Noninterest Income

For the three months ended March 31, 2018, noninterest income was $155.5 million, compared to $117.7 million for the comparable 2017 period. On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our previous accounting methodology under Topic 605. A summary of noninterest income for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Noninterest income:
Gains on investment securities, net	$	9,058	$	15,970
Gains on equity warrant assets, net	19,191		6,690
Foreign exchange fees	33,827		26,247
Credit card fees	21,692		17,730
Deposit service charges	17,699		13,975
Client investment fees	22,875		9,026
Lending related fees	10,735		8,961
Letters of credit and standby letters of credit fees	8,182		6,639
Other	12,259		12,421
Total noninterest income	$	155,518	$	117,659

Gains on investment securities, net

Net gains on investment securities include both gains and losses from our non-marketable and other equity securities, including carried interest, as well as gains and losses from sales of our available-for-sale securities portfolio, when applicable.

Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, our China Joint Venture, debt funds, private and public portfolio companies and investments in qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains from non-marketable and other equity securities for any single period are typically driven by valuation changes, and are therefore subject to potential increases or decreases in future periods. Such variability may lead to volatility in the gains or losses from investment securities. As such, our results for a particular period are not necessarily indicative of our expected performance in a future period.

The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (i.e. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes.

Carried interest is comprised of preferential allocations of profits recognizable when the return on assets of our individual managed fund of funds and direct venture funds exceeds certain performance targets and is payable to us, as the general partners of the managed funds. The carried interest we earn is often shared with employees, who are also members of the general partner entities. We record carried interest on a quarterly basis by measuring fund performance to date versus the performance target. For our unconsolidated managed funds, carried interest is recorded as gains on investment securities, net. For our consolidated managed funds, it is recorded as a component of net income attributable to noncontrolling interests. Carried interest allocated to others is recorded as a component of net income attributable to noncontrolling interests. Any carried interest paid to us (or our employees) may be subject to reversal to the extent fund performance declines to a level where inception to date carried interest is lower than actual payments made by the funds. The limited partnership agreements for our funds provide that carried interest is generally not paid to the general partners until the funds have provided a full return of contributed capital to the limited partners. Accrued, but unpaid carried interest may be subject to reversal to the extent that the fund performance declines to a level where inception-to-date carried interest is less than prior amounts recognized. Carried interest income is accounted for under an ownership model based on ASC 323 — Equity Method of Accounting and ASC 810 — Consolidation.

Our available-for-sale securities portfolio is a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. These sales are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are also conducted pursuant to the guidelines of our investment policy.

Gains on investment securities are outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our investment-related activities. A summary of gains and losses on investment securities for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Gains on non-marketable and other equity securities, net	$	9,058	$	15,362
Gains on sales of available-for-sale securities, net	—		608
Gains on investment securities, net	$	9,058	$	15,970

Gains on equity warrant assets, net

In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. Any changes in fair value from the grant date fair value of equity warrant assets will be recognized as increases or decreases to other assets on our balance sheet and as net gains or losses on equity warrant assets, in noninterest income, a component of consolidated net income. Gains on equity warrant assets are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of net gains on equity warrant assets for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Equity warrant assets:
Gains on exercises, net	$	9,927		$	7,956
Cancellations and expirations	(922		)	(634		)
Changes in fair value, net	10,186			(632		)
Net gains on equity warrant assets	$	19,191		$	6,690

Foreign exchange fees

Foreign exchange fees represent the income differential between purchases and sales of foreign currency on behalf of our clients, primarily from spot contracts. Foreign exchange spot contract fees are recognized upon the completion of the single performance obligation, the execution of a spot trade in exchange for a fee. In line with customary business practice, the legal right transfers to the client upon execution of a foreign exchange contract on the trade date, and as such, we currently recognize our fees based on the trade date and are typically settled within two business days.

Forward contract and option premium fees are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of foreign exchange fee income by instrument type for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Foreign exchange fees by instrument type:
Spot contract commissions	$	31,202	$	22,424
Forward contract commissions	2,485		3,601
Option premium fees	140		222
Total foreign exchange fees	$	33,827	$	26,247

Credit card fees

Credit card fees include interchange income from credit and debit cards and fees earned from processing transactions for merchants. Interchange income is earned after satisfying our performance obligation of providing nightly settlement services to a payment network. Costs related to rewards programs are recorded when the rewards are earned by the customer and presented as a reduction to interchange fee income. Rewards programs continue to be accounted for under ASC 310 - Receivables. Our performance obligations for merchant service fees are to transmit data and funds between the merchant and the payment network. Credit card interchange and merchant service fees are earned daily upon completion of transaction settlement services.

Annual card service fees are recognized on a straight-line basis over a 12-month period and continue to be accounted for under ASC 310 - Receivables.

A summary of credit card fees by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Credit card fees by instrument type:
Card interchange fees, net	$	17,560	$	13,971
Merchant service fees	2,906		2,740
Card service fees	1,226		1,019
Total credit card fees	$	21,692	$	17,730

Deposit service charges

Deposit service charges include fees earned from performing cash management activities and other deposit account services. Deposit services include, but are not limited to the following: receivables services, which include merchant services, remote capture, lockbox, electronic deposit capture, and fraud control services. Payment and cash management products and services include wire transfer and automated clearing house payment services to enable clients to transfer funds more quickly, as well as business bill pay, business credit and debit cards, account analysis, and disbursement services. Deposit service charges are recognized over the period in which the related performance obligation is provided, generally on a monthly basis.

Client investment fees

Client investment fees include fees earned from discretionary investment management services for substantially all clients, managing clients’ portfolios based on their investment policies, strategies and objectives and receives investment advisory fees. Revenue is recognized on a monthly basis upon completion of our performance obligation and consideration is typically received in the subsequent month. Included in our sweep money market fees are Rule 12(b)-1 fees, revenue sharing and from customer transactional based fees. Rule 12(b)-1 fees and revenue sharing are recognized as earned based on client funds that are invested in the period, typically monthly. Transactional based fees are earned and recognized on fixed income securities when the transaction is executed on the clients' behalf. Amounts paid to third-party service providers are predominantly expensed, such that client investment fees are recorded gross of payments made to third parties. A summary of client investment fees by instrument type for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Client investment fees by type:
Sweep money market fees	$	12,322	$	4,396
Asset management fees (1)	5,358		3,378
Repurchase agreement fees	5,195		1,252
Total client investment fees (2)	$	22,875	$	9,026


(1)	Represents fees earned from investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management.


(2)	Represents fees earned on client investment funds which are maintained at third-party financial institutions and are not recorded on our balance sheet.

Lending related fees

Unused commitment fees, minimum finance fees and unused line fees are recognized as earned on a monthly basis. Fees that qualify for syndication treatment are recognized at the completion of the syndicated loan deal for which the fees were received. Lending related fees are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our lending-related activities. A summary of lending related fees by instrument type for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Lending related fees by instrument type:
Unused commitment fees	$	8,757	$	6,567
Other	1,978		2,394
Total lending related fees	$	10,735	$	8,961

Letters of credit and standby letters of credit fees

Commercial and standby letters of credit represent conditional commitments issued by us on behalf of a client to guarantee the performance of the client to a third party when certain specified future events have occurred. Fees generated from letters of credit and standby letters of credit are deferred as a component of other liabilities and recognized in noninterest income over the commitment period using the straight-line method, based on the likelihood that the commitment being drawn down will be remote. Letters of credit and standby letters of credit fees are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our lending-related activities.

Other

Other noninterest income primarily includes income from fund management fees and service revenue. Fund management fees are comprised of fees charged directly to our managed funds of funds and direct venture funds. Fund management fees are based upon the contractual terms of the limited partnership agreements and are generally recognized as earned over the specified contract period, which is generally equal to the life of the individual fund. Fund management fees are calculated as a percentage of committed capital and collected in advance and are received quarterly. Fund management fees for certain of our limited partnership agreements are calculated as a percentage of distributions made by the funds and revenue is recorded only at the time of a distribution event. As distribution events are not predetermined for these certain funds, management fees are considered variable and constrained under the new revenue standard.

Other noninterest income primarily consists of dividend income on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income. We recognize revenue when our performance obligations are met and record revenues on a daily/monthly basis, quarterly, semi-annually or annual basis. For event driven revenue sources, we recognize revenue when: (i) persuasive evidence of an arrangement exists, (ii) we have performed the service, provided we have no other remaining obligations to the customer, (iii) the fee is fixed or determinable and (iv) collectability is probable.

A summary of other noninterest income by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Other noninterest income by instrument type:
Fund management fees	$	5,736		$	5,169
Net (losses) gains on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1)	(47		)	1,328
Other service revenue	6,570			5,924
Total other noninterest income	$	12,259		$	12,421


(1)	Represents the net revaluation of client and internal foreign currency denominated financial instruments. We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client and internal foreign currency denominated financial instruments.

Disaggregation of Revenue from Contracts with Customers

The following table presents our revenues from contracts with customers disaggregated by revenue source and segment for the three months ended March 31, 2018:



(Dollars in thousands)	Global Commercial Bank		SVB Private Bank			SVB Capital		Other Income		Total
Revenue from contracts with customers:
Spot contract commissions	$	30,972	$	179		$	—	$	51	$	31,202
Card interchange fees, gross	29,449		—			—		99		29,548
Merchant service fees	2,906		—			—		—		2,906
Deposit service charges	17,040		28			—		631		17,699
Client investment fees	10,250		302			—		12,323		22,875
Fund management fees	—		—			5,736		—		5,736
Correspondent bank rebates	1,396		—			—		—		1,396
Total revenue from contracts with customers	$	92,013	$	509		$	5,736	$	13,104	$	111,362

Revenues outside the scope of ASC 606 (1)	7,333		(2		)	23,174		13,651		44,156
Total noninterest income	$	99,346	$	507		$	28,910	$	26,755	$	155,518


(1)	Amounts are accounted for under separate guidance than ASC 606.