Sign in

You're signed outSign in or to get full access.

SF

SVB FINANCIAL GROUP (SIVBQ)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 was marked by solid loan growth and record core fee income, but earnings power compressed as deposit mix shifted toward interest-bearing, deposit costs surged, and premium amortization rose. Diluted EPS was $4.62 (vs. $7.21 in Q3) and ROE 8.9% as NII fell 13% q/q and NIM contracted 28 bps to 2.00% .
  • Management highlighted moderation in client cash burn and a slower pace of VC investment decline, but near‑term NII/NIM pressure is expected to persist; SVB guided to a “transitional” FY2023 with high‑teens % NII decline and NIM of 1.75–1.85%, improving by Q4’23 as deposit mix stabilizes and securities paydowns accrue .
  • Credit remained broadly healthy but normalized off historic lows: provision rose to $141M on higher NPLs/NCOs, growth, and more conservative economic assumptions; net charge‑offs annualized at 15 bps (from 8 bps in Q3) .
  • Street consensus from S&P Global was unavailable for SIVBQ, so beats/misses vs. estimates cannot be assessed. SVB’s commentary points to deposit mix stabilization and an NII/NIM inflection in 2H’23 as key stock catalysts .

What Went Well and What Went Wrong

  • What Went Well

    • Record core fee income: Non‑GAAP core fee income reached $349M (+10% q/q), driven by higher client investment fee margins; SVB Securities revenue also outperformed outlook on strong Biopharma deals ($152M, +54% q/q) .
    • Healthy loan growth: Average loans rose to $73.6B (+3.6% q/q) with GFB capital call lines, Tech, and Private Bank mortgages leading; 92% of loans were variable rate, supporting higher loan yields with further hikes .
    • Client fund dynamics moderated: Management saw early signs of balance between VC deployment and client cash burn; period‑end deposits declined less q/q, and mix shift decelerated .
    • Quote (CEO): “In the fourth quarter…we saw solid growth in loans and core fees, better‑than‑expected net interest income, and healthy investment banking activity driven by Biopharma deals” .

  • What Went Wrong

    • Margin and NII pressure: NII fell 13% q/q to ~$1.0B as higher interest‑bearing deposits and borrowings lifted funding costs; NIM fell 28 bps to 2.00% on higher deposit costs and elevated premium amortization .
    • Credit normalization: Provision increased to $141M on higher NCOs/NPLs, growth, and more conservative macro assumptions; NCO rate rose to 15 bps (annualized) from 8 bps in Q3 .
    • Securities/investment losses: Net losses on investment securities were $86M (non‑GAAP net losses, net of NCI: $77M), driven by private fund markdowns and a $27M realized loss on a $1B UST sale to reposition liquidity .

Financial Results

MetricQ2 2022Q3 2022Q4 2022
Net Interest Income (reported, $M)$1,167 $1,198 $1,038
Noninterest Income ($M)$362 $359 $490
Total Net Revenue (NII + Noninterest, $M)$1,529 $1,557 $1,528
Diluted EPS ($)$5.60 $7.21 $4.62
Net Income to Common ($M)$333 $429 $275
Net Interest Margin (FTE)2.24% 2.28% 2.00%
Provision for Credit Losses ($M)$196 $72 $141

Segment and Fee Drivers

Fee/SegmentQ2 2022Q3 2022Q4 2022
Core Fee Income (non‑GAAP, $M)$286 $316 $349
SVB Securities Revenue (non‑GAAP, $M)$149 $99 $152
Client Investment Fees ($M)$83 $119 $149
FX Fees ($M)$69 $74 $69
Wealth Mgmt & Trust Fees ($M)$22 $19 $20
Lending Related Fees ($M)$26 $20 $29
Deposit Service Charges ($M)$32 $32 $32
Credit Card Fees ($M)$40 $37 $36

Key KPIs

KPIQ2 2022Q3 2022Q4 2022
Period‑End Deposits ($B)$187.945 $176.819 $173.109
Average Loans ($B)$69.263 $71.098 $73.645
Total Cost of Deposits (annualized)0.16% 0.53% 1.17%
Noninterest‑Bearing (NIB) Share (period‑end)~58% ~53% 47%
Net Loan Charge‑Offs (annualized)0.12% 0.08% 0.15%
Nonperforming Loans ($M)$93 $76 $132
Provision for Credit Losses ($M)$196 $72 $141
Period‑End OBS Client Funds ($B)$191.244 $176.861 $168.377
Period‑End Total Client Funds ($B)$379.189 $353.680 $341.486

Notes: Total net revenue is approximated as reported NII + noninterest income per SVB’s earnings release tables .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average LoansFY 2023–Low double‑digits % growth vs. FY22Introduced
Average DepositsFY 2023–Mid‑single digits % decline vs. FY22Introduced
Net Interest IncomeFY 2023–High‑teens % declineIntroduced
Net Interest MarginFY 2023–1.75%–1.85%Introduced
Net Loan Charge‑OffsFY 2023–0.15%–0.35% of avg loansIntroduced
Core Fee Income (non‑GAAP)FY 2023–Low‑teens % growthIntroduced
SVB Securities Revenue (non‑GAAP)FY 2023–$540–$590MIntroduced
Noninterest Expense ex‑mergerFY 2023–Low single‑digits % growthIntroduced
Effective Tax RateFY 2023–26%–28%Introduced
Average LoansQ1 2023–~$74–$76BIntroduced
Average DepositsQ1 2023–~$171–$175BIntroduced
NIIQ1 2023–~$925–$955MIntroduced
NIMQ1 2023–~1.85%–1.95%Introduced
Net Loan Charge‑OffsQ1 2023–~0.15%–0.35%Introduced
Core Fee Income (non‑GAAP)Q1 2023–~$325–$350MIntroduced
SVB Securities Revenue (non‑GAAP)Q1 2023–~$125–$150MIntroduced
Noninterest Expense ex‑mergerQ1 2023–~$910–$940MIntroduced
Effective Tax RateQ1 2023–~26%–28%Introduced

Management expects near‑term NII/NIM pressure with improvement by Q4’23 as NIB share stabilizes in the high‑30s% and deposit mix/price pressures moderate .

Earnings Call Themes & Trends (Q2–Q4 Trajectory)

TopicPrevious Mentions (Q2 & Q3 2022)Current Period (Q4 2022)Trend
Deposit mix and betasMix shifting rapidly to interest‑bearing; through‑cycle deposit beta ~60–65%; bringing off‑balance sweep funds on‑balance supports deposits but raises costs .NIB share fell to 47%; 2022 IB beta ~63%; total cost of deposits 1.17% (vs. 0.53% in Q3) .Continued pressure but moderating mix shift expected through 2023 .
NII/NIM outlookManagement said NII/NIM had peaked given liability sensitivity and higher funding costs .NII down 13% q/q; NIM at 2.00%; guides FY23 NII down high‑teens %, NIM 1.75–1.85%, with improvement by Q4’23 .Near‑term down, inflecting 2H’23 .
VC funding and client cash burnVC deployment declining; cash burn elevated, expected to normalize over multiple quarters .Pace of VC decline and cash burn moderated; improved balance in client flows q/q .Moderation underway, still below 2021 levels .
Credit qualityEarly‑stage investor‑dependent is riskiest but only ~3% of loans; reserve builds tied to macro scenarios .Provision increased to $141M; NCOs/NPLs up from lows; still expect overall healthy credit, losses concentrated in Early Stage .Normalizing from very low losses .
Investment securitiesPremium amortization dynamics and hedge unwinds affect NII; $6B AFS hedges unwound in Q3 to lock gains .$1B UST sale at $27M loss; premium amortization was $131M in Q4; $290M of prior hedge gains to amortize over ~7 years .Repositioning/liquidity actions, amortization drags near‑term .
Liquidity/FundingIncreased wholesale borrowings; paydowns ~ $2–3B/quarter to fund .Modeled 2023 average borrowings $12–16B; OBS balances remain a lever .Funding flexibility maintained .

Management Commentary

  • Strategic message: “We see 2023 as a transitional year…expect near‑term NII and NIM pressure…with improvement by Q4’23 as noninterest‑bearing deposits stabilize and modest deposit growth returns in 2H’23” .
  • On underlying business momentum: “Core fee income grew strongly…SVB Securities revenue increased due to improved follow‑on and M&A activity in Biopharma” .
  • On credit: “While prolonged market volatility will likely increase credit losses and non‑performing loans from historic lows, we still expect overall healthy credit performance, with losses concentrated in Early Stage (only 3% of loans)” .
  • On liquidity toolkit: “We have a high‑quality, liquid balance sheet; strong capital ratios; and multiple levers to manage liquidity” .

Q&A Highlights

Note: A Q4 2022 earnings call transcript was not available in our source set. Themes below reflect the Q3 2022 call for continuity of investor dialogue.

  • Asset sensitivity vs. liability reality: Analysts queried why NII/NIM were peaking despite modeled asset sensitivity; management cited the shift from NIB to interest‑bearing deposits and on‑balance sheet funding raising interest expense .
  • Deposit path and betas: Mix expected to trend toward more interest‑bearing with higher betas; management expected slowing of the mix shift in 2023 .
  • Liquidity tools and securities: Borrowings were termed out; management remained open to opportunistic AFS sales; paydowns (~$3B/quarter) fund needs .
  • Credit risk focus: Losses likely concentrated in investor‑dependent early/growth stage portfolios; reserves sized with scenario weightings .
  • Fee tailwinds: Client investment fee margins rise with rates; not capped; ~1 bp of margin per 25 bps hikes at this stage .

Estimates Context

  • S&P Global consensus (EPS/revenue) for SIVBQ was unavailable due to missing mapping; therefore, we cannot quantify beats/misses versus Street for Q4 2022. Values were not retrievable from S&P Global at this time.

Key Takeaways for Investors

  • Funding mix remains the swing factor: Rising interest‑bearing share and deposit pricing pushed NII/NIM down; stabilization of NIB (target high‑30s% by Q4’23) is the gating item for earnings re‑acceleration .
  • Expect a 2H’23 inflection: Management’s FY23 guide embeds NII decline and NIM troughing, with improving trajectory by late 2023 as deposit mix/price pressures moderate and securities paydowns accumulate .
  • Credit has normalized but remains manageable: Losses off troughs and higher NPLs/NCOs primarily in early‑stage investor‑dependent loans; overall loan mix (70%+ low loss GFB/Private Bank) supports resilience .
  • Fee income diversification helps: Record core fees and resilient SVB Securities revenue (Biopharma strength) partially offset balance sheet headwinds; however, OBS decline will temper client investment fees near‑term .
  • Watch premium amortization and securities actions: Elevated amortization reduced securities yields, while AFS repositioning realized losses; amortization of prior hedge gains provides a modest tailwind over time .
  • Catalysts: Evidence of sustained NIB stabilization, deposit growth in 2H’23, and clearer moderation in client cash burn/VC deployment could tighten the path to the guided NII/NIM inflection .

Sources Read

  • Q4 2022 8‑K Earnings Release, CEO Letter, and Financial Highlights deck (filed Jan 19, 2023) .
  • Q3 2022 8‑K Earnings Release and Financial Highlights deck (filed Oct 20, 2022) .
  • Q3 2022 Earnings Call Transcript (Oct 20, 2022) .
  • Q2 2022 8‑K Earnings Release and Financial Highlights deck (filed Jul 21, 2022) .

S&P Global consensus data was unavailable for SIVBQ; thus, estimate comparisons could not be provided.