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SVB FINANCIAL GROUP (SIVBQ)·Q2 2022 Earnings Summary

Executive Summary

  • Q2 2022 EPS was $5.60 on net income of $333M as strong NII and core fee income were more than offset by market-driven investment losses and a sizable reserve build; NIM rose 11 bps QoQ to 2.24% as higher rates slowed premium amortization .
  • Client funds declined as VC deployment and exits slowed while portfolio company cash burn hit a high; period-end deposits fell $10.2B QoQ to $187.9B and off-balance sheet funds fell $8.0B to $191.2B .
  • Management lowered FY22 outlook (NII growth mid-40s% from low-50s%; average loans high-20s% from mid-30s%; SVB Securities revenue $460–500M from $500–550M) and raised core fee growth to mid-50s% given rate-driven client investment fees; expense growth trimmed to low-20s% ex-merger charges .
  • Key catalysts: visibility into deposit stabilization, trajectory of VC deployment/exits, reserve trajectory after the $196M provision (incl. $84M from heavier downside scenario weighting), and further rate hedging that reduces down-rate sensitivity .

What Went Well and What Went Wrong

What Went Well

  • Net interest income and margin expanded with rates: NII rose to $1.17B (FTE $1.18B) and NIM to 2.24%, aided by slower premium amortization and higher loan/securities yields .
  • Core fee income inflected higher: client investment fees jumped to $83M as fee margin rose with Fed hikes; total core fee income rose to $286M (+24% QoQ) .
  • Loan growth resilient: period-end loans up $2.3B QoQ to $71.0B on GFB capital call and Tech/LS/HC borrowing; 91% of average loans were variable-rate, positioning for further rate benefits .
  • Management tone on preparedness and pipelines: “We’re stronger and better positioned than at any time in our history to support our clients” (CEO) and “pipelines… are at the strongest level… in history” (President, SVB) .

What Went Wrong

  • Client funds outflows and deposit mix pressure: period-end deposits fell 5.1% QoQ; noninterest-bearing share fell to 62.8% and cost of deposits rose to 0.16% as higher rates lifted betas and off→on shifts moderated .
  • Market-driven investment/warrant pressure: GAAP net losses on investment securities of $(157)M (non-GAAP net of NCI $(137)M); warrant gains fell to $17M; included a ~$40M downward adjustment for illiquid investments and ~$35M public exposure losses offset elsewhere .
  • Credit costs rose from scenario weighting and early stress: provision jumped to $196M (vs. $11M in Q1), including ~$84M from heavier downside weighting; unreserved charge-offs of $20M emerged, mainly in investor-dependent portfolios .

Financial Results

Summary P&L and Balance Metrics

MetricQ2 2021Q1 2022Q2 2022
Diluted EPS ($)9.09 7.92 5.60
Net Income to Common ($M)502 472 333
Net Interest Income ($M)728 1,082 1,167
Noninterest Income ($M)761 517 362
Provision for Credit Losses ($M)35 11 196
Net Interest Margin (%) (FTE)2.06 2.13 2.24
Avg Loans ($B)49.812 67.070 69.263
Period-end Loans ($B)50.754 68.665 70.955
Period-end Deposits ($B)145.838 198.134 187.945

Client Funds and Fee Mix

MetricQ2 2021Q1 2022Q2 2022
Period-end Off-Balance Sheet Client Investment Funds ($B)183.167 199.216 191.244
Noninterest-Bearing Deposits (% of deposits)68.4% 65.8% 62.8%
Total Cost of Deposits (annualized)0.04% 0.05% 0.16%
Non-GAAP Core Fee Income ($M)172 230 286
Client Investment Fees ($M)15 35 83
SVB Securities Revenue (Non-GAAP, $M)120 118 149

Investment/Warrant Results

MetricQ2 2021Q1 2022Q2 2022
GAAP Net Gains (Losses) on Investment Securities ($M)305 85 (157)
Non-GAAP Net Gains (Losses) on Investment Securities, net of NCI ($M)192 67 (137)
Net Gains on Equity Warrant Assets ($M)122 63 17

Loans by Class (Period-End)

Class ($M)Q2 2021Q1 2022Q2 2022
Global Fund Banking30,630 39,344 40,316
Private Bank5,297 9,235 9,770
Innovation C&I5,730 7,247 7,753
Investor Dependent – Early Stage1,565 1,707 1,856
Investor Dependent – Growth Stage3,763 4,032 4,159
Total Loans50,754 68,665 70,955

Guidance Changes

MetricPeriodPrevious (4/21/22)Current (7/21/22)Change
Average Loan Growth vs FY21FY22Mid 30s% High 20s% Lowered
Average Deposit Growth vs FY21FY22Low 40s% High 20s% Lowered
Net Interest Income Growth (GAAP)FY22Low 50s% Mid 40s% Lowered
Net Interest MarginFY222.10–2.20% 2.15–2.25% Raised
Core Fee Income Growth (Non-GAAP)FY22Mid 40s% Mid 50s% Raised
SVB Securities Revenue (Non-GAAP)FY22$500–550M $460–500M Lowered
Noninterest Expense ex-mergerFY22High 20s% growth Low 20s% growth Lowered
Net Loan Charge-offsFY220.15–0.35% 0.15–0.35% Maintained
Effective Tax RateFY2225–27% 25–27% Maintained

Earnings Call Themes & Trends

TopicQ4 2021 (Prior-2)Q1 2022 (Prior-1)Q2 2022 (Current)Trend
Macro/VC flows & exitsNoted potential volatility but strong dry powder; limited credit concern Softness in later-stage/public; strong early-stage and client adds; modest client funds growth VC deployment down 24% QoQ; IPO window closed; elevated client burn drove deposit outflows Deteriorating near term
Rate sensitivity/ALMPlanned to reinvest some rate upside; manage TBV/OCI with hedges More hedging optionality; asset sensitivity moderation via securities growth Monetized AFS hedges; adding floors; shifting to reduce down-rate sensitivity De-risking to downside
Deposits/Client fundsExpect beta 60% through cycle; early hikes slow to impact mix Off→on balance flexibility; mix shifts with higher rates at 75–125 bps Period-end deposits down 5%; NIBD mix fell; betas rising; July balances “relatively flat” so far Pressured but stabilizing signs
Credit & reservesReserve rate near bottom; mix shifting to lower-risk classes Limited utilization increase; growth led by capital call lending Provision $196M (65% downside scenario weighting); early investor-dependent stress but still low NPLs More conservative
SVB SecuritiesAmbition to scale Tech/HC services, M&A over 2022–24 Pipelines strong; expect ramp Revenue $149M as hiring supports M&A/ECM despite weak markets Scaling amid volatility

Management Commentary

  • CEO (Greg Becker): “We’ve lowered our 2022 outlook to reflect these near-term challenges… It’s really just a question of when, not if our markets will recover… we’re stronger and better positioned than at any time in our history” .
  • CFO (Dan Beck) on deposits and outlook: “We’re… looking at… $3–$5B… sequential deposit decline” assuming public markets stay shut and private investment declines 20% in Q3 and Q4; July deposit balances “relatively flat” vs Q2-end .
  • Strategy on rates: “We’re still well positioned to the upside… [and] can… dampen the asset sensitivity… we’re sitting at 6.8% asset sensitivity to downgrades” and will use received-fixed swaps and loan floors .
  • Pipelines: “Tech and healthcare pipelines… at the strongest level… in history… term sheets issued and signed… first or second highest all time” (President SVB) .

Q&A Highlights

  • Deposits/loans visibility: Guidance embeds two further quarters of VC declines and elevated burn; deposit declines modeled at $3–$5B sequentially; July flat so far .
  • Investment losses: ~$45M mark-to-market on public exposures; ~$40M reserve on illiquid privates; ~$35M hedged equity loss offset in other income .
  • Credit: $20M unreserved charge-offs tied to abrupt funding changes; early/growth-stage portfolios bear higher loss content but are a small share (~2% early-stage) .
  • Betas/pricing: Deposit beta trending toward ~60% through cycle; Q2 beta impact amplified by off→on shifts; loan yield beta ~70% now, heading toward 80–90% as floors are exceeded .
  • Liquidity/funding: ~$3B/quarter securities cash flows help fund loan growth and deposit outflows; flexibility to pull off-balance sheet funds on balance sheet .
  • Hedging intent: No plans to reverse HTM transfers; continued focus on protecting to downside while retaining upside .

Estimates Context

  • S&P Global consensus estimates were unavailable for SIVBQ due to missing mapping; therefore, we cannot provide vs. consensus comparisons for Q2 2022 or prior periods. Values retrieved from S&P Global were unavailable due to data mapping limitations.*

Key Takeaways for Investors

  • Rate leverage remains a support: variable-rate loan mix (91%) and reduced premium amortization lifted NIM; further hikes can aid NII, though deposit betas/mix will offset part of the upside .
  • Balance sheet growth constrained near term by slower VC flows/exits and elevated burn; watch for stabilization in deposit trends and private-market normalization as triggers .
  • Credit normalization underway: reserve build reflects heavier downside weighting rather than broad deterioration; early-stage exposure is a small share of loans, but investor-dependent segments warrant scrutiny .
  • Securities/warrants are a swing factor: Q2 losses were largely market-driven and partly hedged; continued volatility in public tech and private marks could pressure noninterest income .
  • Guidance reset lowers 2H22 expectations but raises core fees and NIM outlook; expense growth trimmed—execution on costs and pipelines is a key alpha lever .
  • Strategic positioning intact: expanding SVB Securities and private bank capabilities improves franchise durability; robust client acquisition underpins longer-term growth .

Citations:
Earnings press release and financials:
Q2 2022 earnings call transcript:
Prior calls for context: Q1 2022 ; Q4 2021