SIVB » Topics » Results of Operations

This excerpt taken from the SIVB 10-Q filed May 10, 2007.
Results of Operations
Net Interest Income and Margin (Fully Taxable-Equivalent Basis)

Net interest income is defined as the difference between interest earned primarily on loans, investment securities, securities purchased under agreement to resell and other short-term investment securities, and interest paid on funding sources. Net interest income is our principal source of revenue. Net interest margin is defined as the amount of annualized net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. Net interest income and net interest margin are presented on a fully taxable-equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the federal statutory tax rate of 35.0 percent.

Net Interest Income (Fully Taxable-Equivalent Basis)

Net interest income was $93.7 million for the three months ended March 31, 2007, an increase of $9.4 million or 11.2 percent, compared to $84.3 million for the comparable 2006 period.  The increase in net interest income was primarily due to a $19.1 million increase in income from our loan portfolio, partially offset by a $4.4 million decrease in interest income from our investment securities portfolio and an increase in interest expense of $7.1 million.

The increases in interest income from our loan portfolio are primarily related to growth in our loan portfolio, the effect of increases in our base prime lending rate, as well as a $1.3 million increase of fee income, which resulted from loan prepayments recorded in the first quarter of 2007.  Average loans outstanding for the three months ended March 31, 2007 totaled $3.26 billion, compared to $2.66 billion for the comparable 2006 period. The increase in average loans outstanding of $594.1 million was driven by our commercial loan portfolio, which increased by $489.9 million as a result of our increased focus on serving later-staged clients and improvements in economic activity in the markets served by us.  Our average base prime lending rate increased to 8.25 percent for the three months ended March 31, 2007, compared to 7.42 percent for the comparable 2006 period.  The average yield on our loan portfolio was 10.61 percent for the three months ended March 31, 2007, compared to 10.07 percent for the comparable 2006 period.

The decrease in interest income from our investment securities portfolio reflects lower levels of investment securities due to scheduled maturities and prepayments as well as the sale of $119.1 million of securities in the second quarter of 2006. Average investment securities was $1.46 billion for the three months ended March 31, 2007, a decrease of $396.7 million or 21.4 percent, from $1.86 billion for the comparable 2006 period.

Net Interest Margin (Fully Taxable-Equivalent Basis)

Net interest margin was 7.58 percent for the three months ended March 31, 2007, compared to 7.25 percent for the comparable 2006 period. The increases in net interest margin were largely due to growth and increases in yield of our loan portfolio and increased fee income due to loan prepayments, partially offset by increases in the balances outstanding of our short-term borrowings and other long-term debt used to fund the growth of our loan portfolio.

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