UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 000-15637
SVB FINANCIAL GROUP
(Exact name of registrant as specified in its charter)
Delaware | 91-1962278 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3003 Tasman Drive, Santa Clara, California | 95054-1191 | |
(Address of principal executive offices) | (Zip Code) |
(408) 654-7400
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At July 31, 2012, 44,410,239 shares of the registrants common stock ($0.001 par value) were outstanding.
Page |
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PART I - FINANCIAL INFORMATION | 4 | |||||
Item 1. |
4 | |||||
Interim Consolidated Balance Sheets (unaudited) as of June 30, 2012 and December 31, 2011 |
4 | |||||
5 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Notes to Interim Consolidated Financial Statements (unaudited) |
9 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
42 | ||||
Item 3. |
74 | |||||
Item 4. |
75 | |||||
PART II - OTHER INFORMATION | 76 | |||||
Item 1. |
76 | |||||
Item 1A. |
76 | |||||
Item 2. |
76 | |||||
Item 3. |
76 | |||||
Item 4. |
76 | |||||
Item 5. |
76 | |||||
Item 6. |
76 | |||||
SIGNATURES | 77 | |||||
INDEX TO EXHIBITS | 78 |
2
Glossary of Acronyms used in this Report
AICPA American Institute of Certified Public Accountants
ASC Accounting Standards Codification
ASU Accounting Standards Update
EHOP Employee Home Ownership Program of the Company
EPS Earnings per share
ESOP Employee Stock Ownership Plan of the Company
ESPP 1999 Employee Stock Purchase Plan of the Company
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
FRB Federal Reserve Bank
GAAP - Accounting principles generally accepted in the United States of America
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IPO Initial public offering
IRS Internal Revenue Service
IT Information technology
LIBOR London Interbank Offered Rate
M&A Merger and acquisition
OTTI Other than temporary impairment
SEC Securities and Exchange Commission
TDR Troubled debt restructuring
UK United Kingdom
VIE Variable interest entity
3
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except par value and share data) |
June 30,
2012 |
December 31, 2011 |
||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 1,411,725 | $ | 1,114,948 | ||||
Available-for-sale securities |
10,620,951 | 10,536,046 | ||||||
Non-marketable securities |
1,132,312 | 1,004,440 | ||||||
|
||||||||
Investment securities |
11,753,263 | 11,540,486 | ||||||
|
||||||||
Loans, net of unearned income |
7,789,752 | 6,970,082 | ||||||
Allowance for loan losses |
(98,166) | (89,947) | ||||||
|
||||||||
Net loans |
7,691,586 | 6,880,135 | ||||||
|
||||||||
Premises and equipment, net of accumulated depreciation and amortization |
64,773 | 56,471 | ||||||
Accrued interest receivable and other assets |
368,425 | 376,854 | ||||||
|
||||||||
Total assets |
$ | 21,289,772 | $ | 19,968,894 | ||||
|
||||||||
Liabilities and total equity |
||||||||
Liabilities: |
||||||||
Noninterest-bearing demand deposits |
$ | 12,842,250 | $ | 11,861,888 | ||||
Interest-bearing deposits |
5,226,562 | 4,847,648 | ||||||
|
||||||||
Total deposits |
18,068,812 | 16,709,536 | ||||||
|
||||||||
Short-term borrowings |
5,880 | - | ||||||
Other liabilities |
312,523 | 405,321 | ||||||
Long-term debt |
458,232 | 603,648 | ||||||
|
||||||||
Total liabilities |
18,845,447 | 17,718,505 | ||||||
|
||||||||
Commitments and contingencies (Note 11 and Note 14) |
||||||||
SVBFG stockholders equity: |
||||||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized; |
- | - | ||||||
Common stock, $0.001 par value, 150,000,000 shares authorized; |
44 | 44 | ||||||
Additional paid-in capital |
529,113 | 484,216 | ||||||
Retained earnings |
1,082,126 | 999,733 | ||||||
Accumulated other comprehensive income |
104,077 | 85,399 | ||||||
|
||||||||
Total SVBFG stockholders equity |
1,715,360 | 1,569,392 | ||||||
Noncontrolling interests |
728,965 | 680,997 | ||||||
|
||||||||
Total equity |
2,444,325 | 2,250,389 | ||||||
|
||||||||
Total liabilities and total equity |
$ | 21,289,772 | $ | 19,968,894 | ||||
|
See accompanying notes to interim consolidated financial statements (unaudited).
4
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands, except per share amounts) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Interest income: |
||||||||||||||||
Loans |
$ | 113,935 | $ | 93,466 | $ | 223,396 | $ | 183,242 | ||||||||
Available-for-sale securities: |
||||||||||||||||
Taxable |
44,072 | 44,217 | 91,447 | 85,599 | ||||||||||||
Non-taxable |
899 | 883 | 1,799 | 1,824 | ||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
912 | 1,595 | 1,950 | 3,597 | ||||||||||||
|
||||||||||||||||
Total interest income |
159,818 | 140,161 | 318,592 | 274,262 | ||||||||||||
|
||||||||||||||||
Interest expense: |
||||||||||||||||
Deposits |
1,614 | 2,559 | 3,095 | 5,664 | ||||||||||||
Borrowings |
6,270 | 7,149 | 12,626 | 17,846 | ||||||||||||
|
||||||||||||||||
Total interest expense |
7,884 | 9,708 | 15,721 | 23,510 | ||||||||||||
|
||||||||||||||||
Net interest income |
151,934 | 130,453 | 302,871 | 250,752 | ||||||||||||
Provision for (reduction of) loan losses |
7,999 | 134 | 22,528 | (2,913) | ||||||||||||
|
||||||||||||||||
Net interest income after provision for loan losses |
143,935 | 130,319 | 280,343 | 253,665 | ||||||||||||
|
||||||||||||||||
Noninterest income: |
||||||||||||||||
Gains on investment securities, net |
25,809 | 71,680 | 33,648 | 123,017 | ||||||||||||
Foreign exchange fees |
12,031 | 10,354 | 24,134 | 20,851 | ||||||||||||
Deposit service charges |
8,369 | 7,838 | 16,465 | 14,955 | ||||||||||||
Gains on derivative instruments, net |
8,713 | 13,651 | 14,689 | 14,202 | ||||||||||||
Credit card fees |
6,169 | 4,364 | 11,837 | 8,181 | ||||||||||||
Letters of credit and standby letters of credit income |
3,296 | 2,702 | 6,932 | 5,412 | ||||||||||||
Client investment fees |
3,375 | 3,107 | 6,272 | 6,768 | ||||||||||||
Other |
12,664 | 10,012 | 25,742 | 20,276 | ||||||||||||
|
||||||||||||||||
Total noninterest income |
80,426 | 123,708 | 139,719 | 213,662 | ||||||||||||
|
||||||||||||||||
Noninterest expense: |
||||||||||||||||
Compensation and benefits |
80,385 | 79,888 | 164,122 | 155,520 | ||||||||||||
Professional services |
16,514 | 13,891 | 31,121 | 26,878 | ||||||||||||
Premises and equipment |
9,419 | 6,440 | 16,983 | 12,352 | ||||||||||||
Business development and travel |
7,159 | 5,890 | 14,905 | 11,543 | ||||||||||||
Net occupancy |
5,378 | 4,546 | 11,001 | 9,196 | ||||||||||||
Correspondent bank fees |
2,840 | 2,202 | 5,528 | 4,365 | ||||||||||||
FDIC assessments |
2,731 | 2,163 | 5,229 | 5,638 | ||||||||||||
Provision for unfunded credit commitments |
1,922 | 976 | 1,664 | 76 | ||||||||||||
Other |
9,418 | 5,036 | 17,225 | 12,899 | ||||||||||||
|
||||||||||||||||
Total noninterest expense |
135,766 | 121,032 | 267,778 | 238,467 | ||||||||||||
|
||||||||||||||||
Income before income tax expense |
88,595 | 132,995 | 152,284 | 228,860 | ||||||||||||
Income tax expense |
31,517 | 43,263 | 55,273 | 66,033 | ||||||||||||
|
||||||||||||||||
Net income before noncontrolling interests |
57,078 | 89,732 | 97,011 | 162,827 | ||||||||||||
Net income attributable to noncontrolling interests |
(9,475) | (23,982) | (14,618) | (64,070) | ||||||||||||
|
||||||||||||||||
Net income available to common stockholders |
$ | 47,603 | $ | 65,750 | $ | 82,393 | $ | 98,757 | ||||||||
|
||||||||||||||||
Earnings per common sharebasic |
$ | 1.08 | $ | 1.53 | $ | 1.87 | $ | 2.31 | ||||||||
Earnings per common sharediluted |
1.06 | 1.50 | 1.85 | 2.27 |
See accompanying notes to interim consolidated financial statements (unaudited).
5
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income before noncontrolling interests |
$ | 57,078 | $ | 89,732 | $ | 97,011 | $ | 162,827 | ||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Change in cumulative translation gains: |
||||||||||||||||
Foreign currency translation (losses) gains |
(4,657) | 926 | (2,185) | 1,891 | ||||||||||||
Related tax benefit (expense) |
1,889 | (379) | 876 | (774) | ||||||||||||
Change in unrealized gains on available-for-sale securities: |
||||||||||||||||
Unrealized holding gains |
33,766 | 100,836 | 37,035 | 74,677 | ||||||||||||
Related tax expense |
(13,482) | (41,252) | (14,817) | (30,529) | ||||||||||||
Reclassification adjustment for gains included in net income |
(4,567) | (37,221) | (3,693) | (37,283) | ||||||||||||
Related tax expense |
1,819 | 15,227 | 1,462 | 15,252 | ||||||||||||
|
||||||||||||||||
Other comprehensive income, net of tax |
14,768 | 38,137 | 18,678 | 23,234 | ||||||||||||
|
||||||||||||||||
Comprehensive income |
71,846 | 127,869 | 115,689 | 186,061 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
(9,475) | (23,982) | (14,618) | (64,070) | ||||||||||||
|
||||||||||||||||
Comprehensive income attributable to SVBFG |
$ | 62,371 | $ | 103,887 | $ | 101,071 | $ | 121,991 | ||||||||
|
See accompanying notes to interim consolidated financial statements (unaudited).
6
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
Common Stock | Additional Paid-in |
Retained | Accumulated Other Comprehensive |
Total SVBFG Stockholders |
Noncontrolling | |||||||||||||||||||||||||||||
(Dollars in thousands) |
Shares | Amount | Capital | Earnings | Income | Equity | Interests | Total Equity | ||||||||||||||||||||||||||
Balance at December 31, 2010 |
42,268,201 | $ | 42 | $ | 422,334 | $ | 827,831 | $ | 24,143 | $ | 1,274,350 | $ | 473,928 | $ | 1,748,278 | |||||||||||||||||||
|
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Common stock issued under employee benefit plans, net of restricted stock cancellations |
866,984 | 1 | 26,129 | - | - | 26,130 | - | 26,130 | ||||||||||||||||||||||||||
Common stock issued upon settlement of 3.875% Convertible Notes, net of shares received from associated convertible note hedge |
1,024 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
Income tax benefit from stock options exercised, vesting of restricted stock and other |
- | - | 5,563 | - | - | 5,563 | - | 5,563 | ||||||||||||||||||||||||||
Net income |
- | - | - | 98,757 | - | 98,757 | 64,070 | 162,827 | ||||||||||||||||||||||||||
Capital calls and distributions, net |
- | - | - | - | - | - | 41,160 | 41,160 | ||||||||||||||||||||||||||
Net change in unrealized gains on available-for-sale securities, net of tax |
- | - | - | - | 22,117 | 22,117 | - | 22,117 | ||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
- | - | - | - | 1,117 | 1,117 | - | 1,117 | ||||||||||||||||||||||||||
Share-based compensation expense |
- | - | 8,859 | - | - | 8,859 | - | 8,859 | ||||||||||||||||||||||||||
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|
|
|
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|
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Balance at June 30, 2011 |
43,136,209 | $ | 43 | $ | 462,885 | $ | 926,588 | $ | 47,377 | $ | 1,436,893 | $ | 579,158 | $ | 2,016,051 | |||||||||||||||||||
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Balance at December 31, 2011 |
43,507,932 | $ | 44 | $ | 484,216 | $ | 999,733 | $ | 85,399 | $ | 1,569,392 | $ | 680,997 | $ | 2,250,389 | |||||||||||||||||||
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Common stock issued under employee benefit plans, net of restricted stock cancellations |
821,462 | - | 24,303 | - | - | 24,303 | - | 24,303 | ||||||||||||||||||||||||||
Common stock issued under ESOP |
73,560 | - | 4,345 | - | - | 4,345 | - | 4,345 | ||||||||||||||||||||||||||
Income tax benefit from stock options exercised, vesting of restricted stock and other |
- | - | 5,323 | - | - | 5,323 | - | 5,323 | ||||||||||||||||||||||||||
Net income |
- | - | - | 82,393 | - | 82,393 | 14,618 | 97,011 | ||||||||||||||||||||||||||
Capital calls and distributions, net |
- | - | - | - | - | - | 33,350 | 33,350 | ||||||||||||||||||||||||||
Net change in unrealized gains on available-for-sale securities, net of tax |
- | - | - | - | 19,987 | 19,987 | - | 19,987 | ||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
- | - | - | - | (1,309) | (1,309) | - | (1,309) | ||||||||||||||||||||||||||
Share-based compensation expense |
- | - | 10,926 | - | - | 10,926 | - | 10,926 | ||||||||||||||||||||||||||
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Balance at June 30, 2012 |
44,402,954 | $ | 44 | $ | 529,113 | $ | 1,082,126 | $ | 104,077 | $ | 1,715,360 | $ | 728,965 | $ | 2,444,325 | |||||||||||||||||||
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See accompanying notes to interim consolidated financial statements (unaudited).
7
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, | ||||||||
(Dollars in thousands) |
2012 | 2011 | ||||||
Cash flows from operating activities: |
||||||||
Net income before noncontrolling interests |
$ | 97,011 | $ | 162,827 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for (reduction of) loan losses |
22,528 | (2,913) | ||||||
Provision for unfunded credit commitments |
1,664 | 76 | ||||||
Changes in fair values of derivatives, net |
(11,024) | (13,211) | ||||||
Gains on investment securities, net |
(33,648) | (123,017) | ||||||
Depreciation and amortization |
13,594 | 13,834 | ||||||
Amortization of premiums and discounts on available-for-sale securities, net |
25,273 | 8,904 | ||||||
Tax benefit from stock exercises |
1,143 | 759 | ||||||
Amortization of share-based compensation |
10,977 | 8,949 | ||||||
Amortization of deferred loan fees |
(32,881) | (28,458) | ||||||
Deferred income tax expense |
5,876 | 2,423 | ||||||
Gain on the sale of certain assets related to our equity services management business |
(4,243) | - | ||||||
Net gain from note repurchases and termination of corresponding interest rate swaps |
- | (3,123) | ||||||
Changes in other assets and liabilities: |
||||||||
Accrued interest receivable and payable, net |
(4,444) | (8,348) | ||||||
Accounts receivable and payable, net |
22,886 | 78,593 | ||||||
Income tax payable and receivable, net |
(15,715) | 3,854 | ||||||
Prepaid FDIC assessments and amortization |
5,065 | 5,082 | ||||||
Accrued compensation |
(60,192) | (12,535) | ||||||
Foreign exchange spot contracts, net |
(43,405) | 65,536 | ||||||
Other, net |
(6,567) | 12,574 | ||||||
|
||||||||
Net cash (used for) provided by operating activities |
(6,102) | 171,806 | ||||||
|
||||||||
Cash flows from investing activities: |
||||||||
Purchases of available-for-sale securities |
(1,778,451) | (4,334,481) | ||||||
Proceeds from sales of available-for-sale securities |
325,608 | 1,414,096 | ||||||
Proceeds from maturities and pay downs of available-for-sale securities |
1,380,865 | 1,322,555 | ||||||
Purchases of nonmarketable securities (cost and equity method accounting) |
(101,506) | (28,355) | ||||||
Proceeds from sales of nonmarketable securities (cost and equity method accounting) |
23,267 | 13,888 | ||||||
Purchases of nonmarketable securities (fair value accounting) |
(63,017) | (82,574) | ||||||
Proceeds from sales and distributions of nonmarketable securities (fair value accounting) |
59,711 | 45,855 | ||||||
Net increase in loans |
(817,601) | (449,114) | ||||||
Proceeds from recoveries of charged-off loans |
6,811 | 11,056 | ||||||
Purchases of premises and equipment |
(20,016) | (12,843) | ||||||
Proceeds from the sale of certain assets related to our equity services management business |
2,870 | - | ||||||
|
||||||||
Net cash used for investing activities |
(981,459) | (2,099,917) | ||||||
|
||||||||
Cash flows from financing activities: |
||||||||
Net increase in deposits |
1,359,276 | 1,941,533 | ||||||
Increase (decrease) in short-term borrowings |
5,880 | (37,245) | ||||||
Principal payments of other long term debt |
(1,222) | - | ||||||
Capital contributions from noncontrolling interests, net of distributions |
33,350 | 41,160 | ||||||
Tax benefit from stock exercises |
4,180 | 4,804 | ||||||
Proceeds from issuance of common stock and ESPP |
24,303 | 26,130 | ||||||
Principal payments of 5.70% Senior Notes |
(141,429) | - | ||||||
Payments for repurchases of portions of 5.70% Senior Notes and 6.05% Subordinated Notes, including repurchase premiums and associated fees |
- | (346,443) | ||||||
Proceeds from termination of portions of interest rate swaps associated with 5.70% Senior Notes and 6.05% Subordinated Notes |
- | 36,959 | ||||||
Payments for settlement of 3.875% Convertible Notes |
- | (250,000) | ||||||
|
||||||||
Net cash provided by financing activities |
1,284,338 | 1,416,898 | ||||||
|
||||||||
Net increase (decrease) in cash and cash equivalents |
296,777 | (511,213) | ||||||
Cash and cash equivalents at beginning of period |
1,114,948 | 3,076,432 | ||||||
|
||||||||
Cash and cash equivalents at end of period |
$ | 1,411,725 | $ | 2,565,219 | ||||
|
||||||||
Supplemental disclosures: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 15,913 | $ | 25,625 | ||||
Income taxes |
58,992 | 53,336 | ||||||
Noncash items during the period: |
||||||||
Unrealized gains (losses) on available-for-sale securities, net of tax |
$ | 19,987 | $ | 22,117 |
See accompanying notes to interim consolidated financial statements (unaudited).
8
SVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
SVB Financial Group is a diversified financial services company, as well as a bank holding company and financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services to support our clients of all sizes and stages throughout their life cycles. In these notes to our consolidated financial statements, when we refer to SVB Financial Group, SVBFG, the Company, we, our, us or use similar words, we mean SVB Financial Group and all of its subsidiaries collectively, including Silicon Valley Bank (the Bank), unless the context requires otherwise. When we refer to SVB Financial or the Parent we are referring only to the parent company, SVB Financial Group, unless the context requires otherwise.
The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature that are, in the opinion of management, necessary to fairly present our financial position, results of operations and cash flows in accordance with GAAP. Such interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of results to be expected for any future periods. These interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K).
The accompanying unaudited interim consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Consolidated Financial Statements and Supplementary DataNote 2Summary of Significant Accounting Policies under Part II, Item 8 of our 2011 Form 10-K.
The preparation of unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates may change as new information is obtained. Significant items that are subject to such estimates include measurements of fair value, the valuation of non-marketable securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and reserve for unfunded credit commitments, and the recognition and measurement of income tax assets and liabilities.
Principles of Consolidation and Presentation
Our consolidated financial statements include the accounts of SVB Financial Group and entities in which we have a controlling financial interest. We determine whether we have a controlling financial interest in an entity by evaluating whether the entity is a voting interest entity or a variable interest entity and whether the accounting guidance requires consolidation. All significant intercompany accounts and transactions have been eliminated.
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entitys operations. For these types of entities, the Companys determination of whether it has a controlling interest is based on ownership of the majority of the entities voting equity interest or through control of management of the entities.
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entitys operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. We determine whether we have a controlling financial interest in a VIE by considering whether our involvement with the VIE is significant and designates us as the primary beneficiary based on the following:
1. | We have the power to direct the activities of the VIE that most significantly impact the entitys economic performance; |
2. | The aggregate indirect and direct variable interests held by the Company have the obligation to absorb losses or the right to receive benefits from the entity that could be significant to the VIE; and, |
3. | Qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. |
Voting interest entities in which we have a controlling financial interest or VIEs in which we are the primary beneficiary are consolidated into our financial statements.
9
We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide. We are variable interest holders in certain partnerships for which we are the primary beneficiary. We perform on-going reassessments on the status of the entities and whether facts or circumstances have changed in relation to previously evaluated voting interest entities and our involvement in VIEs which could cause our consolidation conclusion to change.
Impact of Adopting ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
In May 2011, the FASB issued a new accounting standard which requires new disclosures and clarifies existing guidance surrounding fair value measurement. This standard was issued concurrently with the IASBs issuance of a fair value measurement standard with the objective of a converged definition of fair value measurement and disclosure guidance. The new guidance clarified that the principal market for a financial instrument should be determined based on the market with the greatest volume and level of activity. This new guidance was effective on a prospective basis for interim and annual reporting periods beginning after December 15, 2011, and was therefore adopted effective January 1, 2012. This standard clarified how fair value is measured and increased the disclosure requirements for fair value measurements, and did not have a material impact on our financial position, results of operations or stockholders equity. See Note 13 Fair Value of Financial Instruments for further details.
Impact of Adopting ASU No. 2011-05, Presentation of Comprehensive Income
In June 2011, the FASB issued a new accounting standard, which requires presentation of the components of total comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of which option is chosen, reclassification adjustments for items that are reclassified from other comprehensive income to net income are required to be shown on the face of the financial statements. In December 2011, the FASB approved a proposed update, which indefinitely defers the requirements of ASU No. 2011-05 to present components of reclassifications of other comprehensive income on the face of the income statement. This new guidance did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance was effective on a retrospective basis for the interim and annual reporting periods beginning after December 15, 2011, and was therefore adopted effective January 1, 2012. This standard only clarified the presentation of comprehensive income and did not affect our financial position, results of operations or stockholders equity.
Recent Accounting Pronouncements
In December 2011, the FASB issued a new accounting standard (ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities), which requires new disclosures surrounding financial instruments and derivative instruments that are offset on the statement of financial position, or are eligible for offset subject to a master netting arrangement. This standard was issued concurrent with the IASBs issuance of a similar standard with the objective of converged disclosure guidance. The guidance is effective on a retrospective basis for the interim and annual reporting periods beginning after January 1, 2013. We are currently assessing the impact of this guidance, however we do not expect it to have a material impact on our financial position, results of operations or stockholders equity.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentations.
2. Stockholders Equity and EPS
EPS
Basic EPS is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options and restricted stock units outstanding under our equity incentive plans, our ESPP, and for certain prior periods, our 3.875% convertible senior notes (3.875% Convertible Notes). Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive. The following is a reconciliation of basic EPS to diluted EPS for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars and shares in thousands, except per share amounts) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Numerator: |
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Net income available to common stockholders |
$ | 47,603 | $ | 65,750 | $ | 82,393 | $ | 98,757 | ||||||||
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Denominator: |
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Weighted average common shares outstanding-basic |
44,207 | 42,924 | 43,994 | 42,704 | ||||||||||||
Weighted average effect of dilutive securities: |
||||||||||||||||
Stock options and ESPP |
385 | 654 | 426 | 678 | ||||||||||||
Restricted stock units |
120 | 101 | 153 | 100 | ||||||||||||
3.875% Convertible Notes (1) |
- | 61 | - | 77 | ||||||||||||
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Denominator for diluted calculation |
44,712 | 43,740 | 44,573 | 43,559 | ||||||||||||
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Earnings per common share: |
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Basic |
$ | 1.08 | $ | 1.53 | $ | 1.87 | $ | 2.31 | ||||||||
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Diluted |
$ | 1.06 | $ | 1.50 | $ | 1.85 | $ | 2.27 | ||||||||
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(1) | Our $250 million 3.875% Convertible Notes matured on April 15, 2011. |
10
The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation as they were deemed to be antidilutive for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Shares in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Stock options |
683 | 582 | 574 | 574 | ||||||||||||
Restricted stock units |
189 | 158 | 94 | 99 | ||||||||||||
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Total |
872 | 740 | 668 | 673 | ||||||||||||
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3. Share-Based Compensation
For the three and six months ended June 30, 2012 and 2011, we recorded share-based compensation and related tax benefits as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Share-based compensation expense |
$ | 5,828 | $ | 4,706 | $ | 10,977 | $ | 8,949 | ||||||||
Income tax benefit related to share-based compensation expense |
(1,489) | (1,243) | (2,688) | (2,276) |
Unrecognized Compensation Expense
As of June 30, 2012, unrecognized share-based compensation expense was as follows:
(Dollars in thousands) |
Unrecognized Expense |
Average Expected Recognition Period - in Years |
||||||
Stock options |
$ | 19,129 | 3.00 | |||||
Restricted stock units |
29,706 | 2.99 | ||||||
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Total unrecognized share-based compensation expense |
$ | 48,835 | ||||||
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11
Share-Based Payment Award Activity
The table below provides stock option information related to the 1997 Equity Incentive Plan and the 2006 Equity Incentive Plan for the six months ended June 30, 2012:
Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life in Years |
Aggregate Intrinsic Value of In-The- Money Options |
|||||||||||||
Outstanding at December 31, 2011 |
2,439,360 | $ | 42.64 | |||||||||||||
Granted |
387,793 | 64.02 | ||||||||||||||
Exercised |
(576,461) | 36.26 | ||||||||||||||
Forfeited |
(36,629) | 45.86 | ||||||||||||||
Expired |
(4,568) | 42.50 | ||||||||||||||
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Outstanding at June 30, 2012 |
2,209,495 | 48.00 | 4.26 | $ 26,284,468 | ||||||||||||
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Vested and expected to vest at June 30, 2012 |
2,106,562 | 47.53 | 4.17 | 25,861,593 | ||||||||||||
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Exercisable at June 30, 2012 |
1,159,056 | 43.06 | 2.93 | 18,281,444 | ||||||||||||
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The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $58.72 as of June 30, 2012. The total intrinsic value of options exercised during the three and six months ended June 30, 2012 was $1.8 million and $13.7 million, respectively, compared to $6.9 million and $15.8 million for the comparable 2011 periods.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the six months ended June 30, 2012:
Shares | Weighted Average Grant Date Fair Value |
|||||||
Nonvested at December 31, 2011 |
499,119 | $ | 52.72 | |||||
Granted |
309,840 | 63.89 | ||||||
Vested |
(140,550) | 51.46 | ||||||
Forfeited |
(18,574) | 54.73 | ||||||
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Nonvested at June 30, 2012 |
649,835 | 58.27 | ||||||
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4. Cash and Cash Equivalents
The following table details our cash and cash equivalents at June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Cash and due from banks (1) |
$ | 1,224,552 | $ | 852,010 | ||||
Securities purchased under agreements to resell (2) |
100,787 | 175,553 | ||||||
Other short-term investment securities |
86,386 | 87,385 | ||||||
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|
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Total cash and cash equivalents |
$ | 1,411,725 | $ | 1,114,948 | ||||
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(1) | At June 30, 2012 and December 31, 2011, $662.4 million and $100.1 million, respectively, of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $265.8 million and $371.5 million, respectively. |
(2) | At June 30, 2012 and December 31, 2011, securities purchased under agreements to resell were collateralized by U.S. treasury securities and U.S. agency securities with aggregate fair values of $102.8 million and $179.1 million, respectively. None of these securities received as collateral were sold or repledged as of June 30, 2012 and December 31, 2011. |
12
5. Investment Securities
Our investment securities portfolio consists of both an available-for-sale securities portfolio, which represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business.
The major components of our investment securities portfolio at June 30, 2012 and December 31, 2011 are as follows:
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||
(Dollars in thousands) |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Carrying Value |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Carrying Value |
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Available-for-sale securities, at fair value: |
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U.S. treasury securities |
$ | 25,146 | $ | 453 | $ | - | $ | 25,599 | $ | 25,233 | $ | 731 | $ | - | $ | 25,964 | ||||||||||||||||
U.S. agency debentures |
2,571,796 | 68,328 | - | 2,640,124 | 2,822,158 | 52,864 | (90) | 2,874,932 | ||||||||||||||||||||||||
Residential mortgage-backed securities: |
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Agency-issued mortgage-backed securities |
1,668,523 | 45,276 | - | 1,713,799 | 1,529,466 | 34,926 | (106) | 1,564,286 | ||||||||||||||||||||||||
Agency-issued collateralized mortgage obligationsfixed rate |
3,751,327 | 54,283 | (1,399) | 3,804,211 | 3,317,285 | 56,546 | (71) | 3,373,760 | ||||||||||||||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
2,103,451 | 5,081 | (83) | 2,108,449 | 2,416,158 | 1,554 | (4,334) | 2,413,378 | ||||||||||||||||||||||||
Agency-issued commercial mortgage-backed securities |
223,200 | 4,880 | - | 228,080 | 176,646 | 2,047 | - | 178,693 | ||||||||||||||||||||||||
Municipal bonds and notes |
91,659 | 8,035 | - | 99,694 | 92,241 | 8,257 | - | 100,498 | ||||||||||||||||||||||||
Equity securities |
1,352 | 26 | (383) | 995 | 5,554 | 180 | (1,199) | 4,535 | ||||||||||||||||||||||||
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Total available-for-sale securities |
$ | 10,436,454 | $ | 186,362 | $ | (1,865) | $ | 10,620,951 | $ | 10,384,741 | $ | 157,105 | $ | (5,800) | $ | 10,536,046 | ||||||||||||||||
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Non-marketable securities: |
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Non-marketable securities (fair value accounting): |
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Venture capital and private equity fund investments (1) |
639,596 | 611,824 | ||||||||||||||||||||||||||||||
Other venture capital investments (2) |
120,111 | 124,121 | ||||||||||||||||||||||||||||||
Other investments (3) |
- | 987 | ||||||||||||||||||||||||||||||
Non-marketable securities (equity method accounting): |
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Other investments (4) |
138,993 | 68,252 | ||||||||||||||||||||||||||||||
Low income housing tax credit funds |
58,698 | 34,894 | ||||||||||||||||||||||||||||||
Non-marketable securities (cost method accounting): |
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Venture capital and private equity fund investments (5) |
153,618 | 145,007 | ||||||||||||||||||||||||||||||
Other investments |
21,296 | 19,355 | ||||||||||||||||||||||||||||||
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Total non-marketable securities |
1,132,312 | 1,004,440 | ||||||||||||||||||||||||||||||
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Total investment securities |
$ | 11,753,263 | $ | 11,540,486 | ||||||||||||||||||||||||||||
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(1) | The following table shows the amount of venture capital and private equity fund investments by the following consolidated funds and our ownership of each fund at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
SVB Strategic Investors Fund, LP |
$ | 36,694 | 12.6 | % | $ | 39,567 | 12.6 | % | ||||||||
SVB Strategic Investors Fund II, LP |
109,343 | 8.6 | 122,619 | 8.6 | ||||||||||||
SVB Strategic Investors Fund III, LP |
213,405 | 5.9 | 218,429 | 5.9 | ||||||||||||
SVB Strategic Investors Fund IV, LP |
146,477 | 5.0 | 122,076 | 5.0 | ||||||||||||
Strategic Investors Fund V, LP |
18,134 | 0.2 | 8,838 | 0.3 | ||||||||||||
SVB Capital Preferred Return Fund, LP |
50,573 | 20.0 | 42,580 | 20.0 | ||||||||||||
SVB CapitalNT Growth Partners, LP |
57,588 | 33.0 | 43,958 | 33.0 | ||||||||||||
SVB Capital Partners II, LP (i) |
863 | 5.1 | 2,390 | 5.1 | ||||||||||||
Other private equity fund (ii) |
6,519 | 58.2 | 11,367 | 58.2 | ||||||||||||
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Total venture capital and private equity fund investments |
$ | 639,596 | $ | 611,824 | ||||||||||||
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(i) | At June 30, 2012, we had a direct ownership interest of 1.3 percent and an indirect ownership interest of 3.8 percent in the fund through our ownership interest of SVB Strategic Investors Fund II, LP. |
(ii) | At June 30, 2012, we had a direct ownership interest of 41.5 percent and indirect ownership interests of 12.6 percent and 4.1 percent in the fund through our ownership interest of SVB CapitalNT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively. |
13
(2) | The following table shows the amount of other venture capital investments by the following consolidated funds and our ownership of each fund at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
Silicon Valley BancVentures, LP |
$ | 16,739 | 10.7 | % | $ | 17,878 | 10.7 | % | ||||||||
SVB Capital Partners II, LP (i) |
59,256 | 5.1 | 61,099 | 5.1 | ||||||||||||
SVB India Capital Partners I, LP |
40,668 | 14.4 | 42,832 | 14.4 | ||||||||||||
SVB Capital Shanghai Yangpu Venture Capital Fund |
3,448 | 6.8 | 2,312 | 6.8 | ||||||||||||
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Total other venture capital investments |
$ | 120,111 | $ | 124,121 | ||||||||||||
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(i) | At June 30, 2012, we had a direct ownership interest of 1.3 percent and an indirect ownership interest of 3.8 percent in the fund through our ownership of SVB Strategic Investors Fund II, LP. |
(3) | Other investments within non-marketable securities (fair value accounting) include our ownership in Partners for Growth, LP, a consolidated debt fund. At June 30, 2012, we had a majority ownership interest of slightly more than 50.0 percent in the fund. Partners for Growth, LP is managed by a third party and we do not have an ownership interest in the general partner of this fund. |
(4) | The following table shows the carrying value and our ownership percentage of each investment at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
Gold Hill Venture Lending 03, LP (i) |
$ | 6,238 | 9.3 | % | $ | 16,072 | 9.3 | % | ||||||||
Gold Hill Capital 2008, LP (ii) |
19,553 | 15.5 | 19,328 | 15.5 | ||||||||||||
Partners for Growth II, LP |
3,551 | 24.2 | 3,785 | 24.2 | ||||||||||||
China Joint Venture investment (iii) |
79,524 | 50.0 | - | - | ||||||||||||
Other investments |
30,127 | N/A | 29,067 | N/A | ||||||||||||
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Total other investments |
$ | 138,993 | $ | 68,252 | ||||||||||||
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(i) | At June 30, 2012, we had a direct ownership interest of 4.8 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Venture Lending Partners 03, LLC (GHLLC) of 4.5 percent. Our aggregate direct and indirect ownership in the fund is 9.3 percent. |
(ii) | At June 30, 2012, we had a direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent. Our aggregate direct and indirect ownership in the fund is 15.5 percent. |
(iii) | On May 3, 2012, we contributed $79.7 million to SPD Silicon Valley Bank Co., Ltd., our joint venture bank in China. |
(5) | Represents investments in 326 and 329 funds (primarily venture capital funds) at June 30, 2012 and December 31, 2011, respectively, where our ownership interest is less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating and financial policies. For the three months ended June 30, 2012, we recognized OTTI losses of $0.2 million resulting from other-than-temporary declines in value for 12 of the 326 investments. For the six months ended June 30, 2012, we recognized OTTI losses of $0.5 million resulting from other-than-temporary declines in value for 30 of the 326 investments. The OTTI losses are included in net gains on investment securities, a component of noninterest income. We concluded that any declines in value for the remaining 296 investments were temporary and as such, no OTTI was required to be recognized. At June 30, 2012, the carrying value of these venture capital and private equity fund investments (cost method accounting) was $153.6 million, and the estimated fair value was $185.3 million. |
14
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of June 30, 2012:
June 30, 2012 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
(Dollars in thousands) |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
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Residential mortgage-backed securities: |
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Agency-issued collateralized mortgage obligationsfixed rate |
$ | 425,171 | $ | (1,399) | $ | - | $ | - | $ | 425,171 | $ | (1,399) | ||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
182,847 | (74) | 43,153 | (9) | 226,000 | (83) | ||||||||||||||||||
Equity securities |
162 | (178) | 243 | (205) | 405 | (383) | ||||||||||||||||||
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Total temporarily impaired securities (1) |
$ | 608,180 | $ | (1,651) | $ | 43,396 | $ | (214) | $ | 651,576 | $ | (1,865) | ||||||||||||
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(1) | As of June 30, 2012, we identified a total of 33 investments that were in unrealized loss positions, of which five investments totaling $43.4 million with unrealized losses of $0.2 million has been in an impaired position for a period of time greater than 12 months. As of June 30, 2012, we do not intend to sell any impaired debt securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis. Based on our analysis as of June 30, 2012, we deem all impairments to be temporary, and therefore changes in value for our temporarily impaired securities as of the same date are included in other comprehensive income. Market valuations and impairment analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis. |
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of December 31, 2011:
December 31, 2011 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
(Dollars in thousands) |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
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U.S. agency debentures |
$ | 50,994 | $ | (90) | $ | - | $ | - | $ | 50,994 | $ | (90) | ||||||||||||
Residential mortgage-backed securities: |
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Agency-issued mortgage-backed securities |
54,588 | (106) | - | - | 54,588 | (106) | ||||||||||||||||||
Agency-issued collateralized mortgage obligationsfixed rate |
50,125 | (71) | - | - | 50,125 | (71) | ||||||||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
1,521,589 | (4,334) | - | - | 1,521,589 | (4,334) | ||||||||||||||||||
Equity securities |
3,831 | (1,199) | - | - | 3,831 | (1,199) | ||||||||||||||||||
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Total temporarily impaired securities |
$ | 1,681,127 | $ | (5,800) | $ | - | $ | - | $ | 1,681,127 | $ | (5,800) | ||||||||||||
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|
|
|
|
|
|
|
|
|
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on debt securities classified as available-for-sale as of June 30, 2012. Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent. The weighted average yield is computed using the amortized cost of debt securities, which are reported at fair value. For U.S. treasury securities, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure.
June 30, 2012 | ||||||||||||||||||||||||||||||||||||||||
Total | One Year or Less |
After One Year to Five Years |
After Five Years to Ten Years |
After Ten Years |
||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
||||||||||||||||||||||||||||||
U.S. treasury securities |
$ | 25,599 | 2.39 | % | $ | 25,599 | 2.39 | % | $ | - | - | % | $ | - | - | % | $ | - | - | % | ||||||||||||||||||||
U.S. agency debentures |
2,640,124 | 1.61 | 35,097 | 2.13 | 2,474,409 | 1.53 | 130,618 | 3.07 | - | - | ||||||||||||||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||||||
Agency-issued mortgage-backed securities |
1,713,799 | 2.35 | - | - | - | - | 1,583,036 | 2.27 | 130,763 | 3.28 | ||||||||||||||||||||||||||||||
Agency-issued collateralized mortgage obligations - fixed rate |
3,804,211 | 2.21 | - | - | - | - | - | - | 3,804,211 | 2.21 | ||||||||||||||||||||||||||||||
Agency-issued collateralized mortgage obligations - variable rate |
2,108,449 | 0.70 | - | - | - | - | - | - | 2,108,449 | 0.70 | ||||||||||||||||||||||||||||||
Agency-issued commercial mortgage-backed securities |
228,080 | 2.09 | - | - | - | - | - | - | 228,080 | 2.09 | ||||||||||||||||||||||||||||||
Municipal bonds and notes |
99,694 | 6.00 | 941 | 5.20 | 15,195 | 5.55 | 50,166 | 6.00 | 33,392 | 6.24 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Total |
$ | 10,619,956 | 1.82 | $ | 61,637 | 2.28 | $ | 2,489,604 | 1.55 | $ | 1,763,820 | 2.44 | $ | 6,304,895 | 1.74 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
15
The following table presents the components of gains and losses (realized and unrealized) on investment securities for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Gross gains on investment securities: |
||||||||||||||||
Available-for-sale securities, at fair value (1) |
$ | 5,322 | $ | 37,314 | $ | 5,343 | $ | 37,377 | ||||||||
Marketable securities (fair value accounting) |
3,303 | - | 3,619 | 442 | ||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
33,288 | 37,205 | 59,398 | 82,704 | ||||||||||||
Other venture capital investments |
1,556 | 2,071 | 3,333 | 7,019 | ||||||||||||
Other investments |
- | - | 21 | 20 | ||||||||||||
Non-marketable securities (equity method accounting): |
||||||||||||||||
Other investments |
5,389 | 3,132 | 6,811 | 6,516 | ||||||||||||
Non-marketable securities (cost method accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
538 | 801 | 945 | 1,056 | ||||||||||||
Other investments |
264 | 2,256 | 306 | 2,429 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross gains on investment securities |
49,660 | 82,779 | 79,776 | 137,563 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross losses on investment securities: |
||||||||||||||||
Available-for-sale securities, at fair value (1) |
(755) | (93) | (1,650) | (94) | ||||||||||||
Marketable securities (fair value accounting) |
(754) | (3,307) | (754) | (4,115) | ||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
(18,618) | (4,845) | (32,533) | (6,901) | ||||||||||||
Other venture capital investments |
(3,219) | (1,420) | (9,882) | (1,664) | ||||||||||||
Non-marketable securities (equity method accounting): |
||||||||||||||||
Other investments |
(327) | (1,110) | (703) | (1,309) | ||||||||||||
Non-marketable securities (cost method accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
(177) | (293) | (540) | (432) | ||||||||||||
Other investments |
(1) | (31) | (66) | (31) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross losses on investment securities |
(23,851) | (11,099) | (46,128) | (14,546) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gains on investment securities, net |
$ | 25,809 | $ | 71,680 | $ | 33,648 | $ | 123,017 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gains attributable to noncontrolling interests, including carried interest |
$ | 14,502 | $ | 26,437 | $ | 21,840 | $ | 69,822 | ||||||||
|
|
|
|
|
|
|
|
(1) | The cost basis of available-for-sale securities sold is determined on a specific identification basis. |
16
6. Loans and Allowance for Loan Losses
We serve a variety of commercial clients in the technology, life science, venture capital/private equity and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications and electronics), software and related services, and clean technology. Because of the diverse nature of clean technology products and services, for our loan-related reporting purposes, cleantech-related loans are reported under our hardware, software, life science and other commercial loan categories, as applicable. Our life science clients are concentrated in the medical devices and biotechnology sectors. Loans made to venture capital/private equity 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 loans through SVB Private Bank primarily to venture capital/private equity professionals. 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 real estate secured loans to eligible employees through our EHOP.
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 $67.7 million and $60.2 million at June 30, 2012 and December 31, 2011, respectively, is presented in the following table:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Commercial loans: |
||||||||
Software |
$ | 2,752,500 | $ | 2,492,849 | ||||
Hardware |
1,086,973 | 952,303 | ||||||
Venture capital/private equity |
1,403,801 | 1,117,419 | ||||||
Life science |
917,723 | 863,737 | ||||||
Premium wine (1) |
120,043 | 130,245 | ||||||
Other |
371,195 | 342,147 | ||||||
|
|
|
|
|||||
Commercial loans |
6,652,235 | 5,898,700 | ||||||
|
|
|
|
|||||
Real estate secured loans: |
||||||||
Premium wine (1) |
373,658 | 345,988 | ||||||
Consumer loans (2) |
554,266 | 534,001 | ||||||
|
|
|
|
|||||
Real estate secured loans |
927,924 | 879,989 | ||||||
|
|
|
|
|||||
Construction loans |
33,063 | 30,256 | ||||||
Consumer loans |
176,530 | 161,137 | ||||||
|
|
|
|
|||||
Total loans, net of unearned income (3) |
$ | 7,789,752 | $ | 6,970,082 | ||||
|
|
|
|
(1) | Included in our premium wine portfolio are gross construction loans of $147.9 million and $110.8 million at June 30, 2012 and December 31, 2011, respectively. |
(2) | Consumer loans secured by real estate at June 30, 2012 and December 31, 2011 were comprised of the following: |
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Loans for personal residence |
$ | 369,780 | $ | 350,359 | ||||
Loans to eligible employees |
103,824 | 99,704 | ||||||
Home equity lines of credit |
80,662 | 83,938 | ||||||
|
|
|
|
|||||
Consumer loans secured by real estate |
$ | 554,266 | $ | 534,001 | ||||
|
|
|
|
(3) | Included within our total loan portfolio are credit card loans of $58.3 million and $49.7 million at June 30, 2012 and December 31, 2011, respectively. |
17
Credit Quality
The composition of loans, net of unearned income, broken out by portfolio segment and class of financing receivable as of June 30, 2012 and December 31, 2011, is as follows:
(Dollars in thousands) |
June 30, 2012 |
December 31, 2011 |
||||||
Commercial loans: |
||||||||
Software |
$ | 2,752,500 | $ | 2,492,849 | ||||
Hardware |
1,086,973 | 952,303 | ||||||
Venture capital/private equity |
1,403,801 | 1,117,419 | ||||||
Life science |
917,723 | 863,737 | ||||||
Premium wine |
493,701 | 476,233 | ||||||
Other |
404,258 | 372,403 | ||||||
|
|
|
|
|||||
Total commercial loans |
7,058,956 | 6,274,944 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Real estate secured loans |
554,266 | 534,001 | ||||||
Other consumer loans |
176,530 | 161,137 | ||||||
|
|
|
|
|||||
Total consumer loans |
730,796 | 695,138 | ||||||
|
|
|
|
|||||
Total loans, net of unearned income |
$ | 7,789,752 | $ | 6,970,082 | ||||
|
|
|
|
The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
30 -
59 Days Past Due |
60 -
89 Days Past Due |
Greater Than 90 Days Past Due |
Total Past Due |
Current | Loans Past Due 90 Days or More Still Accruing Interest |
||||||||||||||||||||
June 30, 2012: |
||||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||||
Software |
$ | 3,541 | $ | 66 | $ | 25 | $ | 3,632 | $ | 2,773,398 | $ | 25 | ||||||||||||||
Hardware |
32 | - | - | 32 | 1,083,630 | - | ||||||||||||||||||||
Venture capital/private equity |
75,349 | - | - | 75,349 | 1,342,366 | - | ||||||||||||||||||||
Life science |
35 | 124 | - | 159 | 926,735 | - | ||||||||||||||||||||
Premium wine |
- | - | - | - | 493,107 | - | ||||||||||||||||||||
Other |
73 | - | - | 73 | 405,037 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial loans |
79,030 | 190 | 25 | 79,245 | 7,024,273 | 25 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Consumer loans: |
||||||||||||||||||||||||||
Real estate secured loans |
- | - | - | - | 551,539 | - | ||||||||||||||||||||
Other consumer loans |
21 | 5,896 | - | 5,917 | 169,423 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer loans |
21 | 5,896 | - | 5,917 | 720,962 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans excluding impaired loans |
79,051 | 6,086 | 25 | 85,162 | 7,745,235 | 25 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Impaired loans |
16 | 1,411 | 3,724 | 5,151 | 21,920 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans |
$ | 79,067 | $ | 7,497 | $ | 3,749 | $ | 90,313 | $ | 7,767,155 | $ | 25 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2011: |
||||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||||
Software |
$ | 415 | $ | 1,006 | $ | - | $ | 1,421 | $ | 2,515,327 | $ | - | ||||||||||||||
Hardware |
1,951 | 45 | - | 1,996 | 954,690 | - | ||||||||||||||||||||
Venture capital/private equity |
45 | - | - | 45 | 1,128,475 | - | ||||||||||||||||||||
Life science |
398 | 78 | - | 476 | 871,626 | - | ||||||||||||||||||||
Premium wine |
1 | 174 | - | 175 | 475,406 | - | ||||||||||||||||||||
Other |
15 | - | - | 15 | 370,539 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial loans |
2,825 | 1,303 | - | 4,128 | 6,316,063 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Consumer loans: |
||||||||||||||||||||||||||
Real estate secured loans |
- | - | - | - | 515,534 | - | ||||||||||||||||||||
Other consumer loans |
590 | - | - | 590 | 157,389 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer loans |
590 | - | - | 590 | 672,923 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans excluding impaired loans |
3,415 | 1,303 | - | 4,718 | 6,988,986 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Impaired loans |
1,350 | 1,794 | 6,613 | 9,757 | 26,860 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans |
$ | 4,765 | $ | 3,097 | $ | 6,613 | $ | 14,475 | $ | 7,015,846 | $ | - | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
18
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 as of June 30, 2012 and December 31, 2011:
(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 |
||||||||||||
June 30, 2012: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,558 | $ | 418 | $ | 2,976 | $ | 4,749 | ||||||||
Hardware |
13,074 | 1,099 | 14,173 | 17,616 | ||||||||||||
Life Science |
- | - | - | - | ||||||||||||
Premium wine |
- | 3,123 | 3,123 | 3,325 | ||||||||||||
Other |
1,905 | 1,051 | 2,956 | 6,824 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
17,537 | 5,691 | 23,228 | 32,514 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
122 | 2,432 | 2,554 | 7,460 | ||||||||||||
Other consumer loans |
1,289 | - | 1,289 | 1,406 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
1,411 | 2,432 | 3,843 | 8,866 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 18,948 | $ | 8,123 | $ | 27,071 | $ | 41,380 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 1,142 | $ | - | $ | 1,142 | $ | 1,540 | ||||||||
Hardware |
4,754 | 429 | 5,183 | 8,843 | ||||||||||||
Life science |
- | 311 | 311 | 523 | ||||||||||||
Premium wine |
- | 3,212 | 3,212 | 3,341 | ||||||||||||
Other |
4,303 | 1,050 | 5,353 | 9,104 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
10,199 | 5,002 | 15,201 | 23,351 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
- | 18,283 | 18,283 | 22,410 | ||||||||||||
Other consumer loans |
3,133 | - | 3,133 | 3,197 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
3,133 | 18,283 | 21,416 | 25,607 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 13,332 | $ | 23,285 | $ | 36,617 | $ | 48,958 | ||||||||
|
|
|
|
|
|
|
|
The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable during the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Average impaired loans: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 1,896 | $ | 2,620 | $ | 1,716 | $ | 2,697 | ||||||||
Hardware |
21,468 | 6,662 | 16,865 | 5,594 | ||||||||||||
Life science |
88 | 1,170 | 117 | 1,834 | ||||||||||||
Premium wine |
3,527 | 1,396 | 3,455 | 2,540 | ||||||||||||
Other |
3,506 | 3,588 | 4,075 | 2,878 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
30,485 | 15,436 | 26,228 | 15,543 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
2,645 | 19,557 | 7,746 | 19,841 | ||||||||||||
Other consumer loans |
2,170 | - | 2,595 | - | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
4,815 | 19,557 | 10,341 | 19,841 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total average impaired loans |
$ | 35,300 | $ | 34,993 | $ | 36,569 | $ | 35,384 | ||||||||
|
|
|
|
|
|
|
|
19
The following tables summarize the activity relating to our allowance for loan losses for the three and six months ended June 30, 2012 and 2011, broken out by portfolio segment:
Three months ended June 30, 2012 (dollars in thousands) |
Beginning Balance March 31, 2012 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2012 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 35,425 | $ | (2,118) | $ | 1,329 | $ | 3,345 | $ | 37,981 | ||||||||||
Hardware |
30,348 | (10,413) | 329 | 2,368 | 22,632 | |||||||||||||||
Venture capital/private equity |
7,214 | - | - | 2,438 | 9,652 | |||||||||||||||
Life science |
10,292 | (122) | 92 | 1,398 | 11,660 | |||||||||||||||
Premium wine |
3,738 | (584) | 187 | 55 | 3,396 | |||||||||||||||
Other |
4,802 | (286) | 1,107 | (681) | 4,942 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
91,819 | (13,523) | 3,044 | 8,923 | 90,263 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
9,103 | (607) | 331 | (924) | 7,903 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 100,922 | $ | (14,130) | $ | 3,375 | $ | 7,999 | $ | 98,166 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six months ended June 30, 2012 (dollars in thousands) |
Beginning Balance December 31, 2011 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2012 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 38,263 | $ | (2,977) | $ | 4,088 | $ | (1,393) | $ | 37,981 | ||||||||||
Hardware |
16,810 | (14,261) | 434 | 19,649 | 22,632 | |||||||||||||||
Venture capital/private equity |
7,319 | - | - | 2,333 | 9,652 | |||||||||||||||
Life science |
10,243 | (235) | 313 | 1,339 | 11,660 | |||||||||||||||
Premium wine |
3,914 | (584) | 265 | (199) | 3,396 | |||||||||||||||
Other |
5,817 | (2,456) | 1,151 | 430 | 4,942 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
82,366 | (20,513) | 6,251 | 22,159 | 90,263 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
7,581 | (607) | 560 | 369 | 7,903 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 89,947 | $ | (21,120) | $ | 6,811 | $ | 22,528 | $ | 98,166 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three months ended June 30, 2011 (dollars in thousands) |
Beginning Balance March 31, 2011 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2011 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 30,479 | $ | (518) | $ | 2,639 | $ | (727) | $ | 31,873 | ||||||||||
Hardware |
15,840 | - | 32 | 170 | 16,042 | |||||||||||||||
Venture capital/private equity |
7,432 | - | - | 875 | 8,307 | |||||||||||||||
Life science |
8,097 | (471) | 505 | (906) | 7,225 | |||||||||||||||
Premium wine |
4,504 | (449) | 590 | (636) | 4,009 | |||||||||||||||
Other |
6,433 | (2,855) | 337 | 1,954 | 5,869 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
72,785 | (4,293) | 4,103 | 730 | 73,325 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
9,266 | - | 160 | (596) | 8,830 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 82,051 | $ | (4,293) | $ | 4,263 | $ | 134 | $ | 82,155 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six months ended June 30, 2011 (dollars in thousands) |
Beginning Balance December 31, 2010 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2011 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 29,288 | $ | (1,622) | $ | 7,920 | $ | (3,713) | $ | 31,873 | ||||||||||
Hardware |
14,688 | (15) | 312 | 1,057 | 16,042 | |||||||||||||||
Venture capital/private equity |
8,241 | - | - | 66 | 8,307 | |||||||||||||||
Life science |
9,077 | (3,662) | 1,128 | 682 | 7,225 | |||||||||||||||
Premium wine |
5,492 | (449) | 730 | (1,764) | 4,009 | |||||||||||||||
Other |
5,318 | (2,867) | 407 | 3,011 | 5,869 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
72,104 | (8,615) | 10,497 | (661) | 73,325 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
10,523 | - | 559 | (2,252) | 8,830 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 82,627 | $ | (8,615) | $ | 11,056 | $ | (2,913) | $ | 82,155 | ||||||||||
|
|
|
|
|
|
|
|
|
|
20
The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of June 30, 2012 and December 31, 2011, broken out by portfolio segment:
June 30, 2012 | December 31, 2011 | |||||||||||||||||
(Dollars in thousands) |
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
||||||||||||||
Commercial loans: |
||||||||||||||||||
Software |
$ | 845 | $ | 37,136 | $ | 526 | $ | 37,737 | ||||||||||
Hardware |
4,225 | 18,407 | 1,261 | 15,549 | ||||||||||||||
Venture capital/private equity |
- | 9,652 | - | 7,319 | ||||||||||||||
Life science |
- | 11,660 | - | 10,243 | ||||||||||||||
Premium wine |
- | 3,396 | - | 3,914 | ||||||||||||||
Other |
47 | 4,895 | 1,180 | 4,637 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
5,117 | 85,146 | 2,967 | 79,399 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
548 | 7,355 | 740 | 6,841 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 5,665 | $ | 92,501 | $ | 3,707 | $ | 86,240 | ||||||||||
|
|
|
|
|
|
|
|
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). A majority of our performing (criticized) loans are from our SVB Accelerator practice, serving our emerging or early stage clients. Loans risk-rated 8 and 9 are loans that are considered to be impaired and are on nonaccrual status. Loans are placed on nonaccrual status when they become 90 days past due as to principal or interest payments (unless the principal and interest are well secured and in the process of collection), or when we have determined, based upon most recent available information, that the timely collection of principal or interest is not probable. (For further description of nonaccrual loans, refer to Note 2Summary of Significant Accounting Policies under Part II, Item 8 of our 2011 Form 10-K); these loans are deemed impaired. 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 June 30, 2012 and December 31, 2011:
21
(Dollars in thousands) |
Pass | Performing (Criticized) |
Impaired | Total | ||||||||||||
June 30, 2012: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,573,437 | $ | 203,593 | $ | 2,976 | $ | 2,780,006 | ||||||||
Hardware |
951,026 | 132,636 | 14,173 | 1,097,835 | ||||||||||||
Venture capital/private equity |
1,417,715 | - | - | 1,417,715 | ||||||||||||
Life science |
820,392 | 106,502 | - | 926,894 | ||||||||||||
Premium wine |
481,162 | 11,945 | 3,123 | 496,230 | ||||||||||||
Other |
376,158 | 28,952 | 2,956 | 408,066 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
6,619,890 | 483,628 | 23,228 | 7,126,746 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
530,017 | 21,522 | 2,554 | 554,093 | ||||||||||||
Other consumer loans |
163,390 | 11,950 | 1,289 | 176,629 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
693,407 | 33,472 | 3,843 | 730,722 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross loans |
$ | 7,313,297 | $ | 517,100 | $ | 27,071 | $ | 7,857,468 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,290,497 | $ | 226,251 | $ | 1,142 | $ | 2,517,890 | ||||||||
Hardware |
839,230 | 117,456 | 5,183 | 961,869 | ||||||||||||
Venture capital/private equity |
1,120,373 | 8,147 | - | 1,128,520 | ||||||||||||
Life science |
748,129 | 123,973 | 311 | 872,413 | ||||||||||||
Premium wine |
434,309 | 41,272 | 3,212 | 478,793 | ||||||||||||
Other |
353,434 | 17,120 | 5,353 | 375,907 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
5,785,972 | 534,219 | 15,201 | 6,335,392 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
497,060 | 18,474 | 18,283 | 533,817 | ||||||||||||
Other consumer loans |
151,101 | 6,878 | 3,133 | 161,112 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
648,161 | 25,352 | 21,416 | 694,929 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross loans |
$ | 6,434,133 | $ | 559,571 | $ | 36,617 | $ | 7,030,321 | ||||||||
|
|
|
|
|
|
|
|
TDRs
As of June 30, 2012 we had TDRs of $25.5 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were unfunded commitments available for funding of $1.1 million to the clients associated with these TDRs as of June 30, 2012. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Loans modified in TDRs: |
||||||||
Commercial loans: |
||||||||
Software |
$ | 769 | $ | 1,142 | ||||
Hardware |
15,272 | 5,183 | ||||||
Premium wine |
2,135 | 1,949 | ||||||
Other |
3,491 | 4,934 | ||||||
|
|
|
|
|||||
Total commercial loans |
21,667 | 13,208 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Real estate secured loans |
2,522 | 17,934 | ||||||
Other consumer loans |
1,289 | 3,133 | ||||||
|
|
|
|
|||||
Total consumer loans |
3,811 | 21,067 | ||||||
|
|
|
|
|||||
Total |
$ | 25,478 | $ | 34,275 | ||||
|
|
|
|
22
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 the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||||
Loans modified in TDRs during the period: |
||||||||||||||||||
Commercial loans: |
||||||||||||||||||
Software |
$ | - | $ | 605 | $ | 100 | $ | 605 | ||||||||||
Hardware |
12,747 | 3,321 | 13,198 | 3,321 | ||||||||||||||
Premium wine |
- | - | 275 | - | ||||||||||||||
Other |
535 | - | 2,440 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
13,282 | 3,926 | 16,013 | 3,926 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans: |
||||||||||||||||||
Real estate secured loans |
289 | - | 411 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total consumer loans |
289 | - | 411 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total loans modified in TDRs during the period (1) |
$ | 13,571 | $ | 3,926 | $ | 16,424 | $ | 3,926 | ||||||||||
|
|
|
|
|
|
|
|
(1) | During the three and six months ended June 30, 2012, we had partial charge-offs of $10.0 million and $10.9 million, respectively, on loans classified as TDRs. There were no partial charge-offs on loans classified as TDRs during the three and six months ended June 30, 2011. |
During the three months ended June 30, 2012 new TDRs totaling $10.0 million and $3.6 million were modified through forgiveness of principal and payment deferrals granted to our clients, respectively. During the six months ended June 30, 2012 new TDRs totaling $10.1 million and $6.3 million were modified through forgiveness of principal and payment deferrals granted to our clients, respectively. During the three and six months ended June 30, 2011 all new TDRs were modified through payment deferrals granted to our clients and no principal or interest was forgiven.
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 the three and six months ended June 30, 2012 and 2011, broken out by portfolio segment and class of financing receivable:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||||
TDRs modified within the previous 12 months that defaulted during the period: |
||||||||||||||||||
Commercial loans: |
||||||||||||||||||
Software |
$ | - | $ | - | $ | 100 | $ | - | ||||||||||
Hardware |
452 | 3,321 | 452 | 3,321 | ||||||||||||||
Premium wine |
1,859 | - | 1,859 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
2,311 | 3,321 | 2,411 | 3,321 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans: |
||||||||||||||||||
Other consumer loans |
1,289 | - | 1,289 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total consumer loans |
1,289 | - | 1,289 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total TDRs modified within the previous 12 months that defaulted in the period |
$ | 3,600 | $ | 3,321 | $ | 3,700 | $ | 3,321 | ||||||||||
|
|
|
|
|
|
|
|
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 managements 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 was necessary to determine the allowance for loan losses as of June 30, 2012.
23
7. Short-Term Borrowings and Long-Term Debt
The following table represents outstanding short-term borrowings and long-term debt at June 30, 2012 and December 31, 2011:
Carrying Value | ||||||||||||||||||
(Dollars in thousands) |
Maturity |
Principal value at June 30, 2012 |
June 30,
2012 |
December 31, 2011 |
||||||||||||||
Short-term borrowings: |
||||||||||||||||||
Other short-term borrowings |
(1) | $ | 5,880 | $ | 5,880 | $ | - | |||||||||||
|
|
|
|
|||||||||||||||
Total short-term borrowings |
$ | 5,880 | $ | - | ||||||||||||||
|
|
|
|
|||||||||||||||
Long-term debt: |
||||||||||||||||||
5.375% Senior Notes |
September 15, 2020 | $ | 350,000 | $ | 347,893 | $ | 347,793 | |||||||||||
5.70% Senior Notes (2) |
June 1, 2012 | - | - | 143,969 | ||||||||||||||
6.05% Subordinated Notes (3) |
June 1, 2017 | 45,964 | 55,054 | 55,075 | ||||||||||||||
7.0% Junior Subordinated Debentures |
October 15, 2033 | 50,000 | 55,285 | 55,372 | ||||||||||||||
Other long-term debt |
(4) | - | - | 1,439 | ||||||||||||||
|
|
|
|
|||||||||||||||
Total long-term debt |
$ | 458,232 | $ | 603,648 | ||||||||||||||
|
|
|
|
(1) | Represents cash collateral received from our counterparty for our interest rate swap agreement related to our 6.05% Subordinated Notes. |
(2) | At December 31, 2011, included in the carrying value of our 5.70% Senior Notes was $2.6 million related to the fair value of the interest rate swap associated with the notes. |
(3) | At June 30, 2012 and December 31, 2011, included in the carrying value of our 6.05% Subordinated Notes were $9.3 million and $8.8 million, respectively, related to the fair value of the interest rate swap associated with the notes. |
(4) | Represents long-term notes payable related to one of our debt fund investments. The last payment related to the notes was made in April 2012. |
Interest expense related to short-term borrowings and long-term debt was $6.3 million and $12.6 million for the three and six months ended June 30, 2012, respectively, and $7.1 million and $17.8 million for the three and six months ended June 30, 2011, respectively. Interest expense is net of the cash flow impact from our interest rate swap agreements related to our 5.70% Senior Notes and 6.05% Subordinated Notes. The weighted average interest rate associated with our short-term borrowings as of June 30, 2012 was 0.14 percent.
5.70% Senior Notes
Our remaining $141.4 million 5.70% Senior Notes matured on June 1, 2012 and we repaid all outstanding principal, including unpaid and accrued interest, in cash upon maturity. In connection with the maturity, we also terminated the interest rate swap associated with these notes (see Note 8Derivative Financial Instruments).
3.875% Convertible Notes
Our $250 million 3.875% Convertible Notes matured on April 15, 2011. The effective interest rate for our 3.875% Convertible Notes for the three and six months ended June 30, 2011 was 6.84 percent and 5.92 percent, respectively, and interest expense was $0.7 million and $4.2 million, respectively.
Available Lines of Credit
We have certain facilities in place to enable us to access short-term borrowings on a secured (using available-for-sale securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. As of June 30, 2012, we did not borrow against our uncommitted federal funds lines. We also pledge securities to the FHLB of San Francisco and the discount window at the FRB. The market value of collateral pledged to the FHLB of San Francisco (comprised primarily of U.S. agency debentures) at June 30, 2012 totaled $1.5 billion, of which the full available balance was unused and available to support additional borrowings. The market value of collateral pledged at the discount window of the FRB at June 30, 2012 totaled $635.0 million, all of which was unused and available to support additional borrowings.
24
8. Derivative Financial Instruments
We primarily use derivative financial instruments to manage interest rate risk, currency exchange rate risk, and to assist customers with their risk management objectives. Also, in connection with negotiating credit facilities and certain other services, we often obtain equity warrant assets giving us the right to acquire stock in private, venture-backed companies in the technology and life science industries.
Interest Rate Risk
Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our interest rate-sensitive assets and liabilities and changes in market interest rates. To manage interest rate risk for our 5.70% Senior Notes and 6.05% Subordinated Notes, we entered into fixed-for-floating interest rate swap agreements at the time of debt issuance based upon LIBOR with matched-terms. Prior to our termination of portions of our interest rate swap agreements (discussed below), we used the shortcut method to assess hedge effectiveness and evaluate the hedging relationships for qualification under the shortcut method requirements for each reporting period. Net cash benefits associated with our interest rate swaps were recorded as a reduction in Interest expenseBorrowings, a component of net interest income. The fair value of our interest rate swaps was calculated using a discounted cash flow method and adjusted for credit valuation associated with counterparty risk. Increases from changes in fair value were included in other assets and decreases from changes in fair value were included in other liabilities.
In connection with the repurchase of portions of our 5.70% Senior Notes and 6.05% Subordinated Notes in May 2011, we terminated corresponding amounts of the associated interest rate swaps. As a result of these terminations, the remaining portions of the interest rate swaps no longer qualify for the shortcut method to assess hedge effectiveness under ASC 815, Derivatives and Hedging, and are accounted for under the long-haul method. Any differences associated with our interest rate swaps that arise as a result of hedge ineffectiveness are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income. Our 5.70% Senior Notes matured and were repaid on June 1, 2012, at which time we terminated the remaining portion of the associated interest rate swap.
Currency Exchange Risk
We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure risk related to our client loans that are denominated in foreign currencies, primarily in Pound Sterling and Euro. We do not designate any foreign exchange forward contracts as derivative instruments that qualify for hedge accounting. Changes in currency rates on the loans are included in other noninterest income, a component of noninterest income. We may experience ineffectiveness in the economic hedging relationship, because the loans are revalued based upon changes in the currencys spot rate on the principal value, while the forwards are revalued on a discounted cash flow basis. We record forward agreements in gain positions in other assets and loss positions in other liabilities, while net changes in fair value are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
Other Derivative Instruments
Equity Warrant Assets
Our equity warrant assets are concentrated in private, venture-backed companies in the technology and life science industries. Most of these warrant agreements contain net share settlement provisions, which permit us to pay the warrant exercise price using shares issuable under the warrant (cashless exercise). We value our equity warrant assets using a modified Black-Scholes option pricing model, which incorporates assumptions about the underlying asset value, volatility, and the risk-free rate. We make valuation adjustments for estimated remaining life and marketability for warrants issued by private companies. Equity warrant assets are recorded at fair value in other assets, while changes in their fair value are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
Loan Conversion Options
In connection with negotiating certain credit facilities, we occasionally extend loan facilities which have convertible option features. The convertible loans may be converted into a certain number of shares determined by dividing the principal amount of the loan by the applicable conversion price. Because our loan conversion options have underlying and notional values and had no initial net investment, these assets qualify as derivative instruments. We value our loan conversion options using a modified Black-Scholes option pricing model, which incorporates assumptions about the underlying asset value, volatility, and the risk-free rate. Loan conversion options are recorded at fair value in other assets, while changes in their fair value are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
Other Derivatives
We sell forward and option contracts to clients who wish to mitigate their foreign currency exposure. We economically reduce the currency risk from this business by entering into opposite way contracts with correspondent banks. This relationship does not qualify for hedge accounting. The contracts generally have terms of one year or less, although we may have contracts extending for up to five years. Generally, we have not experienced nonperformance on these contracts, have not incurred credit losses, and anticipate performance by all counterparties to such agreements. Increases from changes in fair value are included in other assets and decreases from changes in fair value are included in other liabilities. The net change in the fair value of these contracts is recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
25
We sell interest rate contracts to clients who wish to mitigate their interest rate exposure. We economically reduce the interest rate risk from this business by entering into opposite way contracts with correspondent banks. We do not designate any of these contracts (which are derivative instruments) as qualifying for hedge accounting. Increases from changes in fair value are included in other assets and decreases from changes in fair value are included in other liabilities. The net change in the fair value of these derivatives is recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
Counterparty Credit Risk
We are exposed to credit risk if counterparties to our derivative contracts do not perform as expected. We mitigate counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral, as appropriate. Consistent with the clarification guidance included in ASU 2011-04, we made an accounting policy decision effective January 1, 2012 to use the exception in the guidance with respect to measuring counterparty credit risk for derivative instruments, which allows us to continue to measure the fair value of a group of financial assets and financial liabilities on a net risk basis by counterparty portfolio.
The total notional or contractual amounts, fair value, collateral and net exposure of our derivative financial instruments at June 30, 2012 and December 31, 2011 were as follows:
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||||
(Dollars in thousands) |
Balance Sheet Location |
Notional or Contractual Amount |
Fair Value | Collateral (1) |
Net Exposure (2) |
Notional or Contractual Amount |
Fair Value | Collateral (1) |
Net Exposure (2) |
|||||||||||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||||||||||||||||||
Interest rate risks: |
||||||||||||||||||||||||||||||||||
Interest rate swaps |
Other assets | $ | 45,964 | $ | 9,331 | $ | 5,880 | $ | 3,451 | $ | 187,393 | $ | 11,441 | $ | - | $ | 11,441 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||||||||||||||||
Currency exchange risks: |
||||||||||||||||||||||||||||||||||
Foreign exchange forwards |
Other assets | 53,158 | 1,518 | - | 1,518 | 68,518 | 514 | - | 514 | |||||||||||||||||||||||||
Foreign exchange forwards |
Other liabilities | 45,505 | (1,126) | - | (1,126) | 6,822 | (199) | - | (199) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net exposure |
392 | - | 392 | 315 | - | 315 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other derivative instruments: |
||||||||||||||||||||||||||||||||||
Equity warrant assets |
Other assets | 156,784 | 74,405 | - | 74,405 | 144,586 | 66,953 | - | 66,953 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Other derivatives: |
||||||||||||||||||||||||||||||||||
Foreign exchange forwards |
Other assets | 530,889 | 18,317 | - | 18,317 | 387,714 | 17,541 | - | 17,541 | |||||||||||||||||||||||||
Foreign exchange forwards |
Other liabilities | 388,394 | (13,488) | - | (13,488) | 366,835 | (16,346) | - | (16,346) | |||||||||||||||||||||||||
Foreign currency options |
Other assets | 97,943 | 747 | - | 747 | 75,600 | 271 | - | 271 | |||||||||||||||||||||||||
Foreign currency options |
Other liabilities | 97,943 | (747) | - | (747) | 75,600 | (271) | - | (271) | |||||||||||||||||||||||||
Loan conversion options |
Other assets | 10,254 | 1,569 | - | 1,569 | 14,063 | 923 | - | 923 | |||||||||||||||||||||||||
Client interest rate derivatives |
Other assets | 38,588 | 57 | - | 57 | 39,713 | 50 | - | 50 | |||||||||||||||||||||||||
Client interest rate derivatives |
Other liabilities | 38,588 | (59) | - | (59) | 39,713 | (52) | - | (52) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net exposure |
6,396 | - | 6,396 | 2,116 | - | 2,116 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net |
$ | 90,524 | $ | 5,880 | $ | 84,644 | $ | 80,825 | $ | - | $ | 80,825 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Cash collateral received from our counterparty for our interest rate swap agreement is recorded as a component of short-term borrowings on our consolidated balance sheets. |
(2) | Net exposure for contracts in a gain position reflects the replacement cost in the event of nonperformance by all such counterparties. The credit ratings of our institutional counterparties as of June 30, 2012 remain at investment grade or higher and there were no material changes in their credit ratings for the three and six months ended June 30, 2012. |
26
A summary of our derivative activity and the related impact on our consolidated statements of income for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
(Dollars in thousands) |
Statement of income location |
2012 | 2011 | 2012 | 2011 | |||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||||
Interest rate risks: |
||||||||||||||||||
Net cash benefit associated with interest rate swaps |
Interest expenseborrowings | $ | 1,696 | $ | 3,695 | $ | 3,925 | $ | 9,868 | |||||||||
Changes in fair value of interest rate swaps |
Net gain on derivative instruments | 108 | (67) | 497 | (67) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net gains associated with interest rate risk derivatives |
$ | 1,804 | $ | 3,628 | $ | 4,422 | $ | 9,801 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||
Currency exchange risks: |
||||||||||||||||||
(Losses) gains on revaluations of foreign currency loans, net |
Other noninterest income | $ | (3,125) | $ | 502 | $ | (1,466) | $ | 3,191 | |||||||||
Gains (losses) on internal foreign exchange forward contracts, net |
Net gains on derivative instruments | 2,993 | (483) | 942 | (3,051) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net (losses) gains associated with currency risk |
$ | (132) | $ | 19 | $ | (524) | $ | 140 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Other derivative instruments: |
||||||||||||||||||
Gains on equity warrant assets |
Net gains on derivative instruments | $ | 4,876 | $ | 13,861 | $ | 11,811 | $ | 17,857 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gains on client foreign exchange forward contracts, net |
Net gains on derivative instruments | $ | 1,330 | $ | 315 | $ | 2,395 | $ | 790 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net (losses) gains on other derivatives (1) |
Net gains on derivative instruments | $ | (594) | $ | 25 | $ | (956) | $ | (1,327) | |||||||||
|
|
|
|
|
|
|
|
(1) | Primarily represents the change in fair value of loan conversion options. |
9. Other Noninterest Income and Other Noninterest Expense
A summary of other noninterest income for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Unused commitment fees |
$ | 3,678 | $ | 1,808 | $ | 6,733 | $ | 3,294 | ||||||||
Fund management fees |
3,124 | 2,663 | 5,952 | 5,351 | ||||||||||||
Service-based fee income |
2,172 | 2,587 | 4,546 | 4,812 | ||||||||||||
Net gains on the sale of certain assets related to our equity management services business |
4,243 | - | 4,243 | - | ||||||||||||
Loan syndication fees |
1,375 | 870 | 1,500 | 870 | ||||||||||||
Currency revaluation losses |
(1,548) | (881) | (933) | (1,121) | ||||||||||||
(Losses) gains on revaluation of foreign currency loans, net |
(3,125) | 502 | (1,466) | 3,191 | ||||||||||||
Other |
2,745 | 2,463 | 5,167 | 3,879 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other noninterest income |
$ | 12,664 | $ | 10,012 | $ | 25,742 | $ | 20,276 | ||||||||
|
|
|
|
|
|
|
|
A summary of other noninterest expense for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Telephone |
$ | 1,547 | $ | 1,416 | $ | 3,331 | $ | 2,766 | ||||||||
Client services |
1,739 | 1,037 | 2,992 | 1,839 | ||||||||||||
Data processing services |
1,310 | 1,429 | 2,715 | 2,492 | ||||||||||||
Tax credit fund amortization |
962 | 1,101 | 2,020 | 2,154 | ||||||||||||
Postage and supplies |
628 | 562 | 1,253 | 1,084 | ||||||||||||
Dues and publications |
557 | 327 | 1,031 | 701 | ||||||||||||
Net gain from note repurchases and termination of corresponding interest rate swaps |
- | (3,123) | - | (3,123) | ||||||||||||
Other |
2,675 | 2,287 | 3,883 | 4,986 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other noninterest expense |
$ | 9,418 | $ | 5,036 | $ | 17,225 | $ | 12,899 | ||||||||
|
|
|
|
|
|
|
|
10. Segment Reporting
We have three reportable 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.
27
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 institutions 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. Effective January 1, 2012, FTP is calculated at an instrument level based on account characteristics. Prior to January 1, 2012, FTP was calculated by applying a transfer rate to pooled, or aggregated, loan and deposit volumes. We have reclassified all prior period amounts to conform to the current periods methodology and presentation.
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 operating segments 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 clients 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 operating 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 reportable segments provide:
| 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. Our Global Commercial Bank segment is comprised of results from our Commercial Bank, and also includes SVB Specialty Lending, SVB Analytics and our Debt Fund Investments. (For further description of these operating segments, refer to Note 20Segment Reporting under Part II, Item 8 of our 2011 Form 10-K.) As a result of the change in FTP methodology discussed above, our Global Commercial Bank segments total net interest income for the three and six months ended June 30, 2011 was increased by $17.2 million and $34.3 million, respectively (offset is included within Other Items), due to the reclassification of all prior periods to reflect the current periods methodology and presentation. |
| SVB Private Bank provides banking products and a range of credit services primarily to venture capital/private equity professionals using both long-term secured and short-term unsecured lines of credit. |
| SVB Capital is the venture capital investment arm of SVBFG, which focuses primarily on funds management. SVB Capital manages funds (primarily venture capital funds) on behalf of third party limited partners and SVB Financial Group. The SVB Capital family of funds is comprised of funds of funds and direct venture funds. SVB Capital generates income for the Company primarily through management fees, carried interest arrangements and returns through the Companys investments in the funds. |
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. 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 consists of cash and cash equivalents.
28
Our segment information for the three and six months ended June 30, 2012 and 2011 is as follows:
(Dollars in thousands) |
Global Commercial Bank (1) |
SVB Private Bank |
SVB Capital (1) |
Other Items |
Total | |||||||||||||||||
Three months ended June 30, 2012 |
||||||||||||||||||||||
Net interest income (loss) |
$ | 146,420 | $ | 5,516 | $ | 9 | $ | (11) | $ | 151,934 | ||||||||||||
(Provision for) reduction of loan losses |
(8,923) | 924 | - | - | (7,999) | |||||||||||||||||
Noninterest income |
52,494 | 151 | 4,557 | 23,224 | 80,426 | |||||||||||||||||
Noninterest expense (2) |
(98,478) | (3,356) | (2,872) | (31,060) | (135,766) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income tax expense (3) |
$ | 91,513 | $ | 3,235 | $ | 1,694 | $ | (7,847) | $ | 88,595 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total average loans, net of unearned income |
$ | 6,479,544 | $ | 742,130 | $ | - | $ | 15,508 | $ | 7,237,182 | ||||||||||||
Total average assets (4) |
19,023,230 | 747,445 | 251,295 | 868,906 | 20,890,876 | |||||||||||||||||
Total average deposits |
17,131,816 | 253,482 | - | 22,338 | 17,407,636 | |||||||||||||||||
Three months ended June 30, 2011 |
||||||||||||||||||||||
Net interest income |
$ | 125,695 | $ | 4,653 | $ | 3 | $ | 102 | $ | 130,453 | ||||||||||||
(Provision for) reduction of loan losses |
(730) | 596 | - | - | (134) | |||||||||||||||||
Noninterest income |
36,551 | 136 | 6,716 | 80,305 | 123,708 | |||||||||||||||||
Noninterest expense (2) |
(84,702) | (2,477) | (3,111) | (30,742) | (121,032) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income tax expense (3) |
$ | 76,814 | $ | 2,908 | $ | 3,608 | $ | 49,665 | $ | 132,995 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total average loans, net of unearned income |
$ | 4,822,497 | $ | 642,287 | $ | - | $ | 68,047 | $ | 5,532,831 | ||||||||||||
Total average assets (4) |
16,805,670 | 642,744 | 232,381 | 573,736 | 18,254,531 | |||||||||||||||||
Total average deposits |
15,099,789 | 156,765 | - | 13,185 | 15,269,739 | |||||||||||||||||
Six months ended June 30, 2012 |
||||||||||||||||||||||
Net interest income |
$ | 289,684 | $ | 10,481 | $ | 16 | $ | 2,690 | $ | 302,871 | ||||||||||||
Provision for loan losses |
(22,159) | (369) | - | - | (22,528) | |||||||||||||||||
Noninterest income |
92,422 | 308 | 8,144 | 38,845 | 139,719 | |||||||||||||||||
Noninterest expense (2) |
(194,734) | (6,589) | (5,408) | (61,047) | (267,778) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income tax expense (3) |
$ | 165,213 | $ | 3,831 | $ | 2,752 | $ | (19,512) | $ | 152,284 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total average loans, net of unearned income |
$ | 6,255,450 | $ | 740,049 | $ | - | $ | 25,266 | $ | 7,020,765 | ||||||||||||
Total average assets (4) |
18,790,252 | 744,703 | 254,835 | 771,919 | 20,561,709 | |||||||||||||||||
Total average deposits |
16,916,965 | 246,991 | - | 22,744 | 17,186,700 | |||||||||||||||||
Six months ended June 30, 2011 |
||||||||||||||||||||||
Net interest income (loss) |
$ | 246,515 | $ | 9,054 | $ | 4 | $ | (4,821) | $ | 250,752 | ||||||||||||
Reduction of provision for loan losses |
661 | 2,252 | - | - | 2,913 | |||||||||||||||||
Noninterest income |
71,415 | 223 | 14,006 | 128,018 | 213,662 | |||||||||||||||||
Noninterest expense (2) |
(170,582) | (4,480) | (6,253) | (57,152) | (238,467) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income tax expense (3) |
$ | 148,009 | $ | 7,049 | $ | 7,757 | $ | 66,045 | $ | 228,860 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total average loans, net of unearned income |
$ | 4,766,104 | $ | 613,467 | $ | - | $ | 43,480 | $ | 5,423,051 | ||||||||||||
Total average assets (4) |
16,502,986 | 613,734 | 222,570 | 763,918 | 18,103,208 | |||||||||||||||||
Total average deposits |
14,803,648 | 153,520 | - | 12,638 | 14,969,806 |
(1) | Global Commercial Banks and SVB Capitals 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 $3.6 million and $2.7 million for the three months ended June 30, 2012 and 2011, respectively, and $7.0 million and $5.6 million for the six months ended June 30, 2012 and 2011, 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. |
(4) | Total average assets equals the greater of total average assets or the sum of total liabilities and total stockholders equity for each segment. |
29
11. Off-Balance Sheet Arrangements, Guarantees and Other Commitments
In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve credit risk to varying degrees. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract.
Commitments to Extend Credit
The following table summarizes information related to our commitments to extend credit at June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Loan commitments available for funding: (1) |
||||||||
Fixed interest rate commitments |
$ | 834,431 | $ | 658,377 | ||||
Variable interest rate commitments |
7,096,370 | 6,548,002 | ||||||
|
|
|
|
|||||
Total loan commitments available for funding |
7,930,801 | 7,206,379 | ||||||
Commercial and standby letters of credit (2) |
821,904 | 861,191 | ||||||
|
|
|
|
|||||
Total unfunded credit commitments |
$ | 8,752,705 | $ | 8,067,570 | ||||
|
|
|
|
|||||
Commitments unavailable for funding (3) |
$ | 882,458 | $ | 841,439 | ||||
Maximum lending limits for accounts receivable factoring arrangements (4) |
847,757 | 747,392 | ||||||
Reserve for unfunded credit commitments (5) |
23,476 | 21,811 |
(1) | Represents commitments which are available for funding, due to clients meeting all collateral, compliance and financial covenants required under loan commitment agreements. |
(2) | See below for additional information on our commercial and standby letters of credit. |
(3) | Represents commitments which are currently unavailable for funding, due to clients failing to meet all collateral, compliance and financial covenants under loan commitment agreements. |
(4) | We extend credit under accounts receivable factoring arrangements when our clients sales invoices are deemed creditworthy under existing underwriting practices. |
(5) | Our reserve for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit. |
Commercial and Standby Letters of Credit
The table below summarizes our commercial and standby letters of credit at June 30, 2012. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.
(Dollars in thousands) |
Expires In One Year or Less |
Expires After One Year |
Total Amount Outstanding |
Maximum Amount of Future Payments |
||||||||||||||
Financial standby letters of credit |
$ | 646,170 | $ | 107,677 | $ | 753,847 | $ | 753,847 | ||||||||||
Performance standby letters of credit |
52,523 | 11,903 | 64,426 | 64,426 | ||||||||||||||
Commercial letters of credit |
3,631 | - | 3,631 | 3,631 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 702,324 | $ | 119,580 | $ | 821,904 | $ | 821,904 | ||||||||||
|
|
|
|
|
|
|
|
At June 30, 2012 and December 31, 2011, deferred fees related to financial and performance standby letters of credit were $5.3 million and $6.1 million, respectively. At June 30, 2012, collateral in the form of cash of $332.3 million and available-for-sale securities of $12.3 million were available to us to reimburse losses, if any, under financial and performance standby letters of credit.
Commitments to Invest in Venture Capital and Private Equity Funds
We make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies. Commitments to invest in these funds are generally made for a ten-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over five to seven years; however in certain cases, the funds may not call 100% of committed capital over the life of the fund. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate. The following table details our total capital commitments, unfunded capital commitments, and our ownership in each fund at June 30, 2012:
30
Our Ownership in Limited Partnership (Dollars in thousands) |
SVBFG Capital Commitments |
SVBFG Unfunded Commitments |
SVBFG Ownership of each Fund |
|||||||||
Silicon Valley BancVentures, LP |
$ | 6,000 | $ | 270 | 10.7 | % | ||||||
SVB Capital Partners II, LP (1) |
1,200 | 162 | 5.1 | |||||||||
SVB India Capital Partners I, LP |
7,750 | 1,263 | 14.4 | |||||||||
SVB Capital Shanghai Yangpu Venture Capital Fund |
913 | 157 | 6.8 | |||||||||
SVB Strategic Investors Fund, LP |
15,300 | 688 | 12.6 | |||||||||
SVB Strategic Investors Fund II, LP |
15,000 | 1,200 | 8.6 | |||||||||
SVB Strategic Investors Fund III, LP |
15,000 | 2,700 | 5.9 | |||||||||
SVB Strategic Investors Fund IV, LP |
12,239 | 4,896 | 5.0 | |||||||||
Strategic Investors Fund V Funds |
1,000 | 933 | Various | |||||||||
SVB Capital Preferred Return Fund, LP |
12,687 | - | 20.0 | |||||||||
SVB CapitalNT Growth Partners, LP |
24,670 | 1,340 | 33.0 | |||||||||
Other private equity fund (2) |
9,338 | - | 58.2 | |||||||||
Partners for Growth, LP |
25,000 | 9,750 | 50.0 | |||||||||
Partners for Growth II, LP |
15,000 | 4,950 | 24.2 | |||||||||
Gold Hill Venture Lending 03, LP (3) |
20,000 | - | 9.3 | |||||||||
Other fund investments (4) |
331,772 | 73,268 | Various | |||||||||
|
|
|
|
|||||||||
Total |
$ | 512,869 | $ | 101,577 | ||||||||
|
|
|
|
(1) | Our ownership includes 1.3 percent direct ownership through SVB Capital Partners II, LLC and SVB Financial, and 3.8 percent indirect ownership through our investment in SVB Strategic Investors Fund II, LP. |
(2) | Our ownership includes 41.5 percent direct ownership and indirect ownership interest of 12.6 percent and 4.1 percent in the fund through our ownership interest of SVB Capital - NT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively. |
(3) | Our ownership includes 4.8 percent direct ownership and 4.5 percent indirect ownership interest through GHLLC. |
(4) | Represents commitments to 332 funds (primarily venture capital funds) where our ownership interest is generally less than 5 percent of the voting interests of each such fund. |
The following table details the total remaining unfunded commitments to the venture capital and private equity funds by our consolidated managed funds of funds (including our interest and the noncontrolling interests) at June 30, 2012:
Limited Partnership (Dollars in thousands) |
Unfunded Commitments |
|||
SVB Strategic Investors Fund, LP |
$ | 2,307 | ||
SVB Strategic Investors Fund II, LP |
11,243 | |||
SVB Strategic Investors Fund III, LP |
48,147 | |||
SVB Strategic Investors Fund IV, LP |
114,552 | |||
Strategic Investors Fund V Funds |
153,160 | |||
SVB Capital Preferred Return Fund, LP |
20,299 | |||
SVB CapitalNT Growth Partners, LP |
22,882 | |||
Other private equity fund |
4,447 | |||
|
|
|||
Total |
$ | 377,037 | ||
|
|
12. Income Taxes
We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions and have identified our federal tax return and tax returns in California and Massachusetts as major tax filings. U.S. federal tax examinations through 1998 have been concluded. Our U.S. federal tax returns for the years 1999 through 2005 were not reviewed and are no longer open to examination by the IRS. Our U.S. federal tax returns for 2006 and subsequent years remain open to examination. Our California tax returns for 2006 and subsequent years remain open to examination. Our Massachusetts tax returns for 2008 and subsequent years remain open to examination.
We are currently under audit examination by the IRS for the 2008 and 2009 tax years, which began in July 2011. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases will be recorded as income tax expense or benefit in the consolidated statements of operations. While the actual outcome is subject to the completion of these audits, we do not believe there will be a material adverse impact on our results of operations.
31
At June 30, 2012, our unrecognized tax benefit was $0.9 million, the recognition of which would reduce our income tax expense by $0.7 million. We expect that our unrecognized tax benefit will change in the next 12 months; however we do not expect the change to have a significant impact on our financial position or our results of operations.
13. Fair Value of Financial Instruments
Fair Value Measurements
Our available-for-sale securities, derivative instruments and certain non-marketable and marketable securities are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our interim consolidated financial statements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable and the significance of those inputs in the fair value measurement. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data and views of market participants. The three levels for measuring fair value are based on the reliability of inputs and are as follows:
Level 1
Fair value measurements based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to instruments utilizing Level 1 inputs. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. Assets utilizing Level 1 inputs include exchange-traded equity securities and certain marketable securities accounted for under fair value accounting.
Level 2
Fair value measurements based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Valuations for the available-for-sale securities are provided by independent external pricing service providers. We review the methodologies used to determine the fair value, including understanding the nature and observability of the inputs used to determine the price. Additional corroboration, such as obtaining a non-binding price from a broker, may be required depending on the frequency of trades of the security and the level of liquidity or depth of the market. The valuation methodology that is generally used for the Level 2 assets is the income approach. Below is a summary of the significant inputs used for each class of Level 2 assets and liabilities:
U.S. treasury securities: U.S. treasury securities are considered by most investors to be the most liquid fixed income investments available. These securities are priced relative to market prices on similar U.S. treasury securities.
U.S. agency debentures: Fair value measurements of U.S. agency debentures are based on the characteristics specific to bonds held, such as issuer name, coupon rate, maturity date and any applicable issuer call option features. Valuations are based on market spreads relative to similar term benchmark market interest rates, generally U.S. treasury securities.
Agency-issued mortgage-backed securities: Agency-issued mortgage-backed securities are pools of individual conventional mortgage loans underwritten to U.S. agency standards with similar coupon rates, tenor, and other attributes such as geographic location, loan size and origination vintage. Fair value measurements of these securities are based on observable price adjustments relative to benchmark market interest rates taking into consideration estimated loan prepayment speeds.
Agency-issued collateralized mortgage obligations: Agency-issued collateralized mortgage obligations are structured into classes or tranches with defined cash flow characteristics and are collateralized by U.S. agency-issued mortgage pass-through securities. Fair value measurements of these securities incorporate similar characteristics of mortgage pass-through securities such as coupon rate, tenor, geographic location, loan size and origination vintage, in addition to incorporating the effect of estimated prepayment speeds on the cash flow structure of the class or tranche. These measurements incorporate observable market spreads over an estimated average life after considering the inputs listed above.
Agency-issued commercial mortgage-backed securities: Fair value measurements of these securities are based on spreads to benchmark market interest rates (usually U.S. treasury rates or rates observable in the swaps market), prepayment speeds, loan default rate assumptions and loan loss severity assumptions on underlying loans.
Municipal bonds and notes: Bonds issued by municipal governments generally have stated coupon rates, final maturity dates and are subject to being called ahead of the final maturity date at the option of the issuer. Fair value measurements of these securities are priced based on spreads to other municipal benchmark bonds with similar characteristics; or, relative to market rates on U.S. treasury bonds of similar maturity.
32
Interest rate swap assets: Fair value measurements of interest rate swaps are priced considering the coupon rate of the fixed leg of the contract and the variable coupon on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve and the credit worthiness of the contract counterparty.
Foreign exchange forward and option contract assets and liabilities: Fair value measurements of these assets and liabilities are priced based on spot and forward foreign currency rates and option volatility assumptions and the credit worthiness of the contract counterparty.
Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of public portfolio companies are priced based on the Black-Scholes option pricing model that use the publicly-traded equity prices (underlying stock value), stated strike prices, option expiration dates, the risk-free interest rate and market-observable option volatility assumptions.
Level 3
The fair value measurement is derived from valuation techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions we believe market participants would use in pricing the asset. Below is a summary of the valuation techniques used for each class of Level 3 assets:
Venture capital and private equity fund investments: Fair value measurements are based on the information provided by the investee funds management, which reflects our share of the fair value of the net assets of the investment fund on the valuation date. We account for differences between our measurement date and the date of the fund investments net asset value by using the most recent available financial information from the investee general partner, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
Other venture capital investments: Fair value measurements are based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, and as it relates to the private company, the current and projected operating performance, exit strategies and financing transactions subsequent to the acquisition of the investment. The significant unobservable inputs used in the fair value measurement include the information about each portfolio company, including actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Significant changes to any one of these inputs in isolation could result in a significant change in the fair value measurement, however, we generally consider all factors available through ongoing communication with the portfolio companies and venture capital fund managers to determine whether there are changes to the portfolio company or the environment that indicate a change in the fair value measurement.
Equity warrant assets (private portfolio): Fair value measurements of equity warrant assets of private portfolio companies are priced based on a modified Black-Scholes option pricing model to estimate the underlying asset value by using stated strike prices, option expiration dates, risk-free interest rates and option volatility assumptions. Option volatility assumptions used in the modified Black-Scholes model are based on public market indices whose members operate in similar industries as companies in our private company portfolio. Option expiration dates are modified to account for estimates to actual life relative to stated expiration. Overall model asset values are further adjusted for a general lack of liquidity due to the private nature of the associated underlying company. There is a direct correlation between changes in the volatility and remaining life assumptions in isolation and the fair value measurement while there is an inverse correlation between changes in the liquidity discount assumption and the fair value measurement.
It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon valuation techniques that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, prepayment speeds, option volatilities and currency rates. Substantially all of our financial instruments use either of the foregoing methodologies, and are categorized as a Level 1 or Level 2 measurement in the fair value hierarchy. However, in certain cases, when market observable inputs for our valuation techniques may not be readily available, we are required to make judgments about assumptions we believe market participants would use in estimating the fair value of the financial instrument, and based on the significance of those judgments, the measurement may be determined to be a Level 3 fair value measurement.
The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. For inactive markets, there is little information, if any, to evaluate if individual transactions are orderly. Accordingly, we are required to estimate, based upon all available facts and circumstances, the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Accordingly, the degree of judgment exercised by management in determining fair value is greater for financial assets and liabilities categorized as Level 3.
33
The following fair value hierarchy tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012:
(Dollars in thousands) |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance as of June 30, 2012 |
||||||||||||||
Assets |
||||||||||||||||||
Available-for-sale securities: |
||||||||||||||||||
U.S. treasury securities |
$ | - | $ | 25,599 | $ | - | $ | 25,599 | ||||||||||
U.S. agency debentures |
- | 2,640,124 | - | 2,640,124 | ||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||
Agency-issued mortgage-backed securities |
- | 1,713,799 | - | 1,713,799 | ||||||||||||||
Agency-issued collateralized mortgage obligations - fixed rate |
- | 3,804,211 | - | 3,804,211 | ||||||||||||||
Agency-issued collateralized mortgage obligations - variable rate |
- | 2,108,449 | - | 2,108,449 | ||||||||||||||
Agency-issued commercial mortgage-backed securities |
- | 228,080 | - | 228,080 | ||||||||||||||
Municipal bonds and notes |
- | 99,694 | - | 99,694 | ||||||||||||||
Equity securities |
995 | - | - | 995 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total available-for-sale securities |
995 | 10,619,956 | - | 10,620,951 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||||
Venture capital and private equity fund investments |
- | - | 639,596 | 639,596 | ||||||||||||||
Other venture capital investments |
- | - | 120,111 | 120,111 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total non-marketable securities (fair value accounting) |
- | - | 759,707 | 759,707 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Other assets: |
||||||||||||||||||
Marketable securities |
1,042 | 3,694 | - | 4,736 | ||||||||||||||
Interest rate swaps |
- | 9,331 | - | 9,331 | ||||||||||||||
Foreign exchange forward and option contracts |
- | 20,582 | - | 20,582 | ||||||||||||||
Equity warrant assets |
- | 5,786 | 68,619 | 74,405 | ||||||||||||||
Loan conversion options |
- | 1,569 | - | 1,569 | ||||||||||||||
Client interest rate derivatives |
- | 57 | - | 57 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total assets (1) |
$ | 2,037 | $ | 10,660,975 | $ | 828,326 | $ | 11,491,338 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
||||||||||||||||||
Foreign exchange forward and option contracts |
$ | - | $ | 15,361 | $ | - | $ | 15,361 | ||||||||||
Client interest rate derivatives |
- | 59 | - | 59 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
$ | - | $ | 15,420 | $ | - | $ | 15,420 | ||||||||||
|
|
|
|
|
|
|
|
(1) | Included in Level 1, Level 2, and Level 3 assets are $0.9 million, $3.5 million, and $671.9 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests. |
34
The following fair value hierarchy tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011:
(Dollars in thousands) |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance as of December 31, 2011 |
||||||||||||
Assets |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
U.S. treasury securities |
$ | - | $ | 25,964 | $ | - | $ | 25,964 | ||||||||
U.S. agency debentures |
- | 2,874,932 | - | 2,874,932 | ||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
Agency-issued mortgage-backed securities |
- | 1,564,286 | - | 1,564,286 | ||||||||||||
Agency-issued collateralized mortgage obligations - fixed rate |
- | 3,373,760 | - | 3,373,760 | ||||||||||||
Agency-issued collateralized mortgage obligations - variable rate |
- | 2,413,378 | - | 2,413,378 | ||||||||||||
Agency-issued commercial mortgage-backed securities |
- | 178,693 | - | 178,693 | ||||||||||||
Municipal bonds and notes |
- | 100,498 | - | 100,498 | ||||||||||||
Equity securities |
4,535 | - | - | 4,535 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale securities |
4,535 | 10,531,511 | - | 10,536,046 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
- | - | 611,824 | 611,824 | ||||||||||||
Other venture capital investments |
- | - | 124,121 | 124,121 | ||||||||||||
Other investments |
- | - | 987 | 987 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-marketable securities (fair value accounting) |
- | - | 736,932 | 736,932 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other assets: |
||||||||||||||||
Marketable securities |
1,410 | - | - | 1,410 | ||||||||||||
Interest rate swaps |
- | 11,441 | - | 11,441 | ||||||||||||
Foreign exchange forward and option contracts |
- | 18,326 | - | 18,326 | ||||||||||||
Equity warrant assets |
- | 3,923 | 63,030 | 66,953 | ||||||||||||
Loan conversion options |
- | 923 | - | 923 | ||||||||||||
Client interest rate derivatives |
- | 50 | - | 50 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets (1) |
$ | 5,945 | $ | 10,566,174 | $ | 799,962 | $ | 11,372,081 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Foreign exchange forward and option contracts |
$ | - | $ | 16,816 | $ | - | $ | 16,816 | ||||||||
Client interest rate derivatives |
- | 52 | - | 52 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | - | $ | 16,868 | $ | - | $ | 16,868 | ||||||||
|
|
|
|
|
|
|
|
(1) | Included in Level 1 and Level 3 assets are $1.2 million and $647.5 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests. |
35
The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for the three and six months ended June 30, 2012 and 2011, respectively:
(Dollars in thousands) |
Beginning Balance |
Total Realized and Unrealized Gains (Losses) Included in Income |
Purchases | Sales | Issuances | Distributions and Other Settlements |
Transfers Into Level 3 |
Transfers Out of Level 3 |
Ending Balance |
|||||||||||||||||||||||||||
Three months ended June 30, 2012: |
||||||||||||||||||||||||||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||||||||||||||||||||||
Venture capital and private equity fund investments |
$ | 620,356 | $ | 14,557 | $ | 33,365 | $ | - | $ | - | $ | (28,682) | $ | - | $ | - | $ | 639,596 | ||||||||||||||||||
Other venture capital investments |
127,951 | (3,540) | 211 | (3,932) | - | 16 | - | (595) | 120,111 | |||||||||||||||||||||||||||
Other investments |
1,002 | - | - | - | - | (1,002) | - | - | - | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total non-marketable securities (fair value accounting) (1) |
749,309 | 11,017 | 33,576 | (3,932) | - | (29,668) | - | (595) | 759,707 | |||||||||||||||||||||||||||
Other assets: |
||||||||||||||||||||||||||||||||||||
Equity warrant assets (2) |
65,217 | 5,853 | - | (6,075) | 3,873 | - | (249) | 68,619 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
$ | 814,526 | $ | 16,870 | $ | 33,576 | $ | (10,007) | $ | 3,873 | $ | (29,668) | $ | - | $ | (844) | $ | 828,326 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Three months ended June 30, 2011: |
||||||||||||||||||||||||||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||||||||||||||||||||||
Venture capital and private equity fund investments |
$ | 464,377 | $ | 32,423 | $ | 37,335 | $ | - | $ | - | $ | (19,017) | $ | - | $ | - | $ | 515,118 | ||||||||||||||||||
Other venture capital investments |
108,525 | 660 | 4,639 | (4,042) | - | 4,288 | - | - | 114,070 | |||||||||||||||||||||||||||
Other investments |
995 | - | - | - | - | - | - | - | 995 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total non-marketable securities (fair value accounting) (1) |
573,897 | 33,083 | 41,974 | (4,042) | - | (14,729) | - | - | 630,183 | |||||||||||||||||||||||||||
Other assets: |
||||||||||||||||||||||||||||||||||||
Equity warrant assets (2) |
46,260 | 10,246 | - | (9,924) | 3,558 | (1) | - | (362) | 49,777 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
$ | 620,157 | $ | 43,329 | $ | 41,974 | $ | (13,966) | $ | 3,558 | $ | (14,730) | $ | - | $ | (362) | $ | 679,960 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Six months ended June 30, 2012: |
||||||||||||||||||||||||||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||||||||||||||||||||||
Venture capital and private equity fund investments |
$ | 611,824 | $ | 26,661 | $ | 55,081 | $ | - | $ | - | $ | (53,970) | $ | - | $ | - | $ | 639,596 | ||||||||||||||||||
Other venture capital investments |
124,121 | (7,127) | 7,935 | (4,239) | - | 16 | - | (595) | 120,111 | |||||||||||||||||||||||||||
Other investments |
987 | 21 | - | - | - | (1,008) | - | - | - | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total non-marketable securities (fair value accounting) (1) |
736,932 | 19,555 | 63,016 | (4,239) | - | (54,962) | - | (595) | 759,707 | |||||||||||||||||||||||||||
Other assets: |
||||||||||||||||||||||||||||||||||||
Equity warrant assets (2) |
63,030 | 9,648 | - | (9,718) | 6,173 | 1 | - | (515) | 68,619 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
$ | 799,962 | $ | 29,203 | $ | 63,016 | $ | (13,957) | $ | 6,173 | $ | (54,961) | $ | - | $ | (1,110) | $ | 828,326 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Six months ended June 30, 2011: |
||||||||||||||||||||||||||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||||||||||||||||||||||
Venture capital and private equity fund investments |
$ | 391,247 | $ | 75,991 | $ | 77,400 | $ | - | $ | - | $ | (29,520) | $ | - | $ | - | $ | 515,118 | ||||||||||||||||||
Other venture capital investments |
111,843 | 5,371 | 10,746 | (18,178) | - | 4,288 | - | - | 114,070 | |||||||||||||||||||||||||||
Other investments |
981 | 20 | - | - | - | (6) | - | - | 995 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total non-marketable securities (fair value accounting) (1) |
504,071 | 81,382 | 88,146 | (18,178) | - | (25,238) | - | - | 630,183 | |||||||||||||||||||||||||||
Other assets: |
||||||||||||||||||||||||||||||||||||
Equity warrant assets (2) |
43,537 | 13,211 | - | (13,462) | 7,182 | (63) | - | (628) | 49,777 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
$ | 547,608 | $ | 94,593 | $ | 88,146 | $ | (31,640) | $ | 7,182 | $ | (25,301) | $ | - | $ | (628) | $ | 679,960 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Realized and unrealized gains (losses) are recorded on the line items gains on investment securities, net, and other noninterest income, components of noninterest income. |
(2) | Realized and unrealized gains (losses) are recorded on the line item gains on derivative instruments, net, a component of noninterest income. |
The following table presents the amount of unrealized gains (losses) included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at June 30, 2012:
|
Three months ended June 30, 2012 |
Six months ended June 30, 2012 |
||||||
Non-marketable securities (fair value accounting): |
||||||||
Venture capital and private equity fund investments |
$ | (9,872) | $ | (16,986) | ||||
Other venture capital investments |
10,819 | 8,208 | ||||||
Other investments |
- | 21 | ||||||
|
|
|
|
|||||
Total non-marketable securities (fair value accounting) (1) |
947 | (8,757) | ||||||
Other assets: |
||||||||
Equity warrant assets (2) |
2,888 | 3,392 | ||||||
|
|
|
|
|||||
Total unrealized gains |
$ | 3,835 | $ | (5,365) | ||||
|
|
|
|
|||||
Unrealized gains (losses) attributable to noncontrolling interests |
$ | 457 | $ | (9,425) | ||||
|
|
|
|
(1) | Unrealized gains (losses) are recorded on the line items gains on investment securities, net, and other noninterest income, components of noninterest income. |
(2) | Unrealized gains are recorded on the line item gains on derivative instruments, net, a component of noninterest income. |
36
The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at June 30, 2012. We have not included in this table our venture capital and private equity fund investments (fair value accounting) as we use net asset value per share (as obtained from the general partners of the investments) as a practical expedient to determine fair value.
(Dollars in thousands) |
Fair Value at June 30, 2012 |
Valuation Technique |
Significant Unobservable Inputs | Weighted Average | ||||||
Other venture capital investments (fair value accounting) |
$ | 120,111 | Private company equity pricing | (1) | (1) | |||||
| ||||||||||
Equity warrant assets (private portfolio) |
68,619 | Modifed Black-Scholes option | Volatility | 51.2% | ||||||
pricing model | Risk-Free interest rate | 0.4% | ||||||||
Marketability discount (2) | 15.0% | |||||||||
Remaining life assumption (3) | 40.0% |
(1) | In determining the fair value of our other venture capital investment portfolio, we evaluate a variety of factors related to each underlying private portfolio company including, but not limited to, actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Additionally, we have ongoing communication with the portfolio companies and venture capital fund managers, to determine whether there is a material change in fair value. These factors are specific to each portfolio company and a weighted average or range of values of the unobservable inputs is not meaningful. |
(2) | Our marketability discount is applied to all private company warrants to account for a general lack of liquidity due to the private nature of the associated underlying company. The quantitative measure used is based on long-run averages and is influenced over time by various factors, such as market conditions. On a quarterly basis, a sensitivity analysis is performed on our marketability discount. |
(3) | We adjust the contractual remaining term of private company warrants based on our best estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At June 30, 2012, the weighted average contractual remaining term was 6.5 years, compared to our estimated remaining life of 2.6 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption. |
For the three and six months ended June 30, 2012 and 2011, we had no transfers between Level 1 and Level 2. Transfers from Level 3 to Level 2 for the three and six months ended June 30, 2012 included $0.6 million due to the IPO of one of our portfolio companies, which was included in our non-marketable securities portfolio. All other transfers from Level 3 to Level 2 for the three and six months ended June 30, 2012 and all transfers for the three and six months ended June 30, 2011 were due to the transfer of equity warrant assets from our private portfolio to our public portfolio (See our Level 3 reconciliation above). All amounts reported as transfers represent the fair value as of the date of the change in circumstances that caused the transfer.
Financial Instruments not Carried at Fair Value
FASB guidance over financial instruments requires that we disclose estimated fair values for our financial instruments not carried at fair value. Fair value estimates, methods and assumptions, set forth below for our financial instruments, are made solely to comply with these requirements.
Fair values are based on estimates or calculations at the transaction level using present value techniques in instances where quoted market prices are not available. Because broadly traded markets do not exist for many of our financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. The aggregation of the fair value calculations presented herein does not represent, and should not be construed to represent, the underlying value of the Company.
The following describes the methods and assumptions used in estimating the fair values of financial instruments, excluding financial instruments already recorded at fair value as described above.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash balances due from banks, interest-earning deposits, securities purchased under agreement to resell and other short-term investment securities. The carrying amount is a reasonable estimate of fair value because of the insignificant risk of changes in fair value due to changes in market interest rates, and the instruments are purchased in conjunction with our cash management activities.
Non-Marketable Securities (Cost and Equity Method Accounting)
Non-marketable securities (cost and equity method accounting) includes other investments (equity method accounting), low income housing tax credit funds (equity method accounting), venture capital and private equity fund investments (cost method accounting), and other venture capital investments (cost method accounting). The fair value of other investments (equity method accounting), venture capital and private equity fund investments (cost method accounting), and other venture capital investments (cost method accounting) is based on financial information obtained from the investee or obtained from the fund investments or debt fund investments respective general partners. For private company investments, fair value is based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies and financing transactions subsequent to the acquisition of the investment. For our fund investments, we utilize the net asset value per share as obtained from the general partners of the investments. We adjust the net asset value per share for differences between our measurement date and the date of the fund investments net asset value by using the most recently available financial information from the investee general partner, for example March 31st, for our June 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. The carrying value of our low income housing tax credit funds (equity method accounting) is a reasonable estimate of fair value.
37
Loans
The fair value of fixed and variable rate loans is estimated by discounting contractual cash flows using rates that reflect current pricing for similar loans and the projected forward yield curve. This method is not based on the exit price concept of fair value required under ASC 820, Fair Value Measurements and Disclosures.
FHLB and FRB stock
Investments in FHLB and FRB stock are recorded at cost. The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value.
Accrued Interest Receivable and Payable
The carrying amounts of accrued interest receivable and payable are reasonable estimates of fair value due to the short-term nature of these instruments.
Deposits
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits is equal to the amount payable on demand at the measurement date. The fair value of time deposits is estimated by discounting the cash flows using our cost of borrowings and the projected forward yield curve over their remaining contractual term.
Short-Term Borrowings
Short-term borrowings at June 30, 2012 included cash collateral received from our counterparty for our interest rate swap agreement related to our 6.05% Subordinated Notes. The carrying amount of the cash collateral is a reasonable estimate of fair value.
Long-Term Debt
Long-term debt at June 30, 2012 included our 5.375% Senior Notes, 7.0% Junior Subordinated Debentures and 6.05% Subordinated Notes. The fair value of long-term debt is generally based on quoted market prices, when available, or is estimated based on calculations utilizing third-party pricing services and current market spread, price indications from reputable dealers or observable market prices of the underlying instrument(s), whichever is deemed more reliable. Also included in the estimated fair value of our 6.05% Subordinated Notes are amounts related to the fair value of the interest rate swap associated with the note.
Off-Balance Sheet Financial Instruments
The fair value of net available commitments to extend credit is estimated based on the average amount we would receive or pay to execute a new agreement with identical terms and pricing, while taking into account the counterparties credit standing.
Letters of credit are carried at their fair value, which is equivalent to the residual premium or fee at June 30, 2012 or December 31, 2011. Commitments to extend credit and letters of credit typically result in loans with a market interest rate if funded.
38
The information presented herein is based on pertinent information available to us as of June 30, 2012 and December 31, 2011. The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at June 30, 2012 and December 31, 2011:
Estimated Fair Value | ||||||||||||||||
(Dollars in thousands) |
Carrying Amount |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
June 30, 2012: |
||||||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents |
$ | 1,411,725 | $ | 1,411,725 | $ | - | $ | - | ||||||||
Non-marketable securities (cost and equity method accounting) |
372,605 | - | - | 407,262 | ||||||||||||
Net commercial loans |
6,968,693 | - | - | 7,145,552 | ||||||||||||
Net consumer loans |
722,893 | - | - | 743,208 | ||||||||||||
FHLB and FRB stock |
39,301 | - | - | 39,301 | ||||||||||||
Accrued interest receivable |
62,359 | - | 62,359 | - | ||||||||||||
Financial liabilities: | ||||||||||||||||
Other short-term borrowings |
5,880 | 5,880 | - | - | ||||||||||||
Non-maturity deposits (1) |
17,900,604 | 17,900,604 | - | - | ||||||||||||
Time deposits |
168,208 | - | 167,917 | - | ||||||||||||
5.375% Senior Notes |
347,893 | - | 380,961 | - | ||||||||||||
6.05% Subordinated Notes (2) |
55,054 | - | 60,411 | - | ||||||||||||
7.0% Junior Subordinated Debentures |
55,285 | - | 51,897 | - | ||||||||||||
Accrued interest payable |
6,496 | - | 6,496 | - | ||||||||||||
Off-balance sheet financial assets: | ||||||||||||||||
Commitments to extend credit |
- | - | - | 22,343 | ||||||||||||
December 31, 2011: |
||||||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents |
$ | 1,114,948 | $ | 1,114,948 | $ | - | $ | - | ||||||||
Non-marketable securities (cost and equity method accounting) |
267,508 | - | - | 290,393 | ||||||||||||
Net commercial loans |
6,192,578 | - | - | 6,336,705 | ||||||||||||
Net consumer loans |
687,557 | - | - | 627,733 | ||||||||||||
FHLB and FRB stock |
39,189 | - | - | 39,189 | ||||||||||||
Accrued interest receivable |
58,108 | - | 58,108 | - | ||||||||||||
Financial liabilities: | ||||||||||||||||
Non-maturity deposits (1) |
16,553,787 | 16,553,787 | - | - | ||||||||||||
Time deposits |
155,749 | - | 155,346 | - | ||||||||||||
5.375% Senior Notes |
347,793 | - | 362,786 | - | ||||||||||||
6.05% Subordinated Notes (2) |
55,075 | - | 57,746 | - | ||||||||||||
5.70% Senior Notes (3) |
143,969 | - | 145,184 | - | ||||||||||||
7.0% Junior Subordinated Debentures |
55,372 | - | 51,526 | - | ||||||||||||
Other long-term debt |
1,439 | - | - | 1,439 | ||||||||||||
Accrued interest payable |
6,689 | - | 6,689 | - | ||||||||||||
Off-balance sheet financial assets: | ||||||||||||||||
Commitments to extend credit |
- | - | - | 21,232 |
(1) | Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits. |
(2) | At June 30, 2012 and December 31, 2011, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was $9.3 million and $8.8 million, respectively, related to the fair value of the interest rate swap associated with the notes. |
(3) | At December 31, 2011, included in the carrying value and estimated fair value of our 5.70% Senior Notes was $2.6 million related to the fair value of the interest rate swap associated with the notes. |
Investments in Entities that Calculate Net Asset Value Per Share
FASB guidance over certain fund investments requires that we disclose the fair value of funds, significant investment strategies of the investees, redemption features of the investees, restrictions on the ability to sell investments, estimate of the period of time over which the underlying assets are expected to be liquidated by the investee, and unfunded commitments related to the investments.
39
Our investments in debt funds and venture capital and private equity fund investments generally cannot be redeemed. Alternatively, we expect distributions, if any, to be received primarily through IPOs and M&A activity of the underlying assets of the fund. We currently do not have any plans to sell any of these fund investments. If we decide to sell these investments in the future, the investee funds management must approve of the buyer before the sale of the investments can be completed. The fair values of the fund investments have been estimated using the net asset value per share of the investments, adjusted for any differences between our measurement date and the date of the fund investments net asset value by using the most recently available financial information from the investee general partner, for example March 31st, for our June 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
The following table is a summary of the estimated fair values of these investments and remaining unfunded commitments for each major category of these investments as of June 30, 2012:
(Dollars in thousands) |
Carrying Amount | Fair Value | Unfunded Commitments |
|||||||||
Non-marketable securities (fair value accounting): |
||||||||||||
Venture capital and private equity fund investments (1) |
$ | 639,596 | $ | 639,596 | $ | 377,037 | ||||||
Non-marketable securities (equity method accounting): |
||||||||||||
Other investments (2) |
51,102 | 52,185 | 7,750 | |||||||||
Non-marketable securities (cost method accounting): |
||||||||||||
Venture capital and private equity fund investments (3) |
153,618 | 185,335 | 67,988 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 844,316 | $ | 877,116 | $ | 452,775 | ||||||
|
|
|
|
|
|
(1) | Venture capital and private equity fund investments within non-marketable securities (fair value accounting) include investments made by our managed funds of funds, one of our direct venture funds and one other private equity fund. These investments represent investments in venture capital and private equity funds that invest primarily in U.S. and global technology and life sciences companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $562.6 million and $365.2 million, respectively, attributable to noncontrolling interests. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of terms of the funds. |
(2) | Other investments within non-marketable securities (equity method accounting) include investments in debt funds and venture capital and private equity fund investments that invest in or lend money to primarily U.S. and global technology and life sciences companies. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds. |
(3) | Venture capital and private equity fund investments within non-marketable securities (cost method accounting) include investments in venture capital and private equity fund investments that invest primarily in U.S. and global technology and life sciences companies. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of the terms of the funds. |
14. Legal Matters
Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against us or our affiliates. In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to managements judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.
To the extent we believe any potential loss relating to such lawsuits and claims may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual. We also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.
Based upon information available to us, our review of lawsuits and claims filed or pending against us to date and consultation with our outside legal counsel, we have not recognized a material accrual liability for these matters, nor do we currently expect it is reasonably possible that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.
40
15. Related Parties
During the six months ended June 30, 2012, the Bank made loans to related parties, including certain companies in which certain of our directors or their affiliated venture funds are beneficial owners of ten percent or more of the equity securities of such companies. Such loans: (a) were made in the ordinary course of business; (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons; and (c) did not involve more than the normal risk of collectability or present other unfavorable features. Additionally, we also provide real estate secured loans to eligible employees through our EHOP.
16. Subsequent Events
We have evaluated all material subsequent events and determined there are no events that require disclosure.
41
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including in particular Managements Discussion and Analysis of Financial Condition and Results of Operations under Part I, Item 2 of this report, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management has in the past and might in the future make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements are statements that are not historical facts. Broadly speaking, forward-looking statements include, but are not limited to, the following:
| Projections of our net interest income, noninterest income, earnings per share, noninterest expenses (including professional services, compliance, compensation and other costs), cash flows, balance sheet positions, capital expenditures, liquidity and capitalization or other financial items |
| Descriptions of our strategic initiatives, plans or objectives for future operations, including pending sales or acquisitions |
| Forecasts of venture capital/private equity funding and investment levels |
| Forecasts of future interest rates, economic performance, and income from investments |
| Forecasts of expected levels of provisions for loan losses, loan growth and client funds |
| Descriptions of assumptions underlying or relating to any of the foregoing |
In this Quarterly Report on Form 10-Q, we make forward-looking statements, including, but not limited to, those discussing our managements expectations about:
¡ | Market and economic conditions (including interest rate environment, and levels of public offerings, mergers/acquisitions and venture capital financing activities) and the associated impact on us |
¡ | The sufficiency of our capital, including sources of capital (such as funds generated through retained earnings) and the extent to which capital may be used or required |
¡ | The adequacy of our liquidity position, including sources of liquidity (such as funds generated through retained earnings) |
¡ | Our overall investment plans, strategies and activities, including venture capital/private equity funding and investments, and our investment of excess cash/liquidity |
¡ | The realization, timing, valuation and performance of equity or other investments |
¡ | The likelihood that the market value of our impaired investments will recover |
¡ | Our intent to sell our investment securities prior to recovery of our cost basis, or the likelihood of such |
¡ | Expected cash requirements for unfunded commitments to certain investments, including capital calls |
¡ | Our overall management of interest rate risk, including managing the sensitivity of our interest-earning assets and interest-bearing liabilities to interest rates, and the impact to earnings from a change in interest rates |
¡ | The credit quality of our loan portfolio, including levels and trends of nonperforming loans, impaired loans, criticized loans and troubled debt restructurings |
¡ | The adequacy of reserves (including allowance for loan and lease losses) and the appropriateness of our methodology for calculating such reserves |
¡ | The level of loan and deposit balances |
¡ | The level of client investment fees and associated margins |
¡ | The profitability of our products and services |
¡ | Our strategic initiatives, including the expansion of operations in China, India, Israel, the UK and elsewhere (such as establishing our joint venture bank in China and a branch in the UK) |
¡ | The expansion and growth of our noninterest income sources |
¡ | Distributions of venture capital, private equity or debt fund investment proceeds; intentions to sell such fund investments |
¡ | The changes in, or adequacy of, our unrecognized tax benefits and any associated impact |
¡ | The impact from the IRS audit examination results |
¡ | The extent to which counterparties, including those to our forward and option contracts, will perform their contractual obligations |
¡ | The effect of application of certain accounting pronouncements |
¡ | The effect of lawsuits and claims |
¡ | Regulatory developments, including the nature and timing of the adoption and effectiveness of new requirements under the Dodd-Frank Act (as defined below), Basel guidelines, and other applicable laws and regulations |
42
You can identify these and other forward-looking statements by the use of words such as becoming, may, will, should, predicts, potential, continue, anticipates, believes, estimates, seeks, expects, plans, intends, the negative of such words, or comparable terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we have based these expectations on our beliefs as well as our assumptions, and such expectations may prove to be incorrect. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our managements forward-looking statements.
For information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K), as filed with the SEC. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this report. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this filing are made only as of the date of this filing. We assume no obligation and do not intend to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our interim unaudited consolidated financial statements and accompanying notes as presented in Part I, Item 1 of this report and in conjunction with our 2011 Form 10-K.
Reclassifications
Certain reclassifications have been made to prior period results to conform to the current periods presentations. Such reclassifications had no effect on our results of operations or stockholders equity.
Managements Overview of Second Quarter 2012 Performance
Overall, we had a strong second quarter of 2012, which reflected the strength of our clients and our business. We had net income available to common stockholders of $47.6 million and diluted earnings per common share of $1.06. In the second quarter of 2012, compared to the second quarter of 2011, we experienced exceptional loan growth with record high average balances of $7.2 billion. Our total client funds, which consists of on-balance sheet deposits and off-balance sheet client investment funds, also increased reflecting growth from our existing clients and strong new client acquisition. In addition, overall credit quality remains strong, and we saw continued growth in our core fee income (foreign exchange fees, deposit service charges, credit card fees, client investment fees and letter of credit and standby letter of credit income) and solid gains from our investment securities and warrant portfolio. Additionally, our liquidity and capital ratios continued to remain strong.
Second quarter 2012 results (compared to the second quarter 2011, where applicable) included:
¡ | Continued strong growth in our lending business with record high average loan balances of $7.2 billion, an increase of $1.7 billion, or 30.8 percent. |
¡ | Strong overall credit quality, as reflected by our allowance for loan losses as a percentage of gross loans of 1.25 percent. Our provision for loan losses of $8.0 million for the second quarter of 2012 was primarily attributable to loan growth. |
¡ | Average deposit balances of $17.4 billion, an increase of $2.1 billion, or 14.0 percent. Average total client funds (including both average on-balance sheet deposits and off-balance sheet client investment funds) were $37.2 billion, an increase of $4.2 billion, or 12.8 percent. |
¡ | Net interest income (fully taxable equivalent basis) of $152.4 million, an increase of $21.5 million, primarily due to an increase in interest income from loans mainly attributable to growth in average balances of $1.7 billion. These increases were partially offset by lower yields earned on our overall loan portfolio. |
¡ | Our net interest margin increased to 3.22 percent, compared to 3.13 percent, primarily due to growth in average loan balances and lower cash balances from deployment into available-for-sale securities, which has resulted in a favorable change in our mix of interest-earning assets. The increases were partially offset by a decrease in the overall yield of our loan portfolio and available-for-sale securities. |
¡ | Gains on investment securities, net of noncontrolling interests, of $11.3 million, compared to $45.2 million. The gains on investment securities, net of noncontrolling interests included gains from the sale of certain available-for-sale of $5.0 million and $37.3 million in the second quarters of 2012 and 2011, respectively. See Results of OperationsNoninterest IncomeGains on Investment Securities, Net for further details and a reconciliation of gains on investment securities, net of noncontrolling interests. |
¡ | Core fee income of $33.2 million, an increase of $4.9 million, or 17.2 percent. This increase reflects increased client activity and continued growth in our business, primarily from credit card fees and foreign exchange fees. See Results of OperationsNoninterest Income for a description and reconciliation of core fee income. |
43
¡ | Net gains on equity warrant assets of $4.9 million, compared to $13.9 million. The net gains of $4.9 million in the second quarter of 2012 were driven by M&A activity, and included gains of $3.3 million from valuation increases and gains of $2.2 million from the exercise of equity warrant assets. |
¡ | Net gains of $4.2 million from the sale of certain assets related to our equity management services business. |
¡ | Noninterest expense of $135.8 million, an increase of $14.7 million, or 12.2 percent. The increase was primarily due to increased premises and equipment and professional services expenses to support continued growth in our business and IT infrastructure initiatives. In addition, average full-time equivalent employees (FTEs) increased by 10.6 percent to 1,566 average FTEs, compared to 1,416 average FTEs, which contributed to an increase in salaries and wages expense. |
¡ | Overall, our liquidity remained strong based on our period end available-for-sale securities portfolio of $10.6 billion at June 30, 2012. Our available-for-sale securities portfolio continues to be a good source of liquidity as it is invested in high quality investments and generates substantial monthly cash flows. Additionally, our available-for-sale securities portfolio provides us the ability to secure wholesale borrowings, if needed. |
¡ | Overall, we continue to maintain strong capital positions. Our Tier 1 leverage ratios for both SVB Financial and the Bank increased as a result of strong earnings and an increase in additional paid-in capital primarily from stock issuances under our ESPP and stock option exercises during the second quarter of 2012. Our total risk-based capital for both SVB Financial and the Bank decreased due to changes in the mix of risk-weighted assets resulting from a large increase in period-end loans. |
A summary of our performance for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands, except per share data and ratios) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Income Statement: |
||||||||||||||||||||||||
Diluted earnings per share |
$ | 1.06 | $ | 1.50 | (29.3) | % | $ | 1.85 | $ | 2.27 | (18.5) | % | ||||||||||||
Net income available to common stockholders |
47,603 | 65,750 | (27.6) | 82,393 | 98,757 | (16.6) | ||||||||||||||||||
Net interest income |
151,934 | 130,453 | 16.5 | 302,871 | 250,752 | 20.8 | ||||||||||||||||||
Net interest margin |
3.22 | % | 3.13 | % | 9 | bps | 3.26 | % | 3.04 | % | 22 | bps | ||||||||||||
Provision for (reduction of) loan losses |
$ | 7,999 | $ | 134 | NM | % | $ | 22,528 | $ | (2,913) | NM | % | ||||||||||||
Noninterest income |
80,426 | 123,708 | (35.0) | 139,719 | 213,662 | (34.6) | ||||||||||||||||||
Noninterest expense |
135,766 | 121,032 | 12.2 | 267,778 | 238,467 | 12.3 | ||||||||||||||||||
Non-GAAP net income available to common stockholders (1) |
42,069 | 41,363 | 1.7 | 76,859 | 74,370 | 3.3 | ||||||||||||||||||
Non-GAAP diluted earnings per share (1) |
0.94 | 0.95 | (1.1) | 1.72 | 1.71 | 0.6 | ||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interest and excluding gains on sales of available-for-sale-securities (2) |
57,844 | 59,836 | (3.3) | 109,219 | 106,228 | 2.8 | ||||||||||||||||||
Non-GAAP noninterest expense, net of noncontrolling interest and excluding net gains from debt repurchases (3) |
131,819 | 121,534 | 8.5 | 261,013 | 235,488 | 10.8 | ||||||||||||||||||
Balance Sheet: |
||||||||||||||||||||||||
Average loans, net of unearned income |
$ | 7,237,182 | $ | 5,532,831 | 30.8 | % | $ | 7,020,765 | $ | 5,423,051 | 29.5 | % | ||||||||||||
Average noninterest-bearing demand deposits |
12,264,003 | 9,551,686 | 28.4 | 12,145,000 | 9,350,705 | 29.9 | ||||||||||||||||||
Average interest-bearing deposits |
5,143,633 | 5,718,053 | (10.0) | 5,041,700 | 5,619,101 | (10.3) | ||||||||||||||||||
Average total deposits |
17,407,636 | 15,269,739 | 14.0 | 17,186,700 | 14,969,806 | 14.8 | ||||||||||||||||||
Earnings Ratios: |
||||||||||||||||||||||||
Return on average assets (annualized) (4) |
0.92 | % | 1.44 | % | (36.1) | % | 0.81 | % | 1.10 | % | (26.4) | % | ||||||||||||
Return on average common SVBFG stockholders equity (annualized) (5) |
11.21 | 18.78 | (40.3) | 9.95 | 14.65 | (32.1) | ||||||||||||||||||
Asset Quality Ratios: |
||||||||||||||||||||||||
Allowance for loan losses as a percentage of total period-end gross loans |
1.25 | % | 1.36 | % | (11) | bps | 1.25 | % | 1.36 | % | (11) | bps | ||||||||||||
Allowance for loan losses for performing loans as a percentage of total gross performing loans |
1.18 | 1.27 | (9) | 1.18 | 1.27 | (9) | ||||||||||||||||||
Gross loan charge-offs as a percentage of average total gross loans (annualized) |
0.78 | 0.31 | 47 | 0.60 | 0.32 | 28 | ||||||||||||||||||
Net loan charge-offs (recoveries) as a percentage of average total gross loans (annualized) |
0.59 | 0.00 | 59 | 0.41 | (0.09) | 50 | ||||||||||||||||||
Capital Ratios: |
||||||||||||||||||||||||
Total risk-based capital ratio |
13.85 | % | 14.97 | % | (112) | bps | 13.85 | % | 14.97 | % | (112) | bps | ||||||||||||
Tier 1 risk-based capital ratio |
12.62 | 13.58 | (96) | 12.62 | 13.58 | (96) | ||||||||||||||||||
Tier 1 leverage ratio |
8.07 | 8.04 | 3 | 8.07 | 8.04 | 3 | ||||||||||||||||||
Tangible common equity to tangible assets (6) |
8.06 | 7.42 | 64 | 8.06 | 7.42 | 64 | ||||||||||||||||||
Tangible common equity to risk-weighted assets (6) |
13.35 | 13.72 | (37) | 13.35 | 13.72 | (37) | ||||||||||||||||||
Bank total risk-based capital ratio |
12.24 | 13.06 | (82) | 12.24 | 13.06 | (82) | ||||||||||||||||||
Bank tier 1 risk-based capital ratio |
10.98 | 11.62 | (64) | 10.98 | 11.62 | (64) | ||||||||||||||||||
Bank tier 1 leverage ratio |
7.01 | 6.82 | 19 | 7.01 | 6.82 | 19 | ||||||||||||||||||
Bank tangible common equity to tangible assets (6) |
7.39 | 6.67 | 72 | 7.39 | 6.67 | 72 | ||||||||||||||||||
Bank tangible common equity to risk-weighted assets (6) |
11.86 | 12.07 | (21) | 11.86 | 12.07 | (21) | ||||||||||||||||||
Other Ratios: |
||||||||||||||||||||||||
Operating efficiency ratio (7) |
58.31 | % | 47.53 | % | 22.7 | % | 60.37 | % | 51.24 | % | 17.8 | % | ||||||||||||
Non-GAAP operating efficiency ratio (3) |
62.70 | 63.72 | (1.6) | 63.20 | 65.80 | (4.0) | ||||||||||||||||||
Book value per common share (8) |
$ | 38.63 | $ | 33.31 | 16.0 | $ | 38.63 | $ | 33.31 | 16.0 | ||||||||||||||
Other Statistics: |
||||||||||||||||||||||||
Average full-time equivalent employees |
1,566 | 1,416 | 10.6 | % | 1,561 | 1,403 | 11.3 | % | ||||||||||||||||
Period-end full-time equivalent employees |
1,562 | 1,428 | 9.4 | 1,562 | 1,428 | 9.4 |
NMNot meaningful
(1) | See Non-GAAP Net Income and Non-GAAP Diluted Earnings Per Common Share for a description and reconciliation of non-GAAP net income available to common stockholders and non-GAAP diluted earnings per share. |
(2) | See Results of OperationsNoninterest Income for a description and reconciliation of non-GAAP noninterest income. |
(3) | See Results of OperationsNoninterest Expense for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio. |
(4) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets. |
44
(5) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders equity. |
(6) | See Capital ResourcesCapital Ratios for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. |
(7) | The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income. |
(8) | Book value per common share is calculated by dividing total SVBFG stockholders equity by total outstanding common shares at period-end. |
Non-GAAP Net Income and Non-GAAP Diluted Earnings Per Common Share
We use and report non-GAAP net income and non-GAAP diluted earnings per common share, which excludes gains from sales of certain available-for-sale securities and net gains from debt repurchases and termination of corresponding interest rate swaps, as well as gains from the sale of certain assets related to our equity management services business. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that do not occur every reporting period. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and related trends, and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.
A reconciliation of GAAP to non-GAAP net income available to common stockholders and non-GAAP diluted earnings per common share for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands, except per share data and ratios) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income available to common stockholders |
$ | 47,603 | $ | 65,750 | $ | 82,393 | $ | 98,757 | ||||||||
Less: gains on sales of available-for-sale securities (1) |
(4,955) | (37,314) | (4,955) | (37,314) | ||||||||||||
Tax impact of gains on sales of available-for-sale securities |
1,974 | 14,810 | 1,974 | 14,810 | ||||||||||||
Less: gains on the sale of certain assets related to our equity management services business (2) |
(4,243) | - | (4,243) | - | ||||||||||||
Tax impact of gains on the sale of certain assets related to our equity management services business |
1,690 | - | 1,690 | - | ||||||||||||
Less: net gain from note repurchases and termination of corresponding interest rate swaps (3) |
- | (3,123) | - | (3,123) | ||||||||||||
Tax impact of net gain from note repurchases and termination of corresponding interest rate swaps |
- | 1,240 | - | 1,240 | ||||||||||||
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Non-GAAP net income available to common stockholders |
$ | 42,069 | $ | 41,363 | $ | 76,859 | $ | 74,370 | ||||||||
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GAAP earnings per common sharediluted |
1.06 | 1.50 | 1.85 | 2.27 | ||||||||||||
Less: gains on sales of available-for-sale securities (1) |
(0.11) | (0.85) | (0.11) | (0.86) | ||||||||||||
Tax impact of gains on sales of available-for-sale securities |
0.05 | 0.34 | 0.04 | 0.34 | ||||||||||||
Less: gains on the sale of certain assets related to our equity management services business (2) |
(0.10) | - | (0.10) | - | ||||||||||||
Tax impact of gains on the sale of certain assets related to our equity management services business |
0.04 | - | 0.04 | - | ||||||||||||
Less: net gain from note repurchases and termination of corresponding interest rate swaps (3) |
- | (0.07) | - | (0.07) | ||||||||||||
Tax impact of net gain from note repurchases and termination of corresponding interest rate swaps |
- | 0.03 | - | 0.03 | ||||||||||||
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Non-GAAP earnings per common sharediluted |
0.94 | 0.95 | 1.72 | 1.71 | ||||||||||||
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Weighted average diluted common shares outstanding |
44,711,895 | 43,739,743 | 44,572,656 | 43,559,345 |
(1) | Gains on the sales of $315.7 million and $1.4 billion in certain available-for-sale securities in the second quarters of 2012 and 2011, respectively. |
(2) | Net gains of $4.2 million from the sale of certain assets related to our equity management services business in the second quarter of 2012. |
(3) | Net gains of $3.1 million from the repurchase of $108.6 million of our 5.70% Senior Notes and $204.0 million of our 6.05% Subordinated Notes and the termination of the corresponding portions of interest rate swaps in the second quarter of 2011. |
45
Critical Accounting Policies and Estimates
The accompanying managements discussion and analysis of results of operations and financial condition is based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. Management evaluates estimates and assumptions on an ongoing basis. Management bases its estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.
There have been no significant changes during the six months ended June 30, 2012 to the items that we disclosed as our critical accounting policies and estimates in Managements Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7 of our 2011 Form 10-K.
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
Net interest income is defined as the difference between interest earned on loans, available-for-sale securities and 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.
Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable Equivalent Basis)
Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as volume change. Net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as rate change. The following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities. The table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the years indicated. For this table, changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate.
2012 Compared to 2011 | 2012 Compared to 2011 | |||||||||||||||||||||||
Three months ended June 30, Increase (decrease) due to change in |
Six months ended June 30, Increase (decrease) due to change in |
|||||||||||||||||||||||
(Dollars in thousands) |
Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||
Interest income: |
||||||||||||||||||||||||
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
$ | (857) | $ | 174 | $ | (683) | $ | (2,043) | $ | 396 | $ | (1,647) | ||||||||||||
Available-for-sale securities (taxable) |
6,117 | (6,262) | (145) | 14,398 | (8,550) | 5,848 | ||||||||||||||||||
Available-for-sale securities (non-taxable) |
(28) | 53 | 25 | (84) | 45 | (39) | ||||||||||||||||||
Loans, net of unearned income |
26,951 | (6,482) | 20,469 | 51,825 | (11,671) | 40,154 | ||||||||||||||||||
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Increase (decrease) in interest income, net |
32,183 | (12,517) | 19,666 | 64,096 | (19,780) | 44,316 | ||||||||||||||||||
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Interest expense: |
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NOW deposits |
22 | (11) | 11 | 52 | (39) | 13 | ||||||||||||||||||
Money market deposits |
90 | (511) | (421) | 162 | (1,230) | (1,068) | ||||||||||||||||||
Money market deposits in foreign offices |
(26) | (70) | (96) | (19) | (152) | (171) | ||||||||||||||||||
Time deposits |
(164) | 45 | (119) | (384) | 68 | (316) | ||||||||||||||||||
Sweep deposits in foreign offices |
(107) | (213) | (320) | (275) | (752) | (1,027) | ||||||||||||||||||
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Total decrease in deposits expense |
(185) | (760) | (945) | (464) | (2,105) | (2,569) | ||||||||||||||||||
Short-term borrowings |
95 | 6 | 101 | 87 | 9 | 96 | ||||||||||||||||||
5.375% Senior Notes |
1 | 5 | 6 | 11 | 1 | 12 | ||||||||||||||||||
3.875% Convertible Notes |
(656) | - | (656) | (4,210) | - | (4,210) | ||||||||||||||||||
Junior Subordinated Debentures |
(3) | 3 | - | (1) | (1) | (2) | ||||||||||||||||||
5.70% Senior Notes |
(279) | 195 | (84) | (651) | 401 | (250) | ||||||||||||||||||
6.05% Subordinated Notes |
(186) | (13) | (199) | (725) | (89) | (814) | ||||||||||||||||||
Other long-term debt |
(113) | 66 | (47) | (195) | 143 | (52) | ||||||||||||||||||
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Total (decrease) increase in borrowings expense |
(1,141) | 262 | (879) | (5,684) | 464 | (5,220) | ||||||||||||||||||
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Decrease in interest expense, net |
(1,326) | (498) | (1,824) | (6,148) | (1,641) | (7,789) | ||||||||||||||||||
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Increase (decrease) in net interest income |
$ | 33,509 | $ | (12,019) | $ | 21,490 | $ | 70,244 | $ | (18,139) | $ | 52,105 | ||||||||||||
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46
Net Interest Income (Fully Taxable Equivalent Basis)
Three months ended June 30, 2012 and 2011
Net interest income increased by $21.5 million to $152.4 million for the three months ended June 30, 2012, compared to $130.9 million for the comparable 2011 period. Overall, we saw an increase in our net interest income primarily due to higher average loan balances, partially offset by lower yields earned on our loans.
The main factors affecting interest income and interest expense for the three months ended June 30, 2012, compared to the comparable 2011 period are discussed below:
| Interest income for the three months ended June 30, 2012 increased by $19.7 million primarily due to: |
¡ | A $20.5 million increase in interest income on loans, primarily due to an increase in average loan balances of $1.7 billion, as well as an increase of $4.7 million in loan prepayment fees. These increases were partially offset by a decrease in the yield on our loan portfolio, which is consistent with our credit performance and also reflective of our success in growing our later stage client portfolio. Additionally, the trend in yields is being influenced by changes in the composition of our loan portfolio to a higher proportion of variable-rate loans tied to national Prime rate benchmarks and 3 month LIBOR, which has continued to decrease over the past several quarters. |
¡ | Interest income on available-for-sale securities remained relatively flat, reflecting a $6.1 million increase related to higher average balances, offset by a $6.2 million decrease related to lower yields. The increase in average balances came primarily from new investments in fixed-rate mortgage securities in the latter half of 2011 and first quarter of 2012, which were purchased with excess cash as a result of our continued deposit growth. The decrease in yields came primarily from an increase of $9.1 million in premium amortization expense on fixed-rate mortgage securities, reflective of an increase in actual and estimated mortgage prepayment levels, which were impacted by a decrease in long-term market rates and growth in our mortgage securities balances. The decrease in yield from an increase in premium amortization expense was partially offset by a shift in our portfolio to a smaller proportion of lower-yielding variable-rate securities. For the three months ended June 30, 2012, average variable-rate securities were $2.2 billion, or 20.1 percent of our available-for-sale securities portfolio, compared to $2.8 billion, or 29.2 percent for the comparable 2011 period. These securities have variable-rate coupons that are indexed to and change with movements in the one-month LIBOR rate. |
| Interest expense for the three months ended June 30, 2012 decreased by $1.8 million primarily due to: |
¡ | A decrease in interest expense of $0.9 million related to our long-term debt, mainly attributable to a decrease of $0.7 million related to our $250 million 3.875% Convertible Notes, which matured on April 15, 2011. |
¡ | A decrease in interest expense from interest-bearing deposits of $0.9 million, primarily due to decreases in rates paid on deposits throughout 2011, which is reflective of market rates. |
Six months ended June 30, 2012 and 2011
Net interest income increased by $52.1 million to $303.8 million for the six months ended June 30, 2012, compared to $251.7 million for the comparable 2011 period. Overall, we saw an increase in our net interest income primarily due to higher average loan balances and growth in our available-for-sale securities portfolio, which has increased as a result of our continued growth in deposits. These increases were partially offset by lower yields earned on our loans and available-for-sale securities.
The main factors affecting interest income and interest expense for the six months ended June 30, 2012, compared to the comparable 2011 period are discussed below:
| Interest income for the six months ended June 30, 2012 increased by $44.3 million primarily due to: |
¡ | A $40.2 million increase in interest income on loans, primarily due to an increase in average loan balances of $1.6 billion, as well as an increase of $6.6 million in loan prepayment fees. These increases were partially offset by a decrease in the yield on our loan portfolio, which is consistent with our credit performance and also reflective of our success in growing our later stage client portfolio. Additionally, the trend in yields is being influenced by changes in the composition of our loan portfolio to a higher proportion of variable-rate loans tied to national Prime rate benchmarks and 3 month LIBOR, which has continued to decrease over the past several quarters. |
¡ | A $5.8 million increase in interest income on available-for-sale securities, reflecting a $14.3 million increase related to higher average balances, offset by a $8.5 million decrease related to lower yields. The increase in average balances came primarily from new investments in fixed-rate mortgage securities in the latter half of 2011 and first quarter of 2012, which were purchased with excess cash as a result of our continued deposit growth. The decrease in yields came primarily from an increase of $16.4 million in premium amortization expense on fixed-rate mortgage securities, reflective of an increase in actual and estimated mortgage prepayment levels, which were impacted by a decrease in long-term market rates and growth in our mortgage securities balances. The decrease in yield from an increase in premium amortization expense was partially offset by a shift in our portfolio to a smaller proportion of lower-yielding variable-rate securities. For the six months ended June 30, 2012, average variable-rate securities were $2.3 billion, or 21.2 percent of our available-for-sale securities portfolio, compared to $2.8 billion, or 31.2 percent for the comparable 2011 period. |
| Interest expense for the six months ended June 30, 2012 decreased by $7.8 million primarily due to: |
¡ | A decrease in interest expense of $5.3 million related to our long-term debt, primarily due to the maturity of $250.0 million of our 3.875% Convertible Notes in April 2011. |
¡ | A decrease in interest expense from interest-bearing deposits of $2.6 million, primarily due to decreases in rates paid on deposits throughout 2011, which is reflective of market rates. |
Net Interest Margin (Fully Taxable Equivalent Basis)
Our net interest margin was 3.22 percent and 3.26 percent for the three and six months ended June 30, 2012, respectively, compared to 3.13 percent and 3.04 percent for the comparable 2011 periods. The increases in our net interest margin were primarily due to growth in average loan balances and lower cash balances from deployment into available-for-sale securities, which has resulted in a favorable change in our mix of interest-earning assets. The increases were partially offset by a decrease in the overall yield of our loan portfolio and available-for-sale securities.
47
Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis)
The average yield earned on interest-earning assets is the amount of annualized fully taxable equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is the amount of annualized interest expense expressed as a percentage of average funding sources. The following tables set forth average assets, liabilities, noncontrolling interests and SVBFG stockholders equity, interest income, interest expense, annualized yields and rates, and the composition of our annualized net interest margin for the three and six months ended June 30, 2012 and 2011:
Average Balances, Rates and Yields for the Three Months Ended June 30, 2012 and 2011
Three months ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
(Dollars in thousands) |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
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Interest-earning assets: |
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Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) |
$ | 885,173 | $ | 912 | 0.41 | % | $ | 1,731,129 | $ | 1,595 | 0.37 | % | ||||||||||||
Available-for-sale securities: (2) |
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Taxable |
10,839,571 | 44,072 | 1.64 | 9,419,378 | 44,217 | 1.88 | ||||||||||||||||||
Non-taxable (3) |
92,123 | 1,384 | 6.04 | 93,939 | 1,359 | 5.80 | ||||||||||||||||||
Total loans, net of unearned income (4) |
7,237,182 | 113,935 | 6.33 | 5,532,831 | 93,466 | 6.78 | ||||||||||||||||||
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Total interest-earning assets |
19,054,049 | 160,303 | 3.39 | 16,777,277 | 140,637 | 3.36 | ||||||||||||||||||
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Cash and due from banks |
275,921 | 274,044 | ||||||||||||||||||||||
Allowance for loan losses |
(106,019) | (86,551) | ||||||||||||||||||||||
Other assets (5) |
1,666,925 | 1,289,761 | ||||||||||||||||||||||
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Total assets |
$ | 20,890,876 | $ | 18,254,531 | ||||||||||||||||||||
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Funding sources: |
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Interest-bearing liabilities: |
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NOW deposits |
$ | 97,675 | $ | 79 | 0.33 | % | $ | 71,360 | $ | 68 | 0.38 | % | ||||||||||||
Money market deposits |
2,676,432 | 1,064 | 0.16 | 2,516,675 | 1,485 | 0.24 | ||||||||||||||||||
Money market deposits in foreign offices |
120,323 | 30 | 0.10 | 162,419 | 126 | 0.31 | ||||||||||||||||||
Time deposits |
158,743 | 181 | 0.46 | 307,600 | 300 | 0.39 | ||||||||||||||||||
Sweep deposits in foreign offices |
2,090,460 | 260 | 0.05 | 2,659,999 | 580 | 0.09 | ||||||||||||||||||
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Total interest-bearing deposits |
5,143,633 | 1,614 | 0.13 | 5,718,053 | 2,559 | 0.18 | ||||||||||||||||||
Short-term borrowings |
221,863 | 110 | 0.20 | 26,110 | 9 | 0.14 | ||||||||||||||||||
5.375% Senior Notes |
347,860 | 4,816 | 5.57 | 347,665 | 4,810 | 5.55 | ||||||||||||||||||
3.875% Convertible Notes |
- | - | - | 38,446 | 656 | 6.84 | ||||||||||||||||||
Junior Subordinated Debentures |
55,313 | 831 | 6.04 | 55,489 | 831 | 6.01 | ||||||||||||||||||
5.70% Senior Notes |
95,322 | 360 | 1.52 | 188,610 | 444 | 0.94 | ||||||||||||||||||
6.05% Subordinated Notes |
54,900 | 127 | 0.93 | 134,432 | 326 | 0.97 | ||||||||||||||||||
Other long-term debt |
494 | 26 | 21.17 | 5,634 | 73 | 5.20 | ||||||||||||||||||
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Total interest-bearing liabilities |
5,919,385 | 7,884 | 0.54 | 6,514,439 | 9,708 | 0.60 | ||||||||||||||||||
Portion of noninterest-bearing funding sources |
13,134,664 | 10,262,838 | ||||||||||||||||||||||
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Total funding sources |
19,054,049 | 7,884 | 0.17 | 16,777,277 | 9,708 | 0.23 | ||||||||||||||||||
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Noninterest-bearing funding sources: |
||||||||||||||||||||||||
Demand deposits |
12,264,003 | 9,551,686 | ||||||||||||||||||||||
Other liabilities |
286,814 | 238,583 | ||||||||||||||||||||||
SVBFG stockholders equity |
1,707,321 | 1,404,391 | ||||||||||||||||||||||
Noncontrolling interests |
713,353 | 545,432 | ||||||||||||||||||||||
Portion used to fund interest-earning assets |
(13,134,664) | (10,262,838) | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities, noncontrolling interest, and SVBFG stockholders equity |
$ | 20,890,876 | $ | 18,254,531 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income and margin |
$ | 152,419 | 3.22 | % | $ | 130,929 | 3.13 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total deposits |
$ | 17,407,636 | $ | 15,269,739 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Reconciliation to reported net interest income: |
||||||||||||||||||||||||
Adjustments for taxable equivalent basis |
(485) | (476) | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income, as reported |
$ | 151,934 | $ | 130,453 | ||||||||||||||||||||
|
|
|
|
48
(1) | Includes average interest-earning deposits in other financial institutions of $288.8 million and $286.6 million for the three months ended June 30, 2012 and 2011, respectively. For the three months ended June 30, 2012 and 2011, balances also include $394.7 million and $1.3 billion, respectively, deposited at the FRB, earning interest at the Federal Funds target rate. |
(2) | Yields on available-for-sale securities are based on amortized cost, and therefore do not give effect to unrealized changes in fair value that are reflected in other comprehensive income. |
(3) | Interest income on non-taxable available-for-sale securities is presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 35.0 percent for all periods presented. |
(4) | Nonaccrual loans are reflected in the average balances of loans. |
(5) | Average investment securities of $1.3 billion and $907.0 million for the three months ended June 30, 2012 and 2011, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities. |
Average Balances, Rates and Yields for the Six Months Ended June 30, 2012 and 2011
Six months ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
(Dollars in thousands) |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1) |
$ | 1,028,291 | $ | 1,950 | 0.38 | % | $ | 2,132,803 | $ | 3,597 | 0.34 | % | ||||||||||||
Available-for-sale securities: (2) |
||||||||||||||||||||||||
Taxable |
10,622,524 | 91,447 | 1.73 | 9,026,291 | 85,599 | 1.91 | ||||||||||||||||||
Non-taxable (3) |
92,179 | 2,768 | 6.04 | 95,150 | 2,807 | 5.95 | ||||||||||||||||||
Total loans, net of unearned income (4) |
7,020,765 | 223,396 | 6.40 | 5,423,051 | 183,242 | 6.81 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-earning assets |
18,763,759 | 319,561 | 3.43 | 16,677,295 | 275,245 | 3.32 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and due from banks |
297,248 | 270,092 | ||||||||||||||||||||||
Allowance for loan losses |
(99,929) | (87,261) | ||||||||||||||||||||||
Other assets (5) |
1,600,631 | 1,243,082 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 20,561,709 | $ | 18,103,208 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Funding sources: |
||||||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
NOW deposits |
$ | 101,086 | $ | 158 | 0.31 | % | $ | 73,807 | $ | 145 | 0.40 | % | ||||||||||||
Money market deposits |
2,573,607 | 1,993 | 0.16 | 2,439,751 | 3,061 | 0.25 | ||||||||||||||||||
Money market deposits in foreign offices |
136,452 | 67 | 0.10 | 149,266 | 238 | 0.32 | ||||||||||||||||||
Time deposits |
155,682 | 361 | 0.47 | 324,875 | 677 | 0.42 | ||||||||||||||||||
Sweep deposits in foreign offices |
2,074,873 | 516 | 0.05 | 2,631,402 | 1,543 | 0.12 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-bearing deposits |
5,041,700 | 3,095 | 0.12 | 5,619,101 | 5,664 | 0.20 | ||||||||||||||||||
Short-term borrowings |
124,639 | 121 | 0.20 | 32,980 | 25 | 0.15 | ||||||||||||||||||
5.375% Senior Notes |
347,835 | 9,631 | 5.57 | 347,641 | 9,619 | 5.58 | ||||||||||||||||||
3.875% Convertible Notes |
- | - | - | 143,394 | 4,210 | 5.92 | ||||||||||||||||||
Junior Subordinated Debentures |
55,335 | 1,663 | 6.04 | 55,511 | 1,665 | 6.05 | ||||||||||||||||||
5.70% Senior Notes |
119,403 | 863 | 1.45 | 226,632 | 1,113 | 0.99 | ||||||||||||||||||
6.05% Subordinated Notes |
55,076 | 254 | 0.93 | 210,437 | 1,068 | 1.02 | ||||||||||||||||||
Other long-term debt |
967 | 94 | 19.55 | 5,449 | 146 | 5.40 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest-bearing liabilities |
5,744,955 | 15,721 | 0.55 | 6,641,145 | 23,510 | 0.71 | ||||||||||||||||||
Portion of noninterest-bearing funding sources |
13,018,804 | 10,036,150 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total funding sources |
18,763,759 | 15,721 | 0.17 | 16,677,295 | 23,510 | 0.28 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Noninterest-bearing funding sources: |
||||||||||||||||||||||||
Demand deposits |
12,145,000 | 9,350,705 | ||||||||||||||||||||||
Other liabilities |
306,746 | 237,261 | ||||||||||||||||||||||
SVBFG stockholders equity |
1,665,789 | 1,359,848 | ||||||||||||||||||||||
Noncontrolling interests |
699,219 | 514,249 | ||||||||||||||||||||||
Portion used to fund interest-earning assets |
(13,018,804) | (10,036,150) | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities, noncontrolling interest, and SVBFG stockholders equity |
$ | 20,561,709 | $ | 18,103,208 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income and margin |
$ | 303,840 | 3.26 | % | $ | 251,735 | 3.04 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total deposits |
$ | 17,186,700 | $ | 14,969,806 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Reconciliation to reported net interest income: |
||||||||||||||||||||||||
Adjustments for taxable equivalent basis |
(969) | (983) | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income, as reported |
$ | 302,871 | $ | 250,752 | ||||||||||||||||||||
|
|
|
|
49
(1) | Includes average interest-earning deposits in other financial institutions of $310.5 million and $270.0 million for the six months ended June 30, 2012 and 2011, respectively. For the six months ended June 30, 2012 and 2011, balances also include $494.6 million and $1.6 billion, respectively, deposited at the FRB, earning interest at the Federal Funds target rate. |
(2) | Yields on available-for-sale securities are based on amortized cost, and therefore do not give effect to unrealized changes in fair value that are reflected in other comprehensive income. |
(3) | Interest income on non-taxable available-for-sale securities is presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 35.0 percent for all periods presented. |
(4) | Nonaccrual loans are reflected in the average balances of loans. |
(5) | Average investment securities of $1.2 billion and $840.9 million for the six months ended June 30, 2012 and 2011, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable securities. |
Provision for (Reduction of) Loan Losses
Our provision for (reduction of) loan losses is based on our evaluation of the existing allowance for loan losses in relation to total gross loans using historical and other objective information, and on our qualitative assessment of the inherent and identified credit risks of the loan portfolio. The following table summarizes our allowance for loan losses for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Allowance for loan losses, beginning balance |
$ | 100,922 | $ | 82,051 | $ | 89,947 | $ | 82,627 | ||||||||
Provision for (reduction of) loan losses |
7,999 | 134 | 22,528 | (2,913) | ||||||||||||
Gross loan charge-offs |
(14,130) | (4,293) | (21,120) | (8,615) | ||||||||||||
Loan recoveries |
3,375 | 4,263 | 6,811 | 11,056 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Allowance for loan losses, ending balance |
$ | 98,166 | $ | 82,155 | $ | 98,166 | $ | 82,155 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Provision for (reduction of) loan losses as a percentage of total gross loans (annualized) |
0.41 | % | 0.01 | % | 0.58 | % | (0.10) | % | ||||||||
Gross loan charge-offs as a percentage of average total gross loans (annualized) |
0.78 | 0.31 | 0.60 | 0.32 | ||||||||||||
Net loan charge-offs (recoveries) as a percentage of average total gross loans (annualized) |
0.59 | 0.00 | 0.41 | (0.09) | ||||||||||||
Allowance for loan losses as a percentage of period-end total gross loans |
1.25 | 1.36 | 1.25 | 1.36 | ||||||||||||
Period-end total gross loans |
$ | 7,857,468 | $ | 6,030,966 | $ | 7,857,468 | $ | 6,030,966 | ||||||||
Average total gross loans |
7,297,446 | 5,579,271 | 7,079,284 | 5,468,200 |
We had a provision for loan losses of $8.0 million for the three months ended June 30, 2012, compared to a provision of $0.1 million for the comparable 2011 period. The provision of $8.0 million in the second quarter of 2012 was primarily attributable to loan growth.
Gross loan charge-offs of $14.1 million for the three months ended June 30, 2012 included $7.1 million from a single nonperforming hardware loan that was specifically reserved for in the first quarter of 2012. The remaining charge-offs were primarily from our hardware and software client portfolios. Loan recoveries of $3.4 million for the three months ended June 30, 2012 were primarily from our software and other commercial client portfolios.
We had a provision for loan losses of $22.5 million for the six months ended June 30, 2012, compared to a reduction of provision of $2.9 million for the comparable 2011 period. The provision of $22.5 million for the six months ended June 30, 2012 was primarily due to net charge-offs of $14.3 million, of which $7.1 million related to the single nonperforming hardware loan noted above. Growth in loans also contributed to the provision for six months ended June 30, 2012.
Gross loan charge-offs of $21.1 million for the six months ended June 30, 2012 were primarily from our hardware client portfolio, including $7.1 million related to the single nonperforming hardware loan noted above. Loan recoveries of $6.8 million for the six months ended June 30, 2012 were primarily from our software client portfolio.
50
See Consolidated Financial ConditionCredit Quality and Allowance for Loan Losses below and Note 6Loans and Allowance for Loan Losses of the Notes to Interim Consolidated Financial Statements (unaudited) under Part I, Item 1 of this report for further details on our allowance for loan losses.
Noninterest Income
A summary of noninterest income for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Core fee income: |
||||||||||||||||||||||||
Foreign exchange fees |
$ | 12,031 | $ | 10,354 | 16.2 | % | $ | 24,134 | $ | 20,851 | 15.7 | % | ||||||||||||
Deposit service charges |
8,369 | 7,838 | 6.8 | 16,465 | 14,955 | 10.1 | ||||||||||||||||||
Credit card fees |
6,169 | 4,364 | 41.4 | 11,837 | 8,181 | 44.7 | ||||||||||||||||||
Letters of credit and standby letters of credit income |
3,296 | 2,702 | 22.0 | 6,932 | 5,412 | 28.1 | ||||||||||||||||||
Client investment fees |
3,375 | 3,107 | 8.6 | 6,272 | 6,768 | (7.3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total core fee income (1) |
33,240 | 28,365 | 17.2 | 65,640 | 56,167 | 16.9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Gains on investment securities, net |
25,809 | 71,680 | (64.0) | 33,648 | 123,017 | (72.6) | ||||||||||||||||||
Gains on derivative instruments, net |
8,713 | 13,651 | (36.2) | 14,689 | 14,202 | 3.4 | ||||||||||||||||||
Other |
12,664 | 10,012 | 26.5 | 25,742 | 20,276 | 27.0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total noninterest income |
$ | 80,426 | $ | 123,708 | (35.0) | $ | 139,719 | $ | 213,662 | (34.6) | ||||||||||||||
|
|
|
|
|
|
|
|
(1) | The following table provides a reconciliation GAAP noninterest income to non-GAAP core fee income: |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
GAAP noninterest income (as reported) |
$ | 80,426 | $ | 123,708 | (35.0) | % | $ | 139,719 | $ | 213,662 | (34.6) | % | ||||||||||||
Less: gains on investment securities, net |
25,809 | 71,680 | (64.0) | 33,648 | 123,017 | (72.6) | ||||||||||||||||||
Less: gains on derivative instruments, net |
8,713 | 13,651 | (36.2) | 14,689 | 14,202 | 3.4 | ||||||||||||||||||
Less: other noninterest income |
12,664 | 10,012 | 26.5 | 25,742 | 20,276 | 27.0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-GAAP core fee income |
$ | 33,240 | $ | 28,365 | 17.2 | $ | 65,640 | $ | 56,167 | 16.9 | ||||||||||||||
|
|
|
|
|
|
|
|
Included in net income is income and expense attributable to noncontrolling interests. We recognize, as part of our investment funds management business through SVB Capital and Debt Fund Investments, the entire income or loss from funds where we own significantly less than 100% of the investment. We are required under GAAP to consolidate 100% of the results of entities that we are deemed to control, even though we may own less than 100% of such entities. The relevant amounts attributable to investors other than us are reflected under Net Income Attributable to Noncontrolling Interests on our statements of income. The non-GAAP tables presented below, for noninterest income and net gains on investment securities, all exclude noncontrolling interests. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that represent income attributable to investors other than us and our subsidiaries. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.
51
The following table provides a summary of non-GAAP noninterest income, net of noncontrolling interests:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests (Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
GAAP noninterest income (as reported) |
$ | 80,426 | $ | 123,708 | (35.0) | % | $ | 139,719 | $ | 213,662 | (34.6) | % | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest |
13,384 | 26,558 | (49.6) | 21,302 | 70,120 | (69.6) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests |
67,042 | 97,150 | (31.0) | 118,417 | 143,542 | (17.5) | ||||||||||||||||||
Less: gains on sales of certain available-for-sale securities |
4,955 | 37,314 | (86.7) | 4,955 | 37,314 | (86.7) | ||||||||||||||||||
Less: net gains on the sale of certain assets related to our equity management services business |
4,243 | - | - | 4,243 | - | - | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests and excluding gains on sales of certain available-for-sale securities |
$ | 57,844 | $ | 59,836 | (3.3) | $ | 109,219 | $ | 106,228 | 2.8 | ||||||||||||||
|
|
|
|
|
|
|
|
Foreign Exchange Fees
Foreign exchange fees were $12.0 million and $24.1 million for the three and six months ended June 30, 2012, respectively, compared to $10.4 million and $20.9 million for the comparable 2011 periods. The increases were primarily due to improved business conditions for our clients and increased volatility in foreign markets, which has resulted in an improvement in our spread as well as higher number of trades.
Credit Card Fees
Credit card fees were $6.2 million and $11.8 million for the three and six months ended June 30, 2012, compared to $4.4 million and $8.2 million for the comparable 2011 periods. The increases were primarily due to new credit card clients and an increase in client activity.
Client Investment Fees
Client investment fees were $3.4 million and $6.3 million for the three and six months ended June 30, 2012, compared to $3.1 million and $6.8 million for the comparable 2011 periods. The increase for the three month period was primarily due to an increase in average client investment funds due to a steadily improving funding environment for both private and public clients, as well as our clients increased utilization of our off-balance sheet sweep money market funds. The decrease for the six month period was primarily attributable to lower margins earned on certain products owing to historically low rates in the short-term fixed income markets and was partially offset by an increase in average client investment funds. The following table summarizes average client investment funds for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in millions) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Client directed investment assets (1) |
$ | 7,133 | $ | 9,134 | (21.9) | % | $ | 7,344 | $ | 9,236 | (20.5) | % | ||||||||||||
Client investment assets under management |
10,472 | 8,540 | 22.6 | 10,229 | 8,008 | 27.7 | ||||||||||||||||||
Sweep money market funds |
2,259 | 85 | NM | 1,800 | 42 | NM | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total average client investment funds (2) |
$ | 19,864 | $ | 17,759 | 11.9 | $ | 19,373 | $ | 17,286 | 12.1 | ||||||||||||||
|
|
|
|
|
|
|
|
NMNot meaningful
(1) | Comprised of mutual funds and Repurchase Agreement Program assets. |
(2) | Client investment funds are maintained at third party financial institutions and are not recorded on our balance sheet. |
The following table summarizes period-end client investment funds at June 30, 2012 and December 31, 2011:
(Dollars in millions) |
June 30, 2012 | December 31, 2011 | % Change | |||||||||
Client directed investment assets |
$ | 7,003 | $ | 7,709 | (9.2 | ) % | ||||||
Client investment assets under management |
10,399 | 9,919 | 4.8 | |||||||||
Sweep money market funds |
2,695 | 1,116 | 141.5 | |||||||||
|
|
|
|
|||||||||
Total period-end client investment funds |
$ | 20,097 | $ | 18,744 | 7.2 | |||||||
|
|
|
|
Gains on Investment Securities, Net
Net gains on investment securities include both gains from our non-marketable and marketable securities, as well as gains from sales of our available-for-sale securities portfolio, when applicable.
52
Our available-for-sale securities portfolio is managed to optimize portfolio yield over the long-term in a manner consistent with our liquidity, credit diversification, and asset/liability strategies. Though infrequent, the sale of investments from our available-for-sale portfolio results in net gains or losses on investment securities.
We experience variability in the performance of our non-marketable and marketable investments from quarter to quarter, which results in net gains or losses on investment securities. This variability is due to a number of factors, including changes in the values of our investments, changes in the amount of distributions or liquidity events and general economic and market conditions. Such variability may lead to volatility in the gains from investment securities and as such our results for a particular period are not necessarily indicative of our expected performance in a future period.
For the three months ended June 30, 2012, we had net gains on investment securities of $25.8 million, compared to net gains of $71.7 million for the comparable 2011 period. Gains on investment securities, net of noncontrolling interests, were $11.3 million for the three months ended June 30, 2012, compared to $45.2 million for the comparable 2011 period. The gains, net of noncontrolling interests, of $11.3 million for the three months ended June 30, 2012 were primarily driven by the following:
| Gains of $6.7 million from our nonmarketable securities, primarily related to unrealized gains from investments in debt funds and certain fund investments. |
| Gains of $5.0 million from the sale of $315.7 million U.S. agency securities that were held in our available-for-sale portfolio. Proceeds from the sale of these securities were used to reduce overnight borrowings. |
For the six months ended June 30, 2012, we had net gains on investment securities of $33.6 million, compared to net gains of $123.0 million for the comparable 2011 period. Gains on investment securities, net of noncontrolling interests, were $11.8 million for the six months ended June 30, 2012, compared to $53.2 million for the comparable 2011 period. The gains, net of noncontrolling interests, of $11.8 million for the six months ended June 30, 2012 were primarily driven by the following:
| Gains of $8.1 million from our nonmarketable securities, primarily related to unrealized gains from investments in debt funds and certain fund investments. |
| Gains of $5.0 million from the sale of $315.7 million U.S. agency securities that were held in our available-for-sale portfolio. Proceeds from the sale of these securities were used to reduce overnight borrowings. |
The following tables provide a summary of net gains on investment securities, net of noncontrolling interests, for the three and six months ended June 30, 2012 and 2011:
(Dollars in thousands) |
Managed Funds of Funds |
Managed Direct Venture Funds |
Debt Funds |
Available- For-Sale Securities |
Strategic and Other Investments |
Total | ||||||||||||||||||
Three months ended June 30, 2012 | ||||||||||||||||||||||||
Total gains on investment securities, net |
$ | 14,464 | $ | 1,059 | $ | 2,503 | $ | 4,567 | $ | 3,216 | $ | 25,809 | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest |
13,286 | 1,201 | 15 | - | - | 14,502 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests |
1,178 | (142) | 2,488 | 4,567 | 3,216 | 11,307 | ||||||||||||||||||
Less: gain on sales of available-for-sale securities |
- | - | - | 4,955 | - | 4,955 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests and excluding gains on sales of certain available-for-sale securities |
$ | 1,178 | $ | (142) | $ | 2,488 | $ | (388) | $ | 3,216 | $ | 6,352 | ||||||||||||
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Three months ended June 30, 2011 | ||||||||||||||||||||||||
Total gains (losses) on investment securities, net |
$ | 31,984 | $ | (1,840) | $ | 814 | $ | 37,221 | $ | 3,501 | $ | 71,680 | ||||||||||||
Less: income (losses) attributable to noncontrolling interests, including carried interest |
27,752 | (1,066) | (249) | - | - | 26,437 | ||||||||||||||||||
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Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests |
4,232 | (774) | 1,063 | 37,221 | 3,501 | 45,243 | ||||||||||||||||||
Less: gain on sales of available-for-sale securities |
- | - | - | 37,314 | - | 37,314 | ||||||||||||||||||
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|
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Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests and excluding gains on sales of certain available-for-sale securities |
$ | 4,232 | $ | (774) | $ | 1,063 | $ | (93) | $ | 3,501 | $ | 7,929 | ||||||||||||
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Six months ended June 30, 2012 | ||||||||||||||||||||||||
Total gains (losses) on investment securities, net |
$ | 26,769 | $ | (3,623) | $ | 3,384 | $ | 3,693 | $ | 3,425 | $ | 33,648 | ||||||||||||
Less: income (losses) attributable to noncontrolling interests, including carried interest |
24,568 | (2,758) | 30 | - | - | 21,840 | ||||||||||||||||||
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|
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Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests |
2,201 | (865) | 3,354 | 3,693 | 3,425 | 11,808 | ||||||||||||||||||
Less: gain on sales of available-for-sale securities |
- | - | - | 4,955 | - | 4,955 | ||||||||||||||||||
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|
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Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests and excluding gains on sales of certain available-for-sale securities |
$ | 2,201 | $ | (865) | $ | 3,354 | $ | (1,262) | $ | 3,425 | $ | 6,853 | ||||||||||||
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Six months ended June 30, 2011 | ||||||||||||||||||||||||
Total gains on investment securities, net |
$ | 75,376 | $ | 2,106 | $ | 3,102 | $ | 37,283 | $ | 5,150 | $ | 123,017 | ||||||||||||
Less: income attributable to noncontrolling interests, including carried interest |
66,962 | 2,820 | 40 | - | - | 69,822 | ||||||||||||||||||
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Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests |
8,414 | (714) | 3,062 | 37,283 | 5,150 | 53,195 | ||||||||||||||||||
Less: gain on sales of available-for-sale securities |
- | - | - | 37,314 | - | 37,314 | ||||||||||||||||||
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Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests and excluding gains on sales of certain available-for-sale securities |
$ | 8,414 | $ | (714) | $ | 3,062 | $ | (31) | $ | 5,150 | $ | 15,881 | ||||||||||||
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53
Gains on Derivative Instruments, Net
A summary of gains on derivative instruments, net, for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Equity warrant assets (1) |
||||||||||||||||||||||||
Gains on exercises, net |
$ | 2,219 | $ | 7,581 | (70.7) | % | $ | 5,160 | $ | 9,605 | (46.3) | % | ||||||||||||
Cancellations and expirations |
(603) | (723) | (16.6) | (1,172) | (1,304) | (10.1) | ||||||||||||||||||
Changes in fair value |
3,260 | 7,003 | (53.4) | 7,823 | 9,556 | (18.1) | ||||||||||||||||||
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Net gains on equity warrant assets (2) |
4,876 | 13,861 | (64.8) | 11,811 | 17,857 | (33.9) | ||||||||||||||||||
Gains (losses) on foreign exchange forward contracts, net: |
||||||||||||||||||||||||
Gains on client foreign exchange forward contracts, net |
1,330 | 315 | NM | 2,395 | 790 | NM | ||||||||||||||||||
Gains (losses) on internal foreign exchange forward contracts, net (3) |
2,993 | (483) | NM | 942 | (3,051) | (130.9) | ||||||||||||||||||
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Total gains (losses) on foreign exchange forward contracts, net |
4,323 | (168) | NM | 3,337 | (2,261) | NM | ||||||||||||||||||
Change in fair value of interest rate swaps |
108 | (67) | NM | 497 | (67) | NM | ||||||||||||||||||
Net (losses) gains on other derivatives (4) |
(594) | 25 | NM | (956) | (1,327) | (28.0) | ||||||||||||||||||
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Gains on derivative instruments, net |
$ | 8,713 | $ | 13,651 | (36.2) | $ | 14,689 | $ | 14,202 | 3.4 | ||||||||||||||
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NMNot meaningful
(1) | At June 30, 2012, we held warrants in 1,215 companies, compared to 1,153 companies at June 30, 2011. |
(2) | Net gains on equity warrant assets are included in the line item Gains on derivative instruments, net as part of noninterest expense. |
(3) | Represents the change in the fair value of foreign exchange forward contracts used to economically reduce our foreign exchange exposure related to certain foreign currency denominated loans. This is offset by the gains and losses from the revaluations of these foreign currency denominated loans, which are recorded in the line item Other as part of noninterest income, a component of consolidated net income. |
(4) | Primarily represents the change in fair value of loan conversion options held by SVB Financial. As of June 30, 2012, the loan conversion options related to five clients. |
Net gains on derivative instruments were $8.7 million for the three months ended June 30, 2012, compared to net gains of $13.7 million for the comparable 2011 period. The key changes in factors affecting net gains on derivative instruments were as follows:
| Net gains on equity warrant assets of $4.9 million for the three months ended June 30, 2012, compared to net gains of $13.9 million for the comparable 2011 period. The net gains of $4.9 million for the three months ended June 30, 2012 were primarily driven by valuation increases and gains from the exercise of equity warrant assets, primarily from M&A activity. |
| Net gains of $3.0 million on foreign exchange forward contracts for our foreign currency denominated loans for the three months ended June 30, 2012, compared to net losses of $0.5 million for the comparable 2011 period. The net gains of $3.0 million for the three months ended June 30, 2012 were primarily due to the strengthening of the U.S. Dollar against the Euro and Pound Sterling, and were partially offset by net losses of $3.1 million from the revaluation of foreign currency denominated loans that are included in the line item Other as part of noninterest income. |
Net gains on derivative instruments were $14.7 million for the six months ended June 30, 2012, compared to net gains of $14.2 million for the comparable 2011 period. The key changes in factors affecting net gains on derivative were as follows:
| Net gains on equity warrant assets of $11.8 million for the six months ended June 30, 2012, compared to net gains of $17.9 million for the comparable 2011 period. The net gains of $11.8 million for the six months ended June 30, 2012 were driven by valuation increases and gains from the exercise of equity warrant assets, primarily from M&A and IPO activity. |
| Net gains of $0.9 million on foreign exchange forward contracts hedging our foreign currency denominated loans for the six months ended June 30, 2012, compared to net losses of $3.1 million for the comparable 2011 period. The net gains of $0.9 million for the six months ended June 30, 2012 were primarily due to the strengthening of the U.S. Dollar against the Euro and Pound Sterling, and were partially offset by net losses of $1.5 million from the revaluation of foreign currency denominated loans that are included in the line item Other as part of noninterest income. |
54
Other Noninterest Income
A summary of other noninterest income for the three and six months ended June 30, 2012 and 2011, respectively, is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Unused commitment fees |
$ | 3,678 | $ | 1,808 | 103.4 | % | $ | 6,733 | $ | 3,294 | 104.4 | % | ||||||||||||
Fund management fees |
3,124 | 2,663 | 17.3 | 5,952 | 5,351 | 11.2 | ||||||||||||||||||
Service-based fee income (1) |
2,172 | 2,587 | (16.0) | 4,546 | 4,812 | (5.5) | ||||||||||||||||||
Net gains on the sale of certain assets related to our equity management services business |
4,243 | - | - | 4,243 | - | - | ||||||||||||||||||
Loan syndication fees |
1,375 | 870 | 58.0 | 1,500 | 870 | 72.4 | ||||||||||||||||||
Currency revaluation losses (2) |
(1,548) | (881) | 75.7 | (933) | (1,121) | (16.8) | ||||||||||||||||||
(Losses) gains on revaluation of foreign currency loans, net |
(3,125) | 502 | NM | (1,466) | 3,191 | (145.9) | ||||||||||||||||||
Other |
2,745 | 2,463 | 11.4 | 5,167 | 3,879 | 33.2 | ||||||||||||||||||
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Total other noninterest income |
$ | 12,664 | $ | 10,012 | 26.5 | $ | 25,742 | $ | 20,276 | 27.0 | ||||||||||||||
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NMNot meaningful
(1) | Includes income from SVB Analytics |
(2) | Included in currency revaluation losses are losses of $1.3 million and $0.8 million for the three and six months ended June 30, 2012, compared to gains of $44 thousand and $0.2 million for the comparable 2011 periods attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests. |
Other noninterest income was $12.7 million and $25.7 million for the three and six months ended June 30, 2012, compared to $10.0 million and $20.3 million for the comparable 2011 periods. The increase of $2.7 million for the three month period was due to gains of $4.2 million on the sale of certain assets related to our equity management services business and a $1.9 million increase in unused commitment fees resulting from the prospective reclassification of certain fees from interest income to noninterest income. The comparable amount of these fees included in interest income in the second quarter of 2011 was $1.0 million. The increases in other noninterest income were partially offset by foreign currency loan revaluation losses of $3.1 million for the three months ended June 30, 2012, compared to net gains of $0.5 million for the comparable 2011 period. The net losses of $3.1 million for the three months ended June 30, 2012 were primarily due to the strengthening of the U.S. Dollar against the Euro and Pound Sterling.
The increase of $5.5 million for the six month period was due to gains of $4.2 million on the sale of certain assets related to our equity management services business and a $3.4 million increase in unused commitment fees, primarily resulting from the prospective reclassification of certain fees from interest income to noninterest income. The comparable amount of these fees included in interest income in the six months ended June 30, 2011 was $2.1 million. The increases in other noninterest income were partially offset by foreign currency loan revaluation losses of $1.5 million for the six months ended June 30, 2012, compared to net gains of $3.2 million for the comparable 2011 period. The net losses of $1.5 million for the six months ended June 30, 2012 were primarily due to the strengthening of the U.S. Dollar against the Euro and Pound Sterling.
Noninterest Expense
A summary of noninterest expense for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Compensation and benefits |
$ | 80,385 | $ | 79,888 | 0.6 | % | $ | 164,122 | $ | 155,520 | 5.5 | % | ||||||||||||
Professional services |
16,514 | 13,891 | 18.9 | 31,121 | 26,878 | 15.8 | ||||||||||||||||||
Premises and equipment |
9,419 | 6,440 | 46.3 | 16,983 | 12,352 | 37.5 | ||||||||||||||||||
Business development and travel |
7,159 | 5,890 | 21.5 | 14,905 | 11,543 | 29.1 | ||||||||||||||||||
Net occupancy |
5,378 | 4,546 | 18.3 | 11,001 | 9,196 | 19.6 | ||||||||||||||||||
Correspondent bank fees |
2,840 | 2,202 | 29.0 | 5,528 | 4,365 | 26.6 | ||||||||||||||||||
FDIC assessments |
2,731 | 2,163 | 26.3 | 5,229 | 5,638 | (7.3) | ||||||||||||||||||
Provision for unfunded credit commitments |
1,922 | 976 | 96.9 | 1,664 | 76 | NM | ||||||||||||||||||
Other |
9,418 | 5,036 | 87.0 | 17,225 | 12,899 | 33.5 | ||||||||||||||||||
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Total noninterest expense |
$ | 135,766 | $ | 121,032 | 12.2 | $ | 267,778 | $ | 238,467 | 12.3 | ||||||||||||||
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NMNot meaningful
Included in noninterest expense is expense attributable to noncontrolling interests. See below for a summary of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both of which exclude noncontrolling interests.
55
Non-GAAP Noninterest Expense
We use and report non-GAAP noninterest expense, non-GAAP taxable equivalent revenue and non-GAAP operating efficiency ratio, which excludes noncontrolling interests. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by: (i) excluding certain items that represent expenses attributable to investors other than us and our subsidiaries, or certain items that do not occur every reporting period; or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP. The table below provides a summary of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both net of noncontrolling interests:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
Non-GAAP operating efficiency ratio, net of noncontrolling interests (Dollars in thousands, except ratios) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
GAAP noninterest expense |
$ | 135,766 | $ | 121,032 | 12.2 | % | $ | 267,778 | $ | 238,467 | 12.3 | % | ||||||||||||
Less: amounts attributable to noncontrolling interests |
3,947 | 2,621 | 50.6 | 6,765 | 6,102 | 10.9 | ||||||||||||||||||
Less: net gain from note repurchases and termination of corresponding interest rate swaps |
- | (3,123) | (100.0) | - | (3,123) | (100.0) | ||||||||||||||||||
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Non-GAAP noninterest expense, net of noncontrolling interests |
$ | 131,819 | $ | 121,534 | 8.5 | $ | 261,013 | $ | 235,488 | 10.8 | ||||||||||||||
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GAAP taxable equivalent net interest income |
$ | 152,419 | $ | 130,929 | 16.4 | $ | 303,840 | $ | 251,735 | 20.7 | ||||||||||||||
Less: income attributable to noncontrolling interests |
38 | 45 | (15.6) | 81 | 52 | 55.8 | ||||||||||||||||||
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Non-GAAP taxable equivalent net interest income, net of noncontrolling interests |
152,381 | 130,884 | 16.4 | 303,759 | 251,683 | 20.7 | ||||||||||||||||||
Non-GAAP noninterest income, net of noncontrolling interests |
57,844 | 59,836 | (3.3) | 109,219 | 106,228 | 2.8 | ||||||||||||||||||
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Non-GAAP taxable equivalent revenue, net of noncontrolling interests |
$ | 210,225 | $ | 190,720 | 10.2 | $ | 412,978 | $ | 357,911 | 15.4 | ||||||||||||||
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Non-GAAP operating efficiency ratio (1) |
62.70 | % | 63.72 | % | (1.6) | 63.20 | % | 65.80 | % | (3.9) | ||||||||||||||
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(1) | The non-GAAP operating efficiency ratio is calculated by dividing non-GAAP noninterest expense by non-GAAP total taxable-equivalent income. |
Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||||
Compensation and benefits |
||||||||||||||||||||||||||
Salaries and wages |
$ | 37,501 | $ | 32,634 | 14.9 | % | $ | 75,621 | $ | 66,441 | 13.8 | % | ||||||||||||||
Incentive compensation & ESOP |
20,838 | 26,978 | (22.8) | 41,985 | 47,987 | (12.5) | ||||||||||||||||||||
Other employee benefits (1) |
22,046 | 20,276 | 8.7 | 46,516 | 41,092 | 13.2 | ||||||||||||||||||||
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|
|
|
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|
|
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Total compensation and benefits |
$ | 80,385 | $ | 79,888 | 0.6 | $ | 164,122 | $ | 155,520 | 5.5 | ||||||||||||||||
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|
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Period-end full-time equivalent employees |
1,562 | 1,428 | 9.4 | 1,562 | 1,428 | 9.4 | ||||||||||||||||||||
Average full-time equivalent employees |
1,566 | 1,416 | 10.6 | 1,561 | 1,403 | 11.3 |
(1) | Other employee benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee related expenses. |
Compensation and benefits expense was $80.4 million for the three months ended June 30, 2012, compared to $79.9 million for the comparable 2011 period. The key changes in factors affecting compensation and benefits expense were as follows:
| An increase of $4.9 million in salaries and wages expense, primarily due to an increase in the number of average FTEs, which increased by 150 to 1,566 average FTEs in the second quarter of 2012, compared to 1,416 average FTE for the comparable 2011 period. The increase in headcount was primarily to support our product development, operational and sales and advisory, as well as to support our commercial banking operations and initiatives. |
| A decrease of $6.1 million in incentive compensation and ESOP expense primarily reflective of higher expenses in the second quarter of 2011 as a result of our better than expected results. |
Compensation and benefits expense was $164.1 million for the six months ended June 30, 2012, compared to $155.5 million for the comparable 2011 period. The key changes in factors affecting compensation and benefits expense were as follows:
| An increase of $9.2 million in salaries and wages expense, primarily due to an increase in the number of average FTEs, which increased by 158 to 1561 average FTEs in the six month ended June 30, 2012, compared to 1,403 average FTEs for the comparable 2011 period. The increase in headcount was primarily to support our product development, operational and sales and advisory, as well as to support our commercial banking operations and initiatives. |
56
| An increase of $5.4 million in other employee benefits, primarily due to an increase in average FTEs, as well as an increase in 401(k) expenses driven by 2011 incentive compensation payouts during the first quarter of 2012, which were at higher levels than 2010 incentive compensation payouts in the first quarter of 2011. |
| A decrease of $6.0 million in incentive compensation and ESOP expense primarily reflective of higher expenses in the second quarter of 2011 as a result of our better than expected results. |
Our variable compensation plans primarily consist of our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Long-Term Cash Incentive Plan, 401(k) and ESOP Plan, Retention Program and Warrant Incentive Plan. Total costs incurred under these plans were $23.8 million and $51.6 million for the three and six months ended June 30, 2012, respectively, compared to $30.0 million and $56.0 million for the comparable 2011 periods. These amounts are included in total compensation and benefits expense discussed above.
Professional Services
Professional services were $16.5 million and $31.1 million for the three and six months ended June 30, 2012, respectively, compared to $13.9 million and $26.9 million for the comparable 2011 periods. The increases were to support our ongoing business and infrastructure initiatives.
Premises and Equipment
Premises and equipment expense was $9.4 million and $17.0 million for the three and six months ended June 30, 2012, respectively, compared to $6.4 million and $12.4 million for the comparable 2011 periods. The increases were primarily due to increased spending to enhance and maintain our IT infrastructure.
Business Development and Travel
Business development and travel expense was $7.2 million and $14.9 million for the three and six months ended June 30, 2012, respectively, compared to $5.9 million and $11.5 million for the comparable 2011 periods. The increases were primarily reflective of our increased focus on global initiatives and increased business development activity due to improving economic and business conditions.
Provision for unfunded credit commitments
The provision for unfunded credit commitments was $1.9 million and $1.7 million for the three and six months ended June 30, 2012, respectively, compared to $1.0 million and $0.1 million for the comparable 2011 periods. The increases were primarily due to an increase in the period-end balance of unfunded credit commitments of $1.3 billion from June 30, 2011 to June 30, 2012.
Other Noninterest Expense
A summary of other noninterest expense for the three and six months ended June 30, 2012 and 2011 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Telephone |
$ | 1,547 | $ | 1,416 | 9.3 | % | $ | 3,331 | $ | 2,766 | 20.4 | % | ||||||||||||
Client services |
1,739 | 1,037 | 67.7 | 2,992 | 1,839 | 62.7 | ||||||||||||||||||
Data processing services |
1,310 | 1,429 | (8.3) | 2,715 | 2,492 | 8.9 | ||||||||||||||||||
Tax credit fund amortization |
962 | 1,101 | (12.6) | 2,020 | 2,154 | (6.2) | ||||||||||||||||||
Postage and supplies |
628 | 562 | 11.7 | 1,253 | 1,084 | 15.6 | ||||||||||||||||||
Dues and publications |
557 | 327 | 70.3 | 1,031 | 701 | 47.1 | ||||||||||||||||||
Net gain from note repurchases and termination of corresponding interest rate swaps (1) |
- | (3,123) | (100.0) | - | (3,123) | (100.0) | ||||||||||||||||||
Other |
2,675 | 2,287 | 17.0 | 3,883 | 4,986 | (22.1) | ||||||||||||||||||
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|
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Total other noninterest expense |
$ | 9,418 | $ | 5,036 | 87.0 | $ | 17,225 | $ | 12,899 | 33.5 | ||||||||||||||
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|
(1) | Represents net gains from the repurchase of $108.6 million of our 5.70% Senior Notes and $204.0 million of our 6.05% Subordinated Notes and the termination of the corresponding portions of interest rate swaps in 2011. |
Net Income Attributable to Noncontrolling Interests
Included in net income is income and expense attributable to noncontrolling interests. The relevant amounts attributable to investors other than us are reflected under Net Income Attributable to Noncontrolling Interests on our statements of income.
57
In the table below, noninterest income consists primarily of investment gains and losses from our consolidated funds. Noninterest expense is primarily related to management fees paid by our managed funds to SVB Financials subsidiaries as the funds general partners. A summary of net income attributable to noncontrolling interests for the three and six months ended June 30, 2012 and 2011, respectively, is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Net interest income (1) |
$ | (38) | $ | (45) | (15.6) | % | $ | (81) | $ | (52) | 55.8 | % | ||||||||||||
Noninterest income (1) |
(11,210) | (28,418) | (60.6) | (17,842) | (70,789) | (74.8) | ||||||||||||||||||
Noninterest expense (1) |
3,947 | 2,621 | 50.6 | 6,765 | 6,102 | 10.9 | ||||||||||||||||||
Carried interest (2) |
(2,174) | 1,860 | NM | (3,460) | 669 | NM | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income attributable to noncontrolling interests |
$ | (9,475) | $ | (23,982) | (60.5) | $ | (14,618) | $ | (64,070) | (77.2) | ||||||||||||||
|
|
|
|
|
|
|
|
NMNot meaningful
(1) | Represents noncontrolling interests share in net interest income, noninterest income and noninterest expense. |
(2) | Represents the preferred allocation of income earned by the general partners or limited partners of certain consolidated funds. |
Income Taxes
Our effective income tax expense rate was 39.8 percent for the three months ended June 30, 2012, compared to 39.7 percent for the comparable 2011 period. Our effective income tax expense rate was 40.2 percent for the six months ended June 30, 2012, compared to 40.1 percent for the comparable 2011 period.
Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests.
Operating Segment Results
We have three segments for which we report our financial information: Global Commercial Bank, SVB Private Bank and SVB Capital.
We report segment information based on the management approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 10Segment Reporting of the Notes to Interim Consolidated Financial Statements (unaudited) under Part I, Item 1 of this report for additional details.
Our primary source of revenue is from net interest income, which is primarily the difference between interest earned on loans, net of 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 institutions 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. Effective January 1, 2012, FTP is calculated at an instrument level based on account characteristics. Prior to January 1, 2012, FTP was calculated by applying a transfer rate to pooled, or aggregated, loan and deposit volumes. We have reclassified all prior period amounts to conform to the current periods methodology and presentation.
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 operating segments 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.
58
Changes in an individual clients primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods. The following is our reportable segment information for the three and six months ended June 30, 2012 and 2011:
Global Commercial Bank
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Net interest income |
$ 146,420 | $ 125,695 | 16.5 | % | $ 289,684 | $ 246,515 | 17.5 | % | ||||||||||||||||
(Provision for) reduction of loan losses |
(8,923) | (730) | NM | (22,159) | 661 | NM | ||||||||||||||||||
Noninterest income |
52,494 | 36,551 | 43.6 | 92,422 | 71,415 | 29.4 | ||||||||||||||||||
Noninterest expense |
(98,478) | (84,702) | 16.3 | (194,734) | (170,582) | 14.2 | ||||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||
Income before income tax expense |
$ 91,513 | $ 76,814 | 19.1 | $ 165,213 | $ 148,009 | 11.6 | ||||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||
Total average loans, net of unearned income |
$6,479,544 | $4,822,497 | 34.4 | $6,255,450 | $4,766,104 | 31.2 | ||||||||||||||||||
Total average assets |
19,023,230 | 16,805,670 | 13.2 | 18,790,252 | 16,502,986 | 13.9 | ||||||||||||||||||
Total average deposits |
17,131,816 | 15,099,789 | 13.5 | 16,916,965 | 14,803,648 | 14.3 |
NMNot meaningful
Three months ended June 30, 2012 compared to the three months ended June 30, 2011
Net interest income from our Global Commercial Bank (GCB) increased by $20.7 million for the three months ended June 30, 2012, primarily due to a $22.4 million increase in loan interest income resulting mainly from an increase in average loan balances and a $5.7 million increase in the FTP earned for deposits due to deposit growth. These increases were partially offset by a $5.5 million decrease in the FTP earned for deposits from decreases in market interest rates.
We had a provision for loan losses for GCB of $8.9 million for the three months ended June 30, 2012, compared to a provision of $0.7 million for the comparable 2011 period. The provision of $8.9 million in the second quarter of 2012 was primarily attributable to loan growth. The provision of $0.7 million for the comparable 2011 period was primarily due to loan growth, partially offset by a decrease in the allowance for our performing loans due to the strong overall credit quality of our clients.
Noninterest income increased by $15.9 million for the three months ended June 30, 2012, primarily due to gains of $4.2 million on the sale of certain assets related to our equity management services business, and an increase in foreign exchange fees and credit card fees. The increase in foreign exchange fees was primarily due to improving business conditions for our clients and increased volatility in foreign markets, which has resulted in an improvement in our spread as well as higher number of trades. The increase in credit card fees was primarily due to the addition of new credit card clients and an increase in client activity.
Noninterest expense increased by $13.8 million for the three months ended June 30, 2012, primarily due to an increase in salaries and wages, other employee benefits and professional services. The increase in salaries and wages and other employee benefits was primarily due to an increase in the average number of FTEs at GCB, which increased by 122 to 1,231 for the three months ended June 30, 2012, compared to 1,109 for the comparable 2011 period. The increase in average FTEs was attributable to increases in positions for product development, operational and sales and advisory, as well as to support our commercial banking operations and initiatives. The increase in professional services was to support our ongoing business and infrastructure initiatives.
Six months ended June 30, 2012 compared to the six months ended June 30, 2011
Net interest income from our Global Commercial Bank (GCB) increased by $43.2 million for the six months ended June 30, 2012, primarily due to a $40.5 million increase in loan interest income resulting mainly from an increase in average loan balances and a $12.2 million increase in the FTP earned for deposits due to deposit growth. These increases were partially offset by a $9.1 million decrease in the FTP earned for deposits from decreases in market interest rates.
We had a provision for loan losses for GCB of $22.2 million for the six months ended June 30, 2012, compared to a reduction of provision of $0.7 million for the comparable 2011 period. The provision of $22.2 million for the six months ended June 30, 2012 was primarily due to net charge-offs of $14.3 million, of which $7.1 million related to a single nonperforming hardware loan that was specifically reserved for in the first quarter of 2012. Growth in loans also contributed to the $22.2 million provision for six months ended June 30, 2012. The reduction of provision for the comparable 2011 period was primarily due to net loan recoveries recognized and a decrease in the allowance for our performing loans due to the strong overall credit quality of our clients, partially offset by loan growth.
Noninterest income increased by $21.0 million for the six months ended June 30, 2012, primarily due to gains of $4.2 million on the sale of certain assets related to our equity management services business, and an increase in foreign exchange fees and credit card fees. The increase in foreign exchange fees was primarily due to improving business conditions for our clients and increased volatility in foreign markets, which has resulted in an improvement in our spread as well as higher number of trades. The increase in credit card fees was primarily due to the addition of new credit card clients and an increase in client activity.
59
Noninterest expense increased by $24.2 million for the six months ended June 30, 2012, primarily due to an increase in salaries and wages, other employee benefits, and professional services. The increase in salaries and wages and other employee benefits was primarily due to an increase in the average number of FTEs at GCB, which increased by 121 to 1,223 for the six months ended June 30, 2012, compared to 1,102 for the comparable 2011 period. The increase in average FTEs was attributable to increases in positions for product development, operational and sales and advisory, as well as to support our commercial banking operations and initiatives. The increase in professional services was to support our ongoing business and infrastructure initiatives.
SVB Private Bank
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Net interest income |
$ | 5,516 | $ | 4,653 | 18.5 | % | $ | 10,481 | $ | 9,054 | 15.8 | % | ||||||||||||
Reduction of (provision for) loan losses |
924 | 596 | 55.0 | (369) | 2,252 | (116.4) | ||||||||||||||||||
Noninterest income |
151 | 136 | 11.0 | 308 | 223 | 38.1 | ||||||||||||||||||
Noninterest expense |
(3,356) | (2,477) | 35.5 | (6,589) | (4,480) | 47.1 | ||||||||||||||||||
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Income before income tax expense |
$ | 3,235 | $ | 2,908 | 11.2 | $ | 3,831 | $ | 7,049 | (45.7) | ||||||||||||||
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Total average loans, net of unearned income |
$ | 742,130 | $ | 642,287 | 15.5 | $ | 740,049 | $ | 613,467 | 20.6 | ||||||||||||||
Total average assets |
747,445 | 642,744 | 16.3 | 744,703 | 613,734 | 21.3 | ||||||||||||||||||
Total average deposits |
253,482 | 156,765 | 61.7 | 246,991 | 153,520 | 60.9 |
Three months ended June 30, 2012 compared to the three months ended June 30, 2011
Net interest income from SVB Private Bank increased by $0.9 million for the three months ended June 30, 2012, primarily due to an increase in loan interest income resulting from an increase in average loan balances.
SVB Private Bank had a reduction of provision for loan losses of $0.9 million for the three months ended June 30, 2012, compared to a reduction of provision of $0.6 million for the comparable 2011 period. The reduction of provision for both periods was primarily due to a reduction in the reserve for impaired loans, partially offset by loan growth.
Noninterest expense increased by $0.9 million for the three months ended June 30, 2012, primarily due to an increase in compensation and benefits expense resulting from an increase in the average number of FTEs at SVB Private Bank, which increased by 14 to 45 FTEs for the three months ended June 30, 2012, compared to 31 FTEs for the comparable 2011 period. The increase in average FTEs was to support the growth of SVB Private Bank.
Six months ended June 30, 2012 compared to the six months ended June 30, 2011
Net interest income from SVB Private Bank increased by $1.4 million for the six months ended June 30, 2012, primarily due to an increase in loan interest income resulting primarily from an increase in average loan balances.
SVB Private Bank had a provision for loan losses of $0.4 million for the six months ended June 30, 2012, compared to a reduction of provision of $2.3 million for the comparable 2011 period. The provision of $0.4 million for the six months ended June 30, 2012 was primarily due to loan growth, partially offset by a reduction in the reserve for impaired loans. The reduction of provision of $2.3 million for the six months ended June 30, 2011 was primarily due to net loan recoveries.
Noninterest expense increased by $2.1 million for the six months ended June 30, 2012, primarily due to an increase in compensation and benefits expense resulting from an increase in the average number of FTEs at SVB Private Bank, which increased by 18 to 45 FTEs for the six months ended June 30, 2012, compared to 27 FTEs for the comparable 2011 period. The increase in average FTEs was to support the growth of SVB Private Bank.
SVB Capital
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Net interest income |
$ | 9 | $ | 3 | NM | % | $ | 16 | $ | 4 | NM | % | ||||||||||||
Noninterest income |
4,557 | 6,716 | (32.1) | 8,144 | 14,006 | (41.9) | ||||||||||||||||||
Noninterest expense |
(2,872) | (3,111) | (7.7) | (5,408) | (6,253) | (13.5) | ||||||||||||||||||
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Income before income tax expense |
$ | 1,694 | $ | 3,608 | (53.0) | $ | 2,752 | $ | 7,757 | (64.5) | ||||||||||||||
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|
|||||||||||||||||
Total average assets |
$ | 251,295 | $ | 232,381 | 8.1 | $ | 254,835 | $ | 222,570 | 14.5 |
NMNot meaningful
60
SVB Capitals components of noninterest income primarily include net gains and losses on marketable and non-marketable securities, carried interest and fund management fees. All components of income before income tax expense discussed below are net of noncontrolling interests.
We experience variability in the performance of SVB Capital from quarter to quarter due to a number of factors, including changes in the values of our funds underlying investments, changes in the amount of distributions and general economic and market conditions. Such variability may lead to volatility in the gains and losses from investment securities and cause our results to differ from period to period. Results for a particular period may not be indicative of future performance.
Three months ended June 30, 2012 compared to the three months ended June 30, 2011
Noninterest income decreased by $2.2 million to $4.6 million for the three months ended June 30, 2012, primarily due to lower net gains on investment securities. SVB Capitals components of noninterest income primarily include the following:
| Net gains on investment securities of $1.7 million for the three months ended June 30, 2012, compared to net gains of $4.0 million for the comparable 2011 period. The net gains on investment securities of $1.7 million for the three months ended June 30, 2012 were primarily driven by valuation adjustments within our managed funds of funds. |
| Fund management fees of $3.1 million for the three months ended June 30, 2012, compared to $2.7 million for the comparable 2011 period. |
Six months ended June 30, 2012 compared to the six months ended June 30, 2011
Noninterest income decreased by $5.9 million to $8.1 million for the six months ended June 30, 2012, primarily due to lower net gains on investment securities. SVB Capitals components of noninterest income primarily include the following:
| Net gains on investment securities of $2.3 million for the six months ended June 30, 2012, compared to net gains of $8.6 million for the comparable 2011 period. The net gains on investment securities of $2.3 million for the six months ended June 30, 2012 were primarily driven by valuation adjustments and IPO and M&A activity within our managed funds of funds. |
| Fund management fees of $6.0 million for the six months ended June 30, 2012, compared to $5.4 million for the comparable 2011 period. |
Consolidated Financial Condition
Our total assets were $21.3 billion at June 30, 2012, an increase of $1.3 billion, or 6.6 percent, compared to $20.0 billion at December 31, 2011. Below is a summary of the individual components driving the increase.
Cash and Cash Equivalents
Cash and cash equivalents totaled $1.4 billion at June 30, 2012, an increase of $296.8 million, or 26.6 percent, compared to $1.1 billion at December 31, 2011. The increase was primarily due to deposit growth from both new and existing clients, partially offset by the investment of cash previously held at the FRB into available-for-sale securities as well as to fund loan growth.
As of June 30, 2012 and December 31, 2011, $662.4 million and $100.1 million, respectively, of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $265.8 million and $371.5 million, respectively.
Investment Securities
Investment securities totaled $11.8 billion at June 30, 2012, an increase of $212.8 million, or 1.8 percent, compared to $11.5 billion at December 31, 2011. Our investment securities portfolio consists of both an available-for-sale securities portfolio, which represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business. The increase of $212.8 million included an increase of $84.9 million in available-for-sale securities and an increase of $127.9 million in non-marketable securities. The major components of the change are explained below.
Available-for-Sale Securities
Our available-for-sale securities portfolio is a fixed income investment portfolio that is managed to optimize portfolio yield over the long-term consistent with our liquidity, credit diversification and asset/liability strategies. Available-for-sale securities were $10.6 billion at June 30, 2012, an increase of $84.9 million, or 0.8 percent, compared to $10.5 billion at December 31, 2011. The increase was primarily due to purchases of new investments of $1.8 billion, partially offset by paydowns of $1.4 billion and sales of $315.7 million. The purchases of new investments of $1.8 billion were primarily comprised of fixed-rate agency-issued mortgage securities and fixed-rate agency debentures. The paydowns of securities of $1.4 billion were comprised of $1.1 billion in fixed-rate securities and $313.5 million in variable-rate securities. The sales of $315.7 million were comprised entirely of U.S. agency securities. The proceeds from the sales and paydowns were used primarily to fund loan growth and reduce overnight borrowings.
61
Portfolio duration is a standard measure used to approximate changes in the market value of fixed income instruments due to a change in market interest rates. The measure is an estimate based on the level of current market interest rates, expectations for changes in the path of forward rates and the effect of forward rates on mortgage prepayment speed assumptions. As such, portfolio duration will fluctuate with changes in market interest rates. Changes in portfolio duration are also impacted by changes in the mix of longer versus shorter term-to-maturity securities. Estimated portfolio duration was 1.8 years at both June 30, 2012 and December 31, 2011.
Non-Marketable Securities
Our non-marketable securities portfolio primarily represents investments in venture capital funds, debt funds and private portfolio companies. A majority of these investments are managed through our SVB Capital funds business in funds of funds and direct venture funds. Included in our non-marketable securities carried under fair value accounting are amounts that are attributable to noncontrolling interests. We are required under GAAP to consolidate 100% of these investments that we are deemed to control, even though we may own less than 100% of such entities. See below for a summary of the carrying value (as reported) of non-marketable securities compared to the amounts attributable to SVBFG.
Non-marketable securities were $1.1 billion at June 30, 2012, an increase of $127.9 million, or 12.7 percent, compared to $1.0 billion at December 31, 2011. The increase was primarily attributable to the funding of our capital contribution of $79.7 million to our joint venture bank in China, as well as to capital calls (net of distributions) from noncontrolling interests of $33.4 million. The following table summarizes the carrying value (as reported) of nonmarketable securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at June 30, 2012 and December 31, 2011:
June 30, 2012 | December 31, 2011 | |||||||||||||||||
(Dollars in thousands) |
Carrying value (as reported) |
Amount attributable to SVBFG |
Carrying value (as reported) |
Amount attributable to SVBFG |
||||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||||
Venture capital and private equity fund investments (1) |
$ | 639,596 | $ | 77,011 | $ | 611,824 | $ | 77,674 | ||||||||||
Other venture capital investments (2) |
120,111 | 10,883 | 124,121 | 11,333 | ||||||||||||||
Other investments |
- | - | 987 | 493 | ||||||||||||||
Non-marketable securities (equity method accounting): |
||||||||||||||||||
Other investments |
138,993 | 138,993 | 68,252 | 68,252 | ||||||||||||||
Low income housing tax credit funds |
58,698 | 58,698 | 34,894 | 34,894 | ||||||||||||||
Non-marketable securities (cost method accounting): |
||||||||||||||||||
Venture capital and private equity fund investments |
153,618 | 153,618 | 145,007 | 145,007 | ||||||||||||||
Other investments |
21,296 | 21,296 | 19,355 | 19,355 | ||||||||||||||
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|
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|
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Total non-marketable securities |
$ | 1,132,312 | $ | 460,499 | $ | 1,004,440 | $ | 357,008 | ||||||||||
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|
(1) | The following table shows the amount of venture capital and private equity fund investments by the following consolidated funds and amounts attributable to SVBFG for each fund at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||||||
(Dollars in thousands) |
Carrying value (as reported) |
Amount attributable to SVBFG |
Carrying value (as reported) |
Amount attributable to SVBFG |
||||||||||||||||
SVB Strategic Investors Fund, LP |
$ | 36,694 | $ | 4,609 | $ | 39,567 | $ | 4,970 | ||||||||||||
SVB Strategic Investors Fund II, LP |
109,343 | 9,372 | 122,619 | 10,510 | ||||||||||||||||
SVB Strategic Investors Fund III, LP |
213,405 | 12,528 | 218,429 | 12,824 | ||||||||||||||||
SVB Strategic Investors Fund IV, LP |
146,477 | 7,324 | 122,076 | 6,104 | ||||||||||||||||
Strategic Investors Fund V, LP |
18,134 | 32 | 8,838 | 31 | ||||||||||||||||
SVB Capital Preferred Return Fund, LP |
50,573 | 12,518 | 42,580 | 11,571 | ||||||||||||||||
SVB CapitalNT Growth Partners, LP |
57,588 | 24,065 | 43,958 | 20,176 | ||||||||||||||||
SVB Capital Partners II, LP |
863 | 44 | 2,390 | 121 | ||||||||||||||||
Other private equity fund |
6,519 | 6,519 | 11,367 | 11,367 | ||||||||||||||||
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|
|
|
|
|
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Total venture capital and private equity fund investments |
$ | 639,596 | $ | 77,011 | $ | 611,824 | $ | 77,674 | ||||||||||||
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|
62
(2) | The following table shows the amount of other venture capital investments by the following consolidated funds and amounts attributable to SVBFG for each fund at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||||||
(Dollars in thousands) |
Carrying value (as reported) |
Amount attributable to SVBFG |
Carrying value (as reported) |
Amount attributable to SVBFG |
||||||||||||||||
Silicon Valley BancVentures, LP |
$ | 16,739 | $ | 1,790 | $ | 17,878 | $ | 1,912 | ||||||||||||
SVB Capital Partners II, LP |
59,256 | 3,010 | 61,099 | 3,103 | ||||||||||||||||
SVB India Capital Partners I, LP |
40,668 | 5,850 | 42,832 | 6,162 | ||||||||||||||||
SVB Capital Shanghai Yangpu Venture Capital Fund |
3,448 | 233 | 2,312 | 156 | ||||||||||||||||
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Total other venture capital investments |
$ | 120,111 | $ | 10,883 | $ | 124,121 | $ | 11,333 | ||||||||||||
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Loans
Loans, net of unearned income were $7.8 billion at June 30, 2012, an increase of $819.7 million, or 11.8 percent, compared to $7.0 billion at December 31, 2011. Unearned income was $67.7 million at June 30, 2012, compared to $60.2 million at December 31, 2011. Total gross loans were $7.9 billion at June 30, 2012, an increase of $827.1 million, or 11.8 percent, compared to $7.0 billion at December 31, 2011. The increase came primarily from sponsor-led buyouts in the software niche and from our venture capital/private equity clients for capital calls. The breakdown of total gross loans and total loans as a percentage of total gross loans by category is as follows:
June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Amount | Percentage | Amount | Percentage | ||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,780,006 | 35.4 | % | $ | 2,517,890 | 35.8 | % | ||||||||
Hardware |
1,097,835 | 14.0 | 961,869 | 13.7 | ||||||||||||
Venture capital/private equity |
1,417,715 | 18.0 | 1,128,520 | 16.1 | ||||||||||||
Life science |
926,894 | 11.8 | 872,413 | 12.4 | ||||||||||||
Premium wine |
121,242 | 1.5 | 131,552 | 1.9 | ||||||||||||
Other |
374,907 | 4.8 | 345,588 | 4.9 | ||||||||||||
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Total commercial loans |
6,718,599 | 85.5 | 5,957,832 | 84.8 | ||||||||||||
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Real estate secured loans: |
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Premium wine |
374,988 | 4.8 | 347,241 | 4.9 | ||||||||||||
Consumer loans |
554,093 | 7.1 | 533,817 | 7.6 | ||||||||||||
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Total real estate secured loans |
929,081 | 11.9 | 881,058 | 12.5 | ||||||||||||
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|
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Construction loans |
33,159 | 0.4 | 30,319 | 0.4 | ||||||||||||
Consumer loans |
176,629 | 2.2 | 161,112 | 2.3 | ||||||||||||
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|
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Total gross loans |
$ | 7,857,468 | 100.0 | % | $ | 7,030,321 | $ | 100.0 | % | |||||||
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|
63
Loan Concentration
The following table provides a summary of loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of June 30, 2012:
June 30, 2012 | ||||||||||||||||||||||||
(Dollars in thousands) |
Less than Five Million |
Five to Ten Million |
Ten to Twenty Million |
Twenty to Thirty Million |
Thirty Million |
Total | ||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||
Software |
$ | 949,954 | $ | 437,231 | $ | 666,456 | $ | 621,398 | $ | 104,967 | $ | 2,780,006 | ||||||||||||
Hardware |
292,266 | 193,314 | 244,182 | 191,154 | 176,919 | 1,097,835 | ||||||||||||||||||
Venture capital/private equity |
259,928 | 208,991 | 234,400 | 71,000 | 643,396 | 1,417,715 | ||||||||||||||||||
Life science |
252,062 | 209,427 | 148,089 | 167,071 | 150,245 | 926,894 | ||||||||||||||||||
Premium wine (1) |
58,322 | 29,380 | 27,840 | 5,700 | - | 121,242 | ||||||||||||||||||
Other |
109,618 | 49,276 | 56,941 | 51,894 | 107,178 | 374,907 | ||||||||||||||||||
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|||||||||||||
Commercial loans |
1,922,150 | 1,127,619 | 1,377,908 | 1,108,217 | 1,182,705 | 6,718,599 | ||||||||||||||||||
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|
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Real estate secured loans: |
||||||||||||||||||||||||
Premium wine (1) |
113,658 | 88,522 | 97,941 | 43,367 | 31,500 | 374,988 | ||||||||||||||||||
Consumer loans (2) |
457,006 | 55,141 | 41,946 | - | - | 554,093 | ||||||||||||||||||
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|
|
|
|
|
|
|
|||||||||||||
Real estate secured loans |
570,664 | 143,663 | 139,887 | 43,367 | 31,500 | 929,081 | ||||||||||||||||||
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|
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|
|
|
|||||||||||||
Construction loans |
11,826 | 21,333 | - | - | - | 33,159 | ||||||||||||||||||
Consumer loans (2) |
46,457 | 49,209 | 35,963 | - | 45,000 | 176,629 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total gross loans |
$ | 2,551,097 | $ | 1,341,824 | $ | 1,553,758 | $ | 1,151,584 | $ | 1,259,205 | $ | 7,857,468 | ||||||||||||
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|
|
|
|
(1) | Premium wine clients can have loan balances included in both commercial loans and real estate secured loans, the total of which are used for the breakout of the above categories. |
(2) | Consumer loan clients have loan balances included in both real estate secured loans and other consumer loans, the total of which are used for the breakout of the above categories. |
At June 30, 2012, gross loans (individually or in the aggregate) totaling $2.4 billion, or 30.7 percent of our portfolio, were equal to or greater than $20 million to any single client. These loans represented 74 clients, and of these loans, none were on nonaccrual status as of June 30, 2012.
The following table provides a summary of loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of December 31, 2011:
December 31, 2011 | ||||||||||||||||||||||||
(Dollars in thousands) |
Less than Five Million |
Five to Ten Million |
Ten to Twenty |
Twenty to Thirty Million |
Thirty Million or More |
Total | ||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||
Software |
$ | 764,200 | $ | 429,670 | $ | 578,248 | $ | 715,772 | $ | 30,000 | $ | 2,517,890 | ||||||||||||
Hardware |
306,557 | 166,619 | 133,505 | 116,305 | 238,883 | 961,869 | ||||||||||||||||||
Venture capital/private equity |
277,087 | 232,775 | 127,848 | 53,000 | 437,810 | 1,128,520 | ||||||||||||||||||
Life science |
251,921 | 140,786 | 187,874 | 171,702 | 120,130 | 872,413 | ||||||||||||||||||
Premium wine (1) |
69,418 | 13,971 | 42,763 | 5,400 | - | 131,552 | ||||||||||||||||||
Other |
90,110 | 14,915 | 82,849 | 45,435 | 112,279 | 345,588 | ||||||||||||||||||
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|
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|
|
|
|
|
|
|
|||||||||||||
Commercial loans |
1,759,293 | 998,736 | 1,153,087 | 1,107,614 | 939,102 | 5,957,832 | ||||||||||||||||||
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|
|
|
|
|
|||||||||||||
Real estate secured loans: |
||||||||||||||||||||||||
Premium wine (1) |
119,708 | 75,161 | 75,247 | 45,625 | 31,500 | 347,241 | ||||||||||||||||||
Consumer loans (2) |
434,406 | 41,177 | 39,302 | 18,932 | - | 533,817 | ||||||||||||||||||
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|
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|
|
|
|||||||||||||
Real estate secured loans |
554,114 | 116,338 | 114,549 | 64,557 | 31,500 | 881,058 | ||||||||||||||||||
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|
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|
|||||||||||||
Construction loans |
7,581 | 22,738 | - | - | - | 30,319 | ||||||||||||||||||
Consumer loans (2) |
59,713 | 32,105 | 21,294 | 3,000 | 45,000 | 161,112 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total gross loans |
$ | 2,380,701 | $ | 1,169,917 | $ | 1,288,930 | $ | 1,175,171 | $ | 1,015,602 | $ | 7,030,321 | ||||||||||||
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|
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|
|
(1) | Premium wine clients can have loan balances included in both commercial loans and real estate secured loans, the total of which are used for the breakout of the above categories. |
(2) | Consumer loan clients have loan balances included in both real estate secured loans and other consumer loans, the total of which are used for the breakout of the above categories. |
64
At December 31, 2011, gross loans (individually or in the aggregate) totaling $2.2 billion, or 31.2 percent of our portfolio, were equal to or greater than $20 million to any single client. These loans represented 71 clients, and of these loans, none were on nonaccrual status as of December 31, 2011.
The credit profile of our clients varies across our loan portfolio, based on the nature of the lending we do for different market segments. Our technology and life sciences loan portfolio includes loans to clients at all stages of their life cycles, beginning with our SVB Accelerator practice, which serves our emerging or early-stage clients. Loans provided to early-stage clients represent a relatively small percentage of our overall portfolio at approximately 9 percent of total gross loans at June 30, 2012, compared to approximately 8 percent at December 31, 2011. Typically these loans are made to companies with modest or negative cash flows and no established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capitalists or others, or in some cases, a successful sale to a third party or a public offering. Venture capital firms may provide financing at lower levels, more selectively or on less favorable terms, which may have an adverse effect on our borrowers that are otherwise dependent on such financing to repay their loans to us. When repayment is dependent upon the next round of venture investment and there is an indication that further investment is unlikely or will not occur, it is often likely the company would need to be sold to repay debt in full. If reasonable efforts have not yielded a likely buyer willing to repay all debt at the close of the sale or on commercially viable terms, the account will most likely be deemed to be impaired.
At June 30, 2012, our lending to venture capital/private equity firms represented 18.0 percent of total gross loans, compared to 16.1 percent of total gross loans at December 31, 2011. Many of these clients have capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms.
At June 30, 2012, our asset-based lending, which consists primarily of working capital lines and accounts receivable factoring represented 7.2 percent and 4.9 percent, respectively, of total gross loans, compared to 8.8 percent and 5.4 percent, respectively at December 31, 2011. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.
Approximately 44.4 percent of our outstanding total gross loan balances as of June 30, 2012 were to borrowers based in California compared to 43.7 percent as of December 31, 2011. Other than California, there are no states with balances greater than 10 percent.
See generally Risk FactorsCredit Risks set forth under Item 1A, Part I in our 2011 Form 10-K.
Credit Quality Indicators
As of June 30, 2012, our criticized and impaired loans represented 6.9 percent of our total gross loans. This compares to 8.5 percent at December 31, 2011. A majority of our criticized loans are from our SVB Accelerator portfolio, serving our emerging or early stage clients, and make up approximately 9 percent of our loan portfolio. It is common for an early stage clients remaining liquidity to fall temporarily below the threshold for a pass-rated credit during its capital-raising period for a new round of funding. This situation typically lasts only a few weeks and, in our experience, generally resolves itself with a subsequent round of venture funding. As a result, we expect that each of our early-stage clients will be managed through our criticized portfolio during a portion of their life cycle. Criticized loan levels will continue to vary but are expected to remain within the current range.
65
Credit Quality and Allowance for Loan Losses
Nonperforming assets consist of loans past due 90 days or more that are still accruing interest and loans on nonaccrual status. We measure all loans placed on nonaccrual status for impairment based on the fair value of the underlying collateral or the net present value of the expected cash flows. The table below sets forth certain data and ratios between nonperforming loans, nonperforming assets and the allowance for loan losses:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Gross nonperforming loans: |
||||||||
Loans past due 90 days or more still accruing interest |
$ | 25 | $ | - | ||||
Impaired loans |
27,071 | 36,617 | ||||||
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|
|
|
|||||
Total gross nonperforming loans |
$ | 27,096 | $ | 36,617 | ||||
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|
|||||
Nonperforming loans as a percentage of total gross loans |
0.34 | % | 0.52 | % | ||||
Nonperforming assets as a percentage of total assets |
0.13 | 0.18 | ||||||
Allowance for loan losses |
$ | 98,166 | $ | 89,947 | ||||
As a percentage of total gross loans |
1.25 | % | 1.28 | % | ||||
As a percentage of total gross nonperforming loans |
362.29 | 245.64 | ||||||
Allowance for loan losses for impaired loans |
$ | 5,665 | $ | 3,707 | ||||
As a percentage of total gross loans |
0.07 | % | 0.05 | % | ||||
As a percentage of total gross nonperforming loans |
20.91 | 10.12 | ||||||
Allowance for loan losses for total gross performing loans |
$ | 92,501 | $ | 86,240 | ||||
As a percentage of total gross loans |
1.18 | % | 1.23 | % | ||||
As a percentage of total gross performing loans |
1.18 | 1.23 | ||||||
Total gross loans |
$ | 7,857,468 | $ | 7,030,321 | ||||
Total gross performing loans |
7,830,372 | 6,993,704 | ||||||
Reserve for unfunded credit commitments (1) |
23,476 | 21,811 | ||||||
As a percentage of total unfunded credit commitments |
0.27 | % | 0.27 | % | ||||
Total unfunded credit commitments (2) |
8,752,705 | 8,067,570 |
(1) | The Reserve for unfunded credit commitments is included as a component of other liabilities. See Provision for Unfunded Credit Commitments above for a discussion of the changes to the reserve. |
(2) | Includes unfunded loan commitments and letters of credit. |
Our allowance for loan losses as a percentage of total gross loans decreased to 1.25 percent at June 30, 2012 from 1.28 percent at December 31, 2011. The decrease is primarily reflective of the strong performance of our performing loan portfolio as our allowance for loan losses for total gross performing loans as a percentage of total gross performing loans decreased from 1.23 percent at December 31, 2011 to 1.18 percent at June 30, 2012.
Our nonperforming loans were $27.1 million at June 30, 2012, compared to $36.6 million at December 31, 2011. The decrease of $9.5 million was primarily due to paydowns of $20.0 million on nonperforming loans, partially offset by the addition of a single nonperforming hardware loan that had an impaired balance of $10.0 million at June 30, 2012. The allowance for loan losses related to impaired loans was $5.7 million at June 30, 2012 compared to $3.7 million at December 31, 2011.
Average impaired loans for the three and six months ended June 30, 2012 were $35.3 million and $36.6 million, respectively, compared to $35.0 million and $35.4 million for the comparable 2011 periods. If the impaired loans had not been impaired, $0.5 million and $1.1 million in interest income would have been recorded for the three and six months ended June 30, 2012, respectively, compared to $0.8 million and $1.5 million for the comparable 2011 periods.
66
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at June 30, 2012 and December 31, 2011 is as follows:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | % Change | |||||||||
Derivative assets, gross (1) |
$ | 105,943 | $ | 97,693 | 8.4 % | |||||||
Foreign exchange spot contract assets, gross |
67,330 | 86,610 | (22.3) | |||||||||
Accrued interest receivable |
62,359 | 58,108 | 7.3 | |||||||||
FHLB and FRB stock |
39,301 | 39,189 | 0.3 | |||||||||
Accounts receivable |
26,154 | 49,076 | (46.7) | |||||||||
Current tax receivable |
16,738 | - | - | |||||||||
Prepaid FDIC assessments |
3,711 | 8,776 | (57.7) | |||||||||
Other assets |
46,889 | 37,402 | 25.4 | |||||||||
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|
|
|
|||||||||
Total accrued interest receivable and other assets |
$ | 368,425 | $ | 376,854 | (2.2) | |||||||
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|
|
|
(1) | See Derivatives section below. |
Foreign Exchange Spot Contract Assets
Foreign exchange spot contract assets represent unsettled client trades at the end of the period. The decrease of $19.3 million was primarily due to decreased client trade activity at period-end, and is consistent with the decrease in foreign exchange spot contract liabilities (see Other Liabilities section below).
Accounts Receivable
The decrease in accounts receivable of $22.9 million from December 31, 2011 was primarily due to a decrease in unsettled client trades related to our off-balance sheet sweep money market funds.
Current Tax Receivable
The current tax receivable balance of $16.7 million at June 30, 2012 is a result of our 2012 estimated tax payments made to the IRS and to various state governments.
Prepaid FDIC Assessments
In 2009 the FDIC required insured financial institutions to prepay their estimated quarterly risk-based assessments for 2010 through 2012. The decrease of $5.1 million from December 31, 2011 was due to the amortization of this prepayment during the six months ended June 30, 2012.
Derivatives
Derivative instruments are recorded as a component of other assets and other liabilities on the balance sheet. The following table provides a summary of derivative assets and liabilities, net at June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | % Change | |||||||||
Assets: |
||||||||||||
Equity warrant assets |
$ | 74,405 | $ | 66,953 | 11.1 | % | ||||||
Foreign exchange forward and option contracts |
20,582 | 18,326 | 12.3 | |||||||||
Interest rate swaps |
9,331 | 11,441 | (18.4) | |||||||||
Loan conversion options |
1,569 | 923 | 70.0 | |||||||||
Client interest rate derivatives |
57 | 50 | 14.0 | |||||||||
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|
|
|
|||||||||
Total derivatives assets |
$ | 105,944 | $ | 97,693 | 8.4 | |||||||
|
|
|
|
|||||||||
Liabilities: |
||||||||||||
Foreign exchange forward and option contracts |
$ | (15,361) | $ | (16,816) | (8.7) | |||||||
Client interest rate derivative |
(59) | (52) | 13.5 | |||||||||
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|
|
|
|||||||||
Total derivatives liabilities |
$ | (15,420) | $ | (16,868) | (8.6) | |||||||
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|
|
|
67
Equity Warrant Assets
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 industries. At June 30, 2012, we held warrants in 1,215 companies, compared to 1,174 companies at December 31, 2011. The change in fair value of equity warrant assets is recorded in gains on derivatives instruments, net, in noninterest income, a component of consolidated net income. The following table provides a summary of transactions and valuation changes for equity warrant assets for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Balance, beginning of period |
$ | 71,404 | $ | 51,273 | $ | 66,953 | $ | 47,565 | ||||||||
New equity warrant assets |
4,546 | 3,601 | 7,154 | 7,296 | ||||||||||||
Non-cash increases in fair value |
3,260 | 7,003 | 7,823 | 9,556 | ||||||||||||
Exercised equity warrant assets |
(4,202) | (4,213) | (6,353) | (6,172) | ||||||||||||
Terminated equity warrant assets |
(603) | (723) | (1,172) | (1,304) | ||||||||||||
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|
|
|
|
|||||||||
Balance, end of period |
$ | 74,405 | $ | 56,941 | $ | 74,405 | $ | 56,941 | ||||||||
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|
Interest Rate Swaps
For information on our interest rate swaps, see Note 8Derivative Financial Instruments of the Notes to Interim Consolidated Financial Statements (unaudited) under Part I, Item 1 of this report.
Foreign Exchange Forward and Foreign Currency Option Contracts
We enter into foreign exchange forward contracts and foreign currency option contracts with clients involved in foreign activities, either as the purchaser or seller, depending upon the clients need. For each forward or option contract entered into with our clients, we enter into an opposite way forward or option contract with a correspondent bank, which mitigates the risk of fluctuations in currency rates. We enter into forward contracts with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated loans. Revaluations of foreign currency denominated loans are recorded on the line item Other as part of noninterest income, a component of consolidated net income. We have not experienced nonperformance by a counterparty and therefore have not incurred related losses. Further, we anticipate performance by all counterparties. Our net exposure for foreign exchange forward and foreign currency option contracts at June 30, 2012 and December 31, 2011 amounted to $5.2 million and $1.5 million, respectively. For additional information on our foreign exchange forward contracts and foreign currency option contracts, see Note 8- Derivative Financial Instruments of the Notes to the Consolidated Financial Statements under Part I, Item I in this report.
Deposits
Deposits were $18.1 billion at June 30, 2012, an increase of $1.4 billion, or 8.1 percent, compared to $16.7 billion at December 31, 2011. The increase is primarily due to new client acquisition and increased fundraising activity from our existing venture capital/private equity clients. At June 30, 2012, 28.9 percent of our total deposits were interest-bearing deposits, compared to 29.0 percent at December 31, 2011.
At June 30, 2012, the aggregate balance of time deposit accounts individually equal to or greater than $100,000 totaled $142.2 million, compared to $126.0 million at December 31, 2011. At June 30, 2012, substantially all time deposit accounts individually equal to or greater than $100,000 were scheduled to mature within one year. No material portion of our deposits has been obtained from a single depositor and the loss of any one depositor would not materially affect our business.
Long-Term Debt
At June 30, 2012, we had long-term debt of $458.2 million, compared to $603.6 million at December 31, 2011. At June 30, 2012, long-term debt included our 5.375% Senior Notes, 6.05% Subordinated Notes and 7.0% Junior Subordinated Debentures. Our 5.70% Senior Notes matured on June 1, 2012 and we repaid all outstanding principal, including unpaid and accrued interest, in cash upon maturity. For more information on our long-term debt, see Note 7Short-term Borrowings and Long-Term Debt of the Notes to Interim Consolidated Financial Statements (unaudited) under Part I, Item 1 of this report.
68
Other Liabilities
A summary of other liabilities at June 30, 2012 and December 31, 2011 is as follows:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | % Change | |||||||||
Foreign exchange spot contract liabilities, gross |
$ | 90,042 | $ | 152,727 | (41.0) | % | ||||||
Accrued compensation |
49,935 | 114,472 | (56.4) | |||||||||
Reserve for unfunded credit commitments |
23,476 | 21,811 | 7.6 | |||||||||
Derivative liabilities, gross (1) |
15,421 | 16,868 | (8.6) | |||||||||
Deferred tax liabilities |
10,096 | 7,975 | 26.6 | |||||||||
Other |
123,553 | 91,468 | 35.1 | |||||||||
|
|
|
|
|||||||||
Total other liabilities |
$ | 312,523 | $ | 405,321 | (22.9) | |||||||
|
|
|
|
(1) | See Derivatives section above. |
Foreign Exchange Spot Contract Liabilities
Foreign exchange spot contract liabilities represent unsettled client trades at the end of the period. The decrease of $62.7 million was primarily due to decreased client trade activity at period-end, and is consistent with the decrease in foreign exchange spot contract assets. (See Accrued Interest Receivable and Other Assets section above).
Accrued Compensation
Accrued compensation includes amounts for our Incentive Compensation Plans, Direct Drive Incentive Compensation Plan, Long-Term Cash Incentive Plan, Retention Program, Warrant Incentive Plan, ESOP and other compensation arrangements. The decrease of $64.4 million was primarily the result of 2011 incentive compensation payouts during the first quarter of 2012, partially offset by additional accruals for the six months ended June 30, 2012.
Noncontrolling Interests
Noncontrolling interests totaled $729.0 million and $681.0 million at June 30, 2012 and December 31, 2011, respectively. The increase of $48.0 million was primarily due to $33.8 million of contributed capital (net of distributions) from investors in our managed funds and net income attributable to noncontrolling interests of $14.6 million for the six months ended June 30, 2012, primarily from our managed funds of funds.
Fair Value Measurements
The following table summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011.
Saturday, June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Total Balance | Level 3 | Total Balance | Level 3 | ||||||||||||
Assets carried at fair value |
$ | 11,491,338 | $ | 828,326 | $ | 11,372,081 | $ | 799,962 | ||||||||
As a percentage of total assets |
54.0 | % | 3.9 | % | 56.9 | % | 4.0 | % | ||||||||
Liabilities carried at fair value |
$ | 15,420 | $ | - | $ | 16,868 | $ | - | ||||||||
As a percentage of total liabilities |
0.1 | % | - | % | 0.1 | % | - | % | ||||||||
Level 1 and 2 | Level 3 | Level 1 and 2 | Level 3 | |||||||||||||
Percentage of assets measured at fair value |
92.8 | % | 7.2 | % | 93.0 | % | 7.0 | % |
As of June 30, 2012, our available-for-sale securities, consisting of agency-issued mortgage-backed securities, agency-issued collateralized mortgage obligations, U.S. agency debentures, U.S. treasury securities and municipal bonds and notes, totaled $10.6 billion, or 92.4 percent of our portfolio of assets measured at fair value on a recurring basis, compared to $10.5 billion, or 92.6 percent, as of December 31, 2011. These instruments were classified as Level 2 because their valuations were based on indicative prices corroborated by observable market quotes or valuation techniques with all significant inputs derived from or corroborated by observable market data. The fair value of our available-for-sale securities portfolio is sensitive to changes in levels of market interest rates and market perceptions of credit quality of the underlying securities. Market valuations and impairment analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis. Assets valued using Level 2 measurements also include equity warrant assets in shares of public company capital stock, marketable securities, interest rate swaps, foreign exchange forward and option contracts, loan conversion options and client interest rate derivatives.
69
Financial assets valued using Level 3 measurements consist primarily of our investments in venture capital and private equity funds and direct equity investments in privately held companies. Our managed funds that hold these investments qualify as investment companies under AICPA Audit and Accounting Guide for Investment Companies and accordingly, these funds report their investments at estimated fair value, with unrealized gains and losses resulting from changes in fair value reflected as investment gains or losses in our consolidated statements of income. Assets valued using Level 3 measurements also include equity warrant assets in shares of private company capital stock.
During the three and six months ended June 30, 2012, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $16.9 million and $29.2 million (which is inclusive of noncontrolling interest), respectively, primarily due to valuation increases in underlying fund investments in our managed funds, as well as gains from liquidity events and distributions and gains from our equity warrant assets. During the three and six months ended June 30, 2011, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $43.3 million and $94.6 million, respectively, (which is inclusive of noncontrolling interest).
The valuation of non-marketable securities and equity warrant assets in shares of private company capital stock is subject to significant judgment. The inherent uncertainty in the process of valuing securities for which a ready market does not exist may cause our estimated values of these securities to differ significantly from the values that would have been derived had a ready market for the securities existed, and those differences could be material. The timing and amount of changes in fair value, if any, of these financial instruments depend upon factors beyond our control, including the performance of the underlying companies, fluctuations in the market prices of the preferred or common stock of the underlying companies, general volatility and interest rate market factors, and legal and contractual restrictions. The timing and amount of actual net proceeds, if any, from the disposition of these financial instruments depend upon factors beyond our control, including investor demand for IPOs, levels of M&A activity, legal and contractual restrictions on our ability to sell, and the perceived and actual performance of portfolio companies. All of these factors are difficult to predict (see Risk Factors set forth in our 2011 Form 10-K).
Capital Resources
Our management seeks to maintain adequate capital to support anticipated asset growth, operating needs and unexpected credit risks, and to ensure that SVB Financial and the Bank are in compliance with all regulatory capital guidelines. Our primary sources of new capital include retained earnings and proceeds from the sale and issuance of capital stock or other securities. Our management engages, in consultation with our Finance Committee of the Board of Directors, in a regular capital planning process in an effort to make effective use of the capital available to us and to appropriately plan for our future capital needs. The capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments.
SVBFG Stockholders Equity
SVBFG stockholders equity totaled $1.7 billion at June 30, 2012, an increase of $146.0 million, or 9.3 percent compared to $1.6 billion at December 31, 2011. This increase was primarily the result of net income of $82.4 million for the six months ended June 30, 2012 and an increase in additional-paid-in-capital of $44.9 million primarily from stock option exercises, stock purchases under our ESPP plan and ESOP contributions during the six months ended June 30, 2012.
Funds generated through retained earnings are a significant source of capital and liquidity and are expected to continue to be so in the future.
Capital Ratios
Both SVB Financial and the Bank are subject to various capital adequacy guidelines issued by the Federal Reserve Board and the California Department of Financial Institutions. To be classified as adequately capitalized under these capital guidelines, minimum ratios for total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratio for bank holding companies and banks are 8.0%, 4.0% and 4.0%, respectively.
To be classified as well capitalized under these capital guidelines, minimum ratios for total risk-based capital and Tier 1 risk-based capital for bank holding companies and banks are 10.0% and 6.0%, respectively. Under the same capital adequacy guidelines, a well-capitalized state member bank must maintain a minimum Tier 1 leverage ratio of 5.0%. There is no Tier 1 leverage requirement for a holding company to be deemed well-capitalized.
70
The Federal Reserve has not issued any minimum guidelines for the tangible common equity to tangible assets ratio or the tangible common equity to risk-weighted assets ratio. However, we believe these ratios provide meaningful supplemental information regarding our capital levels and are therefore provided below.
Regulatory capital ratios for SVB Financial and the Bank exceeded minimum federal regulatory guidelines for a well-capitalized depository institution as of June 30, 2012 and December 31, 2011. Capital ratios for SVB Financial and the Bank, compared to the minimum regulatory ratios to be considered well capitalized and adequately capitalized, are set forth below:
June 30, 2012 |
December 31, 2011 |
Minimum ratio to be Well Capitalized |
Minimum ratio to be Adequately Capitalized |
|||||||||||||
SVB Financial: |
||||||||||||||||
Total risk-based capital ratio |
13.85 | % | 13.95 | % | 10.0 | % | 8.0 | % | ||||||||
Tier 1 risk-based capital ratio |
12.62 | 12.62 | 6.0 | 4.0 | ||||||||||||
Tier 1 leverage ratio |
8.07 | 7.92 | N/A | 4.0 | ||||||||||||
Tangible common equity to tangible assets ratio (1)(2) |
8.06 | 7.86 | N/A | N/A | ||||||||||||
Tangible common equity to risk-weighted assets ratio (1)(2) |
13.35 | 13.25 | N/A | N/A | ||||||||||||
Bank: |
||||||||||||||||
Total risk-based capital ratio |
12.24 | % | 12.33 | % | 10.0 | % | 8.0 | % | ||||||||
Tier 1 risk-based capital ratio |
10.98 | 10.96 | 6.0 | 4.0 | ||||||||||||
Tier 1 leverage ratio |
7.01 | 6.87 | 5.0 | 4.0 | ||||||||||||
Tangible common equity to tangible assets ratio (1)(2) |
7.39 | 7.18 | N/A | N/A | ||||||||||||
Tangible common equity to risk-weighted assets ratio (1)(2) |
11.86 | 11.75 | N/A | N/A |
(1) | See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. |
(2) | The FRB has not issued any minimum guidelines for the tangible common equity to tangible assets ratio or the tangible common equity to risk-weighted assets ratio. However, we believe these ratios provide meaningful supplemental information regarding our capital levels and are therefore provided above. |
Our total risk based capital (includes tier 1 and tier 2 capital components) ratios for both SVB Financial and the Bank decreased nominally compared to December 31, 2011 due to period end loan growth relative to lower risk-weighted investments and cash. Our tier 1 leverage ratios for both SVB Financial and the Bank increased compared to December 31, 2011 due to growth in retained earnings and additional-paid-in-capital, the impact of which was partially offset by continued growth in assets. All of our capital ratios are above the levels to be considered well capitalized.
The tangible common equity to tangible assets ratio and the tangible common equity to risk-weighted assets ratios are not required by GAAP or applicable bank regulatory requirements. However, we believe these ratios provide meaningful supplemental information regarding our capital levels. Our management uses, and believes that investors benefit from referring to, these ratios in evaluating the adequacy of the Companys capital levels; however, this financial measure should be considered in addition to, not as a substitute for or preferable to, comparable financial measures prepared in accordance with GAAP. These ratios are calculated by dividing total SVBFG stockholders equity, by total period-end assets and risk-weighted assets, after reducing both amounts by acquired intangibles, if any. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies. The following table provides a reconciliation of non-GAAP financial measures with financial measures defined by GAAP:
SVB Financial | Bank | |||||||||||||||
Non-GAAP tangible common equity and tangible
assets |
June 30, 2012 |
December 31, 2011 |
June 30, 2012 |
December 31, 2011 |
||||||||||||
GAAP SVBFG stockholders equity |
$ | 1,715,360 | $ | 1,569,392 | $ | 1,479,817 | $ | 1,346,854 | ||||||||
Less: |
||||||||||||||||
Intangible assets |
- | 601 | - | - | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Tangible common equity |
$ | 1,715,360 | $ | 1,568,791 | $ | 1,479,817 | $ | 1,346,854 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
GAAP Total assets |
$ | 21,289,772 | $ | 19,968,894 | $ | 20,027,219 | $ | 18,758,813 | ||||||||
Less: |
||||||||||||||||
Intangible assets |
- | 601 | - | - | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Tangible assets |
$ | 21,289,772 | $ | 19,968,293 | $ | 20,027,219 | $ | 18,758,813 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Risk-weighted assets |
$ | 12,850,191 | $ | 11,837,902 | $ | 12,482,417 | $ | 11,467,401 | ||||||||
Tangible common equity to tangible assets |
8.06 | % | 7.86 | % | 7.39 | % | 7.18 | % | ||||||||
Tangible common equity to risk-weighted assets |
13.35 | 13.25 | 11.86 | 11.75 |
71
For both SVB Financial and the Bank, the tangible common equity to risk-weighted assets ratios increased due to an increase in retained earnings, an increase in accumulated other comprehensive income from increases in the fair value of our available-for-sale securities portfolio, and an increase in additional-paid-in-capital from stock option exercises, stock purchases under our ESPP plan, and ESOP contributions during the six months ended June 30, 2012. This growth was partially offset by increases in both tangible and risk-weighted assets, which reflects our growth in period-end loan balances.
Off-Balance Sheet Arrangements
In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve, to varying degrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract. For details of our commitments to extend credit, and commercial and standby letters of credit, please refer to Note 11Off-Balance Sheet Arrangements, Guarantees, and Other Commitments of the Notes to Interim Consolidated Financial Statements (unaudited) under Part I, Item 1 of this report.
Commitments to Invest in Venture Capital/Private Equity Funds
We make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies. Commitments to invest in these funds are generally made for a ten-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over five to seven years. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate.
For further details on our commitments to invest in private equity funds, refer to Note 11Off-Balance Sheet Arrangements, Guarantees, and Other Commitments of the Notes to Interim Consolidated Financial Statements (unaudited) under Part I, Item 1 of this report.
Liquidity
The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations, including, as necessary, paying creditors, meeting depositors needs, accommodating loan demand and growth, funding investments, repurchasing securities and other operating or capital needs, without incurring undue cost or risk, or causing a disruption to normal operating conditions.
We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Our Asset/Liability Committee (ALCO), which is a management committee, provides oversight to the liquidity management process and recommends policy guidelines for the approval of the Finance Committee of our Board of Directors, and courses of action to address our actual and projected liquidity needs.
72
Our deposit base is, and historically has been, our primary source of liquidity. Our deposit levels and cost of deposits may fluctuate from time to time due to a variety of factors, including market conditions, prevailing interest rates, changes in client deposit behaviors, availability of insurance protection, and our offering of deposit products. At June 30, 2012, our period-end total deposit balances increased by $1.4 billion to $18.1 billion, compared to $16.7 billion at December 31, 2011. The overall increase in deposit balances was primarily due to new client acquisition and increased fundraising activity by our venture capital/private equity clients.
Our liquidity requirements can also be met through the use of our portfolio of liquid assets. Our definition of liquid assets includes cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, short-term investment securities maturing within one year, available-for-sale securities eligible and available for financing or pledging purposes with a maturity in excess of one year and anticipated near-term cash flows from investments.
On a stand-alone basis, SVB Financials primary liquidity channels include dividends from the Bank, its portfolio of liquid assets, and its ability to raise debt and capital. The ability of the Bank to pay dividends is subject to certain regulations described in BusinessSupervision and RegulationRestriction on Dividends under Part I, Item 1 of our 2011 Form 10-K.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for the six months ended June 30, 2012 and 2011, respectively. Please refer to our Interim Statements of Cash Flows for the six months ended June 30, 2012 and 2011 under Part I, Item 1 of this report for more details.
Six months ended June 30, | ||||||||
(Dollars in thousands) |
2012 | 2011 | ||||||
Average cash and cash equivalents |
$ | 1,325,539 | $ | 2,402,895 | ||||
|
|
|
|
|||||
Percentage of total average assets |
6.4 | % | 13.3 | % | ||||
|
|
|
|
|||||
Net cash (used for) provided by operating activities |
$ | (6,102) | $ | 171,806 | ||||
Net cash used for investing activities |
(981,459) | (2,099,917) | ||||||
Net cash provided by financing activities |
1,284,338 | 1,416,898 | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
$ | 296,777 | $ | (511,213) | ||||
|
|
|
|
Average cash and cash equivalents decreased by $1.1 billion to $1.3 billion for the six months ended June 30, 2012, compared to $2.4 billion for the comparable 2011 period. The decrease was primarily due to the investment of cash and cash equivalents into available-for-sale securities and to fund loan growth.
Cash used for operating activities of $6.1 million for the six months ended June 30, 2012 included $60.2 million in net payouts of accrued compensation and $43.4 million to reduce our net foreign exchange spot contract position, largely offset by $22.9 million in net cash received from accounts receivable and strong operating income from the business.
Cash used for investing activities of $981.5 million for the six months ended June 30, 2012 included $1.8 billion for purchases of available-for-sale securities, a $817.6 million net increase in loans, $164.5 million for purchases of non-marketable securities and $20.0 million for purchases of premises and equipment. These cash outflows were partially offset by $1.7 billion from sales, maturities and paydowns of available-for-sale securities, $83.0 million from sales or distributions of non-marketable securities of and $6.8 million in recoveries from loans previously charged-off.
Cash provided by financing activities of $1.3 billion for the six months ended June 30, 2012 included a $1.4 billion increase in deposits, $33.4 million from capital contributions (net of distributions) from noncontrolling interests and $24.3 million from the issuance of common stock and ESPP. These cash inflows were offset by principal payments of $141.4 million upon maturity of our 5.70% Senior Notes.
Cash and cash equivalents at June 30, 2012 were 1.4 billion, compared to $2.6 billion at June 30, 2011.
73
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
Market risk is defined as the risk of adverse fluctuations in the market value of financial instruments due to changes in market interest rates. Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of the benchmark LIBOR/SWAP yield curve. Additionally, changes in interest rates can influence the rate of principal prepayments on mortgage securities which affects the rate of amortization of purchase premiums and discounts. Other market risks include foreign currency exchange risk and equity price risk. These risks are not considered significant and no separate quantitative information concerning them is presented herein.
Interest rate risk is managed by our ALCO. ALCO reviews the market valuation and 12-month forward looking earnings sensitivity of assets and liabilities to changes in interest rates, structural changes in investment and funding portfolios, loan and deposit activity and current market conditions. Adherence to relevant policies, which are approved by the Finance Committee of our Board of Directors, is monitored on an ongoing basis.
Management of interest rate risk is carried out primarily through strategies involving our available-for-sale securities, available funding channels and capital market activities. In addition, our policies permit the use of off-balance sheet derivative instruments to assist in managing interest rate risk.
We utilize a simulation model to perform sensitivity analysis on the economic value of equity and net interest income under a variety of interest rate scenarios, balance sheet forecasts and proposed strategies. The simulation model provides a dynamic assessment of interest rate sensitivity embedded in our balance sheet which measures the potential variability in forecasted results relating to changes in market interest rates over time. We review our interest rate risk position on a quarterly basis at a minimum.
Model Simulation and Sensitivity Analysis
One application of the aforementioned simulation model involves measurement of the impact of market interest rate changes on our economic value of equity (EVE). EVE is defined as the market value of assets, less the market value of liabilities, adjusted for any off-balance sheet items. A second application of the simulation model measures the impact of market interest rate changes on our net interest income (NII) assuming a static balance sheet as of the period-end reporting date. The market interest rate changes that affect us are principally short-term interest rates and include the following: (1) National Prime and SVB Prime rates (impacts the majority of our variable rate loans); (2) 1-month and 3-month LIBOR (impacts our variable rate available-for-sale securities, our 6.05% Subordinated Notes, and a portion of our variable rate loans); and (3) Fed Funds target rate (impacts cash and cash equivalents). Additionally, deposit pricing generally follows overall changes in short-term interest rates.
Effective January 1, 2012, we enhanced certain model assumptions related to the decay rates on our deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits. As a result we have recast prior period EVE and NII sensitivities to provide a more comparable basis for the current quarters analysis. The following table presents our EVE and NII sensitivity exposure at June 30, 2012 and December 31, 2011, related to an instantaneous and sustained parallel shift in market interest rates of 100 and 200 basis points.
Estimated | Estimated Increase/ (Decrease) In EVE |
Estimated | Estimated Increase/ (Decrease) In NII |
|||||||||||||||||||||
Change in interest rates (basis points) |
EVE | Amount | Percent | NII | Amount | Percent | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
June 30, 2012: |
||||||||||||||||||||||||
+200 |
$ | 3,202,809 | $ | 534,995 | 20.1 | % | $ | 803,559 | $ | 129,310 | 19.2 | % | ||||||||||||
+100 |
2,869,471 | 201,657 | 7.6 | 730,013 | 55,764 | 8.3 | ||||||||||||||||||
- |
2,667,814 | - | - | 674,249 | - | - | ||||||||||||||||||
-100 |
2,850,860 | 183,046 | 6.9 | 641,228 | (33,021) | (4.9) | ||||||||||||||||||
-200 |
2,853,214 | 185,400 | 6.9 | 635,447 | (38,802) | (5.8) | ||||||||||||||||||
December 31, 2011: |
||||||||||||||||||||||||
+200 |
$ | 3,003,465 | $ | 508,947 | 20.4 | % | $ | 735,740 | $ | 106,717 | 17.0 | % | ||||||||||||
+100 |
2,729,000 | 234,482 | 9.4 | 671,880 | 42,857 | 6.8 | ||||||||||||||||||
- |
2,494,518 | - | - | 629,023 | - | - | ||||||||||||||||||
-100 |
2,619,182 | 124,664 | 5.0 | 592,325 | (36,698) | (5.8) | ||||||||||||||||||
-200 |
2,626,452 | 131,934 | 5.3 | 583,214 | (45,809) | (7.3) |
74
Economic Value of Equity
The estimated EVE in the preceding table is based on a combination of valuation methodologies including a discounted cash flow analysis and a multi-path lattice based valuation. Both methodologies use publicly available market interest rates. The model simulations and calculations are highly assumption-dependent and will change regularly as our asset/liability structure changes, as interest rate environments evolve, and as we change our assumptions in response to relevant market or business circumstances. These calculations do not reflect the changes that we anticipate or may make to reduce our EVE exposure in response to a change in market interest rates as a part of our overall interest rate risk management strategy.
As with any method of measuring interest rate risk, certain limitations are inherent in the method of analysis presented in the preceding table. We are exposed to yield curve risk, prepayment risk and basis risk, which cannot be fully modeled and expressed using the above methodology. Accordingly, the results in the preceding table should not be relied upon as a precise indicator of actual results in the event of changing market interest rates. Additionally, the resulting EVE and NII estimates are not intended to represent, and should not be construed to represent the underlying value.
Our base case EVE at June 30, 2012 increased from December 31, 2011 by $173.3 million primarily due to the change in balance sheet mix, the growth in higher-yielding interest-earning assets and flatter and lower market yield curves. The asset growth was primarily due to an increase in loans and available-for-sale securities, which grew by $819.7 million and $84.9 million, respectively. EVE sensitivity decreased slightly in the simulated upward interest rate movement due to the effect of the lower rate environment on the non-interest bearing deposits. Due to the lower market yield curve, the value benefits associated with the non-interest bearing deposits was reduced in the simulated upward interest rate movement scenarios. In the simulated downward interest rate movements, EVE sensitivity increased due to the combined effects of a flatter and lower yield curve and deposit rates being at or near their absolute floors thus muting the negative effects of the downward interest rate shocks.
12-Month Net Interest Income Simulation
Our expected 12-month NII at June 30, 2012 increased from December 31, 2011 by $45.2 million primarily due to growth in our loan portfolio and higher-yielding available-for-sale securities. The growth in total assets was funded primarily by excess cash and cash equivalents from increases in deposit balances. NII sensitivity increased slightly in the simulated upward interest rate movements due largely to the increase in variable-rate loans. In the simulated downward interest rate movements, the NII sensitivity decreased due to the current low rate environment as certain of our deposit and loan rates are at or near their floors and a decrease in variable-rate available-for-sale securities.
The simulation model used for above analysis embeds floors in our interest rate scenarios, which prevent model benchmark rates from moving below 0.0%. Current modeling assumptions maintain the SVB prime lending rate at its existing level (currently at 4.0%) until the National Prime Index has been adjusted upward by a minimum of 75 basis points (to 4.0%), as we did not lower the Banks prime lending rate despite the 75 basis points decrease in the target Federal Funds rates in December 2008. These assumptions may change in future periods based on management discretion. Actual changes in our deposit pricing strategies may differ from our current model assumptions and may have an impact on our overall sensitivity.
ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, among other things, processes, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of our most recently completed fiscal quarter, pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in managements evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
75
ITEM 1. | LEGAL PROCEEDINGS |
Please refer to Note 14Legal Matters of the Notes to Interim Consolidated Financial Statements (unaudited) under Part I, Item 1 of this report.
ITEM 1A. | RISK FACTORS |
There are no material changes from the risk factors set forth in our 2011 Form 10-K.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
See Index to Exhibits at end of report.
76
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SVB Financial Group | ||
Date: August 8, 2012 |
/s/ MICHAEL DESCHENEAUX | |
Michael Descheneaux | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
SVB Financial Group | ||
Date: August 8, 2012 |
/s/ KAMRAN HUSAIN | |
Kamran Husain | ||
Chief Accounting Officer | ||
(Principal Accounting Officer) |
77
Exhibit Number |
Exhibit Description |
Incorporated by Reference |
Filed Herewith | |||||||||
Form |
File No. |
Exhibit |
Filing Date |
|||||||||
3.1 |
Restated Certificate of Incorporation | 8-K | 000-15637 | 3.1 | May 31, 2005 | |||||||
3.2 |
Amended and Restated Bylaws | 8-K | 000-15637 | 3.2 | July 27, 2010 | |||||||
3.3 |
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock | 8-K | 000-15637 | 3.3 | December 8, 2008 | |||||||
3.4 |
Certificate of Designations of Fixed Rate Cumulative Perpetual Preferred Stock, Series B | 8-K | 000-15637 | 3.4 | December 15, 2008 | |||||||
4.1 |
Junior Subordinated Indenture, dated as of October 30, 2003 between SVB Financial and Wilmington Trust Company, as trustee | 8-K | 000-15637 | 4.12 | November 19, 2003 | |||||||
4.2 |
7.0% Junior Subordinated Deferrable Interest Debenture due October 15, 2033 of SVB Financial | 8-K | 000-15637 | 4.13 | November 19, 2003 | |||||||
4.3 |
Amended and Restated Trust Agreement, dated as of October 30, 2003, by and among SVB Financial as depositor, Wilmington Trust Company as property trustee, Wilmington Trust Company as Delaware trustee, and the Administrative Trustees named therein | 8-K | 000-15637 | 4.14 | November 19, 2003 | |||||||
4.4 |
Certificate Evidencing 7% Cumulative Trust Preferred Securities of SVB Capital II, dated October 30, 2003 | 8-K | 000-15637 | 4.15 | November 19, 2003 | |||||||
4.5 |
Guarantee Agreement, dated October 30, 2003, between SVB Financial and Wilmington Trust Company, as trustee | 8-K | 000-15637 | 4.16 | November 19, 2003 | |||||||
4.6 |
Agreement as to Expenses and Liabilities, dated as of October 30, 2003, between SVB Financial and SVB Capital II | 8-K | 000-15637 | 4.17 | November 19, 2003 | |||||||
4.7 |
Certificate Evidencing 7% Common Securities of SVB Capital II, dated October 30, 2003 | 8-K | 000-15637 | 4.18 | November 19, 2003 | |||||||
4.8 |
Officers Certificate and Company Order, dated October 30, 2003, relating to the 7.0% Junior Subordinated Deferrable Interest Debentures due October 15, 2033 | 8-K | 000-15637 | 4.19 | November 19, 2003 | |||||||
4.9 |
Amended and Restated Preferred Stock Rights Agreement, dated as of January 29, 2004, between SVB Financial and Wells Fargo Bank Minnesota, N.A. | 8-A12G/A | 000-15637 | 4.20 | February 27, 2004 | |||||||
4.10 |
Amendment No. 1 to Amended & Restated Preferred Stock Rights Agreement, dated as of August 2, 2004, by and between SVB Financial and Wells Fargo Bank, N.A. | 8-A12G/A | 000-15637 | 4.13 | August 3, 2004 | |||||||
4.11 |
Amendment No. 2 to Amended & Restated Preferred Stock Rights Agreement, dated as of January 29, 2008, by and between SVB Financial and Wells Fargo Bank, N.A. | 8-A/A | 000-15637 | 4.14 | January 29, 2008 | |||||||
4.12 |
Amendment No. 3 to Amended and Restated Preferred Stock Rights Agreement, dated as of April 30, 2008, by and between SVB Financial and Wells Fargo Bank, N.A | 8-A/A | 000-15637 | 4.20 | April 30, 2008 |
78
Exhibit Number |
Exhibit Description |
Incorporated by Reference |
Filed Herewith | |||||||||
Form |
File No. |
Exhibit |
Filing Date |
|||||||||
4.13 |
Amendment No. 4 to Amended and Restated Preferred Stock Rights Agreement, dated as of January 15, 2010, by and between SVB Financial, Wells Fargo Bank, N.A. and American Stock Transfer & Trust Company, LLC | 8-A/A | 000-15637 | 4.22 | January 19, 2010 | |||||||
4.14 |
Indenture, dated September 20, 2010, by and between SVB Financial Group and U.S. Bank National Association, as trustee | 8-K | 000-15637 | 4.1 | September 20, 2010 | |||||||
4.15 |
Form of 5.375% Senior Note due 2020 | 8-K | 000-15637 | 4.2 | September 20, 2010 | |||||||
*10.8 |
Deferred Compensation Plan | X | ||||||||||
31.1 |
Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer | X | ||||||||||
31.2 |
Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer | X | ||||||||||
32.1 |
Section 1350 Certifications | ** | ||||||||||
101.INS |
XBRL Instance Document | X | ||||||||||
101.SCH |
XBRL Taxonomy Extension Schema Document | X | ||||||||||
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document | X |
* | Denotes management contract or any compensatory plan, contract or arrangement. |
** | Furnished herewith |
79
Exhibit 10.8
SVB Financial Group
Deferred Compensation Plan
Plan Document
Amended April 25, 2012
TABLE OF CONTENTS
PURPOSES
ARTICLE 1 - DEFINITIONS | 1 | |||||
1.1 |
Account | 1 | ||||
1.2 |
Administrator | 1 | ||||
1.3 |
Base Pay | 1 | ||||
1.4 |
Beneficiary | 1 | ||||
1.5 |
Board | 1 | ||||
1.6 |
Bonus | 1 | ||||
1.7 |
Code | 1 | ||||
1.8 |
Compensation | 1 | ||||
1.9 |
Deferral Election | 1 | ||||
1.10 |
Eligible Employee | 2 | ||||
1.11 |
Employer | 2 | ||||
1.12 |
ERISA | 2 | ||||
1.13 |
Participant | 2 | ||||
1.14 |
Plan | 2 | ||||
1.15 |
Plan Sponsor | 2 | ||||
1.16 |
Plan Year | 2 | ||||
1.17 |
Separation from Service | 2 | ||||
1.18 |
Specified Employee | 2 | ||||
1.19 |
Special Retention Incentives | 2 | ||||
1.20 |
SVB Controlled Group | 2 | ||||
1.21 |
Valuation Date | 2 | ||||
ARTICLE 2 - PARTICIPATION |
3 | |||||
2.1 |
Participation | 3 | ||||
2.2 |
Termination of Participation | 3 | ||||
2.3 |
Other Termination of Employment | 3 | ||||
ARTICLE 3 - DEFERRAL ELECTIONS |
4 | |||||
3.1 |
Deferral Election | 4 | ||||
3.2 |
Election to Defer Base Pay | 4 | ||||
3.3 |
Election to Defer Bonus | 4 | ||||
3.4 |
Special Retention Incentives | 4 | ||||
3.5 |
Timing of Election to Defer | 4 | ||||
3.6 |
Election of Payment Schedule and Form of Payment | 5 | ||||
ARTICLE 4 - PARTICIPANT ACCOUNT |
6 | |||||
4.1 |
Individual Accounts | 6 | ||||
ARTICLE 5 - INVESTMENT OF CONTRIBUTIONS |
7 |
5.1 |
Investment Options | 7 | ||||
5.2 |
Adjustment of Accounts | 7 | ||||
ARTICLE 6 - RIGHT TO BENEFITS |
8 | |||||
6.1 |
Vesting | 8 | ||||
6.1.1 |
Vesting for Voluntary Deferral | 8 | ||||
6.1.2 |
Vesting for Special Retention Incentives | 8 | ||||
6.2 |
Death | 8 | ||||
ARTICLE 7 - DISTRIBUTION OF BENEFITS |
9 | |||||
7.1 |
Amount of Benefits | 9 | ||||
7.2 |
Method and Timing of Distributions | 9 | ||||
7.2.1 |
Method and Timing of Distributions for Voluntary Elected Deferral | 9 | ||||
7.2.2 |
Method and Timing of Distributions for Special Retention Incentive | 9 | ||||
7.3 |
Cash outs of Amounts Not Exceeding $10,000 | 9 | ||||
ARTICLE 8 - AMENDMENT AND TERMINATION |
10 | |||||
8.1 |
Amendment by Employer | 10 | ||||
8.2 |
Retroactive Amendments | 10 | ||||
8.3 |
Plan Termination | 10 | ||||
8.4 |
Distribution Upon Termination of the Plan | 10 | ||||
ARTICLE 9 - THE TRUST |
11 | |||||
9.1 |
Establishment of Trust | 11 | ||||
9.2 |
Grantor Trust | 11 | ||||
9.3 |
Investment of Trust Funds | 11 | ||||
ARTICLE 10 - MISCELLANEOUS |
12 | |||||
10.1 |
Acceleration of Payments Permitted Under Code Section 409A | 12 | ||||
10.2 |
Unsecured General Creditor of the Employer | 12 | ||||
10.3 |
Employers Liability | 12 | ||||
10.4 |
Limitation of Rights | 12 | ||||
10.5 |
Alienation of Benefits | 12 | ||||
10.6 |
Facility of Payment | 13 | ||||
10.7 |
Notices | 13 | ||||
10.8 |
Tax Withholding | 13 | ||||
10.9 |
Indemnification | 14 | ||||
10.10 |
Governing Law | 14 | ||||
10.11 |
Compliance with Section 111 of EESA | |||||
ARTICLE 11 - PLAN ADMINISTRATION |
14 | |||||
11.1 |
Powers and Responsibilities of the Administrator | 14 | ||||
11.2 |
Claims and Review Procedures | 15 | ||||
11.3 |
Plan Administrative Costs | 16 | ||||
APPENDIX A INVESTMENT OPTIONS |
i |
PURPOSES
The purposes of the SVB Financial Group Deferred Compensation Plan (the Plan) are (a) to permit eligible employees to elect to defer receipt of compensation which would otherwise be payable to them currently as annual base pay or bonuses and (b) to provide investment alternatives for voluntary and mandatory deferred compensation. The Plan is intended to be a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and shall be implemented and administered in a manner consistent therewith. The Plan also is intended to comply with Section 409A of the Internal Revenue Code.
ARTICLE 1 DEFINITIONS
Pronouns used in this Plan include the genders unless context clearly indicates otherwise. Wherever used herein, the following terms have the meanings set forth below, unless context clearly requires a different meaning:
1.1 | Account means an account established for the purpose of recording amounts credited on behalf of a Participant and any income, expenses, gains, losses or distributions included thereon. The Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to the Plan. |
1.2 | Administrator means the Employer, or such other person or persons designated by the Employer to be responsible for the administration of the Plan. |
1.3 | Base Pay means the basic or regular rate of per payroll period remuneration paid to the Participant by the Employer. |
1.4 | Beneficiary means the persons, trusts, estates or other entitities entitled under Section 6.2 to receive benefits under the Plan upon the death of a Participant. |
1.5 | Board means the Compensation Committee of Board of Directors of the Plan Sponsor. |
1.6 | Bonus means a bonus earned by an Eligible Employee during the Plan Year for services rendered to Employer as determined by the Administrator and payable no later than March 31 of the following Plan Year and does not include unearned income such as spot bonuses, business referrals, new employee referrals, sign-on, or relocation awards. |
1.7 | Code means the Internal Revenue Code of 1986, as amended from time to time. |
1.8 | Compensation means Base Pay and Bonus earned by an Eligible Employee during the Plan Year for services rendered to Employer as determined by the Administrator and payable no later than March 31 of the following Plan Year. |
1.9 | Deferral Election means an election an Eligible Employee makes as provided by Section 3.1. |
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1.10 | Eligible Employee means an employee that Employer (a) determines to be a member of a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and (b) designates as an Eligible Employee for purposes of this Plan. |
1.11 | Employer means SVB Financial Group and all other members of SVB Controlled Group that it designates to participate in this Plan. |
1.12 | ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. |
1.13 | Participant means any Eligible Employee who participates in the Plan in accordance with Article 2. |
1.14 | Plan means this SVB Financial Group Deferred Compensation Plan as set forth herein and as it may be amended from time to time. |
1.15 | Plan Sponsor means SVB Financial Group. |
1.16 | Plan Year means the Calendar Year. |
1.17 | Separation from Service means a Participants death, retirement, or other termination of employment with the SVB Controlled Group. The determination of whether a Participant has terminated employment shall be determined based on the facts and circumstances in accordance with the rules set forth in Code Section 409A and the regulations thereunder. |
1.18 | Special Retention Incentives means retention incentives offered to selected key Participants as provided in Section 3.4. |
1.19 | Specified Employee means a Participant who is identified as a specified employee as of the date of his Separation from Service in accordance with the requirements of Treasury Regulation section 1.409A-1(i). |
1.20 | SVB Controlled Group means the Employers and any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes an Employer and any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c) with an Employer. |
1.21 | Total Disability means total disability as determined by the Social Security Administration or other disability that complies with the requirements of Treasury Regulations section 1.409A-3(i)(4). |
1.22 | Valuation Date means each business day of the Plan Year and such other date(s) as Employer designates. |
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ARTICLE 2 PARTICIPATION
2.1 | Participation. Each Eligible Employee shall become a Participant in the Plan by executing a Deferral Election in accordance with the provisions of Article 3 or by being designated as a Participant in a Special Retention Incentive. |
2.2 | Termination of Participation. A Participants participation in the Plan shall cease upon his termination of service with the Employer for any reason or his ceasing to qualify as an Eligible Employee. Upon any termination of participation, a Participants deferrals shall cease but the provisions of Section 7.2 shall continue to apply. |
2.3 | Other Termination of Employment. If the Participants employment is terminated prior to the end of a Special Retention Incentive Vesting Period for any reason other than death or Total Disability, the Participant will forfeit all rights to payment under this Plan. |
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ARTICLE 3 DEFERRAL ELECTIONS
3.1 | Deferral Election. Each Eligible Employee may elect to defer Compensation payable to him currently for the Plan Year by executing a Deferral Election in accordance with rules and procedures established by the Administrator and the provisions of this Article 3. The Deferral Election must separately specify for each type of Compensation (i.e., Base Pay and Bonus) the whole number percentage multiple that the Participant elects to defer and the timing and form of payment of the deferred amount. |
A new Deferral Election must be timely executed for each Plan Year during which the Eligible Employee elects to defer compensation. An Eligible Employee who does not timely execute a Deferral Election shall be deemed to have elected zero deferrals for such Plan Year.
The Administrator shall specify a period, ending no later than the business day preceding the Plan Year, during which Deferral Elections may be made as to a Plan Year. Each Deferral Election becomes irrevocable at the close of the specified period.
3.2 | Election to Defer Base Pay. An Eligible Employee may elect to defer Base Pay for a Plan Year in any amount (in 1% increments) from 5% to 50% of Base Pay. |
3.3 | Election to Defer Bonus. An Eligible Employee may elect to defer (in 1% increments) from 5% to 100% of his Bonus for a Plan Year. |
3.4 | Special Retention Incentives. From time to time during the Plan Year, the Administrator, in its sole discretion, shall designate Special Retention Incentives to key employees as eligible for investment in this plan during the retention qualifying period. |
3.5 | Timing of Election to Defer. Each Eligible Employee who desires to defer Base Pay otherwise payable during a Plan Year must execute a Deferral Election within the period preceding the Plan Year specified by the Administrator. Each Eligible Employee who desires to defer a Bonus must execute a Deferral Election within the period preceding the Plan Year during which the Bonus is earned that is specified by the Administrator, except that if the Bonus can be treated as performance based compensation which is based upon services performed over a period of at least twelve months as described in Section 409A(a)(4)(B)(iii) and Treasury Regulations promulgated thereunder, such Deferral Election must be executed no later than the date which is six months before the end of the performance period in which the Bonus is earned. |
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In the case of the first Plan Year in which an Employee first becomes classified or designated as an Eligible Employee, if and to the extent permitted by the Administrator, the individual may make an election no later than thirty (30) days after the date he or she becomes an Eligible Employee to defer Base Pay and/or Bonus (as applicable) for services to be performed after the election. An election will be deemed to apply to Bonus for services performed after the election if the election applies to no more than an amount equal to the total Bonus for the performance period multiplied by the ratio of the number of days remaining in the performance period after the election over the total number of days in the performance period. This paragraph will not apply to an Employee who is a participant in any other account balance deferred compensation plans maintained by any member of the SVB Controlled Group which is required to be aggregated with this Plan under Code Section 409A.
3.6 | Election of Payment Schedule and Form of Payment. At the time an Eligible Employee completes a Deferral Election, the Eligible Employee must separately elect for each type of Compensation being deferred (i.e., for Base Pay and Bonus). |
A Participant must designate on the Deferral Election the year that distribution from the Participants Account shall be made. The year must be at least three years after the first day of the Plan Year during which the Deferral Election is effective.
A Participant must elect to receive distribution of the Participants Deferral Accounts in either a single lump sum in cash or in annual cash installments over a period of up to ten years.
Subject to section 7.2, distribution shall commence no earlier than six months following the date of a Participants Separation from Service.
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ARTICLE 4 PARTICIPANT ACCOUNT
4.1 | Individual Accounts. The Administrator will establish and maintain a bookkeeping Account for each Participant which will reflect deferrals made pursuant to Article 3 along with earnings, expenses, gains and losses credited thereto, attributable to the hypothetical investments made with the amounts in the Participants Account as provided in Article 5. The amount a Participant elects to defer in accordance with Article 3 shall be credited to the Participants Account at the time the amount subject to the deferral election would otherwise have been payable to the Participant but for his election to defer. The Administrator will establish and maintain such other accounts and records as it decides in its discretion to be reasonably required or appropriate to discharge its duties under the Plan. |
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ARTICLE 5 INVESTMENT OF CONTRIBUTIONS
5.1 | Investment Options. The amount in a Participants Account shall be treated as invested in the investment options designated for this purpose by the Administrator and set forth in Appendix A. |
5.2 | Adjustment of Accounts. The amount in a Participants Account shall be adjusted for hypothetical investment earnings or losses in an amount equivalent to the gains or losses reported by the investment options selected by the Participant or Beneficiary from among the investment options provided in Section 5.1. A Participant may, in accordance with rules and procedures established by the Administrator, change the investments to be used for the purpose of calculating future hypothetical investment adjustments to the Participants Account or to future Participant deferrals effective as of the Valuation Date coincident with or next following notice to the Administrator. The Account of each Participant shall be adjusted as of each Valuation Date to reflect: (a) the hypothetical investment earnings and/or losses described above; (b) Participant deferrals; and (c) distributions or withdrawals from the Account. |
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ARTICLE 6 RIGHT TO BENEFITS
6.1 | Vesting |
6.1.1 | Vesting for Voluntary Elected Deferral Amounts. Except as provided in Section 6.1.2, Participant, at all times, has a 100% nonforfeitable interest in voluntary elected deferral amounts credited to his Account. |
6.1.2 | Vesting for Special Retention Incentives. These awards are subject to time-based vesting requirements (and other vesting requirements as the Administrator may determine from time to time) based on the following schedule: |
Vesting Period |
Retention Incentive to Salary Multiple | |||
3 years | Less than or equal to one times annual salary | |||
4 years | Greater than one times annual salary and less than or equal to two times annual salary | |||
5 years | Greater than two times annual salary |
6.2 | Death. The balance or remaining balance credited to a Participants Account shall be paid to his Beneficiary in a single lump sum payment as soon as practicable following the date of death. If multiple Beneficiaries have been designated, each Beneficiary shall receive a single lump sum payment of his specified portion of the Account as soon as practicable following the date of death. |
A Participant may designate a Beneficiary or Beneficiaries, or change any prior designation of Beneficiary or Beneficiaries in accordance with rules and procedures established by the Administrator.
A copy of the death notice or other sufficient documentation must be filed with and approved by the Administrator. If upon the death of the Participant there is, in the opinion of the Administrator, no designated Beneficiary for part or all of the Participants Account, such amount will be
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paid to his estate (such estate shall be deemed to be the Beneficiary for purposes of the Plan) in a single lump sum payment.
ARTICLE 7 DISTRIBUTION OF BENEFITS
7.1 | Amount of Benefits. The amount credited to a Participants Account as determined under Articles 4 and 6 shall determine and constitute the basis for the value of benefits payable to the Participant under the Plan. |
7.2 | Method and Timing of Distributions. |
7.2.1 | Method and Timing of Distributions for Voluntary Deferral. Subject to Section 7.3, distributions for voluntary elected deferral amounts under the Plan will occur in the month following the end of the Plan Year and shall be made at the time and in the manner specified by the Participant in accordance with the provisions of Article 3. In all events, distribution shall commence no earlier than six months following the date of a Participants Separation from Service. |
7.2.2 | Method and Timing of Distributions for Special Retention Incentives. Distributions for Special Retention Incentive will occur as soon as administratively feasible following the vesting date specified by the Administrator, but in no event more than 60 days. |
7.3 | Cashouts Of Amounts Not Exceeding $10,000. If the amount credited to the Participants Account does not exceed $10,000 at the time he separates from service with the Employer for any reason, the Employer shall pay such amount to the Participant in a single lump sum payment as soon as practicable following such termination or cessation of service regardless of whether the Participant had made different elections of time or form of payment as to the amount credited to his Account or whether the Participant was receiving installments at the time of such termination. A distribution made to a Specified Employee shall not be made before the date that is six months after the date of his Separation from Service. |
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ARTICLE 8 AMENDMENT AND TERMINATION
8.1 | Amendment by Employer. The Plan Sponsor reserves the right to amend the Plan (for itself and each Employer) through action of the Board. An amendment must be in writing and executed by an officer authorized to take such action. Each amendment shall be effective when approved by the Board. No amendment can directly or indirectly deprive any current or former Participant or Beneficiary of all or any portion of his Account, which had accrued prior to the amendment. |
8.2 | Retroactive Amendments. An amendment made by the Plan Sponsor in accordance with Section 8.1 may be made effective on a date prior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable the Plan to satisfy the applicable requirements of the Code or ERISA or to conform the Plan to any change in federal law or to any regulations or ruling thereunder. Any retroactive amendment by the Plan Sponsor shall be subject to the provisions of Section 8.1. |
8.3 | Plan Termination. The Plan has been adopted with the intention and expectation that it will be continued indefinitely. Each Employer, however, reserves the right to terminate the Plan with respect to its participating employees. Each Employer has no obligation or liability whatsoever to maintain the Plan for any length of time and may discontinue contributions under the Plan or terminate the Plan at any time without any liability hereunder for any such discontinuance or termination. |
8.4 | Distribution Upon Termination of the Plan. Upon termination of the Plan, no further Contributions shall be made under the Plan and if such termination meets the distribution acceleration requirements of Code Section 409A, all amounts credited to each Participants Account shall be paid out as soon as administratively feasible in a single lump sum payment regardless of the elections the Participant had made concerning the time and form of payment of the amounts credited to his Account and regardless of whether the Participant was receiving installments at the time of such Plan termination. |
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ARTICLE 9 THE TRUST
9.1 | Establishment of Trust. The Plan Sponsor may but is not required to establish a trust to hold amounts, which the Plan Sponsor may contribute from time to time to correspond to some or all amounts credited to Participants under Section 4.1. If the Plan Sponsor elects to establish a trust, the provisions of Sections 9.2 and 9.3 shall become operative. |
9.2 | Grantor Trust. Any trust established by the Plan Sponsor shall be between the Plan Sponsor and a trustee pursuant to a separate written agreement under which assets are held, administered and managed, subject to the claims of the Plan Sponsors creditors in the event of the Plan Sponsors insolvency, until paid to the Participant and/or his Beneficiaries specified in the Plan. The trust is intended to be treated as a grantor trust under the Code, and the establishment of the trust shall not cause the Participant to realize current income on amounts contributed thereto. |
9.3 | Investment of Trust Funds. Any amounts contributed to the trust by the Plan Sponsor shall be invested by the trustee in accordance with the provisions of the trust and the instructions of the Administrator. Trust investments need not reflect the hypothetical investments selected by Participants under Section 5.1 for the purpose of adjusting Accounts and the earnings or investment results of the trust shall not affect the hypothetical investment adjustments to Participant Accounts under the Plan. |
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ARTICLE 10 MISCELLANEOUS
10.1 | Acceleration of Payments Permitted Under Code Section 409A. Notwithstanding anything in this Plan to the contrary, the Administrator may provide that a Participant will receive all or a portion of his or her Account prior to the time specified in this Plan to the extent such acceleration is permitted under Code Section 409A. |
10.2 | Unsecured General Creditor of the Employer. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Employer. For purposes of the payment of benefits under the Plan, any and all of the Employers assets shall be, and shall remain, the general, unpledged, unrestricted assets of the Employer. Each Employers obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. |
10.3 | Employers Liability. Each Employers liability for the payment of benefits under the Plan shall be defined only by the Plan and by the Deferral Elections entered into between a Participant and the Employer. An Employer shall have no obligation or liability to a Participant under the Plan except as provided by the Plan and a Deferral Election or agreements. An Employer shall have no liability to Participants employed by other Employers. |
10.4 | Limitation of Rights. Neither the establishment of the Plan, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to the Participant or any other person any legal or equitable right against the Employer or Administrator, except as provided herein; and in no event will the terms of employment or service of the Participant be modified or in any way affected hereby. |
10.5 | Assignment of Benefits. Except as hereinafter provided with respect to marital disputes, none of the benefits or rights of a Participant or any Beneficiary of a Participant shall be subject to the claim of any creditor. In particular, to the fullest extent permitted by law, all such benefits and rights shall be free from attachment, garnishment, or any other legal or equitable process available to any creditor of the Participant and his or her Beneficiary. Neither the Participant nor his or her Beneficiary shall have the right to alienate, anticipate, commute, pledge, encumber, or assign any of the payments which he or she may expect to receive, contingently or otherwise, under this Plan, except the right to designate a Beneficiary to receive death benefits provided hereunder. In cases of marital dispute, |
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the Employer shall observe the terms of the Plan unless and until ordered to do otherwise by a state or Federal court. As a condition of participation, a Participant agrees to hold the Employer harmless from any harm that arises out of the Employers obeying the final order of any state or Federal court, whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. A distribution made to comply with a court-approved settlement incident to divorce or to comply with Federal conflict of interest requirements shall be permitted, notwithstanding the provisions of Article 3 or any elections made by the Participant to the contrary. |
10.6 | Facility of Payment. If the Administrator determines, on the basis of medical reports or other evidence satisfactory to the Administrator, that the recipient of any benefit payments under the Plan is incapable of handling his affairs by reason of minority, illness, infirmity or other incapacity, the Administrator may direct the Employer to disburse such payments to a person or institution designated by a court which has jurisdiction over such recipient or a person or institution otherwise having the legal authority under State law for the care and control of such recipient. The receipt by such person or institution of any such payments therefore, and any such payment to the extent thereof, shall discharge the liability of the Employer for the payment of benefits hereunder to such recipient. |
10.7 | Notices. Any notice or other communication in connection with the Plan shall be deemed delivered in writing if addressed as provided below and if either actually delivered at said address or, in the case or a letter, 5 business days shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered or certified: |
(a) | If it is sent to the Employer or Administrator, it will be at the address specified by the Employer; or |
(b) | In each case at such address as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressors then effective notice address. |
10.8 | Tax Withholding. The Employer shall have the right to deduct from all payments or deferrals made under the Plan any tax required by law to be withheld. If the Employer concludes that tax is owed with respect to any deferral or payment hereunder, the Employer shall withhold such amounts from any payments due the Participant, as permitted by law, or otherwise make appropriate arrangements with the Participant or his Beneficiary for satisfaction of such obligation. Tax, for purposes of this Section 10.8 means any federal, state, local or any other governmental income tax, employment or payroll tax, excise tax, or any other tax or assessment |
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owing with respect to amounts deferred, any earnings thereon, and any payments made to Participants under the Plan. |
10.9 | Indemnification. Each Employer shall indemnify and hold harmless each employee, officer, or director of an Employer to whom is delegated duties, responsibilities, and authority with respect to the Plan against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon him (including but not limited to reasonable attorney fees) which arise as a result of his actions or failure to act in connection with the operation and administration of the Plan to the extent lawfully allowable and to the extent that such claim, liability, fine, penalty, or expense is not paid for by liability insurance purchased or paid for by an Employer. Notwithstanding the foregoing, an Employer shall not indemnify any person for any such amount incurred through any settlement or compromise of any action unless the Employer consents in writing to such settlement or compromise. |
10.10 | Governing Law. The Plan will be construed, administered and enforced according to ERISA, and to the extent not preempted thereby, the laws of the State of California. |
ARTICLE 11 PLAN ADMINISTRATION
11.1 | Powers and Responsibilities of the Administrator. The Administrator has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The Administrators powers and responsibilities include, but are not limited to, the following: |
(a) | To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; |
(b) | To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under the Plan; |
(c) | To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; |
(d) | To administer the claims and review procedures specified in Section 11.2; |
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(e) | To compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the provisions of the Plan; |
(f) | To determine the person or persons to whom such benefits will be paid; |
(g) | To authorize the payment of benefits; |
(h) | To comply with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA; |
(i) | To appoint such agents, counsel, accountants, and consultants as may be required to assist in administering the Plan; |
(j) | By written instrument, to allocate and delegate its responsibilities, including the formation of an Administrative Committee to administer the Plan. |
11.2 | Claims and Review Procedures. |
(a) | Claims Procedure. If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90-day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his claim. |
(b) | Review Procedure. Within 60 days after the date on which a person receives a written notification of denial of claim (or, if written notification is not provided, within 60 days of the date denial is considered to have occurred), such person (or his duly authorized representative) may (i) file a written request with the Administrator for a review of his denied claim and of pertinent documents and (ii) submit written issues and comments to the Administrator. The Administrator will notify such person of its decision in writing. Such |
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notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60-day period). If the decision on review is not made within such period, the claim will be considered denied. |
11.3 | Plan Administrative Costs. All reasonable costs and expenses (including legal, accounting, and employee communication fees) incurred by the Administrator in administering the Plan shall be paid by the Employer. |
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IN WITNESS WHEREOF, the Plan Sponsor by its duly authorized officer(s), has caused the Plan as amended and restated effective as of January 1, 2005 to be adopted on the 25th day of April, 2012.
SVB FINANCIAL GROUP
By: Approved by the Compensation Committee on April 25, 2012. Refer to official Compensation Committee Minutes for approval record.
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APPENDIX A
INVESTMENT OPTIONS
American Century Small Company |
Fidelity Freedom Fund 2050 | |
Fidelity Blue Chip |
Fidelity Freedom Income | |
Fidelity Diversified International |
Fidelity Government Income | |
Fidelity Equity Income |
Fidelity Mid-Cap Stock | |
Fidelity Freedom Fund 2000 |
Fidelity Retirement Money Market | |
Fidelity Freedom Fund 2005 |
Franklin Small/Mid Cap Growth | |
Fidelity Freedom Fund 2010 |
Goldman Sachs Mid Cap Value | |
Fidelity Freedom Fund 2015 |
Hotchkis and Wiley Large Cap Value Fund | |
Fidelity Freedom Fund 2020 |
Legg Mason Aggressive Growth Fund | |
Fidelity Freedom Fund 2025 |
PIMCO Low Duration Bond | |
Fidelity Freedom Fund 2030 |
Spartan 500 Index | |
Fidelity Freedom Fund 2035 |
SVB Financial Group Stock | |
Fidelity Freedom Fund 2040 |
Wells Fargo Adv Small Cap Value | |
Fidelity Freedom Fund 2045 |
Fidelity Freedom Fund 2055 |
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EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Greg Becker, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of SVB Financial Group; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants Board of Directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 8, 2012 |
/s/ GREG BECKER | |
Greg Becker | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Michael Descheneaux, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of SVB Financial Group; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants Board of Directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 8, 2012 |
/s/ MICHAEL DESCHENEAUX | |
Michael Descheneaux | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
EXHIBIT 32.1
SECTION 1350 CERTIFICATIONS
I, Greg Becker, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Quarterly Report of SVB Financial Group on Form 10-Q for the quarterly period ended June 30, 2012, (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of SVB Financial Group.
Date: August 8, 2012 |
/s/ GREG BECKER | |
Greg Becker | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
I, Michael Descheneaux, certify, pursuant to 18 U.S.C. Section 1350, that, to my knowledge, the Quarterly Report of SVB Financial Group on Form 10-Q for the quarterly period ended June 30, 2012, (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of SVB Financial Group.
Date: August 8, 2012 |
/s/ MICHAEL DESCHENEAUX | |
Michael Descheneaux | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
Unrecognized Share-Based Compensation Expense (Detail) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Unrecognized Share Based Compensation Expense [Line Items] | |
Unrecognized Expense | $ 48,835 |
Stock option
|
|
Unrecognized Share Based Compensation Expense [Line Items] | |
Unrecognized Expense | 19,129 |
Average Expected Recognition Period - in Years | 3 years |
Restricted stock units
|
|
Unrecognized Share Based Compensation Expense [Line Items] | |
Unrecognized Expense | $ 29,706 |
Average Expected Recognition Period - in Years | 2 years 11 months 26 days |
Composition of Loans, Net of Unearned income (Parenthetical) (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | $ 7,789,752 | [1] | $ 6,970,082 | [1] | ||||||
Credit Card Receivable
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | 58,300 | 49,700 | ||||||||
Real estate secured loans
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | 927,924 | 879,989 | ||||||||
Premium wine | Construction loans
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | 147,900 | 110,800 | ||||||||
Premium wine | Real estate secured loans
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | 373,658 | [2] | 345,988 | [2] | ||||||
Consumer loans | Real estate secured loans
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | 554,266 | [3] | 534,001 | [3] | ||||||
Consumer loans | Real estate secured loans | Loans for personal residence
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | 369,780 | 350,359 | ||||||||
Consumer loans | Real estate secured loans | Loans to eligible employees
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | 103,824 | 99,704 | ||||||||
Consumer loans | Real estate secured loans | Home equity lines of credit
|
||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||
Loans, net of unearned income | $ 80,662 | $ 83,938 | ||||||||
|
Summary of Unrealized Losses on Available for Sale Securities (Parenthetical) (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
Investment
|
|||
---|---|---|---|---|
Investments, Unrealized Loss Position [Line Items] | ||||
Number of investments in unrealized loss positions | 33 | |||
Number of investment with unrealized losses | 5 | |||
Investments that were in unrealized loss position | $ 43,396 | [1] | ||
Unrealized Losses on Investments | $ 214 | [1] | ||
|
Total Notional or Contractual Amounts, Fair Value, Collateral and Net Exposure of Derivative Financial Instruments (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
||||||
---|---|---|---|---|---|---|---|---|
Derivative [Line Items] | ||||||||
Fair value | $ 90,524 | $ 80,825 | ||||||
Collateral | 5,880 | [1] | ||||||
Net Exposure | 84,644 | [2] | 80,825 | [2] | ||||
Derivatives designated as hedging instruments | Interest rate risks | Interest rate swaps | Other assets
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 45,964 | 187,393 | ||||||
Fair value | 9,331 | 11,441 | ||||||
Collateral | 5,880 | [1] | ||||||
Net Exposure | 3,451 | [2] | 11,441 | [2] | ||||
Derivatives not designated as hedging instruments | Currency exchange risks
|
||||||||
Derivative [Line Items] | ||||||||
Fair value | 392 | 315 | ||||||
Net Exposure | 392 | [2] | 315 | [2] | ||||
Derivatives not designated as hedging instruments | Currency exchange risks | Foreign exchange forwards | Other assets
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 53,158 | 68,518 | ||||||
Fair value | 1,518 | 514 | ||||||
Net Exposure | 1,518 | [2] | 514 | [2] | ||||
Derivatives not designated as hedging instruments | Currency exchange risks | Foreign exchange forwards | Other liability
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 45,505 | 6,822 | ||||||
Fair value | (1,126) | (199) | ||||||
Net Exposure | (1,126) | [2] | (199) | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Equity Warrant Asset | Other assets
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 156,784 | 144,586 | ||||||
Fair value | 74,405 | 66,953 | ||||||
Net Exposure | 74,405 | [2] | 66,953 | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives
|
||||||||
Derivative [Line Items] | ||||||||
Fair value | 6,396 | 2,116 | ||||||
Net Exposure | 6,396 | [2] | 2,116 | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives | Foreign exchange forwards | Other assets
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 530,889 | 387,714 | ||||||
Fair value | 18,317 | 17,541 | ||||||
Net Exposure | 18,317 | [2] | 17,541 | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives | Foreign exchange forwards | Other liability
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 388,394 | 366,835 | ||||||
Fair value | (13,488) | (16,346) | ||||||
Net Exposure | (13,488) | [2] | (16,346) | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives | Foreign currency options | Other assets
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 97,943 | 75,600 | ||||||
Fair value | 747 | 271 | ||||||
Net Exposure | 747 | [2] | 271 | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives | Foreign currency options | Other liability
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 97,943 | 75,600 | ||||||
Fair value | (747) | (271) | ||||||
Net Exposure | (747) | [2] | (271) | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives | Loan conversion options | Other assets
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 10,254 | 14,063 | ||||||
Fair value | 1,569 | 923 | ||||||
Net Exposure | 1,569 | [2] | 923 | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives | Client interest rate derivatives | Other assets
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 38,588 | 39,713 | ||||||
Fair value | 57 | 50 | ||||||
Net Exposure | 57 | [2] | 50 | [2] | ||||
Derivatives not designated as hedging instruments | Other derivative instruments | Other derivatives | Client interest rate derivatives | Other liability
|
||||||||
Derivative [Line Items] | ||||||||
Notional or Contractual Amount | 38,588 | 39,713 | ||||||
Fair value | (59) | (52) | ||||||
Net Exposure | $ (59) | [2] | $ (52) | [2] | ||||
|
Composition of Loans, Net of Unearned Income, Broken Out by Portfolio Segment and Class of Financing Receivable (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
||||
---|---|---|---|---|---|---|
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | $ 7,789,752 | [1] | $ 6,970,082 | [1] | ||
Commercial loans
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 7,058,956 | 6,274,944 | ||||
Commercial loans | Software
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 2,752,500 | 2,492,849 | ||||
Commercial loans | Hardware
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 1,086,973 | 952,303 | ||||
Commercial loans | Venture capital/private equity
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 1,403,801 | 1,117,419 | ||||
Commercial loans | Life science
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 917,723 | 863,737 | ||||
Commercial loans | Premium wine
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 493,701 | 476,233 | ||||
Commercial loans | Commercial Other Financing Receivable
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 404,258 | 372,403 | ||||
Consumer loans
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 730,796 | 695,138 | ||||
Consumer loans | Real estate secured loans
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | 554,266 | 534,001 | ||||
Consumer loans | Consumer Other Financing Receivable
|
||||||
Financing Receivable, Recorded Investment [Line Items] | ||||||
Loans, net of unearned income | $ 176,530 | $ 161,137 | ||||
|
Summary Information Related to Commitments to Extend Credit (Excluding Letters of Credit) (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Supply Commitment [Line Items] | ||||||||||||||
Fixed interest rate commitments | $ 834,431 | [1] | $ 658,377 | [1] | ||||||||||
Variable interest rate commitments | 7,096,370 | [1] | 6,548,002 | [1] | ||||||||||
Total loan commitments available for funding | 7,930,801 | [1] | 7,206,379 | [1] | ||||||||||
Commercial and standby letters of credit | 821,904 | [2] | 861,191 | [2] | ||||||||||
Total unfunded credit commitments | 8,752,705 | 8,067,570 | ||||||||||||
Commitments unavailable for funding | 882,458 | [3] | 841,439 | [3] | ||||||||||
Maximum lending limits for accounts receivable factoring arrangements | 847,757 | [4] | 747,392 | [4] | ||||||||||
Reserve for unfunded credit commitments | $ 23,476 | [5] | $ 21,811 | [5] | ||||||||||
|
Major Components of Investment Securities Portfolio (Parenthetical) (Detail) (USD $)
|
6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 1 Months Ended | 6 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
Fair value accounting
Other venture capital investments
|
Dec. 31, 2011
Fair value accounting
Other venture capital investments
|
Dec. 31, 2011
Fair value accounting
Other investments
|
Jun. 30, 2012
Equity method accounting
Other investments
|
Dec. 31, 2011
Equity method accounting
Other investments
|
Jun. 30, 2012
Cost method accounting
Venture capital and private equity fund investments
Investment
|
Dec. 31, 2011
Cost method accounting
Venture capital and private equity fund investments
Investment
|
Jun. 30, 2012
Cost method accounting
Other investments
|
Dec. 31, 2011
Cost method accounting
Other investments
|
Jun. 30, 2012
SVB Capital Partners II, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
SVB Capital Partners II, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Capital Partners II, LP
Fair value accounting
Other venture capital investments
|
Dec. 31, 2011
SVB Capital Partners II, LP
Fair value accounting
Other venture capital investments
|
Jun. 30, 2012
SVB Capital Partners II, LP
Fair value accounting
Direct ownership interest
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Capital Partners II, LP
Fair value accounting
Indirect ownership interest
Venture capital and private equity fund investments
|
Jun. 30, 2012
Other private equity fund
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
Other private equity fund
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
Other private equity fund
Fair value accounting
Direct ownership interest
Venture capital and private equity fund investments
|
Jun. 30, 2012
Gold Hill Venture Lending 03, LP
Equity method accounting
Other investments
|
Dec. 31, 2011
Gold Hill Venture Lending 03, LP
Equity method accounting
Other investments
|
Jun. 30, 2012
Gold Hill Venture Lending 03, LP
Equity method accounting
Direct ownership interest
Other investments
|
Jun. 30, 2012
Gold Hill Venture Lending 03, LP
Equity method accounting
Indirect ownership interest
Other investments
|
Jun. 30, 2012
Gold Hill Capital 2008, LP
Equity method accounting
Other investments
|
Dec. 31, 2011
Gold Hill Capital 2008, LP
Equity method accounting
Other investments
|
Jun. 30, 2012
Gold Hill Capital 2008, LP
Equity method accounting
Direct ownership interest
Other investments
|
Jun. 30, 2012
Gold Hill Capital 2008, LP
Equity method accounting
Indirect ownership interest
Other investments
|
Jun. 30, 2012
SVB Strategic Investors Fund, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
SVB Strategic Investors Fund, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Strategic Investors Fund II, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
SVB Strategic Investors Fund II, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Strategic Investors Fund III, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
SVB Strategic Investors Fund III, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Strategic Investors Fund IV, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
SVB Strategic Investors Fund IV, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
Strategic Investors Fund V, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
Strategic Investors Fund V, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Capital Preferred Return Fund, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
SVB Capital Preferred Return Fund, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Capital-NT Growth Partners, LP
Fair value accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
SVB Capital-NT Growth Partners, LP
Fair value accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
Silicon Valley BancVentures, LP
Fair value accounting
Other venture capital investments
|
Dec. 31, 2011
Silicon Valley BancVentures, LP
Fair value accounting
Other venture capital investments
|
Jun. 30, 2012
SVB India Capital Partners I, LP
Fair value accounting
Other venture capital investments
|
Dec. 31, 2011
SVB India Capital Partners I, LP
Fair value accounting
Other venture capital investments
|
Jun. 30, 2012
SVB Capital Shanghai Yangpu Venture Capital Fund
Fair value accounting
Other venture capital investments
|
Dec. 31, 2011
SVB Capital Shanghai Yangpu Venture Capital Fund
Fair value accounting
Other venture capital investments
|
Jun. 30, 2012
Partners for Growth II, LP
Equity method accounting
Other investments
|
Dec. 31, 2011
Partners for Growth II, LP
Equity method accounting
Other investments
|
May 03, 2012
China Joint Venture Investment
Equity method accounting
Other investments
|
Jun. 30, 2012
China Joint Venture Investment
Equity method accounting
Other investments
|
Jun. 30, 2012
Other investment
Equity method accounting
Other investments
|
Dec. 31, 2011
Other investment
Equity method accounting
Other investments
|
Jun. 30, 2012
Lower Limit
Partners for Growth, LP
Fair value accounting
Other investments
|
Jun. 30, 2012
Upper Limit
Cost method accounting
Venture capital and private equity fund investments
|
Dec. 31, 2011
Upper Limit
Cost method accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
Other Than Temporarily Impaired Securities
Cost method accounting
Venture capital and private equity fund investments
Investment
|
Jun. 30, 2012
Other Than Temporarily Impaired Securities
Cost method accounting
Venture capital and private equity fund investments
Investment
|
Jun. 30, 2012
Securities Not Related to Other Than Temporary Impairments
Cost method accounting
Venture capital and private equity fund investments
Investment
|
Jun. 30, 2012
Carrying Amount
Cost method accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
Estimated Fair Value
Cost method accounting
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Capital-NT Growth Partners, LP
Other private equity fund
Fair value accounting
Indirect ownership interest
Venture capital and private equity fund investments
|
Jun. 30, 2012
SVB Capital Preferred Return Fund, LP
Other private equity fund
Fair value accounting
Indirect ownership interest
Venture capital and private equity fund investments
|
|||||||||||||||||||||||||||||||||||||||||||
Investment Holdings [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-marketable securities | $ 639,596,000 | [1] | $ 611,824,000 | [1] | $ 120,111,000 | [2] | $ 124,121,000 | [2] | $ 987,000 | [3] | $ 863,000 | [4] | $ 2,390,000 | [4] | $ 59,256,000 | [5] | $ 61,099,000 | [5] | $ 6,519,000 | [6] | $ 11,367,000 | [6] | $ 36,694,000 | $ 39,567,000 | $ 109,343,000 | $ 122,619,000 | $ 213,405,000 | $ 218,429,000 | $ 146,477,000 | $ 122,076,000 | $ 18,134,000 | $ 8,838,000 | $ 50,573,000 | $ 42,580,000 | $ 57,588,000 | $ 43,958,000 | $ 16,739,000 | $ 17,878,000 | $ 40,668,000 | $ 42,832,000 | $ 3,448,000 | $ 2,312,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percentage of ownership | 5.10% | [4] | 5.10% | [4] | 5.10% | [5] | 5.10% | [5] | 1.30% | 3.80% | 58.20% | [6] | 58.20% | [6] | 41.50% | 9.30% | [7] | 9.30% | [7] | 4.80% | 4.50% | 15.50% | [8] | 15.50% | [8] | 11.50% | 4.00% | 12.60% | 12.60% | 8.60% | 8.60% | 5.90% | 5.90% | 5.00% | 5.00% | 0.20% | 0.30% | 20.00% | 20.00% | 33.00% | 33.00% | 10.70% | 10.70% | 14.40% | 14.40% | 6.80% | 6.80% | 24.20% | 24.20% | 50.00% | [9] | 50.00% | 5.00% | 5.00% | 12.60% | 4.10% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non-marketable securities | 138,993,000 | [10] | 68,252,000 | [10] | 6,238,000 | [7] | 16,072,000 | [7] | 19,553,000 | [8] | 19,328,000 | [8] | 3,551,000 | 3,785,000 | 79,524,000 | [9] | 30,127,000 | 29,067,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contribution in joint venture | 79,700,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of investments | 326 | 329 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognized other-than-temporary impairment ("OTTI") losses | 200,000 | 500,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of impaired investments | 12 | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of investments for which no OTTI was required | 296 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-marketable securities | $ 153,618,000 | [11] | $ 145,007,000 | [11] | $ 21,296,000 | $ 19,355,000 | $ 153,600,000 | $ 185,300,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Off-Balance Sheet Arrangements, Guarantees and Other Commitments (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
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Summary Information Related to Commitments to Extend Credit (Excluding Letters of Credit) | The following table summarizes information related to our commitments to extend credit at June 30, 2012 and December 31, 2011:
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Summary of Commercial and Standby Letters of Credit | The table below summarizes our commercial and standby letters of credit at June 30, 2012. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.
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Total Capital Commitments, Unfunded Capital Commitments, and Ownership in Each Fund | The following table details our total capital commitments, unfunded capital commitments, and our ownership in each fund at June 30, 2012:
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Remaining Unfunded Commitments to Venture Capital or Private Equity Funds by Consolidated Managed Funds | The following table details the total remaining unfunded commitments to the venture capital and private equity funds by our consolidated managed funds of funds (including our interest and the noncontrolling interests) at June 30, 2012:
|
Summary of Other Noninterest Income (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Other Noninterest Income [Line Items] | ||||
Unused commitment fees | $ 3,678 | $ 1,808 | $ 6,733 | $ 3,294 |
Fund management fees | 3,124 | 2,663 | 5,952 | 5,351 |
Service-based fee income | 2,172 | 2,587 | 4,546 | 4,812 |
Net gains on the sale of certain assets related to our equity management services business | 4,243 | 4,243 | ||
Loan syndication fees | 1,375 | 870 | 1,500 | 870 |
Currency revaluation losses | (1,548) | (881) | (933) | (1,121) |
(Losses) gains on revaluation of foreign currency loans, net | (3,125) | 502 | (1,466) | 3,191 |
Other | 2,745 | 2,463 | 5,167 | 3,879 |
Total other noninterest income | $ 12,664 | $ 10,012 | $ 25,742 | $ 20,276 |
Quantitative Information About Significant Unobservable Inputs (Detail) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Mar. 31, 2012
|
Dec. 31, 2011
|
Jun. 30, 2011
|
Mar. 31, 2011
|
Dec. 31, 2010
|
|||||||||||||||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||||||||||||||||||||
Fair Value | $ 828,326 | $ 814,526 | $ 799,962 | $ 679,960 | $ 620,157 | $ 547,608 | ||||||||||||||
Other venture capital investments | Fair value accounting
|
||||||||||||||||||||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||||||||||||||||||||
Fair Value | 120,111 | [1] | ||||||||||||||||||
Valuation Technique | Private company equity pricing | [1] | ||||||||||||||||||
Equity Warrant Asset | Other assets
|
||||||||||||||||||||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||||||||||||||||||||
Fair Value | $ 68,619 | [2] | $ 65,217 | [2] | $ 63,030 | [2] | $ 49,777 | [2] | $ 46,260 | [2] | $ 43,537 | [2] | ||||||||
Valuation Technique | Modifed Black-Scholes option pricing model | |||||||||||||||||||
Volatility | 51.20% | [1] | ||||||||||||||||||
Risk-Free interest rate | 0.40% | [1] | ||||||||||||||||||
Marketability discount | 15.00% | [1],[3] | ||||||||||||||||||
Remaining life assumption | 40.00% | [1],[4] | ||||||||||||||||||
|
Impaired Loans and Allowance for Loan Losses, Broken out by Portfolio Segment and Class of Financing Receivable (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | $ 27,071 | $ 36,617 |
Total unpaid principal of impaired loans | 41,380 | 48,958 |
Commercial loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 23,228 | 15,201 |
Total unpaid principal of impaired loans | 32,514 | 23,351 |
Commercial loans | Software
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 2,976 | 1,142 |
Total unpaid principal of impaired loans | 4,749 | 1,540 |
Commercial loans | Hardware
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 14,173 | 5,183 |
Total unpaid principal of impaired loans | 17,616 | 8,843 |
Commercial loans | Life science
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 311 | |
Total unpaid principal of impaired loans | 523 | |
Commercial loans | Premium wine
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 3,123 | 3,212 |
Total unpaid principal of impaired loans | 3,325 | 3,341 |
Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 2,956 | 5,353 |
Total unpaid principal of impaired loans | 6,824 | 9,104 |
Consumer loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 3,843 | 21,416 |
Total unpaid principal of impaired loans | 8,866 | 25,607 |
Consumer loans | Real estate secured loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 2,554 | 18,283 |
Total unpaid principal of impaired loans | 7,460 | 22,410 |
Consumer loans | Consumer Other Financing Receivable
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 1,289 | 3,133 |
Total unpaid principal of impaired loans | 1,406 | 3,197 |
Impaired loans for which there is no related allowance for loan losses
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 8,123 | 23,285 |
Impaired loans for which there is no related allowance for loan losses | Commercial loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 5,691 | 5,002 |
Impaired loans for which there is no related allowance for loan losses | Commercial loans | Software
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 418 | |
Impaired loans for which there is no related allowance for loan losses | Commercial loans | Hardware
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 1,099 | 429 |
Impaired loans for which there is no related allowance for loan losses | Commercial loans | Life science
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 311 | |
Impaired loans for which there is no related allowance for loan losses | Commercial loans | Premium wine
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 3,123 | 3,212 |
Impaired loans for which there is no related allowance for loan losses | Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 1,051 | 1,050 |
Impaired loans for which there is no related allowance for loan losses | Consumer loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 2,432 | 18,283 |
Impaired loans for which there is no related allowance for loan losses | Consumer loans | Real estate secured loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 2,432 | 18,283 |
Impaired loans for which there is a related allowance for loan losses
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 18,948 | 13,332 |
Impaired loans for which there is a related allowance for loan losses | Commercial loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 17,537 | 10,199 |
Impaired loans for which there is a related allowance for loan losses | Commercial loans | Software
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 2,558 | 1,142 |
Impaired loans for which there is a related allowance for loan losses | Commercial loans | Hardware
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 13,074 | 4,754 |
Impaired loans for which there is a related allowance for loan losses | Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 1,905 | 4,303 |
Impaired loans for which there is a related allowance for loan losses | Consumer loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 1,411 | 3,133 |
Impaired loans for which there is a related allowance for loan losses | Consumer loans | Real estate secured loans
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | 122 | |
Impaired loans for which there is a related allowance for loan losses | Consumer loans | Consumer Other Financing Receivable
|
||
Financing Receivable, Impaired [Line Items] | ||
Carrying value of impaired loans | $ 1,289 | $ 3,133 |
Segment Information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|||||||||||||
Segment Reporting Information [Line Items] | ||||||||||||||||
Net interest income (loss) | $ 151,934 | $ 130,453 | $ 302,871 | $ 250,752 | ||||||||||||
(Provision for) reduction of loan losses | (7,999) | (134) | (22,528) | 2,913 | ||||||||||||
Noninterest income | 80,426 | 123,708 | 139,719 | 213,662 | ||||||||||||
Noninterest expense | (135,766) | [1] | (121,032) | [1] | (267,778) | [1] | (238,467) | [1] | ||||||||
Income (loss) before income tax expense | 88,595 | [2] | 132,995 | [2] | 152,284 | [2] | 228,860 | [2] | ||||||||
Total average loans, net of unearned income | 7,237,182 | 5,532,831 | 7,020,765 | 5,423,051 | ||||||||||||
Total average assets | 20,890,876 | [3] | 18,254,531 | [3] | 20,561,709 | [3] | 18,103,208 | [3] | ||||||||
Total average deposits | 17,407,636 | 15,269,739 | 17,186,700 | 14,969,806 | ||||||||||||
Global Commercial Bank
|
||||||||||||||||
Segment Reporting Information [Line Items] | ||||||||||||||||
Net interest income (loss) | 146,420 | [4] | 125,695 | [4] | 289,684 | [4] | 246,515 | [4] | ||||||||
(Provision for) reduction of loan losses | (8,923) | [4] | (730) | [4] | (22,159) | [4] | 661 | [4] | ||||||||
Noninterest income | 52,494 | [4] | 36,551 | [4] | 92,422 | [4] | 71,415 | [4] | ||||||||
Noninterest expense | (98,478) | [1],[4] | (84,702) | [1],[4] | (194,734) | [1],[4] | (170,582) | [1],[4] | ||||||||
Income (loss) before income tax expense | 91,513 | [2],[4] | 76,814 | [2],[4] | 165,213 | [2],[4] | 148,009 | [2],[4] | ||||||||
Total average loans, net of unearned income | 6,479,544 | [4] | 4,822,497 | [4] | 6,255,450 | [4] | 4,766,104 | [4] | ||||||||
Total average assets | 19,023,230 | [3],[4] | 16,805,670 | [3],[4] | 18,790,252 | [3],[4] | 16,502,986 | [3],[4] | ||||||||
Total average deposits | 17,131,816 | [4] | 15,099,789 | [4] | 16,916,965 | [4] | 14,803,648 | [4] | ||||||||
SVB Private Bank
|
||||||||||||||||
Segment Reporting Information [Line Items] | ||||||||||||||||
Net interest income (loss) | 5,516 | 4,653 | 10,481 | 9,054 | ||||||||||||
(Provision for) reduction of loan losses | 924 | 596 | (369) | 2,252 | ||||||||||||
Noninterest income | 151 | 136 | 308 | 223 | ||||||||||||
Noninterest expense | (3,356) | [1] | (2,477) | [1] | (6,589) | [1] | (4,480) | [1] | ||||||||
Income (loss) before income tax expense | 3,235 | [2] | 2,908 | [2] | 3,831 | [2] | 7,049 | [2] | ||||||||
Total average loans, net of unearned income | 742,130 | 642,287 | 740,049 | 613,467 | ||||||||||||
Total average assets | 747,445 | [3] | 642,744 | [3] | 744,703 | [3] | 613,734 | [3] | ||||||||
Total average deposits | 253,482 | 156,765 | 246,991 | 153,520 | ||||||||||||
SVB Capital
|
||||||||||||||||
Segment Reporting Information [Line Items] | ||||||||||||||||
Net interest income (loss) | 9 | [4] | 3 | [4] | 16 | [4] | 4 | [4] | ||||||||
Noninterest income | 4,557 | [4] | 6,716 | [4] | 8,144 | [4] | 14,006 | [4] | ||||||||
Noninterest expense | (2,872) | [1],[4] | (3,111) | [1],[4] | (5,408) | [1],[4] | (6,253) | [1],[4] | ||||||||
Income (loss) before income tax expense | 1,694 | [2],[4] | 3,608 | [2],[4] | 2,752 | [2],[4] | 7,757 | [2],[4] | ||||||||
Total average assets | 251,295 | [3],[4] | 232,381 | [3],[4] | 254,835 | [3],[4] | 222,570 | [3],[4] | ||||||||
Other Items
|
||||||||||||||||
Segment Reporting Information [Line Items] | ||||||||||||||||
Net interest income (loss) | (11) | 102 | 2,690 | (4,821) | ||||||||||||
Noninterest income | 23,224 | 80,305 | 38,845 | 128,018 | ||||||||||||
Noninterest expense | (31,060) | [1] | (30,742) | [1] | (61,047) | [1] | (57,152) | [1] | ||||||||
Income (loss) before income tax expense | (7,847) | [2] | 49,665 | [2] | (19,512) | [2] | 66,045 | [2] | ||||||||
Total average loans, net of unearned income | 15,508 | 68,047 | 25,266 | 43,480 | ||||||||||||
Total average assets | 868,906 | [3] | 573,736 | [3] | 771,919 | [3] | 763,918 | [3] | ||||||||
Total average deposits | $ 22,338 | $ 13,185 | $ 22,744 | $ 12,638 | ||||||||||||
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis (Parenthetical) (Detail) (Fair Value, Measurements, Recurring, USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
||||||
---|---|---|---|---|---|---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
Total assets | $ 11,491,338 | [1] | $ 11,372,081 | [2] | ||||
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
||||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
Total assets | 2,037 | [1] | 5,945 | [2] | ||||
Significant Unobservable Inputs (Level 3)
|
||||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
Total assets | 828,326 | [1] | 799,962 | [2] | ||||
Significant Other Observable Inputs (Level 2)
|
||||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
Total assets | 10,660,975 | [1] | 10,566,174 | [2] | ||||
Noncontrolling Interest | Quoted Prices in Active Markets for Identical Assets (Level 1)
|
||||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
Total assets | 900 | 1,200 | ||||||
Noncontrolling Interest | Significant Unobservable Inputs (Level 3)
|
||||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
Total assets | 671,900 | 647,500 | ||||||
Noncontrolling Interest | Significant Other Observable Inputs (Level 2)
|
||||||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
Total assets | $ 3,500 | |||||||
|
Total Capital Commitments, Unfunded Capital Commitments, and Our Ownership in Each Fund (Detail) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | $ 377,037 | |||||||||
SVB Strategic Investors Fund, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 2,307 | |||||||||
SVB Strategic Investors Fund II, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 11,243 | |||||||||
SVB Strategic Investors Fund III, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 48,147 | |||||||||
SVB Strategic Investors Fund IV, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 114,552 | |||||||||
Strategic Investors Fund V Funds
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 153,160 | |||||||||
SVB Capital Preferred Return Fund, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 20,299 | |||||||||
SVB Capital-NT Growth Partners, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 22,882 | |||||||||
Other private equity fund
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Unfunded Commitments | 4,447 | |||||||||
Parent Company
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 512,869 | |||||||||
Unfunded Commitments | 101,577 | |||||||||
Parent Company | Silicon Valley BancVentures, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 6,000 | |||||||||
Unfunded Commitments | 270 | |||||||||
Ownership of each Fund | 10.70% | |||||||||
Parent Company | SVB Capital Partners II, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 1,200 | [1] | ||||||||
Unfunded Commitments | 162 | [1] | ||||||||
Ownership of each Fund | 5.10% | [1] | ||||||||
Parent Company | SVB India Capital Partners I, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 7,750 | |||||||||
Unfunded Commitments | 1,263 | |||||||||
Ownership of each Fund | 14.40% | |||||||||
Parent Company | SVB Capital Shanghai Yangpu Venture Capital Fund
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 913 | |||||||||
Unfunded Commitments | 157 | |||||||||
Ownership of each Fund | 6.80% | |||||||||
Parent Company | SVB Strategic Investors Fund, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 15,300 | |||||||||
Unfunded Commitments | 688 | |||||||||
Ownership of each Fund | 12.60% | |||||||||
Parent Company | SVB Strategic Investors Fund II, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 15,000 | |||||||||
Unfunded Commitments | 1,200 | |||||||||
Ownership of each Fund | 8.60% | |||||||||
Parent Company | SVB Strategic Investors Fund III, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 15,000 | |||||||||
Unfunded Commitments | 2,700 | |||||||||
Ownership of each Fund | 5.90% | |||||||||
Parent Company | SVB Strategic Investors Fund IV, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 12,239 | |||||||||
Unfunded Commitments | 4,896 | |||||||||
Ownership of each Fund | 5.00% | |||||||||
Parent Company | Strategic Investors Fund V Funds
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 1,000 | |||||||||
Unfunded Commitments | 933 | |||||||||
Parent Company | SVB Capital Preferred Return Fund, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 12,687 | |||||||||
Ownership of each Fund | 20.00% | |||||||||
Parent Company | SVB Capital-NT Growth Partners, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 24,670 | |||||||||
Unfunded Commitments | 1,340 | |||||||||
Ownership of each Fund | 33.00% | |||||||||
Parent Company | Other private equity fund
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 9,338 | [2] | ||||||||
Ownership of each Fund | 58.20% | [2] | ||||||||
Parent Company | Partners for Growth, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 25,000 | |||||||||
Unfunded Commitments | 9,750 | |||||||||
Ownership of each Fund | 50.00% | |||||||||
Parent Company | Partners for Growth II, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 15,000 | |||||||||
Unfunded Commitments | 4,950 | |||||||||
Ownership of each Fund | 24.20% | |||||||||
Parent Company | Gold Hill Venture Lending 03, LP
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 20,000 | [3] | ||||||||
Ownership of each Fund | 9.30% | [3] | ||||||||
Parent Company | Other Fund Investments
|
||||||||||
Venture Capital and Private Equity Fund Investments [Line Items] | ||||||||||
Capital Commitments | 331,772 | [4] | ||||||||
Unfunded Commitments | $ 73,268 | [4] | ||||||||
|
Additional Information about Level 3 Assets Measured at Fair Value on a Recurring Basis (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|||||||||||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||
Beginning Balance | $ 814,526 | $ 620,157 | $ 799,962 | $ 547,608 | ||||||||||
Total Realized and Unrealized Gains (Losses) Included in Income | 16,870 | 43,329 | 29,203 | 94,593 | ||||||||||
Purchases | 33,576 | 41,974 | 63,016 | 88,146 | ||||||||||
Sales | (10,007) | (13,966) | (13,957) | (31,640) | ||||||||||
Issuances | 3,873 | 3,558 | 6,173 | 7,182 | ||||||||||
Distributions and Other Settlements | (29,668) | (14,730) | (54,961) | (25,301) | ||||||||||
Transfers Into Level 3 | ||||||||||||||
Transfers Out of Level 3 | (844) | (362) | (1,110) | (628) | ||||||||||
Ending Balance | 828,326 | 679,960 | 828,326 | 679,960 | ||||||||||
Equity Warrant Asset | Other assets
|
||||||||||||||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||
Beginning Balance | 65,217 | [1] | 46,260 | [1] | 63,030 | [1] | 43,537 | [1] | ||||||
Total Realized and Unrealized Gains (Losses) Included in Income | 5,853 | [1] | 10,246 | [1] | 9,648 | [1] | 13,211 | [1] | ||||||
Sales | (6,075) | [1] | (9,924) | [1] | (9,718) | [1] | (13,462) | [1] | ||||||
Issuances | 3,873 | [1] | 3,558 | [1] | 6,173 | [1] | 7,182 | [1] | ||||||
Distributions and Other Settlements | (1) | [1] | 1 | [1] | (63) | [1] | ||||||||
Transfers Into Level 3 | [1] | [1] | [1] | [1] | ||||||||||
Transfers Out of Level 3 | (249) | [1] | (362) | [1] | (515) | [1] | (628) | [1] | ||||||
Ending Balance | 68,619 | [1] | 49,777 | [1] | 68,619 | [1] | 49,777 | [1] | ||||||
Fair value accounting | Other venture capital investments
|
||||||||||||||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||
Ending Balance | 120,111 | [2] | 120,111 | [2] | ||||||||||
Non-marketable securities | Fair value accounting
|
||||||||||||||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||
Beginning Balance | 749,309 | [3] | 573,897 | [3] | 736,932 | [3] | 504,071 | [3] | ||||||
Total Realized and Unrealized Gains (Losses) Included in Income | 11,017 | [3] | 33,083 | [3] | 19,555 | [3] | 81,382 | [3] | ||||||
Purchases | 33,576 | [3] | 41,974 | [3] | 63,016 | [3] | 88,146 | [3] | ||||||
Sales | (3,932) | [3] | (4,042) | [3] | (4,239) | [3] | (18,178) | [3] | ||||||
Distributions and Other Settlements | (29,668) | [3] | (14,729) | [3] | (54,962) | [3] | (25,238) | [3] | ||||||
Transfers Into Level 3 | [3] | [3] | [3] | [3] | ||||||||||
Transfers Out of Level 3 | (595) | [3] | (595) | [3] | ||||||||||
Ending Balance | 759,707 | [3] | 630,183 | [3] | 759,707 | [3] | 630,183 | [3] | ||||||
Non-marketable securities | Fair value accounting | Venture capital and private equity fund investments
|
||||||||||||||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||
Beginning Balance | 620,356 | 464,377 | 611,824 | 391,247 | ||||||||||
Total Realized and Unrealized Gains (Losses) Included in Income | 14,557 | 32,423 | 26,661 | 75,991 | ||||||||||
Purchases | 33,365 | 37,335 | 55,081 | 77,400 | ||||||||||
Distributions and Other Settlements | (28,682) | (19,017) | (53,970) | (29,520) | ||||||||||
Transfers Into Level 3 | ||||||||||||||
Ending Balance | 639,596 | 515,118 | 639,596 | 515,118 | ||||||||||
Non-marketable securities | Fair value accounting | Other venture capital investments
|
||||||||||||||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||
Beginning Balance | 127,951 | 108,525 | 124,121 | 111,843 | ||||||||||
Total Realized and Unrealized Gains (Losses) Included in Income | (3,540) | 660 | (7,127) | 5,371 | ||||||||||
Purchases | 211 | 4,639 | 7,935 | 10,746 | ||||||||||
Sales | (3,932) | (4,042) | (4,239) | (18,178) | ||||||||||
Distributions and Other Settlements | 16 | 4,288 | 16 | 4,288 | ||||||||||
Transfers Into Level 3 | ||||||||||||||
Transfers Out of Level 3 | (595) | (595) | ||||||||||||
Ending Balance | 120,111 | 114,070 | 120,111 | 114,070 | ||||||||||
Non-marketable securities | Fair value accounting | Other investments
|
||||||||||||||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||
Beginning Balance | 1,002 | 995 | 987 | 981 | ||||||||||
Total Realized and Unrealized Gains (Losses) Included in Income | 21 | 20 | ||||||||||||
Distributions and Other Settlements | (1,002) | (1,008) | (6) | |||||||||||
Transfers Into Level 3 | ||||||||||||||
Ending Balance | $ 995 | $ 995 | ||||||||||||
|
Segment Information (Parenthetical) (Detail) (Global Commercial Bank, USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Global Commercial Bank
|
||||
Segment Reporting Information [Line Items] | ||||
Depreciation and amortization | $ 3.6 | $ 2.7 | $ 7.0 | $ 5.6 |
Total Notional or Contractual Amounts, Fair Value, Collateral and Net Exposure of Derivative Financial Instruments (Parenthetical) (Detail)
|
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Derivative [Line Items] | |
Credit rating of institutional counterparties | The credit ratings of our institutional counterparties as of June 30, 2012 remain at investment grade or higher and there were no material changes in their credit ratings for the three and six months ended June 30, 2012. |
Share-Based Compensation (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
|
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Share Based Compensation and Related Benefits | For the three and six months ended June 30, 2012 and 2011, we recorded share-based compensation and related tax benefits as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrecognized Share Based Compensation Expense | As of June 30, 2012, unrecognized share-based compensation expense was as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option Information Related to Equity Incentive Plan | The table below provides stock option information related to the 1997 Equity Incentive Plan and the 2006 Equity Incentive Plan for the six months ended June 30, 2012:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information for Restricted Stock Units under Equity Incentive Plan | The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the six months ended June 30, 2012:
|
Summary of Remaining Contractual Principal Maturities and Fully Taxable Equivalent Yields on Debt Securities Classified as Available for Sale (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
---|---|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | $ 10,619,956 |
Weighted- Average Yield | 1.82% |
One Year or Less - Carrying Value | 61,637 |
One Year or Less - Weighted- Average Yield | 2.28% |
After One Year to Five Years - Carrying Value | 2,489,604 |
After One Year to Five Years - Weighted- Average Yield | 1.55% |
After Five Years to Ten Years - Carrying Value | 1,763,820 |
After Five Years to Ten Years - Weighted- Average Yield | 2.44% |
After Ten Years - Carrying Value | 6,304,895 |
After Ten Years - Weighted- Average Yield | 1.74% |
U.S. treasury securities
|
|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | 25,599 |
Weighted- Average Yield | 2.39% |
One Year or Less - Carrying Value | 25,599 |
One Year or Less - Weighted- Average Yield | 2.39% |
U.S. agency debentures
|
|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | 2,640,124 |
Weighted- Average Yield | 1.61% |
One Year or Less - Carrying Value | 35,097 |
One Year or Less - Weighted- Average Yield | 2.13% |
After One Year to Five Years - Carrying Value | 2,474,409 |
After One Year to Five Years - Weighted- Average Yield | 1.53% |
After Five Years to Ten Years - Carrying Value | 130,618 |
After Five Years to Ten Years - Weighted- Average Yield | 3.07% |
Residential mortgage-backed securities | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises
|
|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | 1,713,799 |
Weighted- Average Yield | 2.35% |
After Five Years to Ten Years - Carrying Value | 1,583,036 |
After Five Years to Ten Years - Weighted- Average Yield | 2.27% |
After Ten Years - Carrying Value | 130,763 |
After Ten Years - Weighted- Average Yield | 3.28% |
Residential mortgage-backed securities | Agency-issued collateralized mortgage obligations | Fixed rate
|
|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | 3,804,211 |
Weighted- Average Yield | 2.21% |
After Ten Years - Carrying Value | 3,804,211 |
After Ten Years - Weighted- Average Yield | 2.21% |
Residential mortgage-backed securities | Agency-issued collateralized mortgage obligations | Variable rate
|
|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | 2,108,449 |
Weighted- Average Yield | 0.70% |
After Ten Years - Carrying Value | 2,108,449 |
After Ten Years - Weighted- Average Yield | 0.70% |
Agency-issued commercial mortgage-backed securities
|
|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | 228,080 |
Weighted- Average Yield | 2.09% |
After Ten Years - Carrying Value | 228,080 |
After Ten Years - Weighted- Average Yield | 2.09% |
Municipal bonds and notes
|
|
Investments Classified by Contractual Maturity Date [Line Items] | |
Carrying Value | 99,694 |
Weighted- Average Yield | 6.00% |
One Year or Less - Carrying Value | 941 |
One Year or Less - Weighted- Average Yield | 5.20% |
After One Year to Five Years - Carrying Value | 15,195 |
After One Year to Five Years - Weighted- Average Yield | 5.55% |
After Five Years to Ten Years - Carrying Value | 50,166 |
After Five Years to Ten Years - Weighted- Average Yield | 6.00% |
After Ten Years - Carrying Value | $ 33,392 |
After Ten Years - Weighted- Average Yield | 6.24% |
Information for Restricted Stock Units under Equity Incentive Plan (Detail) (USD $)
|
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Weighted Average Grant Date Fair Value | |
Nonvested, beginning of period | $ 52.72 |
Granted | $ 63.89 |
Vested | $ 51.46 |
Forfeited | $ 54.73 |
Nonvested, end of period | $ 58.27 |
Restricted stock units
|
|
Shares | |
Nonvested, beginning of period | 499,119 |
Granted | 309,840 |
Vested | (140,550) |
Forfeited | (18,574) |
Nonvested, end of period | 649,835 |
Segment Reporting - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
6 Months Ended | 3 Months Ended | 6 Months Ended |
---|---|---|---|
Jun. 30, 2012
Segment
|
Jun. 30, 2011
Global Commercial Bank
|
Jun. 30, 2011
Global Commercial Bank
|
|
Segment Reporting Information [Line Items] | |||
Number of reportable segments | 3 | ||
Certain changes to the items reported, effect on total net interest income | $ 17.2 | $ 34.3 |
Common Shares Excluded from Diluted EPS Calculation as They Were Deemed to be Anti-Dilutive (Detail)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Shares excluded from diluted earnings per share calculation | 872 | 740 | 668 | 673 |
Stock options
|
||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Shares excluded from diluted earnings per share calculation | 683 | 582 | 574 | 574 |
Restricted stock unit
|
||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Shares excluded from diluted earnings per share calculation | 189 | 158 | 94 | 99 |
Loans and Allowance for Loan Losses - Additional Information (Detail) (USD $)
|
3 Months Ended | 6 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
Dec. 31, 2011
|
|||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||
Deferred loan fee income | $ 67,700,000 | $ 67,700,000 | $ 60,200,000 | ||||||||
Loans modified in TDRs | 25,478,000 | 25,478,000 | 34,275,000 | ||||||||
Unfunded commitments available for funding | 1,100,000 | 1,100,000 | |||||||||
Loans modified in TDRs during the period | 13,571,000 | [1] | 3,926,000 | [1] | 16,424,000 | [1] | 3,926,000 | [1] | |||
Forgiveness Of Principal
|
|||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||
Loans modified in TDRs during the period | 10,000,000 | 0 | 10,100,000 | 0 | |||||||
Payment Deferrals Granted
|
|||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||
Loans modified in TDRs during the period | $ 3,600,000 | $ 6,300,000 | |||||||||
|
Outstanding Short Term Borrowings and Long Term Debt (Parenthetical) (Detail) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | ||||||
---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Dec. 31, 2011
|
||||||
5.375% Senior Notes
|
|||||||
Debt Outstanding [Line Items] | |||||||
Stated interest rate | 5.375% | 5.375% | |||||
Maturity | Sep. 15, 2020 | ||||||
5.70% Senior Notes
|
|||||||
Debt Outstanding [Line Items] | |||||||
Stated interest rate | 5.70% | 5.70% | |||||
Maturity | Jun. 01, 2012 | [1] | |||||
5.70% Senior Notes | Interest rate swaps
|
|||||||
Debt Outstanding [Line Items] | |||||||
Fair value of the interest rate swap associated with the notes | 2,600 | ||||||
6.05% Subordinated Notes
|
|||||||
Debt Outstanding [Line Items] | |||||||
Stated interest rate | 6.05% | 6.05% | |||||
Maturity | Jun. 01, 2017 | [2] | |||||
6.05% Subordinated Notes | Interest rate swaps
|
|||||||
Debt Outstanding [Line Items] | |||||||
Fair value of the interest rate swap associated with the notes | 9,300 | 8,800 | |||||
7.0% Junior Subordinated Debentures
|
|||||||
Debt Outstanding [Line Items] | |||||||
Stated interest rate | 7.00% | 7.00% | |||||
Maturity | Oct. 15, 2033 | ||||||
Other long-term debt
|
|||||||
Debt Outstanding [Line Items] | |||||||
Maturity | Apr. 01, 2012 | ||||||
|
Credit Quality Indicators, Broken out by Portfolio Segment and Class of Financing Receivables (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | $ 7,857,468 | $ 7,030,321 |
Commercial loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 7,126,746 | 6,335,392 |
Commercial loans | Software
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 2,780,006 | 2,517,890 |
Commercial loans | Hardware
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 1,097,835 | 961,869 |
Commercial loans | Venture capital/private equity
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 1,417,715 | 1,128,520 |
Commercial loans | Life science
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 926,894 | 872,413 |
Commercial loans | Premium wine
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 496,230 | 478,793 |
Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 408,066 | 375,907 |
Consumer loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 730,722 | 694,929 |
Consumer loans | Real estate secured loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 554,093 | 533,817 |
Consumer loans | Consumer Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 176,629 | 161,112 |
Pass
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 7,313,297 | 6,434,133 |
Pass | Commercial loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 6,619,890 | 5,785,972 |
Pass | Commercial loans | Software
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 2,573,437 | 2,290,497 |
Pass | Commercial loans | Hardware
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 951,026 | 839,230 |
Pass | Commercial loans | Venture capital/private equity
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 1,417,715 | 1,120,373 |
Pass | Commercial loans | Life science
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 820,392 | 748,129 |
Pass | Commercial loans | Premium wine
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 481,162 | 434,309 |
Pass | Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 376,158 | 353,434 |
Pass | Consumer loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 693,407 | 648,161 |
Pass | Consumer loans | Real estate secured loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 530,017 | 497,060 |
Pass | Consumer loans | Consumer Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 163,390 | 151,101 |
Performing (Criticized)
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 517,100 | 559,571 |
Performing (Criticized) | Commercial loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 483,628 | 534,219 |
Performing (Criticized) | Commercial loans | Software
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 203,593 | 226,251 |
Performing (Criticized) | Commercial loans | Hardware
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 132,636 | 117,456 |
Performing (Criticized) | Commercial loans | Venture capital/private equity
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 8,147 | |
Performing (Criticized) | Commercial loans | Life science
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 106,502 | 123,973 |
Performing (Criticized) | Commercial loans | Premium wine
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 11,945 | 41,272 |
Performing (Criticized) | Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 28,952 | 17,120 |
Performing (Criticized) | Consumer loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 33,472 | 25,352 |
Performing (Criticized) | Consumer loans | Real estate secured loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 21,522 | 18,474 |
Performing (Criticized) | Consumer loans | Consumer Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 11,950 | 6,878 |
Impaired
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 27,071 | 36,617 |
Impaired | Commercial loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 23,228 | 15,201 |
Impaired | Commercial loans | Software
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 2,976 | 1,142 |
Impaired | Commercial loans | Hardware
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 14,173 | 5,183 |
Impaired | Commercial loans | Life science
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 311 | |
Impaired | Commercial loans | Premium wine
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 3,123 | 3,212 |
Impaired | Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 2,956 | 5,353 |
Impaired | Consumer loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 3,843 | 21,416 |
Impaired | Consumer loans | Real estate secured loans
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | 2,554 | 18,283 |
Impaired | Consumer loans | Consumer Other Financing Receivable
|
||
Financing Receivable, Recorded Investment [Line Items] | ||
Financing receivable | $ 1,289 | $ 3,133 |
Summary of Unrealized Losses on Available for Sale Securities (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
|||
---|---|---|---|---|---|
Investments, Unrealized Loss Position [Line Items] | |||||
Less than 12 months - Fair Value of Investments | $ 608,180 | [1] | $ 1,681,127 | ||
Less than 12 months - Unrealized Losses | (1,651) | [1] | (5,800) | ||
12 months or longer - Fair Value of Investments | 43,396 | [1] | |||
12 months or longer - Unrealized Losses | (214) | [1] | |||
Fair Value of Investments | 651,576 | [1] | 1,681,127 | ||
Unrealized Losses | (1,865) | [1] | (5,800) | ||
U.S. agency debentures
|
|||||
Investments, Unrealized Loss Position [Line Items] | |||||
Less than 12 months - Fair Value of Investments | 50,994 | ||||
Less than 12 months - Unrealized Losses | (90) | ||||
Fair Value of Investments | 50,994 | ||||
Unrealized Losses | (90) | ||||
Residential mortgage-backed securities | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises
|
|||||
Investments, Unrealized Loss Position [Line Items] | |||||
Less than 12 months - Fair Value of Investments | 54,588 | ||||
Less than 12 months - Unrealized Losses | (106) | ||||
Fair Value of Investments | 54,588 | ||||
Unrealized Losses | (106) | ||||
Residential mortgage-backed securities | Agency-issued collateralized mortgage obligations | Fixed rate
|
|||||
Investments, Unrealized Loss Position [Line Items] | |||||
Less than 12 months - Fair Value of Investments | 425,171 | 50,125 | |||
Less than 12 months - Unrealized Losses | (1,399) | (71) | |||
Fair Value of Investments | 425,171 | 50,125 | |||
Unrealized Losses | (1,399) | (71) | |||
Residential mortgage-backed securities | Agency-issued collateralized mortgage obligations | Variable rate
|
|||||
Investments, Unrealized Loss Position [Line Items] | |||||
Less than 12 months - Fair Value of Investments | 182,847 | 1,521,589 | |||
Less than 12 months - Unrealized Losses | (74) | (4,334) | |||
12 months or longer - Fair Value of Investments | 43,153 | ||||
12 months or longer - Unrealized Losses | (9) | ||||
Fair Value of Investments | 226,000 | 1,521,589 | |||
Unrealized Losses | (83) | (4,334) | |||
Equity securities
|
|||||
Investments, Unrealized Loss Position [Line Items] | |||||
Less than 12 months - Fair Value of Investments | 162 | 3,831 | |||
Less than 12 months - Unrealized Losses | (178) | (1,199) | |||
12 months or longer - Fair Value of Investments | 243 | ||||
12 months or longer - Unrealized Losses | (205) | ||||
Fair Value of Investments | 405 | 3,831 | |||
Unrealized Losses | $ (383) | $ (1,199) | |||
|
Stockholders' Equity and EPS
|
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Jun. 30, 2012
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Stockholders' Equity and EPS | 2. Stockholders’ Equity and EPS EPS Basic EPS is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options and restricted stock units outstanding under our equity incentive plans, our ESPP, and for certain prior periods, our 3.875% convertible senior notes (“3.875% Convertible Notes”). Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive. The following is a reconciliation of basic EPS to diluted EPS for the three and six months ended June 30, 2012 and 2011:
The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation as they were deemed to be antidilutive for the three and six months ended June 30, 2012 and 2011:
|
Summary of Loans Modified in Troubled Debt Restructurings ("TDRs") by Portfolio Segment and Class of Financing Receivables (Detail) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | $ 25,478 | $ 34,275 |
Commercial loans
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | 21,667 | 13,208 |
Commercial loans | Software
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | 769 | 1,142 |
Commercial loans | Hardware
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | 15,272 | 5,183 |
Commercial loans | Premium wine
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | 2,135 | 1,949 |
Commercial loans | Commercial Other Financing Receivable
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | 3,491 | 4,934 |
Consumer loans
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | 3,811 | 21,067 |
Consumer loans | Real estate secured loans
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | 2,522 | 17,934 |
Consumer loans | Consumer Other Financing Receivable
|
||
Financing Receivable, Modifications [Line Items] | ||
Loans modified in TDRs | $ 1,289 | $ 3,133 |