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SVB Financial's (SIVB) CEO Greg Becker on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Conference Call

April 21, 2016, 18:00 ET

Executives

Meghan O'Leary - Director, IR

Greg Becker - President & CEO

Michael Descheneaux - CFO

Marc Cadieux - Chief Credit Officer

Analysts

Steven Alexopoulos - JPMorgan

Jared Shaw - Wells Fargo

Ken Zerbe - Morgan Stanley

Ebrahim Poonawalla - Bank of America Merrill Lynch

Joe Morford - RBC Capital

Aaron Deer - Sandler O'Neill

Matthew Keating - Barclays

Brett Rabatin - Piper Jaffray

Juliana Balicka - KBW

John Pancari - Evercore

Operator

Welcome to the SVB Financial Group Q1 2016 Earnings Call. My name is Adrian and I will be your operator for today's call. [Operator Instructions]. I will now turn the call over to Director of Investor Relations Meghan O'Leary. Miss O'Leary, you may begin.

Meghan O'Leary

Thank you Adrian and thanks everyone for joining us today. Our President and CEO, Greg Becker and CFO Mike Descheneaux are here to talk about our first quarter 2016financial results and will be joined by other members of Management for the Q&A. Our current earnings release is available on the investor relations section of our website at svb.com.

We will be making forward-looking statements during this call and actual results may differ materially. We encourage you to review the disclaimer in our earnings release dealing with forward-looking information which applies equally to statements made in this call. In addition some of our discussion may include references to non-GAAP financial measures. Information about those measures, including reconciliation to GAAP measures, may be found in our SEC filings and in our earnings release. We will limit the call, including Q&A, to an hour.

And with that, I will turn the call over to Greg Becker.

Greg Becker

Thank you Meghan and thank you all for joining us today. We delivered a solid quarter in terms of our core business, with earnings per share of $1.52 and net income of $79.2 million. These results were marked by robust loan growth and healthy fee income. At the same time, downward pressure on valuations and investments resulted in lower securities and warrant gains which impacted EPS for the quarter. Mike will get into details of the quarter shortly. I'd like to talk primarily about the environment we're in and how we're thinking about it. In the simplest terms, we believe the VC markets are experiencing a healthy shift, one that comes with near term challenges for some companies but is positive overall.

We have been talking about valuations and [indiscernible] for several quarters and we're not really surprised about what we're seeing. We believe there is still much to be optimistic about and we remain positive about our clients and our outlook. Let's start with the state of the markets. The economic landscape is unsettled. While concerns of a recession appear to have receded somewhat, market sentiment and the economic outlook seem to change day to day. The interest rate outlook is equally unclear and we're not counting on help from rates this year. The tech markets seem to have calmed somewhat following a volatile first quarter, sparked by a long buildup of fears over a possible unicorn bubble. While those fears may have been overstated, valuations have pulled back and capital is tightening, especially for early-stage companies.

The IPO market was all but closed in the first quarter for tech companies which had zero IPOs compared to only six life science companies, making this the slowest quarter for IPOs since the third quarter of 2011. VC investment overall remained relatively robust, although the number and dollars of investments in seed and early-stage companies spell approximately 20%. So the VC and IP markets are somewhat challenging, but there are bright spots as well. First, entrepreneurs and investors are beginning to replace the growth at any cost mentality that led to high valuations of recent years with a focus on profitability and slower burn rates. This shift in focus, as well as more reasonable valuations, should make the private market healthier overall.