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SVB FINANCIAL GROUP (SIVBQ)·Q3 2022 Earnings Summary

Executive Summary

  • Q3 2022 delivered resilient earnings amid deteriorating funding conditions: EPS $7.21 (vs. $5.60 in Q2 and $6.24 YoY), total revenue ~$1.56B (NII $1.20B; noninterest income $359M), and NIM (FTE) 2.28% as higher rates were offset by deposit outflows, mix shift to interest‑bearing, and increased wholesale funding .
  • Management lowered FY22 outlook for deposits (mid‑20s% growth) and NII (low‑40s% growth), kept NIM range unchanged, raised core fee growth to high‑50s%; Q4 guide implies lower NIM (1.95–2.05%) and NII ($1.00–1.05B) as asset sensitivity declines and funding costs rise .
  • Deposit pressure persists: period‑end deposits fell to $176.8B (−$11.1B QoQ) while noninterest‑bearing mix dropped to 53% (avg 57.1% in Q3 vs. 62.8% in Q2) and total cost of deposits rose to 0.53% (0.16% in Q2) .
  • Credit remained solid (NCOs 8 bps; nonaccrual loans $76M), though criticized loans rose; provision $72M reflected growth and macro deterioration; bank CET1 15.54% .
  • Wall Street consensus (S&P Global) was unavailable for SIVBQ mapping at the time of request; management noted Q4 EPS sensitivity in Q&A (~$5.50–$6.00 midpoint by analyst math) but declined to provide 2023 outlook amid uncertainty .

What Went Well and What Went Wrong

  • What Went Well

    • Loan growth and pricing resiliency: average loans +3% QoQ to $71.1B; ~91% variable rate with ~90% loan beta on commercial lending; spreads stable to improving in some segments despite competition .
    • Core fee momentum: client investment fees rose with rates (to $119M); core fee income +10% QoQ to $316M as off‑balance sheet fund spreads improved; FX and cards remained strong .
    • Balance sheet flexibility: ~$3B/quarter securities paydowns, $13.6B short‑term borrowings at Q3‑end and additional terming in October; executed $550M receive‑floating swaps in Oct; $301M remaining hedge gains to amortize into interest income .
    • Quote: “We continue to see strength and momentum in our underlying business… new client acquisition at all‑time highs, strong credit quality, record core fee income” — CEO Greg Becker .

  • What Went Wrong

    • Deposit outflows and mix shift: total client funds down (avg −5% QoQ; EOP −7%); noninterest‑bearing share fell; rising deposit betas and wholesale funding pressured NIM/NII .
    • Market‑sensitive revenues weak: SVB Securities revenue fell to $99M (−34% QoQ) on ECM/M&A delays; net investment losses (−$127M GAAP; −$76M net of NCI) from private fund markdowns .
    • Asset sensitivity down: management sees NII/NIM peaked for this rate cycle given deposit remix and borrowings; guides lower NIM in Q4 .
    • Analyst concern: “guiding to both NII and NIM have now peaked… looks like liability‑sensitive” — mgmt explained shift to interest‑bearing/off‑balance sheet funding amid elevated cash burn and slower VC deployment .

Financial Results

MetricQ3 2021Q2 2022Q3 2022
EPS (Diluted)$6.24 $5.60 $7.21
Total Revenue ($M) = GAAP NII + Noninterest Income$1,524 (= $852 + $672) $1,529 (= $1,167 + $362) $1,557 (= $1,198 + $359)
Net Interest Income – GAAP ($M)$852 $1,167 $1,198
Noninterest Income ($M)$672 $362 $359
Net Interest Margin (FTE)1.95% 2.24% 2.28%
Average Loans ($B)$59.3 $69.3 $71.1
Average Deposits ($B)$163.4 $192.1 $185.4

Noninterest income breakdown

Item ($M)Q3 2021Q2 2022Q3 2022
Client Investment Fees$20 $83 $119
FX Fees$65 $69 $74
Credit Card Fees$34 $40 $37
Deposit Service Charges$29 $32 $32
Lending Related Fees$21 $26 $20
Letters of Credit Fees$13 $14 $15
Wealth Mgmt & Trust$22 $22 $19
SVB Securities Revenue$107 $149 $99
Net Gains (Loss) on Investment Securities (GAAP)$189 $(157) $(127)
Net Gains on Equity Warrant Assets$147 $17 $40

KPIs and balance sheet

KPIQ3 2021Q2 2022Q3 2022
Period‑End Deposits ($B)$171.2 $187.9 $176.8
Period‑End Noninterest‑Bearing Deposits ($B)$115.4 $114.0 $94.0
Average Off‑Balance Sheet Client Investment Funds ($B)$191.3 $194.6 $182.9
Total Cost of Deposits (annualized)0.05% 0.16% 0.53%
Net Charge‑Offs (annualized % of avg loans)0.07% 0.12% 0.08%
Nonaccrual Loans ($M)$114 $93 $76
Allowance for Credit Losses – Loans ($M)$398 $545 $557
Bank CET1 Ratio14.68% 15.37% 15.54%

Guidance Changes

MetricPeriodPrevious Guidance (7/21/22)Current Guidance (10/20/22)Change
Average LoansFY22 vs. FY21High 20s% growth High 20s% growth Maintained
Average DepositsFY22 vs. FY21High 20s% growth Mid 20s% growth Lowered
Net Interest IncomeFY22 vs. FY21Mid 40s% growth Low 40s% growth Lowered
Net Interest MarginFY222.15–2.25% 2.15–2.25% Maintained
Core Fee IncomeFY22 vs. FY21Mid 50s% growth High 50s% growth Raised
SVB Securities RevenueFY22$460–$500M $460–$500M Maintained
Noninterest Expense (ex‑merger)FY22 vs. FY21Low 20s% growth Low 20s% growth Maintained
Effective Tax RateFY2225–27% 25–27% Maintained
Avg LoansQ4 2022—$72–$74B New
Avg DepositsQ4 2022—$168–$172B New
NII (GAAP, $M)Q4 2022—$1,000–$1,050 New
NIMQ4 2022—1.95–2.05% New
Core Fees ($M)Q4 2022—$345–$360 New
SVB Securities Rev. ($M)Q4 2022—$95–$125 New
Noninterest Expense ($M)Q4 2022—$940–$970 New
Net Loan Charge‑OffsQ4 2022—5–25 bps New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2022)Current Period (Q3 2022)Trend
Deposit flows & cash burnEarly‑stage strong; later‑stage/ECM slowdown; deposit cost still low (5–16 bps); warned of higher betas and mix shift .Client funds net outflows; noninterest‑bearing mix falling; total cost of deposits up to 53 bps; using off‑balance sweeps and wholesale funding .Worsening mix/ pricing pressure.
Asset sensitivity & NII/NIMRaised FY22 NIM and NII in Q1; Q2: moderating NII growth, improved NIM; cautioned on balance sheet decline .“NII and NIM have peaked” for this cycle; Q4 NIM guided lower as deposit remix/borrowings weigh .Turning negative.
Securities & hedgingQ1 monetized $5B AFS hedges; Q2 unwound remaining $6B (to amortize $313M gains) .~$3B/quarter paydowns; Oct $550M receive‑floating swaps; $301M gains remain to amortize .Ongoing optimization.
SVB SecuritiesQ1/Q2: pipelines solid but ECM down; revenue $118–$149M .Q3 revenue $99M; outlook unchanged; deal delays persist .Softer near term.
Credit qualityExcellent in Q1; Q2 reserve build on higher downside weighting .NCOs 8 bps; criticized loans up; reserve build on growth and macro; downside weight reduced to 40% as Moody’s base closer to mgmt view .Still solid; monitoring.
International & strategyU.K. subsidiarization in progress; OneSVB collaboration .U.K. subsidiarization complete; Sweden rep office; continued long‑term investments .Execution progress.
Macro & VC deploymentQ1: early‑stage healthy; Q2: VC deployment −24% QoQ; IPO window shut .VC deployment down ~40% QoQ; cash burn ~2x pre‑2021; expect continued pressure until markets stabilize .Deteriorated.

Management Commentary

  • “NII and NIM have now peaked… shift in mix to higher levels of interest‑bearing… use of off‑balance sheet client funds… driving higher interest costs” — CFO Dan Beck .
  • Deposit guide: “Q4 deposits $168–$172B… noninterest‑bearing exiting year 45–50%” — CFO .
  • Liquidity tools: “We have $3B per quarter in securities paydowns… we’ve termed out borrowings… available‑for‑sale optionality… no intent to restructure the held‑to‑maturity portfolio” — CFO .
  • Strategy & cost: “Reducing professional services aggressively… focusing on must‑have initiatives like digitization (SVB Go)” — CEO .
  • Market stance: “We are steadfast in our long‑term strategy… it’s a matter of when, not if, our markets rebound” — CEO .

Q&A Highlights

  • Deposit dynamics and guidance: Mix to worsen near term; deposit cost betas higher for sweep/interest‑bearing; ability to shift OBS to on‑balance sheet to offset outflows; Q4 deposits $168–$172B targeted .
  • Funding and borrowings: Short‑term borrowings ~3% with terming to <1‑year at high‑3s/low‑4s; ~$13.6B at Q3‑end, more termed in Oct .
  • Securities and HTM: ~$3B quarterly cash flows; no intent to restructure HTM; modest yield around ~2% for a couple quarters .
  • Credit outlook: Downside scenario weighting reduced as Moody’s base aligned with mgmt; still building reserves for early‑stage/investor‑dependent risk; expect 5–25 bps NCOs in Q4 .
  • EPS sensitivity: Analyst estimated Q4 EPS ~$5.50–$6.00 ex gains/losses; mgmt did not commit to trough call .

Estimates Context

  • S&P Global (Capital IQ) Wall Street consensus could not be retrieved for SIVBQ due to missing CIQ mapping at the time of request. As a result, we cannot present authoritative EPS/revenue consensus comparisons for Q3 2022 and prior periods (S&P Global data unavailable).
  • On the call, one analyst’s back‑of‑the‑envelope implied Q4 EPS midpoint of ~$5.50–$6.00 excluding gains/losses; management refrained from formal 2023 guidance given uncertainty .

Key Takeaways for Investors

  • Near‑term NIM/NII headwinds: Asset sensitivity compressed by deposit outflows, remix to interest‑bearing, and higher wholesale funding; Q4 NIM guided down to ~2.0% and NII to $1.00–$1.05B .
  • Watch deposit stabilization: Improvement hinges on slower client cash burn and better VC/public funding; mgmt expects noninterest‑bearing share ~45–50% by year‑end (down from 61% mid‑year) .
  • Fee income is a partial offset: Client investment fees rise with short rates; core fees guided to $345–$360M in Q4; but SVB Securities stays subdued on ECM/M&A delays .
  • Credit is a relative strength: NCOs low; ACL stable at 0.77% of loans; continued vigilance on investor‑dependent/early‑stage exposures; bank CET1 15.54% offers buffer .
  • Liquidity/ALM flexibility: ~$3B/quarter securities cash flows, hedge gains amortization, ability to shift OBS/on‑balance sheet, and term funding reduce pressure as markets normalize .
  • Catalysts: Signs of VC deployment stabilization and reduced client burn; improvement in deposit mix/cost; pickup in ECM/M&A; evidence of NIM troughing could re‑rate the story .
  • Risk factors: Prolonged market volatility and elevated cash burn, further deposit mix deterioration and funding cost increases, potential early‑stage credit migration, and weaker fee environment .

Notes on sources and process:

  • Primary documents reviewed in full: Q3 2022 earnings call transcript (10/20/22) ; Q3 2022 earnings 8‑K release with detailed tables and “Q3 2022 Financial Highlights” (10/20/22) .
  • Prior quarters for trend analysis: Q2 2022 8‑K (7/21/22) ; Q1 2022 8‑K (4/21/22) .
  • Consensus from S&P Global was unavailable for SIVBQ at time of request; management/analyst commentary used where relevant .