SVB FINANCIAL GROUP ANNOUNCES 2021 THIRD QUARTER FINANCIAL RESULTS
Board of Directors declared a quarterly dividend on Series A, Series B and Series C Preferred Stock
SANTA CLARA, Calif. - October 21, 2021 - SVB Financial Group (NASDAQ: SIVB) today announced financial results for the third quarter ended September 30, 2021.
Consolidated net income available to common stockholders for the third quarter of 2021 was $365 million, or $6.24 per diluted common share, compared to $502 million, or $9.09 per diluted common share, for the second quarter of 2021 and $442 million, or $8.47 per diluted common share, for the third quarter of 2020. Consolidated net income available to common stockholders for the nine months ended September 30, 2021 was $1.4 billion, or $25.16 per diluted common share, compared to $803 million, or $15.46 per diluted common share, for the comparable 2020 period. Included in the consolidated net income available to common stockholders for the three and nine months ended September 30, 2021 are merger-related charges of $83 million and $102 million, or $1.02 and $1.35 per diluted common share, respectively, as well as a $46 million day one provision on non-purchased credit deteriorated loans and unfunded credit commitments acquired from Boston Private, or $0.57 and $0.61 per diluted common share, respectively.
"SVB's outstanding financial performance in the third quarter reflects the continued impact of exceptional client liquidity, expanding innovation markets, and effective execution across our business," said Greg Becker, President and CEO of SVB Financial Group. "We delivered peer-leading growth and profitability even after adjusting for one-time costs related to the Boston Private acquisition. As we look out into 2022, we expect continued strong growth against a backdrop of healthy markets, expanding business capabilities, and ongoing investments to further cement our position as the financial partner of choice for the global innovation economy."
Boston Private Financial Holdings, Inc. Acquisition
On July 1, 2021 we completed the acquisition of Boston Private Financial Holdings, Inc. ("Boston Private").Financial results for the third quarter ended September 30, 2021 include the activities of Boston Private. The acquisition was completed for $1.2 billion in consideration, resulting in the issuance of 1,887,981 shares of SIVB common stock at $1.1 billion. Additionally, we recognized identifiable intangible assets of $104 million and goodwill of $201 million as a result of this acquisition. During the third quarter of 2021, we recognized a $46 million day one allowance for non-purchased credit deteriorated ("PCD") loans and unfunded credit commitments acquired from Boston Private and incurred $83 million of merger-related charges.
Our full year 2021 and preliminary full year 2022 outlook reflects the acquisition of Boston Private and is included in this release under the section "Financial Outlook and Preliminary 2022 Outlook."
Highlights of our third quarter 2021 results (compared to second quarter 2021, unless otherwise noted) included:
•Average loans of $59.3 billion, an increase of $9.5 billion (or 19.0 percent).
•Period-end loans of $61.5 billion, an increase of $10.7 billion (or 21.1 percent); includes $7.3 billion from Boston Private.
•Average fixed income investment securities of $93.8 billion, an increase of $21.5 billion (or 29.8 percent).
•Period-end fixed income investment securities of $105.3 billion, an increase of $21.5 billion (or 25.6 percent).
•Average total client funds (on-balance sheet deposits and off-balance sheet client investment funds) increased $46.6 billion (or 15.1 percent) to $354.7 billion, which includes an increase in average on-balance sheet deposits of $29.6 billion (or 22.2 percent).
•Period-end total client funds increased $42.4 billion (or 12.9 percent) to $371.4 billion, which includes an increase in period-end on-balance sheet deposits of 25.3 billion (or 17.4 percent); includes $8.7 billion from Boston Private.
•Period-end Private Bank Assets Under Management ("AUM") of $19.6 billion; includes $18.0 billion from Boston Private.
•Issuance and sale of 2,227,000 shares of common stock on August 12, 2021 at an offering price of $564 per share, which resulted in net proceeds of $1.2 billion.
•Net interest income (fully taxable equivalent basis) of $859 million, an increase of $124 million (or 16.9 percent); includes $34 million of net interest income from Boston Private.
•Provision for credit losses was $21 million, compared to $35 million.
•Net loan charge-offs of $11 million, or 7 basis points of average total loans (annualized) compared to $12 million, or 10 basis points.
•Net gains on investment securities of $189 million compared to $305 million. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $101 million, compared to $192 million. (See non-GAAP reconciliation under the section "Use of Non-GAAP Financial Measures.")
•Net gains on equity warrant assets of $147 million, compared to $122 million.
•Noninterest income of $672 million, a decrease of $89 million (or 11.7 percent). Non-GAAP core fee income increased $32 million (or 18.6 percent) to $204 million; includes $21 million from Boston Private (Wealth management and trust fees). Non-GAAP SVB Leerink revenue decreased $13 million (or 10.8 percent) to $107 million. (See non-GAAP reconciliation under the section "Use of Non-GAAP Financial Measures.")
•Noninterest expense of $879 million, an increase of $226 million (or 34.6 percent).
•GAAP operating efficiency ratio of 57.7 percent, compared to 43.9 percent. The decline in our operating efficiency is primarily due to higher compensation and benefits expense as well as merger-related charges and premises and equipment expense in the third quarter of 2021 related to the Boston Private acquisition.
Coronavirus Disease 2019 ("COVID-19") Pandemic Update
During the third quarter of 2021, the economic environment continued to generally improve with increased vaccine rates and business activity. Our overall credit trends have remained stable, and our business and clients have continued to demonstrate remarkable resilience and growth, despite some uncertainty in the trajectory of the broader economic recovery due to the spread of the Delta variant of COVID-19, among other factors. We continue to carefully monitor the broader economic environment, which could be impacted by the emergence of new variants and prolonged spread of COVID-19, delays in vaccination programs, the need for vaccine booster shots, vaccination rates and potential government lockdowns. We continue to support our clients, employees and communities.
2
Third Quarter 2021 Summary
|
(Dollars in millions, except share data, employees and ratios)
|
Three months ended
|
Nine months ended
|
September 30, 2021
|
June 30, 2021
|
March 31, 2021
|
December 31, 2020
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Income statement:
|
Diluted earnings per common share
|
$
|
6.24
|
$
|
9.09
|
$
|
10.03
|
$
|
7.40
|
$
|
8.47
|
$
|
25.16
|
$
|
15.46
|
Net income available to common stockholders
|
365
|
502
|
532
|
388
|
442
|
1,399
|
803
|
Net interest income
|
852
|
728
|
660
|
592
|
528
|
2,240
|
1,565
|
Provision (reduction) for credit losses (1) (2)
|
21
|
35
|
19
|
(38)
|
(52)
|
75
|
258
|
Noninterest income
|
672
|
761
|
744
|
622
|
547
|
2,177
|
1,218
|
Noninterest expense
|
879
|
653
|
636
|
665
|
491
|
2,168
|
1,370
|
Non-GAAP core fee income (3)
|
204
|
172
|
159
|
156
|
146
|
535
|
447
|
Non-GAAP core fee income plus SVB Leerink revenue (3)
|
311
|
292
|
325
|
307
|
254
|
928
|
777
|
Non-GAAP SVB Leerink revenue (3)
|
107
|
120
|
166
|
151
|
108
|
393
|
330
|
Fully taxable equivalent:
|
Net interest income (3) (4)
|
$
|
859
|
$
|
735
|
$
|
665
|
$
|
597
|
$
|
532
|
$
|
2,259
|
$
|
1,576
|
Net interest margin
|
1.95
|
%
|
2.06
|
%
|
2.29
|
%
|
2.40
|
%
|
2.53
|
%
|
2.08
|
%
|
2.79
|
%
|
Balance sheet:
|
Average total assets
|
$
|
182,690
|
$
|
150,717
|
$
|
124,815
|
$
|
103,754
|
$
|
88,348
|
$
|
152,952
|
$
|
79,761
|
Average loans, amortized cost
|
59,291
|
49,812
|
46,281
|
41,525
|
37,319
|
51,843
|
35,836
|
Average available-for-sale securities
|
23,290
|
24,358
|
28,248
|
28,114
|
20,027
|
25,280
|
15,476
|
Average held-to-maturity securities
|
70,512
|
47,914
|
25,295
|
13,289
|
12,553
|
48,073
|
13,054
|
Average noninterest-bearing demand deposits
|
109,638
|
91,530
|
73,233
|
61,663
|
51,544
|
91,600
|
46,341
|
Average interest-bearing deposits
|
53,754
|
42,230
|
37,375
|
30,774
|
26,136
|
44,513
|
22,825
|
Average total deposits
|
163,392
|
133,760
|
110,608
|
92,437
|
77,680
|
136,113
|
69,166
|
Average short-term borrowings
|
99
|
39
|
12
|
10
|
16
|
50
|
533
|
Average long-term debt
|
1,936
|
1,604
|
1,162
|
843
|
843
|
1,571
|
561
|
Period-end total assets
|
190,996
|
163,399
|
142,347
|
115,511
|
96,917
|
190,996
|
96,917
|
Period-end loans, amortized cost
|
61,487
|
50,754
|
47,675
|
45,181
|
38,414
|
61,487
|
38,414
|
Period-end available-for-sale securities
|
22,984
|
23,876
|
25,986
|
30,913
|
25,904
|
22,984
|
25,904
|
Period-end held-to-maturity securities
|
82,365
|
59,992
|
41,165
|
16,592
|
12,982
|
82,365
|
12,982
|
Period-end non-marketable and other equity securities
|
2,485
|
1,943
|
1,858
|
1,802
|
1,548
|
2,485
|
1,548
|
Period-end noninterest-bearing demand deposits
|
115,388
|
101,259
|
84,440
|
66,519
|
57,508
|
115,388
|
57,508
|
Period-end interest-bearing deposits
|
55,794
|
44,579
|
39,710
|
35,463
|
27,265
|
55,794
|
27,265
|
Period-end total deposits
|
171,182
|
145,838
|
124,150
|
101,982
|
84,773
|
171,182
|
84,773
|
Period-end short-term borrowings
|
97
|
34
|
39
|
21
|
19
|
97
|
19
|
Period-end long-term debt
|
1,925
|
1,834
|
1,338
|
844
|
844
|
1,925
|
844
|
Off-balance sheet:
|
Average client investment funds
|
$
|
191,286
|
$
|
174,327
|
$
|
151,579
|
$
|
133,105
|
$
|
123,564
|
$
|
172,397
|
$
|
112,104
|
Period-end client investment funds
|
200,234
|
183,167
|
163,882
|
141,053
|
126,781
|
200,234
|
126,781
|
Period-end assets under management
|
19,565
|
-
|
-
|
-
|
-
|
19,565
|
-
|
Total unfunded credit commitments
|
40,785
|
36,385
|
33,987
|
31,982
|
30,330
|
40,785
|
30,330
|
Earnings ratios:
|
Return on average assets (annualized) (5)
|
0.79
|
%
|
1.34
|
%
|
1.73
|
%
|
1.49
|
%
|
1.99
|
%
|
0.98
|
%
|
1.34
|
%
|
Return on average SVBFG common stockholders' equity (annualized) (6)
|
12.47
|
21.69
|
27.04
|
20.23
|
24.19
|
19.41
|
15.56
|
Asset quality ratios:
|
Allowance for credit losses for loans as a % of total loans
|
0.65
|
%
|
0.78
|
%
|
0.82
|
%
|
0.99
|
%
|
1.34
|
%
|
0.65
|
%
|
1.34
|
%
|
Allowance for credit losses for performing loans as a % of total performing loans
|
0.59
|
0.71
|
0.74
|
0.87
|
1.17
|
0.59
|
1.17
|
Gross loan charge-offs as a % of average total loans (annualized) (2)
|
0.13
|
0.12
|
0.83
|
0.22
|
0.30
|
0.33
|
0.30
|
Net loan charge-offs as a % of average total loans (annualized) (2)
|
0.07
|
0.10
|
0.79
|
0.09
|
0.26
|
0.29
|
0.24
|
Other ratios:
|
Operating efficiency ratio (7)
|
57.68
|
%
|
43.85
|
%
|
45.31
|
%
|
54.79
|
%
|
45.66
|
%
|
49.08
|
%
|
49.23
|
%
|
Total cost of deposits (annualized) (8)
|
0.05
|
0.04
|
0.04
|
0.04
|
0.04
|
0.04
|
0.10
|
SVBFG CET 1 risk-based capital ratio
|
12.74
|
11.93
|
12.18
|
11.04
|
12.31
|
12.74
|
12.31
|
Bank CET 1 risk-based capital ratio
|
14.66
|
13.66
|
12.93
|
10.70
|
10.75
|
14.66
|
10.75
|
SVBFG tier 1 risk-based capital ratio
|
15.38
|
14.95
|
14.01
|
11.89
|
13.25
|
15.38
|
13.25
|
Bank tier 1 risk-based capital ratio
|
14.66
|
13.66
|
12.93
|
10.70
|
10.75
|
14.66
|
10.75
|
SVBFG total risk-based capital ratio
|
15.89
|
15.53
|
14.62
|
12.64
|
14.19
|
15.89
|
14.19
|
3
|
Bank total risk-based capital ratio
|
15.19
|
14.26
|
13.56
|
11.49
|
11.75
|
15.19
|
11.75
|
SVBFG tier 1 leverage ratio
|
7.80
|
7.77
|
8.01
|
7.45
|
8.26
|
7.80
|
8.26
|
Bank tier 1 leverage ratio
|
7.32
|
6.96
|
7.20
|
6.43
|
6.45
|
7.32
|
6.45
|
Period-end loans, amortized cost, to deposits ratio
|
35.92
|
34.80
|
38.40
|
44.30
|
45.31
|
35.92
|
45.31
|
Average loans, amortized cost, to average deposits ratio
|
36.29
|
37.24
|
41.84
|
44.92
|
48.04
|
38.09
|
51.81
|
Book value per common share (9)
|
$
|
208.53
|
$
|
176.10
|
$
|
163.25
|
$
|
151.86
|
$
|
143.91
|
$
|
208.53
|
$
|
143.91
|
Tangible book value per common share (3) (10)
|
200.01
|
172.44
|
159.50
|
147.92
|
140.37
|
200.01
|
140.37
|
Other statistics:
|
Average full-time equivalent ("FTE") employees
|
6,024
|
4,808
|
4,601
|
4,419
|
4,216
|
5,144
|
3,914
|
Period-end full-time equivalent ("FTE") employees
|
6,208
|
4,932
|
4,656
|
4,461
|
4,336
|
6,208
|
4,336
|
(1)This metric for the three and nine months ended September 30, 2021 includes a post-combination provision of $46 million to record the allowance for credit losses for non-PCD loans and unfunded credit commitments acquired from Boston Private.
(2)This metric for the quarter ended March 31, 2021 and nine months ended September 30, 2021 includes the impact of an $80 million charge-off related to potentially fraudulent activity discussed in previous filings.
(3)To supplement our unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("GAAP"), we use certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most closely related GAAP measures is provided at the end of this release under the section "Use of Non-GAAP Financial Measures."
(4)Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21.0 percent. The taxable equivalent adjustments were $7 million for the quarter ended September 30, 2021, $7 million for the quarter ended June 30, 2021, $6 million for the quarter ended March 31, 2021, $5 million for the quarter ended December 31, 2020 and $4 million for the quarter ended September 30, 2020. The taxable equivalent adjustments were $19 million and $11 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(5)Ratio represents annualized consolidated net income available to common stockholders divided by average assets.
(6)Ratio represents annualized consolidated net income available to common stockholders divided by average SVB Financial Group ("SVBFG") common stockholders' equity.
(7)Ratio is calculated by dividing noninterest expense by total net interest income plus noninterest income.
(8)Ratio represents annualized total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits.
(9)Book value per common share is calculated by dividing total SVBFG common stockholders' equity by total outstanding common shares.
(10)Tangible book value per common share is calculated by dividing tangible common equity by total outstanding common shares. Tangible common equity is a non-GAAP measure defined under the section "Use of Non-GAAP Financial Measures."
4
Investment Securities
Our investment securities portfolio is comprised of: (i) our available-for-sale ("AFS") and held-to-maturity ("HTM") securities portfolios, each consisting of fixed income investments which are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives; and (ii) our non-marketable and other equity securities portfolio, which represents 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 $21.5 billion, or 29.8 percent, to $93.8 billion for the quarter ended September 30, 2021 compared to the second quarter of 2021. Our total period-end fixed income investment securities portfolio increased $21.5 billion, or 25.6 percent, to $105.3 billion at September 30, 2021. Our period-end non-marketable and other equity securities portfolio increased $543 million to $2.5 billion ($2.1 billion net of noncontrolling interests) at September 30, 2021, compared to the second quarter of 2021.
The weighted-average duration of our total fixed income securities portfolio was 4.5 years at September 30, 2021 and June 30, 2021. The total notional value of our pay-fixed, receive-floating interest rate swap fair value hedge contracts for AFS securities was $11.3 billion as of September 30, 2021. The weighted-average duration of our total fixed income securities portfolio, including the impact of our fair value swaps, was 4.0 years at September 30, 2021 and 3.9 years at June 30, 2021.
AFS Securities
Average AFS securities were $23.3 billion for the third quarter of 2021 compared to $24.4 billion for the second quarter of 2021. Period-end AFS securities were $23.0 billionat September 30, 2021 compared to $23.9 billion at June 30, 2021. The decreases in both average and period-end AFS securities were driven by a $3.1 billion re-designation of AFS securities to HTM securities as well as paydowns and maturities of $944 million, partially offset by purchases of $3.1 billion. The weighted-average duration of our AFS securities portfolio was 3.8 years at September 30, 2021 and 4.2 years at June 30, 2021. The weighted-average duration of AFS securities portfolio including the impact of our fair value swaps was 2.3 years at September 30, 2021 and 2.4 years at June 30, 2021.
HTM Securities
Average HTM securities were $70.5 billion for the third quarter of 2021, compared to $47.9 billion for the second quarter of 2021. Period-end HTM securities were $82.4 billion at September 30, 2021 compared to $60.0 billion at June 30, 2021. The increases in both average and period-end HTM securities were driven by purchases of $22.2 billion, with an additional $982 million of securities assumed with the Boston Private acquisition, the re-designation of $3.1 billion as mentioned above, partially offset by $3.9 billion in paydowns and maturities during the quarter. The weighted-average duration of our HTM securities portfolio was 4.7 years at September 30, 2021 and 4.6 years at June 30, 2021.
Loans
Portfolio Segments and Classes of Financing Receivables
Upon completing the acquisition of Boston Private, we evaluated the impact of the acquired loan portfolio on our existing portfolio segments and classes of financing receivables, which we historically called our "risk-based segments." We have modified both levels of disaggregation to accommodate Boston Private loans. The following provides additional information regarding our revised eight portfolio segments and the additional disaggregation of our eleven classes of financing receivables:
•Global Fund Banking (segment and class) - The vast majority of our Global Fund Banking ("GFB") portfolio segment consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in funds managed by certain private equity and venture capital firms. This segmentation is unchanged from our historical disclosures.
•Investor Dependent (segment) - Our Investor Dependent loans are made primarily to technology and life science/healthcare companies. These borrowers typically have modest or negative cash flows and rarely have an established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third party or an IPO. This portfolio segment is equivalent to the Investor
5
Dependent - Early-Stage and Investor Dependent - Growth Stage portfolio segments in our historical disclosures. This portfolio segment is further disaggregated into two classes of financing receivables:
◦Early Stage (class) - Our Early Stage class of financing receivable consists of pre-revenue, development-stage companies and companies that are in the early phases of commercialization, with revenues of up to $5 million. This class is unchanged from our historical disclosures.
◦Growth Stage (class) - Our Growth Stage (Mid/Later Stages) class of financing receivable consists of growth-stage enterprises. We consider companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, to be Mid-Stage, and companies with revenues in excess of $15 million to be Later Stage. This class is made up of the former Mid-Stage and Later Stage risk-based segments in our historical disclosures.
•Cash Flow Dependent and Innovation Commercial and Industrial ("C&I") (segment) - These loans are made primarily to technology and life science/healthcare companies that are not Investor Dependent, i.e. repayment is not dependent on additional equity financing, a successful sale or an IPO. This portfolio segment is equivalent to the Cash Flow and Balance Sheet Dependent portfolio segments in our historical disclosures. This portfolio segment consists of two classes of financing receivables:
◦Cash Flow Dependent - Sponsor-Led Buyout ("SLBO") (class) - Sponsor-Led Buyout loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, are larger in size, and repayment is generally dependent upon the cash flows of the combined entities. Acquired companies are typically established, later-stage businesses of scale and characterized by reasonable levels of leverage with loan structures that include meaningful financial covenants. The sponsor's equity contribution is often 50 percent or more of the acquisition price. This class is unchanged from our historical disclosures.
◦Innovation C&I (class) - This class of financing receivable contains other commercial and industrial loans in innovation sectors (i.e. the technology and life science/healthcare industries). These loans are dependent on either the borrower's cash flows or balance sheet for repayment. Cash flow dependent loans require the borrower to maintain cash flow from operations that is sufficient to service all debt. Borrowers must demonstrate normalized cash flow in excess of all fixed charges associated with operating the business. Balance sheet dependent loans include asset-based loans and are structured to require constant current asset coverage (i.e. cash, cash equivalents, accounts receivable, and, to a much lesser extent, inventory) in an amount that exceeds the outstanding debt. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business. This class is made up of the former Cash Flow Dependent - Other and Balance Sheet Dependent risk-based segments in our historical disclosures.
•Private Bank (segment and class) - Our Private Bank clients are primarily private equity/venture capital professionals and executives in the innovation companies they support as well as high net worth clients acquired from Boston Private. We offer a customized suite of private banking services, including mortgages, home equity lines of credit, restricted and private stock loans, personal capital call lines of credit, lines of credit against liquid assets and other secured and unsecured lending products. In addition, we provide owner occupied commercial mortgages to Private Bank clients and real estate secured loans to eligible employees through our Employee Home Ownership Program. This class is unchanged from our historical disclosures, other than adding loans such as residential, home equity, and consumer loans acquired from Boston Private.
•Commercial Real Estate (CRE) (segment and class) - Commercial real estate loans are generally acquisition financing for commercial properties such as office buildings, retail properties, apartment buildings, and industrial/warehouse space. This segmentation is new as a result of the Boston Private acquisition.
•Other C&I (segment and class) - These are commercial and industrial loans, including working capital and revolving lines of credit, as well as term loans for equipment and fixed assets. These loans are primarily to clients that are not in the technology and life sciences/healthcare industries. Additionally, this portfolio
6
segment contains commercial tax-exempt loans to not-for-profit private schools, colleges, public charter schools and other not-for-profit organizations. This segmentation is new as a result of the Boston Private acquisition.
•Premium Wine and Other (segment) - This portfolio segment consists of two classes of financing receivables:
◦Premium Wine (class) - Our Premium Wine clients primarily consist of wine producers, vineyards and wine industry or hospitality businesses across the Western United States. A large portion of these loans are secured by real estate collateral such as vineyards and wineries. This class is unchanged from our historical disclosures.
◦Other (class) - Our Other class of financing receivable primarily consists of construction and land loans for financing new developments as well as financing for improvements to existing buildings. These also include our community development loans made as part of our responsibilities under the Community Reinvestment Act. This class is unchanged from our historical disclosures, other than adding additional construction and land loans acquired from Boston Private.
•Paycheck Protection Program ("PPP") (segment and class) - These are the combined loans issued through the PPP by SVB and Boston Private. These loans represent clients across all portfolio segments and are guaranteed by the U.S Small Business Administration. This segmentation is unchanged from our historical disclosures, other than adding PPP loans acquired from Boston Private.
The following table provides a summary of our loans at amortized cost basis broken out by class of financing receivable. Prior period amounts have been reclassified to conform to current period presentation.
|
(Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
Global fund banking
|
$
|
34,120
|
$
|
30,630
|
$
|
19,585
|
Investor dependent
|
Early stage
|
1,550
|
1,565
|
1,471
|
Growth stage
|
3,827
|
3,763
|
3,641
|
Total investor dependent
|
5,377
|
5,328
|
5,112
|
Cash flow dependent - SLBO
|
1,895
|
1,917
|
2,062
|
Innovation C&I
|
5,916
|
5,730
|
4,298
|
Private bank
|
8,370
|
5,297
|
4,425
|
CRE
|
2,753
|
-
|
-
|
Premium wine
|
980
|
1,002
|
1,082
|
Other C&I
|
1,259
|
-
|
-
|
Other
|
252
|
7
|
48
|
PPP
|
565
|
843
|
1,802
|
Total loans
|
$
|
61,487
|
$
|
50,754
|
$
|
38,414
|
Average loans increased by $9.5 billion to $59.3 billion for the third quarter of 2021, compared to $49.8 billion for the second quarter of 2021. Period-end loans increased $10.7 billion to $61.5 billion at September 30, 2021, compared to $50.8 billion at June 30, 2021. Average and period-end loan growth came primarily from the addition of Boston Private's loan portfolio, as well as continued growth in our Global Fund Banking segment. This growth was partially offset by a decrease in our PPP loans driven by the continued forgiveness of these loans during the third quarter.
Net Interest Income and Margin
Net interest income, on a fully taxable equivalent basis, was $859 million for the third quarter of 2021, compared to $735 million for the second quarter of 2021. The $124 million increase from the second quarter of 2021 to the third quarter of 2021 was attributable primarily to the following:
•An increase of $85 million in interest income from our fixed income investment securities reflective primarily of a $21.5 billion increase in average fixed income securities.
7
•An increase in interest income from loans of $47 million to $519 million for the third quarter of 2021 due primarily to $56 million of interest income on the loans acquired from Boston Private, partially offset by $20 million of premium amortization related to the fair market value adjustment made on the acquired loans upon completion of the Boston Private acquisition. Interest income further increased reflective of $2.3 billion in average loan growth, excluding the impact of Boston Private, as well as an increase in day count, partially offset by loan yield compression and lower fee income resulting from a decrease in prepayments from lower PPP forgiveness and lower early payoffs in the third quarter of 2021 as compared to the second quarter of 2021.
◦Overall loan yields decreased 33 basis points to 3.47 percent, primarily due to the addition of lower yielding Boston Private loans as well as premium amortization on the Boston Private loans acquired as mentioned above, a decrease in loan fee yields reflective of a decrease in PPP forgiveness and early payoffs in the third quarter of 2021 as compared to the second quarter of 2021 as well as continued growth in our lower yielding Global Fund Banking loan portfolio and loan yield compression.
Net interest margin, on a fully taxable equivalent basis, was 1.95 percent for the third quarter of 2021, compared to 2.06 percent for the second quarter of 2021. The 11 basis point decrease in our net interest margin was due primarily to the overall shift in balance sheet growth into lower yielding fixed income investment securities reflective of the significant deposit growth as well as lower yields on loans from the addition of lower yielding Boston Private loans and the fair market value adjustment premium amortization as discussed above.
For the third quarter of 2021, approximately 90 percent, or $53.4 billion, of our average loans were variable-rate loans that adjust at prescribed measurement dates. Of our variable-rate loans, approximately 64 percent are tied to prime-lending rates and 36 percent are tied to LIBOR. As a result of the discontinuation of LIBOR at the end of 2021, we are preparing for the transition to an alternate reference rate and expect the percent of LIBOR loans to decrease over time. We intend to offer the Secured Overnight Financing Rate ("SOFR") as the alternative reference rate to U.S. dollar LIBOR once it is discontinued.
8
Credit Quality
The following table provides a summary of our allowance for credit losses for loans, unfunded credit commitments and HTM securities:
|
|
Three months ended
|
Nine months ended
|
(Dollars in millions, except ratios)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Allowance for credit losses for loans, beginning balance
|
$
|
396
|
$
|
392
|
$
|
590
|
$
|
448
|
$
|
305
|
Day one impact of adopting CECL
|
-
|
-
|
-
|
-
|
25
|
Initial allowance on PCD loans
|
22
|
-
|
-
|
22
|
-
|
(Reduction) provision for loans (1) (2)
|
(9)
|
16
|
(54)
|
41
|
247
|
Gross loan charge-offs (2)
|
(19)
|
(15)
|
(28)
|
(129)
|
(80)
|
Loan recoveries
|
8
|
3
|
4
|
16
|
16
|
Foreign currency translation adjustments
|
-
|
-
|
1
|
-
|
-
|
Allowance for credit losses for loans, ending balance
|
$
|
398
|
$
|
396
|
$
|
513
|
$
|
398
|
$
|
513
|
Allowance for credit losses for unfunded credit commitments, beginning balance
|
120
|
105
|
99
|
121
|
67
|
Day one impact of adopting CECL
|
-
|
-
|
-
|
-
|
23
|
Provision for unfunded credit commitments (1)
|
29
|
15
|
2
|
28
|
11
|
Allowance for credit losses for unfunded credit commitments, ending balance (3)
|
$
|
149
|
$
|
120
|
$
|
101
|
$
|
149
|
$
|
101
|
Allowance for credit losses for HTM securities, beginning balance
|
5
|
1
|
-
|
-
|
-
|
Provision for HTM securities
|
1
|
4
|
-
|
6
|
-
|
Allowance for credit losses for HTM securities, ending balance (4)
|
$
|
6
|
$
|
5
|
$
|
-
|
$
|
6
|
$
|
-
|
Ratios and other information:
|
(Reduction) provision for loans as a percentage of period-end total loans (annualized)
|
(0.06)
|
%
|
0.13
|
%
|
(0.56)
|
%
|
0.09
|
%
|
0.86
|
%
|
Gross loan charge-offs as a percentage of average total loans (annualized)
|
0.13
|
0.12
|
0.30
|
0.33
|
0.30
|
Net loan charge-offs as a percentage of average total loans (annualized)
|
0.07
|
0.10
|
0.26
|
0.29
|
0.24
|
Allowance for credit losses for loans as a percentage of period-end total loans
|
0.65
|
0.78
|
1.34
|
0.65
|
1.34
|
Provision (reduction) for credit losses (1)
|
$
|
21
|
$
|
35
|
$
|
(52)
|
$
|
75
|
$
|
258
|
Period-end total loans
|
61,487
|
50,754
|
38,414
|
61,487
|
38,414
|
Average total loans
|
59,291
|
49,812
|
37,319
|
51,843
|
35,836
|
Allowance for credit losses for nonaccrual loans
|
33
|
38
|
64
|
33
|
64
|
Nonaccrual loans
|
114
|
79
|
106
|
114
|
106
|
(1)The provision for credit losses for the three and nine months ended September 30, 2021 includes $46 million recognized as a result of the Boston Private acquisition, which consists of a $44 million provision for loan losses related to non-PCD loans and a $2 million provision for unfunded commitments.
(2)Metrics for the nine months ended September 30, 2021 include the impact of an $80 million charge-off related to potentially fraudulent activity discussed in previous filings.
(3)The "allowance for credit losses for unfunded credit commitments" is included as a component of "other liabilities."
(4)The "allowance for credit losses for HTM securities" is included as a component of HTM securities and presented net in our consolidated financial statements.
Our allowance for credit losses for loans increased $2 million to $398 million at September 30, 2021, compared to $396 million at June 30, 2021. The $2 million increase was driven primarily by the addition of $66 million of reserves for the new Boston Private portfolio (made up of an initial allowance of $22 million on PCD loans and $44 million on non-PCD loans) and an increase of $10 million in our performing reserves for loan growth, which were largely offset by decreases of $69 million due to an enhancement of our reserving model and a $5 million decrease in reserves for nonaccrual loans. The enhancements of our reserving model consisted primarily of faster, more granular prepayment assumptions and the addition of two years of incremental data of strong performance, which resulted in the $69 million release. As a percentage of total loans, our allowance for credit losses for loans decreased 13 basis points to 0.65 percent at September 30, 2021, compared to 0.78 percent at June 30, 2021. The 13 basis point decrease, due primarily to the factors described above, consists of a 12 basis point decrease in our performing loans reserve as a percentage of total loans and a one basis point decrease in our reserves for nonaccrual individually assessed loans as a percentage of total loans.
The provision for credit losses was $21 million for the third quarter of 2021, consisting of the following:
•A reduction in provision for credit loss for loans of $9 million, driven primarily by the $69 million reduction in provision due to model enhancements described above and an $8 million reduction for recoveries. These
9
reductions were largely offset by a $44 million provision for Boston Private loans, a $10 million provision for loan growth, and an increase of $15 million for charge-offs not previously reserved for.
•A provision for credit loss for unfunded credit commitments of $29 million, driven primarily by a $17 million increase attributable to commitment growth and changes in portfolio composition and a $10 million increase primarily from an increase in the expected future commitments for milestone tranches of Investor Dependent loans, which are tied to company performance or additional funding rounds, resulting in a longer weighted average life of these higher risk segments. Additionally, we recorded a provision of $2 million related to Boston Private unfunded commitments.
•A provision for credit losses for HTM securities of $1 million, driven primarily by the continued growth of our corporate bond portfolio in the third quarter of 2021.
Gross loan charge-offs were $19 million for the third quarter of 2021, of which $15 million was not specifically reserved for at June 30, 2021. Gross loan charge-offs were partly driven by an $8 million charge-off from one Investor Dependent - Early Stage client. The remaining $7 million gross loan charge-offs were driven primarily by our Investor Dependent and Cash Flow Dependent loan portfolios.
Nonaccrual loans were $114 million at September 30, 2021, compared to $79 million at June 30, 2021. Our nonaccrual loan balance increased $35 million driven primarily by $53 million new nonaccrual loans, which was partially offset by $12 million in repayments and $6 million in charge-offs in our legacy portfolio. Of the $53 million new nonaccrual loans, $31 million was from Boston Private, and the remaining $22 million was from our legacy portfolio, driven primarily by $17 million from one Premium Wine client. Repayments were driven primarily by clients in our Private Bank and Investor Dependent - Early Stage portfolios. Nonperforming loans, which includes nonaccrual loans of $114 million as well as $3 million of loans past due 90 days or more still accruing interest, as a percentage of total loans increased 3 basis points to 0.19 percent for the third quarter of 2021, compared to 0.16 percent for the second quarter of 2021
The allowance for credit losses for nonaccrual loans decreased $5 million to $33 million in the third quarter of 2021. The decrease was due primarily to $7 million in repayments and $8 million in charge-offs, partially offset by $10 million in additional reserves for nonaccrual loans, of which $2 million is related to nonaccrual loans from Boston Private. The $8 million of additional reserves from our legacy portfolio was driven primarily by our Technology and Life Science and Healthcare clients, including $2 million from one Investor Dependent - Early Stage client. Charge-offs and repayments were driven primarily by clients in our Investor Dependent portfolios.
Client Funds
Our Total Client Funds consist of the sum of both our on-balance sheet deposits and off-balance sheet client investment funds. The following tables provide a summary of our average and period-end on-balance sheet deposits and off-balance sheet client investment funds:
Average On-Balance Sheet Deposits and Off-Balance Sheet Client Investment Funds (1)(2)
|
Average balances for the
|
|
Three months ended
|
Nine months ended
|
(Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Interest-bearing deposits
|
$
|
53,754
|
$
|
42,230
|
$
|
26,136
|
$
|
44,513
|
$
|
22,825
|
Noninterest bearing demand deposits
|
109,638
|
91,530
|
51,544
|
91,600
|
46,341
|
Total average on-balance sheet deposits
|
$
|
163,392
|
$
|
133,760
|
$
|
77,680
|
$
|
136,113
|
$
|
69,166
|
|
Sweep money market funds
|
$
|
97,590
|
$
|
82,573
|
$
|
54,495
|
$
|
82,434
|
$
|
48,367
|
Managed client investment funds (3)
|
79,400
|
77,733
|
59,338
|
76,537
|
53,928
|
Repurchase agreements
|
14,296
|
14,021
|
9,731
|
13,426
|
9,809
|
Total average off-balance sheet client investment funds
|
$
|
191,286
|
$
|
174,327
|
$
|
123,564
|
$
|
172,397
|
$
|
112,104
|
10
Period-end On-Balance Sheet Deposits and Off-Balance Sheet Client Investment Funds (1)(2)
|
|
Period-end balances at
|
(Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
March 31, 2021
|
December 31, 2020
|
September 30, 2020
|
Interest-bearing deposits
|
$
|
55,794
|
$
|
44,579
|
$
|
39,710
|
$
|
35,463
|
$
|
27,265
|
Noninterest-bearing demand deposits
|
115,388
|
101,259
|
84,440
|
66,519
|
57,508
|
Total period-end on-balance sheet deposits
|
$
|
171,182
|
$
|
145,838
|
$
|
124,150
|
$
|
101,982
|
$
|
84,773
|
|
Sweep money market funds
|
$
|
105,163
|
$
|
90,402
|
$
|
75,328
|
$
|
59,844
|
$
|
56,395
|
Managed client investment funds (3)
|
81,503
|
78,698
|
75,970
|
70,671
|
60,773
|
Repurchase agreements
|
13,568
|
14,067
|
12,584
|
10,538
|
9,613
|
Total period-end off-balance sheet client investment funds
|
$
|
200,234
|
$
|
183,167
|
$
|
163,882
|
$
|
141,053
|
$
|
126,781
|
(1)Off-Balance sheet client investment funds are maintained at third-party financial institutions.
(2)Off-Balance sheet client investment funds exclude Private Bank AUM beginning in the third quarter of 2021.
(3)These funds represent investments in third-party money market mutual funds and fixed income securities managed by SVB Asset Management.
The increases in our average and period-end Total Client Funds from the second quarter of 2021 to the third quarter of 2021 reflect growth in both on-balance sheet deposits and off-balance sheet client investments. We saw Total Client Funds growth across all portfolios with the primary contributor coming from our Technology portfolio, driven by continued strong private fundraising. The Boston Private acquisition contributed $8.7 billion of on-balance sheet deposit growth.
Private Bank Assets Under Management ("AUM")
AUM consists of the Private Bank's client investment account balances and generates fee income included in our new financial statement line item "Wealth management and trust fees" included in our consolidated statements of income. The following table summarizes the activity relating to AUM for the three months ended September 30, 2021:
|
|
Three months ended
|
(Dollars in millions)
|
September 30, 2021
|
Beginning balance (1)
|
$
|
1,667
|
Assets acquired (2)
|
17,980
|
Net flows
|
(31)
|
Market returns
|
(51)
|
Ending balance
|
$
|
19,565
|
(1)Represents Private Bank assets under management previously reported in off-balance sheet managed client investment funds above.
(2)Represents AUM acquired from the acquisition of Boston Private on July 1, 2021.
Noninterest Income
Noninterest income was $672 million for the third quarter of 2021, compared to $761 million for the second quarter of 2021. The decrease in noninterest income was driven by lower net gains on investment securities partially offset by gains on equity warrant assets and wealth management and trust fees.
Items impacting noninterest income for the third quarter of 2021 were as follows:
Net gains on investment securities
The following tables provide a summary of non-GAAP net gains on investment securities, net of noncontrolling interests, for the three months ended September 30, 2021 and June 30, 2021, respectively:
11
|
|
Three months ended September 30, 2021
|
(Dollars in millions)
|
Managed
Funds of Funds
|
Managed Direct Venture Funds
|
Managed Credit Funds
|
Public Equity Securities
|
Strategic
and Other
Investments
|
SVB Leerink
|
Total
|
GAAP gains (losses) on investment securities, net
|
$
|
109
|
$
|
5
|
$
|
7
|
$
|
(39)
|
$
|
51
|
$
|
56
|
$
|
189
|
Less: income attributable to noncontrolling interests, including carried interest allocation
|
53
|
-
|
1
|
-
|
-
|
34
|
88
|
Non-GAAP gains (losses) on investment securities, net of noncontrolling interests (1)
|
$
|
56
|
$
|
5
|
$
|
6
|
$
|
(39)
|
$
|
51
|
$
|
22
|
$
|
101
|
(1)Three months ended September 30, 2021 includes gains and losses from debt funds and AFS security sales of less than $1 million.
|
|
Three months ended June 30, 2021
|
(Dollars in millions)
|
Managed
Funds of Funds
|
Managed Direct Venture Funds
|
Managed Credit Funds
|
Public Equity Securities
|
Debt
Funds
|
Strategic
and Other
Investments
|
SVB Leerink
|
Total
|
GAAP gains on investment securities, net
|
$
|
197
|
$
|
19
|
$
|
6
|
$
|
18
|
$
|
1
|
$
|
20
|
$
|
44
|
$
|
305
|
Less: income attributable to noncontrolling interests, including carried interest allocation
|
87
|
8
|
1
|
-
|
-
|
-
|
17
|
113
|
Non-GAAP gains on investment securities, net of noncontrolling interests
|
$
|
110
|
$
|
11
|
$
|
5
|
$
|
18
|
$
|
1
|
$
|
20
|
$
|
27
|
$
|
192
|
Non-GAAP net gains on investment securities, net of noncontrolling interests, of $101 million for the third quarter of 2021 was driven primarily by gains in our managed fund of funds portfolio, strategic and other investments and SVB Leerink funds partially offset by valuation decreases in our public equity securities portfolio. The managed fund of funds portfolio and strategic and other investments gains, and SVB Leerink funds were driven by unrealized valuation increases of private and public positions.
Net gains on equity warrant assets
The following table provides a summary of our net gains on equity warrant assets:
|
|
Three months ended
|
Nine months ended
|
(Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Equity warrant assets:
|
Gains on exercises, net
|
$
|
91
|
$
|
78
|
$
|
24
|
$
|
381
|
$
|
59
|
Terminations
|
(1)
|
(1)
|
-
|
(2)
|
(1)
|
Changes in fair value, net
|
57
|
45
|
30
|
112
|
36
|
Total net gains on equity warrant assets
|
$
|
147
|
$
|
122
|
$
|
54
|
$
|
491
|
$
|
94
|
Net gains on equity warrant assets for the third quarter of 2021 included $91 million of gains on exercises driven primarily by IPO activity during the quarter. The $57 million in net valuation increases were driven by our private company portfolio reflective primarily of pricing updates and pending exit activity.
At September 30, 2021, we held warrants in 2,749 companies with a total fair value of $274 million. Warrants in 50 companies each had fair values greater than $1 million and collectively represented $139 million, or 50.8 percent, of the fair value of the total warrant portfolio at September 30, 2021.
The gains (or losses) from investment securities from our non-marketable and other equity securities portfolio as well as our equity warrant assets resulting from changes in valuations (fair values) are currently unrealized, and the extent to which such gains (or losses) will become realized is subject to a variety of factors, including, among other things, performance of the underlying portfolio companies, investor demand for IPOs and SPACs, 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.
12
Non-GAAP core fee income plus non-GAAP SVB Leerink revenue
The following table provides a summary of our non-GAAP core fee income, non-GAAP SVB Leerink revenue and non-GAAP core fee income plus SVB Leerink revenue:
|
|
Three months ended
|
Nine months ended
|
(Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Non-GAAP core fee income:
|
Client investment fees
|
$
|
20
|
$
|
15
|
$
|
32
|
$
|
55
|
$
|
107
|
Wealth management and trust fees
|
22
|
-
|
-
|
22
|
-
|
Foreign exchange fees
|
65
|
67
|
44
|
189
|
128
|
Credit card fees
|
34
|
31
|
23
|
93
|
72
|
Deposit service charges
|
29
|
28
|
22
|
82
|
67
|
Lending related fees
|
21
|
18
|
13
|
55
|
38
|
Letters of credit and standby letters of credit fees
|
13
|
13
|
12
|
39
|
35
|
Total non-GAAP core fee income
|
$
|
204
|
$
|
172
|
$
|
146
|
$
|
535
|
$
|
447
|
Investment banking revenue
|
90
|
103
|
92
|
335
|
281
|
Commissions
|
17
|
17
|
16
|
58
|
49
|
Total non-GAAP SVB Leerink revenue
|
$
|
107
|
$
|
120
|
$
|
108
|
$
|
393
|
$
|
330
|
Total non-GAAP core fee income plus SVB Leerink revenue
|
$
|
311
|
$
|
292
|
$
|
254
|
$
|
928
|
$
|
777
|
Non-GAAP core fee income increased from the second quarter of 2021 to the third quarter of 2021 primarily reflective of increases in wealth management and trust fees, client investment fees, and credit card fees. Wealth management and trust fees was a new core fee income line item for the third quarter of 2021 related to the acquisition of Boston Private. The $5 million increase in client investment fees was primarily driven by increased margins due to the full-quarter impact of the Federal Reserve's overnight repurchase rate increase in June 2021. Credit card fees increased $3 million primarily due to new client growth, relationship expansion and higher utilization.
Non-GAAP SVB Leerink revenue decreased $13 million from the second quarter of 2021 to the third quarter of 2021 due to a decrease in deals led by SVB Leerink.
Reconciliations of our non-GAAP net gains on investment securities, non-GAAP core fee income, non-GAAP SVB Leerink revenue and non-GAAP core fee income plus SVB Leerink revenue are provided under the section "Use of Non-GAAP Financial Measures."
Noninterest Expense
Noninterest expense was $879 million for the third quarter of 2021, compared to $653 million for the second quarter of 2021. The increase of $226 million from the prior quarter was attributable primarily to increases in our compensation and benefits expense, merger-related charges and premises and equipment expense in the third quarter of 2021.
Merger-related charges increased primarily due to impairment charges recorded for the restructuring of Boston Private's leased facilities relating to actions subsequent to the acquisition, higher consulting fees related to the closing and integration of Boston Private and increased retention expenses.
Premises and equipment expense was higher due to premises and equipment expenses associated with the Boston Private acquisition as well as higher depreciation expense related to investments in projects, systems and technology to support our revenue growth and related initiatives.
13
The following table provides a summary of our compensation and benefits expense:
|
|
Three months ended
|
Nine months ended
|
(Dollars in millions, except employees)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Compensation and benefits:
|
Salaries and wages
|
$
|
195
|
$
|
146
|
$
|
135
|
$
|
504
|
$
|
376
|
Incentive compensation plans
|
229
|
162
|
104
|
541
|
291
|
Other employee incentives and benefits (1)
|
124
|
117
|
88
|
373
|
236
|
Total compensation and benefits
|
$
|
548
|
$
|
425
|
$
|
327
|
$
|
1,418
|
$
|
903
|
Period-end full-time equivalent employees
|
6,208
|
4,932
|
4,336
|
6,208
|
4,336
|
Average full-time equivalent employees
|
6,024
|
4,808
|
4,216
|
5,144
|
3,914
|
(1)Other employee incentives and benefits expense includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), ESOP, warrant incentive and retention plans, agency fees and other employee-related expenses.
The $123 million increase in total compensation and benefits expense consists primarily of the following:
•An increase of $49 million in salaries and wages expense due to additional FTEs related to the acquisition of Boston Private, as well as at SVB Leerink and other segments of SVB,
•An increase of $67 million in incentive compensation plans expense attributable primarily to additional average FTEs related to the acquisition of Boston Private as well as SVB Leerink and an increase in our incentive compensation plan accrual as a result of stronger than expected performance during the year and our expected full-year 2021 financial results, and
•An increase of $7 million in other employee incentives and benefits due primarily to higher share-based payments related to the acquisition of Boston Private and a full quarter of amortization related to annual share-based grants that were issued during the second quarter, partially offset by a decrease in warrant incentive plans expense reflective of lower quarter over quarter warrant gains increases from the second to third quarter of 2021 compared to warrant gains increases from the first to second quarter of 2021.
Income Tax Expense
Our effective tax rate was 27.6 percent for the third quarter of 2021, compared to 25.1 percent for the second quarter of 2021.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 is due to the reduction of the excess tax benefit from share-based compensation, which is reflective of lower exercises of our stock options and restricted stock unit releases, compared to the second quarter of 2021 when the Company's annual vesting occurs.
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 millions)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Noninterest income (1)
|
$
|
(64)
|
$
|
(36)
|
$
|
(9)
|
$
|
(116)
|
$
|
(12)
|
Carried interest allocation (2)
|
(24)
|
(77)
|
(19)
|
(110)
|
(28)
|
Net income attributable to noncontrolling interests
|
$
|
(88)
|
$
|
(113)
|
$
|
(28)
|
$
|
(226)
|
$
|
(40)
|
(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 of $88 million for the third quarter of 2021 was driven primarily by net gains on investment securities (including carried interest allocation) from unrealized valuation increases of our managed funds of funds portfolio and our SVB Leerink funds.
14
SVBFG Stockholders' Equity
Total SVBFG stockholders' equity increased by $2.6 billion to $14.3 billionat September 30, 2021, compared to $11.7 billion at June 30, 2021, primarily due to net proceeds of $1.2 billion of capital raised related to our common stock equity offering, a $1.1 billion common stock equity issuance related to the acquisition of Boston Private and net income of $365 million during the third quarter of 2021.
Preferred Stock
Series A Preferred Stock
On October 21, 2021, the Company's Board of Directors declared a quarterly cash dividend of $13.125 per share (representing $0.328125 per depositary share) on the Series A Preferred Stock. The dividend is payable on November 15, 2021 to holders of record at the close of business on November 1, 2021.
Series B Preferred Stock
On October 21, 2021, the Company's Board of Directors declared a quarterly cash dividend of $1,025 per share (representing $10.25 per depositary share) on the Series B Preferred Stock. The dividend is payable on November 15, 2021 to holders of record at the close of business on November 1, 2021.
Series C Preferred Stock
On October 21, 2021, the Company's Board of Directors declared a quarterly cash dividend of $1,000 per share (representing $10 per depositary share) on the Series C Preferred Stock. The dividend is payable on November 15, 2021 to holders of record at the close of business on November 1, 2021.
SVB Financial and Bank Capital Ratios(1)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
SVB Financial:
|
CET 1 risk-based capital ratio
|
12.74
|
%
|
11.93
|
%
|
12.31
|
%
|
Tier 1 risk-based capital ratio
|
15.38
|
14.95
|
13.25
|
Total risk-based capital ratio
|
15.89
|
15.53
|
14.19
|
Tier 1 leverage ratio
|
7.80
|
7.77
|
8.26
|
Tangible common equity to tangible assets ratio (2)
|
6.17
|
5.76
|
7.52
|
Tangible common equity to risk-weighted assets ratio (2)
|
12.72
|
12.02
|
13.28
|
Silicon Valley Bank:
|
CET 1 risk-based capital ratio
|
14.66
|
%
|
13.66
|
%
|
10.75
|
%
|
Tier 1 risk-based capital ratio
|
14.66
|
13.66
|
10.75
|
Total risk-based capital ratio
|
15.19
|
14.26
|
11.75
|
Tier 1 leverage ratio
|
7.32
|
6.96
|
6.45
|
Tangible common equity to tangible assets ratio (2)
|
7.12
|
6.47
|
6.42
|
Tangible common equity to risk-weighted assets ratio (2)
|
14.99
|
13.76
|
11.79
|
(1)Regulatory capital ratios as of September 30, 2021 are preliminary.
(2)These are non-GAAP measures. A reconciliation of non-GAAP measures to GAAP is provided at the end of this release under the section "Use of Non-GAAP Financial Measures."
September 30, 2021Preliminary Results
Our risk-based capital and leverage ratios increased for both SVB Financial and Silicon Valley Bank as of September 30, 2021, compared to June 30, 2021. The increases were due to growth in our capital outpacing growth in our risk-weighted and average assets. Capital for SVB Financial increased due to the issuance of a total of $2.3 billion of common stock during the quarter as well as net income. The increase in capital for Silicon Valley Bank was driven by a $1.5 billion downstream capital infusion from our bank holding company during the third quarter of 2021, the $1.2 billion consideration for the acquisition of Boston Private and net income. The increase in our risk-weighted and average assets were driven by increases in our investment securities and loan portfolios.
All of our reported capital ratios remain above the levels considered to be "well capitalized" under applicable banking regulations.
15
Financial Outlook and Preliminary 2022 Outlook
Our outlook for full year ending December 31, 2021 and our preliminary outlook for the year ending December 31, 2022, are 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 based on management's assumptions and current expectations. 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 particularly uncertain and/or subject to market or other conditions beyond our control (such as the level of IPO, SPAC, M&A or general financing activity), or for potential unusual or non-recurring items. The outlooks and the underlying assumptions presented are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties, including risks and uncertainties related to the COVID-19 pandemic and related government actions, which are discussed below under the section "Forward-Looking Statements." Actual results may differ. 2022 outlook is preliminary and subject to change. (For additional information about our financial outlook, please refer to Q3 2021 Earnings Slides. See "Additional Information" below.)
With the close of the Boston Private acquisition on July 1, 2021, Boston Private's performance is reflected in our full year 2021 and preliminary 2022 outlook.
Please note that the outlooks below do not include and/or take into account changes related to: (i) interest rates, (ii) material deterioration in the overall economic environment and (iii) corporate tax or other regulatory and policy changes under the current U.S. government administration, and includes management's updates to our 2021 outlook metrics we previously disclosed on July 22, 2021):
|
Prior full year 2021 outlook compared to 2020 results (as of July 22, 2021)
|
Current full year 2021 outlook compared to 2020 results (as of October 21, 2021)
|
Preliminary full year 2022 outlook compared to 2021 expected results (as of October 21, 2021)
|
Average loan balances
|
Mid-forties growth
|
Mid-forties growth
|
Mid-twenties growth
|
Average deposit balances
|
Low nineties growth
|
Mid-nineties growth
|
Low forties growth
|
Net interest income (1)
|
Mid-forties growth
|
Mid-forties growth
|
Mid-thirties growth
|
Net interest margin (1)
|
2.00% - 2.10%
|
2.00% - 2.10%
|
1.90% - 2.00%
|
Net loan charge-offs (2)
|
0.20% - 0.40% of average loans
|
0.20% - 0.40% of average loans
|
0.20% - 0.40% of average loans
|
Core fee income (client investment fees, wealth management and trust fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit fees) (3)
|
High teens growth
|
Low twenties growth
|
Mid-twenties growth
|
SVB Leerink revenue (3)
|
$480 million - $510 million
|
$525 million - $550 million
|
$625 million - $675 million
|
Noninterest expense excluding merger-related charges (4) (5)
|
Mid-thirties growth
|
Low forties growth
|
Low twenties growth
|
Effective tax rate (6)
|
25% - 27%
|
25% - 27%
|
25% - 27%
|
(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, the COVID-19 pandemic and its effects on the economic and business environments in which we operate, actual prepayment rates and other factors described under the section "Forward-Looking Statements" below.
(2)Our outlook for loan charge-offs includes the impact of an $80 million charge-off related to potentially fraudulent activity discussed in previous filings.
(3)Core fee income and SVB Leerink revenue are each non-GAAP measures, which collectively represent noninterest income, but exclude 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 and non-GAAP SVB Leerink revenue to GAAP noninterest income for fiscal year ending 2021 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. Core fee income does not include SVB Leerink revenue. SVB Leerink revenue represents investment banking revenue and commissions.
(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)Pre-tax merger-related charges, associated with the Boston Private acquisition, were $102 million for the nine months ended September 30, 2021 and are estimated to be approximately $25 million in the fourth quarter of 2021. We expect a total of approximately $40 million of pre-tax merger-related charges, spread relatively evenly, to be incurred during the full year 2022.
(6)Our outlook for our effective tax rate is based on management's current assumptions with respect to, among other things, SVB Financial Group's earnings, state income tax levels, tax deductions and estimated performance-based compensation activity and does not include assumptions for potential future tax rate changes.
16
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the safe harbor provisions 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 "Financial Outlook and Preliminary 2022 Outlook," we make forward-looking statements discussing management's expectations for 2021 and 2022 about, among other things, economic conditions; the continuing and potential effects of the COVID-19 pandemic; opportunities in the market; the outlook on our clients' performance; our financial, credit, and business performance, including loan growth, loan mix and loan yields; deposit growth; expense levels; our expected effective tax rate; accounting impacts; financial results (and the components of such results) and the continuing integration of Boston Private.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may not prove to be correct. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management's forward-looking statements. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among others:
•market and economic conditions (including the general condition of the capital and equity markets, and IPO, secondary offering, SPAC fundraising, M&A and financing activity levels) and the associated impact on us (including effects on client demand for our commercial and investment banking and other financial services, as well as on the valuations of our investments);
•the COVID-19 pandemic and its effects on the economic and business environments in which we operate, and its effects on our operations, including, as a result of, prolonged work-from-home arrangements;
•the impact of changes from the Biden-Harris administration and the U.S. Congress on the economic environment, capital markets and regulatory landscape, including monetary, tax and other trade policies;
•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;
•the adequacy of our allowance for credit losses and the need to make provisions for credit losses for any period;
•the sufficiency of our capital and liquidity positions;
•changes in the levels of our loans, deposits and client investment fund balances;
•changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets;
•variations from our expectations as to factors impacting our cost structure;
•changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity;
•variations from our expectations as to factors impacting the timing and level of employee share-based transactions;
•the occurrence of fraudulent activity, including breaches of our information security or cyber security-related incidents;
•business disruptions and interruptions due to natural disasters and other external events;
•the impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties;
•the expansion of our business internationally, and the impact of international market and economic events on us;
•the effectiveness of our risk management framework and quantitative models;
•our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives, including through the continuing integration of Boston Private and the expansion of SVB Leerink into the technology investment banking sector;
17
•greater than expected costs or other difficulties related to the continuing integration of our business and that of Boston Private;
•variations from our expectations as to the amount and timing of business opportunities, growth prospects and cost savings associated with the acquisition of Boston Private;
•the inability to retain existing Boston Private clients and employees following the Boston Private acquisition;
•unfavorable resolution of legal proceedings or claims, as well as legal or regulatory proceedings or governmental actions;
•variations from our expectations as to factors impacting our estimate of our full-year effective tax rate;
•changes in applicable accounting standards and tax laws; and
•regulatory or legal changes and their impact on us.
The operating and economic environment during the third quarter continued to be impacted by the COVID-19 pandemic and related government orders. Statements about the effects of the COVID-19 pandemic on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, potential variations of the virus, vaccination rates, the need for vaccine booster shots, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and 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 21, 2021, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the quarter ended September 30, 2021. The conference call can be accessed by dialing (888) 330-3016 or (646) 960-0828 and entering the confirmation number "5682116".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 audio webcast will also be available on www.svb.com for 12 months beginning on October 21, 2021.
Additional Information
For additional information about our business, financial results for the third quarter 2021 and financial outlook, please refer to our Q3 2021 Earnings Slides and Q3 2021 CEO Letter, which are available on the Investor Relations section of our website at www.svb.com. These materials should be read together with this release, and include important supplemental information including key considerations that may impact our financial outlook.
About SVB Financial Group
For nearly 40 years, SVB Financial Group (NASDAQ: SIVB) and its subsidiaries have helped innovative companies and their investors move bold ideas forward, fast. SVB Financial Group's businesses, including Silicon Valley Bank, offer commercial, investment and private banking, asset management, private wealth management, brokerage and investment services and funds management services to companies in the technology, life science and healthcare, private equity and venture capital and premium wine industries. Headquartered in Santa Clara, California, SVB Financial Group operates in centers of innovation around the world. Learn more at www.svb.com.
SVB Financial Group is the holding company for all business units and groups © 2021 SVB Financial Group. All rights reserved. SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, SVB LEERINK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group.
18
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Three months ended
|
Nine months ended
|
(Dollars in millions, except share data)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Interest income:
|
Loans
|
$
|
519
|
$
|
472
|
$
|
369
|
$
|
1,422
|
$
|
1,117
|
Investment securities:
|
Taxable
|
332
|
251
|
156
|
807
|
452
|
Non-taxable
|
28
|
24
|
15
|
73
|
42
|
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities
|
5
|
4
|
3
|
12
|
23
|
Total interest income
|
884
|
751
|
543
|
2,314
|
1,634
|
Interest expense:
|
Deposits
|
19
|
12
|
8
|
41
|
51
|
Borrowings
|
13
|
11
|
7
|
33
|
18
|
Total interest expense
|
32
|
23
|
15
|
74
|
69
|
Net interest income
|
852
|
728
|
528
|
2,240
|
1,565
|
Provision (reduction) for credit losses
|
21
|
35
|
(52)
|
75
|
258
|
Net interest income after provision for credit losses
|
831
|
693
|
580
|
2,165
|
1,307
|
Noninterest income:
|
Gains on investment securities, net
|
189
|
305
|
190
|
661
|
271
|
Gains on equity warrant assets, net
|
147
|
122
|
54
|
491
|
94
|
Client investment fees
|
20
|
15
|
32
|
55
|
107
|
Wealth management and trust fees
|
22
|
-
|
-
|
22
|
-
|
Foreign exchange fees
|
65
|
67
|
44
|
189
|
128
|
Credit card fees
|
34
|
31
|
23
|
93
|
72
|
Deposit service charges
|
29
|
28
|
22
|
82
|
67
|
Lending related fees
|
21
|
18
|
13
|
55
|
38
|
Letters of credit and standby letters of credit fees
|
13
|
13
|
12
|
39
|
35
|
Investment banking revenue
|
90
|
103
|
92
|
335
|
281
|
Commissions
|
17
|
17
|
16
|
58
|
49
|
Other
|
25
|
42
|
49
|
97
|
76
|
Total noninterest income
|
672
|
761
|
547
|
2,177
|
1,218
|
Noninterest expense:
|
Compensation and benefits
|
548
|
425
|
327
|
1,418
|
903
|
Professional services
|
104
|
97
|
67
|
282
|
170
|
Premises and equipment
|
54
|
37
|
31
|
124
|
85
|
Net occupancy
|
25
|
17
|
19
|
60
|
56
|
Business development and travel
|
6
|
3
|
2
|
13
|
19
|
FDIC and state assessments
|
13
|
10
|
7
|
33
|
19
|
Merger-related charges
|
83
|
19
|
-
|
102
|
-
|
Other
|
46
|
45
|
38
|
136
|
118
|
Total noninterest expense
|
879
|
653
|
491
|
2,168
|
1,370
|
Income before income tax expense
|
624
|
801
|
636
|
2,174
|
1,155
|
Income tax expense
|
149
|
173
|
162
|
509
|
300
|
Net income before noncontrolling interests and dividends
|
475
|
628
|
474
|
1,665
|
855
|
Net income attributable to noncontrolling interests
|
(88)
|
(113)
|
(28)
|
(226)
|
(40)
|
Preferred stock dividends
|
(22)
|
(13)
|
(4)
|
(40)
|
(12)
|
Net income available to common stockholders
|
$
|
365
|
$
|
502
|
$
|
442
|
$
|
1,399
|
$
|
803
|
Earnings per common share-basic
|
$
|
6.33
|
$
|
9.23
|
$
|
8.53
|
$
|
25.54
|
$
|
15.55
|
Earnings per common share-diluted
|
6.24
|
9.09
|
8.47
|
25.16
|
15.46
|
Weighted average common shares outstanding-basic
|
57,722,890
|
54,352,725
|
51,773,181
|
54,772,192
|
51,640,112
|
Weighted average common shares outstanding-diluted
|
58,521,274
|
55,151,596
|
52,146,660
|
55,616,669
|
51,950,734
|
19
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
(Dollars in millions, except par value and share data)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
Assets:
|
Cash and cash equivalents
|
$
|
18,940
|
$
|
23,959
|
$
|
15,688
|
Available-for-sale securities, at fair value (cost $22,919, $23,776 and $25,238, respectively)
|
22,984
|
23,876
|
25,904
|
Held-to-maturity securities, at amortized cost and net of allowance for credit losses of $6, $5 and less than $1 (fair value of $81,995, $60,107 and $13,612), respectively
|
82,365
|
59,992
|
12,982
|
Non-marketable and other equity securities
|
2,485
|
1,943
|
1,548
|
Investment securities
|
107,834
|
85,811
|
40,434
|
Loans, amortized cost
|
61,487
|
50,754
|
38,414
|
Allowance for credit losses: loans
|
(398)
|
(396)
|
(513)
|
Net loans
|
61,089
|
50,358
|
37,901
|
Premises and equipment, net of accumulated depreciation and amortization
|
247
|
196
|
173
|
Goodwill
|
344
|
143
|
138
|
Other intangible assets, net
|
156
|
57
|
45
|
Lease right-of-use assets
|
312
|
225
|
221
|
Accrued interest receivable and other assets
|
2,074
|
2,650
|
2,317
|
Total assets
|
$
|
190,996
|
$
|
163,399
|
$
|
96,917
|
Liabilities and total equity:
|
Liabilities:
|
Noninterest-bearing demand deposits
|
$
|
115,388
|
$
|
101,259
|
$
|
57,508
|
Interest-bearing deposits
|
55,794
|
44,579
|
27,265
|
Total deposits
|
171,182
|
145,838
|
84,773
|
Short-term borrowings
|
97
|
34
|
19
|
Lease liabilities
|
390
|
277
|
247
|
Other liabilities
|
2,733
|
3,449
|
3,067
|
Long-term debt
|
1,925
|
1,834
|
844
|
Total liabilities
|
176,327
|
151,432
|
88,950
|
SVBFG stockholders' equity:
|
Preferred stock, $0.001 par value, 20,000,000 shares authorized; 367,500, 367,500 and 350,000 shares issued and outstanding, respectively
|
2,064
|
2,064
|
340
|
Common stock, $0.001 par value, 150,000,000 shares authorized; shares, 58,677,483, 54,530,307 shares and 51,787,972 shares issued and outstanding, respectively
|
-
|
-
|
-
|
Additional paid-in capital
|
5,100
|
2,755
|
1,549
|
Retained earnings
|
7,071
|
6,706
|
5,284
|
Accumulated other comprehensive income
|
65
|
142
|
620
|
Total SVBFG stockholders' equity
|
14,300
|
11,667
|
7,793
|
Noncontrolling interests
|
369
|
300
|
174
|
Total equity
|
14,669
|
11,967
|
7,967
|
Total liabilities and total equity
|
$
|
190,996
|
$
|
163,399
|
$
|
96,917
|
x
20
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
|
|
Three months ended
|
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
(Dollars in millions, 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)
|
$
|
21,779
|
$
|
5
|
0.10
|
%
|
$
|
21,069
|
$
|
4
|
0.08
|
%
|
$
|
13,817
|
$
|
2
|
0.08
|
%
|
Investment securities: (2)
|
Available-for-sale securities:
|
Taxable
|
23,290
|
69
|
1.17
|
24,358
|
73
|
1.20
|
20,027
|
88
|
1.74
|
Held-to-maturity securities:
|
Taxable
|
64,899
|
262
|
1.61
|
43,352
|
178
|
1.65
|
10,286
|
69
|
2.66
|
Non-taxable (3)
|
5,613
|
36
|
2.53
|
4,562
|
31
|
2.73
|
2,267
|
19
|
3.31
|
Total loans, amortized cost (4) (5)
|
59,291
|
519
|
3.47
|
49,812
|
472
|
3.80
|
37,319
|
369
|
3.93
|
Total interest-earning assets
|
174,872
|
891
|
2.02
|
143,153
|
758
|
2.12
|
83,716
|
547
|
2.60
|
Cash and due from banks
|
2,285
|
2,108
|
1,162
|
Allowance for credit losses: loans
|
(451)
|
(411)
|
(610)
|
Other assets (6)
|
5,984
|
5,867
|
4,080
|
Total assets
|
$
|
182,690
|
$
|
150,717
|
$
|
88,348
|
Funding sources:
|
Interest-bearing liabilities:
|
Interest bearing checking and savings accounts
|
$
|
4,310
|
$
|
1
|
0.14
|
%
|
$
|
3,096
|
$
|
1
|
0.11
|
%
|
$
|
4,298
|
$
|
3
|
0.28
|
%
|
Money market deposits
|
46,051
|
17
|
0.14
|
36,452
|
10
|
0.11
|
19,829
|
5
|
0.09
|
Money market deposits in foreign offices
|
1,039
|
-
|
0.01
|
787
|
-
|
0.01
|
262
|
-
|
0.03
|
Time deposits
|
1,245
|
1
|
0.32
|
631
|
1
|
0.37
|
381
|
-
|
0.48
|
Sweep deposits in foreign offices
|
1,109
|
-
|
0.01
|
1,264
|
-
|
0.01
|
1,366
|
-
|
0.03
|
Total interest-bearing deposits
|
53,754
|
19
|
0.14
|
42,230
|
12
|
0.11
|
26,136
|
8
|
0.13
|
Short-term borrowings
|
99
|
-
|
0.17
|
39
|
-
|
0.19
|
16
|
-
|
0.10
|
Long-term debt
|
1,936
|
13
|
2.66
|
1,604
|
11
|
2.75
|
843
|
7
|
1.78
|
Total interest-bearing liabilities
|
55,789
|
32
|
0.23
|
43,873
|
23
|
0.21
|
26,995
|
15
|
0.23
|
Portion of noninterest-bearing funding sources
|
119,083
|
99,280
|
56,721
|
Total funding sources
|
174,872
|
32
|
0.07
|
143,153
|
23
|
0.06
|
83,716
|
15
|
0.07
|
Noninterest-bearing funding sources:
|
Demand deposits
|
109,638
|
91,530
|
51,544
|
Other liabilities
|
3,279
|
4,200
|
2,055
|
Preferred stock
|
2,065
|
1,610
|
340
|
SVBFG common stockholders' equity
|
11,613
|
9,283
|
7,266
|
Noncontrolling interests
|
306
|
221
|
148
|
Portion used to fund interest-earning assets
|
(119,083)
|
(99,280)
|
(56,721)
|
Total liabilities and total equity
|
$
|
182,690
|
$
|
150,717
|
$
|
88,348
|
Net interest income and margin
|
$
|
859
|
1.95
|
%
|
$
|
735
|
2.06
|
%
|
$
|
532
|
2.53
|
%
|
Total deposits
|
$
|
163,392
|
$
|
133,760
|
$
|
77,680
|
Average SVBFG common stockholders' equity as a percentage of average assets
|
6.36
|
%
|
6.16
|
%
|
8.22
|
%
|
Reconciliation to reported net interest income:
|
Adjustments for taxable equivalent basis
|
(7)
|
(7)
|
(4)
|
Net interest income, as reported
|
$
|
852
|
$
|
728
|
$
|
528
|
(1)Includes average interest-earning deposits in other financial institutions of $2.8 billion, $1.9 billion and $1.0 billion; and $15.9 billion, $16.7 billion and $11.3 billion deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate, for the quarters ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively.
(2)Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income or loss.
(3)Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent for all periods presented.
(4)Nonaccrual loans are reflected in the average balances of loans.
(5)Interest income includes loan fees of $63 million, $68 million and $50 million for the quarters ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively.
(6)Average investment securities of $3.0 billion, $3.4 billion and $2.1 billion for the quarters ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively, were classified as other assets as they are noninterest-earning assets. These investments consist primarily of non-marketable and other equity securities.
21
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM AVERAGE BALANCES, RATES AND YIELDS
(Unaudited)
|
|
Nine months ended
|
|
September 30, 2021
|
September 30, 2020
|
(Dollars in millions, except yield/rate and ratios)
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Interest-earning assets:
|
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
|
$
|
20,357
|
$
|
12
|
0.08
|
%
|
$
|
11,026
|
$
|
23
|
0.28
|
%
|
Investment securities: (2)
|
Available-for-sale securities:
|
Taxable
|
25,280
|
266
|
1.40
|
15,476
|
234
|
2.02
|
Held-to-maturity securities:
|
Taxable
|
43,439
|
540
|
1.67
|
10,947
|
218
|
2.66
|
Non-taxable (3)
|
4,634
|
93
|
2.69
|
2,107
|
53
|
3.39
|
Total loans, amortized cost (4) (5)
|
51,843
|
1,422
|
3.67
|
35,836
|
1,117
|
4.16
|
Total interest-earning assets
|
145,553
|
2,333
|
2.15
|
75,392
|
1,645
|
2.91
|
Cash and due from banks
|
1,979
|
952
|
Allowance for credit losses for loans
|
(449)
|
(500)
|
Other assets (6)
|
5,869
|
3,917
|
Total assets
|
$
|
152,952
|
$
|
79,761
|
Funding sources:
|
Interest-bearing liabilities:
|
Interest bearing checking and savings accounts
|
$
|
3,692
|
$
|
3
|
0.12
|
%
|
$
|
2,347
|
$
|
5
|
0.27
|
%
|
Money market deposits
|
37,876
|
36
|
0.13
|
18,330
|
41
|
0.30
|
Money market deposits in foreign offices
|
900
|
-
|
0.03
|
273
|
-
|
0.03
|
Time deposits
|
847
|
2
|
0.33
|
244
|
1
|
0.68
|
Sweep deposits in foreign offices
|
1,198
|
-
|
0.02
|
1,631
|
4
|
0.33
|
Total interest-bearing deposits
|
44,513
|
41
|
0.12
|
22,825
|
51
|
0.30
|
Short-term borrowings
|
50
|
-
|
0.16
|
533
|
3
|
0.83
|
Long-term debt
|
1,571
|
33
|
2.79
|
561
|
15
|
3.48
|
Total interest-bearing liabilities
|
46,134
|
74
|
0.21
|
23,919
|
69
|
0.39
|
Portion of noninterest-bearing funding sources
|
99,419
|
51,473
|
Total funding sources
|
145,553
|
74
|
0.07
|
75,392
|
69
|
0.12
|
Noninterest-bearing funding sources:
|
Demand deposits
|
91,600
|
46,341
|
Other liabilities
|
3,831
|
2,119
|
Preferred stock
|
1,502
|
340
|
SVBFG common stockholders' equity
|
9,639
|
6,892
|
Noncontrolling interests
|
246
|
150
|
Portion used to fund interest-earning assets
|
(99,419)
|
(51,473)
|
Total liabilities and total equity
|
$
|
152,952
|
$
|
79,761
|
Net interest income and margin
|
$
|
2,259
|
2.08
|
%
|
$
|
1,576
|
2.79
|
%
|
Total deposits
|
$
|
136,113
|
$
|
69,166
|
Average SVBFG stockholders' equity as a percentage of average assets
|
6.30
|
%
|
8.64
|
%
|
Reconciliation to reported net interest income:
|
Adjustments for taxable equivalent basis
|
(19)
|
(11)
|
Net interest income, as reported
|
$
|
2,240
|
$
|
1,565
|
(1)Includes average interest-earning deposits in other financial institutions of $2.1 billion and $936 million for the nine months endedSeptember 30, 2021 and September 30, 2020. The balance also includes $15.8 billion and $8.9 billion deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(2)Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income or loss.
(3)Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent for all periods presented.
(4)Nonaccrual loans are reflected in the average balances of loans.
(5)Interest income includes loan fees of $189 million and $136 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(6)Average investment securities of $3.2 billion and $1.9 billion for the nine months ended September 30, 2021 and September 30, 2020, respectively, were classified as other assets as they are noninterest-earning assets. These investments consisted primarily of non-marketable and other equity securities.
22
Reconciliation of Basic and Diluted Weighted Average Common Shares Outstanding
|
|
Three months ended
|
Nine months ended
|
(Shares in thousands)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
Weighted average common shares outstanding-basic
|
57,723
|
54,353
|
51,773
|
54,772
|
51,640
|
Effect of dilutive securities:
|
Stock options and employee stock purchase plan
|
268
|
272
|
141
|
278
|
147
|
Restricted stock units
|
530
|
527
|
232
|
567
|
163
|
Total effect of dilutive securities
|
798
|
799
|
373
|
845
|
310
|
Weighted average common shares outstanding-diluted
|
58,521
|
55,152
|
52,146
|
55,617
|
51,950
|
Credit Quality
|
(Dollars in millions, except ratios)
|
September 30, 2021
|
June 30, 2021
|
September 30, 2020
|
Nonaccrual, past due and restructured loans:
|
Nonaccrual loans
|
$
|
114
|
$
|
79
|
$
|
106
|
Loans past due 90 days or more still accruing interest
|
3
|
3
|
-
|
Total nonperforming loans
|
117
|
82
|
106
|
OREO and other foreclosed assets
|
1
|
1
|
1
|
Total nonperforming assets
|
$
|
118
|
$
|
83
|
$
|
107
|
Nonperforming loans as a percentage of total loans
|
0.19
|
%
|
0.16
|
%
|
0.28
|
%
|
Nonperforming assets as a percentage of total assets
|
0.06
|
0.05
|
0.11
|
Allowance for credit losses for loans
|
$
|
398
|
$
|
396
|
$
|
513
|
As a percentage of total loans
|
0.65
|
%
|
0.78
|
%
|
1.34
|
%
|
As a percentage of total nonperforming loans
|
340.17
|
482.93
|
485.25
|
Allowance for credit losses for nonaccrual loans
|
$
|
33
|
$
|
38
|
$
|
64
|
As a percentage of total loans
|
0.06
|
%
|
0.07
|
%
|
0.17
|
%
|
As a percentage of total nonperforming loans
|
28.21
|
46.34
|
61.00
|
Allowance for credit losses for total performing loans
|
$
|
365
|
$
|
358
|
$
|
449
|
As a percentage of total loans
|
0.59
|
%
|
0.71
|
%
|
1.17
|
%
|
As a percentage of total performing loans
|
0.59
|
0.71
|
1.17
|
Total loans
|
$
|
61,487
|
$
|
50,754
|
$
|
38,414
|
Total performing loans
|
61,370
|
50,672
|
38,308
|
Allowance for credit losses for unfunded credit commitments (1)
|
149
|
120
|
101
|
As a percentage of total unfunded credit commitments
|
0.37
|
%
|
0.33
|
%
|
0.33
|
%
|
Total unfunded credit commitments (2)
|
$
|
40,785
|
$
|
36,385
|
$
|
30,330
|
(1)The "allowance for credit losses for unfunded credit commitments" is included as a component of "other liabilities."
(2)Includes unfunded loan commitments and letters of credit.
23
Use of Non-GAAP Financial Measures
To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures (including, but not limited to, non-GAAP core fee income, non-GAAP SVB Leerink revenue, non-GAAP core fee income plus non-GAAP SVB Leerink revenue, non-GAAP net gains on investment securities, non-GAAP non-marketable and other equity securities and non-GAAP financial ratios) of financial performance. These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures (as applicable), provide meaningful supplemental information regarding our performance by: (i) excluding amounts attributable to noncontrolling interests for which we effectively do not receive the economic benefit or cost of, where indicated, or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, net income or other financial measures prepared in accordance with GAAP. In the financial tables below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure.
Additionally, from time to time, we may make reference to the non-GAAP financial metric of Core EPS in our earnings call and other investor presentations. Non-GAAP Core EPS consists of our net income available to common stockholders less gains or losses on investment securities, equity warrant assets and income and expenses related to SVB Leerink, net of tax, divided by our diluted weighted average common shares outstanding. Our management believes this measure to be a useful assessment of our performance as it relates to our core business because it excludes certain financial items where performance is typically subject to market or other conditions beyond our control. A reconciliation of Core EPS to the closest corresponding GAAP measure is not available with respect to future goals due to our inability to provide a quantitative reconciliation to such measure.
In particular, in this press release, we use certain non-GAAP measures that exclude the following from net income and certain other financial line items in certain periods:
•Income and expense attributable to noncontrolling interests - As part of our funds management business, we recognize the entire income or loss from certain funds where we own less than 100 percent. We are required under GAAP to consolidate 100 percent of the results of certain SVB Capital funds. The relevant amounts attributable to investors other than us are reflected under "Net Income Attributable to Noncontrolling Interests." Our net income available to common stockholders/certain financial line items include only the portion of income or loss related to our ownership interest.
In addition, in this press release, we use certain non-GAAP financial ratios and measures that are not required by GAAP or exclude certain financial items from calculations that are otherwise required under GAAP, including:
•Non-GAAP core fee income plus SVB Leerink revenue - This measure represents noninterest income but excludes certain line items where performance is typically subject to market or other conditions beyond our control. We do not provide our outlook for the expected full year results for these excluded items, which include net gains or losses on investment securities, net gains or losses on equity warrant assets and other noninterest income items.
•Non-GAAP core fee income - This measure represents noninterest income but excludes certain line items where performance is typically subject to market or other conditions beyond our control, as well as our non-GAAP SVB Leerink revenue, and represents client investment fees, wealth management and trust fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and
24
standby letters of credit fees. We do not provide our outlook for the expected full year results for these excluded items, which include net gains or losses on investment securities, net gains or losses on equity warrant assets and other noninterest income items.
•Non-GAAP SVB Leerink revenue - This measure represents noninterest income but excludes certain line items where performance is typically subject to market or other conditions beyond our control, as well as our non-GAAP core fee income, and represents investment banking revenue and commissions. We do not provide our outlook for the expected full year results for these excluded items, which include net gains or losses on investment securities, net gains or losses on equity warrant assets and other noninterest income items.
•Tangible common equity, or tangible book value, to tangible assets ratio; tangible common equity to risk-weighted assets ratio - These ratios are not required by GAAP or applicable bank regulatory requirements and are used by management to evaluate the adequacy of our capital levels. Risk-based capital guidelines require a minimum level of capital as a percentage of risk-weighted assets. Risk-weighted assets are calculated by assigning assets and off-balance sheet items to broad risk categories. Our ratios are calculated by dividing total SVBFG stockholders' equity, by total assets or total risk-weighted assets, as applicable, after reducing amounts by acquired intangibles, if any.
|
Three months ended
|
Nine months ended
|
Non-GAAP core fee income plus SVB Leerink revenue, non-GAAP SVB Leerink revenue and non-GAAP core fee income (Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
March 31, 2021
|
December 31, 2020
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
GAAP noninterest income
|
$
|
672
|
$
|
761
|
$
|
744
|
$
|
622
|
$
|
547
|
$
|
2,177
|
$
|
1,218
|
Less: gains on investment securities, net
|
189
|
305
|
167
|
150
|
190
|
661
|
271
|
Less: net gains on equity warrant assets
|
147
|
122
|
222
|
144
|
54
|
491
|
94
|
Less: other noninterest income
|
25
|
42
|
30
|
21
|
49
|
97
|
76
|
Non-GAAP core fee income plus SVB Leerink revenue
|
$
|
311
|
$
|
292
|
$
|
325
|
$
|
307
|
$
|
254
|
$
|
928
|
$
|
777
|
Investment banking revenue
|
90
|
103
|
142
|
133
|
92
|
335
|
281
|
Commissions
|
17
|
17
|
24
|
18
|
16
|
58
|
49
|
Less: non-GAAP SVB Leerink revenue
|
$
|
107
|
$
|
120
|
$
|
166
|
$
|
151
|
$
|
108
|
$
|
393
|
$
|
330
|
Non-GAAP core fee income
|
$
|
204
|
$
|
172
|
$
|
159
|
$
|
156
|
$
|
146
|
$
|
535
|
$
|
447
|
|
Three months ended
|
Nine months ended
|
Non-GAAP net gains on investment securities, net of noncontrolling interests (Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
March 31, 2021
|
December 31, 2020
|
September 30, 2020
|
September 30, 2021
|
September 30, 2020
|
GAAP net gains on investment securities
|
189
|
305
|
167
|
150
|
190
|
661
|
271
|
Less: income attributable to noncontrolling interests, including carried interest allocation
|
88
|
113
|
25
|
46
|
28
|
226
|
41
|
Non-GAAP net gains on investment securities, net of noncontrolling interests
|
$
|
101
|
$
|
192
|
$
|
142
|
$
|
104
|
$
|
162
|
$
|
435
|
$
|
230
|
25
|
Period-end balances at
|
Non-GAAP non-marketable and other equity securities, net of noncontrolling interests (Dollars in millions)
|
September 30, 2021
|
June 30, 2021
|
March 31, 2021
|
December 31, 2020
|
September 30, 2020
|
GAAP non-marketable and other equity securities
|
$
|
2,485
|
$
|
1,943
|
$
|
1,858
|
$
|
1,802
|
$
|
1,548
|
Less: amounts attributable to noncontrolling interests
|
349
|
298
|
226
|
213
|
168
|
Non-GAAP non-marketable and other equity securities, net of noncontrolling interests
|
$
|
2,136
|
$
|
1,645
|
$
|
1,632
|
$
|
1,589
|
$
|
1,380
|
|
Period-end balances at
|
SVB Financial Group tangible common equity, tangible assets and risk-weighted assets (Dollars in millions, except ratios)
|
September 30, 2021
|
June 30, 2021
|
March 31, 2021
|
December 31, 2020
|
September 30, 2020
|
GAAP SVBFG stockholders' equity
|
$
|
14,300
|
$
|
11,667
|
$
|
9,895
|
$
|
8,220
|
$
|
7,793
|
Less: preferred stock
|
2,064
|
2,064
|
1,079
|
340
|
340
|
Less: intangible assets
|
500
|
200
|
202
|
204
|
183
|
Plus: net deferred taxes on intangible assets
|
25
|
-
|
(1)
|
-
|
-
|
Tangible common equity
|
$
|
11,761
|
$
|
9,403
|
$
|
8,613
|
$
|
7,676
|
$
|
7,270
|
GAAP total assets
|
$
|
190,996
|
$
|
163,399
|
$
|
142,347
|
$
|
115,511
|
$
|
96,917
|
Less: intangible assets
|
500
|
200
|
202
|
204
|
183
|
Plus: net deferred taxes on intangible assets
|
25
|
-
|
(1)
|
-
|
-
|
Tangible assets
|
$
|
190,521
|
$
|
163,199
|
$
|
142,144
|
$
|
115,307
|
$
|
96,734
|
Risk-weighted assets
|
$
|
92,441
|
$
|
78,231
|
$
|
71,059
|
$
|
64,681
|
$
|
54,738
|
Tangible common equity to tangible assets
|
6.17
|
%
|
5.76
|
%
|
6.06
|
%
|
6.66
|
%
|
7.52
|
%
|
Tangible common equity to risk-weighted assets
|
12.72
|
12.02
|
12.12
|
11.87
|
13.28
|
|
Period-end balances at
|
Silicon Valley Bank tangible common equity, tangible assets and risk-weighted assets (Dollars in millions, except ratios)
|
September 30, 2021
|
June 30, 2021
|
March 31, 2021
|
December 31, 2020
|
September 30, 2020
|
Tangible common equity
|
$
|
13,404
|
$
|
10,428
|
$
|
8,766
|
$
|
7,069
|
$
|
6,104
|
Tangible assets
|
$
|
188,329
|
$
|
161,197
|
$
|
140,231
|
$
|
113,303
|
$
|
95,012
|
Risk-weighted assets
|
$
|
89,408
|
$
|
75,795
|
$
|
68,058
|
$
|
61,023
|
$
|
51,793
|
Tangible common equity to tangible assets
|
7.12
|
%
|
6.47
|
%
|
6.25
|
%
|
6.24
|
%
|
6.42
|
%
|
Tangible common equity to risk-weighted assets
|
14.99
|
13.76
|
12.88
|
11.58
|
11.79
|
26
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SVB Financial Group published this content on 21 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 October 2021 20:23:19 UTC.