SVB Financial Group Announces 2009 Fourth Quarter and Year-End Financial Results

Jan 21, 2010, 16:20 ET from SVB Financial Group

SANTA CLARA, Calif., Jan. 21, 2010 /PRNewswire-FirstCall/ -- SVB Financial Group (Nasdaq: SIVB) today announced financial results for the fourth quarter and year ended December 31, 2009.

Consolidated net income available to common stockholders for the fourth quarter of 2009 was $6.0 million, or $0.16 per diluted common share, compared to $20.6 million, or $0.61 per diluted common share, for the third quarter of 2009, and a net loss applicable to common stockholders of $0.6 million, or $0.02 per diluted common share, for the fourth quarter of 2008. Consolidated net income for the fourth quarter of 2009 included a non-cash charge of $11.4 million related to our redemption of preferred stock issued under the U.S. Treasury's TARP Capital Purchase Program ("CPP"). Excluding the $11.4 million charge, net income for the fourth quarter of 2009 was $17.5 million, or $0.47 per diluted common share. (See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures" provided below).

Highlights of our fourth quarter 2009 results included:

  • We issued and sold through a public offering during the fourth quarter of 2009 7,965,568 shares of common stock at an offering price of $38.50 per share, which resulted in net proceeds of $292.1 million.
  • On December 23, 2009, we redeemed $235 million in preferred shares, plus accrued and unpaid dividends, under the CPP, which resulted in a non-cash charge of $11.4 million in the fourth quarter of 2009.
  • Provision for loan losses of $17.3 million, an increase of $9.3 million compared to the third quarter of 2009. Our provision for loan losses in the third quarter of 2009 was inclusive of an $11.4 million recovery from a single loan. Gross charge-offs decreased to $33.1 million for the fourth quarter of 2009, compared to $46.6 million for the third quarter of 2009.
  • An increase in net interest income (fully taxable equivalent basis) of $5.3 million, primarily due to growth in average investment securities balances of $780.7 million, or 31.0 percent, reflecting continued investment of excess liquidity resulting from our continued growth in deposits.
  • Growth in average deposit balances of $972.5 million, or 10.9 percent, primarily due to the current low interest rate environment, as well as our clients' desire to maintain short-term liquidity.
  • A decrease in average loan balances of $176.5 million, or 3.9 percent, reflecting continued efforts by some clients to deleverage their businesses.  Although loan balances have decreased, we continue to make new loans, adding 165 new loan clients in the fourth quarter of 2009, resulting in $380.7 million in new funded loans.

Consolidated net income available to common stockholders for the year ended December 31, 2009 was $22.7 million, or $0.66 per diluted common share, compared to $73.6 million, or $2.16 per diluted common share, for 2008.  Consolidated net income for the year ended December 31, 2009 included a non-tax deductible charge of $11.4 million related to TARP repayment in the fourth quarter of 2009 and a non-tax deductible goodwill impairment charge of $4.1 million recorded in the first quarter of 2009. Excluding these charges, net income for the year ended December 31, 2009 was $38.2 million, or $1.12 per diluted common share. (See non-GAAP reconciliation under section "Use of Non-GAAP Financial Measures" provided below).

"We are pleased to see continued improvements across our business, including higher credit quality, stronger fee income and higher interest income," said Ken Wilcox, President and CEO of SVB Financial Group. "Our strong capital and liquidity position has allowed us to continue making the right decisions for our business and for shareholders throughout this recession. In the meantime, we remain poised to take advantage of increases in market activity or interest rates, when they eventually come."

Fourth Quarter 2009 Summary

Three months ended

Year ended

% Change from

(Dollars in millions, except share data and ratios)

December 31,

2009

September 30,

2009

December 31,

2008

September 30,

2009

December 31,

2008

December 31,

2009

December 31,

2008

%

Change

Income Statement:

Diluted earnings (loss) per common share

$          0.16   

$          0.61   

$        (0.02)  

(73.8)  

%

        NM

%

$          0.66   

$          2.16   

(69.4)  

%

Net income attributable to SVBFG

20.7   

24.2   

0.1   

(14.5)  

        NM

48.0   

74.3   

(35.4)  

Net income (loss) available to common stockholders

6.0   

20.6   

(0.6)  

(70.9)  

        NM

22.7   

73.6   

(69.2)  

Net interest income

102.1   

96.8   

96.4   

5.5   

5.9   

382.2   

368.6   

3.7   

Provision for loan losses

17.3   

8.0   

71.0   

116.3   

(75.6)  

90.2   

100.7   

(10.4)  

Noninterest income

40.7   

34.3   

25.7   

18.7   

58.4   

97.7   

152.4   

(35.9)  

Noninterest expense

87.9   

79.8   

61.8   

10.2   

42.2   

343.9   

312.9   

9.9   

Non-GAAP net income (loss) available to common stockholders (1)

17.5   

20.6   

(0.6)  

(15.0)  

        NM

38.2   

77.4   

(50.6)  

Non-GAAP diluted earnings (loss) per common share (1)

0.47   

0.61   

(0.02)  

(23.0)  

        NM

1.12   

2.28   

(50.9)  

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

34.1   

29.2   

34.3   

16.8   

(0.6)  

122.6   

160.9   

(23.8)  

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

84.6   

76.9   

58.8   

10.0   

43.9   

327.3   

297.9   

9.9   

Fully Taxable Equivalent:

    Net interest income (2)

$        102.7   

$          97.4   

$          97.0   

5.4   

%

5.9   

%

$        384.4   

$        370.9   

3.6   

%

    Net interest margin

3.57   

%

3.70   

%

5.39   

%

(3.5)  

(33.8)  

3.73   

%

5.72   

%

(34.8)  

Shares Outstanding:

    Common

41,338,569   

33,202,387   

32,917,007   

24.5   

%

25.6   

%

41,338,569   

32,917,007   

25.6   

%

    Basic weighted average

36,475,992   

33,176,678   

32,809,705   

9.9   

11.2   

33,900,956   

32,425,307   

4.6   

    Diluted weighted average

37,214,321   

33,672,491   

33,450,626   

10.5   

11.3   

34,182,771   

34,014,581   

0.5   

Balance Sheet:

Average total assets

$   12,487.1   

$   11,410.6   

$     8,209.1   

9.4   

%

52.1   

%

$   11,326.3   

$     7,418.3   

52.7   

%

Average loans, net of unearned income

4,368.0   

4,544.5   

5,226.7   

(3.9)  

(16.4)  

4,699.7   

4,633.0   

1.4   

Average interest-earning investment securities

3,295.3   

2,514.6   

1,357.5   

31.0   

142.7   

2,282.3   

1,338.5   

70.5   

Average noninterest-bearing demand deposits

5,998.4   

5,373.5   

3,227.0   

11.6   

85.9   

5,289.3   

2,946.9   

79.5   

Average interest-bearing deposits

3,884.5   

3,536.9   

2,446.5   

9.8   

58.8   

3,504.8   

1,949.4   

79.8   

Average total deposits

9,882.9   

8,910.4   

5,673.5   

10.9   

74.2   

8,794.1   

4,896.3   

79.6   

Average short-term borrowings

49.5   

42.1   

232.5   

17.6   

(78.7)  

46.1   

304.9   

(84.9)  

Average long-term debt

868.9   

912.2   

968.0   

(4.7)  

(10.2)  

923.9   

980.7   

(5.8)  

Period-end total assets

12,841.4   

12,538.6   

10,018.3   

2.4   

28.2   

12,841.4   

10,018.3   

28.2   

Period-end loans, net of unearned income

4,548.1   

4,655.8   

5,506.3   

(2.3)  

(17.4)  

4,548.1   

5,506.3   

(17.4)  

Period-end investment securities

4,491.8   

3,491.3   

1,786.1   

28.7   

151.5   

4,491.8   

1,786.1   

151.5   

Period-end noninterest-bearing demand deposits

6,299.0   

6,422.9   

4,420.0   

(1.9)  

42.5   

6,299.0   

4,420.0   

42.5   

Period-end interest-bearing deposits

4,032.9   

3,632.7   

3,053.5   

11.0   

32.1   

4,032.9   

3,053.5   

32.1   

Period-end total deposits

10,331.9   

10,055.6   

7,473.5   

2.7   

38.2   

10,331.9   

7,473.5   

38.2   

Off-Balance Sheet:

Average total client investment funds

$   16,101.1   

$   16,121.5   

$   21,038.0   

(0.1)  

%

(23.5)  

%

$   16,593.6   

$   21,590.0   

(23.1)  

%

Period-end total client investment funds

15,597.8   

16,433.8   

18,579.7   

(5.1)  

(16.0)  

15,597.8   

18,579.7   

(16.0)  

Total unfunded credit commitments

5,338.7   

4,794.5   

5,630.5   

11.4   

(5.2)  

5,338.7   

5,630.5   

(5.2)  

Earnings Ratios:

Return on average assets (3)

0.66   

%

0.84   

%

0.01   

%

(21.4)  

%

        NM

%

0.42   

%

1.00   

%

(58.0)  

%

Return on average common SVBFG stockholders' equity (4)

2.44   

9.94   

(0.31)  

(75.5)  

        NM

2.68   

10.38   

(74.2)  

Asset Quality Ratios:

Allowance for loan losses as a percentage of total gross loans

1.58   

%

1.85   

%

1.93   

%

(14.6)  

%

(18.1)  

%

1.58   

%

1.93   

%

(18.1)  

%

Gross charge-offs as a percentage of average total gross loans (annualized)

2.98   

4.03   

1.93   

(26.1)  

54.4   

3.03   

1.02   

197.1   

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

2.84   

2.75   

1.80   

3.3   

57.8   

2.64   

0.87   

NM

Other Ratios:

Total risk-based capital ratio

19.94   

%

19.23   

%

17.58   

%

3.7   

%

13.4   

%

19.94   

%

17.58   

%

13.4   

%

Operating efficiency ratio (5)

61.29   

60.61   

50.40   

1.1   

21.6   

71.33   

59.80   

19.3   

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

44.02   

46.30   

73.68   

(4.9)  

(40.3)  

44.02   

73.68   

(40.3)  

Average loans, net of unearned income, to deposits

44.20   

51.00   

92.12   

(13.3)  

(52.0)  

53.44   

94.62   

(43.5)  

Non-GAAP Ratios: (1)

Tangible common equity to tangible assets

8.78   

%

6.73   

%

7.64   

%

30.5   

%

14.9   

%

8.78   

%

7.64   

%

14.9   

%

Tangible common equity to risk-weighted assets

15.05   

11.43   

9.31   

31.7   

61.7   

15.05   

9.31   

61.7   

Non-GAAP return on average assets (6)

1.02   

0.84   

0.01   

21.4   

        NM

0.56   

1.05   

(46.7)  

Non-GAAP return on average common SVBFG stockholders' equity (7)

7.05   

9.94   

(0.31)  

(29.1)  

        NM

4.51   

10.93   

(58.7)  

Non-GAAP operating efficiency ratio

61.84   

60.79   

44.76   

1.7   

38.2   

64.56   

56.07   

15.1   

Other Statistics:

Common stock repurchases

$                -   

$                -   

$               -   

-   

%

-   

%

$                -   

$          45.6   

(100.0)  

%

Period-end SVB prime lending rate

4.00   

%

4.00   

%

4.00   

%

-   

-   

4.00   

%

4.00   

%

-   

Average SVB prime lending rate

4.00   

4.00   

4.20   

-   

(4.8)  

4.00   

5.13   

(22.0)  

NM-

Not meaningful

(1)

A reconciliation of non-GAAP calculations to GAAP is provided below under the section "Use of Non-GAAP Financial Measures".

(2)

Interest income on non-taxable investments is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 35.0 percent. The taxable equivalent adjustments were $0.5 million, $0.5 million and $0.6 million for the quarters ended December 31, 2009, September 30, 2009 and December 31, 2008, respectively. The taxable equivalent adjustments were $2.2 million and $2.3 million for the years ended December 31, 2009 and 2008, respectively.

(3)

Ratio represents annualized consolidated net income attributable to SVB Financial Group ("SVBFG") divided by quarterly average assets and annual average assets.

(4)

Ratio represents annualized consolidated net income (loss) available to common stockholders divided by quarterly average SVBFG stockholders' equity (excluding preferred equity) and annual average SVBFG stockholders' equity (excluding preferred equity).

(5)

The operating efficiency ratio is calculated by dividing noninterest expense by total taxable equivalent net interest income plus noninterest income.

(6)

Ratio represents non-GAAP annualized consolidated net income attributable to SVBFG (excluding a non-tax deductible charge of $11.4 million related to TARP repayment in the fourth quarter of 2009, a non-tax deductible goodwill impairment charge of $4.1 million recorded in the first quarter of 2009 and non-tax deductible noninterest expense of $3.9 million related to the conversion premium value of certain of our zero-coupon convertible notes that were converted prior to maturity ("Coco Loss") recorded in the second quarter of 2008) divided by quarterly average assets and annual average assets.

(7)

Ratio represents non-GAAP annualized consolidated net income (loss) available to common stockholders (excluding a non-tax deductible charge of $11.4 million related to TARP repayment in the fourth quarter of 2009, a non-tax deductible goodwill impairment charge of $4.1 million recorded in the first quarter of 2009 and non-tax deductible $3.9 million Coco Loss recorded in the second quarter of 2008) divided by quarterly average SVBFG stockholders' equity (excluding preferred equity) and annual average SVBFG stockholders' equity (excluding preferred equity).

Net Interest Income and Margin

Net interest income, on a fully taxable equivalent basis, was $102.7 million for the fourth quarter of 2009, compared to $97.4 million for the third quarter of 2009 and $97.0 million for the fourth quarter of 2008. The following table provides a summary of changes in interest income and interest expense attributable to both volume and rate changes from the third to the fourth quarter of 2009. Changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate:

Q4'09 compared to Q3'09

Increase (decrease) due to change in

(Dollars in thousands)

Volume

Rate

Total

Interest income:

   Short-term investment securities

$    264 

$    (69)

$    195 

   Investment securities

6,919 

(170)

6,749 

   Loans

(3,241)

450 

(2,791)

Increase in interest income, net

3,942 

211 

4,153 

Interest expense:

   Deposits

407 

(1,115)

(708)

   Short-term borrowings

(4)

(1)

   Long-term debt

(215)

(239)

(454)

Increase (decrease) in interest expense, net

195 

(1,358)

(1,163)

Increase in net interest income

$ 3,747 

$ 1,569 

$ 5,316 

The change in net interest income, on a fully taxable equivalent basis, from the third to the fourth quarter of 2009, was primarily attributable to the following:

  • An increase in interest income of $6.7 million from our interest-earning investment securities portfolio, primarily related to the growth in average balances of $780.7 million due to new investments. These investments were primarily purchases of agency-issued collateralized mortgage obligations, agency-issued mortgage-backed securities and U.S. agency securities, which were purchased with excess liquidity resulting from our continued growth in deposits.
  • A decrease in interest expense of $0.7 million from interest-bearing deposits, primarily due to our decision to lower certain deposit interest rates in the third and fourth quarters of 2009 to reflect current market interest rates.
  • A decrease in interest expense of $0.5 million from our long-term debt, driven by a decrease in interest expense associated with interest rate swap agreements for our 5.70% senior and 6.05% subordinated notes, due to lower London Interbank Offered Rates ("LIBOR").
  • A decrease in interest income from our loan portfolio of $2.8 million driven principally by a decrease in average loan balances of $176.5 million. Our average prime-lending rate was 4.00 percent for both the third and fourth quarters of 2009.

Net interest margin, on a fully taxable equivalent basis, was 3.57 percent for the fourth quarter of 2009, compared to 3.70 percent for the third quarter of 2009 and 5.39 percent for the fourth quarter of 2008. The decrease from the third to the fourth quarter of 2009 was primarily a result of a decline in loan balances and an increase in deposits. Consistent with our liquidity and investment strategies, we invested excess liquidity resulting from our continued growth in deposits in overnight cash with the Federal Reserve earning 25 basis points throughout the fourth quarter of 2009. The decline was partially offset by an increase in investments in interest-earning investment securities. While our net interest margin declined quarter-over-quarter, net interest income, on a fully taxable equivalent basis, increased by $5.3 million to $102.7 million for the fourth quarter of 2009, compared to $97.4 million for the third quarter of 2009.

Net interest margin, on a fully taxable equivalent basis, was 3.73 percent and 5.72 percent for the years ended December 31, 2009 and 2008, respectively. While our net interest margin declined year-over-year, net interest income, on a fully taxable equivalent basis, increased to $384.4 million for 2009, compared to $370.9 million for  2008.

On an average basis, for the fourth quarter of 2009, 70.4 percent, or $3.1 billion, of our outstanding gross loans were variable-rate loans that adjust at prescribed measurement dates upon a change in our prime-lending rate or other variable indices. This compares to 71.0 percent, or $3.3 billion, for the third quarter of 2009 and 74.2 percent, or $4.0 billion, for the fourth quarter of 2008.

Investment Securities

Our investment securities portfolio consists of both a fixed income investment portfolio, which primarily represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business. Total investment securities were $4.5 billion at December 31, 2009, compared to $3.5 billion at September 30, 2009 and $1.8 billion at December 31, 2008. The increase from the third to the fourth quarter of 2009 was primarily in the fixed income investment portfolio due to securities purchased with excess liquidity resulting from our continued growth in deposits.

Average interest-earning investment securities were $3.3 billion for the fourth quarter of 2009, compared to $2.5 billion for the third quarter of 2009 and $1.4 billion for the fourth quarter of 2008. Period-end interest-earning investment securities were $3.9 billion at December 31, 2009, compared to $3.0 billion at September 30, 2009 and $1.3 billion at December 31, 2008.

Non-marketable securities were $553.5 million ($233.0 million net of noncontrolling interests) as of December 31, 2009, compared to $507.9 million ($211.9 million net of noncontrolling interests) as of September 30, 2009 and $467.2 million ($169.1 million net of noncontrolling interests) as of December 31, 2008. The increase from the third to the fourth quarter of 2009 was primarily attributable to additional capital calls for fund investments in the fourth quarter of 2009. Reconciliations of our non-GAAP non-marketable securities, net of noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."

Loans

Average loans, net of unearned income, were $4.4 billion for the fourth quarter of 2009, compared to $4.5 billion for the third quarter of 2009 and $5.2 billion for the fourth quarter of 2008. The decrease in average loan balances from the third to the fourth quarter of 2009 came primarily from decreases in loans to hardware, software and life science clients, reflecting continued efforts by some clients to deleverage their businesses.  Although loan balances have decreased, we continue to make new loans, adding 165 new loan clients in the fourth quarter of 2009, resulting in $380.7 million in new funded loans.

Period-end loans, net of unearned income, were $4.5 billion at December 31, 2009, compared to $4.7 billion at September 30, 2009 and $5.5 billion at December 31, 2008.

Our nonperforming loans totaled $52.7 million at December 31, 2009, compared to $72.2 million at September 30, 2009 and $87.2 million at December 31, 2008. The allowance for loan losses related to nonperforming loans was $8.9 million, $23.4 million and $25.9 million at December 31, 2009, September 30, 2009 and December 31, 2008, respectively. The decrease in nonperforming loans and related allowance for loan losses from the third to the fourth quarter of 2009 came primarily from the charge-offs of impaired loans from our hardware and private client services portfolios.

The following table provides a summary of our loans individually greater than $20 million by industry sector at December 31, 2009, September 30, 2009 and December 31, 2008:

Loans individually greater than $20 million at

(Dollars in thousands, except ratios and client data)

December 31,

2009

September 30,

2009

December 31,

2008

Technology

$ 356,072   

$ 458,901   

$    567,867   

Private Equity

371,728   

272,920   

352,065   

Life Sciences

45,667   

45,717   

54,201   

Private Client Services

87,179   

69,652   

105,176   

Premium Wineries

76,786   

20,307   

20,310   

All other sectors

20,125   

21,000   

50,500   

Total

$ 957,557   

$ 888,497   

$ 1,150,119   

Loans individually greater than $20 million as a percentage of total gross loans

20.9   

%

18.9   

%

20.7   

%

Total clients with loans individually greater than $20 million

32   

28   

36   

Loans individually greater than $20 million on nonaccrual status

$   20,407   

$   20,022   

$      66,715   

Loans individually greater than $20 million on nonaccrual status as a percentage of total loans greater than $20 million

2.1   

%

2.3   

%

5.8   

%

Deposits

Average deposits were $9.9 billion for the fourth quarter of 2009, compared to $8.9 billion for the third quarter of 2009 and $5.7 billion for the fourth quarter of 2008. The increase in average deposit balances from the third to the fourth quarter of 2009 came primarily from our noninterest-bearing demand deposits, which grew by $624.9 million to $6.0 billion.

Growth in average balances of noninterest-bearing deposits in the fourth quarter of 2009 was primarily due to the continued low interest rate environment, as well as our clients' desire to maintain short-term liquidity.

Period-end deposits were $10.3 billion at December 31, 2009, compared to $10.1 billion at September 30, 2009 and $7.5 billion at December 31, 2008.

Long-Term Debt

Effective January 1, 2009, we adopted the FASB guidance on debt with conversion options (ASC 470-20, formerly known as FSP APB 14-1), which required a change in the accounting treatment for our convertible debt instruments. The standard requires that the proceeds from the issuance of convertible debt instruments be allocated between a liability and an equity component in a manner that reflects the entity's non-convertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. Historical financial statements for 2007 and 2008 are required to be adjusted retrospectively to conform to the standard's new accounting treatment for both our zero-coupon convertible subordinated notes, which matured on June 15, 2008 and our 3.875% convertible senior notes due April 15, 2011.

As a result of adopting these requirements, our net income available to common stockholders for both the third and fourth quarters of 2009 decreased by $0.3 million. Details of certain prior period revised items related to the adoption of this guidance are provided under the section "Changes to Prior Period Balances."

Noninterest Income

Noninterest income was $40.7 million for the fourth quarter of 2009, compared to $34.3 million for the third quarter of 2009 and $25.7 million for the fourth quarter of 2008. The increase in noninterest income from the third to the fourth quarter of 2009 was primarily driven by the following factors:

  • Net gains on investment securities of $6.7 million for the fourth quarter of 2009, compared to net gains of $3.9 million for the third quarter of 2009 and net losses of $9.8 million for the fourth quarter of 2008. The net gains of $6.7 million for the fourth quarter of 2009 were primarily due to unrealized gains of $5.8 million from our managed co-investment funds as a result of higher valuations, and realized gains of $3.6 million from distributions to our managed funds of funds. These gains were partially offset by realized losses of $3.0 million from our managed co-investment funds due to closures and asset sales at three portfolio companies. The following table provides a summary of net gains (losses) on investment securities for the three months ended December 31, 2009 and September 30, 2009:

Three months ended

December 31, 2009

September 30, 2009

(Dollars in thousands)

Managed Co-Investment Funds

Managed Funds Of Funds

Debt Funds

Other

Total

Total

Unrealized gains

$ 5,819 

$    184 

$ 467 

$  205 

$ 6,675 

$                           2,615 

Realized (losses) gains

(3,022)

3,633 

376 

(981)

1,290 

Total gains (losses) on investment securities, net

$ 2,797 

$ 3,817 

$ 843 

$ (776)

$ 6,681 

$                           3,905 

Less: income attributable to noncontrolling interests, including carried interest

1,925 

3,856 

72 

5,853 

4,880 

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

$    872 

$    (39)

$ 771 

$ (776)

$    828 

$                             (975)

As of December 31, 2009, we held investments, either directly or through nine of our managed investment funds, in 446 venture capital and private equity funds, 73 companies and five debt funds.

  • Net gains on derivative instruments of $1.4 million for the fourth quarter of 2009, compared to net losses of $1.1 million for the third quarter of 2009 and net gains of $5.0 million for the fourth quarter of 2008. The following table provides a summary of our net gains (losses) on derivative instruments:

Three months ended

Year ended

(Dollars in thousands)

December 31,

2009

September 30,

2009

December 31,

2008

December 31,

2009

December 31,

2008

Gains (losses) on foreign exchange forward contracts, net:

Gains on client foreign exchange forward contracts, net

$    426 

$     360 

$ 2,466 

$ 1,730 

$   4,233 

Gains (losses) on internal foreign exchange forward contracts, net (1)

406 

(128)

3,200 

(2,258)

5,185 

Total gains (losses) on foreign exchange forward contracts, net

832 

232 

5,666 

(528)

9,418 

Change in fair value of interest rate swap

(2,232)

(170)

(1,856)

Gains on covered call options (2)

402 

Net gains (losses) on equity warrant assets

538 

(1,322)

1,592 

(55)

10,541 

Total gains (losses) on derivative instruments, net

$ 1,370 

$ (1,090)

$ 5,026 

$  (753)

$ 18,505 

(1)

Represents the change in fair value of foreign exchange forward contracts used to economically reduce our foreign exchange exposure related to certain foreign currency denominated loans. Revaluations of foreign currency denominated loans are recorded on the line item "Other" as part of noninterest income, a component of consolidated net income.

(2)

Represents net gains on covered call options by one of our consolidated sponsored debt funds.

The increase in net gains (losses) on derivative instruments from the third to the fourth quarter of 2009 was primarily driven by the following factors:

  • Net gains on equity warrant assets of $0.5 million for the fourth quarter of 2009, compared to net losses of $1.3 million for the third quarter of 2009. The net gains on equity warrant assets of $0.5 million for the fourth quarter of 2009 were primarily driven by net gains of $1.3 million from the exercise of certain warrant positions, partially offset by $0.9 million from warrant cancellations and expirations. Included in the net gains of $1.3 million from the exercise of warrants is a gain of $1.1 million from a single warrant position.
  • Net gains of $0.4 million from foreign exchange forward contracts hedging our foreign currency denominated loans in the fourth quarter of 2009, compared to net losses of $0.1 million in the third quarter of 2009.

Non-GAAP noninterest income, net of noncontrolling interests, was $34.1 million for the fourth quarter of 2009, compared to $29.2 million for the third quarter of 2009 and $34.3 million for the fourth quarter of 2008. Reconciliations of our non-GAAP noninterest income and non-GAAP net gains (losses) on investment securities, both of which exclude amounts attributable to noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."

Noninterest Expense

Noninterest expense was $87.9 million for the fourth quarter of 2009, compared to $79.8 million for the third quarter of 2009 and $61.8 million for the fourth quarter of 2008.

The following table provides a summary of certain noninterest expense items:

 Three months ended

Year ended

(Dollars in thousands)

December 31,

2009

September 30,

2009

December 31,

2008

December 31,

2009

December 31,

2008

Compensation and benefits:

  Salaries and wages

$ 26,481 

$ 26,100 

$ 27,116 

$ 108,417 

$ 103,157 

  Incentive Compensation Plan

7,872 

6,732 

(8,782)

25,163 

24,398 

  Employee Stock Ownership Plan

(4,370)

235 

  Other employee benefits

14,236 

12,983 

9,913 

56,051 

49,525 

Total compensation and benefits

48,589 

45,815 

23,877 

189,631 

177,315 

FDIC assessments

3,182 

2,589 

1,644 

17,035 

3,451 

Impairment of goodwill

4,092 

Provision for (reduction of) unfunded credit commitments

1,999 

65 

1,607 

(1,367)

1,252 

Other (1)

34,137 

31,338 

34,702 

134,475 

130,869 

Total noninterest expense

$ 87,907 

$ 79,807 

$ 61,830 

$ 343,866 

$ 312,887 

Full-time equivalent employees

1,258 

1,259 

1,244 

1,258 

1,244 

(1)

Other noninterest expense includes professional services, premises and equipment, net occupancy, business development and travel, correspondent bank fees, loss from cash settlement of conversion premium of zero-coupon convertible subordinated notes, and other noninterest expenses. For further details of noninterest expense items, please refer to "Interim Consolidated Statements of Income".

The increase in noninterest expense from the third to the fourth quarter of 2009 was primarily attributable to the following:

  • An increase of $2.8 million in compensation and benefits expense, primarily resulting from a $1.3 million increase in expenses relating to our warrant incentive plan and retention plan, mainly due to net proceeds from warrants, and a $1.1 million increase in incentive compensation related expenses.
  • A provision for unfunded credit commitments of $2.0 million for the fourth quarter of 2009, compared to a provision of $0.1 million for the third quarter of 2009. The provision for unfunded credit commitments of $2.0 million for the fourth quarter of 2009 was primarily reflective of an increase in the balance of our total unfunded credit commitments, which increased to $5.3 billion as of December 31, 2009, compared to $4.8 billion at September 30, 2009.

Non-GAAP noninterest expense, net of noncontrolling interests, was $84.6 million for the fourth quarter of 2009, compared to $76.9 million for the third quarter of 2009 and $58.8 million for the fourth quarter of 2008. Reconciliations of our non-GAAP noninterest expense, net of noncontrolling interests, are provided below under the section "Use of Non-GAAP Financial Measures."

Income Tax Expense

Effective January 1, 2009, we adopted new accounting standards (ASC 810-10-65, formerly known as SFAS No. 160), which requires us to clearly identify and distinguish between the interests of the Company and the interests of the noncontrolling owners by presenting noncontrolling interests after net income (loss) in our interim consolidated statements of income. As a result, our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net (income) loss attributable to noncontrolling interests.

Our effective tax rate was 39.6 percent for the fourth quarter of 2009, compared to 41.1 percent for the third  quarter of 2009. The decrease in the tax rate from the third to the fourth quarter of 2009 was primarily attributable to the higher impact of tax advantaged investments, partially offset by the tax impact of higher non-deductible officers' compensation expense on overall pre-tax income.

Our effective tax rate was 42.3 percent for the year ended December 31, 2009, compared to 41.3 percent for 2008. The increase in the tax rate was primarily attributable to the tax impact of the $4.1 million non-tax deductible goodwill impairment associated with eProsper in the first quarter of 2009 as well as the tax impact of higher non-deductible officers' compensation expense on overall pre-tax income.

Credit Quality  

The following table provides a summary of our allowance for loan losses:

Three months ended

Year ended

(Dollars in thousands, except ratios)

December 31, 2009

September 30, 2009

December 31, 2008

December 31, 2009

December 31, 2008

Allowance for loan losses, beginning balance

$      86,713   

$    110,473   

$      60,290   

$    107,396   

$      47,293   

Provision for loan losses

17,291   

8,030   

70,957   

90,180   

100,713   

Gross loan charge-offs

(33,106)  

(46,553)  

(25,509)  

(143,570)  

(47,815)  

Loan recoveries

1,552   

14,763   

1,658   

18,444   

7,205   

Allowance for loan losses, ending balance

$      72,450   

$      86,713   

$    107,396   

$      72,450   

$    107,396   

Provision as a percentage of total gross loans (annualized)

1.50   

%

0.68   

%

5.08   

%

1.97   

%

1.81   

%

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

2.98   

4.03   

1.93   

3.03   

1.02   

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

2.84   

2.75   

1.80   

2.64   

0.87   

Allowance for loan losses as a percentage of total gross loans

1.58   

1.85   

1.93   

1.58   

1.93   

Total gross loans at period-end

$ 4,582,966   

$ 4,692,498   

$ 5,551,636   

$ 4,582,966   

$ 5,551,636   

Average total gross loans

4,402,909   

4,583,320   

5,266,916   

4,739,210   

4,666,025   

Our provision for loan losses was $17.3 million for the fourth quarter of 2009, an increase of $9.3 million from the third quarter of 2009. Our provision for loan losses in the third quarter of 2009 was inclusive of an $11.4 million recovery from a single loan.

Gross loan charge-offs of $33.1 million for the fourth quarter of 2009, primarily came from our software and hardware client portfolios. Gross loan charge-offs included $17.0 million of loans that were previously included as nonperforming loans.

Our allowance for loan losses decreased from $107.4 million at December 31, 2008 to $72.5 million at December 31, 2009. The decrease in allowance for loan losses is reflective of continuing improvement in credit quality trends in our loan portfolio since the second quarter of 2009 as indicated by several factors including the following:

  • A 52.7 percent decrease in nonperforming loans from a peak of $111.5 million at June 30, 2009 to $52.7 million at December 31, 2009.
  • A 25 percent decrease in classified loans from the second quarter of 2009 to the fourth quarter of 2009.
  • A majority of the net charge-offs were from nonperforming loans that had previously been specifically reserved for – for 2009 we identified specific reserves of $51 million and saw related net charge-offs of $53 million.  Other net charge-offs were concentrated in our early-stage portfolio with a small amount of charge-offs coming from our private client services portfolio.    

Additionally, while loans greater than $10 million represented a significant source of loan losses in 2009, the size of loans added to the classified portfolio during the latter half of 2009 were less than $10 million with the largest addition being $8.8 million and the largest addition to nonperforming loans in the fourth quarter of 2009 was $1 million. Our overall percentage of allowance for loan losses decreased from a high of 2.26 percent at June 30, 2009, to 1.58 percent at December 31, 2009 due almost entirely to the successful resolution of the large nonperforming loans and the fact that new additions to nonperforming loans have been smaller in size and are expected to maintain that trend into 2010.

As such, we believe that our current allowance for loan losses of $72.5 million (1.58 percent of total gross loans) is adequate and indicative of ongoing levels of future net charge-offs. The following table provides a summary of our credit quality information:

Period end balances at

(Dollars in thousands, except ratios)

December 31,

2009

September 30,

2009

December 31,

2008

Allowance for loan losses as a percentage of total gross loans

1.58   

%

1.85   

%

1.93   

%

Allowance for loan losses for performing loans as a percentage of total gross performing loans

1.40   

1.37   

1.49   

Allowance for loan losses for nonperforming loans as a percentage of total gross nonperforming loans

16.83   

32.36   

29.70   

Allowance for loan losses

$    72,450   

$    86,713   

$  107,396   

Allowance for loan losses for total gross performing loans

63,582   

63,357   

81,485   

Allowance for loan losses for total gross nonperforming loans

8,868   

23,356   

25,911   

Total gross performing loans

4,530,283   

4,620,325   

5,464,387   

Total gross nonperforming loans

52,683   

72,173   

87,249   

Noncontrolling Interests

Net income attributable to noncontrolling interests was $3.3 million for the fourth quarter of 2009, compared to  net income of $2.2 million for the third quarter of 2009 and a net loss of $11.7 million for the fourth quarter of 2008. Net income attributable to noncontrolling interests of $3.3 million for the fourth quarter of 2009 was primarily a result of the following:

  • Gains on investment securities (including carried interest) attributable to noncontrolling interests of $5.9 million, stemming mainly from gains of $3.9 million from our managed funds of funds and $1.9 million from our managed co-investment funds.
  • Noninterest expense of $3.3 million, principally related to management fees paid by the noncontrolling interests to the general partner entities managed by SVB Capital.

SVBFG Stockholders' Equity

In the fourth quarter of 2009, we closed a public offering of 7,965,568 shares of common stock at an offering price of $38.50 per share. We received net proceeds of $292.1 million after deducting underwriting discounts and commissions.

On December 23, 2009, the Company redeemed in full 235,000 outstanding shares of preferred stock, for $235 million, plus $1.2 million of accrued and unpaid dividends, from the U.S. Treasury under the CPP. The redemption of the preferred shares resulted in a non-cash charge of $11.4 million in the fourth quarter of 2009.

Net income available to common stockholders was reduced by $14.7 million and $3.6 million for the fourth and third quarters of 2009, respectively, related to dividends and discount amortization in connection with our preferred stock issued under the CPP on December 12, 2008 and the subsequent repayment on December 23, 2009.

Accumulated other comprehensive income decreased by $19.6 million to $5.9 million as of December 31, 2009, compared to $25.5 million as of September 30, 2009, primarily due to decreases in the fair value of our fixed income investment portfolio as a result of increases in long-term interest rates.

Additional paid-in-capital increased by $297.1 million to $389.5 million as of December 31, 2009, compared to $92.4 million as of September 30, 2009, primarily due to the closing of our public offering on November 24, 2009.

Outlook for the Year Ending December 31, 2010  

Our outlook for the year ending December 31, 2010 is provided below on a GAAP basis, unless otherwise noted. We have provided our current outlook for the expected full year results of our significant forecasted activities. In general, we do not provide our outlook for selected items where the timing or financial impact are particularly uncertain, or for certain potential unusual or one-time items, nevertheless, we have provided directional guidance on two such items, specifically net gains (losses) on equity warrant assets and net gains (losses) on investment securities, net of noncontrolling interests. The outlook observations presented below are, by their nature, forward-looking statements and are subject to substantial risks and uncertainties which are discussed below under the caption "Forward-Looking Statements".

For the year ending December 31, 2010, compared to our 2009 results, we currently expect the following outlook:

Current outlook compared to 2009 results (as of January 21, 2010)

Average loan balances

Comparable to 2009 levels

Average deposit balances

Increase at a percentage rate in the low double digits

Net interest income

Increase at a percentage rate in the mid teens

Net interest margin

Between 3.60% - 4.00%

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

Comparable to fourth quarter 2009 levels

Net loan charge-offs

Decline from 2009 levels

Nonperforming loans as a percentage of total gross loans

At levels lower than fourth quarter 2009 levels

Fees for deposit services, letters of credit, business credit card, client investment, and foreign exchange, in aggregate

Increase at a percentage rate in the mid single digits

Net gains (losses) on equity warrant assets

Comparable to 2009 levels

Net gains (losses) on investment securities, net of noncontrolling interests*

Improvement from 2009 levels

Noninterest expense* (excluding expenses related to goodwill impairment and noncontrolling interests)

Increase at a percentage rate in the high teens to low twenties

*  non-GAAP

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, such as forecasts of our future financial results and condition, expectations for our operations and business, and our underlying assumptions of such forecasts and expectations. In this release, including in the section "Outlook for the Year Ending December 31, 2010" above, we make forward-looking statements discussing management's expectations about economic conditions, opportunities in the market, our financial, credit (including our allowance for loan losses) and business performance and financial results (and the components of such results) for the year 2010.

Although management believes that the expectations reflected in our forward-looking statements are reasonable and has based these expectations on our beliefs and assumptions, such expectations are not guarantees and may prove to be incorrect. Actual results could differ significantly. Factors that may cause the outlook for the year 2010 and other forward-looking statements herein to change include, among others, the following: (i) deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business or are served by us (including the levels of initial public offering and mergers & acquisitions activities), (ii) changes in credit quality of our loan portfolio, (iii) changes in interest rates or market levels or factors affecting them, (iv) changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets, (v) variations from our expectations as to factors impacting our cost structure, (vi) changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity, and (vii) accounting changes, as required by U.S. generally accepted accounting principles. For additional information about these factors, please refer to our public reports filed with the U.S. Securities and Exchange Commission, including our most recently-filed quarterly or annual report. The forward-looking statements included in this release are made only as of the date of this release. We do not intend, and undertake no obligation, to update these forward-looking statements.

Earnings Conference Call

On January 21, 2010, we will host a conference call at 3:00 p.m. (Pacific Time) to discuss the financial results for the fourth quarter and year ended December 31, 2009. The conference call can be accessed by dialing (877) 663-9523 or (404) 665-9482, and referencing the conference ID "51134160". A live webcast of the audio portion of the call can be accessed on the Investor Relations section of our website at www.svb.com. A replay of the conference call will be available beginning at approximately 6:00 p.m. (Pacific Time) on Thursday, January 21, 2010, through midnight on Tuesday, January 26, 2010, by dialing (800) 642-1687 or (706) 645-9291 and referencing conference ID number "51134160". A replay of the audio webcast will also be available on www.svb.com for 12 months beginning Thursday, January 21, 2010.

About SVB Financial Group

For over 25 years, SVB Financial Group and its subsidiaries, including Silicon Valley Bank, have been dedicated to helping entrepreneurs succeed. SVB Financial Group is a financial holding company that serves companies in the technology, life science, venture capital/private equity and premium wine industries. Offering diversified financial services through Silicon Valley Bank, SVB Analytics, SVB Capital, SVB Global and SVB Private Client Services, SVB Financial Group provides clients with commercial, investment, international and private banking services. The Company also offers funds management, broker-dealer services and asset management, as well as the added value of its knowledge and networks worldwide. For management reporting purposes, we report the results of our operations through four operating segments: Global Commercial Bank, Relationship Management, SVB Capital, and Other Business Services. Our Other Business Services group consists of Sponsored Debt Funds & Strategic Investments and SVB Analytics. Headquartered in Santa Clara, California, SVB Financial Group operates through 27 offices in the U.S. and international operations in China, India, Israel and the United Kingdom. More information on the Company can be found at www.svb.com. (SIVB-F)

Banking services are provided by Silicon Valley Bank, the California bank subsidiary and commercial banking operation of SVB Financial Group, and a member of the FDIC and the Federal Reserve. SVB Private Client Services is a division of Silicon Valley Bank. SVB Financial Group is also a member of the Federal Reserve.

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 Three months ended

Year ended

(Dollars in thousands, except share data)

December 31,

2009

September 30,

2009

December 31,

2008

December 31,

2009

December 31,

2008

Interest income:

  Loans

$      80,258 

$      83,049 

$      95,662 

$    335,806 

$    364,192 

  Investment securities:

  Taxable

28,329 

21,562 

14,789 

81,536 

58,466 

  Non-taxable

996 

1,008 

1,140 

4,094 

4,261 

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

2,562 

2,367 

2,059 

9,790 

12,572 

Total interest income

112,145 

107,986 

113,650 

431,226 

439,491 

Interest expense:

Deposits

4,093 

4,801 

7,021 

21,346 

23,929 

Borrowings

5,912 

6,367 

10,219 

27,730 

46,967 

Total interest expense

10,005 

11,168 

17,240 

49,076 

70,896 

Net interest income

102,140 

96,818 

96,410 

382,150 

368,595 

Provision for loan losses

17,291 

8,030 

70,957 

90,180 

100,713 

Net interest income after provision for loan losses

84,849 

88,788 

25,453 

291,970 

267,882 

Noninterest income:

Foreign exchange fees

8,161 

7,491 

8,660 

30,735 

33,106 

Deposit service charges

7,344 

6,906 

6,034 

27,663 

24,110 

Client investment fees

4,344 

5,527 

9,492 

21,699 

50,498 

Letters of credit and standby letters of credit income

2,093 

3,019 

2,868 

10,333 

12,006 

Credit card fees

2,618 

2,300 

1,550 

9,314 

6,225 

Corporate finance fees

3,640 

Gains (losses) on derivative instruments, net

1,370 

(1,090)

5,026 

(753)

18,505 

Gains (losses) on investment securities, net

6,681 

3,905 

(9,828)

(31,209)

(14,777)

Other

8,131 

6,249 

1,858 

29,961 

19,052 

Total noninterest income

40,742 

34,307 

25,660 

97,743 

152,365 

Noninterest expense:

Compensation and benefits

48,589 

45,815 

23,877 

189,631 

177,315 

Professional services

11,088 

12,109 

11,924 

46,540 

39,480 

Premises and equipment

6,277 

5,892 

5,759 

23,270 

22,183 

Net occupancy

4,542 

4,198 

4,482 

17,888 

17,307 

FDIC assessments

3,182 

2,589 

1,644 

17,035 

3,451 

Business development and travel

4,436 

2,902 

4,831 

14,014 

15,406 

Correspondent bank fees

2,046 

2,118 

1,617 

8,040 

6,628 

Impairment of goodwill

4,092 

Loss from cash settlement of conversion premium of zero-coupon

convertible subordinated notes

3,858 

Provision for (reduction of) unfunded credit commitments

1,999 

65 

1,607 

(1,367)

1,252 

Other

5,748 

4,119 

6,089 

24,723 

26,007 

Total noninterest expense

87,907 

79,807 

61,830 

343,866 

312,887 

Income (loss) before income tax expense

37,684 

43,288 

(10,717)

45,847 

107,360 

Income tax expense

13,602 

16,879 

863 

35,207 

52,213 

Net income (loss) before noncontrolling interests

24,082 

26,409 

(11,580)

10,640 

55,147 

Net (income) loss attributable to noncontrolling interests

(3,338)

(2,246)

11,694 

37,370 

19,139 

Net income attributable to SVBFG

$      20,744 

$      24,163 

$           114 

$      48,010 

$      74,286 

Preferred stock dividend and discount accretion

(14,700)

(3,555)

(707)

(25,336)

(707)

Net income (loss) available to common stockholders

$        6,044 

$      20,608 

$         (593)

$      22,674 

$      73,579 

Earnings (loss) per common share — basic

$          0.17 

$          0.62 

$        (0.02)

$          0.67 

$          2.27 

Earnings (loss) per common share — diluted

$          0.16 

$          0.61 

$        (0.02)

$          0.66 

$          2.16 

Weighted average common shares outstanding — basic

36,475,992 

33,176,678 

32,809,705 

33,900,956 

32,425,307 

Weighted average common shares outstanding — diluted

37,214,321 

33,672,491 

33,450,626 

34,182,771 

34,014,581 

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except par value, share data and ratios)

December 31,

2009

September 30,

2009

December 31,

2008

Assets:

Cash and due from banks

$   3,454,611   

$   4,062,298   

$   1,958,333   

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

58,242   

48,530   

478,392   

Investment securities

4,491,752   

3,491,281   

1,786,100   

Loans, net of unearned income

4,548,094   

4,655,817   

5,506,253   

Allowance for loan losses

(72,450)  

(86,713)  

(107,396)  

Net loans

4,475,644   

4,569,104   

5,398,857   

Premises and equipment, net of accumulated depreciation and amortization

31,736   

30,722   

30,589   

Goodwill

-   

-   

4,092   

Accrued interest receivable and other assets

329,414   

336,668   

361,917   

Total assets

$ 12,841,399   

$ 12,538,603   

$ 10,018,280   

Liabilities and total equity:

Liabilities:

Deposits:

Noninterest-bearing demand

$   6,298,988   

$   6,422,937   

$   4,419,965   

Negotiable order of withdrawal (NOW)

53,200   

39,818   

58,133   

Money market

1,292,215   

1,198,611   

1,213,086   

Money market deposits in foreign offices

49,722   

64,701   

53,123   

Time

332,310   

333,870   

379,200   

Sweep

2,305,502   

1,995,695   

1,349,965   

Total deposits

10,331,937   

10,055,632   

7,473,472   

Short-term borrowings

38,755   

52,285   

62,120   

Other liabilities

139,947   

171,166   

175,553   

Long-term debt

856,650   

866,748   

995,423   

Total liabilities

11,367,289   

11,145,831   

8,706,568   

SVBFG stockholders’ equity:

Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding

-   

-   

-   

Preferred stock, Series B Fixed Rate Cumulative Perpetual Preferred Stock, $1,000 liquidation value per share, 235,000 shares authorized; 0 and 235,000 shares issued and outstanding, net of discount, respectively

-   

223,009   

221,185   

Common stock, $0.001 par value, 150,000,000 shares authorized; 41,338,569 shares, 33,202,387 shares and 32,917,007 shares outstanding, respectively

41   

33   

33   

Additional paid-in capital

389,490   

92,367   

66,201   

Retained earnings

732,907   

726,455   

709,726   

Accumulated other comprehensive income (loss)

5,905   

25,513   

(5,789)  

Total SVBFG stockholders’ equity

1,128,343   

1,067,377   

991,356   

Noncontrolling interests

345,767   

325,395   

320,356   

Total equity

1,474,110   

1,392,772   

1,311,712   

Total liabilities and total equity

$ 12,841,399   

$ 12,538,603   

$ 10,018,280   

Capital Ratios:

Total risk-based capital ratio

19.94   

%

19.23   

%

17.58   

%

Tier 1 risk-based capital ratio

15.45   

14.59   

12.51   

Tier 1 leverage ratio

9.53   

9.71   

13.00   

Tangible common equity to tangible assets ratio (1)

8.78   

6.73   

7.64   

Tangible common equity to risk-weighted assets ratio

15.05   

11.43   

9.31   

Other Period-End Statistics:

Loans, net of unearned income-to-deposits ratio

44.02   

%

46.30   

%

73.68   

%

Book value per common share (2)

$          27.30   

$          25.43   

$          23.40   

Full-time equivalent employees

1,258   

1,259   

1,244   

(1)

Tangible common equity consists of SVBFG stockholders' equity (excluding preferred equity) less acquired intangibles and goodwill. Tangible assets represent total assets less acquired intangibles and goodwill.

(2)

Book value per common share is calculated by dividing total SVBFG stockholders' equity (excluding preferred equity) by total outstanding common shares.

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM AVERAGE BALANCES, RATES AND YIELDS

(Unaudited)

Three months ended

December 31, 2009

September 30, 2009

December 31, 2008

(Dollars in thousands)

Average

Balance

Interest

Income/

Expense

Yield/

Rate

Average

Balance

Interest

Income/

Expense

Yield/

Rate

Average

Balance

Interest

Income/

Expense

Yield/

Rate

Interest-earning assets:

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)

$   3,755,892   

$     2,562   

0.27   

%

$   3,370,898   

$   2,367   

0.28   

%

$    574,295   

$   2,059   

1.43   

%

Investment securities: (2)

Taxable

3,194,147   

28,329   

3.52   

2,412,432   

21,562   

3.55   

1,244,804   

14,789   

4.73   

Non-taxable (3)

101,107   

1,532   

6.01   

102,142   

1,550   

6.02   

112,729   

1,754   

6.19   

Total loans, net of unearned income (4)

4,367,985   

80,258   

7.29   

4,544,510   

83,049   

7.25   

5,226,667   

95,662   

7.28   

Total interest-earning assets

11,419,131   

112,681   

3.92   

10,429,982   

108,528   

4.12   

7,158,495   

114,264   

6.35   

Cash and due from banks

232,266   

205,084   

352,380   

Allowance for loan losses

(91,653)  

(114,364)  

(62,781)  

Goodwill

-   

-   

4,092   

Other assets (5)

927,348   

889,924   

756,918   

Total assets

$ 12,487,092   

$ 11,410,626   

$ 8,209,104   

Funding sources:

Interest-bearing liabilities:

NOW deposits

$        40,151   

$          40   

0.40   

%

$        35,092   

$        34   

0.38   

%

$      53,638   

$        72   

0.53   

%

Regular money market deposits

144,655   

123   

0.34   

122,809   

145   

0.47   

181,696   

600   

1.31   

Bonus money market deposits

1,203,460   

1,158   

0.38   

1,035,822   

1,208   

0.46   

1,074,162   

2,906   

1.08   

Money market deposits in foreign offices

67,404   

74   

0.44   

68,589   

90   

0.52   

46,027   

161   

1.39   

Time deposits

330,610   

526   

0.63   

346,714   

568   

0.65   

447,719   

1,255   

1.12   

Sweep deposits

2,098,254   

2,172   

0.41   

1,927,910   

2,756   

0.57   

643,226   

2,027   

1.25   

Total interest-bearing deposits

3,884,534   

4,093   

0.42   

3,536,936   

4,801   

0.54   

2,446,468   

7,021   

1.14   

Short-term borrowings

49,525   

15   

0.12   

42,134   

16   

0.15   

232,519   

789   

1.35   

3.875% convertible senior notes

246,625   

3,520   

5.66   

246,065   

3,512   

5.66   

244,513   

3,499   

5.69   

Junior subordinated debentures

55,974   

893   

6.33   

55,956   

893   

6.33   

53,807   

769   

5.69   

Senior and subordinated notes

558,421   

1,417   

1.01   

552,171   

1,767   

1.27   

540,333   

4,296   

3.16   

Other long-term debt

7,831   

67   

3.39   

58,033   

179   

1.22   

129,358   

866   

2.66   

Total interest-bearing liabilities

4,802,910   

10,005   

0.83   

4,491,295   

11,168   

0.99   

3,646,998   

17,240   

1.88   

Portion of noninterest-bearing funding sources

6,616,221   

5,938,687   

3,511,497   

Total funding sources

11,419,131   

10,005   

0.35   

10,429,982   

11,168   

0.42   

7,158,495   

17,240   

0.96   

Noninterest-bearing funding sources:

Demand deposits

5,998,373   

5,373,486   

3,227,033   

Other liabilities

169,293   

183,781   

202,647   

SVBFG stockholders’ equity

1,183,276   

1,045,340   

802,403   

Noncontrolling interests

333,240   

316,724   

330,023   

Portion used to fund interest-earning assets

(6,616,221)  

(5,938,687)  

(3,511,497)  

Total liabilities and total equity

$ 12,487,092   

$ 11,410,626   

$ 8,209,104   

Net interest income and margin

$ 102,676   

3.57   

%

$ 97,360   

3.70   

%

$ 97,024   

5.39   

%

Total deposits

$   9,882,907   

$   8,910,422   

$ 5,673,501   

Average SVBFG stockholders’ equity as a percentage of average assets

9.48   

%

9.16   

%

9.77   

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(536)  

(542)  

(614)  

Net interest income, as reported

$ 102,140   

$ 96,818   

$ 96,410   

(1)

Includes average interest-bearing deposits in other financial institutions of $169.0 million, $182.7 million and $124.2 million for the quarters ended December 31, 2009, September 30, 2009, and December 31, 2008, respectively. For the quarters ended December 31, 2009, September 30, 2009 and December 31, 2008, balance also includes $3.5 billion, $3.1 billion and $202.4 million, respectively, deposited at the Federal Reserve Bank, earning interest at the Federal Funds target rate.

(2)

Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income.

(3)

Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent for all periods presented.

(4)

Nonaccrual loans are reflected in the average balances of loans.

(5)

Average investment securities of $578.0 million, $505.3 million and $415.8 million for the quarters ended December 31, 2009, September 30, 2009, and December 31, 2008, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities.

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM AVERAGE BALANCES, RATES AND YIELDS

(Unaudited)

Year ended

December 31, 2009

December 31, 2008

(Dollars in thousands)

Average

Balance

Interest

Income/

Expense

Yield/

Rate