Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments

12 Months Ended

Dec. 31, 2018

Receivables [Abstract]

Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments

Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments

We serve a variety of commercial clients in the technology, life science/healthcare, private equity/venture capital and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications, data, storage, and electronics), software/internet (such as infrastructure software, applications, software services, digital content and advertising technology), and energy and resource innovation ("ERI"). Because of the diverse nature of ERI products and services, for our loan-related reporting purposes, ERI-related loans are reported under our hardware, software/internet, life science/healthcare and other commercial loan categories, as applicable. Our life science/healthcare clients primarily tend to be in the industries of biotechnology, medical devices, healthcare information technology and healthcare services. Loans made to private equity/venture capital firm clients typically enable them to fund investments prior to their receipt of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.

In addition to commercial loans, we make consumer loans through SVB Private Bank and provide real estate secured loans to eligible employees through our EHOP. Our private banking clients are primarily private equity/venture capital professionals and executive leaders in the innovation companies they support. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit.

We also provide community development loans made as part of our responsibilities under the Community Reinvestment Act. These loans are included within “Construction loans” below and are primarily secured by real estate.

The composition of loans, net of unearned income of $173 million and $148 million at December 31, 2018 and 2017, respectively, is presented in the following table:

	December 31,
(Dollars in thousands)	2018		2017
Commercial loans:
Software/internet	$	6,154,755	$	6,172,531
Hardware	1,234,557		1,193,599
Private equity/venture capital	14,110,560		9,952,377
Life science/healthcare	2,385,612		1,808,827
Premium wine	249,266		204,105
Other	321,978		365,724
Total commercial loans	24,456,728		19,697,163
Real estate secured loans:
Premium wine (1)	710,397		669,053
Consumer loans (2)	2,612,971		2,300,506
Other	40,435		42,068
Total real estate secured loans	3,363,803		3,011,627
Construction loans	97,077		68,546
Consumer loans	420,672		328,980
Total loans, net of unearned income (3)	$	28,338,280	$	23,106,316

(1) Included in our premium wine portfolio are gross construction loans of $99 million and $100 million at December 31, 2018 and 2017, respectively.

(2) Consumer loans secured by real estate at December 31, 2018 and 2017 were comprised of the following:

	December 31,
(Dollars in thousands)	2018		2017
Loans for personal residence	$	2,251,292	$	1,995,840
Loans to eligible employees	290,194		243,118
Home equity lines of credit	71,485		61,548
Consumer loans secured by real estate	$	2,612,971	$	2,300,506

(3) Included within our total loan portfolio are credit card loans of $335 million and $270 million at December 31, 2018 and 2017, respectively.

Credit Quality

The composition of loans, net of unearned income of $173 million and $148 million at December 31, 2018 and 2017, respectively, broken out by portfolio segment and class of financing receivable, is as follows:

	December 31,
(Dollars in thousands)	2018		2017
Commercial loans:
Software/internet	$	6,154,755	$	6,172,531
Hardware	1,234,557		1,193,599
Private equity/venture capital	14,110,560		9,952,377
Life science/healthcare	2,385,612		1,808,827
Premium wine	959,663		873,158
Other	459,490		476,338
Total commercial loans	25,304,637		20,476,830
Consumer loans:
Real estate secured loans	2,612,971		2,300,506
Other consumer loans	420,672		328,980
Total consumer loans	3,033,643		2,629,486
Total loans, net of unearned income	$	28,338,280	$	23,106,316

The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of December 31, 2018 and 2017:

(Dollars in thousands)	30 - 59   Days Past   Due		60 - 89   Days Past   Due		Equal to or Greater Than 90 Days Past Due		Total Past   Due		Current		Loans Past Due 90 Days or More Still Accruing Interest
December 31, 2018:
Commercial loans:
Software/internet	$	28,134	$	6,944	$	378	$	35,456	$	6,059,672	$	378
Hardware	300		34		4		338		1,233,956		4
Private equity/venture capital	59,481		11		—		59,492		14,054,940		—
Life science/healthcare	16,082		817		19		16,918		2,410,091		19
Premium wine	2,953		14		—		2,967		956,285		—
Other	7,391		163		1		7,555		477,442		1
Total commercial loans	114,341		7,983		402		122,726		25,192,386		402
Consumer loans:
Real estate secured loans	3,598		1,750		1,562		6,910		2,598,496		1,562
Other consumer loans	361		—		—		361		420,359		—
Total consumer loans	3,959		1,750		1,562		7,271		3,018,855		1,562
Total gross loans excluding impaired loans	118,300		9,733		1,964		129,997		28,211,241		1,964
Impaired loans	2,843		1,181		25,092		29,116		140,958		—
Total gross loans	$	121,143	$	10,914	$	27,056	$	159,113	$	28,352,199	$	1,964
December 31, 2017:
Commercial loans:
Software/internet	$	14,257	$	6,526	$	141	$	20,924	$	6,101,147	$	141
Hardware	1,145		77		50		1,272		1,163,278		50
Private equity/venture capital	86,566		38,580		—		125,146		9,835,317		—
Life science/healthcare	4,390		191		—		4,581		1,841,692		—
Premium wine	418		—		—		418		871,074		—
Other	445		—		—		445		490,292		—
Total commercial loans	107,221		45,374		191		152,786		20,302,800		191
Consumer loans:
Real estate secured loans	2,164		532		—		2,696		2,292,980		—
Other consumer loans	796		—		—		796		327,234		—
Total consumer loans	2,960		532		—		3,492		2,620,214		—
Total gross loans excluding impaired loans	110,181		45,906		191		156,278		22,923,014		191
Impaired loans	1,344		11,902		30,403		43,649		131,212		—
Total gross loans	$	111,525	$	57,808	$	30,594	$	199,927	$	23,054,226	$	191

The following table summarizes our impaired loans as they relate to our allowance for loan losses, broken out by portfolio segment and class of financing receivable for the years ended December 31, 2018 and 2017:

(Dollars in thousands)	Impaired loans for  which there is a related allowance for loan losses		Impaired loans for  which there is no related allowance for loan losses		Total carrying value of impaired loans		Total unpaid principal of impaired loans
December 31, 2018:
Commercial loans:
Software/internet	$	49,625	$	65,225	$	114,850	$	131,858
Hardware	1,256		10,250		11,506		12,159
Private equity/venture capital	—		3,700		3,700		3,700
Life science/healthcare	17,791		16,276		34,067		44,446
Premium wine	—		1,301		1,301		1,365
Other	411		—		411		411
Total commercial loans	69,083		96,752		165,835		193,939
Consumer loans:
Real estate secured loans	3,919		320		4,239		5,969
Other consumer loans	—		—		—		—
Total consumer loans	3,919		320		4,239		5,969
Total	$	73,002	$	97,072	$	170,074	$	199,908
December 31, 2017:
Commercial loans:
Software/internet	$	49,645	$	61,009	$	110,654	$	129,006
Hardware	15,637		20,713		36,350		41,721
Private equity/venture capital	658		—		658		984
Life science/healthcare	20,521		1,166		21,687		26,360
Premium wine	—		2,877		2,877		2,911
Other	32		—		32		165
Total commercial loans	86,493		85,765		172,258		201,147
Consumer loans:
Real estate secured loans	1,331		850		2,181		3,712
Other consumer loans	422		—		422		436
Total consumer loans	1,753		850		2,603		4,148
Total	$	88,246	$	86,615	$	174,861	$	205,295

The following table summarizes our average impaired loans and interest income recognized on impaired loans, broken out by portfolio segment and class of financing receivable during 2018, 2017 and 2016:

Year ended December 31, (Dollars in thousands)	Average impaired loans						Interest income recognized on impaired loans
	2018		2017		2016		2018		2017		2016
Commercial loans:
Software/internet	$	112,493	$	119,557	$	89,462	$	1,513	$	2,263	$	1,054
Hardware	28,540		35,022		39,108		312		1,061		2,624
Private equity/venture capital	1,327		556		—		—		—		—
Life science/healthcare	30,144		30,842		40,620		756		90		155
Premium wine	2,605		3,249		2,056		68		152		28
Other	171		576		3,442		—		—		6
Total commercial loans	175,280		189,802		174,688		2,649		3,566		3,867
Consumer loans:
Real estate secured loans	4,028		1,514		588		15		—		—
Other consumer loans	358		1,804		1,136		—		—		17
Total consumer loans	4,386		3,318		1,724		15		—		17
Total average impaired loans	$	179,666	$	193,120	$	176,412	$	2,664	$	3,566	$	3,884

The following tables summarize the activity relating to our allowance for loan losses for 2018, 2017 and 2016 broken out by portfolio segment:

Year ended December 31, 2018 (Dollars in thousands)	Beginning Balance December 31, 2017		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Foreign Currency Translation Adjustments			Ending Balance December 31, 2018
Commercial loans:
Software/internet	$	96,104	$	(42,315	)	$	5,664	$	45,068		$	(954	)	$	103,567
Hardware	27,614		(16,148		)	1,849		6,555			(145		)	19,725
Private equity/venture capital	82,468		(112		)	13		16,485			(273		)	98,581
Life science/healthcare	24,924		(6,662		)	348		14,347			(777		)	32,180
Premium wine	3,532		—			—		(182		)	5			3,355
Other	3,941		(2,391		)	3,275		(1,320		)	53			3,558
Total commercial loans	238,583		(67,628		)	11,149		80,953			(2,091		)	260,966
Consumer loans	16,441		(289		)	487		3,339			(41		)	19,937
Total allowance for loan losses	$	255,024	$	(67,917	)	$	11,636	$	84,292		$	(2,132	)	$	280,903

Year ended December 31, 2017 (Dollars in thousands)	Beginning Balance December 31, 2016		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Foreign Currency Translation Adjustments			Ending Balance December 31, 2017
Commercial loans:
Software/internet	$	97,388	$	(45,012	)	$	4,649	$	38,462		$	617		$	96,104
Hardware	31,166		(10,414		)	487		6,051			324			27,614
Private equity/venture capital	50,299		(323		)	—		31,625			867			82,468
Life science/healthcare	25,446		(8,210		)	189		7,414			85			24,924
Premium wine	4,115		—			—		(540		)	(43		)	3,532
Other	4,768		(1,156		)	1,850		(1,459		)	(62		)	3,941
Total commercial loans	213,182		(65,115		)	7,175		81,553			1,788			238,583
Consumer loans	12,184		(1,567		)	1,363		4,386			75			16,441
Total allowance for loan losses	$	225,366	$	(66,682	)	$	8,538	$	85,939		$	1,863		$	255,024

Year ended December 31, 2016 (Dollars in thousands)	Beginning Balance December 31, 2015		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Foreign Currency Translation Adjustments			Ending Balance December 31, 2016
Commercial loans:
Software/internet	$	103,045	$	(68,784	)	$	7,278	$	58,350		$	(2,501	)	$	97,388
Hardware	23,085		(13,233		)	1,667		20,851			(1,204		)	31,166
Private equity/venture capital	35,282		—			—		15,114			(97		)	50,299
Life science/healthcare	36,576		(9,693		)	1,129		(2,543		)	(23		)	25,446
Premium wine	5,205		—			—		(1,260		)	170			4,115
Other	4,252		(5,045		)	1,880		3,373			308			4,768
Total commercial loans	207,445		(96,755		)	11,954		93,885			(3,347		)	213,182
Consumer loans	10,168		(102		)	258		1,812			48			12,184
Total allowance for loan losses	$	217,613	$	(96,857	)	$	12,212	$	95,697		$	(3,299	)	$	225,366

The following table summarizes the activity relating to our allowance for unfunded credit commitments for 2018, 2017 and 2016:

	Year ended December 31,
(Dollars in thousands)	2018			2017		2016
Allowance for unfunded credit commitments, beginning balance	$	51,770		$	45,265	$	34,415
Provision for unfunded credit commitments	3,578			6,365		10,982
Foreign currency translation adjustments	(165		)	140		(132		)
Allowance for unfunded credit commitments, ending balance (1)	$	55,183		$	51,770	$	45,265

(1) See Note 19—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for additional disclosures related to our commitments to extend credit.

The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of December 31, 2018 and 2017, broken out by portfolio segment:

	December 31, 2018								December 31, 2017
	Individually Evaluated for Impairment				Collectively Evaluated for   Impairment				Individually Evaluated for Impairment				Collectively Evaluated for   Impairment
(Dollars in thousands)	Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans
Commercial loans:
Software/internet	$	28,527	$	114,850	$	75,040	$	6,039,905	$	23,088	$	110,654	$	73,016	$	6,061,877
Hardware	1,253		11,506		18,472		1,223,051		8,450		36,350		19,164		1,157,249
Private equity/venture capital	—		3,700		98,581		14,106,860		330		658		82,138		9,951,719
Life science/healthcare	7,484		34,067		24,696		2,351,545		9,315		21,687		15,609		1,787,140
Premium wine	—		1,301		3,355		958,362		—		2,877		3,532		870,281
Other	411		411		3,147		459,079		32		32		3,909		476,306
Total commercial loans	37,675		165,835		223,291		25,138,802		41,215		172,258		197,368		20,304,572
Total consumer loans	266		4,239		19,671		3,029,404		578		2,603		15,863		2,626,883
Total	$	37,941	$	170,074	$	242,962	$	28,168,206	$	41,793	$	174,861	$	213,231	$	22,931,455

Credit Quality Indicators

For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of “Pass,” with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans; however, we consider them as demonstrating higher risk, which requires more frequent review of the individual exposures; these translate to an internal rating of “Performing (Criticized).” When full repayment of a criticized loan has been deemed improbable under the original contractual terms but full repayment remains probable overall, the loan is considered to be a “Performing Impaired (Criticized)” loan. All of our nonaccrual loans are risk-rated 8 or 9 and are classified under the nonperforming impaired category. (For a further description of nonaccrual loans, refer to Note 2—“Summary of Significant Accounting Policies” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report). Loans rated 10 are charged-off and are not included as part of our loan portfolio balance. We review our credit quality indicators for performance and appropriateness of risk ratings as part of our evaluation process for our allowance for loan losses.

The following table summarizes the credit quality indicators, broken out by portfolio segment and class of financing receivables as of December 31, 2018 and 2017:

(Dollars in thousands)	Pass		Performing  (Criticized)		Performing Impaired (Criticized)		Nonperforming Impaired (Nonaccrual)		Total
December 31, 2018:
Commercial loans:
Software/internet	$	5,574,332	$	520,796	$	48,069	$	66,781	$	6,209,978
Hardware	1,146,985		87,309		10,250		1,256		1,245,800
Private equity/venture capital	14,098,281		16,151		—		3,700		14,118,132
Life science/healthcare	2,291,356		135,653		16,276		17,791		2,461,076
Premium wine	909,965		49,287		1,017		284		960,553
Other	467,653		17,344		—		411		485,408
Total commercial loans	24,488,572		826,540		75,612		90,223		25,480,947
Consumer loans:
Real estate secured loans	2,584,261		21,145		320		3,919		2,609,645
Other consumer loans	419,771		949		—		—		420,720
Total consumer loans	3,004,032		22,094		320		3,919		3,030,365
Total gross loans	$	27,492,604	$	848,634	$	75,932	$	94,142	$	28,511,312
December 31, 2017:
Commercial loans:
Software/internet	$	5,655,739	$	466,332	$	31,794	$	78,860	$	6,232,725
Hardware	1,112,574		51,976		20,165		16,185		1,200,900
Private equity/venture capital	9,955,082		5,381		—		658		9,961,121
Life science/healthcare	1,720,613		125,660		1,167		20,520		1,867,960
Premium wine	834,537		36,955		2,476		401		874,369
Other	469,721		21,016		—		32		490,769
Total commercial loans	19,748,266		707,320		55,602		116,656		20,627,844
Consumer loans:
Real estate secured loans	2,282,375		13,301		—		2,181		2,297,857
Other consumer loans	326,851		1,179		—		422		328,452
Total consumer loans	2,609,226		14,480		—		2,603		2,626,309
Total gross loans	$	22,357,492	$	721,800	$	55,602	$	119,259	$	23,254,153

Troubled Debt Restructurings

As of December 31, 2018 we had 17 TDRs with a total carrying value of $83.7 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. This compares to 22 TDRs with a total carrying value of $147.8 million as of December 31, 2017. There were unfunded commitments available for funding of $2.7 million to the clients associated with these TDRs as of December 31, 2018. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at December 31, 2018 and 2017:

	December 31,
(Dollars in thousands)	2018		2017
Loans modified in TDRs:
Commercial loans:
Software/internet	$	58,089	$	73,455
Hardware	9,665		51,132
Private equity/venture capital	—		350
Life science/healthcare	12,738		19,235
Premium wine	2,883		3,198
Total commercial loans	83,375		147,370
Consumer loans:
Other consumer loans	320		423
Total loans modified in TDRs	$	83,695	$	147,793

The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during 2018, 2017 and 2016:

	Year ended December 31,
(Dollars in thousands)	2018		2017		2016
Loans modified in TDRs during the period:
Commercial loans:
Software/internet	$	30,429	$	42,184	$	23,574
Hardware	9,665		51,132		14,870
Private equity/venture capital	—		350		—
Life science/healthcare	660		—		1,638
Premium wine	—		177		677
Total commercial loans	40,754		93,843		40,759
Consumer loans:
Other consumer loans	320		—		786
Total loans modified in TDRs during the period (1)	$	41,074	$	93,843	$	41,545

(1) There were $4.6 million, $3.0 million, and $3.6 million of partial charge-offs during 2018, 2017 and 2016, respectively.

During 2018, all new TDRs of $41.1 million were modified through payment deferrals granted to our clients. During 2017, $93.5 million of new TDRs were modified through payment deferrals granted to our clients and $0.3 million were modified through partial forgiveness of principal. During 2016, all new TDRs were modified through payment deferrals granted to our clients.

The related allowance for loan losses for the majority of our TDRs is determined on an individual basis by comparing the carrying value of the loan to the present value of the estimated future cash flows, discounted at the pre-modification contractual interest rate. For certain TDRs, the related allowance for loan losses is determined based on the fair value of the collateral if the loan is collateral dependent.

The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during their respective periods, broken out by portfolio segment and class of financing receivable, during 2018, 2017 and 2016:

	December 31
(Dollars in thousands)	2018 (1)		2017 (1)		2016
TDRs modified within the previous 12 months that defaulted during the period:
Commercial loans:
Hardware	$	—	$	—	$	134
Premium wine	—		—		491
Life science/healthcare	—		—		—
Total commercial loans	—		—		625
Consumer loans:
Other consumer loans	—		—		786
Total TDRs modified within the previous 12 months that defaulted in the period	$	—	$	—	$	1,411

(1) For both the 2018 and 2017 periods, there were no loans modified in TDRs within the previous 12 months that subsequently defaulted during the period.

Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology for TDRs was necessary to determine the allowance for loan losses as of December 31, 2018.