||||
Compensation and benefits |
48,589 |
45,815 |
23,877 |
189,631 |
177,315 |
||||||
Professional services |
11,088 |
12,109 |
11,924 |
46,540 |
39,480 |
||||||
Premises and equipment |
6,277 |
5,892 |
5,759 |
23,270 |
22,183 |
||||||
Net occupancy |
4,542 |
4,198 |
4,482 |
17,888 |
17,307 |
||||||
FDIC assessments |
3,182 |
2,589 |
1,644 |
17,035 |
3,451 |
||||||
Business development and travel |
4,436 |
2,902 |
4,831 |
14,014 |
15,406 |
||||||
Correspondent bank fees |
2,046 |
2,118 |
1,617 |
8,040 |
6,628 |
||||||
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 |
1,999 |
65 |
1,607 |
(1,367) |
1,252 |
||||||
Other |
5,748 |
4,119 |
6,089 |
24,723 |
26,007 |
||||||
Total noninterest expense |
87,907 |
79,807 |
61,830 |
343,866 |
312,887 |
||||||
Income (loss) before income tax expense |
37,684 |
43,288 |
(10,717) |
45,847 |
107,360 |
||||||
Income tax expense |
13,602 |
16,879 |
863 |
35,207 |
52,213 |
||||||
Net income (loss) before noncontrolling interests |
24,082 |
26,409 |
(11,580) |
10,640 |
55,147 |
||||||
Net (income) loss attributable to noncontrolling interests |
(3,338) |
(2,246) |
11,694 |
37,370 |
19,139 |
||||||
Net income attributable to SVBFG |
$ 20,744 |
$ 24,163 |
$ 114 |
$ 48,010 |
$ 74,286 |
||||||
Preferred stock dividend and discount accretion |
(14,700) |
(3,555) |
(707) |
(25,336) |
(707) |
||||||
Net income (loss) available to common stockholders |
$ 6,044 |
$ 20,608 |
$ (593) |
$ 22,674 |
$ 73,579 |
||||||
Earnings (loss) per common share — basic |
$ 0.17 |
$ 0.62 |
$ (0.02) |
$ 0.67 |
$ 2.27 |
||||||
Earnings (loss) per common share — diluted |
$ 0.16 |
$ 0.61 |
$ (0.02) |
$ 0.66 |
$ 2.16 |
||||||
Weighted average common shares outstanding — basic |
36,475,992 |
33,176,678 |
32,809,705 |
33,900,956 |
32,425,307 |
||||||
Weighted average common shares outstanding — diluted |
37,214,321 |
33,672,491 |
33,450,626 |
34,182,771 |
34,014,581 |
||||||
SVB FINANCIAL GROUP AND SUBSIDIARIES |
||||||||
INTERIM CONSOLIDATED BALANCE SHEETS |
||||||||
(Unaudited) |
||||||||
(Dollars in thousands, except par value, share data and ratios) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
|||||
Assets: |
||||||||
Cash and due from banks |
$ 3,454,611 |
$ 4,062,298 |
$ 1,958,333 |
|||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
58,242 |
48,530 |
478,392 |
|||||
Investment securities |
4,491,752 |
3,491,281 |
1,786,100 |
|||||
Loans, net of unearned income |
4,548,094 |
4,655,817 |
5,506,253 |
|||||
Allowance for loan losses |
(72,450) |
(86,713) |
(107,396) |
|||||
Net loans |
4,475,644 |
4,569,104 |
5,398,857 |
|||||
Premises and equipment, net of accumulated depreciation and amortization |
31,736 |
30,722 |
30,589 |
|||||
Goodwill |
- |
- |
4,092 |
|||||
Accrued interest receivable and other assets |
329,414 |
336,668 |
361,917 |
|||||
Total assets |
$ 12,841,399 |
$ 12,538,603 |
$ 10,018,280 |
|||||
Liabilities and total equity: |
||||||||
Liabilities: |
||||||||
Deposits: |
||||||||
Noninterest-bearing demand |
$ 6,298,988 |
$ 6,422,937 |
$ 4,419,965 |
|||||
Negotiable order of withdrawal (NOW) |
53,200 |
39,818 |
58,133 |
|||||
Money market |
1,292,215 |
1,198,611 |
1,213,086 |
|||||
Money market deposits in foreign offices |
49,722 |
64,701 |
53,123 |
|||||
Time |
332,310 |
333,870 |
379,200 |
|||||
Sweep |
2,305,502 |
1,995,695 |
1,349,965 |
|||||
Total deposits |
10,331,937 |
10,055,632 |
7,473,472 |
|||||
Short-term borrowings |
38,755 |
52,285 |
62,120 |
|||||
Other liabilities |
139,947 |
171,166 |
175,553 |
|||||
Long-term debt |
856,650 |
866,748 |
995,423 |
|||||
Total liabilities |
11,367,289 |
11,145,831 |
8,706,568 |
|||||
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; 0 and 235,000 shares issued and outstanding, net of discount, respectively |
- |
223,009 |
221,185 |
|||||
Common stock, $0.001 par value, 150,000,000 shares authorized; 41,338,569 shares, 33,202,387 shares and 32,917,007 shares outstanding, respectively |
41 |
33 |
33 |
|||||
Additional paid-in capital |
389,490 |
92,367 |
66,201 |
|||||
Retained earnings |
732,907 |
726,455 |
709,726 |
|||||
Accumulated other comprehensive income (loss) |
5,905 |
25,513 |
(5,789) |
|||||
Total SVBFG stockholders’ equity |
1,128,343 |
1,067,377 |
991,356 |
|||||
Noncontrolling interests |
345,767 |
325,395 |
320,356 |
|||||
Total equity |
1,474,110 |
1,392,772 |
1,311,712 |
|||||
Total liabilities and total equity |
$ 12,841,399 |
$ 12,538,603 |
$ 10,018,280 |
|||||
Capital Ratios: |
||||||||
Total risk-based capital ratio |
19.94 |
% |
19.23 |
% |
17.58 |
% |
||
Tier 1 risk-based capital ratio |
15.45 |
14.59 |
12.51 |
|||||
Tier 1 leverage ratio |
9.53 |
9.71 |
13.00 |
|||||
Tangible common equity to tangible assets ratio (1) |
8.78 |
6.73 |
7.64 |
|||||
Tangible common equity to risk-weighted assets ratio |
15.05 |
11.43 |
9.31 |
|||||
Other Period-End Statistics: |
||||||||
Loans, net of unearned income-to-deposits ratio |
44.02 |
% |
46.30 |
% |
73.68 |
% |
||
Book value per common share (2) |
$ 27.30 |
$ 25.43 |
$ 23.40 |
|||||
Full-time equivalent employees |
1,258 |
1,259 |
1,244 |
|||||
(1) |
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. |
|
(2) |
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 |
||||||||||||||||||||
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
||||||||||||||||||
(Dollars in thousands) |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
|||||||||||
Interest-earning assets: |
||||||||||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) |
$ 3,755,892 |
$ 2,562 |
0.27 |
% |
$ 3,370,898 |
$ 2,367 |
0.28 |
% |
$ 574,295 |
$ 2,059 |
1.43 |
% |
||||||||
Investment securities: (2) |
||||||||||||||||||||
Taxable |
3,194,147 |
28,329 |
3.52 |
2,412,432 |
21,562 |
3.55 |
1,244,804 |
14,789 |
4.73 |
|||||||||||
Non-taxable (3) |
101,107 |
1,532 |
6.01 |
102,142 |
1,550 |
6.02 |
112,729 |
1,754 |
6.19 |
|||||||||||
Total loans, net of unearned income (4) |
4,367,985 |
80,258 |
7.29 |
4,544,510 |
83,049 |
7.25 |
5,226,667 |
95,662 |
7.28 |
|||||||||||
Total interest-earning assets |
11,419,131 |
112,681 |
3.92 |
10,429,982 |
108,528 |
4.12 |
7,158,495 |
114,264 |
6.35 |
|||||||||||
Cash and due from banks |
232,266 |
205,084 |
352,380 |
|||||||||||||||||
Allowance for loan losses |
(91,653) |
(114,364) |
(62,781) |
|||||||||||||||||
Goodwill |
- |
- |
4,092 |
|||||||||||||||||
Other assets (5) |
927,348 |
889,924 |
756,918 |
|||||||||||||||||
Total assets |
$ 12,487,092 |
$ 11,410,626 |
$ 8,209,104 |
|||||||||||||||||
Funding sources: |
||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||
NOW deposits |
$ 40,151 |
$ 40 |
0.40 |
% |
$ 35,092 |
$ 34 |
0.38 |
% |
$ 53,638 |
$ 72 |
0.53 |
% |
||||||||
Regular money market deposits |
144,655 |
123 |
0.34 |
122,809 |
145 |
0.47 |
181,696 |
600 |
1.31 |
|||||||||||
Bonus money market deposits |
1,203,460 |
1,158 |
0.38 |
1,035,822 |
1,208 |
0.46 |
1,074,162 |
2,906 |
1.08 |
|||||||||||
Money market deposits in foreign offices |
67,404 |
74 |
0.44 |
68,589 |
90 |
0.52 |
46,027 |
161 |
1.39 |
|||||||||||
Time deposits |
330,610 |
526 |
0.63 |
346,714 |
568 |
0.65 |
447,719 |
1,255 |
1.12 |
|||||||||||
Sweep deposits |
2,098,254 |
2,172 |
0.41 |
1,927,910 |
2,756 |
0.57 |
643,226 |
2,027 |
1.25 |
|||||||||||
Total interest-bearing deposits |
3,884,534 |
4,093 |
0.42 |
3,536,936 |
4,801 |
0.54 |
2,446,468 |
7,021 |
1.14 |
|||||||||||
Short-term borrowings |
49,525 |
15 |
0.12 |
42,134 |
16 |
0.15 |
232,519 |
789 |
1.35 |
|||||||||||
3.875% convertible senior notes |
246,625 |
3,520 |
5.66 |
246,065 |
3,512 |
5.66 |
244,513 |
3,499 |
5.69 |
|||||||||||
Junior subordinated debentures |
55,974 |
893 |
6.33 |
55,956 |
893 |
6.33 |
53,807 |
769 |
5.69 |
|||||||||||
Senior and subordinated notes |
558,421 |
1,417 |
1.01 |
552,171 |
1,767 |
1.27 |
540,333 |
4,296 |
3.16 |
|||||||||||
Other long-term debt |
7,831 |
67 |
3.39 |
58,033 |
179 |
1.22 |
129,358 |
866 |
2.66 |
|||||||||||
Total interest-bearing liabilities |
4,802,910 |
10,005 |
0.83 |
4,491,295 |
11,168 |
0.99 |
3,646,998 |
17,240 |
1.88 |
|||||||||||
Portion of noninterest-bearing funding sources |
6,616,221 |
5,938,687 |
3,511,497 |
|||||||||||||||||
Total funding sources |
11,419,131 |
10,005 |
0.35 |
10,429,982 |
11,168 |
0.42 |
7,158,495 |
17,240 |
0.96 |
|||||||||||
Noninterest-bearing funding sources: |
||||||||||||||||||||
Demand deposits |
5,998,373 |
5,373,486 |
3,227,033 |
|||||||||||||||||
Other liabilities |
169,293 |
183,781 |
202,647 |
|||||||||||||||||
SVBFG stockholders’ equity |
1,183,276 |
1,045,340 |
802,403 |
|||||||||||||||||
Noncontrolling interests |
333,240 |
316,724 |
330,023 |
|||||||||||||||||
Portion used to fund interest-earning assets |
(6,616,221) |
(5,938,687) |
(3,511,497) |
|||||||||||||||||
Total liabilities and total equity |
$ 12,487,092 |
$ 11,410,626 |
$ 8,209,104 |
|||||||||||||||||
Net interest income and margin |
$ 102,676 |
3.57 |
% |
$ 97,360 |
3.70 |
% |
$ 97,024 |
5.39 |
% |
|||||||||||
Total deposits |
$ 9,882,907 |
$ 8,910,422 |
$ 5,673,501 |
|||||||||||||||||
Average SVBFG stockholders’ equity as a percentage of average assets |
9.48 |
% |
9.16 |
% |
9.77 |
% |
||||||||||||||
Reconciliation to reported net interest income: |
||||||||||||||||||||
Adjustments for taxable equivalent basis |
(536) |
(542) |
(614) |
|||||||||||||||||
Net interest income, as reported |
$ 102,140 |
$ 96,818 |
$ 96,410 |
|||||||||||||||||
(1) |
Includes average interest-bearing deposits in other financial institutions of $169.0 million, $182.7 million and $124.2 million for the quarters ended December 31, 2009, September 30, 2009, and December 31, 2008, respectively. For the quarters ended December 31, 2009, September 30, 2009 and December 31, 2008, balance also includes $3.5 billion, $3.1 billion and $202.4 million, respectively, deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate. |
|
(2) |
Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
|
(3) |
Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. |
|
(4) |
Nonaccrual loans are reflected in the average balances of loans. |
|
(5) |
Average investment securities of $578.0 million, $505.3 million and $415.8 million for the quarters ended December 31, 2009, September 30, 2009, and December 31, 2008, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities. |
|
SVB FINANCIAL GROUP AND SUBSIDIARIES |
||||||||||||||
INTERIM AVERAGE BALANCES, RATES AND YIELDS |
||||||||||||||
(Unaudited) |
||||||||||||||
Year ended |
||||||||||||||
December 31, 2009 |
December 31, 2008 |
|||||||||||||
(Dollars in thousands) |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
||||||||
Interest-earning assets: |
||||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) |
$ 3,333,182 |
$ 9,790 |
0.29 |
% |
$ 507,365 |
$ 12,572 |
2.48 |
% |
||||||
Investment securities: (2) |
||||||||||||||
Taxable |
2,179,181 |
81,536 |
3.74 |
1,235,179 |
58,466 |
4.73 |
||||||||
Non-taxable (3) |
103,150 |
6,298 |
6.11 |
103,337 |
6,555 |
6.34 |
||||||||
Total loans, net of unearned income (4) |
4,699,696 |
335,806 |
7.15 |
4,633,048 |
364,192 |
7.86 |
||||||||
Total interest-earning assets |
10,315,209 |
433,430 |
4.20 |
6,478,929 |
441,785 |
6.82 |
||||||||
Cash and due from banks |
238,911 |
279,520 |
||||||||||||
Allowance for loan losses |
(107,512) |
(54,982) |
||||||||||||
Goodwill |
1,000 |
4,092 |
||||||||||||
Other assets (5) |
878,733 |
710,744 |
||||||||||||
Total assets |
$ 11,326,341 |
$ 7,418,303 |
||||||||||||
Funding sources: |
||||||||||||||
Interest-bearing liabilities: |
||||||||||||||
NOW deposits |
$ 42,022 |
$ 160 |
0.38 |
% |
$ 46,339 |
$ 233 |
0.50 |
% |
||||||
Regular money market deposits |
149,696 |
748 |
0.50 |
152,568 |
2,087 |
1.37 |
||||||||
Bonus money market deposits |
1,034,152 |
5,404 |
0.52 |
969,421 |
11,697 |
1.21 |
||||||||
Money market deposits in foreign offices |
62,440 |
416 |
0.67 |
11,570 |
161 |
1.39 |
||||||||
Time deposits |
355,602 |
2,445 |
0.69 |
393,963 |
3,838 |
0.97 |
||||||||
Sweep deposits |
1,860,899 |
12,173 |
0.65 |
375,556 |
5,913 |
1.57 |
||||||||
Total interest-bearing deposits |
3,504,811 |
21,346 |
0.61 |
1,949,417 |
23,929 |
1.23 |
||||||||
Short-term borrowings |
46,133 |
72 |
0.16 |
304,896 |
6,746 |
2.21 |
||||||||
Zero-coupon convertible subordinated notes |
- |
- |
- |
69,978 |
2,418 |
3.46 |
||||||||
3.875% convertible senior notes |
245,756 |
14,043 |
5.71 |
179,538 |
10,138 |
5.65 |
||||||||
Junior subordinated debentures |
55,948 |
3,465 |
6.19 |
53,093 |
2,548 |
4.80 |
||||||||
Senior and subordinated notes |
560,398 |
9,166 |
1.64 |
531,523 |
20,405 |
3.84 |
||||||||
Other long-term debt |
61,752 |
984 |
1.59 |
146,562 |
4,712 |
3.22 |
||||||||
Total interest-bearing liabilities |
4,474,798 |
49,076 |
1.10 |
3,235,007 |
70,896 |
2.19 |
||||||||
Portion of noninterest-bearing funding sources |
5,840,411 |
3,243,922 |
||||||||||||
Total funding sources |
10,315,209 |
49,076 |
0.47 |
6,478,929 |
70,896 |
1.10 |
||||||||
Noninterest-bearing funding sources: |
||||||||||||||
Demand deposits |
5,289,288 |
2,946,907 |
||||||||||||
Other liabilities |
179,795 |
221,348 |
||||||||||||
Discount on zero-coupon convertible subordinated notes |
- |
503 |
||||||||||||
SVBFG stockholders’ equity |
1,063,175 |
720,851 |
||||||||||||
Noncontrolling interests |
319,285 |
293,687 |
||||||||||||
Portion used to fund interest-earning assets |
(5,840,411) |
(3,243,922) |
||||||||||||
Total liabilities and total equity |
$ 11,326,341 |
$ 7,418,303 |
||||||||||||
Net interest income and margin |
$ 384,354 |
3.73 |
% |
$ 370,889 |
5.72 |
% |
||||||||
Total deposits |
$ 8,794,099 |
$ 4,896,324 |
||||||||||||
Average SVBFG stockholders’ equity as a percentage of average assets |
9.39 |
% |
9.72 |
% |
||||||||||
Reconciliation to reported net interest income: |
||||||||||||||
Adjustments for taxable equivalent basis |
(2,204) |
(2,294) |
||||||||||||
Net interest income, as reported |
$ 382,150 |
$ 368,595 |
||||||||||||
(1) |
Includes average interest-bearing deposits in other financial institutions of $176.5 million and $99.1 million for the years ended December 31, 2009 and 2008, respectively. For the years ended December 31, 2009 and 2008, balance also includes $3.1 billion and $79.1 million, respectively, deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate. |
|
(2) |
Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
|
(3) |
Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented. |
|
(4) |
Nonaccrual loans are reflected in the average balances of loans. |
|
(5) |
Average investment securities of $505.5 million and $380.8 million for the years ended December 31, 2009 and 2008, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities. |
|
Gains (Losses) on Derivative Instruments, Net
Three months ended |
Year ended |
|||||||||||||||||
% Change |
||||||||||||||||||
(Dollars in thousands) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
September 30, 2009 |
December 31, 2008 |
December 31, 2009 |
December 31, 2008 |
% Change |
||||||||||
Gains (losses) on foreign exchange forward contracts, net: |
||||||||||||||||||
Gains on client foreign exchange forward contracts, net (1) |
$ 426 |
$ 360 |
$ 2,466 |
18.3 |
% |
(82.7) |
% |
$ 1,730 |
$ 4,233 |
(59.1) |
% |
|||||||
Gains (losses) on internal foreign exchange forward contracts, net (2) |
406 |
(128) |
3,200 |
NM |
(87.3) |
(2,258) |
5,185 |
(143.5) |
||||||||||
Total gains (losses) on foreign exchange forward contracts, net |
832 |
232 |
5,666 |
NM |
(85.3) |
(528) |
9,418 |
(105.6) |
||||||||||
Change in fair value of interest rate swap (3) |
- |
- |
(2,232) |
- |
(100.0) |
(170) |
(1,856) |
(90.8) |
||||||||||
Gains on covered call options, net (4) |
- |
- |
- |
- |
- |
- |
402 |
(100.0) |
||||||||||
Equity warrant assets: |
||||||||||||||||||
Gains (losses) on exercise, net |
1,271 |
(506) |
867 |
NM |
46.6 |
933 |
7,188 |
(87.0) |
||||||||||
Change in fair value (5): |
||||||||||||||||||
Cancellations and expirations |
(871) |
(1,170) |
(679) |
(25.6) |
28.3 |
(4,515) |
(2,574) |
75.4 |
||||||||||
Other changes in fair value |
138 |
354 |
1,404 |
(61.0) |
(90.2) |
3,527 |
5,927 |
(40.5) |
||||||||||
Total net gains (losses) on equity warrant assets (6) |
538 |
(1,322) |
1,592 |
(140.7) |
(66.2) |
(55) |
10,541 |
(100.5) |
||||||||||
Total gains (losses) on derivative instruments, net |
$ 1,370 |
$ (1,090) |
$ 5,026 |
NM |
% |
(72.7) |
% |
$ (753) |
$ 18,505 |
(104.1) |
% |
|||||||
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 December 31, 2009, we held warrants in 1,225 companies, compared to 1,250 companies at September 30, 2009 and 1,307 companies at December 31, 2008. |
|
(6) |
Includes net gains (losses) 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
Three months ended |
Year ended |
||||||||||
(Dollars in thousands) |
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||
Net interest (income) loss (1) |
$ (11) |
$ (1) |
$ 22 |
$ 18 |
$ (470) |
||||||
Noninterest (income) loss (1) |
(6,668) |
(5,114) |
8,577 |
26,278 |
6,631 |
||||||
Noninterest expense (1) |
3,344 |
2,872 |
3,035 |
12,451 |
11,115 |
||||||
Carried interest (2) |
(3) |
(3) |
60 |
(1,377) |
1,863 |
||||||
Net (income) loss attributable to noncontrolling interests |
$ (3,338) |
$ (2,246) |
$ 11,694 |
$ 37,370 |
$ 19,139 |
||||||
(1) |
Represents noncontrolling interests share in net interest income, noninterest income, and noninterest expense. |
|
(2) |
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 |
Year ended |
||||||||||
(Shares in thousands) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
December 31, 2009 |
December 31, 2008 |
||||||
Weighted average common shares outstanding-basic |
36,476 |
33,177 |
32,810 |
33,901 |
32,425 |
||||||
Effect of dilutive securities: |
|||||||||||
Stock options |
643 |
495 |
575 |
282 |
887 |
||||||
Restricted stock awards and units |
95 |
- |
66 |
- |
114 |
||||||
Zero-coupon convertible subordinated notes (1) |
- |
- |
- |
- |
589 |
||||||
Warrants associated with zero-coupon convertible subordinated notes (1) |
- |
- |
- |
- |
- |
||||||
3.875% convertible senior notes (2) |
- |
- |
- |
- |
- |
||||||
Warrants associated with 3.875% convertible senior notes (2) |
- |
- |
- |
- |
- |
||||||
Warrant associated with Capital Purchase Program (3) |
- |
- |
- |
- |
- |
||||||
Total effect of dilutive securities |
738 |
495 |
641 |
282 |
1,590 |
||||||
Weighted average common shares outstanding-diluted |
37,214 |
33,672 |
33,451 |
34,183 |
34,015 |
||||||
(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 |
||||||||
(Dollars in thousands) |
December 31, 2009 |
September 30, 2009 |
December 31, 2008 |
|||||
Nonperforming loans and assets: |
||||||||
Nonperforming loans: |
||||||||
Loans past due 90 days or more still accruing interest |
$ 2,456 |
$ - |
$ 2,330 |
|||||
Nonaccrual loans |
50,227 |
72,173 |
84,919 |
|||||
Total nonperforming loans |
52,683 |
72,173 |
87,249 |
|||||
Other real estate owned |
220 |
440 |
1,250 |
|||||
Total nonperforming assets |
$ 52,903 |
$ 72,613 |
$ 88,499 |
|||||
Nonperforming loans as a percentage of total gross loans |
1.15 |
% |
1.54 |
% |
1.57 |
% |
||
Nonperforming assets as a percentage of total assets |
0.41 |
0.58 |
0.88 |
|||||
Allowance for loan losses |
$ 72,450 |
$ 86,713 |
$ 107,396 |
|||||
As a percentage of total gross loans |
1.58 |
% |
1.85 |
% |
1.93 |
% |
||
As a percentage of total gross nonperforming loans |
137.52 |
120.15 |
123.09 |
|||||
Allowance for loan losses for total gross nonperforming loans |
$ 8,868 |
$ 23,356 |
$ 25,911 |
|||||
As a percentage of total gross loans |
0.19 |
% |
0.50 |
% |
0.47 |
% |
||
As a percentage of total gross nonperforming loans |
16.83 |
32.36 |
29.70 |
|||||
Allowance for loan losses for total gross performing loans |
$ 63,582 |
$ 63,357 |
$ 81,485 |
|||||
As a percentage of total gross loans |
1.39 |
% |
1.35 |
% |
1.47 |
% |
||
As a percentage of total gross performing loans |
1.40 |
1.37 |
1.49 |
|||||
Reserve for unfunded credit commitments (1) |
$ 13,331 |
$ 11,332 |
$ 14,698 |
|||||
Total gross loans |
4,582,966 |
4,692,498 |
5,551,636 |
|||||
Total unfunded credit commitments |
5,338,726 |
4,794,463 |
5,630,486 |
|||||
(1) The "Reserve for Unfunded Credit Commitments" is included as a component of "Other Liabilities". |
|
Average Client Investment Funds (1)
Three months ended |
Year ended |
||||||||||
(Dollars in millions) |
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||
Client directed investment assets |
$ 10,190 |
$ 10,644 |
$ 12,744 |
$ 10,879 |
$ 12,800 |
||||||
Client investment assets under management |
5,911 |
5,477 |
6,081 |
5,659 |
6,217 |
||||||
Sweep money market funds |
- |
- |
2,213 |
56 |
2,573 |
||||||
Total average client investment funds |
$ 16,101 |
$ 16,121 |
$ 21,038 |
$ 16,594 |
$ 21,590 |
||||||
(1) Client Investment Funds are maintained at third party financial institutions. |
|
Period-end total client investment funds were $15.6 billion at December 31, 2009, compared to $16.4 billion at September 30, 2009 and $18.6 billion at December 31, 2008. The decrease in period-end total client investment funds from September 30, 2009 to December 31, 2009 was 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.
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 |
Year ended |
|||||||||||||
(Dollars in thousands, except per share amounts) |
March 31, 2009 |
December 31, 2008 |
September 30, 2008 |
June 30, 2008 |
March 31, 2008 |
December 31, 2007 |
||||||||
AS REVISED |
||||||||||||||
Income Statement |
||||||||||||||
Interest expense — borrowings |
$ 8,181 |
$ 10,219 |
$ 12,517 |
$ 11,695 |
$ 12,536 |
$ 54,259 |
||||||||
Other noninterest income |
2,782 |
1,858 |
1,913 |
5,759 |
9,522 |
26,096 |
||||||||
Income tax expense (benefit) |
(2,448) |
863 |
16,711 |
16,291 |
18,348 |
84,581 |
||||||||
Net income (loss) attributable to SVBFG |
(8,235) |
114 |
25,918 |
21,014 |
27,240 |
120,329 |
||||||||
Net income (loss) available to common stockholders |
(11,771) |
(593) |
25,918 |
21,014 |
27,240 |
120,329 |
||||||||
Earnings (loss) per common share — diluted |
(0.36) |
(0.02) |
0.77 |
0.61 |
0.79 |
3.28 |
||||||||
Fully Taxable Equivalent |
||||||||||||||
Net interest income (fully taxable equivalent basis) |
$ 92,083 |
$ 97,024 |
$ 95,206 |
$ 87,377 |
$ 91,283 |
$ 377,115 |
||||||||
Net interest margin |
3.97 |
% |
5.39 |
% |
5.70 |
% |
5.62 |
% |
6.27 |
% |
7.19 |
% |
||
Balance Sheet |
||||||||||||||
Cash and due from banks |
$ 3,360,199 |
$ 1,789,311 |
$ 371,425 |
$ 303,057 |
$ 301,888 |
$ 324,510 |
||||||||
Total assets |
10,955,015 |
10,018,280 |
8,070,315 |
7,310,010 |
6,897,163 |
6,692,171 |
||||||||
Long-term debt |
964,175 |
995,423 |
976,189 |
969,588 |
892,516 |
873,241 |
||||||||
Additional paid-in capital |
71,760 |
66,201 |
44,359 |
20,754 |
13,975 |
13,167 |
||||||||
Retained earnings |
697,956 |
709,726 |
710,321 |
684,404 |
663,963 |
669,459 |
||||||||
ADJUSTMENTS DUE TO REVISION OF ERROR |
||||||||||||||
Income Statement |
||||||||||||||
Other noninterest income |
$ (1,971) |
$ (3,239) |
$ (1,309) |
$ 578 |
$ 187 |
$ (415) |
||||||||
Income tax expense (benefit) |
(746) |
(1,248) |
(531) |
215 |
65 |
(171) |
||||||||
Net income (loss) attributable to SVBFG |
(1,225) |
(1,991) |
(778) |
363 |
122 |
(244) |
||||||||
Net income (loss) available to common stockholders |
(1,225) |
(1,991) |
(778) |
363 |
122 |
(244) |
||||||||
Earnings (loss) per common share — diluted |
(0.04) |
(0.06) |
(0.02) |
0.01 |
- |
(0.01) |
||||||||
Balance Sheet |
||||||||||||||
Cash and due from banks |
$ (2,017) |
$ (2,085) |
$ (2,085) |
$ (2,085) |
$ (2,085) |
$ (889) |
||||||||
Total assets |
(3,753) |
(2,528) |
(537) |
241 |
(122) |
(244) |
||||||||
Retained earnings |
(3,753) |
(2,528) |
(537) |
241 |
(122) |
(244) |
||||||||
ADJUSTMENTS DUE TO ASC 470-20 |
||||||||||||||
Income Statement |
||||||||||||||
Interest expense — borrowings |
N/A |
$ 525 |
$ 518 |
$ 1,068 |
$ 1,303 |
$ 5,091 |
||||||||
Income tax expense (benefit) |
N/A |
(208) |
(206) |
(424) |
(518) |
(2,026) |
||||||||
Net income (loss) attributable to SVBFG |
N/A |
(317) |
(312) |
(644) |
(785) |
(3,065) |
||||||||
Net income (loss) available to common stockholders |
N/A |
(317) |
(312) |
(644) |
(785) |
(3,065) |
||||||||
Fully Taxable Equivalent |
||||||||||||||
Net interest income (fully taxable equivalent basis) |
N/A |
$ (525) |
$ (518) |
$ (1,068) |
$ (1,303) |
$ (5,091) |
||||||||
Net interest margin |
N/A |
(0.03) |
% |
(0.03) |
% |
(0.07) |
% |
(0.09) |
% |
(0.10) |
% |
|||
Balance Sheet |
||||||||||||||
Total assets |
N/A |
$ (84) |
$ (93) |
$ (102) |
$ (18) |
$ (41) |
||||||||
Long-term debt |
N/A |
(5,217) |
(5,757) |
(6,290) |
(673) |
(2,013) |
||||||||
Additional paid-in capital |
N/A |
20,329 |
20,543 |
20,754 |
13,975 |
13,167 |
||||||||
Retained earnings |
N/A |
(15,196) |
(14,879) |
(14,566) |
(13,993) |
(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 gains (losses) 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.
- Non-tax deductible charge of $11.4 million related to TARP repayment.
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 which we effectively do not receive the economic benefit or cost of, 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) |
|||||||||||
Three months ended |
Year ended |
||||||||||
(Dollars in thousands, except share amounts) |
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||
Net income (loss) available to common stockholders |
$ 6,044 |
$ 20,608 |
$ (593) |
$ 22,674 |
$ 73,579 |
||||||
Impairment of goodwill (1) |
- |
- |
- |
4,092 |
- |
||||||
Loss from cash settlement of conversion premium of zero-coupon convertible subordinated notes (2) |
- |
- |
- |
- |
3,858 |
||||||
Non-cash charge related to TARP Repayment (3) |
11,412 |
- |
- |
11,412 |
- |
||||||
Non-GAAP net income (loss) available to common stockholders |
$ 17,456 |
$ 20,608 |
$ (593) |
$ 38,178 |
$ 77,437 |
||||||
GAAP earnings (loss) per common share — diluted |
$ 0.16 |
$ 0.61 |
$ (0.02) |
$ 0.66 |
$ 2.16 |
||||||
Impact of impairment of goodwill (1) |
- |
- |
- |
0.12 |
- |
||||||
Impact of loss from cash settlement of conversion premium of zero-coupon convertible subordinated notes (2) |
- |
- |
- |
- |
0.12 |
||||||
Impact of non-cash charge related to TARP Repayment (3) |
0.31 |
- |
- |
0.34 |
- |
||||||
Non-GAAP earnings (loss) per common share — diluted |
$ 0.47 |
$ 0.61 |
$ (0.02) |
$ 1.12 |
$ 2.28 |
||||||
Weighted average diluted common shares outstanding |
37,214,321 |
33,672,491 |
33,450,626 |
34,182,771 |
34,014,581 |
||||||
(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. |
|
(3) |
Non-tax deductible charge related to TARP repayment recognized in the fourth quarter of 2009. |
|
Three months ended |
Year ended |
||||||||||
Non-GAAP noninterest income, net of noncontrolling interests |
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||
(Dollars in thousands) |
2009 |
2009 |
2008 |
2009 |
2008 |
||||||
GAAP noninterest income |
$ 40,742 |
$ 34,307 |
$ 25,660 |
$ 97,743 |
$ 152,365 |
||||||
Less: income (losses) attributable to noncontrolling interests, including carried interest |
6,671 |
5,117 |
(8,637) |
(24,901) |
(8,494) |
||||||
Non-GAAP noninterest income, net of noncontrolling interests |
$ 34,071 |
$ 29,190 |
$ 34,297 |
$ 122,644 |
$ 160,859 |
||||||
Three months ended |
Year ended |
||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests |
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
||||||
(Dollars in thousands) |
2009 |
2009 |
2008 |
2009 |
2008 |
||||||
GAAP net gains (losses) on investment securities |
$ 6,681 |
$ 3,905 |
$ (9,828) |
$ (31,209) |
$ (14,777) |
||||||
Less: gains (losses) on investment securities attributable to noncontrolling interests, including carried interest |
5,853 |
4,880 |
(8,702) |
(26,638) |
(8,929) |
||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests |
$ 828 |
$ (975) |
$ (1,126) |
$ (4,571) |
$ (5,848) |
||||||
Three months ended |
Year ended |
|||||||||||
Non-GAAP operating efficiency ratio, net of noncontrolling interests |
December 31, |
September 30, |
December 31, |
December 31, |
December 31, |
|||||||
(Dollars in thousands, except ratios) |
2009 |
2009 |
2008 |
2009 |
2008 |
|||||||
GAAP noninterest expense |
$ 87,907 |
$ 79,807 |
$ 61,830 |
$ 343,866 |
$ 312,887 |
|||||||
Less: amounts attributable to noncontrolling interests |
3,344 |
2,872 |
3,035 |
12,451 |
11,115 |
|||||||
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 |
$ 84,563 |
$ 76,935 |
$ 58,795 |
$ 327,323 |
$ 297,914 |
|||||||
GAAP taxable equivalent net interest income |
$ 102,676 |
$ 97,360 |
$ 97,024 |
$ 384,354 |
$ 370,889 |
|||||||
Less: income (losses) attributable to noncontrolling interests |
11 |
1 |
(22) |
(18) |
470 |
|||||||
Non-GAAP taxable equivalent net interest income, net of noncontrolling interests |
102,665 |
97,359 |
97,046 |
384,372 |
370,419 |
|||||||
Non-GAAP noninterest income, net of noncontrolling interests |
34,071 |
29,190 |
34,297 |
122,644 |
160,859 |
|||||||
Non-GAAP taxable equivalent revenue, net of noncontrolling interests |
$ 136,736 |
$ 126,549 |
$ 131,343 |
$ 507,016 |
$ 531,278 |
|||||||
Non-GAAP operating efficiency ratio |
61.84 |
% |
60.79 |
% |
44.76 |
% |
64.56 |
% |
56.07 |
% |
||
Non-GAAP non-marketable securities, net of noncontrolling interests |
December 31, |
September 30, |
December 31, |
||||
(Dollars in thousands) |
2009 |
2009 |
2008 |
||||
GAAP non-marketable securities |
$ 553,530 |
$ 507,880 |
$ 467,206 |
||||
Less: noncontrolling interests in non-marketable securities |
320,523 |
296,011 |
298,140 |
||||
Non-GAAP non-marketable securities, net of noncontrolling interests |
$ 233,007 |
$ 211,869 |
$ 169,066 |
||||
Non-GAAP tangible common equity and tangible assets |
December 31, |
September 30, |
December 31, |
|||||
(Dollars in thousands, except ratios) |
2009 |
2009 |
2008 |
|||||
GAAP SVBFG stockholders' equity |
$ 1,128,343 |
$ 1,067,377 |
$ 991,356 |
|||||
Less: |
||||||||
Preferred stock |
- |
223,009 |
221,185 |
|||||
Goodwill |
- |
- |
4,092 |
|||||
Intangible assets |
665 |
697 |
1,087 |
|||||
Tangible common equity |
$ 1,127,678 |
$ 843,671 |
$ 764,992 |
|||||
GAAP Total assets |
$ 12,841,399 |
$ 12,538,603 |
$ 10,018,280 |
|||||
Less: |
||||||||
Goodwill |
- |
- |
4,092 |
|||||
Intangible assets |
665 |
697 |
1,087 |
|||||
Tangible assets |
$ 12,840,734 |
$ 12,537,906 |
$ 10,013,101 |
|||||
Risk-weighted assets |
$ 7,494,558 |
$ 7,381,820 |
$ 8,220,447 |
|||||
Tangible common equity to tangible assets |
8.78 |
% |
6.73 |
% |
7.64 |
% |
||
Tangible common equity to risk-weighted assets |
15.05 |
11.43 |
9.31 |
|||||
SOURCE SVB Financial Group
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