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Just as we did last week, we decided to go beyond the top five insider purchases and chose to write about a company that we found interesting. Incorporated in March of 1999, SVB Financial Group (SIVB) is both a bank holding company as well as a diversified financial services company. The company’s primary subsidiary is Silicon Valley Bank, through which it offers commercial and private banking services. SVB Financial also has three other divisions: SVB Capital, SVB Private, and SVB Securities, and through these four different businesses, the company is able to offer a variety of services ranging from venture investing to fund management.
Unlike most investment banks, SVB Financial Group (and through it, Silicon Valley Bank) is focused on the “innovation economy” and given its location in the heart of Silicon Valley, primarily lends money to technology and life science companies. It caters its wealth management and private banking towards venture capital professionals, executive leaders, and other high net worth individuals in the area. However, as a downside of focusing on these growth and tech companies, the bursting of the technology bubble last year impacted SVB Financial, and the stock was down over 65% in 2022.
2021 was a strong year for SVB Financial, as they hit a record EPS of $31.25, a return on equity of 17%, and net income of nearly $1.8 billion. Net interest income in 2021 also increased by over 47% YoY and average total assets increased by over 93% YoY as well. On July 1, 2021, SVB Financial completed the acquisition of Boston Private, the parent company of Boston Private Bank & Trust Company (otherwise known as Boston Private Bank). Through this acquisition, SVB Financial was able to expand both its private banking and wealth management businesses, and Boston Private’s performance was also accounted for in SVB Financial’s 2021 financial reports.
Things definitely took a turn for the worse in 2022, although President and CEO Greg Becker still remains confident that despite current volatility, the innovation economy will still outpace other industries, eventually markets will stabilize and clients will resume activities in full force. We don’t like to take management’s words on these types of claims at face value but it was encouraging to see his optimism reflected in Q3 2022 earnings numbers.
SVB Financial delivered a 14% return on equity in Q3 2022 (ended on September 30, 2022) and net interest income grew from $859 million in Q3 2021 to $1.2 billion in Q3 2022, which was slightly higher than the net interest income in the prior quarter. Average total assets increased from $182.6 billion in Q3 2021 to $216 billion in Q3 2022, but did decrease on a sequential quarter basis given that average total assets in Q2 2022 were approximately $218 billion. Average total client funds also decreased QoQ by 4.8%, to $368.3 billion and average deposits decreased by 3.5% to $185.3 billion.