10. Segment Reporting

Effective January 1, 2011, we changed the way we monitor performance and results of our business segments and as a result, we changed how our segments are presented. We have reclassified all prior period segment information to conform to the current presentation of our operating segments.

We have three operating segments for management reporting purposes: Global Commercial Bank, SVB Private Bank and SVB Capital. The results of our operating segments are based on our internal management reporting process.

Our operating segments’ primary source of revenue is from net interest income, which is primarily the difference between interest earned on loans, net of funds transfer pricing (“FTP”), and interest paid on deposits, net of FTP. Accordingly, our segments are reported using net interest income, net of FTP. FTP is an internal measurement framework designed to assess the financial impact of a financial institution’s sources and uses of funds. It is the mechanism by which an earnings credit is given for deposits raised, and an earnings charge is made for funded loans. FTP is calculated by applying a transfer rate to pooled, or aggregated, loan and deposit volumes.

We also evaluate performance based on provision for loan losses, noninterest income and noninterest expense, which are presented as components of segment operating profit or loss. In calculating each reportable segment’s noninterest expense, we consider the direct costs incurred by the operating segment as well as certain allocated direct costs. As part of this review, we allocate certain corporate overhead costs to a corporate account. We do not allocate income taxes to our segments. Additionally, our management reporting model is predicated on average asset balances; therefore, period-end asset balances are not presented for segment reporting purposes. Changes in an individual client’s primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods.

Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, our internal management reporting process is highly subjective, as there is no comprehensive, authoritative guidance for management reporting. Our management reporting process measures the performance of our reportable segments based on our internal operating structure, which is subject to change from time to time, and is not necessarily comparable with similar information for other financial services companies.

The following is a description of the services that our three operating segments provide:

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Global Commercial Bank provides solutions to the financial needs of commercial clients through lending, deposit products, cash management services, and global banking and trade products and services. It also serves the needs of our non-U.S. clients with global banking products, including loans, deposits and global finance, in key foreign entrepreneurial markets, where applicable. Effective January 1, 2011, Global Commercial Bank included the results of SVB Specialty Lending, SVB Analytics and our Debt Fund Investments. SVB Specialty Lending provides banking products and services to our premium wine industry clients, including vineyard development loans, as well as community development loans made as part of our responsibilities under the Community Reinvestment Act. Previously, the results of SVB Specialty Lending were included as part of our Relationship Management segment (no longer a separately reported operating segment effective January 1, 2011). SVB Analytics provides equity valuation and equity management services to private companies and venture capital/private equity firms. Previously, the results of SVB Analytics were included as part of our Other Business Services segment (no longer a separately reported operating segment effective January 1, 2011). Our Debt Fund Investments primarily include the Gold Hill Funds, which provide secured debt to private companies of all stages, and Partners for Growth Funds, which provide secured debt primarily to mid-stage and late-stage clients. Previously, the results of our Debt Fund Investments were included as part of our Other Business Services segment. As a result of these changes, our Global Commercial Bank segment’s income before income tax expense for the nine months ended September 30, 2010 was reduced by $27.6 million due to our reclassification of all prior periods to reflect the current segment composition.

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SVB Private Bank provides banking products and a range of credit services to targeted high-net-worth individuals using both long-term secured and short-term unsecured lines of credit. Previously, the results of SVB Private Bank were included as part of our Relationship Management segment. Effective January 1, 2011, the results of SVB Private Bank are separately reported.

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SVB Capital manages funds (primarily venture capital funds) on behalf of SVB Financial Group and other third party limited partners. The SVB Capital family of funds is comprised of funds of funds and co-investment funds. Effective January 1, 2011, SVB Capital included the results of our Strategic Investments, which includes certain strategic investments held by SVB Financial. Previously, the results of our Strategic Investments were included as part of our Other Business Services segment.

The summary financial results of our operating segments are presented along with a reconciliation to our consolidated interim results. The Other Items column reflects the adjustments necessary to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP. Net interest income (loss) in the Other Items column is primarily interest income recognized from our fixed income investment portfolio, partially offset by interest income transferred to the segments as part of FTP. Noninterest income in the Other Items column is primarily attributable to noncontrolling interests and gains (losses) on equity warrant assets. Noninterest expense in the Other Items column primarily consists of expenses associated with corporate support functions such as finance, human resources, marketing, legal and other expenses. Additionally, average assets in the Other Items column primarily consist of cash and cash equivalents and our available-for-sale securities portfolio balances.

Our segment information for the three and nine months ended September 30, 2011 and 2010 is as follows:


(Dollars in thousands)	Global Commercial Bank (1)			SVB Private Bank			SVB Capital (1)			Other Items			Total
Three months ended September 30, 2011
Net interest income	$	115,333		$	5,848		$	2		$	14,272		$	135,455
(Provision for) reduction of loan losses		(3,883	)		3,114			—			—			(769	)
Noninterest income		39,189			128			9,873			46,421			95,611
Noninterest expense (2)		(93,046	)		(2,846	)		(3,860	)		(27,699	)		(127,451	)

Income before income tax expense (3)	$	57,593		$	6,244		$	6,015		$	32,994		$	102,846

Total average loans, net of unearned income	$	5,263,448		$	684,613		$	—		$	58,553		$	6,006,614
Total average assets		5,815,493			685,308			238,949			12,056,760			18,796,510
Total average deposits		15,573,886			200,547			—			29,603			15,804,036

Three months ended September 30, 2010
Net interest income	$	90,026		$	3,276		$	—		$	13,039		$	106,341
Provision for loan losses		(10,140	)		(831	)		—			—			(10,971	)
Noninterest income		35,514			108			6,209			44,405			86,236
Noninterest expense (2)		(75,787	)		(1,090	)		(2,930	)		(24,364	)		(104,171	)

Income before income tax expense (3)	$	39,613		$	1,463		$	3,279		$	33,080		$	77,435

Total average loans, net of unearned income	$	3,999,091		$	468,774		$	—		$	30,622		$	4,498,487
Total average assets		4,319,825			468,787			161,911			9,805,115			14,755,638
Total average deposits		11,824,240			115,131			—			(20,150	)		11,919,221

Nine months ended September 30, 2011
Net interest income	$	327,587		$	15,086		$	6		$	43,528		$	386,207
(Provision for) reduction of loan losses		(3,222	)		5,366			—			—			2,144
Noninterest income		110,604			351			23,879			174,439			309,273
Noninterest expense (2)		(264,893	)		(7,326	)		(10,113	)		(83,586	)		(365,918	)

Income before income tax expense (3)	$	170,076		$	13,477		$	13,772		$	134,381		$	331,706

Total average loans, net of unearned income	$	4,933,707		$	637,443		$	—		$	48,559		$	5,619,709
Total average assets		5,387,040			637,854			225,041			12,086,913			18,336,848
Total average deposits		15,063,215			169,368			—			18,355			15,250,938

Nine months ended September 30, 2010
Net interest income (loss)	$	268,477		$	9,476		$	(1	)	$	35,665		$	313,617
Provision for loan losses		(28,567	)		(557	)		—			—			(29,124	)
Noninterest income		98,800			345			14,079			62,442			175,666
Noninterest expense (2)		(220,988	)		(3,155	)		(10,088	)		(72,696	)		(306,927	)

Income before income tax expense (3)	$	117,722		$	6,109		$	3,990		$	25,411		$	153,232

Total average loans, net of unearned income	$	3,780,490		$	443,813		$	—		$	19,128		$	4,243,431
Total average assets		4,111,217			443,912			150,696			9,590,314			14,296,139
Total average deposits		11,482,632			131,028			—			(12,877	)		11,600,783

(1)	SVB Capital’s and Global Commercial Bank’s components of net interest income (loss), noninterest income, noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented.

(2)	The Global Commercial Bank segment includes direct depreciation and amortization of $3.1 million and $2.5 million for the three months ended September 30, 2011 and 2010, respectively, and $8.8 million and $7.3 million for the nine months ended September 30, 2011 and 2010, respectively.

(3)	The internal reporting model used by management to assess segment performance does not calculate income tax expense by segment. Our effective tax rate is a reasonable approximation of the segment rates.