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| SIVB > SEC Filings for SIVB > Form 10-Q on 9-Nov-2012 | All Recent SEC Filings |
9-Nov-2012
Quarterly Report
• Descriptions of our strategic initiatives, plans or objectives for future operations, including pending sales or acquisitions
• Forecasts of venture capital/private equity funding and investment levels
• Forecasts of future interest rates, economic performance, and income
from investments
• Forecasts of expected levels of provisions for loan losses, loan growth
and client funds
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• Descriptions of assumptions underlying or relating to any of the foregoing
In this Quarterly Report on Form 10-Q, we make forward-looking statements,
including, but not limited to, those discussing our management's expectations
about:
? Market and economic conditions (including interest rate environment,
and levels of public offerings, mergers/acquisitions and venture
capital financing activities) and the associated impact on us
? The sufficiency of our capital, including sources of capital (such as
funds generated through retained earnings) and the extent to which
capital may be used or required
? The adequacy of our liquidity position, including sources of liquidity
(such as funds generated through retained earnings)
? The adequacy of our liquidity position, including sources of liquidity
(such as funds generated through retained earnings)
? The realization, timing, valuation and performance of equity or other
investments
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? The likelihood that the market value of our impaired investments will recover
? Our intent to sell our investment securities prior to recovery of our
cost basis, or the likelihood of such
? Expected cash requirements for unfunded commitments to certain
investments, including capital calls
? Our overall management of interest rate risk, including managing the
sensitivity of our interest-earning assets and interest-bearing
liabilities to interest rates, and the impact to earnings from a change
in interest rates
? The credit quality of our loan portfolio, including levels and trends
of nonperforming loans, impaired loans, criticized loans and troubled
debt restructurings
? The adequacy of reserves (including allowance for loan and lease
losses) and the appropriateness of our methodology for calculating such
reserves
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? The level of loan and deposit balances
? The level of client investment fees and associated margins
? The profitability of our products and services
? Our strategic initiatives, including the expansion of operations in
China, India, Israel, the UK and elsewhere (such as establishing our
joint venture bank in China and a branch in the UK)
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? The expansion and growth of our noninterest income sources
? Distributions of venture capital, private equity or debt fund
investment proceeds; intentions to sell such fund investments
? The changes in, or adequacy of, our unrecognized tax benefits and any
associated impact
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? The impact from the IRS audit examination results
? The extent to which counterparties, including those to our forward and option contracts, will perform their contractual obligations
? The effect of application of certain accounting pronouncements
? The effect of lawsuits and claims
? Regulatory developments, including the nature and timing of the
adoption and effectiveness of new requirements under the Dodd-Frank Act
(as defined below), Basel guidelines, and other applicable laws and
regulations
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You can identify these and other forward-looking statements by the use of words
such as "becoming," "may," "will," "should," "predicts," "potential,"
"continue," "anticipates," "believes," "estimates," "seeks," "expects," "plans,"
"intends," the negative of such words, or comparable terminology. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, we have based these expectations on our beliefs as well as our
assumptions, and such expectations may prove to be incorrect. Our actual results
of operations and financial performance could differ significantly from those
expressed in or implied by our management's forward-looking statements.
For information with respect to factors that could cause actual results to
differ from the expectations stated in the forward-looking statements, see "Risk
Factors" set forth in our Annual Report on Form 10-K for the year ended
December 31, 2011 ("2011 Form 10-K"), as filed with the SEC. We urge investors
to consider all of these factors carefully in evaluating the forward-looking
statements contained in this report. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements. The
forward-looking statements included in this filing are made only as of the date
of this filing. We assume no obligation and do not intend to revise or update
any forward-looking statements contained in this Quarterly Report on Form 10-Q.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our interim unaudited consolidated
financial statements and accompanying notes as presented in Part I, Item 1 of
this report and in conjunction with our 2011 Form 10-K.
Reclassifications
Certain reclassifications have been made to prior period results to conform to
the current period's presentations. Such reclassifications had no effect on our
results of operations or stockholders' equity.
Management's Overview of Third Quarter 2012 Performance
Overall, we had a strong third quarter of 2012, which reflected the strength of
our clients and our business. We had net income available to common stockholders
of $42.3 million and diluted earnings per common share of $0.94. In the third
quarter of 2012, compared to the third quarter of 2011, we experienced strong
growth in net interest income as a result of exceptional loan growth during the
quarter with record high average balances of $7.9 billion. Our total client
funds, which consists of on-balance sheet deposits and off-balance sheet client
investment funds, also increased reflecting growth from our existing clients and
the addition of new clients. In addition, overall credit quality remains strong,
and we saw continued growth in fee income and solid gains from our investment
securities portfolio. Additionally, our liquidity and capital ratios continued
to remain strong.
Third quarter 2012 results (compared to the third quarter 2011, where
applicable) included:
? Continued strong growth in our lending business with record high
average loan balances of $7.9 billion, an increase of $1.9 billion, or
31.6 percent.
? A provision for loan losses of $6.8 million, primarily attributable to
loan growth. Net charge-offs of $3.4 million (or 0.17 percent of
average total gross loans-annualized) for the third quarter of 2012
reflects the strong overall credit quality of our portfolio.
? Average deposit balances of $18.3 billion, an increase of $2.5 billion,
or 15.5 percent. Average total client funds
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(including both average on-balance sheet deposits and off-balance sheet client
investment funds) were $39.2 billion, an increase of $5.5 billion, or 16.2
percent.
? Net interest income (fully taxable equivalent basis) of $154.9 million,
an increase of $19.0 million, primarily due to an increase in interest
income from loans mainly attributable to growth in average balances of
$1.9 billion. These increases were partially offset by lower yields
earned on our overall loan portfolio.
? Our net interest margin remained relatively flat at 3.12 percent,
compared to 3.13 percent. Our net interest margin was impacted by
decrease in the overall yield of our available-for-sale securities due
to increased premium amortization expense from increasing prepayment
rates on our mortgage-backed securities and a decrease in the yield of
our loan portfolio. The decrease in yields was largely offset by strong
growth in average loan balances, which has resulted in a favorable
change in our mix of interest-earning assets.
? Core fee income (deposit service charges, letters of credit fees,
credit card fees, client investment fees, and foreign exchange fees) of
$34.4 million, an increase of $4.1 million, or 13.5 percent. This
increase reflects increased client activity and continued growth in our
business, primarily from credit card fees, client investments fees and
foreign exchange fees. See "Results of Operations-Noninterest Income"
for a description and reconciliation of core fee income.
? Gains on investment securities, net of noncontrolling interests, of
$7.5 million, compared to $9.3 million. See "Results of
Operations-Noninterest Income-Gains on Investment Securities, Net" for
further details and a reconciliation of gains on investment securities,
net of noncontrolling interests.
? Noninterest expense of $135.2 million, an increase of $7.7 million, or
6.1 percent. The increase was primarily due to increased premises and
equipment and professional services expenses to support continued
growth in our business and IT infrastructure initiatives. In addition,
average full-time equivalent employees ("FTEs") increased by 7.8
percent to 1,594 average FTEs, compared to 1,478 average FTEs, which
contributed to an increase in salaries and wages expense.
? Overall, our liquidity remained strong based on our period end
available-for-sale securities portfolio of $11.0 billion at
September 30, 2012. Our available-for-sale securities portfolio
continues to be a good source of liquidity as it is invested in high
quality investments and generates substantial monthly cash flows.
Additionally, our available-for-sale securities portfolio provides us
the ability to secure wholesale borrowings, if needed.
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A summary of our performance for the three and nine months ended September 30,
2012 and 2011 is as follows:
Three months ended September 30, Nine months ended September 30,
(Dollars in thousands,
except per share data and
ratios) 2012 2011 % Change 2012 2011 % Change
Income Statement:
Diluted earnings per share $ 0.94 $ 0.86 9.3 % $ 2.79 $ 3.12 (10.6 ) %
Net income available to common
stockholders 42,289 37,571 12.6 124,682 136,328 (8.5 )
Net interest income 154,430 135,455 14.0 457,301 386,207 18.4
Net interest margin 3.12 % 3.13 % (1 ) bps 3.21 % 3.07 % 14 bps
Provision for (reduction of)
loan losses $ 6,788 $ 769 NM % $ 29,316 $ (2,144 ) NM %
Noninterest income 69,139 95,611 (27.7 ) 208,858 309,273 (32.5 )
Noninterest expense 135,171 127,451 6.1 402,949 365,918 10.1
Non-GAAP net income available to
common stockholders (1) 42,289 37,571 12.6 119,148 111,941 6.4
Non-GAAP diluted earnings per
share (1) 0.94 0.86 9.3 2.67 2.57 3.9
Non-GAAP noninterest income, net
of noncontrolling interest and
excluding gains on sales of
available-for-sale-securities
(2) 55,615 54,372 2.3 164,834 160,600 2.6
Non-GAAP noninterest expense,
net of noncontrolling interest
and excluding net gains from
debt repurchases (3) 132,448 124,685 6.2 393,461 360,173 9.2
Balance Sheet:
Average loans, net of unearned
income $ 7,907,606 $ 6,006,614 31.6 % $ 7,318,537 $ 5,619,709 30.2 %
Average noninterest-bearing
demand deposits 12,914,697 10,634,757 21.4 12,403,438 9,783,426 26.8
Average interest-bearing
deposits 5,345,647 5,169,279 3.4 5,143,756 5,467,512 (5.9 )
Average total deposits 18,260,344 15,804,036 15.5 17,547,194 15,250,938 15.1
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Earnings Ratios: Return on average assets (annualized) (4) 0.77 % 0.79 % (2.5 ) % 0.79 % 0.99 % (20.2 ) % Return on average common SVBFG stockholders' equity (annualized) (5) 9.44 9.93 (4.9 ) 9.77 12.95 (24.6 ) Asset Quality Ratios: Allowance for loan losses as a percentage of total period-end gross loans 1.23 % 1.34 % (11 ) bps 1.23 % 1.34 % (11 ) bps Allowance for loan losses for performing loans as a percentage of total gross performing loans 1.16 1.25 (9 ) 1.16 1.25 (9 ) Gross loan charge-offs as a percentage of average total gross loans (annualized) 0.23 0.54 (31 ) 0.47 0.40 7 Net loan charge-offs (recoveries) as a percentage of average total gross loans (annualized) 0.17 (0.15 ) 32 0.32 (0.11 ) 43 Capital Ratios: Total risk-based capital ratio (6) 14.34 % 14.81 % (47 ) bps 14.34 % 14.81 % (47 ) bps Tier 1 risk-based capital ratio (6) 13.07 13.42 (35 ) 13.07 13.42 (35 ) Tier 1 leverage ratio 8.02 8.01 1 8.02 8.01 1 Tangible common equity to tangible assets (7) 8.27 8.00 27 8.27 8.00 27 Tangible common equity to risk-weighted assets (6) (7) 13.93 14.21 (28 ) 13.93 14.21 (28 ) Bank total risk-based capital ratio (6) 12.70 13.07 (37 ) 12.70 13.07 (37 ) Bank tier 1 risk-based capital ratio (6) 11.41 11.63 (22 ) 11.41 11.63 (22 ) Bank tier 1 leverage ratio 7.00 6.93 7 7.00 6.93 7 Bank tangible common equity to tangible assets (7) 7.61 7.31 30 7.61 7.31 30 Bank tangible common equity to risk-weighted assets (6) (7) 12.40 12.60 (20 ) 12.40 12.60 (20 ) Other Ratios: Operating efficiency ratio (8) 60.33 % 55.04 % 9.6 % 60.36 % 52.50 % 15.0 % Non-GAAP operating efficiency ratio (3) 62.93 % 65.53 % (4.0 ) 63.11 % 65.70 % (3.9 ) Book value per common share (9) $ 40.10 $ 35.50 13.0 $ 40.10 $ 35.50 13.0 Other Statistics: Average full-time equivalent employees 1,594 1,478 7.8 % 1,572 1,428 10.1 % Period-end full-time equivalent employees 1,602 1,504 6.5 1,602 1,504 6.5 |
NM-Not meaningful
(1) See "Non-GAAP Net Income and Non-GAAP Diluted Earnings Per Common Share" for
a description and reconciliation of non-GAAP net income available to common
stockholders and non-GAAP diluted earnings per share.
(2) See "Results of Operations-Noninterest Income" for a description and reconciliation of non-GAAP noninterest income.
(3) See "Results of Operations-Noninterest Expense" for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio.
(4) Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets.
(5) Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders' equity.
(6) Our risk-weighted assets at September 30, 2012 reflect a refinement in our determination of certain unfunded credit commitments related to the contractual borrowing base.
(7) See "Capital Resources-Capital Ratios" for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.
(8) The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income.
(9) Book value per common share is calculated by dividing total SVBFG stockholders' equity by total outstanding common shares at period-end.
Non-GAAP Net Income and Non-GAAP Diluted Earnings Per Common Share We use and report non-GAAP net income and non-GAAP diluted earnings per common share, which excludes gains from sales of certain available-for-sale securities and net gains from debt repurchases and termination of corresponding interest rate swaps, as well as gains from the sale of certain assets related to our equity management services business. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that do not occur every reporting period. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and related trends, and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in
accordance with GAAP.
A reconciliation of GAAP to non-GAAP net income available to common stockholders
and non-GAAP diluted earnings per common share for the three and nine months
ended September 30, 2012 and 2011 is as follows:
Three months ended September 30, Nine months ended September 30,
(Dollars in thousands, except per
share data and ratios) 2012 2011 2012 2011
Net income available to common
stockholders $ 42,289 $ 37,571 $ 124,682 $ 136,328
Less: gains on sales of
available-for-sale securities (1) - - (4,955 ) (37,314 )
Tax impact of gains on sales of
available-for-sale securities - - 1,974 14,810
Less: gains on the sale of certain
assets related to our equity
management services business (2) - - (4,243 ) -
Tax impact of gains on the sale of
certain assets related to our equity
management services business - - 1,690 -
Less: net gain from note repurchases
and termination of corresponding
interest rate swaps (3) - - - (3,123 )
Tax impact of net gain from note
repurchases and termination of
corresponding interest rate swaps - - - 1,240
Non-GAAP net income available to
common stockholders $ 42,289 $ 37,571 $ 119,148 $ 111,941
GAAP earnings per common
share-diluted 0.94 0.86 2.79 3.12
Less: gains on sales of
available-for-sale securities (1) - - (0.11 ) (0.85 )
Tax impact of gains on sales of
available-for-sale securities - - 0.05 0.34
Less: gains on the sale of certain
assets related to our equity
management services business (2) - - (0.10 ) -
Tax impact of gains on the sale of
certain assets related to our equity
management services business - - 0.04 -
Less: net gain from note repurchases
and termination of corresponding
interest rate swaps (3) - - - (0.07 )
Tax impact of net gain from note
repurchases and termination of
corresponding interest rate swaps - - - 0.03
Non-GAAP earnings per common
share-diluted 0.94 0.86 2.67 2.57
Weighted average diluted common
shares outstanding 44,914,564 43,791,238 44,692,224 43,641,185
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(1) Gains on the sales of $315.7 million and $1.4 billion in certain available-for-sale securities in the second quarters of 2012 and 2011, respectively.
(2) Net gains of $4.2 million from the sale of certain assets related to our equity management services business in the second quarter of 2012.
(3) Net gains of $3.1 million from the repurchase of $108.6 million of our 5.70% Senior Notes and $204.0 million of our 6.05% Subordinated Notes and the termination of the corresponding portions of interest rate swaps in the second quarter of 2011.
Critical Accounting Policies and Estimates
The accompanying management's discussion and analysis of results of operations
and financial condition is based upon our unaudited interim consolidated
financial statements, which have been prepared in accordance with GAAP. The
preparation of these financial statements in accordance with GAAP requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosure of contingent
assets and liabilities. Management evaluates estimates and assumptions on an
ongoing basis. Management bases its estimates on historical experiences and
various other factors and assumptions that are believed to be reasonable under
the circumstances. Actual results may differ materially from these estimates
under different assumptions or conditions.
There have been no significant changes during the nine months ended
September 30, 2012 to the items that we disclosed as our critical accounting
policies and estimates in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under Part II, Item 7 of our 2011 Form
10-K.
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
Net interest income is defined as the difference between interest earned on
loans, available-for-sale securities and short-term investment securities, and
interest paid on funding sources. Net interest income is our principal source of
revenue. Net interest margin is defined as the amount of annualized net interest
income, on a fully taxable equivalent basis, expressed as a percentage of
average interest-earning assets. Net interest income and net interest margin are
presented on a fully taxable equivalent basis to consistently reflect income
from taxable loans and securities and tax-exempt securities based on the federal
statutory tax rate of 35.0 percent.
Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable
Equivalent Basis)
Net interest income is affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities, referred to as "volume
change." Net interest income is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing liabilities, referred
to as "rate change." The following table sets forth changes in interest income
for each major category of interest-earning assets and interest expense for each
major category of interest-bearing liabilities. The table also reflects the
amount of simultaneous changes attributable to both volume and rate changes for
the years indicated. For this table, changes that are not solely due to either
volume or rate are allocated in proportion to the percentage changes in average
volume and average rate.
2012 Compared to 2011 2012 Compared to 2011
Three months ended September 30, increase Nine months ended September 30, increase (decrease)
. . .
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