SVB Financial Group Q1 2010 Earnings Call Transcript

SVB Financial Group Q1 2010 Earnings Call Transcript
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SVB Financial Group (SIVB)

Q1 2010 Earnings Call Transcript

April 22, 2009 6:00 pm ET

Executives

Meghan O'Leary – IR

Ken Wilcox – President and CEO

Mike Descheneaux – CFO

Greg Becker – President, Silicon Valley Bank

Dave Jones – Chief Credit Officer

Mark MacLennan – President, SVB Capital

Analysts

Dave Rochester – FBR Capital Markets

Ken Zerbe – Morgan Stanley

Steven Alexopoulos – J.P. Morgan

Christopher Nolan – Maxim Group

Aaron Deer – Sandler O'Neill & Partners

Ken Usdin – Banc of America

Fred Cannon – KBW

John Hecht – JMP Securities

Joe Morford – RBC Capital Markets

Presentation

Operator

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Good afternoon. My name is Deanne and I will be your conference operator today. At this time, I would like to welcome everyone attorney to the SVB Financial Group Q1 2010 earnings conference call. All lines have been placed on mute to call – I'm sorry, 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. Ms. O'Leary, you may begin.

Meghan O'Leary

Thank you. Today, Ken Wilcox, our President and CEO and Mike Descheneaux, our Chief Financial Officer, will discuss SVB's First Quarter 2010 performance and financial results. Following this presentation, members of our management team will be available to take your questions. I'd like to start the meeting by reading the Safe Harbor disclosure.

This presentation contains forward-looking statements within the meaning of the Federal Securities laws including without limitations financial guidance for future periods and the full year 2010. Forward-looking statements are statements that are not historical facts. Such statements are just predictions and actual events or results may differ materially. The information about factors that could cause actual results to differ materially from those contained in our forward-looking statements is provided in our press release and last filed Forms 10-K and 10-Q.

The forward-looking statements are made as of the date of broadcast and the company undertakes no obligation to update such forward-looking statements. This presentation may also contain references to non-GAAP financial measures. The presentation of the reconciliations to most directly comparable GAAP financial measures can be found in our press release and now I'd like to turn the call over to Ken Wilcox.

Ken Wilcox

Thank you, Meghan and thank you all for joining us today. SVB Financial Group reported a solid first quarter today, delivering earnings of $18.6 million or $0.44 per share and exceeding consensus estimates. These results were driven by our growing asset base fueled by deposits, better performance in our funds management business, a lower loan loss provision and improving credit quality. They were offset to some extent by lower loan balances and somewhat higher expenses.

Our first quarter results reflect improvements we're seeing in our markets and our business metrics. While they have not yet translated into net loan growth, we believe it is only a matter of time and we are greatly encouraged by several recent developments.

The first development is improving expectations for technology markets. Recent reports project that global information technology spending may increase as much as 8% in 2010. Some companies appear to be experiencing that growth already. IBM just announced a $2.6 billion profit in quarter-over-quarter growth. And Intel reported its best quarter ever, forecasting record profit margins for 2010. These companies demonstrate the resilience of the broader technology industry as up-to-date systems and software have long been a competitive necessity for many businesses.

An improving technology market will undoubtedly benefit many smaller emerging companies as well as the established leaders. And that leads me to the second development about which I'm optimistic, improving venture capital investment levels and greater activity in the exit markets for venture back companies.

Venture Investment in the first quarter was up 11% over a year ago at $4.71 billion, according to the most recent reports. That amount funded 597 rounds in the first quarter versus 522 rounds in the first quarter of 2009. In other words, a 14% increase. While Venture Capital Investment is still significantly lower than in many recent years, this modest improvement bodes well for our clients.

The exit markets improved more significantly in the first quarter with nine venture backed IPOs, the most in any quarter since 2007. These companies raised $936 million, more than double the amount raised in the fourth quarter of 2009. There were also 111 mergers or acquisitions of venture backed companies, the highest number in any quarter since 1975.

This increase in venture-backed exits has emerged after many successive quarters of anemic or non-existent exit activity. And it speaks to an improved outlook for fund raising as liquidity returns to the hands of limited partners. Of course, a single good quarter does not constitute a recovery but it's a good sign and we're encouraged by it.

Our clients' confidence appears to be improving as well. This is the third development that makes me optimistic. In a survey, we recently conducted of our early stage clients, more than two-thirds said things were already better than last year and three quarters expect things to improve even more in the next 12 months.

Indirectly, our lower charge-offs and .declining classified loan balances during the quarter suggest our clients are in better shape than they were a year ago. And our continuing deposit growth speaks to the fact that they have ample liquidity.

As I said, we are optimistic about all of these developments and although they did not result in loan growth during the first quarter, they contributed to significant growth in our pipeline which I would describe as extremely strong at this point. We have not seen activity like this in quite a while.

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