Exhibit 99.1
svblogoa07.gif    
3003 Tasman Drive, Santa Clara, CA 95054
 
 
 
 
 
 
 
Contact:
www.svb.com    
 
 
 
 
 
 
 
Meghan O'Leary
 
 
 
 
 
 
 
 
Investor Relations
For release at 1:00 P.M. (Pacific Time)
 
 
 
 
  
(408) 654-6364
October 25, 2018
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
NASDAQ: SIVB
 
 
 
 
 
 
  
 
SVB FINANCIAL GROUP ANNOUNCES 2018 THIRD QUARTER FINANCIAL RESULTS

SANTA CLARA, Calif. — October 25, 2018 — SVB Financial Group (NASDAQ: SIVB) today announced financial results for the third quarter ended September 30, 2018.

Consolidated net income available to common stockholders for the third quarter of 2018 was $274.8 million, or $5.10 per diluted common share, compared to $237.8 million, or $4.42 per diluted common share, for the second quarter of 2018 and $148.6 million, or $2.79 per diluted common share, for the third quarter of 2017. Consolidated net income available to common stockholders for the nine months ended September 30, 2018 was $707.6 million, or $13.15 per diluted common share, compared to $373.3 million, or $7.01 per diluted common share, for the comparable 2017 period.

"Our outstanding third quarter reflected the positive core business trends and tailwinds that have enabled SVB to deliver strong performance in the first half of the year," said Greg Becker, President and CEO of SVB Financial Group. "We again saw robust loan and client funds growth, a healthy increase in net interest income, strong warrant- and investment-related gains, and solid core fee income increases, all against the backdrop of stable credit.  While preliminary, our positive 2019 outlook reflects our expectation of continued benefits from the unprecedented liquidity being deployed in and by our clients, the full-year impact of recent interest rate increases, and continued effective execution of our growth plans."
Highlights of our third quarter 2018 results (compared to second quarter 2018, unless otherwise noted) included:
Average loan balances of $26.3 billion, an increase of $1.5 billion (or 5.9 percent).
Period-end loan balances of $27.5 billion, an increase of $1.5 billion (or 5.8 percent).
Average fixed income investment securities of $25.5 billion, an increase of $0.3 billion (or 1.4 percent).
Period-end fixed income investment securities of $25.0 billion, a decrease of $0.5 billion (or 2.0 percent).
Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $9.4 billion (or 7.9 percent) to $128.7 billion.
Period-end total client funds increased $6.0 billion (or 4.8 percent) to $130.7 billion.
Net interest income (fully taxable equivalent basis) of $496.1 million, an increase of $27.6 million (or 5.9 percent).
Provision for credit losses of $17.2 million, compared to $29.1 million.
Net loan charge-offs of $20.0 million, or 30 basis points of average total gross loans (annualized), compared to $13.5 million, or 22 basis points.
Net gains on investment securities, of $32.2 million, compared to $36.1 million. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $25.6 million, compared to non-GAAP net gains on investment securities, net of noncontrolling interests, of $26.4 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Net gains on equity warrant assets of $34.1 million, compared to $19.1 million.
Noninterest income of $210.1 million, an increase of $17.4 million (or 9.0 percent). Non-GAAP core fee income increased $8.6 million (or 7.0 percent) to $131.7 million. (See non-GAAP reconciliation under the section “Use of Non-GAAP Financial Measures.”)
Noninterest expense of $309.4 million, an increase of $3.7 million (or 1.2 percent).
Effective tax rate of 25.8 percent compared to 24.5 percent.





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

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
5.10

 
$
4.42

 
$
3.63

 
$
2.19

 
$
2.79

 
$
13.15

 
$
7.01

Net income available to common stockholders
 
274.8

 
237.8

 
195.0

 
117.2

 
148.6

 
707.6

 
373.3

Net interest income
 
493.2

 
466.4

 
419.9

 
393.7

 
374.0

 
1,379.5

 
1,026.7

Provision for credit losses
 
17.2

 
29.1

 
28.0

 
22.2

 
23.5

 
74.2

 
70.1

Noninterest income
 
210.1

 
192.7

 
155.5

 
152.3

 
158.8

 
558.3

 
405.0

Noninterest expense
 
309.4

 
305.7

 
265.4

 
264.0

 
257.8

 
880.6

 
746.6

Non-GAAP core fee income (1)
 
131.7

 
123.1

 
115.0

 
106.4

 
102.7

 
369.8

 
272.6

Non-GAAP noninterest income, net of noncontrolling interests (1)
 
203.4

 
183.2

 
142.5

 
144.5

 
153.2

 
529.1

 
383.3

Non-GAAP noninterest expense, net of noncontrolling interests (1)
 
309.3

 
305.5

 
265.4

 
263.7

 
257.6

 
880.3

 
746.1

Fully taxable equivalent:
 

 
 
 
 
 
 
 
 
 


 
 
Net interest income (2)
 
$
496.1

 
$
468.5

 
$
421.2

 
$
395.3

 
$
374.6

 
$
1,385.8

 
$
1,028.1

Net interest margin
 
3.62
%
 
3.59
%
 
3.38
%
 
3.20
%
 
3.10
%
 
3.53
%
 
2.99
%
Balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average total assets
 
$
56,465.0

 
$
54,420.6

 
$
52,367.2

 
$
50,799.4

 
$
49,795.4

 
$
54,432.7

 
$
47,565.1

Average loans, net of unearned income
 
26,331.4

 
24,858.5

 
23,807.2

 
22,444.1

 
21,584.9

 
25,008.3

 
20,726.5

Average available-for-sale securities
 
9,589.9

 
10,048.4

 
10,748.5

 
12,081.0

 
12,674.6

 
10,124.7

 
12,539.8

Average held-to-maturity securities
 
15,916.7

 
15,112.2

 
13,234.3

 
11,703.0

 
10,467.5

 
14,764.2

 
9,405.5

Average noninterest-bearing demand deposits
 
40,625.8

 
39,814.5

 
37,950.8

 
36,962.0

 
36,578.8

 
39,473.5

 
34,653.3

Average interest-bearing deposits
 
8,466.5

 
8,157.5

 
8,155.3

 
7,811.4

 
7,464.1

 
8,260.9

 
7,408.4

Average total deposits
 
49,092.2

 
47,972.0

 
46,106.1

 
44,773.4

 
44,042.8

 
47,734.4

 
42,061.6

Average long-term debt
 
696.1

 
695.8

 
695.6

 
743.2

 
749.5

 
695.8

 
774.9

Period-end total assets
 
58,139.7

 
55,867.7

 
53,500.8

 
51,214.5

 
50,754.3

 
58,139.7

 
50,754.3

Period-end loans, net of unearned income
 
27,494.9

 
25,996.2

 
24,587.9

 
23,106.3

 
22,189.3

 
27,494.9

 
22,189.3

Period-end available-for-sale securities
 
9,087.6

 
9,593.4

 
10,080.4

 
11,120.7

 
12,603.3

 
9,087.6

 
12,603.3

Period-end held-to-maturity securities
 
15,899.7

 
15,898.3

 
14,548.9

 
12,663.5

 
11,055.0

 
15,899.7

 
11,055.0

Period-end non-marketable and other equity securities
 
896.2

 
852.5

 
824.9

 
651.1

 
627.5

 
896.2

 
627.5

Period-end noninterest-bearing demand deposits
 
40,473.8

 
40,593.3

 
37,515.4

 
36,655.5

 
36,862.0

 
40,473.8

 
36,862.0

Period-end interest-bearing deposits
 
8,122.3

 
8,294.0

 
8,421.2

 
7,598.6

 
7,950.0

 
8,122.3

 
7,950.0

Period-end total deposits
 
48,596.1

 
48,887.3

 
45,936.5

 
44,254.1

 
44,812.0

 
48,596.1

 
44,812.0

Off-balance sheet:
 

 
 
 
 
 
 
 
 
 

 
 
Average client investment funds
 
$
79,560.8

 
$
71,311.5

 
$
64,377.7

 
$
57,589.1

 
$
53,273.3

 
$
71,750.0

 
$
49,504.0

Period-end client investment funds
 
82,085.0

 
75,773.7

 
67,739.2

 
60,329.7

 
54,241.5

 
82,085.0

 
54,241.5

Total unfunded credit commitments
 
18,539.5

 
18,728.4

 
17,170.8

 
17,462.5

 
16,341.9

 
18,539.5

 
16,341.9

Earnings ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Return on average assets (annualized) (3)
 
1.93
%
 
1.75
%
 
1.51
%
 
0.92
%
 
1.18
%
 
1.74
%
 
1.05
%
Return on average SVBFG stockholders’ equity (annualized) (4)
 
22.46

 
20.82

 
18.12

 
11.09

 
14.59

 
20.56

 
12.85

Asset quality ratios:
 

 
 
 
 
 
 
 
 
 

 
 
Allowance for loan losses as a % of total gross loans
 
1.03
%
 
1.10
%
 
1.11
%
 
1.10
%
 
1.12
%
 
1.03
%
 
1.12
%
Allowance for loan losses for performing loans as a % of total gross performing loans
 
0.86

 
0.90

 
0.93

 
0.92

 
0.92

 
0.86

 
0.92

Gross loan charge-offs as a % of average total gross loans (annualized)
 
0.33

 
0.25

 
0.18

 
0.27

 
0.23

 
0.26

 
0.33

Net loan charge-offs as a % of average total gross loans (annualized)
 
0.30

 
0.22

 
0.15

 
0.23

 
0.19

 
0.22

 
0.29

Other ratios:
 

 
 
 
 
 
 
 
 
 

 
 
GAAP operating efficiency ratio (5)
 
44.00
%
 
46.39
%
 
46.13
%
 
48.36
%
 
48.38
%
 
45.44
%
 
52.15
%

2



Non-GAAP operating efficiency ratio (1)
 
44.22

 
46.88

 
47.09

 
48.85

 
48.82

 
45.97

 
52.87

SVBFG CET 1 risk-based capital ratio
 
13.28

 
12.92

 
12.87

 
12.78

 
12.96

 
13.28

 
12.96

Bank CET 1 risk-based capital ratio
 
11.98

 
11.76

 
11.90

 
12.06

 
12.41

 
11.98

 
12.41

SVBFG total risk-based capital ratio
 
14.34

 
14.03

 
13.99

 
13.96

 
14.29

 
14.34

 
14.29

Bank total risk-based capital ratio
 
12.91

 
12.72

 
12.88

 
13.04

 
13.40

 
12.91

 
13.40

SVBFG tier 1 leverage ratio
 
8.99

 
8.81

 
8.67

 
8.34

 
8.34

 
8.99

 
8.34

Bank tier 1 leverage ratio
 
7.82

 
7.72

 
7.69

 
7.56

 
7.59

 
7.82

 
7.59

Period-end loans, net of unearned income, to deposits ratio
 
56.58

 
53.18

 
53.53

 
52.21

 
49.52

 
56.58

 
49.52

Average loans, net of unearned income, to average deposits ratio
 
53.64

 
51.82

 
51.64

 
50.13

 
49.01

 
52.39

 
49.28

Book value per common share (6)
 
$
92.48

 
$
87.53

 
$
83.43

 
$
79.11

 
$
77.00

 
$
92.48

 
$
77.00

Other statistics:
 

 
 
 
 
 
 
 
 
 

 
 
Average full-time equivalent ("FTE") employees
 
2,778

 
2,591

 
2,498

 
2,433

 
2,434

 
2,623

 
2,384

Period-end full-time equivalent ("FTE") employees
 
2,836

 
2,626

 
2,512

 
2,438

 
2,433

 
2,836

 
2,433

 
(1)
To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most closely related GAAP measures is provided at the end of this release under the section “Use of Non-GAAP Financial Measures.”
(2)
Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21.0 percent for 2018 and 35.0 percent for 2017. The taxable equivalent adjustments were $2.9 million for the quarter ended September 30, 2018, $2.0 million for the quarter ended June 30, 2018, $1.4 million for the quarter ended March 31, 2018, $1.6 million for the quarter ended December 31, 2017 and $0.6 million for the quarter ended September 30, 2017. The taxable equivalent adjustments were $6.2 million and $1.5 million for the nine months ended September 30, 2018 and September 30, 2017, respectively.
(3)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets.
(4)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVB Financial Group ("SVBFG") stockholders’ equity.
(5)
Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income.
(6)
Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares.
Net Interest Income and Margin

Net interest income, on a fully taxable equivalent basis, was $496.1 million for the third quarter of 2018, compared to $468.5 million for the second quarter of 2018. The $27.6 million increase from the second quarter of 2018 to the third quarter of 2018, was attributable primarily to the following:

An increase in interest income from loans of $22.1 million to $352.4 million for the third quarter of 2018. The increase was reflective primarily of the impact of $1.5 billion in average loan growth, higher interest rates compared to the second quarter of 2018 and one additional day in the third quarter of 2018, partially offset by lower loan fee income. Overall loan yields decreased 2 basis points, to 5.31 percent primarily due to lower loan fees. Gross loan yields, excluding loan interest recoveries and loan fees, increased 9 basis points to 4.81 percent, as compared to 4.72 percent for the second quarter of 2018, reflective primarily of the full-quarter effect of the Federal Funds target rate increase in June 2018 as well as continued increases in LIBOR rates; however, LIBOR rate increases have been minimal in the third quarter of 2018 relative to the increases in the first and second quarters ended 2018. Additionally, benefits from the rate increases on our gross loan yields in the third quarter of 2018 continue to be impacted by pricing competition. Loan fee yields decreased 11 basis points, or $4.7 million, primarily due to lower fee income from decreased levels of loan prepayments in the quarter.

An increase in interest income from our fixed income investment securities in our available-for-sale ("AFS") and held-to-maturity ("HTM") portfolios of $8.8 million to $155.7 million for the third quarter of 2018. The increase was reflective of higher spreads from the continued reinvestment of maturing fixed income investment securities at higher-yielding rates as well as growth in average fixed income securities of $0.3 billion. Our overall yield from our fixed income securities portfolio increased 8 basis points to 2.42 percent, primarily attributable to the higher reinvestment rates.

The above increases were offset by an increase in interest expense of $5.2 million, due to an increase in short-term borrowings primarily to fund loan growth as a result of the timing of loan funding and deposit activities at the end of the third quarter of 2018, as well as an increase in interest paid on our interest-bearing money market deposits due to market rate adjustments.

3




Net interest margin, on a fully taxable equivalent basis, was 3.62 percent for the third quarter of 2018, compared to 3.59 percent for the second quarter of 2018. Our net interest margin increased primarily as a result of the impact of rising interest rates on gross loans and fixed income investment securities yields, offset by lower loan fee income and increased short-term borrowings to primarily fund loan growth.

For the third quarter of 2018, approximately 92.8 percent, or $24.6 billion, of our average gross loans were variable-rate loans that adjust at prescribed measurement dates. Of our variable-rate loans, approximately 67.1 percent are tied to prime-lending rates and 32.9 percent are tied to LIBOR.
Investment Securities

Our investment securities portfolio is comprised of: (i) our AFS and HTM securities portfolios, each consisting of fixed income investments which are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives; and (ii) our non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised. Our total average fixed income investment securities portfolio increased $0.3 billion, or 1.4 percent, to $25.5 billion for the quarter ended September 30, 2018. Our total period-end fixed income investment securities portfolio decreased $0.5 billion, or 2.0 percent, to $25.0 billion at September 30, 2018. The weighted-average duration of our fixed income investment securities portfolio was 3.9 years at September 30, 2018, and 3.7 years at June 30, 2018. Our period-end non-marketable and other equity securities portfolio increased $43.7 million to $896.2 million ($765.3 million net of noncontrolling interests) at September 30, 2018.

Available-for-Sale Securities

Average AFS securities were $9.6 billion for the third quarter of 2018 compared to $10.1 billion for the second quarter of 2018. Period-end AFS securities were $9.1 billion at September 30, 2018 compared to $9.6 billion at June 30, 2018. The decreases in average and period-end AFS security balances from the second quarter of 2018 to the third quarter of 2018 were due to $0.8 billion in portfolio paydowns and maturities during the third quarter of 2018 partially offset by purchases of $0.3 billion in U.S. Treasury securities. The weighted-average duration of our AFS securities portfolio was 2.1 years at both September 30, 2018 and June 30, 2018.

Held-to-Maturity Securities

Average HTM securities were $15.9 billion for the third quarter of 2018, compared to $15.1 billion for the second quarter of 2018. Period-end HTM securities were $15.9 billion at both September 30, 2018 and June 30, 2018. The increase in average HTM security balances from the second quarter of 2018 to the third quarter of 2018 was primarily due to the full-quarter impact of $1.8 billion in new purchases towards the end of the second quarter of 2018 as well as new purchases of $0.6 billion in mortgage-backed securities and municipal bonds purchased early in the third quarter of 2018, partially offset by $0.5 billion in portfolio paydowns and maturities during the third quarter of 2018. The weighted-average duration of our HTM securities portfolio was 4.9 years at September 30, 2018 and 4.7 years at June 30, 2018.

Non-Marketable and Other Equity Securities

Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, our China joint venture bank, debt funds, private and public portfolio companies and investments in qualified affordable housing projects.
Our non-marketable and other equity securities portfolio increased $43.7 million to $896.2 million ($765.3 million net of noncontrolling interests) at September 30, 2018, compared to $852.5 million ($722.3 million net of noncontrolling interests) at June 30, 2018. The increase was primarily attributable to exercised equity warrant assets, new direct equity investments and an increase in new investments within our qualified housing projects portfolio. Reconciliations of our non-GAAP non-marketable and other equity securities, net of noncontrolling interests, are provided under the section “Use of Non-GAAP Financial Measures."


4



Loans

Average loans (net of unearned income) increased by $1.5 billion to $26.3 billion for the third quarter of 2018, compared to $24.9 billion for the second quarter of 2018. Period-end loans (net of unearned income) increased by $1.5 billion to $27.5 billion at September 30, 2018, compared to $26.0 billion at June 30, 2018. Average and period-end loan growth came primarily from our private equity/venture capital portfolio as well as from our life science/healthcare and private bank portfolios.

Loans (individually or in the aggregate) to any single client, equal to or greater than $20 million increased by $1.3 billion and totaled $13.9 billion or 50.3 percent of total gross loans at September 30, 2018 and $12.6 billion or 48.3 percent of total gross loans at June 30, 2018. Further details are provided under the section “Loan Concentrations."
Credit Quality

The following table provides a summary of our allowance for loan losses and our allowance for unfunded credit commitments:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands, except ratios)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Allowance for loan losses, beginning balance
 
$
286,709

 
$
274,294

 
$
236,496

 
$
255,024

 
$
225,366

Provision for loan losses
 
19,436

 
27,656

 
22,409

 
74,088

 
67,273

Gross loan charge-offs
 
(22,205
)
 
(15,428
)
 
(12,338
)
 
(48,220
)
 
(51,449
)
Loan recoveries
 
2,164

 
1,926

 
1,828

 
5,878

 
6,155

Foreign currency translation adjustments
 
(391
)
 
(1,739
)
 
615

 
(1,057
)
 
1,665

Allowance for loan losses, ending balance
 
$
285,713

 
$
286,709

 
$
249,010

 
$
285,713

 
$
249,010

Allowance for unfunded credit commitments, beginning balance
 
54,104

 
52,823

 
47,000

 
51,770

 
45,265

(Reduction of) provision for unfunded credit commitments
 
(2,262
)
 
1,424

 
1,113

 
138

 
2,789

Foreign currency translation adjustments
 
(34
)
 
(143
)
 
59

 
(100
)
 
118

Allowance for unfunded credit commitments, ending balance (1)
 
$
51,808

 
$
54,104

 
$
48,172

 
$
51,808

 
$
48,172

Ratios and other information:
 
 
 
 
 
 
 
 
 
 
Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.28
%
 
0.42
%
 
0.40
%
 
0.36
%
 
0.40
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.33

 
0.25

 
0.23

 
0.26

 
0.33

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.30

 
0.22

 
0.19

 
0.22

 
0.29

Allowance for loan losses as a percentage of period-end total gross loans
 
1.03

 
1.10

 
1.12

 
1.03

 
1.12

Provision for credit losses
 
$
17,174

 
$
29,080

 
$
23,522

 
$
74,226

 
$
70,062

Period-end total gross loans
 
27,668,829

 
26,160,782

 
22,329,829

 
27,668,829

 
22,329,829

Average total gross loans
 
26,497,171

 
25,014,587

 
21,712,866

 
25,165,486

 
20,850,468

Allowance for loan losses for nonaccrual loans
 
49,992

 
53,677

 
43,824

 
49,992

 
43,824

Nonaccrual loans
 
115,162

 
124,842

 
124,672

 
115,162

 
124,672

 
(1)
The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”
Our allowance for loan losses decreased $1.0 million to $285.7 million due primarily to a decrease in reserves for nonaccrual loans of $3.7 million, offset by a net increase in our performing reserves of $2.7 million. The net increase in our performing reserves consisted primarily of an increase in reserves reflective of $1.5 billion in period-end loan growth, offset by a decrease in the qualitative component of our performing loan reserves reflective of the continued growth of large private equity/venture capital loans that have a higher credit quality. As a percentage of total gross loans, our allowance for loan losses decreased seven basis points to 1.03 percent at September 30, 2018, compared to 1.10 percent at June 30, 2018. The seven basis point decrease was reflective of the decrease in reserves for our performing loans of four basis points driven primarily by the decrease in our qualitative large loans reserves as well as a decrease in reserves for our nonperforming loans of three basis points reflective of the decrease in nonaccrual loans as a percentage of our overall loan portfolio.

5




Our provision for credit losses was $17.2 million for the third quarter of 2018, consisting of the following:
A provision for loan losses of $19.4 million, which reflects primarily an increase of $12.9 million in additional reserves for period-end loan growth, $9.2 million for charge-offs not specifically reserved for and $9.3 million in net new specific reserves for nonaccrual loans, offset by a decrease in reserves of $8.2 million reflective of the decrease in qualitative reserves mentioned above, and
A reduction of the allowance for unfunded credit commitments of $2.2 million, driven primarily by a decrease in reserves reflective primarily of the continued shift in the mix of our unfunded credit facilities consisting of large, high credit quality private equity/venture capital loans.
Gross loan charge-offs were $22.2 million for the third quarter of 2018, of which $9.2 million was not specifically reserved for at June 30, 2018. Gross loan charge-offs included $12.7 million from our hardware loan portfolio and consisted primarily of $11.1 million for one early-stage client and $6.3 million from our software/internet loan portfolio primarily attributable to one mid-stage client.

Nonaccrual loans were $115.2 million at September 30, 2018, compared to $124.8 million at June 30, 2018. Our nonaccrual loan balance decreased $9.6 million primarily as a result of $13.1 million in charge-offs and $14.8 million in repayments, offset by $18.3 million in new nonaccrual loans. Charge-offs of $11.1 million were attributable to one client in our hardware loan portfolio. New nonaccrual loans were primarily from loans in our software/internet loan portfolio. Nonaccrual loans as a percentage of total gross loans decreased to 0.42 percent for the third quarter of 2018 compared to 0.48 percent for the second quarter of 2018.

The allowance for loan losses for nonaccrual loans decreased $3.7 million to $50.0 million in the third quarter of 2018. The decrease was due to $11.1 million of charge-offs for one client which was fully reserved for and $6.6 million in repayments, offset by new nonaccrual loan reserves of $15.9 million.

Client Funds

Our total client funds consist of both on-balance sheet deposits and off-balance sheet client investment funds. Average total client funds were $128.7 billion for the third quarter of 2018, compared to $119.3 billion for the second quarter of 2018. Period-end total client funds were $130.7 billion at September 30, 2018, compared to $124.7 billion at June 30, 2018.

Average off-balance sheet client investment funds were $79.6 billion for the third quarter of 2018, compared to $71.3 billion for the second quarter of 2018. Average on-balance sheet deposits were $49.1 billion for the third quarter of 2018, compared to $48.0 billion for the second quarter of 2018. Period-end off-balance sheet client investment funds were $82.1 billion at September 30, 2018, compared to $75.8 billion at June 30, 2018. Period-end on-balance sheet deposits were $48.6 billion at September 30, 2018, compared to $48.9 billion at June 30, 2018.

The increases in our average and period-end total client funds from the second quarter of 2018 to the third quarter of 2018 were a result of client fund growth across all portfolio segments driven primarily by an equity funding environment that has remained strong, robust activities in the initial public offering ("IPO") and secondary public offering markets and healthy new client acquisition.
Short-term Borrowings

Short-term borrowings increased $2.2 billion, to $2.6 billion for the third quarter of 2018 compared to $0.4 billion for the second quarter of 2018, primarily to fund loan growth as a result of the timing of loan funding and deposit activities at the end of the third quarter of 2018 as well as to support the short-term liquidity needs of Silicon Valley Bank (the "Bank").
Noninterest Income

Noninterest income was $210.1 million for the third quarter of 2018, compared to $192.7 million for the second quarter of 2018. Non-GAAP noninterest income, net of noncontrolling interests was $203.4 million for the third quarter of 2018, compared to $183.2 million for the second quarter of 2018. (See reconciliations of non-GAAP measures used under the section "Use of Non-GAAP Financial Measures.")


6



The increase of $17.4 million ($20.1 million net of noncontrolling interests) in noninterest income from the second quarter of 2018 to the third quarter of 2018 was attributable primarily to higher net gains on equity warrant assets and higher client investment fees. Items impacting noninterest income for the third quarter of 2018 were as follows:

Gains on investment securities of $32.2 million for the third quarter of 2018, compared to $36.1 million for the second quarter of 2018. Net of noncontrolling interests, non-GAAP net gains on investment securities were $25.6 million for the third quarter of 2018, compared to net gains of $26.4 million for the second quarter of 2018. The non-GAAP net gains, net of noncontrolling interests, of $25.6 million for the third quarter of 2018 were driven by the following:
Gains of $11.5 million from our strategic and other investments, comprised primarily of net unrealized valuation increases in private company investments held in our strategic venture capital funds,
Gains of $7.0 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in private company investments held by the funds in the portfolio, and
Gains of $4.4 million from our public equity securities portfolio primarily attributable to $5.2 million in unrealized gains related to our holdings of one company that had an IPO during the third quarter of 2018.
The following tables provide a summary of non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three months ended September 30, 2018 and June 30, 2018, respectively:
 
 
Three months ended September 30, 2018
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
Total
GAAP gains on investment securities, net
 
$
12,949

 
$
1,863

 
$
4,372

 
$
1,473

 
$
11,536

 
$
32,193

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

 
727

 

 

 

 
6,641

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

 
$
1,136

 
$
4,372

 
$
1,473

 
$
11,536

 
$
25,552


 
 
Three months ended June 30, 2018
(Dollars in thousands)
 
Managed
Funds of Funds
 
Managed Direct Venture Funds
 
Public Equity Securities
 
Debt 
Funds
 
Strategic
and Other
Investments
 
Total
GAAP gains (losses) on investment securities, net
 
$
17,531

 
$
(405
)
 
$
140

 
$
726

 
$
18,122

 
$
36,114

Less: income (losses) attributable to noncontrolling interests, including carried interest allocation
 
9,793

 
(121
)
 

 

 

 
9,672

Non-GAAP gains (losses) on investment securities, net of noncontrolling interests
 
$
7,738

 
$
(284
)
 
$
140

 
$
726

 
$
18,122

 
$
26,442


Net gains on equity warrant assets were $34.1 million for the third quarter of 2018, compared to $19.1 million for the second quarter of 2018. Net gains on equity warrant assets for the third quarter of 2018 were attributable primarily to net gains from exercises of $18.3 million of equity warrant assets driven by IPO and M&A activity and $17.3 million of valuation increases in our private company warrant portfolio driven by healthy funding rounds.
 
At September 30, 2018, we held warrants in 2,031 companies with a total fair value of $147.0 million. Warrants in 18 companies each had fair values greater than $1.0 million and collectively represented $42.8 million, or 29.1 percent, of the fair value of the total warrant portfolio at September 30, 2018

7



The following table provides a summary of our net gains on equity warrant assets:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Equity warrant assets:
 
 
 
 
 
 
 
 
 
 
Gains on exercises, net
 
$
18,287

 
$
8,875

 
$
7,449

 
$
42,808

 
$
22,482

Cancellations and expirations
 
(1,432
)
 
(826
)
 
(757
)
 
(3,158
)
 
(3,614
)
Changes in fair value, net
 
17,286

 
11,012

 
18,230

 
32,743

 
23,564

Total net gains on equity warrant assets
 
$
34,141

 
$
19,061

 
$
24,922

 
$
72,393

 
$
42,432

The gains (or losses) from investment securities from our nonmarketable and other equity securities portfolio as well as our equity warrant assets resulting from changes in valuations (fair values) are currently unrealized, and the extent to which such gains (or losses) will become realized is subject to a variety of factors, including among other things, performance of the underlying portfolio companies, investor demand for IPOs, fluctuations in the underlying valuation of these companies, levels of M&A activity, and legal and contractual restrictions on our ability to sell the underlying securities.
Non-GAAP core fee income (foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit and standby letters of credit fees) increased $8.6 million to $131.7 million for the third quarter of 2018, compared to $123.1 million for the second quarter of 2018.
The following table provides a summary of our non-GAAP core fee income:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Non-GAAP core fee income:
 
 
 
 
 
 
 
 
 
 
Foreign exchange fees
 
$
32,656

 
$
34,077

 
$
29,671

 
$
100,560

 
$
82,026

Credit card fees
 
24,121

 
22,926

 
20,270

 
68,739

 
56,099

Deposit service charges
 
19,588

 
18,794

 
14,508

 
56,081

 
43,046

Client investment fees
 
36,265

 
29,452

 
15,563

 
88,592

 
37,571

Lending related fees
 
10,675

 
9,528

 
15,404

 
30,938

 
32,874

Letters of credit and standby letters of credit fees
 
8,409

 
8,347

 
7,306

 
24,938

 
20,951

Total Non-GAAP core fee income
 
$
131,714

 
$
123,124

 
$
102,722

 
$
369,848

 
$
272,567


The increase in non-GAAP core fee income from the second quarter of 2018 to the third quarter of 2018 was primarily the result of strong performance in client investment fees as well as increased credit card fees and lending related fees. Client investment fees increased $6.8 million driven by higher fees from our off-balance sheet client investment fund products due to increases in client investment fund balances as well as higher market rates. Credit card fees increased $1.2 million due to higher interchange fee income reflective of increased transaction volumes. Lending related fees increased $1.1 million driven by fees earned from unused lines of credit.
Reconciliations of our non-GAAP noninterest income, non-GAAP net gains on investment securities and non-GAAP core fee income are provided under the section “Use of Non-GAAP Financial Measures.”

8



Noninterest Expense

Noninterest expense was $309.4 million for the third quarter of 2018, compared to $305.7 million for the second quarter of 2018. The increase of $3.7 million in noninterest expense consisted primarily of an increase in our total compensation and benefits expense offset by decreased professional services expenses in the third quarter of 2018 compared to the second quarter of 2018.

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

September 30,
2017
Compensation and benefits:
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
84,962

 
$
76,831

 
$
72,799

 
$
234,832

 
$
207,687

Incentive compensation plans
 
55,531

 
52,473

 
36,271

 
150,393

 
104,578

Employee stock ownership plan ("ESOP")
 
1,844

 
1,909

 
1,397

 
4,997

 
3,732

Other employee incentives and benefits (1)
 
53,100

 
50,742

 
42,796

 
152,976

 
133,415

Total compensation and benefits
 
$
195,437

 
$
181,955

 
$
153,263

 
$
543,198

 
$
449,412

Period-end full-time equivalent employees
 
2,836

 
2,626

 
2,433

 
2,836

 
2,433

Average full-time equivalent employees
 
2,778

 
2,591

 
2,434

 
2,623

 
2,384

 
(1)
Other employee incentives and benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant incentive and retention plans, agency fees and other employee-related expenses.
The $13.5 million increase in total compensation and benefits expense consists primarily of the following:

An increase of $8.1 million in salaries and wages reflective primarily of an increase in the number of average full-time equivalent employees ("FTE") by 187 to 2,778 FTEs for the third quarter of 2018 as well as retention incentives paid for key employees,
An increase of $3.1 million in incentive compensation expense reflective primarily of our strong full-year expected performance as well as an increase in average FTEs mentioned above, and
An increase of $2.4 million in other employee incentives and benefits due primarily from an increase in warrant incentive plan expense reflective primarily of our strong net gains on equity warrant assets.

The $10.3 million decrease in professional services expense is primarily reflective of the $6.0 million write-off for capitalized costs related to Comprehensive Capital Analysis and Review ("CCAR") recorded in the second quarter of 2018 as well as lower overall project spend in the third quarter of 2018 as compared to the second quarter of 2018.
Income Tax Expense
Our effective tax rate was 25.8 percent for the third quarter of 2018, compared to 24.5 percent for the second quarter of 2018. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and net income attributable to noncontrolling interests.
The increase in our effective tax rate for the third quarter of 2018 is due primarily to an $8.8 million decrease in the recognition of excess tax benefits from share-based compensation in the third quarter of 2018 compared to the second quarter of 2018 which is reflective of the timing of vesting for our annual awards and the exercise activities of employees. The decrease was offset by an increase in tax benefits of $4.6 million related primarily to Federal return-to-provision adjustments on timing differences which have a permanent impact on the Company's effective tax rate due to the corporate income tax rate change effective January 1, 2018.
Noncontrolling Interests

Included in net income is income and expense related to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net Income Attributable to Noncontrolling Interests” in our statements of income. The following table provides a summary of net income attributable to noncontrolling interests: 
 
 
Three months ended
 
Nine months ended
(Dollars in thousands)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Net interest income (1)
 
$
(10
)
 
$
(10
)
 
$
(9
)
 
$
(29
)
 
$
(26
)
Noninterest income (1)
 
(2,749
)
 
(7,856
)
 
(4,341
)
 
(20,127
)
 
(19,059
)
Noninterest expense (1)
 
154

 
227

 
125

 
349

 
517

Carried interest allocation (2)
 
(3,943
)
 
(1,589
)
 
(1,273
)
 
(9,034
)
 
(2,650
)
Net income attributable to noncontrolling interests
 
$
(6,548
)
 
$
(9,228
)
 
$
(5,498
)
 
$
(28,841
)
 
$
(21,218
)
 
(1)
Represents noncontrolling interests’ share in net interest income, noninterest income and noninterest expense.
(2)
Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.
Net income attributable to noncontrolling interests was $6.5 million for the third quarter of 2018, compared to $9.2 million for the second quarter of 2018. Net income attributable to noncontrolling interests of $6.5 million for the third quarter of 2018 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio, related primarily to net unrealized valuation increases for private company investments held by the funds in the portfolio.

9



SVBFG Stockholders’ Equity

Total SVBFG stockholders’ equity increased by $0.2 billion to $4.9 billion at September 30, 2018, compared to $4.7 billion at June 30, 2018, due to net income of $274.8 million and an increase in additional paid-in capital of $13.4 million attributable primarily to amortization of share-based compensation partially offset by an increase of $21.5 million in accumulated other comprehensive loss reflective primarily of a decrease in the fair value of our AFS securities portfolio of $17.9 million, net of tax, driven by increases in period-end market interest rates.

Capital Ratios

Our regulatory risk-based capital ratios increased as of September 30, 2018, compared to the same ratios as of June 30, 2018, primarily as a result of a proportionally higher increase in capital from net income compared to the increase in risk-weighted assets for the third quarter of 2018. The increase in risk-weighted assets was primarily due to our robust loan growth for the third quarter of 2018.
Both SVB Financial Group and the Bank's tier 1 leverage ratios increased as of September 30, 2018, compared to June 30, 2018, due to proportionally higher capital from net income to average assets growth during the third quarter of 2018.
Overall, increases to the Bank's risk-based capital and tier 1 leverage ratios were partially offset by a $40.0 million cash dividend paid by the Bank to our bank holding company, SVB Financial Group, during the third quarter of 2018.
All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations. See the "SVB Financial and Bank Capital Ratios" section, at the end of this release, for details.

10



Outlook for the Year Ending December 31, 2018, and Preliminary 2019 Outlook for Selected Items

Our outlook for the year ending December 31, 2018, and our preliminary outlook for selected items for the year ending December 31, 2019, is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. Except for the items noted below, we do not provide an outlook for certain items (such as gains or losses from warrants and investment securities) where the timing or financial impact are uncertain and/or subject to market or other conditions beyond our control (such as the level of IPO, M&A or general financing activity), or for potential unusual or non-recurring items. Also, as a result of the passage of the Tax Cuts and Jobs Act ("TCJ Act"), we have included guidance on our expected effective tax rate for the year ending December 31, 2018. The outlook and the underlying assumptions presented below are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties, which are discussed below under the section “Forward-Looking Statements.”

For the full year ending December 31, 2018, compared to our full year 2017 results, we currently expect the following outlook: (Note that the outlook below includes: (i) the expected impact of the March 22, 2018, June 13, 2018 and September 26, 2018 increases of the target Federal Funds rate by the Federal Reserve of 25 basis points each as well as the increases in the 1- and 3- month LIBOR rates through September 30, 2018, and no assumptions about any further Federal Funds or LIBOR rate changes during 2018, and (ii) management updates to certain 2018 outlook metrics we previously disclosed on July 26, 2018.)
 
Current full year 2018 outlook compared to 2017 results (as of October 25, 2018)
Change in outlook compared to outlook reported as of July 26, 2018
Average loan balances
Increase at a percentage rate in the
low twenties
Outlook increased to low twenties from previous outlook of high teens
Average deposit balances
Increase at a percentage rate in the
low teens
No change from previous outlook
Net interest income (1)
Increase at a percentage rate in the mid-thirties
No change from previous outlook
Net interest margin (1)
Between 3.55% and 3.65%
No change from previous outlook
Allowance for loan losses for total gross performing loans as a percentage of total gross performing loans
Comparable to 2017 levels
No change from previous outlook
Net loan charge-offs
Between 0.20% and 0.40%
of average total gross loans
No change from previous outlook
Nonperforming loans as a percentage of total gross loans
Between 0.40% and 0.60%
of total gross loans
No change from previous outlook
Core fee income (foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees) (2)
Increase at a percentage rate in the
 mid-thirties
Outlook increased to mid-thirties from previous outlook of low thirties
Noninterest expense (excluding expenses related to noncontrolling interests) (3) (4)
Increase at a percentage rate in the
mid-teens
Outlook increased to mid-teens from previous outlook of low teens
Effective tax rate (5)
Between 26.0% and 28.0%
No change from previous outlook

Preliminary 2019 Outlook for Selected Items

Our preliminary full year 2019 outlook for selected items provided below is based on various management assumptions, including: (a) no increase in market interest rates, and (b) no material deterioration in the overall economy. For the full year ending December 31, 2019, compared to our full year ending December 31, 2018, expected results, we currently expect the following percentage rate increases:

average loan balance growth in the mid-teens,
average deposit balance growth in the high single digits,
net interest income growth in the high teens (assuming no Federal Reserve rate increases),
net loan charge-offs between 0.20% and 0.40% of average total gross loans,
non-GAAP core fee income2 growth in the mid-teens, and
non-GAAP noninterest expense3 growth (excluding expenses related to noncontrolling interests) in the mid-teens.

11




Our 2019 outlook is preliminary and subject to change.
 
(1)
Our outlook for net interest income and net interest margin is based primarily on management's current forecast of average deposit and loan balances and deployment of surplus cash into investment securities. Such forecasts are subject to change, and actual results may differ, based on market conditions, actual prepayment rates and other factors described under the section "Forward-Looking Statements" below.
(2)
Core fee income is a non-GAAP measure, which represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. As we are unable to quantify such line items that would be required to be included in the comparable GAAP financial measure for the future period presented without unreasonable efforts, no reconciliation for the outlook of non-GAAP core fee income to GAAP noninterest income for fiscal 2018 is included in this release, as we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. See "Use of Non-GAAP Financial Measures" at the end of this release for further information regarding the calculation and limitations of this measure.
(3)
Noninterest expense (excluding expenses related to noncontrolling interests) is a non-GAAP measure, which represents noninterest expense, but excludes expenses attributable to noncontrolling interests. As we are unable to quantify such line items that would be required to be included in the comparable GAAP financial measure for the future period presented without unreasonable efforts, no reconciliation for the outlook of non-GAAP noninterest expense (excluding expenses related to noncontrolling interests) to GAAP noninterest expense for fiscal 2018 is included in this release, as we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. See "Use of Non-GAAP Financial Measures" at the end of this release for further information regarding the calculation and limitations of this measure.
(4)
Our outlook for noninterest expense is partly based on management's current forecast of performance-based incentive compensation expenses. Such forecasts are subject to change, and actual results may differ, based on our performance relative to our internal performance targets.
(5)
Our outlook for our effective tax rate is based on management's current assumptions with respect to, among other things, the Company's earnings, state income tax levels, tax deductions and estimated performance-based compensation activity. Such forecasts are subject to change, and actual results may differ, based on variations of the expected impact of the TCJ Act and other factors described under the section "Forward-Looking Statements" below.


Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. Forward-looking statements are statements that are not historical facts, such as forecasts of our future financial results and condition, expectations for our operations and business, and our underlying assumptions of such forecasts and expectations. In addition, forward-looking statements generally can be identified by the use of such words as “becoming,” “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “assume,” “seek,” “expect,” “plan,” “intend,” the negative of such words or comparable terminology. In this release, including our CEO's statement and in the section “Outlook for the Year Ending December 31, 2018 and Preliminary 2019 Outlook for Selected Items”, we make forward-looking statements discussing management’s expectations about, among other things, economic conditions; opportunities in the market; the outlook on our clients' performance; our financial, credit, and business performance, including potential investment gains; loan growth, loan mix and loan yields; expense levels; our expected effective tax rate; and financial results (and the components of such results) for certain quarters in, and for the full years 2018 and 2019.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may not prove to be correct. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-looking statements. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among others:
 
market and economic conditions, including the interest rate environment, and the associated impact on us;
changes in the volume and credit quality of our loans as well as volatility of our levels of nonperforming assets and charge-offs;
the impact of changes in interest rates or market levels or factors affecting or affected by them, especially on our loan and investment portfolios;
changes in the levels of our loans, deposits and client investment fund balances;
changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets;
variations from our expectations as to factors impacting our cost structure;
changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity;

12



variations from our expectations as to factors impacting the timing and level of employee share-based transactions;
variations from our expectations as to factors impacting our estimate of our full-year effective tax rate, including the expected impact of the TCJ Act;
changes in applicable accounting standards and tax laws; and
regulatory or legal changes or their impact on us.

For additional information about these and other factors, please refer to our public reports filed with the U.S. Securities and Exchange Commission, including under the caption "Risk Factors" in our most recent Annual Report filed on Form 10-K. The forward-looking statements included in this release are made only as of the date of this release. We do not intend, and undertake no obligation, to update these forward-looking statements.

Earnings Conference Call
On Thursday, October 25, 2018, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended September 30, 2018. The conference call can be accessed by dialing (888) 771-4371 or (847) 585-4405, and entering the confirmation number "47640017".  A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at www.svb.com. A replay of the conference call will be available beginning at approximately 5:30 p.m. (Pacific Time) on Thursday, October 25, 2018, through 9:59 p.m. (Pacific Time) on Tuesday, November 27, 2018, and may be accessed by dialing (888) 843-7419 or (630) 652-3042 and entering the passcode "47640017#". A replay of the audio webcast will also be available on www.svb.com for 12 months beginning on October 25, 2018.

About SVB Financial Group

For 35 years, SVB Financial Group (NASDAQ: SIVB) and its subsidiaries have helped innovative companies and their investors move bold ideas forward, fast. SVB Financial Group’s businesses, including Silicon Valley Bank, offer commercial and private banking, asset management, private wealth management, brokerage and investment services, funds management and business valuation services to companies in the technology, life science and healthcare, private equity and venture capital, and premium wine industries. Headquartered in Santa Clara, California, SVB Financial Group operates in centers of innovation around the world. Learn more at svb.com.

SVB Financial Group is the holding company for all business units and groups © 2018 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group.


13



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three months ended
 
Nine months ended
(Dollars in thousands, except share data)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Interest income:


 
 
 
 
 
 
 
 
Loans

$
352,353

 
$
330,298

 
$
268,445

 
$
979,724

 
$
745,983

Investment securities:


 
 
 
 
 
 
 
 
Taxable

142,075

 
137,150

 
109,443

 
403,702

 
294,768

Non-taxable

10,748

 
7,666

 
1,172

 
23,506

 
2,703

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

8,137

 
6,187

 
6,211

 
20,080

 
16,670

Total interest income

513,313

 
481,301

 
385,271

 
1,427,012

 
1,060,124

Interest expense:


 
 
 
 
 
 
 
 
Deposits

8,042

 
6,270

 
2,304

 
18,409

 
6,218

Borrowings

12,049

 
8,588

 
8,993

 
29,075

 
27,243

Total interest expense

20,091

 
14,858

 
11,297

 
47,484

 
33,461

Net interest income

493,222

 
466,443

 
373,974

 
1,379,528

 
1,026,663

Provision for credit losses

17,174

 
29,080

 
23,522

 
74,226

 
70,062

Net interest income after provision for credit losses

476,048

 
437,363

 
350,452

 
1,305,302

 
956,601

Noninterest income:


 
 
 
 
 
 
 
 
Gains on investment securities, net

32,193

 
36,114

 
15,238

 
77,365

 
48,838

Gains on equity warrant assets, net

34,141

 
19,061

 
24,922

 
72,393

 
42,432

Foreign exchange fees

32,656

 
34,077

 
29,671

 
100,560

 
82,026

Credit card fees

24,121

 
22,926

 
20,270

 
68,739

 
56,099

Deposit service charges

19,588

 
18,794

 
14,508

 
56,081

 
43,046

Client investment fees

36,265

 
29,452

 
15,563

 
88,592

 
37,571

Lending related fees

10,675

 
9,528

 
15,404

 
30,938

 
32,874

Letters of credit and standby letters of credit fees

8,409

 
8,347

 
7,306

 
24,938

 
20,951

Other

12,022

 
14,390

 
15,896

 
38,671

 
41,128

Total noninterest income

210,070

 
192,689

 
158,778

 
558,277

 
404,965

Noninterest expense:


 
 
 
 
 
 
 
 
Compensation and benefits

195,437

 
181,955

 
153,263

 
543,198

 
449,412

Professional services

36,542

 
46,813

 
32,987

 
112,080

 
86,331

Premises and equipment

19,858

 
19,173

 
18,937

 
57,576

 
53,753

Net occupancy

13,694

 
13,288

 
12,660

 
40,598

 
35,437

Business development and travel

12,712

 
12,095

 
10,329

 
35,998

 
30,913

FDIC and state assessments

9,550

 
10,326

 
8,359

 
29,306

 
26,354

Correspondent bank fees

3,513

 
3,277

 
3,162

 
10,200

 
9,770

Other

18,139

 
18,812

 
18,064

 
51,645

 
54,670

Total noninterest expense

309,445

 
305,739

 
257,761

 
880,601

 
746,640

Income before income tax expense

376,673

 
324,313

 
251,469

 
982,978

 
614,926

Income tax expense

95,308

 
77,287

 
97,351

 
246,561

 
220,412

Net income before noncontrolling interests

281,365

 
247,026

 
154,118

 
736,417

 
394,514

Net income attributable to noncontrolling interests

(6,548
)
 
(9,228
)
 
(5,498
)
 
(28,841
)
 
(21,218
)
Net income available to common stockholders

$
274,817

 
$
237,798

 
$
148,620

 
$
707,576

 
$
373,296

Earnings per common share—basic
 
$
5.16

 
$
4.48

 
$
2.82

 
$
13.33

 
$
7.11

Earnings per common share—diluted
 
5.10

 
4.42

 
2.79

 
13.15

 
7.01

Weighted average common shares outstanding—basic
 
53,235,090

 
53,064,224

 
52,704,869

 
53,062,082

 
52,529,778

Weighted average common shares outstanding—diluted
 
53,918,973

 
53,776,035

 
53,304,988

 
53,799,827

 
53,229,658





14



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

(Dollars in thousands, except par value and share data)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,819,141

 
$
2,712,101

 
$
3,555,571

Available-for-sale securities, at fair value (cost $9,236,301, $9,717,156, and $12,584,564, respectively)
 
9,087,609

 
9,593,366

 
12,603,337

Held-to-maturity securities, at cost (fair value $15,372,238, $15,493,995, and $11,023,415, respectively)
 
15,899,726

 
15,898,263

 
11,055,006

Non-marketable and other equity securities (1)
 
896,249

 
852,505

 
627,469

Investment securities
 
25,883,584

 
26,344,134

 
24,285,812

Loans, net of unearned income
 
27,494,915

 
25,996,192

 
22,189,327

Allowance for loan losses
 
(285,713
)
 
(286,709
)
 
(249,010
)
Net loans
 
27,209,202

 
25,709,483

 
21,940,317

Premises and equipment, net of accumulated depreciation and amortization
 
121,890

 
117,603

 
122,826

Accrued interest receivable and other assets
 
1,105,917

 
984,424

 
849,761

Total assets
 
$
58,139,734

 
$
55,867,745

 
$
50,754,287

Liabilities and total equity:
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Noninterest-bearing demand deposits
 
$
40,473,774

 
$
40,593,302

 
$
36,862,021

Interest-bearing deposits
 
8,122,337

 
8,293,993

 
7,950,012

Total deposits
 
48,596,111

 
48,887,295

 
44,812,033

Short-term borrowings
 
2,631,252

 
417,246

 
4,840

Other liabilities
 
1,146,109

 
1,062,391

 
990,498

Long-term debt
 
696,217

 
695,972

 
749,618

Total liabilities
 
53,069,689

 
51,062,904

 
46,556,989

SVBFG stockholders’ equity:
 
 
 
 
 
 
Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding
 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized; 53,250,255 shares, 53,210,627 shares, and 52,723,654 shares outstanding, respectively
 
53

 
53

 
53

Additional paid-in capital
 
1,360,030

 
1,346,586

 
1,294,499

Retained earnings (1)
 
3,672,696

 
3,397,879

 
2,749,627

Accumulated other comprehensive (loss) income
 
(108,410
)
 
(86,865
)
 
15,634

Total SVBFG stockholders’ equity
 
4,924,369

 
4,657,653

 
4,059,813

Noncontrolling interests
 
145,676

 
147,188

 
137,485

Total equity
 
5,070,045

 
4,804,841

 
4,197,298

Total liabilities and total equity
 
$
58,139,734

 
$
55,867,745

 
$
50,754,287

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


15



SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
 
 
Three months ended
 
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
(Dollars in thousands, except yield/rate and ratios)
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
 
$
2,548,271

 
$
8,136

 
1.27
%
 
$
2,346,820

 
$
6,187

 
1.06
%
 
$
3,291,908

 
$
6,211

 
0.75
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
9,589,917

 
46,684

 
1.93

 
10,048,423

 
46,606

 
1.86

 
12,674,610

 
52,825

 
1.65

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
14,385,027

 
95,392

 
2.63

 
13,969,843

 
90,544

 
2.60

 
10,249,131

 
56,618

 
2.19

Non-taxable (3)
 
1,531,663

 
13,606

 
3.52

 
1,142,311

 
9,704

 
3.41

 
218,339

 
1,803

 
3.28

Total loans, net of unearned income (4) (5)
 
26,331,377

 
352,353

 
5.31

 
24,858,503

 
330,297

 
5.33

 
21,584,892

 
268,445

 
4.93

Total interest-earning assets
 
54,386,255

 
516,171

 
3.77

 
52,365,900

 
483,338

 
3.70

 
48,018,880

 
385,902

 
3.19

Cash and due from banks
 
553,132

 
 
 
 
 
534,908

 
 
 
 
 
371,373

 
 
 
 
Allowance for loan losses
 
(296,177
)
 
 
 
 
 
(280,679
)
 
 
 
 
 
(246,210
)
 
 
 
 
Other assets (6)
 
1,821,827

 
 
 
 
 
1,800,517

 
 
 
 
 
1,651,323

 
 
 
 
Total assets
 
$
56,465,037

 
 
 
 
 
$
54,420,646

 
 
 
 
 
$
49,795,366

 
 
 
 
Funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
$
572,242

 
$
116

 
0.08
%
 
$
554,411

 
$
106

 
0.08
%
 
$
442,518

 
$
86

 
0.08
%
Money market deposits
 
6,704,337

 
7,782

 
0.46

 
6,265,809

 
6,021