SVB Financial (NASDAQ:SIVB), the parent company of Silicon Valley Bank, reported record net income of $123.2 million, and earnings per share of $2.32, in the second quarter of 2017.

SVB Financial's results: The raw numbers


Q2 2017

Q2 2016

Year-Over-Year Growth

Net loans

$20.7 billion

$18.6 billion


Total deposits

$42.5 billion

$37.6 billion


Net income

$123.2 million

$93 million


Diluted EPS




Data source: SVB Financial.

What happened this quarter

  • One of the most rate-sensitive banks, SVB Financial benefits as interest rates rise. Recent rate increases are playing through in its financial results, as net interest margin rose to 3% this quarter, up from 2.88% in the previous quarter and 2.73% a year ago. Net interest margin is the difference between what a bank pays on its borrowings (deposits and debt, for example) and what it earns on its assets (loans and securities). Higher is better.
  • Loan quality remains pristine. SVB Financial reported net charge-offs of 0.44% of average gross loans on an annualized basis, up slightly from the 0.43% annualized rate reported a year ago. Nonperforming loans stood at 0.57% of total loans.
  • This quarter's record income wasn't simply a function of one-time investment gains (which can distort results from one quarter to the next). Gains on the bank's securities and warrants portfolio tallied to $28.5 million, compared to $28.4 million in the year-ago period.
  • Low-risk loans to private-equity and venture capital funds grew 25% year over year, rising to $8.9 billion from $7.1 billion in the year-ago period. Loans to private-equity and venture capital funds make up 42% of total gross loans outstanding.
Close-up of coin jar spilling over

Image source: Getty Images.

What management had to say

SVB Financial is a different animal than many other banks, as it has a sizable investment- and cash-management business that complements its traditional banking unit. SVB Financial refers to its "total client funds" metric, which combines the deposits in the bank with client assets under management in its investment arm.

Total Banking Deposits

Client Investment Funds


$42.5 billion

$51.9 billion

$94.4 billion

Data source: SVB Financial

When asked about the growth in total client funds, SVB Financial CEO Greg Becker noted on the company's conference call that the bank won a significant amount of business from freshly raised venture capital funds. He went on to explain that it's also winning over traditional business customers with its cash-management product:

But the second part is about increasing our funnel and adding a lot of new clients. So, as I said, we had 1,300 new core commercial clients. And so that was -- that is good. And the other part is, one of the areas we've done an off-balance sheet is that we have gone after what I'll call prospects that they are not clients of ours but they have their larger net excess cash and targeting them to start with actually selling our off-balance sheet product for cash management and then looking at buildings bringing them in as clients.

This is a particularly lucrative business because it doesn't require SVB Financial to tie up capital in the way that taking bank deposits does.

Looking ahead

SVB Financial provides continuously updated guidance in its earnings results. This quarter, it updated its guidance for the full year 2017 on six of the nine metrics on which it provides guidance. Those changes are detailed in the table below.


Change in Outlook Compared to Q1 2017

Average loan balances

Outlook decreased to mid-teens year-over-year growth from previous outlook of high-teens year-over-year growth

Average deposit balances

Outlook increased to high-single-digit year-over-year growth from previous outlook of mid-single-digit year-over-year growth

Net interest income

Outlook increased to high-teens to low-20s year-over-year growth from previous outlook of high-teens year-over-year growth

Net interest margin

Outlook narrowed to 3.00% to 3.10% from previous outlook of 2.90% to 3.10%

Core fee income

Outlook decreased to mid-teens year-over-year growth from previous outlook of high-teens year-over-year growth

Noninterest expense

Outlook increased to low-teens year-over-year growth from previous outlook of low-double-digit year-over-year growth

Data source: SVB Financial.

There are a lot of moving parts here, but what's perhaps most important is the guidance that didn't change. The company made no changes to its expectations for allowances for loan losses, loan charge-offs, or nonperforming loans, which are arguably the most important metrics for any bank.

Fee income can rise and fall, deposit growth can fluctuate with the seasons, but credit quality is everything.

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