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Noninterest Income

3 Months Ended

Mar. 31, 2020

Other Income and Expenses [Abstract]

All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized within noninterest income. Included below is a summary of noninterest income for the three months ended March 31, 2020 and 2019:



	Three months ended March 31,
(Dollars in thousands)	2020		2019
Noninterest income:
Gains on investment securities, net	$	46,055	$	29,028
Gains on equity warrant assets, net	13,395		21,305
Client investment fees	43,393		44,482
Foreign exchange fees	47,505		38,048
Credit card fees	28,304		27,483
Deposit service charges	24,589		20,939
Lending related fees	13,125		13,937
Letters of credit and standby letters of credit fees	11,542		9,354
Investment banking revenue	46,867		49,795
Commissions	16,022		14,108
Other	11,137		11,897
Total noninterest income	$	301,934	$	280,376

Gains on investment securities, net

Net gains on investment securities include both gains and losses from our non-marketable and other equity securities, which include public equity securities held as a result of exercised equity warrant assets, gains and losses from sales of our AFS debt securities portfolio, when applicable, and carried interest.

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, which include public equity securities held as a result of exercised equity warrant assets and 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.

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, and 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. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk.

Gains on investment securities are recognized outside of the scope of ASC 606 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, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020			2019
(Losses) gains on non-marketable and other equity securities, net	$	(15,110	)	$	32,658
Gains (losses) on sales of available-for-sale securities, net	61,165			(3,630		)
Total gains on investment securities, net	$	46,055		$	29,028

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 ASC 606 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, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020			2019
Equity warrant assets:
Gains on exercises, net	$	19,193		$	5,482
Terminations	(326		)	(415		)
Changes in fair value, net	(5,472		)	16,238
Total net gains on equity warrant assets	$	13,395		$	21,305

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 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 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, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020		2019
Client investment fees by type:
Sweep money market fees	$	23,049	$	26,544
Asset management fees (1)	9,137		6,671
Repurchase agreement fees	11,207		11,267
Total client investment fees (2)	$	43,393	$	44,482


(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.

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 the transactions are typically settled within two business days.

Forward contract and option premium fees are recognized outside of the scope of ASC 606 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, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020		2019
Foreign exchange fees by instrument type:
Spot contract commissions	$	40,934	$	35,029
Forward contract commissions	6,339		2,995
Option premium fees	232		24
Total foreign exchange fees	$	47,505	$	38,048

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, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020		2019
Credit card fees by instrument type:
Card interchange fees, net	$	21,775	$	21,393
Merchant service fees	5,027		4,534
Card service fees	1,502		1,556
Total credit card fees	$	28,304	$	27,483

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, and are presented in the "Disaggregation of revenue from contracts with customers" table below.

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 ASC 606 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, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020		2019
Lending related fees by instrument type:
Unused commitment fees	$	8,406	$	9,670
Other	4,719		4,267
Total lending related fees	$	13,125	$	13,937

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 ASC 606 as it explicitly excludes noninterest income earned from our lending related activities.

Investment banking revenue

The Company earns investment banking revenue from clients for providing services related to securities underwriting, private placements and advisory services on strategic matters such as mergers and acquisitions. Underwriting fees are attributable to public and private offerings of equity and debt securities and are recognized at the point in time when the offering has been deemed to be completed by the lead manager of the underwriting group. Once the offering is completed, the performance obligation has been satisfied and the Company recognizes the applicable management fee as well the underwriting fee, net of consideration payable to customers. The Company recognizes private placement fees at the point in time when the private placement is completed, which is generally when the client accepts capital from the fund raise. Advisory fees from mergers and acquisitions engagements are generally recognized at the point in time when the related transaction is completed. Expenses are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other deal-related expenses are expensed as incurred. The Company has determined that it acts as principal in the majority of these transactions and therefore presents expenses gross within other operating expenses.

A summary of investment banking revenue by instrument type for the three months ended March 31, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020		2019
Investment banking revenue:
Underwriting fees	$	31,290	$	35,772
Advisory fees	15,487		12,273
Private placements and other	90		1,750
Total investment banking revenue	$	46,867	$	49,795

Commissions

Commissions include commissions received from customers for the execution of agency-based brokerage transactions in listed and over-the-counter equities. The execution of each trade order represents a distinct performance obligation and the transaction price is fixed at the point in time or trade order execution. Trade execution is satisfied at the point in time that the customer has control of the asset and as such, fees are recorded on a trade date basis. Commissions are presented in the "Disaggregation of revenue from contracts with customers" table below.

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 ASC 606.

Other service revenue 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, quarterly, semi-annual 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, 2020 and 2019 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2020			2019
Other noninterest income by instrument type:
Fund management fees	$	7,908		$	8,041
Net losses on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1)	(244		)	(336		)
Other service revenue	3,473			4,192
Total other noninterest income	$	11,137		$	11,897


(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 tables present our revenues from contracts with customers disaggregated by revenue source and segment for the three months ended March 31, 2020 and 2019:



Three months ended March 31, 2020 (Dollars in thousands)	Global Commercial Bank (2)		SVB Private Bank		SVB Capital (2)			SVB Leerink (2)			Other Items		Total
Revenue from contracts with customers:
Client investment fees	$	42,736	$	657	$	—		$	—		$	—	$	43,393
Spot contract commissions	40,675		161		—			—			98		40,934
Card interchange fees, gross	35,724		7		—			—			566		36,297
Merchant service fees	5,027		—		—			—			—		5,027
Deposit service charges	24,238		27		—			—			324		24,589
Investment banking revenue	—		—		—			46,867			—		46,867
Commissions	—		—		—			16,022			—		16,022
Fund management fees	—		—		6,478			1,430			—		7,908
Correspondent bank rebates	1,403		—		—			—			—		1,403
Total revenue from contracts with customers	$	149,803	$	852	$	6,478		$	64,319		$	988	$	222,440
Revenues outside the scope of ASC 606 (1)	17,031		48		(1,560		)	(1,642		)	65,617		79,494
Total noninterest income	$	166,834	$	900	$	4,918		$	62,677		$	66,605	$	301,934


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


(2)	Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items."



Three months ended March 31, 2019 (Dollars in thousands)	Global Commercial Bank (2)		SVB Private Bank			SVB Capital (2)		SVB Leerink (2)		Other Items		Total
Revenue from contracts with customers:
Client investment fees (3)	$	44,102	$	380		$	—	$	—	$	—	$	44,482
Spot contract commissions	34,806		122			—		—		101		35,029
Card interchange fees, gross	38,715		—			—		—		147		38,862
Merchant service fees	4,534		—			—		—		—		4,534
Deposit service charges	20,793		35			—		—		111		20,939
Investment banking revenue	—		—			—		49,795		—		49,795
Commissions	—		—			—		14,108		—		14,108
Fund management fees	—		—			6,659		1,382		—		8,041
Correspondent bank rebates	1,467		—			—		—		—		1,467
Total revenue from contracts with customers	$	144,417	$	537		$	6,659	$	65,285	$	359	$	217,257
Revenues outside the scope of ASC 606 (1)	8,444		(27		)	18,186		2,832		33,684		63,119
Total noninterest income	$	152,861	$	510		$	24,845	$	68,117	$	34,043	$	280,376


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


(2)	Global Commercial Bank’s and SVB Capital’s components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items."


(3)	For the three months ended March 31, 2019, the amount of client investment fees previously reported as "Other Items" has been correctly allocated to the reportable segment "Global Commercial Bank" to properly reflect the source of such revenue. The correction of this immaterial error had no impact on the "Total" amount of client investment fees.

The timing of revenue recognition may differ from the timing of cash settlements or invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, and unearned revenue when revenue is recognized subsequent to receipt of consideration. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. During the three months ended March 31, 2020 and 2019, changes in our contract assets, contract liabilities and receivables were not material. Additionally, revenues recognized during the three months ended March 31, 2020 and 2019 that were included in the corresponding contract liability balance at the beginning of the periods were not material.