SVB Financial Group 2Q15 Earnings Call Notes

Highest quarter of VC investment since 2000

“The innovation markets remained strong in the second quarter saw continued robust investment in exit activity. Venture capitalist invested $17.5 billion in nearly 1,200 deals, a 30% increase in terms of dollars and a 13% increase in the number of deals compared to the first quarter. This was the sixth consecutive quarter of more than $10 billion of venture capital invested in a single quarter and the highest quarter of investing since 2000.”

Private bank is area of accelerated growth

“Our private bank is another area where we’re seeing accelerated growth. Thanks to our continued focus on delivering a differentiated client experience. Average balances of private bank loans grew at an annualized rate of 44% in the second quarter, fueled by healthy mortgage lending and significant new client growth. We expect the private bank to remain a long term growth driver for SVB.”

The competitive environment remains heated

“The competitive environment remains heated. Strong funding and exit markets have increased the amount of liquidity in the markets and borrowers have money options. As a result some vendors up here are willing to go to any length to win business regardless of whether that risk justifies that return.”

Regulatory hurdles remain high

“Finally the regulatory burden for banks of our size is significant. While we had and we’ll continue to invest our regulatory and compliance infrastructure, we expect the regulatory bar will continue to rise.”

Two loans went non-performing, but we classify as anomalous. ONe is sponsor led buyout

“the credit quality does remain solid and nonperforming loans remain we think within our normal operating range at the 70 basis points of total loans. Turning to the two loans specifically, I’d start by characterizing both of them as anomalous. As Mike mentioned, one of them is a sponsor led buyout loan. It’s the first of its kind that has become impaired, since we began the business in 2006, 2007 timeframe, that’s the first thing. The second is an asset based loan and that too is a rare event at SVB.”

Sponsor led buyouts have been a key part of our growth. It’s gotten a lot more competitive though

“the sponsor-led buyout as you know has been a key part of our growth for the last few years and it continues to be part of our growth, it will be a little bit lumpier for a lot of different reasons. But the growth will be slower than what it has been in the last couple of years, mainly for reason, which is the competitive landscape. And unlike the other business, with sponsor-led buyout you’ve competition from banks, but more increasingly you see competition from non-banks, which don’t have the same, both regulatory requirements and have quite honestly lower yield hurdles and can be even more flexible.”