SVB Financial Group, which spent much of last year steeped in deposit challenges amid the technology sector downturn, had several good things going for it during the fourth quarter.
Loan growth was healthy, core fee income grew nicely, credit was solid and net interest income, which has been under pressure, came in higher than expected, executives of the Santa Clara, California-based company said Thursday. In addition, SVB brought on another 1,600 new commercial clients during the three-month period, topping pre-COVID levels, the company said.
But, executives warned, the parent company of Silicon Valley Bank, which has
While the speed at which noninterest-bearing deposits flowed out of the company slowed down during the quarter and the pace of the decline in venture capital investments moderated, the shutdown of investments from the public and private markets will likely lead to a reduction this year in the $214.7 billion-asset company's deposits, net interest income and net interest margin, CEO Greg Becker told analysts Thursday during SVB's fourth-quarter earnings call.
Average deposits are projected to decline year over year by mid-single-digits while net interest income could fall by high-teens, the company said. At the same time, the net interest margin for 2023 is expected to land between 1.75% to 1.85%, down from 2.16% for the full year of 2022.
"The markets are still challenging, we admit that, and they're likely to remain so throughout 2023," Becker said. "We don't expect any dramatic change from where we are right now and in fact, [we anticipate] even a little bit more pressure in the first couple quarters" of the year.
SVB, which says it banks about half of all the nation's venture-backed technology and life sciences companies, has been in a
The parent company of Silicon Valley Bank has tapped Kim Olson, a former bank supervisor who most recently worked at Tokyo's Sumitomo Mitsui Banking Corp., to oversee its risk department.
Consequently, more startups opted to spend the cash they have on deposit at SVB instead of selling a portion of their businesses at reduced valuations. The withdrawal of those deposits has put pressure on SVB's balance sheet and increased its funding costs as it brings higher-cost deposits back onto the balance sheet to make up for the outflow of noninterest-bearing deposits.
Still, the company's outlook is not entirely gloomy. The shift from noninterest-bearing deposits to interest-bearing deposits should "stabilize" during the second half of the year, Becker said.
"Last quarter, there was more uncertainty," Becker said. "Even if we're in this prolonged period of time for longer or even a little bit deeper, we know we're going to weather that fine."
Some analysts who follow SVB spotted encouraging signs within the company's latest quarterly earnings report.
In a research note, Jefferies analyst Casey Haire noted that SVB management "provided guidance for [2023], which we view as a positive sign that the [venture capital] recalibration cycle is maturing."
The company, which normally offers a year-ahead outlook during its third-quarter earnings call, did not provide any such guidance in October, citing ongoing economic uncertainty.
Autonomous Research analyst David Smith said in a research note that, amid the slowdown in venture capital deployment, SVB "is seeing one of the best tech lending growth environments in years" due to "less competition from equity markets."
The company is also positioned to experience "meaningful loan tailwind over the next six to 12 months" as loan utilization lines start to be drawn, he added.
"The dawn is not here yet," Smith wrote. "But at the least, it seems things are becoming a little less dark" for SVB.
