SVB Financial Group. (

SIVB

)

Q3 2010 Earnings Call

TST Recommends

October 21, 2010 06:00 pm ET

Executives

Meghan O’Leary - Director, IR

Ken Wilcox - CEO

Mike Descheneaux - CFO

David Jones - CCO

Greg Becker - President, Silicon Valley Bank and SVB Financial Group

Analysts

Steven Alexopoulos - JPMorgan

Aaron Deer - Sandler O’Neill & Partners

John Pancari - Evercore Partners

John Hecht - JMP Securities

Bobby Bohlen - KBW

Christopher Nolan - CRT Capital

Mike Zaremski - Credit Suisse

Presentation

Operator

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Previous Statements by SIVB
» SVB Financial Group Q2 2010 Earnings Call Transcript
» SVB Financial Group Q1 2010 Earnings Call Transcript
» SVB Financial Group Q2 2009 Earnings Call Transcript

Good afternoon. My name is Amanda and I will be your conference operator today. At this time, I would like to welcome everyone to the SVB Financial Group third quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would like to introduce Meghan O’Leary, Director of Investor Relations. Ms. O’Leary, you may begin your conference.

Meghan O’Leary

Thank you, Operator. And thank you for all joining us. We welcome you to our third quarter 2010 earnings call. I’d like to remind everyone that our third quarter earnings release is available on the Investor Relations section of our website at svb.com.

I would also like to remind you that we will be making forward-looking statements during this call and actual results may differ materially. We encourage you to review the disclaimer in our earnings release dealing with forward-looking information. This disclaimer applies equally to statements made in the call.

We will limit the length of the call to one hour, which will include Q&A with our CEO Ken Wilcox, our CFO Mike Descheneaux and other members of management. During the Q&A section, we will ask you to limit your questions to one primary and one follow-up question before getting back in the queue to enable other participants to ask their questions.

And with that, I will turn the call over to our CEO, Ken Wilcox.

Ken Wilcox

Thank you, Meghan and thank all of you for joining us today. I’d like to start by saying I’m very happy with our results in the third quarter. We earned $0.89 per share. We delivered loan growth of 37% on an annualized basis, over half of which came from new clients. We added 423 new clients.

We maintained high credit quality. We had $3.8 million in net gains on equity warrants. And finally, we realized $6.2 million in gains net of non-controlling interests on our SVB Capital and other venture capital related investments. So all around, I think it was a pretty good quarter. Of course, Mike will give you some more details on the numbers in just a few minutes. But first, I’d like to spend some time talking about what we’re seeing in our markets, what we’re hearing from our clients and what we’re working on, what keeps me up at night and what we’re expecting in the future.

Let me start with the venture capital markets. They continue to improve, although of course, their progress is somewhat mixed. On the one hand, exits of venture-backed companies remained strong in the third quarter with 109 acquisitions and 14 IPOs. Year-to-date, there have been twice as many acquisitions of venture-backed companies than in all of 2009, and average deal sizes have continued to increase. On the other hand, venture capitalists invested 31% fewer dollars and did 19% fewer deals in the third quarter. We think the seasonality of the venture capital business has a lot to do with those numbers. Traditionally, the summer months are slow for the industry. By contrast, prospects for the fourth quarter are looking pretty good.

Our venture capital clients tell us they are expecting a stronger fourth quarter, both in terms of investments and exits. The innovation markets overall are showing clear signs of improvement even as the economy at large still struggles. At SVB we have access to information on the performance of thousands of companies every quarter.

Our clients. In these past several months and in the past year, we have seen steady improvements among our client base in sales growth, operating margins and liquidity. These improvements have come from across all major sectors, including hardware, software, life sciences and clean tech. Our clients are definitely building momentum. The latest batch of earnings reports from Bellwether Technology companies such as Apple and Google would appear to confirm these improvements.

So our outlook on our markets is positive. As our clients’ opportunities improve, we see significant opportunities for growth ahead. Our ability to take advantage of these opportunities requires us to make prudent investments in our infrastructure, in new products and in our global expansion. To this end, we are continuing our work of replacing our IT backbone so that we can operate even more effectively as a global company and position ourselves in the future. We are introducing new products for web-based banking, mobile banking and Global Treasury Management, all of which our clients have expressly requested. We continued to make strong progress in our efforts in the UK, China, India and Israel.

As you know, we have applied for banking licenses in both the UK and India, and we recently opened a new office in Beijing. We are building a global risk management business and information services infrastructure to support this expansion. We continue to develop our model for serving cleantech companies and are hiring market-facing employees to drive our growth efforts overall. We are refining on our approach to SVB capital to ensure our focus on the areas of greatest opportunity.

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