DBRS: SVB Financial’s 4Q13 Very Strong on Robust Growth and VC/PE-related Gains; Record FY13

Summary:

• Loans, deposits, total client funds all reached record levels.
• Reported significant gains on private equity and venture capital related investment securities and equity warrants for the second consecutive quarter.
• DBRS rates SVB Financial Group Issuer & Senior Debt at A (low) with a Stable trend.

DBRS considers SVB Financial Group’s (SVB or the Company) 4Q13 results as very strong reflecting broad-based balance sheet growth, robust gains on private equity and venture capital related investment securities and equity warrants, and maintenance of a sound balance sheet. Importantly, the Company remains the industry leader in the innovation space attracting over 2,000 early-stage clients in 2013.

While net income available to common stockholders was down sequentially, earnings remain very strong at $58.8 million. For the second consecutive quarter, SVB benefitted from significant gains on private equity and venture capital related investment securities and equity warrants. Indeed, these items totaled$42.8 million , net of noncontrolling interests, for 4Q13 and $123.4 million for the year. Of some concern, a large portion of the investment securities’ gains and net warrant gains are unrealized, which could reverse before being sold. That being said, FireEye, a current holding, has already seen material gains since year-end, mitigating this concern.

Positively, excluding these more volatile components of fee income, the Company also reported broad-based core fee income growth. Solid client acquisition and the deepening of existing relationships have also contributed to record levels of loans, deposits, and total client funds. DBRS notes that SVB’s expertise and industry relationships are hard to replicate, which helps solidify the Company’s leading market position in the innovation space, and DBRS expects continued success in building the franchise.

The loan portfolio has been growing very fast, including loans to much larger, later-stage clients, which is making the loan portfolio less granular. At present, asset quality remains very sound even with an increase in the provision for loan losses during the quarter. Moreover, SVB is focused on replicating its successful business model globally. While the Company has been successful to date and has approximately $800 million of loans outstanding, DBRS is mindful of the extra challenges related to international expansion.

Capital remains sound even with the significant balance sheet growth seen during the quarter that pressured capital metrics despite very strong earnings. The Company is expecting strong growth in 2014, as it successfully executes on its strategy.

DBRS rates SVB Financial Group Issuer & Senior Debt at A (low) with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]