UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014March 31, 2015
OR
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¨ | 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)
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| | |
Delaware | | 91-1962278 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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3003 Tasman Drive, Santa Clara, California | | 95054-1191 |
(Address of principal executive offices) | | (Zip Code) |
(408) 654-7400
(Registrant’s 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 October 31, 2014, 50,849,278April 30, 2015, 51,240,105 shares of the registrant’s common stock ($0.001 par value) were outstanding.
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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Glossary of Acronyms that may be used in this Report
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
FTE - Full-Time Employee
FTP – Funds Transfer Pricing
GAAP - Accounting principles generally accepted in the United States of America
IASB – International Accounting Standards Board
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
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
| | (Dollars in thousands, except par value and share data) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
| | (Unaudited) | | | | (Unaudited) | | |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 1,872,537 |
| | $ | 1,538,779 |
| | $ | 1,308,003 |
| | $ | 1,796,062 |
|
Available-for-sale securities, at fair value (cost of $13,322,059 and $12,055,524, respectively) | | 13,333,436 |
| | 11,986,821 |
| |
Held-to-maturity securities, at cost (fair value of $6,613,893 and $0, respectively) | | 6,662,025 |
| | — |
| |
Available-for-sale securities, at fair value (cost of $13,619,702 and $13,497,945, respectively) | | | 13,746,923 |
| | 13,540,655 |
|
Held-to-maturity securities, at cost (fair value of $7,869,653 and $7,415,656, respectively) | | | 7,816,797 |
| | 7,421,042 |
|
Non-marketable and other securities(1) | | 1,703,550 |
| | 1,595,494 |
| | 1,706,873 |
| | 1,728,140 |
|
Total investment securities | | 21,699,011 |
| | 13,582,315 |
| | 23,270,593 |
| | 22,689,837 |
|
Loans, net of unearned income | | 12,017,181 |
| | 10,906,386 |
| | 14,439,574 |
| | 14,384,276 |
|
Allowance for loan losses | | (129,061 | ) | | (142,886 | ) | | (167,875 | ) | | (165,359 | ) |
Net loans | | 11,888,120 |
| | 10,763,500 |
| | 14,271,699 |
| | 14,218,917 |
|
Premises and equipment, net of accumulated depreciation and amortization | | 74,375 |
| | 67,485 |
| | 82,724 |
| | 79,845 |
|
Accrued interest receivable and other assets(1) | | 506,964 |
| | 465,110 |
| | 762,971 |
| | 555,289 |
|
Total assets | | $ | 36,041,007 |
| | $ | 26,417,189 |
| | $ | 39,695,990 |
| | $ | 39,339,950 |
|
Liabilities and total equity | | | | | | | | |
Liabilities: | | | | | | | | |
Noninterest-bearing demand deposits | | $ | 22,461,068 |
| | $ | 15,894,360 |
| | $ | 25,716,586 |
| | $ | 24,583,682 |
|
Interest-bearing deposits | | 8,662,067 |
| | 6,578,619 |
| | 8,134,989 |
| | 9,759,817 |
|
Total deposits | | 31,123,135 |
| | 22,472,979 |
| | 33,851,575 |
| | 34,343,499 |
|
Short-term borrowings | | 6,630 |
| | 5,080 |
| | 77,766 |
| | 7,781 |
|
Other liabilities | | 517,462 |
| | 404,586 |
| | 686,501 |
| | 483,493 |
|
Long-term debt | | 453,764 |
| | 455,216 |
| | 802,917 |
| | 453,443 |
|
Total liabilities | | 32,100,991 |
| | 23,337,861 |
| | 35,418,759 |
| | 35,288,216 |
|
Commitments and contingencies (Note 11 and Note 14) | |
| |
|
| |
Commitments and contingencies (Note 12 and Note 15) | | |
| |
|
|
SVBFG stockholders’ equity: | | | | | | | | |
Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding | | — |
| | — |
| | — |
| | — |
|
Common stock, $0.001 par value, 150,000,000 shares authorized; 50,820,946 shares and 45,800,418 shares outstanding, respectively | | 51 |
| | 46 |
| |
Common stock, $0.001 par value, 150,000,000 shares authorized; 51,095,341 shares and 50,924,925 shares outstanding, respectively | | | 51 |
| | 51 |
|
Additional paid-in capital | | 1,107,337 |
| | 624,256 |
| | 1,140,435 |
| | 1,120,350 |
|
Retained earnings(1) | | 1,595,825 |
| | 1,390,732 |
| | 1,738,483 |
| | 1,649,967 |
|
Accumulated other comprehensive income (loss) | | 18,744 |
| | (48,764 | ) | |
Accumulated other comprehensive income | | | 92,668 |
| | 42,704 |
|
Total SVBFG stockholders’ equity | | 2,721,957 |
| | 1,966,270 |
| | 2,971,637 |
| | 2,813,072 |
|
Noncontrolling interests | | 1,218,059 |
| | 1,113,058 |
| | 1,305,594 |
| | 1,238,662 |
|
Total equity | | 3,940,016 |
| | 3,079,328 |
| | 4,277,231 |
| | 4,051,734 |
|
Total liabilities and total equity | | $ | 36,041,007 |
| | $ | 26,417,189 |
| | $ | 39,695,990 |
| | $ | 39,339,950 |
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| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands, except per share amounts) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Interest income: | | | | | | | | | | | | |
Loans | | $ | 153,292 |
| | $ | 139,687 |
| | $ | 449,144 |
| | $ | 395,216 |
| | $ | 165,458 |
| | $ | 148,172 |
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Investment securities: | | | | | | | | | | | | |
Taxable | | 73,540 |
| | 43,604 |
| | 191,384 |
| | 134,013 |
| | 81,274 |
| | 54,420 |
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Non-taxable | | 772 |
| | 797 |
| | 2,362 |
| | 2,403 |
| | 772 |
| | 796 |
|
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities | | 1,722 |
| | 1,152 |
| | 5,301 |
| | 2,605 |
| | 1,285 |
| | 1,636 |
|
Total interest income | | 229,326 |
| | 185,240 |
| | 648,191 |
| | 534,237 |
| | 248,789 |
| | 205,024 |
|
Interest expense: | | | | | | | | | | | | |
Deposits | | 2,961 |
| | 2,397 |
| | 8,933 |
| | 6,533 |
| | 1,943 |
| | 2,904 |
|
Borrowings | | 5,800 |
| | 5,747 |
| | 17,400 |
| | 17,358 |
| | 7,956 |
| | 5,792 |
|
Total interest expense | | 8,761 |
| | 8,144 |
| | 26,333 |
| | 23,891 |
| | 9,899 |
| | 8,696 |
|
Net interest income | | 220,565 |
| | 177,096 |
| | 621,858 |
| | 510,346 |
| | 238,890 |
| | 196,328 |
|
Provision for loan losses | | 16,610 |
| | 10,638 |
| | 19,051 |
| | 35,023 |
| | 6,452 |
| | 494 |
|
Net interest income after provision for loan losses | | 203,955 |
| | 166,458 |
| | 602,807 |
| | 475,323 |
| | 232,438 |
| | 195,834 |
|
Noninterest income: | | | | | | | | | | | | |
Gains on investment securities, net | | 5,644 |
| | 187,862 |
| | 172,236 |
| | 255,861 |
| | 83,159 |
| | 223,912 |
|
Gains on derivative instruments, net | | 26,538 |
| | 9,422 |
| | 63,480 |
| | 27,802 |
| | 39,729 |
| | 24,167 |
|
Foreign exchange fees | | 17,911 |
| | 13,667 |
| | 53,035 |
| | 41,529 |
| | 17,678 |
| | 17,196 |
|
Credit card fees | | 10,909 |
| | 8,188 |
| | 31,440 |
| | 23,245 |
| | 12,090 |
| | 10,282 |
|
Deposit service charges | | 10,126 |
| | 8,902 |
| | 29,344 |
| | 26,602 |
| | 10,736 |
| | 9,607 |
|
Lending related fees | | 6,029 |
| | 5,265 |
| | 18,208 |
| | 13,835 |
| | 8,022 |
| | 6,303 |
|
Letters of credit and standby letters of credit fees | | 4,557 |
| | 3,790 |
| | 11,507 |
| | 10,879 |
| | 5,202 |
| | 4,140 |
|
Client investment fees | | 3,814 |
| | 3,393 |
| | 10,751 |
| | 10,392 |
| | 4,482 |
| | 3,418 |
|
Other | | (5,361 | ) | | 17,161 |
| | 14,601 |
| | 24,348 |
| | (9,080 | ) | | 11,200 |
|
Total noninterest income | | 80,167 |
| | 257,650 |
| | 404,602 |
| | 434,493 |
| | 172,018 |
| | 310,225 |
|
Noninterest expense: | | | | | | | | | | | | |
Compensation and benefits | | 99,932 |
| | 96,869 |
| | 302,259 |
| | 270,315 |
| | 115,770 |
| | 102,507 |
|
Professional services | | 26,081 |
| | 18,966 |
| | 68,383 |
| | 52,759 |
| | 24,185 |
| | 21,189 |
|
Premises and equipment | | 12,631 |
| | 12,171 |
| | 36,267 |
| | 34,298 |
| | 12,657 |
| | 11,582 |
|
Business development and travel | | 10,022 |
| | 7,378 |
| | 29,465 |
| | 23,433 |
| | 11,112 |
| | 10,194 |
|
Net occupancy | | 7,437 |
| | 5,898 |
| | 22,436 |
| | 17,460 |
| | 7,313 |
| | 7,320 |
|
FDIC assessments | | 4,587 |
| | 2,913 |
| | 13,660 |
| | 9,148 |
| |
FDIC and state assessments | | | 5,789 |
| | 4,128 |
|
Correspondent bank fees | | 3,278 |
| | 2,906 |
| | 9,755 |
| | 9,009 |
| | 3,421 |
| | 3,203 |
|
Provision for unfunded credit commitments | | 2,225 |
| | 2,774 |
| | 5,533 |
| | 6,135 |
| | 2,263 |
| | 1,123 |
|
Other(1) | | 15,796 |
| | 10,649 |
| | 40,113 |
| | 30,273 |
| | 13,598 |
| | 9,162 |
|
Total noninterest expense(1) | | 181,989 |
| | 160,524 |
| | 527,871 |
| | 452,830 |
| | 196,108 |
| | 170,408 |
|
Income before income tax expense(1) | | 102,133 |
| | 263,584 |
| | 479,538 |
| | 456,986 |
| | 208,348 |
| | 335,651 |
|
Income tax expense(1) | | 38,961 |
| | 47,404 |
| | 131,460 |
| | 103,773 |
| | 63,066 |
| | 61,296 |
|
Net income before noncontrolling interests(1) | | 63,172 |
| | 216,180 |
| | 348,078 |
| | 353,213 |
| | 145,282 |
| | 274,355 |
|
Net income attributable to noncontrolling interests | | (177 | ) | | (148,559 | ) | | (142,985 | ) | | (196,117 | ) | | (56,766 | ) | | (183,405 | ) |
Net income available to common stockholders(1) | | $ | 62,995 |
| | $ | 67,621 |
| | $ | 205,093 |
| | $ | 157,096 |
| | $ | 88,516 |
| | $ | 90,950 |
|
Earnings per common share—basic(1) | | $ | 1.24 |
| | $ | 1.48 |
| | $ | 4.25 |
| | $ | 3.48 |
| | $ | 1.74 |
| | $ | 1.98 |
|
Earnings per common share—diluted | | 1.22 |
| | 1.46 |
| | 4.17 |
| | 3.43 |
| | 1.71 |
| | 1.95 |
|
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 |
Net income before noncontrolling interests | | $ | 63,172 |
| | $ | 216,180 |
| | $ | 348,078 |
| | $ | 353,213 |
|
Other comprehensive (loss) income, net of tax: | | | | | | | | |
Change in cumulative translation (loss) income: | | | | | | | | |
Foreign currency translation loss | | (2,259 | ) | | (1,540 | ) | | (638 | ) | | (6,341 | ) |
Related tax benefit | | 935 |
| | 631 |
| | 281 |
| | 2,539 |
|
Change in unrealized (losses) gains on available-for-sale securities: | | | | | | | | |
Unrealized holding (losses) gains | | (48,724 | ) | | 27,289 |
| | 62,669 |
| | (167,021 | ) |
Related tax benefit (expense) | | 19,716 |
| | (11,032 | ) | | (25,292 | ) | | 68,299 |
|
Reclassification adjustment for losses (gains) included in net income | | 990 |
| | (219 | ) | | 17,411 |
| | (949 | ) |
Related tax (benefit) expense | | (400 | ) | | 85 |
| | (7,030 | ) | | 363 |
|
Cumulative-effect adjustment for unrealized gains on securities transferred from available-for-sale to held-to-maturity | | — |
| | — |
| | 37,700 |
| | — |
|
Related tax expense | | — |
| | — |
| | (15,178 | ) | | — |
|
Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity
| | (2,996 | ) | | — |
| | (4,043 | ) | | — |
|
Related tax benefit | | 1,206 |
| | — |
| | 1,628 |
| | — |
|
Other comprehensive (loss) income, net of tax | | (31,532 | ) | | 15,214 |
| | 67,508 |
| | (103,110 | ) |
Comprehensive income | | 31,640 |
| | 231,394 |
| | 415,586 |
| | 250,103 |
|
Comprehensive income attributable to noncontrolling interests | | (177 | ) | | (148,559 | ) | | (142,985 | ) | | (196,117 | ) |
Comprehensive income attributable to SVBFG | | $ | 31,463 |
| | $ | 82,835 |
| | $ | 272,601 |
| | $ | 53,986 |
|
|
| | | | | | | | |
| | Three months ended March 31, |
(Dollars in thousands) | | 2015 | | 2014 |
Net income before noncontrolling interests (1) | | $ | 145,282 |
| | $ | 274,355 |
|
Other comprehensive income, net of tax: | | | | |
Change in cumulative translation gains: | | | | |
Foreign currency translation gains | | 2,129 |
| | 1,464 |
|
Related tax expense | | (820 | ) | | (578 | ) |
Change in unrealized gains on available-for-sale securities: | | | | |
Unrealized holding gains | | 87,107 |
| | 29,329 |
|
Related tax expense | | (35,215 | ) | | (11,805 | ) |
Reclassification adjustment for gains included in net income | | (2,596 | ) | | (60 | ) |
Related tax expense | | 1,048 |
| | 24 |
|
Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity
| | (2,828 | ) | | — |
|
Related tax benefit | | 1,139 |
| | — |
|
Other comprehensive income, net of tax | | 49,964 |
| | 18,374 |
|
Comprehensive income | | 195,246 |
| | 292,729 |
|
Comprehensive income attributable to noncontrolling interests | | (56,766 | ) | | (183,405 | ) |
Comprehensive income attributable to SVBFG | | $ | 138,480 |
| | $ | 109,324 |
|
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
| | | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total SVBFG Stockholders’ Equity | | Noncontrolling Interests | | Total Equity | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total SVBFG Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
(Dollars in thousands) | | Shares | | Amount | | | Shares | | Amount | |
Balance at December 31, 2012 | | 44,627,182 |
| | $ | 45 |
| | $ | 547,079 |
| | $ | 1,174,878 |
| | $ | 108,553 |
| | $ | 1,830,555 |
| | $ | 774,678 |
| | $ | 2,605,233 |
| |
Balance at December 31, 2013 (As Reported) | | | 45,800,418 |
| | $ | 46 |
| | $ | 624,256 |
| | $ | 1,390,732 |
| | $ | (48,764 | ) | | $ | 1,966,270 |
| | $ | 1,113,058 |
| | $ | 3,079,328 |
|
Cumulative effective of adopting ASU 2014-01 (1) | | | — |
| | — |
| | — |
| | (4,635 | ) | | — |
| | (4,635 | ) | | — |
| | (4,635 | ) |
Balance at December 31, 2013 (As Revised) | | | 45,800,418 |
| | $ | 46 |
| | $ | 624,256 |
| | $ | 1,386,097 |
| | $ | (48,764 | ) | | $ | 1,961,635 |
| | $ | 1,113,058 |
| | $ | 3,074,693 |
|
Common stock issued under employee benefit plans, net of restricted stock cancellations | | | 103,341 |
| | — |
| | 4,254 |
| | — |
| | — |
| | 4,254 |
| | — |
| | 4,254 |
|
Common stock issued under ESOP | | | 30,762 |
| | — |
| | 3,890 |
| | — |
| | — |
| | 3,890 |
| | — |
| | 3,890 |
|
Income tax benefit from stock options exercised, vesting of restricted stock and other | | | — |
| | — |
| | 1,996 |
| | — |
| | — |
| | 1,996 |
| | — |
| | 1,996 |
|
Net income (1) | | | — |
| | — |
| | — |
| | 90,950 |
| | — |
| | 90,950 |
| | 183,405 |
| | 274,355 |
|
Capital calls and distributions, net | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,482 | ) | | (23,482 | ) |
Net change in unrealized gains and losses on available-for-sale securities, net of tax | | | — |
| | — |
| | — |
| | — |
| | 17,488 |
| | 17,488 |
| | — |
| | 17,488 |
|
Foreign currency translation adjustments, net of tax | | | — |
| | — |
| | — |
| | — |
| | 886 |
| | 886 |
| | — |
| | 886 |
|
Share-based compensation expense | | | — |
| | — |
| | 7,892 |
| | — |
| | — |
| | 7,892 |
| | — |
| | 7,892 |
|
Other, net | | | — |
| | — |
| | 23 |
| | — |
| | — |
| | 23 |
| | — |
| | 23 |
|
Balance at March 31, 2014 (1) | | | 45,934,521 |
| | $ | 46 |
| | $ | 642,311 |
| | $ | 1,477,047 |
| | $ | (30,390 | ) | | $ | 2,089,014 |
| | $ | 1,272,981 |
| | $ | 3,361,995 |
|
Balance at December 31, 2014 (1) | | | 50,924,925 |
| | $ | 51 |
| | $ | 1,120,350 |
| | $ | 1,649,967 |
| | $ | 42,704 |
| | $ | 2,813,072 |
| | $ | 1,238,662 |
| | $ | 4,051,734 |
|
Common stock issued under employee benefit plans, net of restricted stock cancellations | | 906,242 |
| | 1 |
| | 33,241 |
| | — |
| | — |
| | 33,242 |
| | — |
| | 33,242 |
| | 142,991 |
| | — |
| | 6,595 |
| | — |
| | — |
| | 6,595 |
| | — |
| | 6,595 |
|
Common stock issued under ESOP | | 74,946 |
| | — |
| | 5,166 |
| | — |
| | — |
| | 5,166 |
| | — |
| | 5,166 |
| | 27,425 |
| | — |
| | 3,512 |
| | — |
| | — |
| | 3,512 |
| | — |
| | 3,512 |
|
Income tax benefit from stock options exercised, vesting of restricted stock and other | | — |
| | — |
| | 3,148 |
| | — |
| | — |
| | 3,148 |
| | — |
| | 3,148 |
| | — |
| | — |
| | 2,514 |
| | — |
| | — |
| | 2,514 |
| | — |
| | 2,514 |
|
Net income | | — |
| | — |
| | — |
| | 157,096 |
| | — |
| | 157,096 |
| | 196,117 |
| | 353,213 |
| | — |
| | — |
| | — |
| | 88,516 |
| | — |
| | 88,516 |
| | 56,766 |
| | 145,282 |
|
Capital calls and distributions, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,922 |
| | 7,922 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,166 |
| | 10,166 |
|
Net change in unrealized gains and losses on available-for-sale securities, net of tax | | — |
| | — |
| | — |
| | — |
| | (99,308 | ) | | (99,308 | ) | | — |
| | (99,308 | ) | | — |
| | — |
| | — |
| | — |
| | 50,344 |
| | 50,344 |
| | — |
| | 50,344 |
|
Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax | | | — |
| | — |
| | — |
| | — |
| | (1,689 | ) | | (1,689 | ) | | — |
| | (1,689 | ) |
Foreign currency translation adjustments, net of tax | | — |
| | — |
| | — |
| | — |
| | (3,802 | ) | | (3,802 | ) | | — |
| | (3,802 | ) | | — |
| | — |
| | — |
| | — |
| | 1,309 |
| | 1,309 |
| | — |
| | 1,309 |
|
Share-based compensation expense | | — |
| | — |
| | 18,826 |
| | — |
| | — |
| | 18,826 |
| | — |
| | 18,826 |
| | — |
| | — |
| | 7,464 |
| | — |
| | — |
| | 7,464 |
| | — |
| | 7,464 |
|
Other, net | | — |
| | — |
| | 3 |
| | 1 |
| | — |
| | 4 |
| | — |
| | 4 |
| |
Balance at September 30, 2013 | | 45,608,370 |
| | $ | 46 |
| | $ | 607,463 |
| | $ | 1,331,975 |
| | $ | 5,443 |
| | $ | 1,944,927 |
| | $ | 978,717 |
| | $ | 2,923,644 |
| |
Balance at December 31, 2013 | | 45,800,418 |
| | $ | 46 |
| | $ | 624,256 |
| | $ | 1,390,732 |
| | $ | (48,764 | ) | | $ | 1,966,270 |
| | $ | 1,113,058 |
| | $ | 3,079,328 |
| |
Common stock issued under employee benefit plans, net of restricted stock cancellations | | 504,766 |
| | — |
| | 13,878 |
| | — |
| | — |
| | 13,878 |
| | — |
| | 13,878 |
| |
Common stock issued under ESOP | | 30,762 |
| | — |
| | 3,890 |
| | — |
| | — |
| | 3,890 |
| | — |
| | 3,890 |
| |
Income tax benefit from stock options exercised, vesting of restricted stock and other | | — |
| | — |
| | 7,973 |
| | — |
| | — |
| | 7,973 |
| | — |
| | 7,973 |
| |
Net income | | — |
| | — |
| | — |
| | 205,093 |
| | — |
| | 205,093 |
| | 142,985 |
| | 348,078 |
| |
Capital calls and distributions, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (37,984 | ) | | (37,984 | ) | |
Net change in unrealized gains and losses on available-for-sale securities, net of tax | | — |
| | — |
| | — |
| | — |
| | 47,758 |
| | 47,758 |
| | — |
| | 47,758 |
| |
Cumulative-effect for unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax | | — |
| | — |
| | — |
| | — |
| | 22,522 |
| | 22,522 |
| | — |
| | 22,522 |
| |
Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax | | — |
| | — |
| | — |
| | — |
| | (2,415 | ) | | (2,415 | ) | | — |
| | (2,415 | ) | |
Foreign currency translation adjustments, net of tax | | — |
| | — |
| | — |
| | — |
| | (357 | ) | | (357 | ) | | — |
| | (357 | ) | |
Common stock issued in public offering | | 4,485,000 |
| | 5 |
| | 434,861 |
| | — |
| | — |
| | 434,866 |
| | — |
| | 434,866 |
| |
Share-based compensation expense | | — |
| | — |
| | 22,479 |
| | — |
| | — |
| | 22,479 |
| | — |
| | 22,479 |
| |
Balance at September 30, 2014 | | 50,820,946 |
| | $ | 51 |
| | $ | 1,107,337 |
| | $ | 1,595,825 |
| | $ | 18,744 |
| | $ | 2,721,957 |
| | $ | 1,218,059 |
| | $ | 3,940,016 |
| |
Balance at March 31, 2015 | | | 51,095,341 |
| | $ | 51 |
| | $ | 1,140,435 |
| | $ | 1,738,483 |
| | $ | 92,668 |
| | $ | 2,971,637 |
| | $ | 1,305,594 |
| | $ | 4,277,231 |
|
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2015 | | 2014 |
Cash flows from operating activities: | | | | | | | | |
Net income before noncontrolling interests(1) | | $ | 348,078 |
| | $ | 353,213 |
| | $ | 145,282 |
| | $ | 274,355 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Provision for loan losses | | 19,051 |
| | 35,023 |
| | 6,452 |
| | 494 |
|
Provision for unfunded credit commitments | | 5,533 |
| | 6,135 |
| | 2,263 |
| | 1,123 |
|
Changes in fair values of derivatives, net | | 11,087 |
| | (16,594 | ) | | (20,404 | ) | | 13,356 |
|
Gains on investment securities, net | | (172,236 | ) | | (255,861 | ) | | (83,159 | ) | | (223,912 | ) |
Depreciation and amortization | | 29,041 |
| | 26,474 |
| | 9,892 |
| | 9,765 |
|
Amortization of premiums and discounts on investment securities, net | | 18,700 |
| | 21,040 |
| | 6,418 |
| | 7,541 |
|
Tax expense from stock exercises | | (1 | ) | | (1,353 | ) | |
Amortization of share-based compensation | | 22,285 |
| | 18,945 |
| | 7,771 |
| | 7,078 |
|
Amortization of deferred loan fees | | (59,550 | ) | | (51,941 | ) | | (21,169 | ) | | (20,502 | ) |
Pre-tax net gain on SVBIF sale transaction | | | (887 | ) | | — |
|
Deferred income tax benefit | | (17,897 | ) | | (3,488 | ) | | 1,311 |
| | 15,828 |
|
Changes in other assets and liabilities: | | | | | | | | |
Accrued interest receivable and payable, net | | (17,488 | ) | | (5,183 | ) | | 772 |
| | (6,604 | ) |
Accounts receivable and payable, net | | (12,890 | ) | | 1,463 |
| | (4,015 | ) | | (7,885 | ) |
Income tax payable and receivable, net(1) | | (14,234 | ) | | (7,787 | ) | | 9,283 |
| | 25,159 |
|
Accrued compensation | | (24,241 | ) | | (7,481 | ) | | (74,614 | ) | | (74,687 | ) |
Foreign exchange spot contracts, net | | 97,357 |
| | 12,442 |
| | 33,934 |
| | 22,634 |
|
Other, net | | (25,388 | ) | | (27,005 | ) | | 28,486 |
| | 6,247 |
|
Net cash provided by operating activities | | 207,207 |
| | 98,042 |
| | 47,616 |
| | 49,990 |
|
Cash flows from investing activities: | | | | | | | | |
Purchases of available-for-sale securities | | (8,060,750 | ) | | (906,495 | ) | | (552,573 | ) | | (1,531,045 | ) |
Proceeds from sales of available-for-sale securities | | 32,135 |
| | 10,207 |
| | 5,612 |
| | 2,097 |
|
Proceeds from maturities and pay downs of available-for-sale securities | | 1,352,369 |
| | 1,879,424 |
| | 424,713 |
| | 694,243 |
|
Purchases of held-to-maturity securities | | (1,577,634 | ) | | — |
| | (739,291 | ) | | — |
|
Proceeds from maturities and pay downs of held-to-maturity securities | | 327,913 |
| | — |
| | 336,511 |
| | — |
|
Purchases of non-marketable and other securities (cost and equity method accounting) | | (23,965 | ) | | (20,019 | ) | | (7,304 | ) | | (9,824 | ) |
Proceeds from sales and distributions of non-marketable and other securities (cost and equity method accounting) | | 47,478 |
| | 47,069 |
| | 14,123 |
| | 19,053 |
|
Purchases of non-marketable and other securities (fair value accounting) | | (182,247 | ) | | (108,663 | ) | | (60,039 | ) | | (45,125 | ) |
Proceeds from sales and distributions of non-marketable and other securities (fair value accounting) | | 264,389 |
| | 103,105 |
| | 154,031 |
| | 92,558 |
|
Net increase in loans | | (1,103,447 | ) | | (867,075 | ) | |
Net (increase) decrease in loans | | | (53,886 | ) | | 66,086 |
|
Proceeds from recoveries of charged-off loans | | 5,313 |
| | 8,163 |
| | 1,551 |
| | 1,312 |
|
Purchases of premises and equipment | | (29,332 | ) | | (20,837 | ) | | (12,038 | ) | | (5,974 | ) |
Net cash (used for) provided by investing activities | | (8,947,778 | ) | | 124,879 |
| |
Net cash used for investing activities | | | (488,590 | ) | | (716,619 | ) |
Cash flows from financing activities: | | | | | | | | |
Net increase in deposits | | 8,650,156 |
| | 820,539 |
| |
Net (decrease) increase in deposits | | | (491,924 | ) | | 3,003,926 |
|
Increase (decrease) in short-term borrowings | | 1,550 |
| | (160,530 | ) | | 69,985 |
| | (270 | ) |
Capital contributions from noncontrolling interests, net of distributions | | (37,984 | ) | | 7,922 |
| |
Net capital contributions from (distributions to) noncontrolling interests | | | 10,166 |
| | (23,482 | ) |
Tax benefit from stock exercises | | 7,973 |
| | 4,501 |
| | 2,514 |
| | 1,996 |
|
Proceeds from issuance of common stock, ESPP, and ESOP | | 17,768 |
| | 38,408 |
| | 10,107 |
| | 8,144 |
|
Net proceeds from public equity offering | | 434,866 |
| | — |
| |
Net cash provided by financing activities | | 9,074,329 |
| | 710,840 |
| |
Net increase in cash and cash equivalents | | 333,758 |
| | 933,761 |
| |
Proceeds from issuance of 3.50% Senior Notes | | | 346,431 |
| | — |
|
Net cash (used for) provided by financing activities | | | (52,721 | ) | | 2,990,314 |
|
Net (decrease) increase in cash and cash equivalents | | | (493,695 | ) | | 2,323,685 |
|
Cash and cash equivalents at beginning of period(2) | | 1,538,779 |
| | 1,008,983 |
| | 1,811,014 |
| | 1,538,779 |
|
Cash and cash equivalents at end of period(2) | | $ | 1,872,537 |
| | $ | 1,942,744 |
| | $ | 1,317,319 |
| | $ | 3,862,464 |
|
Supplemental disclosures: | | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Interest | | $ | 30,259 |
| | $ | 28,339 |
| | $ | 11,859 |
| | $ | 12,688 |
|
Income taxes | | 154,746 |
| | 107,282 |
| | 46,599 |
| | 15,486 |
|
Noncash items during the period: | | | | | | | | |
Changes in unrealized gains and losses on available-for-sale securities, net of tax | | $ | 47,758 |
| | $ | (99,308 | ) | | $ | 50,344 |
| | $ | 17,488 |
|
Transfers from available-for-sale securities to held-to-maturity
| | 5,418,572 |
| | — |
| |
| |
(1) | Cash flows for the quarters ended March 31, 2015 and March 31, 2014 were revised to reflect the retrospective application of our adoption of ASU 2014-01. |
| |
(2) | Cash and cash equivalents at March 31, 2015 and December 31, 2014 included $9.3 million and $15.0 million, respectively, recognized in assets held-for-sale in conjunction with the pending sale of SVBIF (refer to Note 7—”Disposal - Assets Held-for-Sale” of the “Notes to Interim Consolidated Financial Statements” under Part I, Item 1 of this report. |
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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 unaudited 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 nine months ended September 30, 2014March 31, 2015 are not necessarily indicative of results to be expected for any future periods. These unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20132014 (“20132014 Form 10-K”).
During the second quarter of 2014, we re-designated certain securities from the classification of "available-for-sale" ("AFS") to "held-to-maturity" ("HTM"). Transfers of investment securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The unrealized gains (losses), net of tax, are retained in other comprehensive income, and the carrying value of the held-to-maturity securities are amortized over the life of the securities in a manner consistent with the amortization of a premium or discount. Our decision to re-designate the securities was based on our ability and intent to hold these securities to maturity. Other than the re-designation of securities from AFS to HTM, 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 Data—Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2013 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 VIE and whether the applicable 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 entity’s operations. For these types of entities, the Company’s 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 entity��sentity’s 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 whether we are the primary beneficiary based on the following:
| |
1. | We have the power to direct the activities of the VIE that most significantly impact the entity’s 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 byVIEs in which we control through management rightsare the primary beneficiary are consolidated into our financial statements.
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 not 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.
ImpactAdoption of Adopting ASU No. 2013-08, Amendments to the Scope, Measurement and Disclosure Requirement for Investment Companies
In June 2013, the FASB issued an accounting standards update, which modified the guidance in ASC 946 for determining whether an entity is an investment company, as well as the measurement and disclosure requirements for investment companies. The ASU does not change current accounting where a noninvestment company parent retains the specialized accounting applied by an investment company subsidiary in consolidation. ASU 2013-08 was effective on a prospective basis for the interim and annual reporting periods beginning after December 15, 2013, and was therefore adopted in the first quarter of 2014. This standard did not have any impact on our financial position, results of operations or stockholders' equity.
Impact of Adopting ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
In July 2013, the FASB issued a new accounting standard which requires an unrecognized tax benefit to be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward that the entity intends to use and is available for settlement at the reporting date. ASU 2013-11 was effective for, and adopted by the Company, in the first quarter of 2014. The adoption of ASU 2013-11 did not have a material impact on our financial position, results of operations or stockholders' equity.
Recently IssuedNew Accounting PronouncementsStandards
In January 2014, the FASB issued a new accounting standard (ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects), which permits entities that invest in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes to make an accounting policy election to use proportional amortization method or apply an equity or cost method. If the proportional amortization method is elected, retrospective presentation is required for prior periods. The guidance is effective on a retrospective basis for theus for interim and annual reporting periods beginning after December 15, 2014,2014. The standard is required to be applied retrospectively, with early adoption available.an adjustment to retained earnings in the earliest period presented. The ASU will be applicable to our portfolio of low income housing tax credit ("LIHTC") partnership interests. We are currently assessing the impact ofadopted this guidance however, we do not expect itin the first quarter of 2015.
For prior periods, pursuant to haveASU 2014-01, (i) amortization expense related to our low income housing tax credits was reclassified from Other noninterest expense to Income tax expense, (ii) additional amortization, net of the associated tax benefits, was recognized in Income tax expense as a materialresult of our adoption of the proportional amortization method and (iii) net deferred tax assets, related to our low income housing tax investments, were written-off. The cumulative effect to retained earnings as of January 1, 2015 of adopting this guidance was a reduction of $4.7 million, inclusive of a $4.6 million reduction to retained earnings as of January 1, 2014. Our previously reported net income for the first quarter of 2014 decreased $0.4 million. This reduction had no impact on our financial position, results of operations or stockholders' equity.first quarter 2014 diluted earnings per share.
Recent Accounting Pronouncements
In May 2014, the FASB issued a new accounting standard (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. The guidance requires that revenue from contracts with customers be recognized upon delivery of a good or service based on the amount of consideration expected to be received, and requires additional disclosures about revenue. TheOn April 29, 2015 the FASB issued an exposure draft to defer the effective date of Update 2014-09. If the FASB issues the proposed update, the guidance will be effective on a retrospective basis beginning on January 1, 2017.2018. We do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or stockholders' equity.
In August 2014, the FASB issued a new accounting standard (ASU 2014-15, Going Concern (Topic 205-40)), which requires management to evaluate for each annual and interim reporting period whether there is substantial doubt about an entity's ability to continue as a going concern. The guidance will be effective for annual and quarterly periods endingbeginning on or after December 15, 2016, with early adoption permitted. We are currently developing processes and controls to adopt this guidance by the adoption perioddeadline and do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or stockholders' equity.
In February 2015, the FASB issued a new accounting standard (ASU 2015-02, Consolidation (Topic 810)), which amends the consolidation requirement for certain legal entities. The guidance will be effective for annual and quarterly periods beginning on January 1, 2016, with early adoption permitted. The standard may be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We are currently assessing the impact this amendment is expected to have upon adoption.
In April 2015, the FASB issued a new accounting standard (ASU 2015-03, Interest- Imputation of Interest (Subtopic 835-30), which simplifies the presentation of debt issuance costs. The guidance will be effective for annual and quarterly periods beginning on January 1, 2016, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our financial position.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentations.
| |
2. | Stockholders’ Equity and EPS |
Common StockAccumulated Other Comprehensive Income
InThe following table summarizes the second quarteritems reclassified out of 2014, to supportaccumulated other comprehensive income into the continued growthConsolidated Statements of our balance sheet, we completed a registered public offering of 4,485,000 shares of our common stock at an offering price of $101.00 per share. We received net proceeds of $434.9 million after deducting underwriting discountsIncome (unaudited) for the three months ended March 31, 2015 and commissions.2014:
|
| | | | | | | | | | |
| | | | Three months ended March 31, |
(Dollars in thousands) | | Income Statement Location | | 2015 | | 2014 |
Reclassification adjustment for gains included in net income | | Gains on investment securities, net | | $ | (2,596 | ) | | $ | (60 | ) |
Related tax expense | | Income tax expense | | 1,048 |
| | 24 |
|
Total reclassification adjustment for gains included in net income, net of tax | | | | $ | (1,548 | ) | | $ | (36 | ) |
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 and our ESPP. 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 nine months ended September 30, 2014March 31, 2015 and 20132014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars and shares in thousands, except per share amounts) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Numerator: | | | | | | | | | | | | |
Net income available to common stockholders(1) | | $ | 62,995 |
| | $ | 67,621 |
| | $ | 205,093 |
| | $ | 157,096 |
| | $ | 88,516 |
| | $ | 90,950 |
|
Denominator: | | | | | | | | | | | | |
Weighted average common shares outstanding-basic | | 50,752 |
| | 45,580 |
| | 48,281 |
| | 45,180 |
| | 51,009 |
| | 45,866 |
|
Weighted average effect of dilutive securities: | | | | | | | | | | | | |
Stock options and ESPP | | 534 |
| | 429 |
| | 580 |
| | 405 |
| | 445 |
| | 566 |
|
Restricted stock units | | 285 |
| | 193 |
| | 339 |
| | 180 |
| | 265 |
| | 293 |
|
Denominator for diluted calculation | | 51,571 |
| | 46,202 |
| | 49,200 |
| | 45,765 |
| | 51,719 |
| | 46,725 |
|
Earnings per common share: | | | | | | | | | | | | |
Basic(1) | | $ | 1.24 |
| | $ | 1.48 |
| | $ | 4.25 |
| | $ | 3.48 |
| | $ | 1.74 |
| | $ | 1.98 |
|
Diluted | | $ | 1.22 |
| | $ | 1.46 |
| | $ | 4.17 |
| | $ | 3.43 |
| | $ | 1.71 |
| | $ | 1.95 |
|
| |
(1) | Results for the quarter ended March 31, 2014 were restated to reflect the retrospective application of adopting new accounting guidance in 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 of the Notes to Consolidated Financial Statements for additional information. |
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 nine months ended September 30, 2014March 31, 2015 and 20132014:
|
| | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(Shares in thousands) | | 2014 | | 2013 | | 2014 | | 2013 |
Stock options | | 241 |
| | 343 |
| | 140 |
| | 546 |
|
Restricted stock units | | 1 |
| | — |
| | 2 |
| | 1 |
|
Total | | 242 |
| | 343 |
| | 142 |
| | 547 |
|
Accumulated Other Comprehensive Income
The following table summarizes the items reclassified out of accumulated other comprehensive income into the Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2014 and 2013:
|
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended September 30, | | Nine months ended September 30, |
(Dollars in thousands) | | Income Statement Location | | 2014 | | 2013 | | 2014 | | 2013 |
Reclassification adjustment for losses (gains) included in net income | | Gains on investment securities, net | | $ | 990 |
| | $ | (219 | ) | | $ | 17,411 |
| | $ | (949 | ) |
Related tax (benefit) expense | | Income tax expense | | (400 | ) | | 85 |
| | (7,030 | ) | | 363 |
|
Total reclassification adjustment for losses (gains) included in net income, net of tax | | | | $ | 590 |
| | $ | (134 | ) | | $ | 10,381 |
| | $ | (586 | ) |
|
| | | | | | |
| | Three months ended March 31, |
(Shares in thousands) | | 2015 | | 2014 |
Stock options | | 241 |
| | 6 |
|
Restricted stock units | | 2 |
| | 1 |
|
Total | | 243 |
| | 7 |
|
| |
3. | Share-Based Compensation |
For the three and nine months ended September 30, 2014March 31, 2015 and 20132014, we recorded share-based compensation and related tax benefits as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Share-based compensation expense | | $ | 7,520 |
| | $ | 6,723 |
| | $ | 22,285 |
| | $ | 18,945 |
| | $ | 7,771 |
| | $ | 7,078 |
|
Income tax benefit related to share-based compensation expense | | (2,676 | ) | | (2,243 | ) | | (7,351 | ) | | (5,801 | ) | | (2,638 | ) | | (2,160 | ) |
Unrecognized Compensation Expense
As of September 30, 2014March 31, 2015, unrecognized share-based compensation expense was as follows:
| | (Dollars in thousands) | | Unrecognized Expense | | Average Expected Recognition Period - in Years | | Unrecognized Expense | | Average Expected Recognition Period - in Years |
Stock options | | $ | 16,282 |
| | 2.64 | | $ | 12,436 |
| | 2.39 |
Restricted stock units | | 35,324 |
| | 2.56 | | 32,100 |
| | 2.40 |
Total unrecognized share-based compensation expense | | $ | 51,606 |
| | | $ | 44,536 |
| |
Share-Based Payment Award Activity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the ninethree months ended September 30, 2014March 31, 2015:
|
| | | | | | | | | | | | | |
| | Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life in Years | | Aggregate Intrinsic Value of In-The- Money Options |
Outstanding at December 31, 2013 | | 1,514,159 |
| | $ | 55.27 |
| | | | |
Granted | | 239,383 |
| | 108.27 |
| | | | |
Exercised | | (283,498 | ) | | 47.56 |
| | | | |
Forfeited | | (21,975 | ) | | 71.17 |
| | | | |
Outstanding at September 30, 2014 | | 1,448,069 |
| | 65.30 |
| | 4.25 | | $ | 67,825,947 |
|
Vested and expected to vest at September 30, 2014 | | 1,397,466 |
| | 64.55 |
| | 4.20 | | 66,495,669 |
|
Exercisable at September 30, 2014 | | 727,829 |
| | 50.48 |
| | 3.08 | | 44,843,070 |
|
|
| | | | | | | | | | | | | |
| | Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life in Years | | Aggregate Intrinsic Value of In-The- Money Options |
Outstanding at December 31, 2014 | | 1,394,888 |
| | $ | 66.03 |
| | | | |
Granted | | 6,718 |
| | 120.46 |
| | | | |
Exercised | | (140,880 | ) | | 48.97 |
| | | | |
Forfeited | | (12,400 | ) | | 82.72 |
| | | | |
Outstanding at March 31, 2015 | | 1,248,326 |
| | 68.08 |
| | 4.06 | | $ | 73,596,215 |
|
Vested and expected to vest at March 31, 2015 | | 1,213,499 |
| | 67.45 |
| | 4.01 | | 72,313,282 |
|
Exercisable at March 31, 2015 | | 554,601 |
| | 51.32 |
| | 2.84 | | 41,996,945 |
|
The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $112.09127.04 as of September 30, 2014March 31, 2015. The total intrinsic value of options exercised during the three and nine months ended September 30, 2014March 31, 2015 was $7.710.2 million and $18.4 million, respectively, compared to $6.5 million and $18.4$7.2 million for the comparable 20132014 period.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the ninethree months ended September 30, 2014March 31, 2015:
| | | | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
Nonvested at December 31, 2013 | | 682,347 |
| | $ | 65.93 |
| |
Nonvested at December 31, 2014 | | | 614,666 |
| | $ | 79.92 |
|
Granted | | 197,687 |
| | 107.85 |
| | 53,219 |
| | 125.99 |
|
Vested | | (200,856 | ) | | 64.05 |
| | (4,613 | ) | | 71.69 |
|
Forfeited | | (25,268 | ) | | 73.02 |
| | (9,994 | ) | | 80.52 |
|
Nonvested at September 30, 2014 | | 653,910 |
| | 78.91 |
| |
Nonvested at March 31, 2015 | | | 653,278 |
| | 83.73 |
|
| |
4. | Cash and Cash Equivalents |
The following table details our cash and cash equivalents at September 30, 2014March 31, 2015 and December 31, 20132014:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Cash and due from banks (1) | | $ | 1,815,581 |
| | $ | 1,349,688 |
| | $ | 1,066,854 |
| | $ | 1,694,329 |
|
Securities purchased under agreements to resell (2) | | 50,834 |
| | 172,989 |
| | 236,027 |
| | 95,611 |
|
Other short-term investment securities | | 6,122 |
| | 16,102 |
| | 5,122 |
| | 6,122 |
|
Total cash and cash equivalents | | $ | 1,872,537 |
| | $ | 1,538,779 |
| | $ | 1,308,003 |
| | $ | 1,796,062 |
|
| |
(1) | At September 30, 2014March 31, 2015 and December 31, 20132014, $883236 million and $715861 million, respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $442460 million and $300440 million, respectively. |
| |
(2) | At September 30, 2014March 31, 2015 and December 31, 20132014, securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $52244 million and $17698 million, respectively. None of these securities received as collateral were sold or repledgedpledged as of September 30, 2014March 31, 2015 or December 31, 20132014. |
Our investment securities portfolio consists of an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest-earning investment securities, and a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business.
Available-for-Sale Securities
The major components of our available-for-sale investment securities portfolio at September 30, 2014March 31, 2015 and December 31, 20132014 are as follows:
| | | | September 30, 2014 | | March 31, 2015 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Carrying Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Carrying Value |
Available-for-sale securities, at fair value: | | | | | | | | | | | | | | | | |
U.S. treasury securities | | $ | 6,886,952 |
| | $ | 2,245 |
| | $ | (12,898 | ) | | $ | 6,876,299 |
| | $ | 7,842,942 |
| | $ | 71,447 |
| | $ | (264 | ) | | $ | 7,914,125 |
|
U.S. agency debentures | | 3,592,129 |
| | 28,744 |
| | (15,040 | ) | | 3,605,833 |
| | 3,271,203 |
| | 43,675 |
| | (1,214 | ) | | 3,313,664 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
Agency-issued collateralized mortgage obligations—fixed rate | | 2,003,337 |
| | 20,671 |
| | (18,075 | ) | | 2,005,933 |
| | 1,769,610 |
| | 15,005 |
| | (6,460 | ) | | 1,778,155 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 830,139 |
| | 5,818 |
| | — |
| | 835,957 |
| | 733,999 |
| | 5,207 |
| | (3 | ) | | 739,203 |
|
Equity securities | | 9,502 |
| | 749 |
| | (837 | ) | | 9,414 |
| | 1,948 |
| | 121 |
| | (293 | ) | | 1,776 |
|
Total available-for-sale securities | | $ | 13,322,059 |
| | $ | 58,227 |
| | $ | (46,850 | ) | | $ | 13,333,436 |
| | $ | 13,619,702 |
| | $ | 135,455 |
| | $ | (8,234 | ) | | $ | 13,746,923 |
|
| | | | December 31, 2013 | | December 31, 2014 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Carrying Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Carrying Value |
Available-for-sale securities, at fair value: | | | | | | | | | | | | | | | | |
U.S. treasury securities | | | $ | 7,289,135 |
| | $ | 17,524 |
| | $ | (4,386 | ) | | $ | 7,302,273 |
|
U.S. agency debentures | | $ | 4,344,652 |
| | $ | 41,365 |
| | $ | (40,785 | ) | | $ | 4,345,232 |
| | 3,540,055 |
| | 30,478 |
| | (8,977 | ) | | $ | 3,561,556 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
Agency-issued mortgage-backed securities | | 2,472,528 |
| | 17,189 |
| | (16,141 | ) | | 2,473,576 |
| |
Agency-issued collateralized mortgage obligations—fixed rate | | 3,386,670 |
| | 24,510 |
| | (85,422 | ) | | 3,325,758 |
| | 1,884,450 |
| | 14,851 |
| | (14,458 | ) | | 1,884,843 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 1,183,333 |
| | 3,363 |
| | (123 | ) | | 1,186,573 |
| | 779,103 |
| | 5,372 |
| | — |
| | 784,475 |
|
Agency-issued commercial mortgage-backed securities | | 581,475 |
| | 552 |
| | (17,423 | ) | | 564,604 |
| |
Municipal bonds and notes | | 82,024 |
| | 4,024 |
| | (21 | ) | | 86,027 |
| |
Equity securities | | 4,842 |
| | 692 |
| | (483 | ) | | 5,051 |
| | 5,202 |
| | 2,628 |
| | (322 | ) | | 7,508 |
|
Total available-for-sale securities | | $ | 12,055,524 |
| | $ | 91,695 |
| | $ | (160,398 | ) | | $ | 11,986,821 |
| | $ | 13,497,945 |
| | $ | 70,853 |
| | $ | (28,143 | ) | | $ | 13,540,655 |
|
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months and 12 months or longer as of September 30, 2014March 31, 2015:
| | | | September 30, 2014 | | March 31, 2015 |
| | Less than 12 months | | 12 months or longer | | Total | | 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 | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses |
Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. treasury securities | | $ | 4,736,436 |
| | $ | (12,898 | ) | | $ | — |
| | $ | — |
| | $ | 4,736,436 |
| | $ | (12,898 | ) | | $ | 176,467 |
| | $ | (264 | ) | | $ | — |
| | $ | — |
| | $ | 176,467 |
| | $ | (264 | ) |
U.S. agency debentures | | 688,808 |
| | (2,373 | ) | | 553,231 |
| | (12,667 | ) | | 1,242,039 |
| | (15,040 | ) | | 390,034 |
| | (1,214 | ) | | — |
| | — |
| | 390,034 |
| | (1,214 | ) |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | |
| |
|
Agency-issued mortgage-backed securities | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Agency-issued collateralized mortgage obligations—fixed rate | | 659,886 |
| | (2,523 | ) | | 469,850 |
| | (15,552 | ) | | 1,129,736 |
| | (18,075 | ) | | 244,285 |
| | (244 | ) | | 428,635 |
| | (6,216 | ) | | 672,920 |
| | (6,460 | ) |
Agency-issued collateralized mortgage obligations—variable rate | | | 934 |
| | (3 | ) | | — |
| | — |
| | 934 |
| | (3 | ) |
Equity securities | | 5,546 |
| | (837 | ) | | — |
| | — |
| | 5,546 |
| | (837 | ) | | 1,381 |
| | (293 | ) | | — |
| | — |
| | 1,381 |
| | (293 | ) |
Total temporarily impaired securities: (1) | | $ | 6,090,676 |
| | $ | (18,631 | ) | | $ | 1,023,081 |
| | $ | (28,219 | ) | | $ | 7,113,757 |
| | $ | (46,850 | ) | | $ | 813,101 |
| | $ | (2,018 | ) | | $ | 428,635 |
| | $ | (6,216 | ) | | $ | 1,241,736 |
| | $ | (8,234 | ) |
| |
(1) | As of September 30, 2014March 31, 2015, we identified a total of 18251 investments that were in unrealized loss positions, of which 3417 investments totaling $1.0 billion428.6 million with unrealized losses of $28.26.2 million have been in an impaired position for a period of time greater than 12 months. As of September 30, 2014March 31, 2015, we do not intend to sell any impaired fixed income investment 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 September 30, 2014March 31, 2015, 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 and 12 months or longer as of December 31, 20132014:
| | | | December 31, 2013 | | December 31, 2014 |
| | Less than 12 months | | 12 months or longer | | Total | | 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 | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses |
Available-for-sale securities: | | | | | | | | | | | | | |
U.S. treasury securities | | | $ | 2,297,895 |
| | $ | (4,386 | ) | | $ | — |
| | $ | — |
| | $ | 2,297,895 |
| | $ | (4,386 | ) |
U.S. agency debentures | | $ | 1,821,045 |
| | $ | (40,785 | ) | | $ | — |
| | $ | — |
| | $ | 1,821,045 |
| | $ | (40,785 | ) | | 249,266 |
| | (489 | ) | | 507,385 |
| | (8,488 | ) | | 756,651 |
| | (8,977 | ) |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Agency-issued mortgage-backed securities | | 1,480,870 |
| | (14,029 | ) | | 19,830 |
| | (2,112 | ) | | 1,500,700 |
| | (16,141 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Agency-issued collateralized mortgage obligations—fixed rate | | 2,098,137 |
| | (79,519 | ) | | 134,420 |
| | (5,903 | ) | | 2,232,557 |
| | (85,422 | ) | | 662,092 |
| | (3,104 | ) | | 453,801 |
| | (11,354 | ) | | 1,115,893 |
| | (14,458 | ) |
Agency-issued collateralized mortgage obligations—variable rate | | 109,699 |
| | (123 | ) | | — |
| | — |
| | 109,699 |
| | (123 | ) | |
Agency-issued commercial mortgage-backed securities | | 464,171 |
| | (17,423 | ) | | — |
| | — |
| | 464,171 |
| | (17,423 | ) | |
Municipal bonds and notes | | 3,404 |
| | (21 | ) | | — |
| | — |
| | 3,404 |
| | (21 | ) | |
Equity securities | | 910 |
| | (483 | ) | | — |
| | — |
| | 910 |
| | (483 | ) | | 568 |
| | (322 | ) | | — |
| | — |
| | 568 |
| | (322 | ) |
Total temporarily impaired securities | | $ | 5,978,236 |
| | $ | (152,383 | ) | | $ | 154,250 |
| | $ | (8,015 | ) | | $ | 6,132,486 |
| | $ | (160,398 | ) | |
Total temporarily impaired securities: | | | $ | 3,209,821 |
| | $ | (8,301 | ) | | $ | 961,186 |
| | $ | (19,842 | ) | | $ | 4,171,007 |
| | $ | (28,143 | ) |
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income investment securities classified as available-for-sale as of September 30, 2014March 31, 2015. The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. For U.S. Treasurytreasury 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 and prepayments in lower rate environments.
| | | | September 30, 2014 | | March 31, 2015 |
| | Total | | One Year or Less | | After One Year to Five Years | | After Five Years to Ten Years | | After Ten Years | | 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 | | 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 | | $ | 6,876,299 |
| | 1.08 | % | | $ | 100,189 |
| | 0.15 | % | | $ | 6,041,278 |
| | 0.99 | % | | $ | 734,832 |
| | 1.97 | % | | $ | — |
| | — | % | | $ | 7,914,125 |
| | 1.11 | % | | $ | 350,203 |
| | 0.25 | % | | $ | 6,925,629 |
| | 1.09 | % | | $ | 638,293 |
| | 1.90 | % | | $ | — |
| | — | % |
U.S. agency debentures | | 3,605,833 |
| | 1.63 |
| | 695,199 |
| | 1.64 |
| | 2,225,869 |
| | 1.52 |
| | 684,765 |
| | 2.01 |
| | — |
| | — |
| | 3,313,664 |
| | 1.65 |
| | 835,499 |
| | 1.80 |
| | 2,055,046 |
| | 1.44 |
| | 423,119 |
| | 2.36 |
| | — |
| | — |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency-issued collateralized mortgage obligations - fixed rate | | 2,005,933 |
| | 2.01 |
| | — |
| | — |
| | — |
| | — |
| | 483,473 |
| | 2.59 |
| | 1,522,460 |
| | 1.83 |
| | 1,778,155 |
| | 1.99 |
| | — |
| | — |
| | — |
| | — |
| | 651,254 |
| | 2.58 |
| | 1,126,901 |
| | 1.65 |
|
Agency-issued collateralized mortgage obligations - variable rate | | 835,957 |
| | 0.71 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 835,957 |
| | 0.71 |
| | 739,203 |
| | 0.71 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 739,203 |
| | 0.71 |
|
Total | | $ | 13,324,022 |
| | 1.35 |
| | $ | 795,388 |
| | 1.45 |
| | $ | 8,267,147 |
| | 1.13 |
| | $ | 1,903,070 |
| | 2.14 |
| | $ | 2,358,417 |
| | 1.43 |
| | $ | 13,745,147 |
| | 1.33 |
| | $ | 1,185,702 |
| | 1.34 |
| | $ | 8,980,675 |
| | 1.17 |
| | $ | 1,712,666 |
| | 2.27 |
| | $ | 1,866,104 |
| | 1.28 |
|
Held-to-Maturity Securities
During the second quarter of 2014, we re-designated certain securities from the classification of “available-for-sale” to “held-to-maturity." The securities re-designated primarily consisted of agency-issued mortgage securities and collateralized mortgage obligations ("CMOs") with a total carrying value of $5.4 billion at June 1, 2014. At the time of re-designation the securities had net unrealized gains totaling $22.5 million, net of tax, recorded in other comprehensive income and are being amortized over the life of the securities in a manner consistent with the amortization of a premium or discount. Our decision to re-designate the securities was based on our ability and intent to hold these securities to maturity. Factors used in assessing the ability to hold these securities to maturity were future liquidity needs and sources of funding. Held-to-maturity securities are carried on the balance sheet at amortized cost and the changes in the value of these securities, other than impairment charges, are not reported on the financial statements.
The major components of our held-to-maturity investment securities portfolio at September 30,March 31, 2015 and December 31, 2014 are as follows:
| | | | September 30, 2014 | | March 31, 2015 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Held-to-maturity securities, at cost: | | | | | | | | | | | | | | | | |
U.S. agency debentures (1) | | $ | 349,993 |
| | $ | 1,588 |
| | $ | (1,165 | ) | | $ | 350,416 |
| | $ | 473,373 |
| | $ | 8,700 |
| | $ | — |
| | $ | 482,073 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
Agency-issued mortgage-backed securities | | 2,919,715 |
| | 16 |
| | (20,712 | ) | | 2,899,019 |
| | 2,693,488 |
| | 23,143 |
| | (501 | ) | | 2,716,130 |
|
Agency-issued collateralized mortgage obligations—fixed rate | | 2,489,538 |
| | 384 |
| | (24,052 | ) | | 2,465,870 |
| | 3,553,640 |
| | 19,339 |
| | (6,328 | ) | | 3,566,651 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 139,182 |
| | 7 |
| | (14 | ) | | 139,175 |
| | 124,195 |
| | 337 |
| | (5 | ) | | 124,527 |
|
Agency-issued commercial mortgage-backed securities | | 679,379 |
| | 350 |
| | (4,391 | ) | | 675,338 |
| | 888,823 |
| | 9,023 |
| | (498 | ) | | 897,348 |
|
Municipal bonds and notes | | 84,218 |
| | 81 |
| | (224 | ) | | 84,075 |
| | 83,278 |
| | 126 |
| | (480 | ) | | 82,924 |
|
Total held-to-maturity securities | | $ | 6,662,025 |
| | $ | 2,426 |
| | $ | (50,558 | ) | | $ | 6,613,893 |
| | $ | 7,816,797 |
| | $ | 60,668 |
| | $ | (7,812 | ) | | $ | 7,869,653 |
|
| |
(1) | Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States. |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2014 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Held-to-maturity securities, at cost: | | | | | | | | |
U.S. agency debentures (1) | | $ | 405,899 |
| | $ | 4,589 |
| | $ | (38 | ) | | $ | 410,450 |
|
Residential mortgage-backed securities: | | | | | | | | |
Agency-issued mortgage-backed securities | | 2,799,923 |
| | 5,789 |
| | (2,320 | ) | | 2,803,392 |
|
Agency-issued collateralized mortgage obligations—fixed rate | | 3,185,109 |
| | 4,521 |
| | (14,885 | ) | | 3,174,745 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 131,580 |
| | 371 |
| | — |
| | 131,951 |
|
Agency-issued commercial mortgage-backed securities | | 814,589 |
| | 1,026 |
| | (3,800 | ) | | 811,815 |
|
Municipal bonds and notes | | 83,942 |
| | 18 |
| | (657 | ) | | 83,303 |
|
Total held-to-maturity securities | | $ | 7,421,042 |
| | $ | 16,314 |
| | $ | (21,700 | ) | | $ | 7,415,656 |
|
| |
(1) | Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States. |
The following table summarizes our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of September 30, 2014March 31, 2015:
| | | | September 30, 2014 | | March 31, 2015 |
| | Less than 12 months | | 12 months or longer (1) | | Total | | 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 | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses |
Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. agency debentures | | $ | 205,383 |
| | $ | (837 | ) | | $ | 47,987 |
| | $ | (328 | ) | | $ | 253,370 |
| | $ | (1,165 | ) | |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Agency-issued mortgage-backed securities | | 2,890,039 |
| | (20,712 | ) | | — |
| | — |
| | 2,890,039 |
| | (20,712 | ) | | $ | 52,761 |
| | $ | (501 | ) | | $ | — |
| | $ | — |
| | $ | 52,761 |
| | $ | (501 | ) |
Agency-issued collateralized mortgage obligations—fixed rate | | 1,316,900 |
| | (12,438 | ) | | 806,042 |
| | (11,614 | ) | | 2,122,942 |
| | (24,052 | ) | | 622,767 |
| | (6,328 | ) | | — |
| | — |
| | 622,767 |
| | (6,328 | ) |
Agency-issued collateralized mortgage obligations—variable rate | | 77,567 |
| | (14 | ) | | — |
| | — |
| | 77,567 |
| | (14 | ) | | 8,660 |
| | (5 | ) | | — |
| | — |
| | 8,660 |
| | (5 | ) |
Agency-issued commercial mortgage-backed securities | | 578,687 |
| | (4,391 | ) | | — |
| | — |
| | 578,687 |
| | (4,391 | ) | | 164,668 |
| | (498 | ) | | — |
| | — |
| | 164,668 |
| | (498 | ) |
Municipal bonds and notes | | 55,365 |
| | (224 | ) | | — |
| | — |
| | 55,365 |
| | (224 | ) | | 48,864 |
| | (480 | ) | | — |
| | — |
| | 48,864 |
| | (480 | ) |
Total temporarily impaired securities (2): | | $ | 5,123,941 |
| | $ | (38,616 | ) | | $ | 854,029 |
| | $ | (11,942 | ) | | $ | 5,977,970 |
| | $ | (50,558 | ) | |
Total temporarily impaired securities (1): | | | $ | 897,720 |
| | $ | (7,812 | ) | | $ | — |
| | $ | — |
| | $ | 897,720 |
| | $ | (7,812 | ) |
| |
(1) | Represents securities in an unrealized loss position for twelve months or longer in which the amortized cost basis was re-set for those securities re-designated from AFS to HTM effective June 1, 2014. |
| |
(2) | As of September 30, 2014March 31, 2015, we identified a total of 329120 investments that were in unrealized loss positions, noneof which28 investments totaling $854.0 million with unrealized losses of $11.9 million have been in an impaired position for a period of time greater than 12 months. As of September 30, 2014March 31, 2015, we do not intend to sell any impaired fixed income investment 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, which is consistent with our classification of these securities. Based on our analysis as of September 30, 2014March 31, 2015, we deem all impairments to be temporary. Market valuations and impairment analyses on assets in the held-to-maturity securities portfolio are reviewed and monitored on a quarterly basis. |
The following table summarizes our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of December 31, 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2014 |
| | Less than 12 months | | 12 months or longer (1) | | Total |
(Dollars in thousands) | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses | | Fair Value of Investments | | Unrealized Losses |
Held-to-maturity securities: | | | | | | | | | | | | |
U.S. agency debentures | | $ | 48,335 |
| | $ | (38 | ) | | $ | — |
| | $ | — |
| | $ | 48,335 |
| | $ | (38 | ) |
Residential mortgage-backed securities: | | | | | | | | | | | | |
Agency-issued mortgage-backed securities | | 999,230 |
| | (2,320 | ) | | — |
| | — |
| | 999,230 |
| | (2,320 | ) |
Agency-issued collateralized mortgage obligations—fixed rate | | 1,682,348 |
| | (9,705 | ) | | 783,558 |
| | (5,180 | ) | | 2,465,906 |
| | (14,885 | ) |
Agency-issued commercial mortgage-backed securities | | 629,840 |
| | (3,800 | ) | | — |
| | — |
| | 629,840 |
| | (3,800 | ) |
Municipal bonds and notes | | 79,141 |
| | (657 | ) | | — |
| | — |
| | 79,141 |
| | (657 | ) |
Total temporarily impaired securities: | | $ | 3,438,894 |
| | $ | (16,520 | ) | | $ | 783,558 |
| | $ | (5,180 | ) | | $ | 4,222,452 |
| | $ | (21,700 | ) |
| |
(1) | Represents securities in an unrealized loss position for twelve months or longer in which the amortized cost basis was re-set for those securities re-designated from AFS to HTM effective June 1, 2014. |
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income investment securities classified as held-to-maturity as of September 30, 2014March 31, 2015. 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%. The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. 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 held-to-maturity 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 and prepayments in lower rate environments.
| | | | September 30, 2014 | | March 31, 2015 |
| | Total | | One Year or Less | | After One Year to Five Years | | After Five Years to Ten Years | | After Ten Years | | Total | | One Year or Less | | After One Year to Five Years | | After Five Years to Ten Years | | After Ten Years |
(Dollars in thousands) | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield | | Amortized Cost | | Weighted- Average Yield |
U.S. agency debentures | | $ | 349,993 |
| | 2.90 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 349,993 |
| | 2.90 | % | | $ | — |
| | — | % | | $ | 473,373 |
| | 2.69 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 473,373 |
| | 2.69 | % | | $ | — |
| | — | % |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency-issued mortgage-backed securities | | 2,919,715 |
| | 2.42 |
| | — |
| | — |
| | 45,081 |
| | 2.39 |
| | 901,721 |
| | 2.20 |
| | 1,972,913 |
| | 2.52 |
| | 2,693,488 |
| | 2.42 |
| | — |
| | — |
| | 42,382 |
| | 2.38 |
| | 794,716 |
| | 2.23 |
| | 1,856,390 |
| | 2.51 |
|
Agency-issued collateralized mortgage obligations - fixed rate | | 2,489,538 |
| | 1.68 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,489,538 |
| | 1.68 |
| | 3,553,640 |
| | 1.65 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,553,640 |
| | 1.65 |
|
Agency-issued collateralized mortgage obligations - variable rate | | 139,182 |
| | 0.65 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 139,182 |
| | 0.65 |
| | 124,195 |
| | 0.65 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 124,195 |
| | 0.65 |
|
Agency-issued commercial mortgage-backed securities | | 679,379 |
| | 2.16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 679,379 |
| | 2.16 |
| | 888,823 |
| | 2.16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 888,823 |
| | 2.16 |
|
Municipal bonds and notes | | 84,218 |
| | 6.00 |
| | 3,470 |
| | 5.37 |
| | 27,900 |
| | 5.84 |
| | 40,475 |
| | 6.07 |
| | 12,373 |
| | 6.30 |
| | 83,278 |
| | 6.00 |
| | 3,442 |
| | 5.39 |
| | 33,261 |
| | 5.87 |
| | 40,081 |
| | 6.11 |
| | 6,494 |
| | 6.34 |
|
Total | | $ | 6,662,025 |
| | 2.15 |
| | $ | 3,470 |
| | 5.37 |
| | $ | 72,981 |
| | 3.71 |
| | $ | 1,292,189 |
| | 2.51 |
| | $ | 5,293,385 |
| | 2.03 |
| | $ | 7,816,797 |
| | 2.07 |
| | $ | 3,442 |
| | 5.39 |
| | $ | 75,643 |
| | 3.91 |
| | $ | 1,308,170 |
| | 2.52 |
| | $ | 6,429,542 |
| | 1.95 |
|
Non-marketable and Other Securities
The major components of our non-marketable and other investment securities portfolio at September 30, 2014March 31, 2015 and December 31, 20132014 are as follows:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Non-marketable and other securities: | | | | | | | | |
Non-marketable securities (fair value accounting): | | | | | | | | |
Venture capital and private equity fund investments (1) | | $ | 1,078,911 |
| | $ | 862,972 |
| | $ | 1,195,303 |
| | $ | 1,130,882 |
|
Other venture capital investments (2) | | 43,863 |
| | 32,839 |
| | 78,850 |
| | 71,204 |
|
Other securities (fair value accounting) (3) | | 181,265 |
| | 321,374 |
| | 11,936 |
| | 108,251 |
|
Non-marketable securities (equity method accounting): | | | | | | | | |
Other investments (4) | | 141,913 |
| | 142,883 |
| | 145,942 |
| | 142,674 |
|
Low income housing tax credit funds | | 98,417 |
| | 72,241 |
| |
Non-marketable securities (cost method accounting): | | | | | | | | |
Venture capital and private equity fund investments (5) | | 142,710 |
| | 148,994 |
| | 134,575 |
| | 140,551 |
|
Other investments | | 16,471 |
| | 14,191 |
| |
Other investments (6) | | | 14,910 |
| | 13,423 |
|
Investments in qualified affordable housing projects (6) | | | 125,357 |
| | 121,155 |
|
Total non-marketable and other securities | | $ | 1,703,550 |
| | $ | 1,595,494 |
| | $ | 1,706,873 |
| | $ | 1,728,140 |
|
| |
(1) | The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and our ownership percentage of each fund at September 30, 2014March 31, 2015 and December 31, 20132014 (fair value accounting): |
| | | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
(Dollars in thousands) | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % |
SVB Strategic Investors Fund, LP | | $ | 25,625 |
| | 12.6 | % | | $ | 29,104 |
| | 12.6 | % | | $ | 23,953 |
| | 12.6 | % | | $ | 24,645 |
| | 12.6 | % |
SVB Strategic Investors Fund II, LP | | 92,681 |
| | 8.6 |
| | 96,185 |
| | 8.6 |
| | 89,219 |
| | 8.6 |
| | 97,250 |
| | 8.6 |
|
SVB Strategic Investors Fund III, LP | | 248,816 |
| | 5.9 |
| | 260,272 |
| | 5.9 |
| | 257,539 |
| | 5.9 |
| | 269,821 |
| | 5.9 |
|
SVB Strategic Investors Fund IV, LP | | 308,332 |
| | 5.0 |
| | 226,729 |
| | 5.0 |
| | 297,752 |
| | 5.0 |
| | 291,291 |
| | 5.0 |
|
Strategic Investors Fund V Funds | | 214,863 |
| | Various |
| | 118,181 |
| | Various |
| | 260,292 |
| | Various |
| | 226,111 |
| | Various |
|
Strategic Investors Fund VI Funds | | 56,958 |
| | 0.2 |
| | 7,944 |
| | 0.2 |
| | 127,721 |
| | — |
| | 89,605 |
| | — |
|
Strategic Investors Fund VII Funds | | | 2,212 |
| | — |
| | — |
| | — |
|
SVB Capital Preferred Return Fund, LP | | 61,876 |
| | 20.0 |
| | 59,028 |
| | 20.0 |
| | 64,417 |
| | 20.0 |
| | 62,110 |
| | 20.0 |
|
SVB Capital—NT Growth Partners, LP | | 61,818 |
| | 33.0 |
| | 61,126 |
| | 33.0 |
| | 64,078 |
| | 33.0 |
| | 61,973 |
| | 33.0 |
|
SVB Capital Partners II, LP (i) | | 302 |
| | 5.1 |
| | 708 |
| | 5.1 |
| | 346 |
| | 5.1 |
| | 302 |
| | 5.1 |
|
Other private equity fund (ii) | | 7,640 |
| | 58.2 |
| | 3,695 |
| | 58.2 |
| | 7,774 |
| | 58.2 |
| | 7,774 |
| | 58.2 |
|
Total venture capital and private equity fund investments | | $ | 1,078,911 |
| | | | $ | 862,972 |
| | | | $ | 1,195,303 |
| | | | $ | 1,130,882 |
| | |
| |
(i) | At September 30, 2014March 31, 2015, 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 September 30, 2014March 31, 2015, 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 Capital—NT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively. |
| |
(2) | The following table shows the amounts of other venture capital investments held by the following consolidated funds and our ownership percentage of each fund at September 30, 2014March 31, 2015 and December 31, 20132014 (fair value accounting): |
| | | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
(Dollars in thousands) | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % |
Silicon Valley BancVentures, LP | | $ | 5,616 |
| | 10.7 | % | | $ | 6,564 |
| | 10.7 | % | | $ | 3,390 |
| | 10.7 | % | | $ | 3,291 |
| | 10.7 | % |
SVB Capital Partners II, LP (i) | | 17,802 |
| | 5.1 |
| | 22,684 |
| | 5.1 |
| | 27,215 |
| | 5.1 |
| | 20,481 |
| | 5.1 |
|
Capital Partners III, LP | | 15,000 |
| | 0.4 |
| | — |
| | — |
| | 41,055 |
| | — |
| | 41,055 |
| | — |
|
SVB Capital Shanghai Yangpu Venture Capital Fund | | 5,445 |
| | 6.8 |
| | 3,591 |
| | 6.8 |
| | 7,190 |
| | 6.8 |
| | 6,377 |
| | 6.8 |
|
Total other venture capital investments | | $ | 43,863 |
| | | | $ | 32,839 |
| | | | $ | 78,850 |
| | | | $ | 71,204 |
| | |
| |
(i) | At September 30, 2014March 31, 2015, 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) | Investments classified as other securities (fair value accounting) represent direct equity investments in public companies held by our consolidated funds. At September 30,December 31, 2014, the amount primarily includesincluded total unrealized gains of $143.8 million in one public company, FireEye, Inc. ("FireEye"). The extentDuring the first quarter of 2015, our managed direct venture funds distributed the remaining 2.5 million shares of FireEye common stock to which any unrealizedtheir respective investors (including the Company), resulting in $15.9 million of realized gains (or losses) will become realized is subject to a varietyon investment securities ($3.3 million net of factors, including among other things, changes in prevailing market prices and the timing of any sales or distribution of securities, which are subject to our funds' separate discretionary securities sales/distribution and governance processes and may also be constrained by lock-up agreements. Nonenoncontrolling interests but inclusive of the Company's carried interests). As of March 31, 2015, we no longer hold any shares of FireEye related investments currently are subject to a lock-up agreement.common stock, either directly or through our managed direct venture funds. |
| |
(4) | The following table shows the carrying value and our ownership percentage of each investment at September 30, 2014March 31, 2015 and December 31, 20132014 (equity method accounting): |
| | | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
(Dollars in thousands) | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % |
Gold Hill Capital 2008, LP (i) | | $ | 20,685 |
| | 15.5 | % | | $ | 21,867 |
| | 15.5 | % | | $ | 22,040 |
| | 15.5 | % | | $ | 21,294 |
| | 15.5 | % |
China Joint Venture investment | | 79,457 |
| | 50.0 |
| | 79,940 |
| | 50.0 |
| | 79,695 |
| | 50.0 |
| | 79,569 |
| | 50.0 |
|
Other investments | | 41,771 |
| | Various |
| | 41,076 |
| | Various |
| | 44,207 |
| | Various |
| | 41,811 |
| | Various |
|
Total other investments (equity method accounting) | | $ | 141,913 |
| | | | $ | 142,883 |
| | | | $ | 145,942 |
| | �� | | $ | 142,674 |
| | |
| |
(i) | At September 30, 2014March 31, 2015, 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. |
| |
(5) | Represents investments in 281277 and 288281 funds (primarily venture capital funds) at September 30, 2014March 31, 2015 and December 31, 20132014, respectively, where our ownership interest is typically 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 activities and financial policies. The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $143135 million, and $240238 million, respectively, as of September 30, 2014March 31, 2015. The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $149141 million and $215234 million, respectively, as of December 31, 20132014. |
| |
(6) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
The following table presents the components of gains and losses (realized and unrealized) on investment securities for the three and nine months ended September 30, 2014March 31, 2015 and 20132014: | | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Gross gains on investment securities: | | | | | | | | | | | | |
Available-for-sale securities, at fair value (1) | | $ | 45 |
| | $ | 317 |
| | $ | 642 |
| | $ | 3,167 |
| | $ | 2,690 |
| | $ | 373 |
|
Non-marketable securities (fair value accounting): | | | | | | | | | | | | |
Venture capital and private equity fund investments | | 69,044 |
| | 35,826 |
| | 268,483 |
| | 107,546 |
| | 58,489 |
| | 111,436 |
|
Other venture capital investments | | 6,779 |
| | 5,180 |
| | 11,334 |
| | 8,020 |
| | 6,450 |
| | 2,582 |
|
Other securities (fair value accounting) (2) | | 5,444 |
| | 143,840 |
| | 136,010 |
| | 148,185 |
| |
Other securities (fair value accounting) | | | 19,601 |
| | 116,750 |
|
Non-marketable securities (equity method accounting): | | | | | | | | | | | | |
Other investments | | 2,239 |
| | 6,569 |
| | 8,767 |
| | 14,038 |
| | 4,188 |
| | 3,642 |
|
Non-marketable securities (cost method accounting): | | | | | | | | | | | | |
Venture capital and private equity fund investments | | 2,641 |
| | 5,016 |
| | 7,706 |
| | 6,806 |
| | 4,833 |
| | 3,303 |
|
Other investments | | 19 |
| | 34 |
| | 5,174 |
| | 370 |
| | 358 |
| | 134 |
|
Total gross gains on investment securities | | 86,211 |
| | 196,782 |
| | 438,116 |
| | 288,132 |
| | 96,609 |
| | 238,220 |
|
Gross losses on investment securities: | | | | | | | | | | | | |
Available-for-sale securities, at fair value (1) | | (1,035 | ) | | (98 | ) | | (18,052 | ) | | (2,218 | ) | | (94 | ) | | (313 | ) |
Non-marketable securities (fair value accounting): | | | | | | | | | | | | |
Venture capital and private equity fund investments | | (25,584 | ) | | (1,575 | ) | | (76,243 | ) | | (17,020 | ) | | (11,635 | ) | | (101 | ) |
Other venture capital investments | | (1,233 | ) | | (587 | ) | | (3,274 | ) | | (2,241 | ) | | — |
| | (744 | ) |
Other securities (fair value accounting) (2) | | (52,264 | ) | | (75 | ) | | (166,051 | ) | | (2,609 | ) | |
Other securities (fair value accounting) | | | (994 | ) | | (12,773 | ) |
Non-marketable securities (equity method accounting): | | | | | | | | | | | | |
Other investments | | (179 | ) | | (1,944 | ) | | (1,219 | ) | | (2,421 | ) | | (588 | ) | | (212 | ) |
Non-marketable securities (cost method accounting): | | | | | | | | | | | | |
Venture capital and private equity fund investments (3)(2) | | (272 | ) | | (689 | ) | | (781 | ) | | (1,462 | ) | | (134 | ) | | (156 | ) |
Other investments | | — |
| | (3,952 | ) | | (260 | ) | | (4,300 | ) | | (5 | ) | | (9 | ) |
Total gross losses on investment securities | | (80,567 | ) | | (8,920 | ) | | (265,880 | ) | | (32,271 | ) | | (13,450 | ) | | (14,308 | ) |
Gains on investment securities, net | | $ | 5,644 |
| | $ | 187,862 |
| | $ | 172,236 |
| | $ | 255,861 |
| | $ | 83,159 |
| | $ | 223,912 |
|
| |
(1) | Includes realized gains (losses) on sales of available-for-sale equity securities that are recognized in the income statement. Unrealized gains (losses) on available-for-sale fixed income and equity securities are recognized in other comprehensive income. The cost basis of available-for-sale securities sold is determined on a specific identification basis. |
| |
(2) | Other securities (fair value accounting) includes net losses of $49.8 million for the three months ended September 30, 2014, and net losses of $21.7 million (including $66.5 million of realized gains) for the nine months ended September 30, 2014, attributable to one public company, FireEye. The extent to which any unrealized gains (or losses) will become realized is subject to a variety of factors, including among other things, changes in prevailing market prices and the timing of any sales or distribution of securities, which are subject to our securities sales and governance processes and may also be constrained by lock-up agreements. None of the FireEye related investments currently are subject to a lock-up agreement.
|
| |
(3) | For the three months ended September 30, 2014March 31, 2015 and 20132014, includes OTTI losses of $0.30.1 million from the declines in value for 59 of the 281277 investments and $0.4 million from the declines in value for12 of the 293 investments, respectively. For the nine months endedSeptember 30, 2014 and 2013, includes OTTI losses of $0.70.1 million from the declines in value for 227 of the 281 investments and $1.2 million from the declines in value for 37 of the 293282 investments, respectively. We concluded that any declines in value for the remaining investments were temporary, and as such, no OTTI was required to be recognized. |
6. Loans and Allowance for Loan Losses
| |
6. | Loans and Allowance for Loan Losses |
We serve a variety of commercial clients in the technology and life science venture capital/private equity and premium wine& healthcare industries. Our technology clients generally tend to be in the industries ofof: hardware (semiconductors,(such as semiconductors, communications, data storage, and electronics),; software and relatedinternet (such as infrastructure software, applications, software services, digital content and advertising technology), and energy and resource innovation ("ERI"). Because of the diverse nature of ERI products and services, for our loan-related reporting purposes, ERI-related loans are reported under our hardware software, life science and other commercial loan categories,software, as applicable. Our life science & healthcare clients are concentratedprimarily tend to be in the industries of biotechnology, medical devices, healthcare information technology and biotechnology sectors.healthcare services. Loans made to private equity/venture capital/private equitycapital firm clients typically enable them to fund investments prior to their receipt of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.
In addition to commercial loans, we make consumer loans through SVB Private Bank and provide real estate secured loans to eligible employees through our EHOP. Our private banking clients are primarily private equity/venture capital/private equitycapital professionals and executive leaders in the innovation companies they support. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit.
We also provide community development loans made as part of our responsibilities under the Community Reinvestment Act. These loans are included within “Construction loans” below and are primarily secured by real estate.
The composition of loans, net of unearned income of $95107 million and $89104 million at September 30, 2014March 31, 2015 and December 31, 20132014, respectively, is presented in the following table:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Commercial loans: | | | | | | | | |
Software | | $ | 4,503,369 |
| | $ | 4,102,636 |
| |
Software and internet | | | $ | 4,871,574 |
| | $ | 4,954,676 |
|
Hardware | | 1,072,102 |
| | 1,213,032 |
| | 1,067,386 |
| | 1,131,006 |
|
Venture capital/private equity | | 2,921,184 |
| | 2,386,054 |
| |
Life science | | 1,245,527 |
| | 1,170,220 |
| |
Private equity/venture capital | | | 4,508,670 |
| | 4,582,906 |
|
Life science & healthcare | | | 1,399,449 |
| | 1,289,904 |
|
Premium wine | | 186,675 |
| | 149,841 |
| | 186,070 |
| | 187,568 |
|
Other | | 241,815 |
| | 288,904 |
| | 289,010 |
| | 234,551 |
|
Total commercial loans | | 10,170,672 |
| | 9,310,687 |
| | 12,322,159 |
| | 12,380,611 |
|
Real estate secured loans: | | | | | | | | |
Premium wine (1) | | 562,893 |
| | 514,993 |
| | 613,114 |
| | 606,753 |
|
Consumer loans (2) | | 1,047,935 |
| | 873,255 |
| | 1,209,153 |
| | 1,118,115 |
|
Other | | 30,152 |
| | 30,743 |
| | 39,422 |
| | 39,651 |
|
Total real estate secured loans | | 1,640,980 |
| | 1,418,991 |
| | 1,861,689 |
| | 1,764,519 |
|
Construction loans | | 80,102 |
| | 76,997 |
| | 85,684 |
| | 78,626 |
|
Consumer loans | | 125,427 |
| | 99,711 |
| | 170,042 |
| | 160,520 |
|
Total loans, net of unearned income (3) | | $ | 12,017,181 |
| | $ | 10,906,386 |
| | $ | 14,439,574 |
| | $ | 14,384,276 |
|
| |
(1) | Included in our premium wine portfolio are gross construction loans of $111108 million and $112 million at September 30, 2014March 31, 2015 and December 31, 20132014, respectively. |
| |
(2) | Consumer loans secured by real estate at September 30, 2014March 31, 2015 and December 31, 20132014 were comprised of the following: |
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Loans for personal residence | | $ | 860,024 |
| | $ | 685,327 |
| | $ | 1,001,125 |
| | $ | 918,629 |
|
Loans to eligible employees | | 129,979 |
| | 121,548 |
| | 139,761 |
| | 133,568 |
|
Home equity lines of credit | | 57,932 |
| | 66,380 |
| | 68,267 |
| | 65,918 |
|
Consumer loans secured by real estate | | $ | 1,047,935 |
| | $ | 873,255 |
| | $ | 1,209,153 |
| | $ | 1,118,115 |
|
| |
(3) | Included within our total loan portfolio are credit card loans of $122154 million and $85131 million at September 30, 2014March 31, 2015 and December 31, 20132014, respectively. |
Credit Quality
The composition of loans, net of unearned income of $95107 million and $89104 million at September 30, 2014March 31, 2015 and December 31, 20132014, respectively, broken out by portfolio segment and class of financing receivable, is as follows:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Commercial loans: | | | | | | | | |
Software | | $ | 4,503,369 |
| | $ | 4,102,636 |
| |
Software and internet | | | $ | 4,871,574 |
| | $ | 4,954,676 |
|
Hardware | | 1,072,102 |
| | 1,213,032 |
| | 1,067,386 |
| | 1,131,006 |
|
Venture capital/private equity | | 2,921,184 |
| | 2,386,054 |
| |
Life science | | 1,245,527 |
| | 1,170,220 |
| |
Private equity/venture capital | | | 4,508,670 |
| | 4,582,906 |
|
Life science & healthcare | | | 1,399,449 |
| | 1,289,904 |
|
Premium wine | | 749,568 |
| | 664,834 |
| | 799,184 |
| | 794,321 |
|
Other | | 352,069 |
| | 396,644 |
| | 414,116 |
| | 352,828 |
|
Total commercial loans | | 10,843,819 |
| | 9,933,420 |
| | 13,060,379 |
| | 13,105,641 |
|
Consumer loans: | | | | | | | | |
Real estate secured loans | | 1,047,935 |
| | 873,255 |
| | 1,209,153 |
| | 1,118,115 |
|
Other consumer loans | | 125,427 |
| | 99,711 |
| | 170,042 |
| | 160,520 |
|
Total consumer loans | | 1,173,362 |
| | 972,966 |
| | 1,379,195 |
| | 1,278,635 |
|
Total loans, net of unearned income | | $ | 12,017,181 |
| | $ | 10,906,386 |
| | $ | 14,439,574 |
| | $ | 14,384,276 |
|
The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of September 30, 2014March 31, 2015 and December 31, 20132014:
| | (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 | | 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 |
September 30, 2014: | | | | | | | | | | | | | |
March 31, 2015: | | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Software | | $ | 4,565 |
| | $ | 4,334 |
| | $ | 125 |
| | $ | 9,024 |
| | $ | 4,527,570 |
| | $ | 125 |
| |
Software and internet | | | $ | 1,970 |
| | $ | 162 |
| | $ | 160 |
| | $ | 2,292 |
| | $ | 4,876,739 |
| | $ | 160 |
|
Hardware | | 247 |
| | 3,609 |
| | — |
| | 3,856 |
| | 1,078,234 |
| | — |
| | 298 |
| | 9,219 |
| | — |
| | 9,517 |
| | 1,066,598 |
| | — |
|
Venture capital/private equity | | 5 |
| | 3 |
| | — |
| | 8 |
| | 2,948,327 |
| | — |
| |
Life science | | 265 |
| | 2,573 |
| | — |
| | 2,838 |
| | 1,253,292 |
| | — |
| |
Private equity/venture capital | | | 11,462 |
| | — |
| | — |
| | 11,462 |
| | 4,536,175 |
| | — |
|
Life science & healthcare | | | 3,768 |
| | — |
| | 1,689 |
| | 5,457 |
| | 1,405,856 |
| | 1,689 |
|
Premium wine | | 5 |
| | — |
| | — |
| | 5 |
| | 750,726 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 800,197 |
| | — |
|
Other | | 66 |
| | 65 |
| | — |
| | 131 |
| | 354,456 |
| | — |
| | 1,074 |
| | — |
| | — |
| | 1,074 |
| | 410,752 |
| | — |
|
Total commercial loans | | 5,153 |
| | 10,584 |
| | 125 |
| | 15,862 |
| | 10,912,605 |
| | 125 |
| | 18,572 |
| | 9,381 |
| | 1,849 |
| | 29,802 |
| | 13,096,317 |
| | 1,849 |
|
Consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate secured loans | | 1,250 |
| | — |
| | — |
| | 1,250 |
| | 1,046,029 |
| | — |
| | 415 |
| | — |
| | 1,250 |
| | 1,665 |
| | 1,206,762 |
| | 1,250 |
|
Other consumer loans | | 32 |
| | 1 |
| | — |
| | 33 |
| | 125,008 |
| | — |
| | 410 |
| | 625 |
| | — |
| | 1,035 |
| | 168,782 |
| | — |
|
Total consumer loans | | 1,282 |
| | 1 |
| | — |
| | 1,283 |
| | 1,171,037 |
| | — |
| | 825 |
| | 625 |
| | 1,250 |
| | 2,700 |
| | 1,375,544 |
| | 1,250 |
|
Total gross loans excluding impaired loans | | 6,435 |
| | 10,585 |
| | 125 |
| | 17,145 |
| | 12,083,642 |
| | 125 |
| | 19,397 |
| | 10,006 |
| | 3,099 |
| | 32,502 |
| | 14,471,861 |
| | 3,099 |
|
Impaired loans | | 251 |
| | 211 |
| | 1,062 |
| | 1,524 |
| | 10,163 |
| | — |
| | 313 |
| | 5,855 |
| | 21,920 |
| | 28,088 |
| | 14,294 |
| | — |
|
Total gross loans | | $ | 6,686 |
| | $ | 10,796 |
| | $ | 1,187 |
| | $ | 18,669 |
| | $ | 12,093,805 |
| | $ | 125 |
| | $ | 19,710 |
| | $ | 15,861 |
| | $ | 25,019 |
| | $ | 60,590 |
| | $ | 14,486,155 |
| | $ | 3,099 |
|
December 31, 2013: | | | | | | | | | | | | | |
December 31, 2014: | | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Software | | $ | 9,804 |
| | $ | 1,291 |
| | $ | 99 |
| | $ | 11,194 |
| | $ | 4,102,546 |
| | $ | 99 |
| |
Software and internet | | | $ | 10,989 |
| | $ | 1,627 |
| | $ | 52 |
| | $ | 12,668 |
| | $ | 4,950,291 |
| | $ | 52 |
|
Hardware | | 2,679 |
| | 3,965 |
| | — |
| | 6,644 |
| | 1,198,169 |
| | — |
| | 13,424 |
| | 126 |
| | — |
| | 13,550 |
| | 1,124,423 |
| | — |
|
Venture capital/private equity | �� | 4 |
| | — |
| | — |
| | 4 |
| | 2,408,382 |
| | — |
| |
Life science | | 395 |
| | 131 |
| | — |
| | 526 |
| | 1,179,462 |
| | — |
| |
Private equity/venture capital | | | 40,773 |
| | — |
| | — |
| | 40,773 |
| | 4,580,526 |
| | — |
|
Life science & healthcare | | | 738 |
| | 786 |
| | — |
| | 1,524 |
| | 1,298,728 |
| | — |
|
Premium wine | | — |
| | — |
| | — |
| | — |
| | 665,755 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 795,345 |
| | — |
|
Other | | 1,580 |
| | 142 |
| | — |
| | 1,722 |
| | 397,416 |
| | — |
| | 178 |
| | 3 |
| | — |
| | 181 |
| | 354,939 |
| | — |
|
Total commercial loans | | 14,462 |
| | 5,529 |
| | 99 |
| | 20,090 |
| | 9,951,730 |
| | 99 |
| | 66,102 |
| | 2,542 |
| | 52 |
| | 68,696 |
| | 13,104,252 |
| | 52 |
|
Consumer loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate secured loans | | 240 |
| | — |
| | — |
| | 240 |
| | 872,586 |
| | — |
| | 1,592 |
| | 341 |
| | 1,250 |
| | 3,183 |
| | 1,114,286 |
| | 1,250 |
|
Other consumer loans | | 8 |
| | — |
| | — |
| | 8 |
| | 98,965 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 160,212 |
| | — |
|
Total consumer loans | | 248 |
| | — |
| | — |
| | 248 |
| | 971,551 |
| | — |
| | 1,592 |
| | 341 |
| | 1,250 |
| | 3,183 |
| | 1,274,498 |
| | 1,250 |
|
Total gross loans excluding impaired loans | | 14,710 |
| | 5,529 |
| | 99 |
| | 20,338 |
| | 10,923,281 |
| | 99 |
| | 67,694 |
| | 2,883 |
| | 1,302 |
| | 71,879 |
| | 14,378,750 |
| | 1,302 |
|
Impaired loans | | 4,657 |
| | 7,043 |
| | 4,339 |
| | 16,039 |
| | 35,610 |
| | — |
| | 598 |
| | 1,293 |
| | 22,320 |
| | 24,211 |
| | 13,926 |
| | — |
|
Total gross loans | | $ | 19,367 |
| | $ | 12,572 |
| | $ | 4,438 |
| | $ | 36,377 |
| | $ | 10,958,891 |
| | $ | 99 |
| | $ | 68,292 |
| | $ | 4,176 |
| | $ | 23,622 |
| | $ | 96,090 |
| | $ | 14,392,676 |
| | $ | 1,302 |
|
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 September 30, 2014March 31, 2015 and December 31, 20132014:
| | (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 | | 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 |
September 30, 2014: | | | | | | | | | |
March 31, 2015: | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | |
Software | | $ | 8,730 |
| | $ | — |
| | $ | 8,730 |
| | $ | 12,069 |
| |
Life science | | 1,000 |
| | — |
| | 1,000 |
| | 1,000 |
| |
Software and internet | | | $ | 34,716 |
| | $ | — |
| | $ | 34,716 |
| | $ | 35,027 |
|
Hardware | | | 510 |
| | — |
| | 510 |
| | 525 |
|
Private equity/venture capital | | | — |
| | — |
| | — |
| | — |
|
Life science & healthcare | | | 250 |
| | — |
| | 250 |
| | 2,453 |
|
Premium wine | | — |
| | 1,339 |
| | 1,339 |
| | 1,752 |
| | — |
| | 1,270 |
| | 1,270 |
| | 1,734 |
|
Other | | 186 |
| | — |
| | 186 |
| | 798 |
| | 5,356 |
| | — |
| | 5,356 |
| | 5,360 |
|
Total commercial loans | | 9,916 |
| | 1,339 |
| | 11,255 |
| | 15,619 |
| | 40,832 |
| | 1,270 |
| | 42,102 |
| | 45,099 |
|
Consumer loans: | | | | | | | | | | | | | | | | |
Real estate secured loans | | — |
| | 208 |
| | 208 |
| | 1,416 |
| | 30 |
| | 180 |
| | 210 |
| | 1,438 |
|
Other consumer loans | | 224 |
| | — |
| | 224 |
| | 526 |
| | 70 |
| | — |
| | 70 |
| | 254 |
|
Total consumer loans | | 224 |
| | 208 |
| | 432 |
| | 1,942 |
| | 100 |
| | 180 |
| | 280 |
| | 1,692 |
|
Total | | $ | 10,140 |
| | $ | 1,547 |
| | $ | 11,687 |
| | $ | 17,561 |
| | $ | 40,932 |
| | $ | 1,450 |
| | $ | 42,382 |
| | $ | 46,791 |
|
December 31, 2013: | | | | | | | | | |
December 31, 2014: | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | |
Software | | $ | 27,308 |
| | $ | 310 |
| | $ | 27,618 |
| | $ | 28,316 |
| |
Software and internet | | | $ | 33,287 |
| | $ | — |
| | $ | 33,287 |
| | $ | 34,218 |
|
Hardware | | 19,329 |
| | 338 |
| | 19,667 |
| | 35,317 |
| | 1,403 |
| | 1,118 |
| | 2,521 |
| | 2,535 |
|
Venture capital/private equity | | 40 |
| | — |
| | 40 |
| | 40 |
| |
Life science | | — |
| | 1,278 |
| | 1,278 |
| | 4,727 |
| |
Private equity/venture capital | | | — |
| | — |
| | — |
| | — |
|
Life science & healthcare | | | 475 |
| | — |
| | 475 |
| | 2,453 |
|
Premium wine | | — |
| | 1,442 |
| | 1,442 |
| | 1,778 |
| | — |
| | 1,304 |
| | 1,304 |
| | 1,743 |
|
Other | | 690 |
| | — |
| | 690 |
| | 718 |
| | 233 |
| | — |
| | 233 |
| | 233 |
|
Total commercial loans | | 47,367 |
| | 3,368 |
| | 50,735 |
| | 70,896 |
| | 35,398 |
| | 2,422 |
| | 37,820 |
| | 41,182 |
|
Consumer loans: | | | | | | | | | | | | | | | | |
Real estate secured loans | | — |
| | 244 |
| | 244 |
| | 1,434 |
| | — |
| | 192 |
| | 192 |
| | 1,412 |
|
Other consumer loans | | 670 |
| | — |
| | 670 |
| | 941 |
| | 125 |
| | — |
| | 125 |
| | 305 |
|
Total consumer loans | | 670 |
| | 244 |
| | 914 |
| | 2,375 |
| | 125 |
| | 192 |
| | 317 |
| | 1,717 |
|
Total | | $ | 48,037 |
| | $ | 3,612 |
| | $ | 51,649 |
| | $ | 73,271 |
| | $ | 35,523 |
| | $ | 2,614 |
| | $ | 38,137 |
| | $ | 42,899 |
|
The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable for the three and nine months ended September 30, 2014March 31, 2015 and 20132014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Average impaired loans: | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | |
Software | | $ | 10,651 |
| | $ | 4,306 |
| | $ | 13,690 |
| | $ | 4,631 |
| |
Software and internet | | | $ | 33,725 |
| | $ | 14,677 |
|
Hardware | | 1,540 |
| | 25,456 |
| | 8,140 |
| | 24,536 |
| | 1,643 |
| | 16,020 |
|
Venture capital/private equity | | — |
| | 75 |
| | — |
| | 35 |
| |
Life science | | 333 |
| | — |
| | 636 |
| | 303 |
| |
Life science & healthcare | | | 400 |
| | 1,022 |
|
Premium wine | | 1,364 |
| | 1,502 |
| | 1,398 |
| | 2,458 |
| | 1,282 |
| | 1,433 |
|
Other | | 674 |
| | 3,648 |
| | 1,383 |
| | 4,344 |
| | 2,139 |
| | 1,777 |
|
Total commercial loans | | 14,562 |
| | 34,987 |
| | 25,247 |
| | 36,307 |
| | 39,189 |
| | 34,929 |
|
Consumer loans: | | | | | | | | | | | | |
Real estate secured loans | | 212 |
| | 3,426 |
| | 224 |
| | 3,391 |
| | 195 |
| | 237 |
|
Other consumer loans | | 261 |
| | 866 |
| | 375 |
| | 1,021 |
| | 88 |
| | 489 |
|
Total consumer loans | | 473 |
| | 4,292 |
| | 599 |
| | 4,412 |
| | 283 |
| | 726 |
|
Total average impaired loans | | $ | 15,035 |
| | $ | 39,279 |
| | $ | 25,846 |
| | $ | 40,719 |
| | $ | 39,472 |
| | $ | 35,655 |
|
The following tables summarize the activity relating to our allowance for loan losses for the three and nine months ended September 30, 2014March 31, 2015 and 20132014, broken out by portfolio segment:
| | Three months ended September 30, 2014 (dollars in thousands) | | Beginning Balance June 30, 2014 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Ending Balance September 30, 2014 | |
Three months ended March 31, 2015 (dollars in thousands) | | | Beginning Balance December 31, 2014 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Ending Balance March 31, 2015 |
Commercial loans: | | | | | | | | | | | | | | | | | | | | |
Software | | $ | 53,239 |
| | $ | (6,907 | ) | | $ | 790 |
| | $ | 11,078 |
| | $ | 58,200 |
| |
Software and internet | | | $ | 80,981 |
| | $ | (1,403 | ) | | $ | 447 |
| | $ | 2,067 |
| | $ | 82,092 |
|
Hardware | | 24,780 |
| | (2,643 | ) | | 113 |
| | 2,491 |
| | 24,741 |
| | 25,860 |
| | (3,210 | ) | | 928 |
| | (2,320 | ) | | 21,258 |
|
Venture capital/private equity | | 19,004 |
| | — |
| | — |
| | 845 |
| | 19,849 |
| |
Life science | | 10,597 |
| | — |
| | 53 |
| | 1,591 |
| | 12,241 |
| |
Private equity/venture capital | | | 27,997 |
| | — |
| | — |
| | 2,840 |
| | 30,837 |
|
Life science & healthcare | | | 15,208 |
| | (225 | ) | | 34 |
| | 306 |
| | 15,323 |
|
Premium wine | | 3,546 |
| | (35 | ) | | — |
| | 710 |
| | 4,221 |
| | 4,473 |
| | — |
| | — |
| | 30 |
| | 4,503 |
|
Other | | 3,218 |
| | (1,072 | ) | | 1,306 |
| | (530 | ) | | 2,922 |
| | 3,253 |
| | (649 | ) | | 10 |
| | 3,537 |
| | 6,151 |
|
Total commercial loans | | 114,384 |
| | (10,657 | ) | | 2,262 |
| | 16,185 |
| | 122,174 |
| | 157,772 |
| | (5,487 | ) | | 1,419 |
| | 6,460 |
| | 160,164 |
|
Consumer loans | | 6,344 |
| | — |
| | 118 |
| | 425 |
| | 6,887 |
| | 7,587 |
| | — |
| | 132 |
| | (8 | ) | | 7,711 |
|
Total allowance for loan losses | | $ | 120,728 |
| | $ | (10,657 | ) | | $ | 2,380 |
| | $ | 16,610 |
| | $ | 129,061 |
| | $ | 165,359 |
| | $ | (5,487 | ) | | $ | 1,551 |
| | $ | 6,452 |
| | $ | 167,875 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2014 (dollars in thousands) | | Beginning Balance December 31, 2013 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Ending Balance March 31, 2014 |
Commercial loans: | | | | | | | | | | |
Software and internet | | $ | 64,084 |
| | $ | (8,010 | ) | | $ | 114 |
| | $ | (947 | ) | | $ | 55,241 |
|
Hardware | | 36,553 |
| | (12,175 | ) | | 775 |
| | 83 |
| | 25,236 |
|
Private equity/venture capital | | 16,385 |
| | — |
| | — |
| | 1,291 |
| | 17,676 |
|
Life science & healthcare | | 11,926 |
| | (681 | ) | | 98 |
| | 131 |
| | 11,474 |
|
Premium wine | | 3,914 |
| | — |
| | 219 |
| | (396 | ) | | 3,737 |
|
Other | | 3,680 |
| | (284 | ) | | — |
| | 645 |
| | 4,041 |
|
Total commercial loans | | 136,542 |
| | (21,150 | ) | | 1,206 |
| | 807 |
| | 117,405 |
|
Consumer loans | | 6,344 |
| | — |
| | 106 |
| | (313 | ) | | 6,137 |
|
Total allowance for loan losses | | $ | 142,886 |
| | $ | (21,150 | ) | | $ | 1,312 |
| | $ | 494 |
| | $ | 123,542 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2014 (dollars in thousands) | | Beginning Balance December 31, 2013 | | Charge-offs | | Recoveries | | Provision for Loan Losses | | Ending Balance September 30, 2014 |
Commercial loans: | | | | | | | | | | |
Software | | $ | 64,084 |
| | $ | (18,932 | ) | | $ | 1,023 |
| | $ | 12,025 |
| | $ | 58,200 |
|
Hardware | | 36,553 |
| | (15,230 | ) | | 2,070 |
| | 1,348 |
| | 24,741 |
|
Venture capital/private equity | | 16,385 |
| | — |
| | — |
| | 3,464 |
| | 19,849 |
|
Life science | | 11,926 |
| | (930 | ) | | 341 |
| | 904 |
| | 12,241 |
|
Premium wine | | 3,914 |
| | (35 | ) | | 238 |
| | 104 |
| | 4,221 |
|
Other | | 3,680 |
| | (3,062 | ) | | 1,316 |
| | 988 |
| | 2,922 |
|
Total commercial loans | | 136,542 |
| | (38,189 | ) | | 4,988 |
| | 18,833 |
| | 122,174 |
|
Consumer loans | | 6,344 |
| | — |
| | 325 |
| | 218 |
| | 6,887 |
|
Total allowance for loan losses | | $ | 142,886 |
| | $ | (38,189 | ) | | $ | 5,313 |
| | $ | 19,051 |
| | $ | 129,061 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2013 (dollars in thousands) | | Beginning Balance June 30, 2013 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Ending Balance September 30, 2013 |
Commercial loans: | | | | | | | | | | |
Software | | $ | 46,798 |
| | $ | (2,527 | ) | | $ | 816 |
| | $ | 4,369 |
| | $ | 49,456 |
|
Hardware | | 33,188 |
| | (5,544 | ) | | 1,149 |
| | 7,370 |
| | 36,163 |
|
Venture capital/private equity | | 13,593 |
| | — |
| | — |
| | 617 |
| | 14,210 |
|
Life science | | 11,741 |
| | (57 | ) | | 246 |
| | (780 | ) | | 11,150 |
|
Premium wine | | 3,793 |
| | — |
| | 4 |
| | 81 |
| | 3,878 |
|
Other | | 3,654 |
| | (21 | ) | | 77 |
| | (24 | ) | | 3,686 |
|
Total commercial loans | | 112,767 |
| | (8,149 | ) | | 2,292 |
| | 11,633 |
| | 118,543 |
|
Consumer loans | | 6,804 |
| | — |
| | 382 |
| | (995 | ) | | 6,191 |
|
Total allowance for loan losses | | $ | 119,571 |
| | $ | (8,149 | ) | | $ | 2,674 |
| | $ | 10,638 |
| | $ | 124,734 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2013 (dollars in thousands) | | Beginning Balance December 31, 2012 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Ending Balance September 30, 2013 |
Commercial loans: | | | | | | | | | | |
Software | | $ | 42,648 |
| | $ | (7,619 | ) | | $ | 1,455 |
| | $ | 12,972 |
| | $ | 49,456 |
|
Hardware | | 29,761 |
| | (11,975 | ) | | 1,998 |
| | 16,379 |
| | 36,163 |
|
Venture capital/private equity | | 9,963 |
| | — |
| | — |
| | 4,247 |
| | 14,210 |
|
Life science | | 13,606 |
| | (2,618 | ) | | 1,335 |
| | (1,173 | ) | | 11,150 |
|
Premium wine | | 3,523 |
| | — |
| | 135 |
| | 220 |
| | 3,878 |
|
Other | | 3,912 |
| | (6,069 | ) | | 2,458 |
| | 3,385 |
| | 3,686 |
|
Total commercial loans | | 103,413 |
| | (28,281 | ) | | 7,381 |
| | 36,030 |
| | 118,543 |
|
Consumer loans | | 7,238 |
| | (869 | ) | | 829 |
| | (1,007 | ) | | 6,191 |
|
Total allowance for loan losses | | $ | 110,651 |
| | $ | (29,150 | ) | | $ | 8,210 |
| | $ | 35,023 |
| | $ | 124,734 |
|
The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of September 30, 2014March 31, 2015 and December 31, 20132014, broken out by portfolio segment:
| | | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
| | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment | | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment | | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment | | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment |
(Dollars in thousands) | | Allowance for loan losses | Recorded investment in loans | | Allowance for loan losses | Recorded investment in loans | | Allowance for loan losses | Recorded investment in loans | | Allowance for loan losses | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans |
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Software | | $ | 2,057 |
| $ | 8,730 |
| | $ | 56,143 |
| $ | 4,494,639 |
| | $ | 11,261 |
| $ | 27,617 |
| | $ | 52,823 |
| $ | 4,075,019 |
| |
Software and internet | | | $ | 20,942 |
| | $ | 34,716 |
| | $ | 61,150 |
| | $ | 4,836,858 |
| | $ | 13,695 |
| | $ | 33,287 |
| | $ | 67,286 |
| | $ | 4,921,389 |
|
Hardware | | — |
| — |
| | 24,741 |
| 1,072,102 |
| | 9,673 |
| 19,667 |
| | 26,880 |
| 1,193,365 |
| | 12 |
| | 510 |
| | 21,246 |
| | 1,066,876 |
| | 1,133 |
| | 2,521 |
| | 24,727 |
| | 1,128,485 |
|
Venture capital/private equity | | — |
| — |
| | 19,849 |
| 2,921,184 |
| | 19 |
| 39 |
| | 16,366 |
| 2,386,015 |
| |
Life science | | 191 |
| 1,000 |
| | 12,050 |
| 1,244,527 |
| | — |
| 1,278 |
| | 11,926 |
| 1,168,942 |
| |
Private equity/venture capital | | | — |
| | — |
| | 30,837 |
| | 4,508,670 |
| | — |
| | — |
| | 27,997 |
| | 4,582,906 |
|
Life science & healthcare | | | 63 |
| | 250 |
| | 15,260 |
| | 1,399,199 |
| | 121 |
| | 475 |
| | 15,087 |
| | 1,289,429 |
|
Premium wine | | — |
| 1,339 |
| | 4,221 |
| 748,229 |
| | — |
| 1,442 |
| | 3,914 |
| 663,392 |
| | — |
| | 1,270 |
| | 4,503 |
| | 797,914 |
| | — |
| | 1,304 |
| | 4,473 |
| | 793,017 |
|
Other | | 4 |
| 186 |
| | 2,918 |
| 351,883 |
| | 156 |
| 690 |
| | 3,524 |
| 395,954 |
| | 2,705 |
| | 5,356 |
| | 3,446 |
| | 408,760 |
| | 71 |
| | 233 |
| | 3,182 |
| | 352,595 |
|
Total commercial loans | | 2,252 |
| 11,255 |
| | 119,922 |
| 10,832,564 |
| | 21,109 |
| 50,733 |
| | 115,433 |
| 9,882,687 |
| | 23,722 |
| | 42,102 |
| | 136,442 |
| | 13,018,277 |
| | 15,020 |
| | 37,820 |
| | 142,752 |
| | 13,067,821 |
|
Consumer loans | | 73 |
| 432 |
| | 6,814 |
| 1,172,930 |
| | 168 |
| 915 |
| | 6,176 |
| 972,051 |
| | 100 |
| | 280 |
| | 7,611 |
| | 1,378,915 |
| | 31 |
| | 317 |
| | 7,556 |
| | 1,278,318 |
|
Total | | $ | 2,325 |
| $ | 11,687 |
| | $ | 126,736 |
| $ | 12,005,494 |
| | $ | 21,277 |
| $ | 51,648 |
| | $ | 121,609 |
| $ | 10,854,738 |
| | $ | 23,822 |
| | $ | 42,382 |
| | $ | 144,053 |
| | $ | 14,397,192 |
| | $ | 15,051 |
| | $ | 38,137 |
| | $ | 150,308 |
| | $ | 14,346,139 |
|
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; these loans are deemed “impaired” (For further description of nonaccrual loans, refer to Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 20132014 Form 10-K). 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 September 30, 2014March 31, 2015 and December 31, 20132014:
| | (Dollars in thousands) | | Pass | | Performing (Criticized) | | Impaired | | Total | | Pass | | Performing (Criticized) | | Impaired | | Total |
September 30, 2014: | | | | | | | | | |
March 31, 2015: | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | |
Software | | $ | 4,179,638 |
| | $ | 356,956 |
| | $ | 8,730 |
| | $ | 4,545,324 |
| |
Software and internet | | | $ | 4,483,199 |
| | $ | 395,832 |
| | $ | 34,716 |
| | $ | 4,913,747 |
|
Hardware | | 885,407 |
| | 196,683 |
| | — |
| | 1,082,090 |
| | 874,295 |
| | 201,820 |
| | 510 |
| | 1,076,625 |
|
Venture capital/private equity | | 2,932,711 |
| | 15,624 |
| | — |
| | 2,948,335 |
| |
Life science | | 1,093,451 |
| | 162,679 |
| | 1,000 |
| | 1,257,130 |
| |
Private equity/venture capital | | | 4,543,600 |
| | 4,037 |
| | — |
| | 4,547,637 |
|
Life science & healthcare | | | 1,282,275 |
| | 129,038 |
| | 250 |
| | 1,411,563 |
|
Premium wine | | 732,605 |
| | 18,126 |
| | 1,339 |
| | 752,070 |
| | 780,710 |
| | 19,487 |
| | 1,270 |
| | 801,467 |
|
Other | | 338,187 |
| | 16,400 |
| | 186 |
| | 354,773 |
| | 404,481 |
| | 7,345 |
| | 5,356 |
| | 417,182 |
|
Total commercial loans | | 10,161,999 |
| | 766,468 |
| | 11,255 |
| | 10,939,722 |
| | 12,368,560 |
| | 757,559 |
| | 42,102 |
| | 13,168,221 |
|
Consumer loans: | | | | | | | | | | | | | | | | |
Real estate secured loans | | 1,042,547 |
| | 4,732 |
| | 208 |
| | 1,047,487 |
| | 1,199,907 |
| | 8,520 |
| | 210 |
| | 1,208,637 |
|
Other consumer loans | | 122,736 |
| | 2,305 |
| | 224 |
| | 125,265 |
| | 165,914 |
| | 3,903 |
| | 70 |
| | 169,887 |
|
Total consumer loans | | 1,165,283 |
| | 7,037 |
| | 432 |
| | 1,172,752 |
| | 1,365,821 |
| | 12,423 |
| | 280 |
| | 1,378,524 |
|
Total gross loans | | $ | 11,327,282 |
| | $ | 773,505 |
| | $ | 11,687 |
| | $ | 12,112,474 |
| | $ | 13,734,381 |
| | $ | 769,982 |
| | $ | 42,382 |
| | $ | 14,546,745 |
|
December 31, 2013: | | | | | | | | | |
December 31, 2014: | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | |
Software | | $ | 3,875,043 |
| | $ | 238,697 |
| | $ | 27,618 |
| | $ | 4,141,358 |
| |
Software and internet | | | $ | 4,611,253 |
| | $ | 351,706 |
| | $ | 33,287 |
| | $ | 4,996,246 |
|
Hardware | | 995,055 |
| | 209,758 |
| | 19,667 |
| | 1,224,480 |
| | 945,998 |
| | 191,975 |
| | 2,521 |
| | 1,140,494 |
|
Venture capital/private equity | | 2,408,386 |
| | — |
| | 40 |
| | 2,408,426 |
| |
Life science | | 1,091,993 |
| | 87,995 |
| | 1,278 |
| | 1,181,266 |
| |
Private equity/venture capital | | | 4,615,231 |
| | 6,068 |
| | — |
| | 4,621,299 |
|
Life science & healthcare | | | 1,165,266 |
| | 134,986 |
| | 475 |
| | 1,300,727 |
|
Premium wine | | 652,747 |
| | 13,008 |
| | 1,442 |
| | 667,197 |
| | 774,962 |
| | 20,383 |
| | 1,304 |
| | 796,649 |
|
Other | | 383,602 |
| | 15,536 |
| | 690 |
| | 399,828 |
| | 346,153 |
| | 8,967 |
| | 233 |
| | 355,353 |
|
Total commercial loans | | 9,406,826 |
| | 564,994 |
| | 50,735 |
| | 10,022,555 |
| | 12,458,863 |
| | 714,085 |
| | 37,820 |
| | 13,210,768 |
|
Consumer loans: | | | | | | | | | | | | | | | | |
Real estate secured loans | | 868,789 |
| | 4,037 |
| | 244 |
| | 873,070 |
| | 1,112,396 |
| | 5,073 |
| | 192 |
| | 1,117,661 |
|
Other consumer loans | | 95,586 |
| | 3,387 |
| | 670 |
| | 99,643 |
| | 158,162 |
| | 2,050 |
| | 125 |
| | 160,337 |
|
Total consumer loans | | 964,375 |
| | 7,424 |
| | 914 |
| | 972,713 |
| | 1,270,558 |
| | 7,123 |
| | 317 |
| | 1,277,998 |
|
Total gross loans | | $ | 10,371,201 |
| | $ | 572,418 |
| | $ | 51,649 |
| | $ | 10,995,268 |
| | $ | 13,729,421 |
| | $ | 721,208 |
| | $ | 38,137 |
| | $ | 14,488,766 |
|
TDRs
As of September 30, 2014March 31, 2015 we had 10nine TDRs with a total carrying value of $10.310.6 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 $0.83.1 million to the clients associated with these TDRs as of September 30, 2014March 31, 2015. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at September 30, 2014March 31, 2015 and December 31, 20132014:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Loans modified in TDRs: | | | | | | | | |
Commercial loans: | | | | | | | | |
Software | | $ | 7,848 |
| | $ | 5,860 |
| |
Software and internet | | | $ | 2,707 |
| | $ | 3,784 |
|
Hardware | | — |
| | 13,329 |
| | 4,510 |
| | 1,118 |
|
Venture capital/ private equity | | — |
| | 77 |
| |
Premium wine | | 1,953 |
| | 1,442 |
| | 1,830 |
| | 1,891 |
|
Other | | 275 |
| | 1,055 |
| | 191 |
| | 233 |
|
Total commercial loans | | 10,076 |
| | 21,763 |
| | 9,238 |
| | 7,026 |
|
Consumer loans: | | | | | | | | |
Other consumer loans | | 224 |
| | 670 |
| | 1,350 |
| | 125 |
|
Total consumer loans | | 224 |
| | 670 |
| | 1,350 |
| | 125 |
|
Total | | $ | 10,300 |
| | $ | 22,433 |
| | $ | 10,588 |
| | $ | 7,151 |
|
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 nine months ended September 30, 2014March 31, 2015 and 20132014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 |
| 2014 |
Loans modified in TDRs during the period: | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | |
Software | | $ | 496 |
| | $ | 1,007 |
| | $ | 7,848 |
| | $ | 1,007 |
| |
Software and internet | | | $ | — |
| | $ | 9,737 |
|
Hardware | | — |
| | 6,330 |
| | — |
| | 7,783 |
| | 4,000 |
| | — |
|
Venture capital/ private equity | | — |
| | — |
| | — |
| | 88 |
| |
Premium wine | | — |
| | — |
| | 614 |
| | — |
| | — |
| | 650 |
|
Other | | — |
| | — |
| | — |
| | 734 |
| | — |
| | 1,746 |
|
Total commercial loans | | 496 |
| | 7,337 |
| | 8,462 |
| | 9,612 |
| | 4,000 |
| | 12,133 |
|
Consumer loans: | | | | | | | | | | | | |
Other consumer loans | | — |
| | — |
| | — |
| | 41 |
| |
Real estate secured loans | | | 1,280 |
| | — |
|
Total consumer loans | | — |
| | — |
| | — |
| | 41 |
| | 1,280 |
| | — |
|
Total loans modified in TDRs during the period (1) | | $ | 496 |
| | $ | 7,337 |
| | $ | 8,462 |
| | $ | 9,653 |
| | $ | 5,280 |
| | $ | 12,133 |
|
| |
(1) | There were no partial charge-offs on loans classified as TDRs forduring the three and nine months ended September 30, 2014. There were partial charge-offs of $1.2 millionMarch 31, 2015 and $2.4 million on loans classified as TDRs for the three and nine months endedSeptember 30, 2013, respectively.or March 31, 2014. |
During the three months ended September 30, 2014,March 31, 2015, new TDRs of $0.5$5.3 million were modified through payment deferrals granted to our clients.
During the ninethree months ended September 30,March 31, 2014, new TDRs of $7.1$2.8 million and $9.3 millionwere modified through forgiveness of principal and payment deferrals granted to our clients, and $1.3 million were modified through partial forgiveness of principal.
During the three and nine months endedSeptember 30, 2013, new TDRs of $7.3 million and $9.7 million, respectively, were modified through payment deferrals granted to our clients and no principal or interest was forgiven.respectively.
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.
There were noThe following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2014 and 2013.March 31, 2015. There were no TDRs modified, which defaulted during the three months ended March 31, 2014.
|
| | | | |
| | Three months ended March 31, |
(Dollars in thousands) | | 2015 |
TDRs modified within the previous 12 months that defaulted during the period: | | |
Consumer loans: | | |
Real estate secured loans | | $ | 30 |
|
Total TDRs modified within the previous 12 months that defaulted in the period | | $ | 30 |
|
Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology was necessary to determine the allowance for loan losses as of September 30, 2014.March 31, 2015.
| |
7. | Disposal - Assets Held-for-Sale |
The Company entered into a share purchase agreement to sell all of the outstanding capital stock of the Bank’s subsidiary, SVB India Finance Private Limited, a non-banking financial company in India (“SVBIF”) on January 15, 2015. The sale was completed on April 13, 2015. See Note 17 - "Subsequent Events" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. As a result of the pending sale of SVBIF, the Company classified SVBIF's net assets as held-for-sale as applicable criteria were met. The following table presents the composition of SVBIF assets held-for-sale included in accrued interest receivable and other assets at March 31, 2015 and December 31, 2014:
|
| | | | | | | | |
(Dollars in thousands) | | March 31, 2015 | | December 31, 2014 |
Assets: | | | | |
Cash and due from banks | | $ | 2,897 |
| | $ | 3,054 |
|
Securities purchased under agreement to resell and other short-term investments | | 6,419 |
| | 11,898 |
|
Net loans | | 33,276 |
| | 26,800 |
|
Premises and equipment, net | | 24 |
| | 24 |
|
Accrued interest receivable and other assets | | 10,307 |
| | 7,163 |
|
Total assets of SVBIF held-for-sale (1) | | $ | 52,923 |
| | $ | 48,939 |
|
Liabilities: | | | | |
Other liabilities | | 4,723 |
| | 4,686 |
|
Total liabilities of SVBIF held-for-sale (1) | | $ | 4,723 |
| | $ | 4,686 |
|
| |
(1) | Net assets of $48.2 million and $44.3 million are included in our Global Commercial Bank operating segment as reported in Note 11—”Segment Reporting” of the “Notes to Interim Consolidated Financial Statements” under Part I, Item 1 of this report. |
| |
8. | Short-Term Borrowings and Long-Term Debt |
The following table represents outstanding short-term borrowings and long-term debt at September 30, 2014March 31, 2015 and December 31, 20132014:
| | | | | | | | Carrying Value | | | | | | Carrying Value |
(Dollars in thousands) | | Maturity | | Principal value at September 30, 2014 | | September 30, 2014 | | December 31, 2013 | | Maturity | | Principal value at March 31, 2015 | | March 31, 2015 | | December 31, 2014 |
Short-term borrowings: | | | | | | | | | | | | |
Short-term FHLB advances | | | April 1, 2015 | | $ | 60,000 |
| | $ | 60,000 |
| | $ | — |
|
Other short-term borrowings | | (1) | | $ | 6,630 |
| | $ | 6,630 |
| | $ | 5,080 |
| | (1) | | 17,766 |
| | 17,766 |
| | 7,781 |
|
Total short-term borrowings | | | | $ | 6,630 |
| | $ | 5,080 |
| | | | $ | 77,766 |
| | $ | 7,781 |
|
Long-term debt: | | | | | | | | | | | | |
3.50% Senior Notes | | | January 29, 2025 | | $ | 350,000 |
| | $ | 349,710 |
| | $ | — |
|
5.375% Senior Notes | | September 15, 2020 | | $ | 350,000 |
| | $ | 348,378 |
| | $ | 348,209 |
| | September 15, 2020 | | 350,000 |
| | 348,495 |
| | 348,436 |
|
6.05% Subordinated Notes (2) | | June 1, 2017 | | 45,964 |
| | 50,497 |
| | 51,987 |
| | June 1, 2017 | | 45,964 |
| | 49,910 |
| | 50,162 |
|
7.0% Junior Subordinated Debentures | | October 15, 2033 | | 50,000 |
| | 54,889 |
| | 55,020 |
| | October 15, 2033 | | 50,000 |
| | 54,802 |
| | 54,845 |
|
Total long-term debt | | | | $ | 453,764 |
| | $ | 455,216 |
| | | | $ | 802,917 |
| | $ | 453,443 |
|
| |
(1) | Represents cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor, primarily for ourwhich includes an interest rate swap agreement related to our 6.05% Subordinated Notes. |
| |
(2) | At September 30, 2014March 31, 2015 and December 31, 20132014, included in the carrying value of our 6.05% Subordinated Notes was an interest rate swap valued at $5.04.3 million and $6.54.6 million, respectively, related to hedge accounting associated with the notes. |
Interest expense related to long-term debt was $5.8 million and $17.4$8.0 million for the three and nine months ended September 30, 2014March 31, 2015, and $5.7 million and $17.4$5.8 million for the three and nine months ended September 30, 2013.March 31, 2014. Interest expense is net of the hedge accounting impact from our interest rate swap agreement related to our 6.05% Subordinated Notes. The weighted average interest rate associated with our short-term borrowings as of September 30, 2014March 31, 2015 was 0.070.19 percent.
3.50% Senior Notes
On January 29, 2015, the Company issued $350 million of 3.50% Senior Notes due in January 2025 (“3.50% Senior Notes”). We received net proceeds from this offering of approximately $346.4 million after deducting underwriting discounts and commissions and issuance costs. The balance of our 3.50% Senior Notes at March 31, 2015 was $349.7 million, which is reflective of a $0.3 million discount.
Available Lines of Credit
We have certain facilities in place to enable us to access short-term borrowings on a secured (using high-quality fixed income securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. As of September 30, 2014March 31, 2015, 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 Federal Reserve Bank. The market value of collateral pledged to the FHLB of San Francisco (comprised primarily of U.S. agency debentures and mortgage securities) at September 30, 2014March 31, 2015 totaled $1.21.3 billion, all$60 million of which was unused andused, with the remaining available to support additional borrowings. The market value of collateral pledged at the discount window of the Federal Reserve Bank at September 30, 2014March 31, 2015 totaled $517979 million, all of which was unused and available to support additional borrowings.
| |
8.9. | 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 & healthcare 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 6.05% Subordinated Notes, we entered into a fixed-for-floating interest rate swap agreement at the time of debt issuance based upon LIBOR with matched-terms. Net cash benefits associated with our interest rate swap is recorded as a reduction in “Interest expense—Borrowings,” a component of net interest income. The fair value of our interest rate swapswaps is calculated using a discounted cash flow method and adjusted for credit valuation associated with counterparty risk. Changes in the fair value of the interest rate swapswaps are reflected in either other assets (if(for swaps in an asset position) or other liabilities (if(for swaps in a liability position).
We assess hedge effectiveness under ASC 815, Derivatives and Hedging, using the long-haul method. Any differences associated with our interest rate swap that arise as a result of hedge ineffectiveness is recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
Currency Exchange Risk
We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure risk associated with the net difference between foreign currency denominated assets and liabilities, primarily in Pound Sterling and Euro. We do not designate any foreign exchange forward contracts as derivative instruments that qualify for hedge accounting. ChangesGains or losses from changes in currency rates on foreign currency denominated instruments are included in other noninterest income, a component of noninterest income. We may experience ineffectiveness in the economic hedging relationship, because the instruments are revalued based upon changes in the currency’s 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. Additionally, through our global banking operations we maintain customer deposits denominated in the Euro and Pound Sterling, which are used to fund certain loans in these currencies to limit our exposure to currency fluctuations.
Other Derivative Instruments
Equity Warrant Assets
OurAlso included in our derivative instruments are 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. These relationships do 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. Contracts in an asset position are included in other assets and contracts in a liability position are included in other liabilities. The net change in the fair valueinterest rate contracts. For further description of these contracts is recorded through net gains onother derivative instruments, in noninterest income, a componentrefer to Note 2-“Summary of consolidated net income.
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 anySignificant Accounting Policies" under Part II, Item 8 of these contracts (which are derivative instruments) as qualifying for hedge accounting. Contracts in an asset position are included in other assets and contracts in a liability position 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.
our 2014 Form 10-K.
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. With respect to measuring counterparty credit risk for derivative instruments, we 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 September 30, 2014March 31, 2015 and December 31, 20132014 were as follows:
| | | | | | September 30, 2014 | | December 31, 2013 | | | | March 31, 2015 | | December 31, 2014 |
(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) | | 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 |
| | $ | 4,965 |
| | $ | 3,910 |
| | $ | 1,055 |
| | $ | 45,964 |
| | $ | 6,492 |
| | $ | 5,080 |
| | $ | 1,412 |
| | Other assets | | $ | 45,964 |
| | $ | 4,340 |
| | $ | 2,970 |
| | $ | 1,370 |
| | $ | 45,964 |
| | $ | 4,609 |
| | $ | 2,970 |
| | $ | 1,639 |
|
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency exchange risks: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange forwards | | Other assets | | 33,840 |
| | 1,032 |
| | 1,935 |
| | (903 | ) | | 140,760 |
| | 1,423 |
| | — |
| | 1,423 |
| | Other assets | | 179,467 |
| | 8,688 |
| | 5,138 |
| | 3,550 |
| | 200,957 |
| | 5,050 |
| | 2,441 |
| | 2,609 |
|
Foreign exchange forwards | | Other liabilities | | 30,306 |
| | (387 | ) | | — |
| | (387 | ) | | 62,649 |
| | (634 | ) | | — |
| | (634 | ) | | Other liabilities | | 3,916 |
| | (677 | ) | | — |
| | (677 | ) | | 6,226 |
| | (489 | ) | | — |
| | (489 | ) |
Net exposure | | | | 645 |
| | 1,935 |
| | (1,290 | ) | | | | 789 |
| | — |
| | 789 |
| | | | 8,011 |
| | 5,138 |
| | 2,873 |
| | | | 4,561 |
| | 2,441 |
| | 2,120 |
|
Other derivative instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity warrant assets | | Other assets | | 186,853 |
| | 94,960 |
| | — |
| | 94,960 |
| | 179,934 |
| | 103,513 |
| | — |
| | 103,513 |
| | Other assets | | 198,864 |
| | 124,456 |
| | — |
| | 124,456 |
| | 197,878 |
| | 116,604 |
| | — |
| | 116,604 |
|
Other derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Client foreign exchange forwards | | Other assets | | 526,329 |
| | 16,111 |
| | 785 |
| | 15,326 |
| | 424,983 |
| | 13,673 |
| | — |
| | 13,673 |
| | Other assets | | 772,019 |
| | 45,284 |
| | 9,658 |
| | 35,626 |
| | 801,487 |
| | 28,954 |
| | 2,370 |
| | 26,584 |
|
Client foreign exchange forwards | | Other liabilities | | 483,262 |
| | (15,355 | ) | | — |
| | (15,355 | ) | | 367,079 |
| | (11,549 | ) | | — |
| | (11,549 | ) | | Other liabilities | | 694,943 |
| | (44,527 | ) | | — |
| | (44,527 | ) | | 774,355 |
| | (27,647 | ) | | — |
| | (27,647 | ) |
Client foreign currency options | | Other assets | | 6,500 |
| | 91 |
| | — |
| | 91 |
| | 91,854 |
| | 434 |
| | — |
| | 434 |
| | Other assets | | 51,483 |
| | 523 |
| | — |
| | 523 |
| | 34,926 |
| | 227 |
| | — |
| | 227 |
|
Client foreign currency options | | Other liabilities | | 6,500 |
| | (91 | ) | | — |
| | (91 | ) | | 91,854 |
| | (434 | ) | | — |
| | (434 | ) | | Other liabilities | | 51,483 |
| | (523 | ) | | — |
| | (523 | ) | | 34,926 |
| | (227 | ) | | — |
| | (227 | ) |
Loan conversion options | | Other assets | | 1,442 |
| | — |
| | — |
| | — |
| | 3,455 |
| | 314 |
| | — |
| | 314 |
| |
Client interest rate derivatives | | Other assets | | 359,074 |
| | 2,173 |
| | — |
| | 2,173 |
| | 216,773 |
| | 1,265 |
| | — |
| | 1,265 |
| | Other assets | | 377,530 |
| | 2,907 |
| | — |
| | 2,907 |
| | 387,410 |
| | 2,546 |
| | — |
| | 2,546 |
|
Client interest rate derivatives | | Other liabilities | | 359,074 |
| | (2,317 | ) | | — |
| | (2,317 | ) | | 216,773 |
| | (1,396 | ) | | — |
| | (1,396 | ) | | Other liabilities | | 377,530 |
| | (3,166 | ) | | — |
| | (3,166 | ) | | 387,410 |
| | (2,748 | ) | | — |
| | (2,748 | ) |
Net exposure | | | | 612 |
| | 785 |
| | (173 | ) | | | | 2,307 |
| | — |
| | 2,307 |
| | | | 498 |
| | 9,658 |
| | (9,160 | ) | | | | 1,105 |
| | 2,370 |
| | (1,265 | ) |
Net | | | | $ | 101,182 |
| | $ | 6,630 |
| | $ | 94,552 |
| | | | $ | 113,101 |
| | $ | 5,080 |
| | $ | 108,021 |
| | | | $ | 137,305 |
| | $ | 17,766 |
| | $ | 119,539 |
| | | | $ | 126,879 |
| | $ | 7,781 |
| | $ | 119,098 |
|
| |
(1) | Cash collateral received from our counterparties in relation to market value exposures of derivative contracts in our favor 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 September 30, 2014March 31, 2015 remain at investment grade or higher and there were no material changes in their credit ratings during the three and nine months ended September 30, 2014March 31, 2015. |
A summary of our derivative activity and the related impact on our consolidated statements of income for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | | | Three months ended September 30, | | Nine months ended September 30, | | | | Three months ended March 31, |
(Dollars in thousands) | | Statement of income location | | 2014 | | 2013 | | 2014 | | 2013 | | Statement of income location | | 2015 | | 2014 |
Derivatives designated as hedging instruments: | | | | | | | | | | | | |
Interest rate risks: | | | | | | | | | | | | |
Net cash benefit associated with interest rate swaps | | Interest expense—borrowings | | $ | 638 |
| | $ | 634 |
| | $ | 1,915 |
| | $ | 1,901 |
| | Interest expense—borrowings | | $ | 638 |
| | $ | 639 |
|
Changes in fair value of interest rate swaps | | Net gains on derivative instruments | | (12 | ) | | (7 | ) | | (37 | ) | | 20 |
| | Net gains on derivative instruments | | (3 | ) | | (12 | ) |
Net gains associated with interest rate risk derivatives | | $ | 626 |
| | $ | 627 |
| | $ | 1,878 |
| | $ | 1,921 |
| | $ | 635 |
| | $ | 627 |
|
Derivatives not designated as hedging instruments: | | | | | | | | | | | | |
Currency exchange risks: | | | | | | | | | | | | |
(Losses) gains on revaluations of foreign currency instruments | | Other noninterest income | | $ | (12,640 | ) | | $ | 8,101 |
| | $ | (12,347 | ) | | $ | 451 |
| | Other noninterest income | | $ | (20,159 | ) | | $ | 978 |
|
Gains (losses) on internal foreign exchange forward contracts, net | | Net gains on derivative instruments | | 12,529 |
| | (8,423 | ) | | 12,038 |
| | (1,511 | ) | | Net gains on derivative instruments | | 20,018 |
| | (1,029 | ) |
Net (losses) associated with currency risk | | $ | (111 | ) | | $ | (322 | ) | | $ | (309 | ) | | $ | (1,060 | ) | |
Net losses associated with currency risk | | | $ | (141 | ) | | $ | (51 | ) |
Other derivative instruments: | | | | | | | | | | | | |
Net gains on equity warrant assets | | Net gains on derivative instruments | | $ | 13,157 |
| | $ | 18,780 |
| | $ | 50,859 |
| | $ | 29,475 |
| | Net gains on derivative instruments | | $ | 20,278 |
| | $ | 25,373 |
|
Gains (losses) on client foreign exchange forward contracts, net | | Net gains on derivative instruments | | $ | 886 |
| | $ | (411 | ) | | $ | 1,358 |
| | $ | (237 | ) | |
Net (losses) gains on other derivatives (1) | | Net gains on derivative instruments | | $ | (22 | ) | | $ | (517 | ) | | $ | (738 | ) | | $ | 55 |
| |
(Losses) gains on client foreign exchange forward contracts, net | | | Net gains on derivative instruments | | $ | (507 | ) | | $ | 302 |
|
Net losses on other derivatives (1) | | | Net gains on derivative instruments | | $ | (57 | ) | | $ | (467 | ) |
| |
(1) | Primarily represents the change in fair value of loan conversion options. |
Balance Sheet Offsetting
Certain of our derivative and other financial instruments are subject to enforceable master netting arrangements with our counterparties. These agreements provide for the net settlement of multiple contracts with a single counterparty through a single payment, in a single currency, in the event of default on or termination of any one contract.
The following table summarizes our assets subject to enforceable master netting arrangements as of September 30, 2014March 31, 2015 and December 31, 20132014:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements | | |
(Dollars in thousands) | | Gross Amounts of Recognized Assets | | Gross Amounts offset in the Statement of Financial Position | | Net Amounts of Assets Presented in the Statement of Financial Position | | Financial Instruments | | Cash Collateral Received | | Net Amount |
March 31, 2015 | | | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | | | |
Interest rate swaps | | $ | 4,340 |
| | $ | — |
| | $ | 4,340 |
| | $ | (1,370 | ) | | $ | (2,970 | ) | | $ | — |
|
Foreign exchange forwards | | 53,972 |
| | — |
| | 53,972 |
| | (24,627 | ) | | (14,796 | ) | | 14,549 |
|
Foreign currency options | | 806 |
| | (283 | ) | | 523 |
| | (253 | ) | | — |
| | 270 |
|
Client interest rate derivatives | | 2,907 |
| | — |
| | 2,907 |
| | (2,907 | ) | | — |
| | — |
|
Total derivative assets: | | 62,025 |
| | (283 | ) | | 61,742 |
| | (29,157 | ) | | (17,766 | ) | | 14,819 |
|
Reverse repurchase, securities borrowing, and similar arrangements | | 236,027 |
| | — |
| | 236,027 |
| | (236,027 | ) | | — |
| | — |
|
Total | | $ | 298,052 |
| | $ | (283 | ) | | $ | 297,769 |
| | $ | (265,184 | ) | | $ | (17,766 | ) | | $ | 14,819 |
|
December 31, 2014 | | | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | | | |
Interest rate swaps | | $ | 4,609 |
| | $ | — |
| | $ | 4,609 |
| | $ | (1,639 | ) | | $ | (2,970 | ) | | $ | — |
|
Foreign exchange forwards | | 34,004 |
| | — |
| | 34,004 |
| | (17,843 | ) | | (4,811 | ) | | 11,350 |
|
Foreign currency options | | 501 |
| | (274 | ) | | 227 |
| | (144 | ) | | — |
| | 83 |
|
Client interest rate derivatives | | 2,546 |
| | — |
| | 2,546 |
| | (2,546 | ) | | — |
| | — |
|
Total derivative assets: | | 41,660 |
| | (274 | ) | | 41,386 |
| | (22,172 | ) | | (7,781 | ) | | 11,433 |
|
Reverse repurchase, securities borrowing, and similar arrangements | | 95,611 |
| | — |
| | 95,611 |
| | (95,611 | ) | | — |
| | — |
|
Total | | $ | 137,271 |
| | $ | (274 | ) | | $ | 136,997 |
| | $ | (117,783 | ) | | $ | (7,781 | ) | | $ | 11,433 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements | | |
(Dollars in thousands) | | Gross Amounts of Recognized Assets | | Gross Amounts offset in the Statement of Financial Position | | Net Amounts of Assets Presented in the Statement of Financial Position | | Financial Instruments | | Cash Collateral Received | | Net Amount |
September 30, 2014 | | | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | | | |
Interest rate swaps | | $ | 4,965 |
| | $ | — |
| | $ | 4,965 |
| | $ | (1,055 | ) | | $ | (3,910 | ) | | $ | — |
|
Foreign exchange forwards | | 17,143 |
| | — |
| | 17,143 |
| | (8,002 | ) | | (2,720 | ) | | 6,421 |
|
Foreign currency options | | 92 |
| | (1 | ) | | 91 |
| | (91 | ) | | — |
| | — |
|
Client interest rate derivatives | | 2,173 |
| | — |
| | 2,173 |
| | (2,173 | ) | | — |
| | — |
|
Total derivative assets: | | 24,373 |
| | (1 | ) | | 24,372 |
| | (11,321 | ) | | (6,630 | ) | | 6,421 |
|
Reverse repurchase, securities borrowing, and similar arrangements | | 50,834 |
| | — |
| | 50,834 |
| | (50,834 | ) | | — |
| | — |
|
Total | | $ | 75,207 |
| | $ | (1 | ) | | $ | 75,206 |
| | $ | (62,155 | ) | | $ | (6,630 | ) | | $ | 6,421 |
|
December 31, 2013 | | | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | | | |
Interest rate swaps | | $ | 6,492 |
| | $ | — |
| | $ | 6,492 |
| | $ | (1,412 | ) | | $ | (5,080 | ) | | $ | — |
|
Foreign exchange forwards | | 15,096 |
| | — |
| | 15,096 |
| | (6,735 | ) | | — |
| | 8,361 |
|
Foreign currency options | | 504 |
| | (70 | ) | | 434 |
| | (155 | ) | | — |
| | 279 |
|
Client interest rate derivatives | | 1,265 |
| | — |
| | 1,265 |
| | (256 | ) | | — |
| | 1,009 |
|
Total derivative assets: | | 23,357 |
| | (70 | ) | | 23,287 |
| | (8,558 | ) | | (5,080 | ) | | 9,649 |
|
Reverse repurchase, securities borrowing, and similar arrangements | | 172,989 |
| | — |
| | 172,989 |
| | (172,989 | ) | | — |
| | — |
|
Total | | $ | 196,346 |
| | $ | (70 | ) | | $ | 196,276 |
| | $ | (181,547 | ) | | $ | (5,080 | ) | | $ | 9,649 |
|
The following table summarizes our liabilities subject to enforceable master netting arrangements as of September 30, 2014March 31, 2015 and December 31, 20132014:
| | | | | | | | | | Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements | | | | | | | | | | Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements | | |
(Dollars in thousands) | | Gross Amounts of Recognized Liabilities | | Gross Amounts offset in the Statement of Financial Position | | Net Amounts of Liabilities Presented in the Statement of Financial Position | | Financial Instruments | | Cash Collateral Pledged | | Net Amount | | Gross Amounts of Recognized Liabilities | | Gross Amounts offset in the Statement of Financial Position | | Net Amounts of Liabilities Presented in the Statement of Financial Position | | Financial Instruments | | Cash Collateral Pledged | | Net Amount |
September 30, 2014 | | | | | | | | | | | | | |
March 31, 2015 | | | | | | | | | | | | | |
Derivative Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange forwards | | $ | 15,742 |
| | $ | ��� |
| | $ | 15,742 |
| | $ | (9,294 | ) | | $ | — |
| | $ | 6,448 |
| | $ | 45,204 |
| | $ | — |
| | $ | 45,204 |
| | $ | (8,467 | ) | | $ | — |
| | $ | 36,737 |
|
Foreign currency options | | 92 |
| | (1 | ) | | 91 |
| | — |
| | — |
| | 91 |
| | 806 |
| | (283 | ) | | 523 |
| | (270 | ) | | — |
| | 253 |
|
Client interest rate derivatives | | 2,317 |
| | — |
| | 2,317 |
| | (2,317 | ) | | — |
| | — |
| | 3,166 |
| | — |
| | 3,166 |
| | (3,166 | ) | | — |
| | — |
|
Total derivative liabilities: | | 18,151 |
| | (1 | ) | | 18,150 |
| | (11,611 | ) | | — |
| | 6,539 |
| | 49,176 |
| | (283 | ) | | 48,893 |
| | (11,903 | ) | | — |
| | 36,990 |
|
Repurchase, securities lending, and similar arrangements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | $ | 18,151 |
| | $ | (1 | ) | | $ | 18,150 |
| | $ | (11,611 | ) | | $ | — |
| | $ | 6,539 |
| | $ | 49,176 |
| | $ | (283 | ) | | $ | 48,893 |
| | $ | (11,903 | ) | | $ | — |
| | $ | 36,990 |
|
December 31, 2013 | | | | | | | | | | | | | |
December 31, 2014 | | | | | | | | | | | | | |
Derivative Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange forwards | | $ | 12,183 |
| | $ | — |
| | $ | 12,183 |
| | $ | (8,282 | ) | | $ | — |
| | $ | 3,901 |
| | $ | 28,136 |
| | $ | — |
| | $ | 28,136 |
| | $ | (16,808 | ) | | $ | — |
| | $ | 11,328 |
|
Foreign currency options | | 504 |
| | (70 | ) | | 434 |
| | (279 | ) | | — |
| | 155 |
| | 501 |
| | (274 | ) | | 227 |
| | (83 | ) | | — |
| | 144 |
|
Client interest rate derivatives | | 1,396 |
| | — |
| | 1,396 |
| | (1,087 | ) | | — |
| | 309 |
| | 2,748 |
| | — |
| | 2,748 |
| | (2,748 | ) | | — |
| | — |
|
Total derivative liabilities: | | 14,083 |
| | (70 | ) | | 14,013 |
| | (9,648 | ) | | — |
| | 4,365 |
| | 31,385 |
| | (274 | ) | | 31,111 |
| | (19,639 | ) | | — |
| | 11,472 |
|
Repurchase, securities lending, and similar arrangements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | $ | 14,083 |
| | $ | (70 | ) | | $ | 14,013 |
| | $ | (9,648 | ) | | $ | — |
| | $ | 4,365 |
| | $ | 31,385 |
| | $ | (274 | ) | | $ | 31,111 |
| | $ | (19,639 | ) | | $ | — |
| | $ | 11,472 |
|
9. Other Noninterest (Loss) Income and Other Noninterest Expense
| |
10. | Other Noninterest (Loss) Income and Other Noninterest Expense |
A summary of other noninterest (loss) income for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Fund management fees | | $ | 3,574 |
| | $ | 2,822 |
| | $ | 9,888 |
| | $ | 8,531 |
| | $ | 3,722 |
| | $ | 2,755 |
|
Service-based fee income | | 2,180 |
| | 1,901 |
| | 6,459 |
| | 5,706 |
| | 2,150 |
| | 2,027 |
|
(Losses) gains on revaluation of foreign currency instruments (1) | | (12,640 | ) | | 8,069 |
| | (12,347 | ) | | 444 |
| | (20,159 | ) | | 978 |
|
Other (2) | | 1,525 |
| | 4,369 |
| | 10,601 |
| | 9,667 |
| | 5,207 |
| | 5,440 |
|
Total other noninterest (loss) income | | $ | (5,361 | ) | | $ | 17,161 |
| | $ | 14,601 |
| | $ | 24,348 |
| | $ | (9,080 | ) | | $ | 11,200 |
|
| |
(1) | Represents the revaluation of foreign currency denominated financial instruments issued and held by us, primarily loans, deposits and cash. |
| |
(2) | Includes dividends on FHLB/FRB stock, correspondent bank rebate income and other fee income. |
A summary of other noninterest expense for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Client services | | $ | 3,215 |
| | $ | 1,920 |
| | $ | 8,160 |
| | $ | 5,711 |
| | $ | 3,549 |
| | $ | 2,359 |
|
Tax credit fund amortization | | 2,228 |
| | 1,519 |
| | 6,758 |
| | 4,174 |
| |
Telephone | | | 1,959 |
| | 1,748 |
|
Data processing services | | 2,229 |
| | 2,020 |
| | 6,497 |
| | 5,814 |
| | 1,833 |
| | 2,227 |
|
Telephone | | 1,931 |
| | 1,571 |
| | 5,217 |
| | 4,640 |
| |
Postage and supplies | | 763 |
| | 559 |
| | 2,248 |
| | 1,777 |
| | 765 |
| | 769 |
|
Dues and publications | | 719 |
| | 399 |
| | 1,852 |
| | 1,302 |
| | 585 |
| | 497 |
|
Other | | 4,711 |
| | 2,661 |
| | 9,381 |
| | 6,855 |
| | 4,907 |
| | 1,562 |
|
Total other noninterest expense | | $ | 15,796 |
| | $ | 10,649 |
| | $ | 40,113 |
| | $ | 30,273 |
| |
Total other noninterest expense (1) | | | $ | 13,598 |
| | $ | 9,162 |
|
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
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.
Our operating segments’ primary source of revenue is from net interest income, which is primarily the difference between interest earned on loans, net of funds transfer pricing (“FTP”), and interest paid on deposits, net of FTP. Accordingly, our segments are reported using net interest income, net of FTP. FTP is an internal measurement framework designed to assess the financial impact of a financial institution’s sources and uses of funds. It is the mechanism by which an earnings credit is given for deposits raised, and an earnings charge is made for funded loans. FTP is calculated at an instrument level based on account characteristics.
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 segment’s noninterest expense, we consider the direct costs incurred by the operating segment as well as certain allocated direct costs. As part of this review, we allocate certain corporate overhead costs to a corporate account. We do not allocate income taxes to our segments. Additionally, our management reporting model is predicated on average asset balances; therefore, period-end asset balances are not presented for segment reporting purposes. Changes in an individual client’s primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods.
Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, our internal management reporting process is highly subjective, as there is no comprehensive, authoritative guidance for management reporting. Our management reporting process measures the performance of our 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.
For reporting purposes, SVB Financial Group has three operating segments for which we report our financial information:
Global Commercial Bank is comprised of results from the following:
| |
◦ | Our Commercial Bank products and services are provided by the Bank and its subsidiaries to commercial clients in the technology, life science & healthcare and clean technology (energy and resource innovation)private equity/venture capital industries. The Bank provides solutions to the financial needs of commercial clients, through credit, global treasury management, foreign exchange, global trade finance, and other services. It serves clients within the United States, as well as non-U.S. clients in key international entrepreneurialinnovation markets. In addition, the Bank and its subsidiaries offer a variety of investment services and solutions including investment advisory and broker-dealer services.to its clients that enable them to effectively manage their assets. |
| |
◦ | Our Private Equity Division provides banking products and services primarily to our private equity and venture capital and private equity clients. |
| |
◦ | Our Wine practice provides banking products and services to our premium wine industry clients. This practice is formerly known as SVB Specialty Lending and included our Community Development Finance practice which makes loans as part of our responsibilities under the Community Reinvestment Act. During the third quarter of 2014, management realigned the organizational structure of our Community Development Finance practice in order to improve its oversight and compliance for loans made as part of our responsibilities under the Community Reinvestment Act. This practice, formerly included in the GCB results, has been moved into "Other Items". Prior period results have been recast to conform to the new composition of these reportable segments and had no material effect on either the Global Commercial Bank or Other reporting segments.clients, including vineyard development loans. |
| |
◦ | SVB Analytics provides equity valuation services to companies and private equity/venture capital/private equitycapital firms. |
| |
◦ | Debt Fund Investments is comprised of our investments in certain debt funds.funds in which we are a strategic investor. |
SVB Private Bank is the private banking division of the Bank, which provides banking products and a range of personal financial solutions for consumers. Our clients are primarily private equity/venture capital/private equitycapital professionals and executive leaders of the innovation companies they support. We offer a customized suite of private banking services, including mortgages, home equity lines of credit, restricted stock purchase loans, capital call lines of credit and other secured and unsecured lending, as well as cash and wealth management services.
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, on a more limited basis, SVB Financial Group. The SVB Capital family of funds is comprised of direct venture funds that invest in companies and funds of funds and directthat invest in other venture capital funds. SVB Capital generates income for the Company primarily throughfrom investment returns (including carried interest) and management fees, carried interest arrangements and returns through the Company’s investments in the funds.fees.
The summary financial results of our operating segments are presented along with a reconciliation to our consolidated interim results.
Our segment information for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | (Dollars in thousands) | | Global Commercial Bank (1) | | SVB Private Bank | | SVB Capital (1) | | Other Items (2) | | Total | | Global Commercial Bank (1) | | SVB Private Bank | | SVB Capital (1) | | Other Items (2) | | Total |
Three months ended September 30, 2014 | | | | | | | | | | | |
Net interest income | | $ | 187,184 |
| | $ | 7,344 |
| | $ | 12 |
| | $ | 26,025 |
| | $ | 220,565 |
| |
(Provision for) loan losses | | (16,185 | ) | | (425 | ) | | — |
| | — |
| | (16,610 | ) | |
Noninterest income | | 57,756 |
| | 491 |
| | 1,064 |
| | 20,856 |
| | 80,167 |
| |
Noninterest expense (3) | | (128,685 | ) | | (2,574 | ) | | (3,036 | ) | | (47,694 | ) | | (181,989 | ) | |
Income (loss) before income tax expense (4) | | $ | 100,070 |
| | $ | 4,836 |
| | $ | (1,960 | ) | | $ | (813 | ) | | $ | 102,133 |
| |
Total average loans, net of unearned income | | $ | 10,192,945 |
| | $ | 1,190,986 |
| | $ | — |
| | $ | 55,590 |
| | $ | 11,439,521 |
| |
Total average assets (5) | | 31,809,853 |
| | 1,129,947 |
| | 302,949 |
| | 1,355,536 |
| | 34,598,285 |
| |
Total average deposits | | 28,795,499 |
| | 877,701 |
| | — |
| | 53,084 |
| | 29,726,284 |
| |
Three months ended September 30, 2013 | | | | | | | | | | | |
Net interest income | | $ | 162,371 |
| | $ | 6,195 |
| | $ | 1 |
| | $ | 8,529 |
| | $ | 177,096 |
| |
(Provision for) loan losses | | (11,633 | ) | | 995 |
| | — |
| | — |
| | (10,638 | ) | |
Noninterest income | | 49,991 |
| | 380 |
| | 35,457 |
| | 171,822 |
| | 257,650 |
| |
Noninterest expense (3) | | (107,495 | ) | | (2,484 | ) | | (2,728 | ) | | (47,817 | ) | | (160,524 | ) | |
Income before income tax expense (4) | | $ | 93,234 |
| | $ | 5,086 |
| | $ | 32,730 |
| | $ | 132,534 |
| | $ | 263,584 |
| |
Total average loans, net of unearned income | | $ | 8,576,443 |
| | $ | 942,411 |
| | $ | — |
| | $ | 27,087 |
| | $ | 9,545,941 |
| |
Total average assets (5) | | 21,336,583 |
| | 998,640 |
| | 329,680 |
| | 407,831 |
| | 23,072,734 |
| |
Total average deposits | | 18,994,374 |
| | 535,611 |
| | — |
| | 29,903 |
| | 19,559,888 |
| |
Nine months ended September 30, 2014 | | | | | | | | | | | |
Three months ended March 31, 2015 | | | | | | | | | | | |
Net interest income | | $ | 541,375 |
| | $ | 23,529 |
| | $ | 55 |
| | $ | 56,899 |
| | $ | 621,858 |
| | $ | 203,755 |
| | $ | 9,723 |
| | $ | (24 | ) | | $ | 25,436 |
| | $ | 238,890 |
|
(Provision for) reduction of loan losses | | (18,833 | ) | | (218 | ) | | — |
| | — |
| | (19,051 | ) | | (6,460 | ) | | 8 |
| | — |
| | — |
| | (6,452 | ) |
Noninterest income | | 169,414 |
| | 1,121 |
| | 35,617 |
| | 198,450 |
| | 404,602 |
| | 64,689 |
| | 397 |
| | 21,141 |
| | 85,791 |
| | 172,018 |
|
Noninterest expense (3) | | (374,289 | ) | | (7,709 | ) | | (8,815 | ) | | (137,058 | ) | | (527,871 | ) | | (136,282 | ) | | (2,747 | ) | | (3,891 | ) | | (53,188 | ) | | (196,108 | ) |
Income before income tax expense (4) | | $ | 317,667 |
| | $ | 16,723 |
| | $ | 26,857 |
| | $ | 118,291 |
| | $ | 479,538 |
| | $ | 125,702 |
| | $ | 7,381 |
| | $ | 17,226 |
| | $ | 58,039 |
| | $ | 208,348 |
|
Total average loans, net of unearned income | | $ | 9,917,115 |
| | $ | 1,120,647 |
| | $ | — |
| | $ | 60,635 |
| | $ | 11,098,397 |
| | $ | 12,729,630 |
| | $ | 1,374,189 |
| | $ | — |
| | $ | (57,450 | ) | | $ | 14,046,369 |
|
Total average assets (5) | | 28,828,400 |
| | 1,027,707 |
| | 328,048 |
| | 1,221,098 |
| | 31,405,253 |
| | 35,962,427 |
| | 1,921,554 |
| | 269,982 |
| | 1,146,626 |
| | 39,300,589 |
|
Total average deposits | | 26,020,715 |
| | 805,167 |
| | — |
| | 56,231 |
| | 26,882,113 |
| | 32,472,827 |
| | 1,251,939 |
| | — |
| | 133,013 |
| | 33,857,779 |
|
Nine months ended September 30, 2013 | | | | | | | | | | | |
Three months ended March 31, 2014 | | | | | | | | | | | |
Net interest income | | $ | 465,893 |
| | $ | 18,226 |
| | $ | 5 |
| | $ | 26,222 |
| | $ | 510,346 |
| | $ | 175,303 |
| | $ | 6,892 |
| | $ | 14 |
| | $ | 14,119 |
| | $ | 196,328 |
|
(Provision for) reduction of loan losses | | (36,030 | ) | | 1,007 |
| | — |
| | — |
| | (35,023 | ) | | (807 | ) | | 313 |
| | — |
| | — |
| | (494 | ) |
Noninterest income | | 144,893 |
| | 867 |
| | 48,179 |
| | 240,554 |
| | 434,493 |
| | 58,635 |
| | 274 |
| | 37,672 |
| | 213,644 |
| | 310,225 |
|
Noninterest expense (3) | | (313,080 | ) | | (6,263 | ) | | (7,871 | ) | | (125,616 | ) | | (452,830 | ) | | (120,706 | ) | | (2,495 | ) | | (2,635 | ) | | (44,572 | ) | | (170,408 | ) |
Income before income tax expense (4) | | $ | 261,676 |
| | $ | 13,837 |
| | $ | 40,313 |
| | $ | 141,160 |
| | $ | 456,986 |
| | $ | 112,425 |
| | $ | 4,984 |
| | $ | 35,051 |
| | $ | 183,191 |
| | $ | 335,651 |
|
Total average loans, net of unearned income | | $ | 8,175,626 |
| | $ | 886,679 |
| | $ | — |
| | $ | 23,874 |
| | $ | 9,086,179 |
| | $ | 9,677,957 |
| | $ | 1,049,901 |
| | $ | — |
| | $ | 39,826 |
| | $ | 10,767,684 |
|
Total average assets (5) | | 20,732,425 |
| | 910,551 |
| | 277,136 |
| | 575,980 |
| | 22,496,092 |
| | 25,504,407 |
| | 967,873 |
| | 340,990 |
| | 954,363 |
| | 27,767,633 |
|
Total average deposits | | 18,480,510 |
| | 493,204 |
| | — |
| | 15,646 |
| | 18,989,360 |
| | 22,877,819 |
| | 745,083 |
| | — |
| | 53,546 |
| | 23,676,448 |
|
| |
(1) | Global Commercial Bank’s and SVB Capital’s components of net interest income, noninterest income, noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented. Noncontrolling interest is included within "Other Items" as discussed below.. |
| |
(2) | 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 is primarily attributable to noncontrolling interests and gains on equity warrant assets. Noninterest expense primarily consists of expenses associated with corporate support functions such as finance, human resources, marketing, legal and other expenses. Additionally, average assets primarily consist of cash and cash equivalents and loans from our Community Development Finance practice as part of our responsibilities under the Community Reinvestment Act. |
| |
(3) | The Global Commercial Bank segment includes direct depreciation and amortization of $5.45.1 million and $4.9 million for the three months ended September 30, 2014March 31, 2015 and 2013, respectively and $15.4 million and $14.0 million for the nine months endedSeptember 30, 2014 and 2013, respectively. |
| |
(4) | 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. |
| |
(5) | Total average assets equal the greater of total average assets or the sum of total liabilities and total stockholders’ equity for each segment. |
| |
11.12. | 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 September 30, 2014March 31, 2015 and December 31, 20132014:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Loan commitments available for funding: (1) | | | | | | | | |
Fixed interest rate commitments | | $ | 1,434,100 |
| | $ | 1,392,781 |
| | $ | 1,611,025 |
| | $ | 1,591,408 |
|
Variable interest rate commitments | | 12,059,816 |
| | 9,101,973 |
| | 12,618,196 |
| | 11,860,039 |
|
Total loan commitments available for funding | | 13,493,916 |
| | 10,494,754 |
| | 14,229,221 |
| | 13,451,447 |
|
Commercial and standby letters of credit (2) | | 1,137,721 |
| | 975,968 |
| | 1,256,293 |
| | 1,254,338 |
|
Total unfunded credit commitments | | $ | 14,631,637 |
| | $ | 11,470,722 |
| | $ | 15,485,514 |
| | $ | 14,705,785 |
|
Commitments unavailable for funding (3) | | $ | 1,691,660 |
| | $ | 1,006,168 |
| | $ | 1,920,937 |
| | $ | 1,868,489 |
|
Maximum lending limits for accounts receivable factoring arrangements (4) | | 1,004,402 |
| | 894,276 |
| | 1,120,763 |
| | 1,044,548 |
|
Reserve for unfunded credit commitments (5) | | 35,489 |
| | 29,983 |
| | 38,628 |
| | 36,419 |
|
| |
(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 September 30, 2014March 31, 2015. 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 | | Expires In One Year or Less | | Expires After One Year | | Total Amount Outstanding | | Maximum Amount of Future Payments |
Financial standby letters of credit | | $ | 936,790 |
| | $ | 129,337 |
| | $ | 1,066,127 |
| | $ | 1,066,127 |
| | $ | 1,137,234 |
| | $ | 57,997 |
| | $ | 1,195,231 |
| | $ | 1,195,231 |
|
Performance standby letters of credit | | 57,058 |
| | 8,162 |
| | 65,220 |
| | 65,220 |
| | 45,105 |
| | 6,550 |
| | 51,655 |
| | 51,655 |
|
Commercial letters of credit | | 6,374 |
| | — |
| | 6,374 |
| | 6,374 |
| | 9,407 |
| | — |
| | 9,407 |
| | 9,407 |
|
Total | | $ | 1,000,222 |
| | $ | 137,499 |
| | $ | 1,137,721 |
| | $ | 1,137,721 |
| | $ | 1,191,746 |
| | $ | 64,547 |
| | $ | 1,256,293 |
| | $ | 1,256,293 |
|
Deferred fees related to financial and performance standby letters of credit were $8.48.2 million at both September 30, 2014March 31, 2015 and $8.2 million at December 31, 20132014. At September 30, 2014March 31, 2015, collateral in the form of cash of $465.3509.0 million and available-for-sale securities of $1.31.5 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 10-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 5 to 7 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 percentage in each fund at September 30, 2014March 31, 2015:
| | Our Ownership in Venture Capital/Private Equity Funds (Dollars in thousands) | | SVBFG Capital Commitments | | SVBFG Unfunded Commitments | | SVBFG Ownership of each Fund (4) | |
Our Ownership in Venture Capital and Private Equity Funds (Dollars in thousands) | | | SVBFG Capital Commitments | | SVBFG Unfunded Commitments | | SVBFG Ownership of each Fund (4) |
Silicon Valley BancVentures, LP | | $ | 6,000 |
| | $ | 270 |
| | 10.7 | % | | $ | 6,000 |
| | $ | 270 |
| | 10.7 | % |
SVB Capital Partners II, LP (1) | | 1,200 |
| | 162 |
| | 5.1 |
| | 1,200 |
| | 162 |
| | 5.1 |
|
Capital Partners III, LP | | 750 |
| | 649 |
| | 0.4 |
| | — |
| | — |
| | — |
|
SVB Capital Shanghai Yangpu Venture Capital Fund | | 945 |
| | 163 |
| | 6.8 |
| | 935 |
| | — |
| | 6.8 |
|
SVB Strategic Investors Fund, LP | | 15,300 |
| | 688 |
| | 12.6 |
| | 15,300 |
| | 688 |
| | 12.6 |
|
SVB Strategic Investors Fund II, LP | | 15,000 |
| | 1,050 |
| | 8.6 |
| | 15,000 |
| | 1,050 |
| | 8.6 |
|
SVB Strategic Investors Fund III, LP | | 15,000 |
| | 1,425 |
| | 5.9 |
| | 15,000 |
| | 1,275 |
| | 5.9 |
|
SVB Strategic Investors Fund IV, LP | | 12,239 |
| | 2,325 |
| | 5.0 |
| | 12,239 |
| | 2,325 |
| | 5.0 |
|
Strategic Investors Fund V Funds | | 515 |
| | 239 |
| | Various |
| | 515 |
| | 178 |
| | Various |
|
Strategic Investors Fund VI Funds | | 500 |
| | 402 |
| | 0.2 |
| | — |
| | — |
| | — |
|
Strategic Investors Fund VII Funds | | 500 |
| | 500 |
| | 0.2 |
| | — |
| | — |
| | — |
|
SVB Capital Preferred Return Fund, LP | | 12,688 |
| | — |
| | 20.0 |
| | 12,688 |
| | — |
| | 20.0 |
|
SVB Capital—NT Growth Partners, LP | | 24,670 |
| | 1,340 |
| | 33.0 |
| | 24,670 |
| | 1,340 |
| | 33.0 |
|
Other private equity fund (2) | | 9,338 |
| | — |
| | 58.2 |
| | 9,338 |
| | — |
| | 58.2 |
|
Partners for Growth, LP | | 25,000 |
| | 9,750 |
| | 50.0 |
| | 25,000 |
| | 9,750 |
| | 50.0 |
|
Debt funds (equity method accounting) | | 64,574 |
| | 4,950 |
| | Various |
| | 63,134 |
| | 4,950 |
| | Various |
|
Other fund investments (3) | | 300,461 |
| | 22,909 |
| | Various |
| | 301,172 |
| | 19,268 |
| | Various |
|
Total | | $ | 504,680 |
| | $ | 46,822 |
| | | | $ | 502,191 |
| | $ | 41,256 |
| | |
| |
(1) | Our ownership includes direct ownership of 1.3 percent and indirect ownership interest of 3.8 percent through our investment in SVB Strategic Investors Fund II, LP. |
| |
(2) | Our ownership includes direct ownership 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 Capital - NT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively. |
| |
(3) | Represents commitments to 286283 funds (primarily venture capital funds) where our ownership interest is generally less than 5 percent of the voting interests of each such fund. |
| |
(4) | We are subject to the Volcker Rule, which restricts or limits our sponsorship of andus from sponsoring or having ownership of interests in “covered” funds including venture capital and private equity funds. For funds that we sponsor, the Volcker Rule limits the amount of our investment to 3% of the fund, and our aggregate investments in all such funds must not exceed 3% of our Tier 1 capital. The current deadline to conform to these limits is July 21, 2015. The time period to divest an investment that is not permitted by the final rule may be extended by the Federal Reserve Board for up to two one-year general extensions, and one additional extension up to five additional years for investments in funds that are considered illiquid. We intend to seek the maximum extensions available to us. However, there is no guarantee that the Federal Reserve Board will grant any of these extensions. See “Business - Supervision and Regulation” under Item 1 of Part I of our 20132014 Form 10-K. |
The following table details the amounts of remaining unfunded commitments to venture capital and private equity funds by our consolidated managed funds of funds (including our interest and the noncontrolling interests) at September 30, 2014March 31, 2015:
| | Limited Partnership (Dollars in thousands) | | Unfunded Commitments | | Unfunded Commitments |
SVB Strategic Investors Fund, LP | | $ | 2,250 |
| | $ | 2,250 |
|
SVB Strategic Investors Fund II, LP | | 5,589 |
| | 5,021 |
|
SVB Strategic Investors Fund III, LP | | 15,641 |
| | 11,237 |
|
SVB Strategic Investors Fund IV, LP | | 41,205 |
| | 32,730 |
|
Strategic Investors Fund V Funds | | 162,335 |
| | 123,888 |
|
Strategic Investors Fund VI Funds | | 239,268 |
| | 219,750 |
|
Strategic Investors Fund VII Funds | | | 153,919 |
|
SVB Capital Preferred Return Fund, LP | | 5,886 |
| | 4,448 |
|
SVB Capital—NT Growth Partners, LP | | 6,044 |
| | 4,672 |
|
Other private equity fund | | 243 |
| | 77 |
|
Total | | $ | 478,461 |
| | $ | 557,992 |
|
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 2009 have been concluded. Our U.S. federal tax returns for 2008, 20102011 and subsequent years remain open to full examination. Our California tax returns for 20082010 and subsequent tax years remain open to full examination. Massachusetts tax returns for 2008, 20102011 and subsequent years remain open to full examination.
At September 30, 2014,March 31, 2015, our unrecognized tax benefit was $0.4$3.8 million, the recognition of which would reduce our income tax expense by $0.3$2.7 million. We do not expect that our unrecognized tax benefit will materially change in the next 12 months.
We recognize interest and penalties related to income tax matters as part of income before income taxes. Interest and penalties were not material for the three and nine months ended September 30, 2014.March 31, 2015.
| |
13.14. | Fair Value of Financial Instruments |
Fair Value Measurements
Our available-for-sale securities, derivative instruments and certain non-marketable and other 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. 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 U.S. Treasury securities, 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 third party 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 obtained 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. 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.
Interest rate swap assets:derivative assets and liabilities: Fair value measurements of interest rate swapsderivatives 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.assumptions.
Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant 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 net asset value per share as obtained from the investee funds' management, as the funds do not have a readily determinable fair value and the funds prepare their financial statements using guidance consistent with fair value accounting. We account for differences between our measurement date and the date of the fund investment’s 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.
Other securities: Fair value measurements of equity securities of public companies are priced based on quoted market prices less a discount if the securities are subject to certain sales restrictions. Marketability discounts generally range from 10% to 20% depending on the duration of the sale restrictions which typically range from 3 to 6 months.
Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant expiration dates, the risk-free interest rate and market-observable option volatility assumptions. Modeled asset values are further adjusted by applying a discount of up to 20% for certain warrants that have lockup restrictions or other features that indicate a discount to fair value is warranted. As a lock-up term nears, and other sale restrictions are lifted, discounts are adjusted downward to 0 percent once all restrictions expire or are removed.
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 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 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.
The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014March 31, 2015:
| | (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at September 30, 2014 | | Level 1 | | Level 2 | | Level 3 | | Balance at March 31, 2015 |
Assets | | | | | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | | | | | |
U.S. treasury securities | | $ | 6,876,299 |
| | $ | — |
| | $ | — |
| | $ | 6,876,299 |
| | $ | 7,914,125 |
| | $ | — |
| | $ | — |
| | $ | 7,914,125 |
|
U.S. agency debentures | | — |
| | 3,605,833 |
| | — |
| | 3,605,833 |
| | — |
| | 3,313,664 |
| | — |
| | 3,313,664 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
Agency-issued collateralized mortgage obligations - fixed rate | | — |
| | 2,005,933 |
| | — |
| | 2,005,933 |
| | — |
| | 1,778,155 |
| | — |
| | 1,778,155 |
|
Agency-issued collateralized mortgage obligations - variable rate | | — |
| | 835,957 |
| | — |
| | 835,957 |
| | — |
| | 739,203 |
| | — |
| | 739,203 |
|
Equity securities | | 4,211 |
| | 5,203 |
| | — |
| | 9,414 |
| | 1,382 |
| | 394 |
| | — |
| | 1,776 |
|
Total available-for-sale securities | | 6,880,510 |
| | 6,452,926 |
| | — |
| | 13,333,436 |
| | 7,915,507 |
| | 5,831,416 |
| | — |
| | 13,746,923 |
|
Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | | |
Non-marketable securities: | | | | | | | | | | | | | | | | |
Venture capital and private equity fund investments | | — |
| | — |
| | 1,078,911 |
| | 1,078,911 |
| | — |
| | — |
| | 1,195,303 |
| | 1,195,303 |
|
Other venture capital investments | | — |
| | — |
| | 43,863 |
| | 43,863 |
| | — |
| | — |
| | 78,850 |
| | 78,850 |
|
Other securities | | 181,265 |
| | — |
| | — |
| | 181,265 |
| | 11,936 |
| | — |
| | — |
| | 11,936 |
|
Total non-marketable and other securities (fair value accounting) | | 181,265 |
| | — |
| | 1,122,774 |
| | 1,304,039 |
| | 11,936 |
| | — |
| | 1,274,153 |
| | 1,286,089 |
|
Other assets: | | | | | | | | | | | | | | | | |
Interest rate swaps | | — |
| | 4,965 |
| | — |
| | 4,965 |
| | — |
| | 4,340 |
| | — |
| | 4,340 |
|
Foreign exchange forward and option contracts | | — |
| | 17,234 |
| | — |
| | 17,234 |
| | — |
| | 54,495 |
| | — |
| | 54,495 |
|
Equity warrant assets | | — |
| | 1,563 |
| | 93,397 |
| | 94,960 |
| | — |
| | 2,195 |
| | 122,261 |
| | 124,456 |
|
Client interest rate derivatives | | — |
| | 2,173 |
| | — |
| | 2,173 |
| | — |
| | 2,907 |
| | — |
| | 2,907 |
|
Total assets (1) | | $ | 7,061,775 |
| | $ | 6,478,861 |
| | $ | 1,216,171 |
| | $ | 14,756,807 |
| | $ | 7,927,443 |
| | $ | 5,895,353 |
| | $ | 1,396,414 |
| | $ | 15,219,210 |
|
Liabilities | | | | | | | | | | | | | | | | |
Foreign exchange forward and option contracts | | $ | — |
| | $ | 15,833 |
| | $ | — |
| | $ | 15,833 |
| | $ | — |
| | $ | 45,727 |
| | $ | — |
| | $ | 45,727 |
|
Client interest rate derivatives | | — |
| | 2,317 |
| | — |
| | 2,317 |
| | — |
| | 3,166 |
| | — |
| | 3,166 |
|
Total liabilities | | $ | — |
| | $ | 18,150 |
| | $ | — |
| | $ | 18,150 |
| | $ | — |
| | $ | 48,893 |
| | $ | — |
| | $ | 48,893 |
|
| |
(1) | Included in Level 1 and Level 3 assets are $163.69 million and $1.01.2 billion, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests. |
The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 20132014:
| | (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2013 | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2014 |
Assets | | | | | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | | | | | |
U.S. treasury securities | | | $ | 7,302,273 |
| | $ | — |
| | $ | — |
| | $ | 7,302,273 |
|
U.S. agency debentures | | $ | — |
| | $ | 4,345,232 |
| | $ | — |
| | $ | 4,345,232 |
| | — |
| | 3,561,556 |
| | — |
| | 3,561,556 |
|
Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
Agency-issued mortgage-backed securities | | — |
| | 2,473,576 |
| | — |
| | 2,473,576 |
| |
Agency-issued collateralized mortgage obligations - fixed rate | | — |
| | 3,325,758 |
| | — |
| | 3,325,758 |
| | — |
| | 1,884,843 |
| | — |
| | 1,884,843 |
|
Agency-issued collateralized mortgage obligations - variable rate | | — |
| | 1,186,573 |
| | — |
| | 1,186,573 |
| | — |
| | 784,475 |
| | — |
| | 784,475 |
|
Agency-issued commercial mortgage-backed securities | | — |
| | 564,604 |
| | — |
| | 564,604 |
| |
Municipal bonds and notes | | — |
| | 86,027 |
| | — |
| | 86,027 |
| |
Equity securities | | 3,732 |
| | 1,319 |
| | — |
| | 5,051 |
| | 4,290 |
| | 3,218 |
| | — |
| | 7,508 |
|
Total available-for-sale securities | | 3,732 |
| | 11,983,089 |
| | — |
| | 11,986,821 |
| | 7,306,563 |
| | 6,234,092 |
| | — |
| | 13,540,655 |
|
Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | | |
Non-marketable securities: | | | | | | | | | | | | | | | | |
Venture capital and private equity fund investments | | — |
| | — |
| | 862,972 |
| | 862,972 |
| | — |
| | — |
| | 1,130,882 |
| | 1,130,882 |
|
Other venture capital investments | | — |
| | — |
| | 32,839 |
| | 32,839 |
| | — |
| | — |
| | 71,204 |
| | 71,204 |
|
Other Securities | | 2,125 |
| | — |
| | 319,249 |
| | 321,374 |
| |
Other securities | | | 108,251 |
| | — |
| | — |
| | 108,251 |
|
Total non-marketable and other securities (fair value accounting) | | 2,125 |
| | — |
| | 1,215,060 |
| | 1,217,185 |
| | 108,251 |
| | — |
| | 1,202,086 |
| | 1,310,337 |
|
Other assets: | | | | | | | | | | | | | | | | |
Interest rate swaps | | — |
| | 6,492 |
| | — |
| | 6,492 |
| | — |
| | 4,609 |
| | — |
| | 4,609 |
|
Foreign exchange forward and option contracts | | — |
| | 15,530 |
| | — |
| | 15,530 |
| | — |
| | 34,231 |
| | — |
| | 34,231 |
|
Equity warrant assets | | — |
| | 3,622 |
| | 99,891 |
| | 103,513 |
| | — |
| | 1,906 |
| | 114,698 |
| | 116,604 |
|
Loan conversion options | | — |
| | 314 |
| | — |
| | 314 |
| |
Client interest rate derivatives | | — |
| | 1,265 |
| | — |
| | 1,265 |
| | — |
| | 2,546 |
| | — |
| | 2,546 |
|
Total assets (1) | | $ | 5,857 |
| | $ | 12,010,312 |
| | $ | 1,314,951 |
| | $ | 13,331,120 |
| | $ | 7,414,814 |
| | $ | 6,277,384 |
| | $ | 1,316,784 |
| | $ | 15,008,982 |
|
Liabilities | | | | | | | | | | | | | | | | |
Foreign exchange forward and option contracts | | $ | — |
| | $ | 12,617 |
| | $ | — |
| | $ | 12,617 |
| | $ | — |
| | $ | 28,363 |
| | $ | — |
| | $ | 28,363 |
|
Client interest rate derivatives | | — |
| | 1,396 |
| | — |
| | 1,396 |
| | — |
| | 2,748 |
| | — |
| | 2,748 |
|
Total liabilities | | $ | — |
| | $ | 14,013 |
| | $ | — |
| | $ | 14,013 |
| | $ | — |
| | $ | 31,111 |
| | $ | — |
| | $ | 31,111 |
|
| |
(1) | Included in Level 1 and Level 3 assets are $2.0100 million and $1.1 billion, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests. |
The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2014March 31, 2015 and 20132014, respectively:
| | (Dollars in thousands) | | Beginning Balance | | Total Realized and Unrealized Gains (Losses) Included in Income | | Purchases | | Sales | | Issuances | | Distributions and Other Settlements | | Transfers Out of Level 3 | | Ending Balance | | Beginning Balance | | Total Realized and Unrealized Gains Included in Income | | Purchases | | Sales | | Issuances | | Distributions and Other Settlements | | Transfers Out of Level 3 | | Ending Balance |
Three months ended September 30, 2014 | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2015 | | | | | | | | | | | | | | | | | |
Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Venture capital and private equity fund investments | | $ | 1,040,522 |
| | $ | 43,460 |
| | $ | 49,037 |
| | $ | — |
| | $ | — |
| | $ | (54,108 | ) | | $ | — |
| | $ | 1,078,911 |
| | $ | 1,130,882 |
| | $ | 46,854 |
| | $ | 58,670 |
| | $ | — |
| | $ | — |
| | $ | (41,103 | ) | | $ | — |
| | $ | 1,195,303 |
|
Other venture capital investments | | 43,747 |
| | 5,546 |
| | 6,304 |
| | (11,122 | ) | | — |
| | (612 | ) | | — |
| | 43,863 |
| | 71,204 |
| | 6,450 |
| | 1,370 |
| | (39 | ) | | — |
| | (135 | ) | | — |
| | 78,850 |
|
Other securities (fair value accounting) | | 5,808 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,808 | ) | | — |
| |
Total non-marketable and other securities (fair value accounting)(1) | | 1,090,077 |
| | 49,006 |
| | 55,341 |
| | (11,122 | ) | | — |
| | (54,720 | ) | | (5,808 | ) | | 1,122,774 |
| | 1,202,086 |
| | 53,304 |
| | 60,040 |
| | (39 | ) | | — |
| | (41,238 | ) | | — |
| | 1,274,153 |
|
Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity warrant assets (2) | | 87,151 |
| | 13,805 |
| | — |
| | (10,564 | ) | | 2,932 |
| | 510 |
| | (437 | ) | | 93,397 |
| | 114,698 |
| | 20,084 |
| | — |
| | (14,765 | ) | | 2,083 |
| | 404 |
| | (243 | ) | | 122,261 |
|
Total assets | | $ | 1,177,228 |
| | $ | 62,811 |
| | $ | 55,341 |
| | $ | (21,686 | ) | | $ | 2,932 |
| | $ | (54,210 | ) | | $ | (6,245 | ) | | $ | 1,216,171 |
| | $ | 1,316,784 |
| | $ | 73,388 |
| | $ | 60,040 |
| | $ | (14,804 | ) | | $ | 2,083 |
| | $ | (40,834 | ) | | $ | (243 | ) | | $ | 1,396,414 |
|
Three months ended September 30, 2013 | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2014 | | | | | | | | | | | | | | | | | |
Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Venture capital and private equity fund investments | | $ | 741,522 |
| | $ | 34,288 |
| | $ | 41,704 |
| | $ | — |
| | $ | — |
| | $ | (44,015 | ) | | $ | — |
| | $ | 773,499 |
| | $ | 862,972 |
| | $ | 111,335 |
| | $ | 44,455 |
| | $ | — |
| | $ | — |
| | $ | (41,840 | ) | | $ | — |
| | $ | 976,922 |
|
Other venture capital investments | | 123,493 |
| | 4,530 |
| | 1,016 |
| | 4 |
| | — |
| | (73,684 | ) | | — |
| | 55,359 |
| | 32,839 |
| | 1,838 |
| | 670 |
| | (3,514 | ) | | — |
| | (3,527 | ) | | — |
| | 28,306 |
|
Other securities (fair value accounting) | | — |
| | 143,301 |
| | — |
| | — |
| | — |
| | 73,753 |
| | — |
| | 217,054 |
| | 319,249 |
| | 102,694 |
| | — |
| | (46,840 | ) | | — |
| | 3,417 |
| | (16,033 | ) | | 362,487 |
|
Total non-marketable and other securities (fair value accounting) (1) | | 865,015 |
| | 182,119 |
| | 42,720 |
| | 4 |
| | — |
| | (43,946 | ) | | — |
| | 1,045,912 |
| | 1,215,060 |
| | 215,867 |
| | 45,125 |
| | (50,354 | ) | | — |
| | (41,950 | ) | | (16,033 | ) | | 1,367,715 |
|
Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity warrant assets (2) | | 73,229 |
| | 18,215 |
| | — |
| | (6,366 | ) | | 2,995 |
| | 365 |
| | (312 | ) | | 88,126 |
| | 99,891 |
| | 24,378 |
| | — |
| | (39,993 | ) | | 3,417 |
| | 626 |
| | (677 | ) | | 87,642 |
|
Total assets | | $ | 938,244 |
| | $ | 200,334 |
| | $ | 42,720 |
| | $ | (6,362 | ) | | $ | 2,995 |
| | $ | (43,581 | ) | | $ | (312 | ) | | $ | 1,134,038 |
| | $ | 1,314,951 |
| | $ | 240,245 |
| | $ | 45,125 |
| | $ | (90,347 | ) | | $ | 3,417 |
| | $ | (41,324 | ) | | $ | (16,710 | ) | | $ | 1,455,357 |
|
Nine months ended September 30, 2014 | | | | | | | | | | | | | | | | | |
Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | | | |
Venture capital and private equity fund investments | | $ | 862,972 |
| | $ | 192,240 |
| | $ | 159,448 |
| | $ | — |
| | $ | — |
| | $ | (135,749 | ) | | $ | — |
| | $ | 1,078,911 |
| |
Other venture capital investments | | 32,839 |
| | 8,060 |
| | 22,800 |
| | (15,561 | ) | | — |
| | (4,149 | ) | | (126 | ) | | 43,863 |
| |
Other securities (fair value accounting) | | 319,249 |
| | 104,310 |
| | — |
| | (46,840 | ) | | — |
| | 3,417 |
| | (380,136 | ) | | — |
| |
Total non-marketable and other securities (fair value accounting) (1) | | 1,215,060 |
| | 304,610 |
| | 182,248 |
| | (62,401 | ) | | — |
| | (136,481 | ) | | (380,262 | ) | | 1,122,774 |
| |
Other assets: | | | | | | | | | | | | | | | | | |
Equity warrant assets (2) | | 99,891 |
| | 51,325 |
| | — |
| | (67,201 | ) | | 9,098 |
| | 1,718 |
| | (1,434 | ) | | 93,397 |
| |
Total assets | | $ | 1,314,951 |
| | $ | 355,935 |
| | $ | 182,248 |
| | $ | (129,602 | ) | | $ | 9,098 |
| | $ | (134,763 | ) | | $ | (381,696 | ) | | $ | 1,216,171 |
| |
Nine months ended September 30, 2013 | | | | | | | | | | | | | | | | | |
Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | | | |
Venture capital and private equity fund investments | | $ | 665,921 |
| | $ | 90,526 |
| | $ | 107,022 |
| | $ | — |
| | $ | — |
| | $ | (89,970 | ) | | $ | — |
| | $ | 773,499 |
| |
Other venture capital investments | | 127,091 |
| | 5,779 |
| | 1,210 |
| | (381 | ) | | — |
| | (74,779 | ) | | (3,561 | ) | | 55,359 |
| |
Other securities (fair value accounting) | | — |
| | 143,301 |
| | — |
| | — |
| | — |
| | 73,753 |
| | — |
| | 217,054 |
| |
Total non-marketable and other securities (fair value accounting) (1) | | 793,012 |
| | 239,606 |
| | 108,232 |
| | (381 | ) | | — |
| | (90,996 | ) | | (3,561 | ) | | 1,045,912 |
| |
Other assets: | | | | | | | | | | | | | | | | | |
Equity warrant assets (2) | | 66,129 |
| | 26,142 |
| | — |
| | (10,805 | ) | | 7,309 |
| | 1,743 |
| | (2,392 | ) | | 88,126 |
| |
Total assets | | $ | 859,141 |
| | $ | 265,748 |
| | $ | 108,232 |
| | $ | (11,186 | ) | | $ | 7,309 |
| | $ | (89,253 | ) | | $ | (5,953 | ) | | $ | 1,134,038 |
| |
| |
(1) | Realized and unrealized gains (losses) are recorded in the line items “gains on investment securities, net”, and “other noninterest income”, components of noninterest income. |
| |
(2) | Realized and unrealized gains (losses) are recorded in 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 September 30, 2014March 31, 2015 and 20132014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | |
Venture capital and private equity fund investments | | $ | 57,967 |
| | $ | 32,694 |
| | $ | 207,885 |
| | $ | 89,705 |
| | $ | 45,935 |
| | $ | 111,856 |
|
Other venture capital investments | | (1,231 | ) | | 4,603 |
| | 78 |
| | 5,720 |
| | 6,379 |
| | (15 | ) |
Other securities (fair value accounting) | | — |
| | 143,301 |
| | 78,967 |
| | 143,301 |
| | — |
| | 78,968 |
|
Total non-marketable and other securities (fair value accounting) (1) | | 56,736 |
| | 180,598 |
| | 286,930 |
| | 238,726 |
| | 52,314 |
| | 190,809 |
|
Other assets: | | | | | | | | | | | | |
Equity warrant assets (2) | | 6,911 |
| | 14,205 |
| | 17,777 |
| | 19,788 |
| | 16,261 |
| | 3,782 |
|
Total unrealized gains, net | | $ | 63,647 |
| | $ | 194,803 |
| | $ | 304,707 |
| | $ | 258,514 |
| | $ | 68,575 |
| | $ | 194,591 |
|
Unrealized gains attributable to noncontrolling interests | | $ | 47,165 |
| | $ | 164,871 |
| | $ | 193,841 |
| | $ | 215,340 |
| | $ | 49,617 |
| | $ | 176,085 |
|
| |
(1) | Unrealized gains (losses) are recorded in the line items “gains on investment securities, net”, and “other noninterest income”, components of noninterest income. |
| |
(2) | Unrealized gains (losses) are recorded in the line item “gains on derivative instruments, net”, a component of noninterest income. |
The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at September 30, 2014March 31, 2015 and December 31, 2013.2014. 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 | | Valuation Technique | | Significant Unobservable Inputs | | Weighted Average | | Fair value | | Valuation Technique | | Significant Unobservable Inputs | | Weighted Average |
September 30, 2014: | | | | | |
March 31, 2015: | | | | | |
Other venture capital investments (fair value accounting) | | $ | 43,863 |
| | Private company equity pricing | | (1) | | (1 | ) | | $ | 78,850 |
| | Private company equity pricing | | (1) | | (1 | ) |
Equity warrant assets (public portfolio) | | 529 |
| | Modified Black-Scholes option pricing model | | Volatility | | 43.9 | % | | 1,472 |
| | Modified Black-Scholes option pricing model | | Volatility | | 46.6 | % |
| | | Risk-Free interest rate | | 2.1 | % | | | | Risk-Free interest rate | | 1.8 | % |
| | | Sales restrictions discount (2) | | 15.7 | % | | | | Sales restrictions discount (2) | | 15.2 | % |
Equity warrant assets (private portfolio) | | 92,868 |
| | Modified Black-Scholes option pricing model | | Volatility | | 38.2 | % | | 120,789 |
| | Modified Black-Scholes option pricing model | | Volatility | | 38.1 | % |
| | | | Risk-Free interest rate | | 1.0 | % | | | | Risk-Free interest rate | | 0.7 | % |
| | | | Marketability discount (3) | | 20.0 | % | | | | Marketability discount (3) | | 18.1 | % |
| | | | Remaining life assumption (4) | | 45.0 | % | | | | Remaining life assumption (4) | | 45.0 | % |
December 31, 2013: | | | | | |
December 31, 2014: | | | | | |
Other venture capital investments (fair value accounting) | | $ | 32,839 |
| | Private company equity pricing | | (1) | | (1 | ) | | $ | 71,204 |
| | Private company equity pricing | | (1) | | (1 | ) |
Other securities | | 319,249 |
| | Modified stock price | | Sales restrictions discount (2) | | 12.0 | % | |
Equity warrant assets (public portfolio) | | 24,217 |
| | Modified Black-Scholes option pricing model | | Volatility | | 41.3 | % | | 1,681 |
| | Modified Black-Scholes option pricing model | | Volatility | | 42.6 | % |
| | | Risk-Free interest rate | | 1.7 | % | | | | Risk-Free interest rate | | 1.7 | % |
| | | Sales restrictions discount (2) | | 13.7 | % | | | | Sales restrictions discount (2) | | 17.8 | % |
Equity warrant assets (private portfolio) | | 75,674 |
| | Modified Black-Scholes option pricing model | | Volatility | | 40.1 | % | | 113,017 |
| | Modified Black-Scholes option pricing model | | Volatility | | 38.3 | % |
| | | Risk-Free interest rate | | 0.8 | % | | | | Risk-Free interest rate | | 0.9 | % |
| | | Marketability discount (3) | | 22.5 | % | | | | Marketability discount (3) | | 20.0 | % |
| | | Remaining life assumption (4) | | 45.0 | % | | | | Remaining life assumption (4) | | 45.0 | % |
| |
(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. |
These factors are specific to each portfolio company and a weighted average or range of values of the unobservable inputs is not meaningful.
| |
(2) | We adjust quoted market prices of public companies, which are subject to certain sales restrictions. Sales restriction discounts generally range from 10 percent to 20 percent depending on the duration of the sales restrictions, which typically range from 3 to 6 months. |
| |
(3) | 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 byupon various factors, including market conditions.option-pricing models. On a quarterly basis, a sensitivity analysis is performed on our marketability discount. |
| |
(4) | We adjust the contractual remaining term of private company warrants based on our estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At September 30, 2014March 31, 2015, the weighted average contractual remaining term was 6.252.61 years, compared to our estimated remaining life of 2.815.80 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption. |
For the three and nine months ended September 30,March 31, 2015 and 2014, and 2013, we did not have any material transfers between Level 2 and Level 1.Transfers from Level 3 to Level 1 for the three months ended September 30, 2014 include $5.8 million as a result of the expiration of lockup and other restrictions on one of our other securities portfolio companies. Transfers from Level 3 to Level 1 for the nine months ended September 30,March 31, 2014 included $380.1$16.0 million as a result of the expiration of lockup and other restrictions on certain of our other securities. TransfersWe did not have any transfers from Level 3 to Level 21 for the ninethree months ended September 30, 2013 include $3.6 million due to the IPO of one of our portfolio companies.March 31, 2015.
All other transfers from Level 3 to Level 2 for the three and nine months ended September 30,March 31, 2015 and 2014 and 2013 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.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
Net long-lived assets held-for-sale
The fair value of assets held-for-sale is estimated by their net realizable value, which represents the potential sales price less costs to sell. Valuation techniques utilized are significant assumptions not observable in the market, accordingly, we classify these assets as Level 3. The carrying value of $48.2 million of our net long-lived assets held-for-sale at March 31, 2015 approximates fair value. At December 31, 2014, the carrying value and fair value of our net long-lived assets held-for-sale was $44.3 million and $45.4 million, respectively.
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 excludingfor which carrying value approximates fair value and estimated fair values of financial instruments not recorded at fair value on a recurring basis and excludes financial instruments and assets and liabilities already recorded at fair value as described above.
Cash and Cash EquivalentsFinancial Instruments for which Carrying Value Approximates Fair Value
Cash and cash equivalents include cash on hand, cash balances due from banks, interest-earning deposits, securities purchased under agreements to resell and other short-term investment securities. The carrying amount is a reasonable estimate ofCertain financial instruments that are not carried at fair value because ofon the insignificant risk of changes inConsolidated Balance Sheets are carried at amounts that approximate fair value, due to changes intheir short-term nature and generally negligible credit risk. These instruments include cash and cash equivalents; FHLB and FRB stock; accrued interest receivable; short-term borrowings; short-term time deposits; and accrued interest payable. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market interest rates, anddeposits) be equal to their carrying value; recognition of the inherent funding value of these instruments are purchased in conjunction with our cash management activities.is not permitted.
Estimated Fair Values of Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Held-to-Maturity Securities
Held-to-maturity securities include similar investments held in our available-for-sale securities portfolio and are valued using the same methodologies. All securities included in our held-to-maturity securities portfolio are valued using Level 2 inputs. Refer to Level 2 fair value measurements above for significant inputs used in the valuation of our held-to-maturity investment securities.
Non-Marketable Securities (Cost and Equity Method Accounting)
Non-marketable securities 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). Other investments (equity method accounting) includeincludes our investment in SPD Silicon Valley Bank ("SPD-SVB"),SPD-SVB, our joint venture bank in China. At this time, the carrying value of our investment in SPD-SVB is a reasonable estimate of fair value. The fair value of the remaining other investments (equity method accounting) and the fair value of venture capital and private equity fund investments (cost method accounting) and other venture capital investments
(cost (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, estimated 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 investment’s net asset value by using the most recently available financial information from the investee general partner, for example June 30December 31thst, for our September 30March 31thst 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.
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 Federal Reserve Bank Stock
Investments in FHLB and Federal Reserve Bank 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 balances.
Long-Term 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 oflong-term 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 both September 30, 2014 and December 31, 2013 included cash collateral received from our counterparties in relation to derivative contracts where the net market value is in our favor, primarily 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 September 30, 2014 and December 31, 2013 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 hedge accounting associated with the note.notes.
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 was equivalent to the residual premium or fee at September 30, 2014March 31, 2015 and December 31, 20132014. Commitments to extend credit and letters of credit typically result in loans with a market interest rate if funded.
The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at September 30, 2014March 31, 2015 and December 31, 20132014:
| | | | | | Estimated Fair Value | | | | Estimated Fair Value |
(Dollars in thousands) | | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
September 30, 2014: | | | | | | | | | |
March 31, 2015: | | | | | | | | | |
Financial assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,872,537 |
| | $ | 1,872,537 |
| | $ | — |
| | $ | — |
| | $ | 1,308,003 |
| | $ | 1,308,003 |
| | $ | — |
| | $ | — |
|
Held-to-maturity securities | | 6,662,025 |
| | — |
| | 6,613,893 |
| | — |
| | 7,816,797 |
| | — |
| | 7,869,653 |
| | — |
|
Non-marketable and other securities (cost and equity method accounting) | | 399,511 |
| | — |
| | — |
| | 497,855 |
| |
Non-marketable securities (cost and equity method accounting) | | | 295,427 |
| | — |
| | — |
| | 402,301 |
|
Net commercial loans | | | 12,900,215 |
| | — |
| | — |
| | 13,034,516 |
|
Net consumer loans | | | 1,371,484 |
| | — |
| | — |
| | 1,347,284 |
|
FHLB and Federal Reserve Bank stock | | | 53,496 |
| | — |
| | — |
| | 53,496 |
|
Accrued interest receivable | | | 91,415 |
| | — |
| | 91,415 |
| | — |
|
Financial liabilities: | | | | | | | | | |
Short-term FHLB advances | | | 60,000 |
| | 60,000 |
| | — |
| | — |
|
Other short-term borrowings | | | 17,766 |
| | 17,766 |
| | — |
| | — |
|
Non-maturity deposits (1) | | | 33,752,797 |
| | 33,752,797 |
| | — |
| | — |
|
Time deposits | | | 98,778 |
| | — |
| | 98,740 |
| | — |
|
3.50% Senior Notes | | | 349,710 |
| | — |
| | 348,639 |
| | — |
|
5.375% Senior Notes | | | 348,495 |
| | — |
| | 396,799 |
| | — |
|
6.05% Subordinated Notes (2) | | | 49,910 |
| | — |
| | 52,963 |
| | — |
|
7.0% Junior Subordinated Debentures | | | 54,802 |
| | — |
| | 53,109 |
| | — |
|
Accrued interest payable | | | 5,038 |
| | — |
| | 5,038 |
| | — |
|
Off-balance sheet financial assets: | | | | | | | | | |
Commitments to extend credit | | | — |
| | — |
| | — |
| | 30,135 |
|
December 31, 2014: | | | | | | | | | |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | | | $ | 1,796,062 |
| | $ | 1,796,062 |
| | $ | — |
| | $ | — |
|
Held-to-maturity securities | | | 7,421,042 |
| | — |
| | 7,415,656 |
| | — |
|
Non-marketable securities (cost and equity method accounting) | | | 296,648 |
| | — |
| | — |
| | 390,570 |
|
Net commercial loans | | 10,721,645 |
| | — |
| | — |
| | 10,884,474 |
| | 12,947,869 |
| | — |
| | — |
| | 13,082,487 |
|
Net consumer loans | | 1,166,475 |
| | — |
| | — |
| | 1,121,639 |
| | 1,271,048 |
| | — |
| | — |
| | 1,247,336 |
|
FHLB and Federal Reserve Bank stock | | 41,026 |
| | — |
| | — |
| | 41,026 |
| | 53,496 |
| | — |
| | — |
| | 53,496 |
|
Accrued interest receivable | | 81,334 |
| | — |
| | 81,334 |
| | — |
| | 94,180 |
| | — |
| | 94,180 |
| | — |
|
Financial liabilities: | | | | | | | | | | | | | | | | |
Other short-term borrowings | | 6,630 |
| | 6,630 |
| | — |
| | — |
| | 7,781 |
| | 7,781 |
| | — |
| | — |
|
Non-maturity deposits (1) | | 30,963,491 |
| | 30,963,491 |
| | — |
| | — |
| | 34,215,372 |
| | 34,215,372 |
| | — |
| | — |
|
Time deposits | | 159,644 |
| | — |
| | 159,644 |
| | — |
| | 128,127 |
| | — |
| | 128,107 |
| | — |
|
5.375% Senior Notes | | 348,378 |
| | — |
| | 390,740 |
| | — |
| | 348,436 |
| | — |
| | 392,616 |
| | — |
|
6.05% Subordinated Notes (2) | | 50,497 |
| | — |
| | 54,423 |
| | — |
| | 50,162 |
| | — |
| | 53,537 |
| | — |
|
7.0% Junior Subordinated Debentures | | 54,889 |
| | — |
| | 52,722 |
| | — |
| | 54,845 |
| | — |
| | 52,990 |
| | — |
|
Accrued interest payable | | 2,932 |
| | — |
| | 2,932 |
| | — |
| | 6,998 |
| | — |
| | 6,998 |
| | — |
|
Off-balance sheet financial assets: | | | | | | | | | | | | | | | | |
Commitments to extend credit | | — |
| | — |
| | — |
| | 29,731 |
| | — |
| | — |
| | — |
| | 29,097 |
|
December 31, 2013: | | | | | | | | | |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 1,538,779 |
| | $ | 1,538,779 |
| | $ | — |
| | $ | — |
| |
Non-marketable and other securities (cost and equity method accounting) | | 378,309 |
| | — |
| | — |
| | 447,783 |
| |
Net commercial loans | | 9,796,878 |
| | — |
| | — |
| | 9,935,917 |
| |
Net consumer loans | | 966,622 |
| | — |
| | — |
| | 1,005,080 |
| |
FHLB and Federal Reserve Bank stock | | 40,632 |
| | — |
| | — |
| | 40,632 |
| |
Accrued interest receivable | | 67,772 |
| | — |
| | 67,772 |
| | — |
| |
Financial liabilities: | | | | | | | | | |
Other short-term borrowings | | 5,080 |
| | 5,080 |
| | — |
| | — |
| |
Non-maturity deposits (1) | | 22,259,119 |
| | 22,259,119 |
| | — |
| | — |
| |
Time deposits | | 213,860 |
| | — |
| | 213,874 |
| | — |
| |
5.375% Senior Notes | | 348,209 |
| | — |
| | 383,782 |
| | — |
| |
6.05% Subordinated Notes (2) | | 51,987 |
| | — |
| | 56,297 |
| | — |
| |
7.0% Junior Subordinated Debentures | | 55,020 |
| | — |
| | 51,915 |
| | — |
| |
Accrued interest payable | | 6,858 |
| | — |
| | 6,858 |
| | — |
| |
Off-balance sheet financial assets: | | | | | | | | | |
Commitments to extend credit | | — |
| | — |
| | — |
| | 24,285 |
| |
| |
(1) | Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits. |
| |
(2) | At September 30, 2014March 31, 2015 and December 31, 20132014, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $5.04.3 million and $6.54.6 million, respectively, related to hedge accounting 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.
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. Subject to applicable requirements under the Volcker Rule, we do not have any plans to sell any of these fund investments. If we decide to sell these investments in the future, the investee fund’s 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 investment’s net asset value by using the most recently available financial information from the investee general partner, for example June 30December 31thst, for our September 30March 31thst 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 September 30, 2014March 31, 2015:
| | (Dollars in thousands) | | Carrying Amount | | Fair Value | | Unfunded Commitments | | Carrying Amount | | Fair Value | | Unfunded Commitments |
Non-marketable securities (fair value accounting): | | | | | | | | | | | | |
Venture capital and private equity fund investments (1) | | $ | 1,078,911 |
| | $ | 1,078,911 |
| | $ | 478,461 |
| | $ | 1,195,303 |
| | $ | 1,195,303 |
| | $ | 557,992 |
|
Non-marketable securities (equity method accounting): | | | | | | | | | | | | |
Other investments (2) | | 47,662 |
| | 49,064 |
| | 5,836 |
| | 50,132 |
| | 51,323 |
| | 5,836 |
|
Non-marketable securities (cost method accounting): | | | | | | | | | | | | |
Venture capital and private equity fund investments (3) | | 142,710 |
| | 239,857 |
| | 22,022 |
| | 134,575 |
| | 238,293 |
| | 15,985 |
|
Total | | $ | 1,269,283 |
| | $ | 1,367,832 |
| | $ | 506,319 |
| | $ | 1,380,010 |
| | $ | 1,484,919 |
| | $ | 579,813 |
|
| |
(1) | Venture capital and private equity fund investments within non-marketable securities (fair value accounting) include investments made by our managed funds of funds and one of our direct venture funds. These investments represent investments in venture capital and private equity funds that invest primarily in U.S. and global technology and life sciencesscience & healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $995 million1.1 billion and $474555 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 sciencesscience & healthcare companies. It is estimated that we will receive distributions from the fund investments over the next 510 to 713 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 sciencesscience & healthcare companies. It is estimated that we will receive distributions from the fund investments over the next 510 to 713 years, depending on the age of the funds and any potential extensions of the terms of the funds. |
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 management’s 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.
SVB Financial has commitments under two partially-syndicated revolving line of credit facilities totaling $65.0 million to Gold Hill Capital 2008 LP, a venture debt fund, and an affiliated fund, for which SVB Financial has ownership interests. Of the $65.0 million, $6.0 million is syndicated to another lender. SVB Financial has an 11.5 percent direct ownership interest and a 4.0 percent indirect ownership interest in Gold Hill Capital 2008 LP through our 83.8 percent interest in its general partner, Gold Hill Capital 08, LLC. The lines of credit are secured and bear an interest rate of national Prime plus one percent. The highest outstanding balance under SVB Financial's portion of the facility forDuring the three months ended September 30, 2014 was $19.1 million. SVB Financial's portion of the outstanding balance was $5.0 million at September 30, 2014 and $23.0 million at DecemberMarch 31, 2013.
During the nine months ended September 30, 2014,2015, 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 non-related 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.
UpdateThe sale of all of the outstanding capital stock of SVBIF to Temasek, a Singapore investment company was completed on Investments in FireEye
AsApril 13, 2015. The final settlement of September 30, 2014, our managed funds (including SVB Financial's interest) held approximately 4.9 million shares of FireEye common stock ("FireEye Shares"). From September 30, 2014 to November 6, 2014, the market share price of FireEye’s common stock has slightly decreased from $30.56 to $30.04 and as such there has not been a significant decline in the valuation of our remaining FireEye related investments.
Investment gains (or losses) relating to the remaining 4.9 million FireEye Shares held by our managed funds are based on valuation changes or the sale of such securities, and are subject to FireEye’s stock price, which is subject to market conditions and various other factors. Additionally, any future gains and losses with respect to the remaining shares held bydid not have a material impact on our managed funds at September 30, 2014 are currently unrealized, and the extent such gains (or losses) will become realized is subject to a variety of factors, including among other things, changes in prevailing market prices and timing of any salesfirst quarter 2015 results, or distribution of securities, which are subject to our funds' separate discretionary securities sales/distribution and governance processes.subsequent results thereof.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including in particular “Management’s 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. ManagementIn addition, 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 private equity/venture capital/private equitycapital 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 management’s 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 deposits and funds generated through retained earnings), the extent to which capital may be used or required, our capital category classification, and management of our capital ratios
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, including the impact of changes in our valuation of our investments (such as FireEye), and the volatility of any gains or losses
The likelihood that the market value of our temporarily impaired investments will recover
Our intent to sell our available-for-sale securities prior to recovery of our cost basis, or the likelihood of such
Our ability and intent to hold our held-to-maturity securities until maturity
The impact on our interest income from mortgage prepayment levels as it relates to our premium amortization expense, and from changes in loan yields due to shifts in loan mix
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 and client investment fund balances
The level of client investment fees and associated margins
The profitability of our products and services, including loan yields, loan pricing, and interest margins
Our strategic initiatives, including the expansion of operations and business activities in China, Hong Kong, India, Israel, the UK and elsewhere domestically or internationally
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 realization of certain deferred tax assets, and of any benefit stemming from certain net operating loss carryforwards
The extent to which counterparties, including those to our forward and option contracts, will perform their contractual obligations
The condition and suitability of our properties
The manner in which we compete
The effect of application of accounting pronouncements and regulatory requirements
The effect of lawsuits and claims
Regulatory developments, including the nature and timing of the adoption and effectiveness of requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), new capital requirements and other applicable Federal, State and International laws and regulations, and any related impact on us
The expected impact of the "Volcker Rule" under the Dodd-Frank Act, including our intention to seek the maximum extensions to the conformance period applicable to us
You can identify these and other forward-looking statements by the use of words such as “becoming,” “may,” “will,” “should,” "could," "would," “predicts,“predict,” “potential,” “continue,” “anticipates,“anticipate,” “believes,“believe,” “estimates,“estimate,” “seeks,“seek,” “expects,“expect,” “plans,“plan,” “intends,“intend,” the negative of such words, or comparable terminology. Forward-looking statements are neither historical facts nor assurances of future performance. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may prove to be incorrect. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-looking statements.
Factors Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, but are not limitedamong others:
Market and economic conditions, including the interest rate environment, and the associated impact on us
The credit profile and credit quality of our loan portfolio and volatility of our levels of nonperforming assets and charge-offs
The adequacy of our allowance for loan losses and the need to make provisions for loan losses for any period
The borrowing needs of our clients
The sufficiency of our capital and liquidity positions
The levels of loans, deposits and client investment fund balances
The performance of our portfolio investments; the general condition of the public and private equity and mergers and acquisitions markets and their impact on our investments, including equity warrant assets, venture capital and private equity funds and direct equity investments
Our overall investment plans and strategies; the realization, timing, valuation and performance of our equity or other investments
The levels of public offerings, mergers and acquisitions and venture capital investment activity of our clients that may impact the borrowing needs of our clients
The occurrence of fraudulent activity, including breaches of our information security or cyber security-related incidents
Business disruptions and interruptions due to natural disasters and other external events
The impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties
Expansion of our business internationally
The impact of legal requirements and regulations limiting or restricting our activities or resulting in higher costs or increased compliance responsibilities, including the Volcker rule
The impact of lawsuits and claims
Changes in accounting standards
The levels of equity capital available to our client or portfolio companies
Our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives
Other factors as discussed elsewhere in this Quarterly Report on Form 10-Q, under “Risk Factors” set forthunder Part I, Item 1A in our Annual Report on2014 Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K”), as filed with the SEC on February 27, 2014, and other documents we file with the SEC.
We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this report.Quarterly Report on Form 10-Q. 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, except as applicablerequired by law.
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 20132014 Form 10-K.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentations.
Management’s Overview of ThirdFirst Quarter 20142015 Performance
Overall, we had a strong thirdfirst quarter in 2014,2015, which was reflective of continued strong balance sheethealthy average loan growth, healthy loan and fee activity and solid credit quality.quality and strong venture capital investment and warrant gains. We continued to perform well as a result of our focus on innovation companies and their investors, continued positive business conditions for our clients, and our efforts to secure client relationships.relationships and continued solid credit quality of our loan portfolio. We had net income available to common stockholders of $63.0$88.5 million and diluted EPS of $1.22$1.71 for the thirdfirst quarter of 2014.2015. This compares to net income of $67.6$91.0 million and diluted EPS of $1.46$1.95 in the thirdfirst quarter of 2013.2014. In the thirdfirst quarter of 2014, compared to the third quarter of 2013,2015, we experienced strong growth in net interest income as a result of the increase in interest earned from our fixed income investment portfolio due toand loan portfolios. These increases are reflective of an increase in average investments of $8.1$8.9 billion and average loan growth of $3.3 billion, driven by our significant deposit growth, with record high quarterly average deposits of $29.7 billion, and loan growth of $1.9 billion.growth. In addition, we had solid gains on our venture capital investments and equity warrant assets, growth in core fee income and continued strength in our liquidity and capital base. Net gains on investment securities of $55.4 million, excluding FireEye losses of $49.8 million, were also strong in the third quarter of 2014. Our total client funds, which consist of on-balance sheet deposits and off-balance sheet client investment funds, also increased,
reflecting growth from our existing and new clients. WeNoninterest expense increased $25.7 million primarily from increases in compensation and benefits, as well as, professional services related to the continued to investinvestment in the improvement and expansion of our product offerings and infrastructure, which resulted in a $21.5 million increase in our noninterest expense primarily from increases in professional services, business development and travel and other expenses supporting client services.infrastructure.
ThirdFirst quarter 20142015 results (compared to the thirdfirst quarter 20132014, where applicable) included:
| |
▪ | Continued strong growth in our lending business with record high average loan balances of $11.4$14.0 billion, an increase of $1.9$3.3 billion, or 19.830.4 percent. Period-end loan balances were $12.0$14.4 billion, an increase of $2.2$3.6 billion, or 22.333.3 percent. |
| |
▪ | Average investment securities, excluding non-marketable and other securities, of $18.2$21.1 billion, an increase of $8.1$8.9 billion, or 80.772.6 percent. Period-end investment securities, excluding non-marketable and other securities, of $20.0$21.6 billion, an increase of $9.8$8.7 billion, or 95.867.9 percent. |
| |
▪ | Average deposit balances of $29.7$33.9 billion, an increase of $10.2 billion, or 52.043.0 percent. Period-end deposit balances of $31.1$33.9 billion, an increase of $11.1$8.4 billion, or 55.632.9 percent. |
| |
▪ | Average total client funds (comprised of on-balance sheet deposits and off-balance sheet client investment funds) were $60.7$67.5 billion, an increase of $16.2$16.7 billion, or 36.432.8 percent. Period-end total client funds were $62.3$69.0 billion, an increase of $17.0$15.3 billion, or 37.428.5 percent. |
| |
▪ | Issuance of $350.0 million of 3.50% Senior Notes due January 2025, resulting in net proceeds of approximately $346 million after deducting underwriting discounts and commissions and issuance costs. |
| |
▪ | Net interest income (fully taxable equivalent basis) of $221.0$239.3 million, an increase of $43.5$42.5 million, or 24.521.6 percent, primarily due to an increase in interest income from fixed income investment securities and loans, attributable to growth in average investment and loan balances of $8.1$8.9 billion and $1.9$3.3 billion, respectively, driven by the strong average deposit growth mentioned above. |
| |
▪ | Net interest margin of 2.732.64 percent, compared to 3.323.13 percent, primarily reflective of a 49due to an 80 basis point decrease in the overall yield of our loan portfolio and a 26 basis point decrease in our fixed income investment portfolio yield. These decreases are primarily a result of a low rate market environment as well as the shift in the composition of our interest earning assets from our higher-yielding loan portfolio to our lower-yielding fixed income investments portfolio.portfolio reflective of our strong deposit growth. |
| |
▪ | Provision for loan losses of $16.6$6.5 million, compared to $10.6$0.5 million. The provision of $16.66.5 million was primarily driven by $8.3an increase of $8.7 million in net charge-offs, $7.0 million from period-end loan growth and $3.7 million due to a change in the composition of our performing loan portfolio, offset by a $2.4 million decrease in the reserve for impaired loans, resulting from lower impaired loan balances.reflective of an increase in the reserve for a previously |
impaired loan, as well as net charge-offs of $3.9 million. These increases were offset by a decrease of $6.8 million due to the improvement in the credit quality of our performing loans.
| |
▪ | Non-GAAP core fee income (deposit service charges, letters of $53.3credit fees, credit card fees, lending related fees, client investment fees, and foreign exchange fees) of $58.2 million, an increase of $10.1$7.3 million, or 23.514.3 percent, primarily from an increase in foreign exchange and credit card fee income, reflective of increased client activity and transaction volumes.volumes, and lending related fees. (See non-GAAP reconciliation under the section "Results of Operations—Noninterest Income"). |
| |
▪ | Net gains on investment securities of $5.6$83.2 million, compared to net gains of $187.9$223.9 million. [Non-GAAP net lossesgains on investment securities, net of noncontrolling interests were $1.1$19.6 million, compared to net gains of $36.5$37.4 million (See non-GAAP reconciliation under the section "Results of Operations—Noninterest Income—Gains on Investment Securities, Net").] The decrease in net gains primarily resulted from losses onlower gains of our FireEye related investments. Specifically, we had lossesgains on investment securities related to FireEye of $49.8$15.9 million ($9.53.3 million net of noncontrolling interests and inclusive of the Company's carried interests) from our managed funds distribution of approximately 2.5 million shares of FireEye common stock to their respective investors (including the Company) during the first quarter of 2015 compared to $113.0 million of gains from FireEye ($21.8 million net of noncontrolling interests) during the thirdfirst quarter of 2014, compared to FireEye related gains of $138.7 million ($26.6 million net of noncontrolling interests) for the third quarter of 2013. See2014. (See "Results of Operations—Noninterest Income—Gains on Investment Securities, Net" for details about our FireEye related investments during the three and nine months ended September 30, 2014.). |
| |
▪ | Net gains on equity warrant assets of $13.220.3 million, a decrease of $5.65.1 million, or 29.920.1 percent, compared to $18.825.4 million. This decrease was primarily driven bydue to the exercise of our FireEye warrants during the first quarter of 2014, which were held in our equity warrant asset portfolio during the third quarter of 2013 and contributed to an $8.1$18.4 million gain from the increased valuation of the warrants during the third quarter of 2013.quarter. The decrease of $8.1$14.4 million isfor the first quarter of 2015 compared to the first quarter of 2014 was partially offset by an increase in the numbergains of equity warrant assets held at September 30, 2014 as well as gains$9.5 million due to increases in valuations across the equity warrant asset portfolio. |
| |
▪ | Noninterest expense of $182.0$196.1 million, an increase of $21.5$25.7 million, or 13.415.1 percent. This increase was primarily due to increased professional services, compensation and benefits as a result of an increase in average FTEs business development and travel and other expenses.higher professional services expense. Average FTEs increased by 10.412.7 percent to 1,8501,955 for the three months ended September 30, 2014,March 31, 2015, compared to 1,6751,735 FTEs for the comparable 20132014 period. |
| |
▪ | Implementation of the new "Basel III" regulatory capital rules, effective January 1, 2015 contributing to a decrease in our risk-based regulatory capital ratios for SVB Financial Group and partially offsetting the increase in Silicon Valley Bank's risk-based regulatory capital ratios after the contribution of the net proceeds from our 3.50% Senior Notes issuance noted above. See Capital Ratios section under "Capital Resources" in Part I, Item 2 of this report for further details. |
A summary of our performance for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands, except per share data and ratios) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | |
(Dollars in thousands, except per share data, employees and ratios) | | | 2015 | | 2014 | | % Change |
Income Statement: | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share(1) | | $ | 1.22 |
| | $ | 1.46 |
| | (16.4 | ) | % | | $ | 4.17 |
| | $ | 3.43 |
| | 21.6 |
| % | | $ | 1.71 |
| | $ | 1.95 |
| | (12.3 | ) | % |
Net income available to common stockholders(1) | | 62,995 |
| | 67,621 |
| | (6.8 | ) | | | 205,093 |
| | 157,096 |
| | 30.6 |
| | | 88,516 |
| | 90,950 |
| | (2.7 | ) | |
Net interest income | | 220,565 |
| | 177,096 |
| | 24.5 |
| | | 621,858 |
| | 510,346 |
| | 21.9 |
| | | 238,890 |
| | 196,328 |
| | 21.7 |
| |
Net interest margin | | 2.73 | % | | 3.32 | % | | (59 | ) | bps | | 2.87 | % | | 3.32 | % | | (45 | ) | bps | | 2.64 | % | | 3.13 | % | | (49 | ) | bps |
Provision for loan losses | | $ | 16,610 |
| | $ | 10,638 |
| | 56.1 |
| % | | $ | 19,051 |
| | $ | 35,023 |
| | (45.6 | ) | % | | $ | 6,452 |
| | $ | 494 |
| | NM |
| |
Noninterest income | | 80,167 |
| | 257,650 |
| | (68.9 | ) | | | 404,602 |
| | 434,493 |
| | (6.9 | ) | | | 172,018 |
| | 310,225 |
| | (44.6 | ) | % |
Noninterest expense(1) | | 181,989 |
| | 160,524 |
| | 13.4 |
| | | 527,871 |
| | 452,830 |
| | 16.6 |
| | | 196,108 |
| | 170,408 |
| | 15.1 |
| |
Non-GAAP core fee income (1)(2) | | 53,346 |
| | 43,205 |
| | 23.5 |
| | 154,285 |
| | 126,482 |
| | 22.0 |
| | | 58,210 |
| | 50,946 |
| | 14.3 |
| |
Non-GAAP noninterest income, net of noncontrolling interests (1)(2) | | 75,256 |
| | 105,820 |
| | (28.9 | ) | | | 248,298 |
| | 229,422 |
| | 8.2 |
| | | 109,824 |
| | 123,507 |
| | (11.1 | ) | |
Non-GAAP noninterest expense, net of noncontrolling interests (2) | | 177,246 |
| | 157,234 |
| | 12.7 |
| | | 514,540 |
| | 443,813 |
| | 15.9 |
| | |
Non-GAAP noninterest expense, net of noncontrolling interests (1) (3) | | | 190,645 |
| | 167,087 |
| | 14.1 |
| |
Balance Sheet: | | | | | | | | | | | | | | | | | | | | |
Average available-for-sale securities | | $ | 12,446,821 |
| | $ | 10,082,202 |
| | 23.5 |
| % | | $ | 12,698,395 |
| | $ | 10,462,238 |
| | 21.4 |
| % | | $ | 13,571,213 |
| | $ | 12,248,925 |
| | 10.8 |
| % |
Average held-to-maturity securities (3)(4) | | 5,775,602 |
| | — |
| | — |
| | 2,544,256 |
| | — |
| | — |
| | | 7,569,755 |
| | — |
| | — |
| |
Average loans, net of unearned income | | 11,439,521 |
| | 9,545,941 |
| | 19.8 |
|
| | 11,098,397 |
| | 9,086,179 |
| | 22.1 |
| | | 14,046,369 |
| | 10,767,684 |
| | 30.4 |
|
|
Average noninterest-bearing demand deposits | | 21,502,469 |
| | 13,665,460 |
| | 57.3 |
| | | 19,302,107 |
| | 13,437,503 |
| | 43.6 |
| | | 25,168,987 |
| | 16,880,520 |
| | 49.1 |
| |
Average interest-bearing deposits | | 8,223,815 |
| | 5,894,428 |
| | 39.5 |
| | | 7,580,006 |
| | 5,551,857 |
| | 36.5 |
| | | 8,688,792 |
| | 6,795,928 |
| | 27.9 |
| |
Average total deposits | | 29,726,284 |
| | 19,559,888 |
| | 52.0 |
| | | 26,882,113 |
| | 18,989,360 |
| | 41.6 |
| | | 33,857,779 |
| | 23,676,448 |
| | 43.0 |
| |
Earnings Ratios: | | | | | | | | | | | | | | | | | | | | |
Return on average assets (annualized) (4) | | 0.72 | % | | 1.16 | % | | (37.9 | ) | % | | 0.87 | % | | 0.93 | % | | (6.5 | ) | % | |
Return on average SVBFG stockholders’ equity (annualized) (5) | | 9.16 |
| | 14.05 |
| | (34.8 | ) | | | 11.33 |
| | 11.06 |
| | 2.4 |
| | |
Return on average assets (annualized) (1) (5) | | | 0.91 | % | | 1.33 | % | | (31.6 | ) | % |
Return on average SVBFG stockholders’ equity (annualized) (1) (6) | | | 12.38 |
| | 17.57 |
| | (29.5 | ) | |
Asset Quality Ratios: | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses as a percentage of total period-end gross loans | | 1.07 | % | | 1.26 | % | | (19 | ) | bps | | 1.07 | % | | 1.26 | % | | (19 | ) | bps | | 1.15 | % | | 1.13 | % | | 2 |
| bps |
Allowance for loan losses for performing loans as a percentage of total gross performing loans | | 1.05 |
| | 1.13 |
| | (8 | ) | | | 1.05 |
| | 1.13 |
| | (8 | ) | | | 0.99 |
| | 1.07 |
| | (8 | ) | |
Gross loan charge-offs as a percentage of average total gross loans (annualized) | | 0.37 |
| | 0.34 |
| | 3 |
| | | 0.46 |
| | 0.43 |
| | 3 |
| | | 0.16 |
| | 0.79 |
| | (63 | ) | |
Net loan charge-offs as a percentage of average total gross loans (annualized) | | 0.28 |
| | 0.23 |
| | 5 |
| | | 0.39 |
| | 0.31 |
| | 8 |
| | | 0.11 |
| | 0.74 |
| | (63 | ) | |
Capital Ratios: | | | | | | | | | | | | | | | | | | | | |
Total risk-based capital ratio | | 14.97 | % | | 14.16 | % | | 81 |
| bps | | 14.97 | % | | 14.16 | % | | 81 |
| bps | |
CET 1 risk-based capital ratio (7) | | | 12.21 | % | | — | % | | — |
| bps |
Tier 1 risk-based capital ratio(8) | | 14.03 |
| | 12.95 |
| | 108 |
| | | 14.03 |
| | 12.95 |
| | 108 |
| | | 12.42 |
| | 12.35 |
| | 7 |
| |
Tier 1 leverage ratio | | 8.22 |
| | 8.75 |
| | (53 | ) | | | 8.22 |
| | 8.75 |
| | (53 | ) | | |
Tangible common equity to tangible assets (6) | | 7.55 |
| | 8.19 |
| | (64 | ) | | | 7.55 |
| | 8.19 |
| | (64 | ) | | |
Tangible common equity to risk-weighted assets (6) | | 13.97 |
| | 12.96 |
| | 101 |
| | | 13.97 |
| | 12.96 |
| | 101 |
| | |
Bank total risk-based capital ratio | | 13.06 |
| | 12.31 |
| | 75 |
| | | 13.06 |
| | 12.31 |
| | 75 |
| | |
Bank tier 1 risk-based capital ratio | | 12.11 |
| | 11.08 |
| | 103 |
| | | 12.11 |
| | 11.08 |
| | 103 |
| | |
Bank tier 1 leverage ratio | | 7.05 |
| | 7.46 |
| | (41 | ) | | | 7.05 |
| | 7.46 |
| | (41 | ) | | |
Bank tangible common equity to tangible assets (6) | | 6.76 |
| | 7.34 |
| | (58 | ) | | | 6.76 |
| | 7.34 |
| | (58 | ) | | |
Bank tangible common equity to risk-weighted assets (6) | | 12.14 |
| | 11.17 |
| | 97 |
| | | 12.14 |
| | 11.17 |
| | 97 |
| | |
Total risk-based capital ratio (8) | | | 13.38 |
| | 13.41 |
| | (3 | ) | |
Tier 1 leverage ratio (8) | | | 7.71 |
| | 7.99 |
| | (28 | ) | |
Tangible common equity to tangible assets (1) (9) | | | 7.49 |
| | 7.03 |
| | 46 |
| |
Tangible common equity to risk-weighted assets (1) (8) (9) | | | 12.60 |
| | 12.15 |
| | 45 |
| |
Bank CET 1 risk-based capital ratio (7) | | | 12.36 |
| | — |
| | — |
| |
Bank tier 1 risk-based capital ratio (8) | | | 12.36 |
| | 10.39 |
| | 197 |
| |
Bank total risk-based capital ratio (8) | | | 13.35 |
| | 11.47 |
| | 188 |
| |
Bank tier 1 leverage ratio (8) | | | 7.43 |
| | 6.72 |
| | 71 |
| |
Bank tangible common equity to tangible assets (1) (9) | | | 7.60 |
| | 6.19 |
| | 141 |
| |
Bank tangible common equity to risk-weighted assets (1) (8) (9) | | | 12.77 |
| | 10.26 |
| | 251 |
| |
Other Ratios: | | | | | | | | | | | | | | | | | | | | |
Operating efficiency ratio (7) | | 60.43 | % | | 36.89 | % | | 63.8 |
| % | | 51.36 | % | | 47.86 | % | | 7.3 |
| % | |
Non-GAAP operating efficiency ratio (2) | | 59.83 |
| | 55.50 |
| | 7.8 |
| | | 59.05 |
| | 59.89 |
| | (1.4 | ) | | |
Book value per common share (8) | | $ | 53.56 |
| | $ | 42.64 |
| | 25.6 |
| | | $ | 53.56 |
| | $ | 42.64 |
| | 25.6 |
| | |
GAAP operating efficiency ratio (1) (10) | | | 47.73 | % | | 33.64 | % | | 41.9 |
| % |
Non-GAAP operating efficiency ratio (1) (3) | | | 54.61 |
| | 52.17 |
| | 4.7 |
| |
Book value per common share (1) (11) | | | $ | 58.16 |
| | $ | 45.48 |
| | 27.9 |
| |
Other Statistics: | | | | | | | | | | | | | | | | | | | | |
Average full-time equivalent employees | | 1,850 |
| | 1,675 |
| | 10.4 |
| % | | 1,784 |
| | 1,662 |
| | 7.3 |
| % | | 1,955 |
| | 1,735 |
| | 12.7 |
| % |
Period-end full-time equivalent employees | | 1,881 |
| | 1,683 |
| | 11.8 |
| | | 1,881 |
| | 1,683 |
| | 11.8 |
| | | 1,965 |
| | 1,737 |
| | 13.1 |
| |
NM - Not meaningful
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
| |
(2) | See “Results of Operations–Noninterest Income” for a description and reconciliation of non-GAAP core fee income and noninterest income. |
| |
(2)(3) | See “Results of Operations–Noninterest Expense” for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio. |
| |
(3)(4) | Three and nine months endedSeptember 30,Effective June 1, 2014, average balances are reflective we re-designated securities with a carrying value of the re-designation$5.4 billion from available-for-sale to held-to-maturity effective June 1, 2014.
|
| |
(4) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average assets.held-to-maturity. |
| |
(5) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-dateaverage assets. |
| |
(6) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders’ equity. |
| |
(6)(7) | As of March 31, 2015, Common Equity Tier 1 ("CET 1") is a new ratio requirement under the Basel III Capital Rules and represents, common stock, plus related surplus and retained earnings, plus limited amounts of minority interest in the form of common stock, less certain regulatory deductions, divided by total risk-weighted assets. |
| |
(8) | Ratios as of March 31, 2015 reflect the adoption of the Basel III Capital Rules in effect beginning January 1, 2015. Ratios for prior periods represent the previous capital rules under Basel I. |
| |
(9) | See “Capital Resources–Capital Ratios” for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. |
| |
(7)(10) | The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income. |
| |
(8)(11) | Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares at period-end. |
For more information with respect to our capital ratios, please refer to “Capital Ratios” under “Consolidated Financial Condition-Capital Ratios” below.
Critical Accounting Policies and Estimates
The accompanying management’s 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.
Our accounting policy relating to income taxes was impacted by the adoption of ASU-2014-01 (Investments - Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects). Upon the adoption of ASU 2014-01, we elected to use the proportional amortization method to account for our investments in affordable housing projects and have applied this election retrospectively. As a result, all prior period deferred tax assets related to our investments in qualified affordable housing projects were written off as the tax credit fund amortization expense for those investments is no longer classified as a temporary difference and is included in the estimate for the provision for income taxes. The impact of this change resulted in a higher effective tax rate.
There have been no other significant changes during the ninethree months ended September 30, 2014March 31, 2015 to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of our 20132014 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, fixed income investment portfolio (available-for-sale and held-to-maturity securities), 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 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 composition 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 periods 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.
| | | | 2014 Compared to 2013 | | 2014 Compared to 2013 | | 2015 Compared to 2014 |
| | Three months ended September 30, increase (decrease) due to change in | | Nine months ended September 30, increase (decrease) due to change in | | Three months ended March 31, increase (decrease) due to change in |
(Dollars in thousands) | | Volume | | Rate | | Total | | Volume | | Rate | | Total | | Volume | | Rate | | Total |
Interest income: | | | | | | | | | | | | | | | | | | |
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell, trade receivables purchased and other short-term investment securities | | $ | 626 |
| | $ | (56 | ) | | $ | 570 |
| | $ | 3,342 |
| | $ | (646 | ) | | $ | 2,696 |
| | $ | (688 | ) | | $ | 337 |
| | $ | (351 | ) |
Fixed income investment portfolio (taxable) | | 33,195 |
| | (3,259 | ) | | 29,936 |
| | 60,699 |
| | (3,328 | ) | | 57,371 |
| | 27,947 |
| | (1,093 | ) | | 26,854 |
|
Fixed income investment portfolio (non-taxable) | | 35 |
| | (73 | ) | | (38 | ) | | 9 |
| | (72 | ) | | (63 | ) | | 27 |
| | (64 | ) | | (37 | ) |
Loans, net of unearned income | | 25,966 |
| | (12,361 | ) | | 13,605 |
| | 82,964 |
| | (29,036 | ) | | 53,928 |
| | 40,707 |
| | (23,421 | ) | | 17,286 |
|
Increase (decrease) in interest income, net | | 59,822 |
| | (15,749 | ) | | 44,073 |
| | 147,014 |
| | (33,082 | ) | | 113,932 |
| | 67,993 |
| | (24,241 | ) | | 43,752 |
|
Interest expense: | | | | | | | | | | | | | | | | | | |
NOW deposits | | 28 |
| | 132 |
| | 160 |
| | 59 |
| | 153 |
| | 212 |
| | 54 |
| | (66 | ) | | (12 | ) |
Money market deposits | | 1,061 |
| | (595 | ) | | 466 |
| | 3,241 |
| | (849 | ) | | 2,392 |
| | 827 |
| | (1,707 | ) | | (880 | ) |
Money market deposits in foreign offices | | 8 |
| | (30 | ) | | (22 | ) | | 38 |
| | (36 | ) | | 2 |
| | 4 |
| | (30 | ) | | (26 | ) |
Time deposits | | (32 | ) | | (29 | ) | | (61 | ) | | (33 | ) | | (178 | ) | | (211 | ) | | (41 | ) | | 1 |
| | (40 | ) |
Sweep deposits in foreign offices | | 44 |
| | (23 | ) | | 21 |
| | 40 |
| | (35 | ) | | 5 |
| | 52 |
| | (55 | ) | | (3 | ) |
Total increase (decrease) in deposits expense | | 1,109 |
| | (545 | ) | | 564 |
| | 3,345 |
| | (945 | ) | | 2,400 |
| | 896 |
| | (1,857 | ) | | (961 | ) |
Short-term borrowings | | (3 | ) | | — |
| | (3 | ) | | (74 | ) | | — |
| | (74 | ) | | — |
| | 12 |
| | 12 |
|
3.50% Senior Notes | | | 2,126 |
| | — |
| | 2,126 |
|
5.375% Senior Notes | | — |
| | 43 |
| | 43 |
| | 8 |
| | 49 |
| | 57 |
| | — |
| | 7 |
| | 7 |
|
Junior Subordinated Debentures | | — |
| | 1 |
| | 1 |
| | (8 | ) | | 32 |
| | 24 |
| | (3 | ) | | 4 |
| | 1 |
|
6.05% Subordinated Notes | | (4 | ) | | 16 |
| | 12 |
| | (14 | ) | | 49 |
| | 35 |
| | (5 | ) | | 23 |
| | 18 |
|
Total increase (decrease) in borrowings expense | | (7 | ) | | 60 |
| | 53 |
| | (88 | ) | | 130 |
| | 42 |
| |
Total increase in borrowings expense | | | 2,118 |
| | 46 |
| | 2,164 |
|
Increase (decrease) in interest expense, net | | 1,102 |
| | (485 | ) | | 617 |
| | 3,257 |
| | (815 | ) | | 2,442 |
| | 3,014 |
| | (1,811 | ) | | 1,203 |
|
Increase (decrease) in net interest income | | $ | 58,720 |
| | $ | (15,264 | ) | | $ | 43,456 |
| | $ | 143,757 |
| | $ | (32,267 | ) | | $ | 111,490 |
| | $ | 64,979 |
| | $ | (22,430 | ) | | $ | 42,549 |
|
Net Interest Income (Fully Taxable Equivalent Basis)
Three months ended September 30, 2014March 31, 2015 and 20132014
Net interest income increased by $43.5$42.5 million to $221.0$239.3 million for the three months ended September 30, 2014,March 31, 2015, compared to $177.5$196.8 million for the comparable 20132014 period. Overall, we saw an increase in our net interest income primarily from increased interest earned on our fixed income investments reflective of higher average fixed income investment balances due to higherour strong deposit growth, as well as from an increase in average loan and investment securities balances. These increases were partially offset by lowera shift in the mix of our overall loan portfolio into higher credit quality, lower yielding loans. Our loan yields were also impacted by the overall low market rate environment and investment yields.continued competition in the marketplace.
The main factors affecting interest income and interest expense for the three months ended September 30, 2014,March 31, 2015, compared to the comparable 20132014 period are discussed below:
Interest income for the three months ended September 30, 2014March 31, 2015 increased by $44.1$43.8 million primarily due to:
| |
◦ | A $29.9$26.9 million increase in interest income on investment securities to $74.782.5 million for the three months ended September 30, 2014March 31, 2015, compared to $44.855.6 million for the comparable 20132014 period. The increase was reflective of an increase in average investment securities balances of $8.1$8.9 billion as a result of deposit growth, offset by a decrease in the overall yield on our investment securities portfolio, which decreased 13 basis points to 1.63 percent. Lower reinvestment yields, resulting from a lower overall market rate environment and an increase in purchasesas well as through reinvestments of U.S. Treasury securities during the three months endedSeptember 30, 2014, contributed to a decrease in yields of 28 basis points. This decrease was offset by a 15 basis point benefitmaturing fixed income investments. Interest income benefited from lower premium amortization expense.expense due to lower prepayments. As of September 30, 2014March 31, 2015, the remaining unamortized net premium balance on our investment securities portfolio was $12.0$16.4 million (net of discounts of $94.6$85.9 million), compared to $87.8$38.8 million (net of discounts of $20.6$63.0 million) as of the comparable 20132014 period. |
| |
◦ | A $13.617.3 million increase in interest income on loans to $153.3165.5 million for the three months ended September 30, 2014March 31, 2015, compared to $139.7148.2 million for the comparable 20132014 period. This increase was reflective of an increase in average loan balances of $1.93.3 billion, partially offset by a decrease in both gross loan and loan fee yields. Gross loan yields, excluding loan interest recoveries and loan fees, decreased to 4.394.09 percent from 4.784.58 percent, reflective of a continued change in the mix of our overall loan portfolio. Consistent with recent quarters, our |
reflective of a continued change in the mix of our overall loan portfolio. Consistent with recent quarters, our average loan growth during the thirdfirst quarter of 20142015 was primarily driven by private equity/venture capital/private equitycapital loans which, on average, tend to have lower yields. The overall low market rate environment and increased price competition also continued to put pressure on loan yields. Loan fee yields decreased 626 basis points to 9066 basis points, from 9692 basis points in the comparable 20132014 period, as a result of the decrease in prepayment fees, as well as, regular amortizing fee income, as a percentagereflective of total interest income.the continued growth of our private equity/venture capital call lines which tend to have lower fees.
Interest expense for the three months ended September 30, 2014March 31, 2015 increased to $8.89.9 million, compared to $8.18.7 million for the comparable 20132014 period. The increase in interest expense was primarily from interest-bearing money market deposits of $0.5 million, mainly attributable to growth of $1.9 billion in our average money market deposits.
Nine months endedSeptember 30, 2014 and 2013
Net interest income increased by $111.5 million to $623.1 million for the nine months ended September 30, 2014, compared to $511.6 million for the comparable 2013 period. Overall, the increase in long-term debt interest expense of $2.1 million reflective of the $350.0 million issuance of our net3.50% Senior Notes in late January 2015, partially offset by a decrease of $1.0 million in interest income was primarily due to higher average loan balances and growth inpaid on our investment securities portfolio, which has increasedinterest-bearing deposits as a result of the continued growth in deposits. These increases were partially offset by lower overall loan and investments yields.
The main factors affecting interest income and interest expense for the nine months ended September 30, 2014, compared to the comparable 2013 period are discussed below:
Interest income for the nine months ended September 30, 2014 increased by $113.9 million primarily due to:
| |
◦ | A $57.3 million increase in interest income on investment securities with the majority of the increase due to a $4.8 billion increase in average balances due to strong deposit growth. Interest income was offset by a decrease in the overall yield on our investment securities portfolio, which decreased 5 basis points to 1.71 percent. Lower reinvestment yields, resulting from a lower overall market rate environment and an increase in purchases of U.S. Treasury securities during the nine months endedSeptember 30, 2014, contributed to a decrease in yields of 15 basis points. This decrease was offset by a 10 basis point benefit from lower premium amortization expense.
|
| |
◦ | A $53.9 million increase in interest income on loans, primarily due to an increase in average loan balances of $2.0 billion. Gross loan yields, excluding loan interest recoveries and loan fees, decreased, reflective of a continued change in the mix of our overall loan portfolio. As mentioned above, our loan growth through the third quarter of 2014 primarily came from our venture capital/private equity loan portfolio which, on average, tend to have lower yielding loans. In addition, driven primarily by early loan repayments, non-recurring loan fee income increased $9.2 million to $30.0 million for the nine months ended September 30, 2014 compared to $20.8 million for the comparable 2013 period. The overall low market rate environment and increased price competition also continued to put pressure on loan yields.
|
Interest expense for the nine months endedSeptember 30, 2014 increased to $26.3 million, compared to $23.9 million for the comparable 2013 period. The increase in interest expense was primarily from interest-bearing money market deposits of $2.4 million, mainly attributable to growth of $1.9 billion in our average money market deposit balances.rate adjustments.
Net Interest Margin (Fully Taxable Equivalent Basis)
Our net interest margin decreased by 5949 basis points to 2.732.64 percent for the three months ended September 30, 2014,March 31, 2015, compared to 3.323.13 percent for the comparable 2013 period.
Our net interest margin decreased by 45 basis points to 2.87 percent for the nine months ended September 30, 2014 compared to 3.32 percent for the comparable 2013 period.
The decrease in our net interest margin for both the three and nine months ended September 30, 2014,March 31, 2015, was primarily reflective of the shift in the composition of our interest-earning assets as a result of the significant growth in deposits (higher average cash and investment securities balances and lower average loan balances as a percentage of total earning assets) and, as noted above, lower overall loan and investment yields, partially offset by lower premium amortization expense on investment securities.yields. Our loan portfolio (higher-yielding assets) comprised 36 percent, and 38 percent of our average interest-earning assets during the three and nine months ended September 30, 2014,March 31, 2015, respectively, compared to 4542 percent and 44 percent, respectively, for the comparable 2013 periods.2014 period.
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 nine months ended September 30, 2014March 31, 2015 and 20132014:
Average Balances, Rates and Yields for the Three Months Ended September 30, 2014March 31, 2015 and 20132014
| | | | Three months ended September 30, | | Three months ended March 31, |
| | 2014 | | 2013 | | 2015 | | 2014 |
(Dollars in thousands) | | Average Balance | | Interest Income/ Expense | | Yield/ Rate | | Average Balance | | Interest Income/ Expense | | Yield/ Rate | | 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) | | $ | 2,472,205 |
| | $ | 1,722 |
| | 0.28 | % | | $ | 1,596,003 |
| | $ | 1,152 |
| | 0.29 | % | | $ | 1,570,586 |
| | $ | 1,285 |
| | 0.33 | % | | $ | 2,482,190 |
| | $ | 1,636 |
| | 0.27 | % |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale securities: (2) | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 12,446,821 |
| | 43,519 |
| | 1.39 |
| | 10,000,154 |
| | 43,604 |
| | 1.73 |
| | 13,571,213 |
| | 44,009 |
| | 1.32 |
| | 12,167,143 |
| | 54,420 |
| | 1.81 |
|
Non-taxable (3) | | — |
| | — |
| | — |
| | 82,048 |
| | 1,226 |
| | 5.93 |
| | — |
| | — |
| | — |
| | 81,782 |
| | 1,225 |
| | 6.07 |
|
Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 5,691,201 |
| | 30,021 |
| | 2.09 |
| | — |
| | — |
| | — |
| | 7,486,164 |
| | 37,265 |
| | 2.02 |
| | — |
| | — |
| | — |
|
Non-taxable (3) | | 84,401 |
| | 1,188 |
| | 5.58 |
| | — |
| | — |
| | — |
| | 83,591 |
| | 1,188 |
| | 5.76 |
| | — |
| | — |
| | — |
|
Total loans, net of unearned income (4) (5) | | 11,439,521 |
| | 153,292 |
| | 5.32 |
| | 9,545,941 |
| | 139,687 |
| | 5.81 |
| | 14,046,369 |
| | 165,458 |
| | 4.78 |
| | 10,767,684 |
| | 148,172 |
| | 5.58 |
|
Total interest-earning assets | | 32,134,149 |
| | 229,742 |
| | 2.84 |
| | 21,224,146 |
| | 185,669 |
| | 3.47 |
| | 36,757,923 |
| | 249,205 |
| | 2.75 |
| | 25,498,799 |
| | 205,453 |
| | 3.27 |
|
Cash and due from banks | | 299,964 |
| | | | | | 253,364 |
| | | | | | 244,512 |
| | | | | | 264,478 |
| | | | |
Allowance for loan losses | | (128,598 | ) | | | | | | (124,254 | ) | | | | | | (171,222 | ) | | | | | | (141,073 | ) | | | | |
Other assets (6) | | 2,292,770 |
| | | | | | 1,719,478 |
| | | | | | 2,469,376 |
| | | | | | 2,145,429 |
| | | | |
Total assets | | $ | 34,598,285 |
| | | | | | $ | 23,072,734 |
| | | | | | $ | 39,300,589 |
| | | | | | $ | 27,767,633 |
| | | | |
Funding sources: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
NOW deposits | | $ | 161,793 |
| | $ | 279 |
| | 0.68 | % | | $ | 134,545 |
| | $ | 119 |
| | 0.35 | % | | $ | 228,532 |
| | $ | 124 |
| | 0.22 | % | | $ | 150,737 |
| | $ | 136 |
| | 0.37 | % |
Money market deposits | | 5,649,971 |
| | 2,332 |
| | 0.16 |
| | 3,755,620 |
| | 1,866 |
| | 0.20 |
| | 5,956,920 |
| | 1,532 |
| | 0.10 |
| | 4,582,863 |
| | 2,412 |
| | 0.21 |
|
Money market deposits in foreign offices | | 228,142 |
| | 26 |
| | 0.05 |
| | 194,870 |
| | 48 |
| | 0.10 |
| | 207,502 |
| | 20 |
| | 0.04 |
| | 191,715 |
| | 46 |
| | 0.10 |
|
Time deposits | | 162,182 |
| | 96 |
| | 0.23 |
| | 165,632 |
| | 157 |
| | 0.38 |
| | 111,017 |
| | 60 |
| | 0.22 |
| | 168,050 |
| | 100 |
| | 0.24 |
|
Sweep deposits in foreign offices | | 2,021,727 |
| | 228 |
| | 0.04 |
| | 1,643,761 |
| | 207 |
| | 0.05 |
| | 2,184,821 |
| | 207 |
| | 0.04 |
| | 1,702,563 |
| | 210 |
| | 0.05 |
|
Total interest-bearing deposits | | 8,223,815 |
| | 2,961 |
| | 0.14 |
| | 5,894,428 |
| | 2,397 |
| | 0.16 |
| | 8,688,792 |
| | 1,943 |
| | 0.09 |
| | 6,795,928 |
| | 2,904 |
| | 0.17 |
|
Short-term borrowings | | 5,538 |
| | — |
| | — |
| | 6,316 |
| | 3 |
| | 0.19 |
| | 43,618 |
| | 12 |
| | 0.11 |
| | 4,984 |
| | — |
| | — |
|
3.50% Senior Notes | | | 240,909 |
| | 2,126 |
| | 3.58 |
| | - |
| | — |
| | — |
|
5.375% Senior Notes | | 348,341 |
| | 4,832 |
| | 5.50 |
| | 348,119 |
| | 4,789 |
| | 5.46 |
| | 348,456 |
| | 4,835 |
| | 5.63 |
| | 348,229 |
| | 4,828 |
| | 5.62 |
|
Junior Subordinated Debentures | | 54,918 |
| | 834 |
| | 6.02 |
| | 55,094 |
| | 833 |
| | 6.00 |
| | 54,830 |
| | 840 |
| | 6.21 |
| | 55,005 |
| | 839 |
| | 6.19 |
|
6.05% Subordinated Notes | | 50,937 |
| | 134 |
| | 1.04 |
| | 52,551 |
| | 122 |
| | 0.92 |
| | 50,133 |
| | 143 |
| | 1.16 |
| | 51,968 |
| | 125 |
| | 0.98 |
|
Total interest-bearing liabilities | | 8,683,549 |
| | 8,761 |
| | 0.40 |
| | 6,356,508 |
| | 8,144 |
| | 0.51 |
| | 9,426,738 |
| | 9,899 |
| | 0.43 |
| | 7,256,114 |
| | 8,696 |
| | 0.49 |
|
Portion of noninterest-bearing funding sources | | 23,450,600 |
| | | | | | 14,867,638 |
| | | | | | 27,331,185 |
| | | | | | 18,242,685 |
| | | | |
Total funding sources | | 32,134,149 |
| | 8,761 |
| | 0.11 |
| | 21,224,146 |
| | 8,144 |
| | 0.15 |
| | 36,757,923 |
| | 9,899 |
| | 0.11 |
| | 25,498,799 |
| | 8,696 |
| | 0.14 |
|
Noninterest-bearing funding sources: | | | | | | | | | | | | | | | | | | | | | | | | |
Demand deposits | | 21,502,469 |
| | | | | | 13,665,460 |
| | | | | | 25,168,987 |
| | | | | | 16,880,520 |
| | | | |
Other liabilities | | 402,231 |
| | | | | | 298,455 |
| | | | | | 570,954 |
| | | | | | 396,203 |
| | | | |
SVBFG stockholders’ equity | | 2,729,862 |
| | | | | | 1,909,462 |
| | | | | | 2,900,546 |
| | | | | | 2,099,819 |
| | | | |
Noncontrolling interests | | 1,280,174 |
| | | | | | 842,849 |
| | | | | | 1,233,364 |
| | | | | | 1,134,977 |
| | | | |
Portion used to fund interest-earning assets | | (23,450,600 | ) | | | | | | (14,867,638 | ) | | | | | | (27,331,185 | ) | | | | | | (18,242,685 | ) | | | | |
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity | | $ | 34,598,285 |
| | | | | | $ | 23,072,734 |
| | | | | | $ | 39,300,589 |
| | | | | | $ | 27,767,633 |
| | | | |
Net interest income and margin | | | | $ | 220,981 |
| | 2.73 | % | | | | $ | 177,525 |
| | 3.32 | % | | | | $ | 239,306 |
| | 2.64 | % | | | | $ | 196,757 |
| | 3.13 | % |
Total deposits | | $ | 29,726,284 |
| | | | | | $ | 19,559,888 |
| | | | | | $ | 33,857,779 |
| | | | | | $ | 23,676,448 |
| | | | |
Reconciliation to reported net interest income: | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments for taxable equivalent basis | | | | (416 | ) | | | | | | (429 | ) | | | | | | (416 | ) | | | | | | (429 | ) | | |
Net interest income, as reported | | | | $ | 220,565 |
| | | | | | $ | 177,096 |
| | | | | | $ | 238,890 |
| | | | | | $ | 196,328 |
| | |
| |
(1) | Includes average interest-earning deposits in other financial institutions of $408509 million and $191317 million for the three months ended September 30, 2014March 31, 2015 and 20132014, respectively. For the three months ended September 30, 2014March 31, 2015 and 20132014, balances also include $2.00.9 billion and $1.32.0 billion, respectively, deposited at the Federal Reserve Bank, 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 investment securities are 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) | Interest income includes loan fees of $26.023.0 million and $23.024.3 million for the three months ended September 30, 2014March 31, 2015 and 20132014, respectively. |
| |
(6) | Average investment securities of $1.8 billion and $1.31.6 billion for the three months ended September 30, 2014March 31, 2015 and 20132014, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other securities. |
Average Balances, Rates and Yields for the Nine Months Ended September 30, 2014 and 2013
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| | 2014 | | 2013 |
(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) | | $ | 2,721,501 |
| | $ | 5,301 |
| | 0.26 | % | | $ | 1,040,073 |
| | $ | 2,605 |
| | 0.33 | % |
Investment securities: | | | | | | | | | | | | |
Available-for-sale securities: (2) | | | | | | | | | | | | |
Taxable | | 12,653,194 |
| | 151,854 |
| | 1.60 |
| | 10,379,311 |
| | 134,013 |
| | 1.73 |
|
Non-taxable (3) | | 45,201 |
| | 2,040 |
| | 6.03 |
| | 82,927 |
| | 3,697 |
| | 5.96 |
|
Held-to-maturity securities: | | | | | | | | | | | | |
Taxable | | 2,506,315 |
| | 39,530 |
| | 2.11 |
| | — |
| | — |
| | — |
|
Non-taxable (3) | | 37,941 |
| | 1,594 |
| | 5.62 |
| | — |
| | — |
| | — |
|
Total loans, net of unearned income (4) (5) | | 11,098,397 |
| | 449,144 |
| | 5.41 |
| | 9,086,179 |
| | 395,216 |
| | 5.82 |
|
Total interest-earning assets | | 29,062,549 |
| | 649,463 |
| | 2.99 |
| | 20,588,490 |
| | 535,531 |
| | 3.48 |
|
Cash and due from banks | | 208,502 |
| | | | | | 277,382 |
| | | | |
Allowance for loan losses | | (132,667 | ) | | | | | | (119,491 | ) | | | | |
Other assets (6) | | 2,266,869 |
| | | | | | 1,749,711 |
| | | | |
Total assets | | $ | 31,405,253 |
| | | | | | $ | 22,496,092 |
| | | | |
Funding sources: | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | |
NOW deposits | | $ | 157,322 |
| | $ | 570 |
| | 0.48 | % | | $ | 136,899 |
| | $ | 358 |
| | 0.35 | % |
Money market deposits | | 5,194,449 |
| | 7,305 |
| | 0.19 |
| | 3,342,363 |
| | 4,913 |
| | 0.20 |
|
Money market deposits in foreign offices | | 207,359 |
| | 110 |
| | 0.07 |
| | 148,161 |
| | 108 |
| | 0.10 |
|
Time deposits | | 160,300 |
| | 288 |
| | 0.24 |
| | 172,439 |
| | 499 |
| | 0.39 |
|
Sweep deposits in foreign offices | | 1,860,576 |
| | 660 |
| | 0.05 |
| | 1,751,995 |
| | 655 |
| | 0.05 |
|
Total interest-bearing deposits | | 7,580,006 |
| | 8,933 |
| | 0.16 |
| | 5,551,857 |
| | 6,533 |
| | 0.16 |
|
Short-term borrowings | | 5,027 |
| | — |
| | — |
| | 34,840 |
| | 74 |
| | 0.28 |
|
5.375% Senior Notes | | 348,285 |
| | 14,490 |
| | 5.56 |
| | 348,067 |
| | 14,433 |
| | 5.54 |
|
Junior Subordinated Debentures | | 54,962 |
| | 2,521 |
| | 6.13 |
| | 55,137 |
| | 2,497 |
| | 6.05 |
|
6.05% Subordinated Notes | | 51,454 |
| | 389 |
| | 1.01 |
| | 53,527 |
| | 354 |
| | 0.88 |
|
Total interest-bearing liabilities | | 8,039,734 |
| | 26,333 |
| | 0.44 |
| | 6,043,428 |
| | 23,891 |
| | 0.53 |
|
Portion of noninterest-bearing funding sources | | 21,022,815 |
| | | | | | 14,545,062 |
| | | | |
Total funding sources | | 29,062,549 |
| | 26,333 |
| | 0.12 |
| | 20,588,490 |
| | 23,891 |
| | 0.16 |
|
Noninterest-bearing funding sources: | | | | | | | | | | | | |
Demand deposits | | 19,302,107 |
| | | | | | 13,437,503 |
| | | | |
Other liabilities | | 399,349 |
| | | | | | 316,024 |
| | | | |
SVBFG stockholders’ equity | | 2,420,695 |
| | | | | | 1,899,783 |
| | | | |
Noncontrolling interests | | 1,243,368 |
| | | | | | 799,354 |
| | | | |
Portion used to fund interest-earning assets | | (21,022,815 | ) | | | | | | (14,545,062 | ) | | | | |
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity | | $ | 31,405,253 |
| | | | | | $ | 22,496,092 |
| | | | |
Net interest income and margin | | | | $ | 623,130 |
| | 2.87 | % | | | | $ | 511,640 |
| | 3.32 | % |
Total deposits | | $ | 26,882,113 |
| | | | | | $ | 18,989,360 |
| | | | |
Reconciliation to reported net interest income: | | | | | | | | | | | | |
Adjustments for taxable equivalent basis | | | | (1,272 | ) | | | | | | (1,294 | ) | | |
Net interest income, as reported | | | | $ | 621,858 |
| | | | | | $ | 510,346 |
| | |
| |
(1) | Includes average interest-earning deposits in other financial institutions of $356 million and $175 million for the nine months ended September 30, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and 2013, balances also include $2.2 billion and $0.7 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 investment securities are 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) | Interest income includes loan fees of $71.6 million and $60.0 million for the nine months ended September 30, 2014 and 2013, respectively.
|
| |
(6) | Average investment securities of $1.8 billion and $1.3 billion for the nine months ended September 30, 2014 and 2013, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other securities.
|
Provision for Loan Losses
Our provision for 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 nine months ended September 30, 2014March 31, 2015 and 2013:2014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 |
Allowance for loan losses, beginning balance | | $ | 120,728 |
| | $ | 119,571 |
| | $ | 142,886 |
| | $ | 110,651 |
| | $ | 165,359 |
| | $ | 142,886 |
|
Provision for loan losses | | 16,610 |
| | 10,638 |
| | 19,051 |
| | 35,023 |
| | 6,452 |
| | 494 |
|
Gross loan charge-offs | | (10,657 | ) | | (8,149 | ) | | (38,189 | ) | | (29,150 | ) | | (5,487 | ) | | (21,150 | ) |
Loan recoveries | | 2,380 |
| | 2,674 |
| | 5,313 |
| | 8,210 |
| | 1,551 |
| | 1,312 |
|
Allowance for loan losses, ending balance | | $ | 129,061 |
| | $ | 124,734 |
| | $ | 129,061 |
| | $ | 124,734 |
| | $ | 167,875 |
| | $ | 123,542 |
|
Provision for loan losses as a percentage of period-end total gross loans (annualized) | | 0.54 | % | | 0.43 | % | | 0.21 | % | | 0.47 | % | | 0.18 | % | | 0.02 | % |
Gross loan charge-offs as a percentage of average total gross loans (annualized) | | 0.37 |
| | 0.34 |
| | 0.46 |
| | 0.43 |
| | 0.16 |
| | 0.79 |
|
Net loan charge-offs as a percentage of average total gross loans (annualized) | | 0.28 |
| | 0.23 |
| | 0.39 |
| | 0.31 |
| | 0.11 |
| | 0.74 |
|
Allowance for loan losses as a percentage of period-end total gross loans | | 1.07 |
| | 1.26 |
| | 1.07 |
| | 1.26 |
| | 1.15 |
| | 1.13 |
|
Period-end total gross loans | | $ | 12,112,474 |
| | $ | 9,914,199 |
| | $ | 12,112,474 |
| | $ | 9,914,199 |
| | $ | 14,546,745 |
| | $ | 10,920,482 |
|
Average total gross loans | | 11,528,172 |
| | 9,627,912 |
| | 11,184,840 |
| | 9,164,538 |
| | 14,148,842 |
| | 10,852,905 |
|
Three months ended September 30, 2014March 31, 2015 and 20132014
Our provision for loan losses was $16.6$6.5 million for the three months ended September 30, 2014,March 31, 2015, compared to a provision of $10.6$0.5 million for the comparable 20132014 period. The provision of $16.66.5 million for the thirdfirst quarter of 20142015 was primarily driven by $8.3an increase of $8.7 million in net charge-offs, $7.0 million from period-end loan growth and $3.7 million due to a change in the composition of our performing loan portfolio, offset by a $2.4 million decrease in the reserve for impaired loans, resulting from lowerprimarily reflective of an increase in the reserve for a previously impaired loan, balances.as well as an increase in the reserve of $3.9 million for net charge-offs. These increases were offset by a decrease of $6.8 million in the reserve due to the improvement in the credit quality of our performing loans. The provision of $10.60.5 million for the three months ended September 30, 2013March 31, 2014 was primarily driven by $5.5$19.8 million in net charge-offs, an increase of $3.1 million in the reserve for impaired loans and $2.3 million related to new loans during the quarter.
Gross loan charge-offs of $10.7 million for the third quarter of 2014primarily came from our early-stage software and hardware loan portfolios. Net loan charge-offs of $8.3 million represented 0.28 percent of average total gross loans, compared to net charge offs of $5.5 million, or 0.23 percent of average total gross loans for the comparable 2013 period.
Nine months endedSeptember 30, 2014 and 2013
We had a provision for loan losses of $19.1 million for the nine months endedSeptember 30, 2014, compared to a provision of $35.0 million for the comparable 2013 period. The provision of $19.1 million for the nine months ended September 30, 2014 was primarily due to $32.9 million of net charge-offs and $12.2 million from period-end loan growth,partially offset by a $19.0$14.5 million decrease in the reserve for impaired loans resulting from a decrease in impaired loan balances from repayments, and a reserve releasedecrease of $7.1$4.8 million related to lower reserves due to improvement in the improvement of theoverall credit quality of our overall loan portfolio. The provision of $35.0 million for the nine months ended September 30, 2013 was primarily driven by net charge-offs of $20.9 million and period-end loan growth.gross performing loans.
Gross loan charge-offs of $38.2$5.5 million for the nine months ended September 30, 2014 were first quarter of 2015primarily came from two early-stage client loans within our hardware and software client portfolios. Loan recoveriesloan portfolio. Net loan charge-offs of $5.3$3.9 million represented 0.11 percent of average total gross loans, compared to net charge offs of $19.8 million, or 0.74 percent of average total gross loans for the nine months ended September 30,comparable 2014 were primarily from our hardware client portfolio.period.
See “Consolidated Financial Condition—Credit Quality and Allowance for Loan Losses” below and Note 6—“Loans and Allowance for Loan Losses” of the “Notes to Interim Consolidated Financial Statements (unaudited)”Statements” 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 nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
Non-GAAP core fee income: | | | | | | | | | | | | |
Foreign exchange fees | | $ | 17,911 |
| | $ | 13,667 |
| | 31.1 | % | | $ | 53,035 |
| | $ | 41,529 |
| | 27.7 | % |
Credit card fees | | 10,909 |
| | 8,188 |
| | 33.2 |
| | 31,440 |
| | 23,245 |
| | 35.3 |
|
Deposit service charges | | 10,126 |
| | 8,902 |
| | 13.7 |
| | 29,344 |
| | 26,602 |
| | 10.3 |
|
Lending related fees (1) | | 6,029 |
| | 5,265 |
| | 14.5 |
| | 18,208 |
| | 13,835 |
| | 31.6 |
|
Letters of credit and standby letters of credit fees | | 4,557 |
| | 3,790 |
| | 20.2 |
| | 11,507 |
| | 10,879 |
| | 5.8 |
|
Client investment fees | | 3,814 |
| | 3,393 |
| | 12.4 |
| | 10,751 |
| | 10,392 |
| | 3.5 |
|
Total non-GAAP core fee income (2) | | 53,346 |
| | 43,205 |
| | 23.5 |
| | 154,285 |
| | 126,482 |
| | 22.0 |
|
Gains on investment securities, net | | 5,644 |
| | 187,862 |
| | (97.0 | ) | | 172,236 |
| | 255,861 |
| | (32.7 | ) |
Gains on derivative instruments, net | | 26,538 |
| | 9,422 |
| | 181.7 |
| | 63,480 |
| | 27,802 |
| | 128.3 |
|
Other | | (5,361 | ) | | 17,161 |
| | (131.2 | ) | | 14,601 |
| | 24,348 |
| | (40.0 | ) |
Total noninterest income | | $ | 80,167 |
| | $ | 257,650 |
| | (68.9 | ) | | $ | 404,602 |
| | $ | 434,493 |
| | (6.9 | ) |
| |
(1) | Lending related fees consists of fee income associated with credit commitments such as unused commitment fees, syndication fees and other loan processing fees and, historically, has been included in other noninterest income. Prior period amounts have been reclassified to conform to the current period presentation. |
| |
(2) | The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income: |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
GAAP noninterest income (as reported) | | $ | 80,167 |
| | $ | 257,650 |
| | (68.9 | )% | | $ | 404,602 |
| | $ | 434,493 |
| | (6.9 | )% |
Less: gains on investment securities, net | | 5,644 |
| | 187,862 |
| | (97.0 | ) | | 172,236 |
| | 255,861 |
| | (32.7 | ) |
Less: gains on derivative instruments, net | | 26,538 |
| | 9,422 |
| | 181.7 |
| | 63,480 |
| | 27,802 |
| | 128.3 |
|
Less: other noninterest income | | (5,361 | ) | | 17,161 |
| | (131.2 | ) | | 14,601 |
| | 24,348 |
| | (40.0 | ) |
Non-GAAP core fee income (1) | | $ | 53,346 |
| | $ | 43,205 |
| | 23.5 |
| | $ | 154,285 |
| | $ | 126,482 |
| | 22.0 |
|
|
| | | | | | | | | | | |
| | Three months ended March 31, |
(Dollars in thousands) | | 2015 | | 2014 | | % Change |
Non-GAAP core fee income (1): | | | | | | |
Foreign exchange fees | | $ | 17,678 |
| | $ | 17,196 |
| | 2.8 | % |
Credit card fees | | 12,090 |
| | 10,282 |
| | 17.6 |
|
Deposit service charges | | 10,736 |
| | 9,607 |
| | 11.8 |
|
Lending related fees | | 8,022 |
| | 6,303 |
| | 27.3 |
|
Letters of credit and standby letters of credit fees | | 5,202 |
| | 4,140 |
| | 25.7 |
|
Client investment fees | | 4,482 |
| | 3,418 |
| | 31.1 |
|
Total non-GAAP core fee income | | 58,210 |
| | 50,946 |
| | 14.3 |
|
Gains on investment securities, net | | 83,159 |
| | 223,912 |
| | (62.9 | ) |
Gains on derivative instruments, net | | 39,729 |
| | 24,167 |
| | 64.4 |
|
Other | | (9,080 | ) | | 11,200 |
| | (181.1 | ) |
GAAP noninterest income | | $ | 172,018 |
| | $ | 310,225 |
| | (44.6 | ) |
| |
(1) | This non-GAAP measure represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. |
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. Where applicable, the non-GAAP tables presented below for noninterest income and net gains on investment securities 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.
The following table provides a summary of non-GAAP noninterest income, net of noncontrolling interests for the three and nine months ended September 30, 2014March 31, 2015 and 2013:2014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
Non-GAAP noninterest income, net of noncontrolling interests (Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
GAAP noninterest income (as reported) | | $ | 80,167 |
|
| $ | 257,650 |
| | (68.9 | )% | | $ | 404,602 |
|
| $ | 434,493 |
| | (6.9 | )% | | $ | 172,018 |
|
| $ | 310,225 |
| | (44.6 | )% |
Less: income attributable to noncontrolling interests, including carried interest | | 4,911 |
| | 151,830 |
| | (96.8 | ) | | 156,304 |
| | 205,071 |
| | (23.8 | ) | | 62,194 |
| | 186,718 |
| | (66.7 | ) |
Non-GAAP noninterest income, net of noncontrolling interests | | $ | 75,256 |
| | $ | 105,820 |
| | (28.9 | ) | | $ | 248,298 |
| | $ | 229,422 |
| | 8.2 |
| | $ | 109,824 |
| | $ | 123,507 |
| | (11.1 | ) |
Gains (losses) on Investment Securities, Net
Net gains (losses) on investment securities include both gains and losses from our non-marketable and other securities, as well as gains and losses from sales of our available-for-sale securities portfolio, when applicable.
Our available-for-sale and held-to-maturity securities portfolios are primarily fixed income investment portfolios that are managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. Sales of equity securities held as a result of our exercised warrants, result in net gains or losses on investment securities. These sales are consistent with the guidelines of our investment policy related to the management of our liquidity position and interest rate risk. Though infrequent, sales of investment securities in our fixed income portfolio may result in net gains or losses and are also within the guidelines of our investment policy.
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, venture debt funds and private and public portfolio companies. We experience variability in the performance of our non-marketable and other securities from quarter to quarter, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains from distributions, or changes in liquidity events and general economic and market conditions. Unrealized gains from non-marketable and other securities for any single period are typically driven by valuation changes, and are therefore subject to potential increases or decreases in future periods. Such variability may lead to volatility in the gains from investment securities and as such our results for a particular period are not necessarily indicative of our expected performance in a future period.
The extent to which any unrealized gains will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (i.e. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities and the timing of such actual sales.sales or distributions.
For the three months ended September 30, 2014March 31, 2015, we had net gains on investment securities of $5.6$83.2 million, compared to net gains of $187.9$223.9 million for the comparable 20132014 period. Net lossesgains on investment securities, net of noncontrolling interests, were $1.1 million for the three months endedSeptember 30, 2014, compared to net gains of $36.5 million for the comparable 2013 period.
Net losses, net of noncontrolling interests, of $1.1$19.6 million for the three months ended September 30, March 31, 2015, compared to net gains of $37.4 million for the comparable 2014 period.
Net gains on investment securities, net of noncontrolling interests, of $19.6 million for the three months ended March 31, 2015 were primarily driven by the following:
Losses of $8.5 million from our managed direct venture funds, mainly related to valuation declines due to the decrease in the public company stock price of FireEye. During the third quarter of 2014, FireEye contributed to $9.5 million in losses, offset by net gains of $1.1 million from the remaining portfolio investments.
Gains of $4.0 million from our managed funds of funds, primarily related to unrealized valuation adjustments of two of our funds of funds.
Gains of $3.5$7.4 million from our strategic and other investments, primarily driven by strong distributions from our strategic venture capital fund investments.investments;
For the nine months endedGains of September 30, 2014, we had net gains on investment securities of $172.2$5.1 million compared to $255.9 million for the comparable 2013 period. Netfrom our managed direct venture funds, primarily related to realized gains on investment securities, netfrom distributions of noncontrolling interests, were $14.2 million forinvestments from our managed direct venture funds, including the nine months ended September 30, 2014, compared to net gainsremaining shares of $51.1 million for the comparable 2013 period.FireEye common stock, as well as unrealized valuation increases;
The gains, net of noncontrolling interests, of $14.2 million for the nine months ended September 30, 2014 were primarily driven by the following:
Gains of $16.9$3.5 million from our managed funds of funds, primarily related to unrealized valuation adjustments of two of our funds of funds.increases; and
Gains of $15.8$2.6 million from our strategic and other investments, primarily driven by distributions from strategic venture capital fund investments as well as the acquisitionsales of onecertain of our direct equity investments during the second quartersecurity holdings in public companies received as a result of 2014, for which we recorded a gain of $4.7 million.
Losses of $17.4 million from our equity securities holdings, primarily attributable to the sale of shares of FireEye common stock (acquired through the exercise of certain warrants) during the second quarter of 2014.warrant exercises.
The following tables provide a summary of non-GAAP net gains (losses) gains on investment securities, net of noncontrolling interests, for the three and nine months ended September 30, 2014March 31, 2015 and 20132014:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(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 September 30, 2014 | | | | | | | | | | | | |
Total gains (losses) on investment securities, net | | $ | 42,159 |
| | $ | (39,973 | ) | | $ | 973 |
| | $ | (990 | ) | | $ | 3,475 |
| | $ | 5,644 |
|
Less: gains (losses) attributable to noncontrolling interests, including carried interest | | 38,187 |
| | (31,429 | ) | | (1 | ) | | — |
| | — |
| | 6,757 |
|
Non-GAAP net (losses) gains on investment securities, net of noncontrolling interests | | $ | 3,972 |
| | $ | (8,544 | ) | | $ | 974 |
| | $ | (990 | ) | | $ | 3,475 |
| | $ | (1,113 | ) |
| | | | | | | | | | | | |
Three months ended September 30, 2013 | | | | | | | | | | | | |
Total gains on investment securities, net | | $ | 34,633 |
| | $ | 147,976 |
| | $ | 3,508 |
| | $ | 219 |
| | $ | 1,526 |
| | $ | 187,862 |
|
Less: gains (losses) attributable to noncontrolling interests, including carried interest | | 31,551 |
| | 119,810 |
| | (1 | ) | | — |
| | — |
| | 151,360 |
|
Non-GAAP net gains on investment securities, net of noncontrolling interests | | $ | 3,082 |
| | $ | 28,166 |
| | $ | 3,509 |
| | $ | 219 |
| | $ | 1,526 |
| | $ | 36,502 |
|
| | | | | | | | | | | | |
Nine months ended September 30, 2014 | | | | | | | | | | | | |
Total gains (losses) on investment securities, net | | $ | 192,085 |
| | $ | (21,819 | ) | | $ | 3,618 |
| | $ | (17,410 | ) | | $ | 15,762 |
| | $ | 172,236 |
|
Less: gains (losses) attributable to noncontrolling interests, including carried interest | | 175,145 |
| | (17,061 | ) | | (15 | ) | | — |
| | — |
| | 158,069 |
|
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | | $ | 16,940 |
| | $ | (4,758 | ) | | $ | 3,633 |
| | $ | (17,410 | ) | | $ | 15,762 |
| | $ | 14,167 |
|
| | | | | | | | | | | | |
Nine months ended September 30, 2013 | | | | | | | | | | | | |
Total gains on investment securities, net | | $ | 91,061 |
| | $ | 150,819 |
| | $ | 7,060 |
| | $ | 949 |
| | $ | 5,972 |
| | $ | 255,861 |
|
Less: gains (losses) attributable to noncontrolling interests, including carried interest | | 82,374 |
| | 122,353 |
| | (4 | ) | | — |
| | — |
| | 204,723 |
|
Non-GAAP net gains on investment securities, net of noncontrolling interests | | $ | 8,687 |
| | $ | 28,466 |
| | $ | 7,064 |
| | $ | 949 |
| | $ | 5,972 |
| | $ | 51,138 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(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 March 31, 2015 | | | | | | | | | | | | |
Total gains on investment securities, net | | $ | 47,666 |
| | $ | 24,557 |
| | $ | 917 |
| | $ | 2,596 |
| | $ | 7,423 |
| | $ | 83,159 |
|
Less: income attributable to noncontrolling interests, including carried interest | | 44,162 |
| | 19,442 |
| | — |
| | — |
| | — |
| | 63,604 |
|
Non-GAAP net gains on investment securities, net of noncontrolling interests | | $ | 3,504 |
| | $ | 5,115 |
| | $ | 917 |
| | $ | 2,596 |
| | $ | 7,423 |
| | $ | 19,555 |
|
| | | | | | | | | | | | |
Three months ended March 31, 2014 | | | | | | | | | | | | |
Total gains on investment securities, net | | $ | 111,448 |
| | $ | 105,702 |
| | $ | 3,001 |
| | $ | 60 |
| | $ | 3,701 |
| | $ | 223,912 |
|
Less: income (losses) attributable to noncontrolling interests, including carried interest | | 101,451 |
| | 85,114 |
| | (13 | ) | | — |
| | — |
| | 186,552 |
|
Non-GAAP net gains on investment securities, net of noncontrolling interests | | $ | 9,997 |
| | $ | 20,588 |
| | $ | 3,014 |
| | $ | 60 |
| | $ | 3,701 |
| | $ | 37,360 |
|
Gains on Derivative Instruments, Net
A summary of gains on derivative instruments, net, for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Equity warrant assets (1) | | | | | | | | | | | | | | | | | | |
Gains on exercises, net | | $ | 6,788 |
| | $ | 4,458 |
| | 52.3 | % | | $ | 28,743 |
| | $ | 6,883 |
| | NM |
| | $ | 4,043 |
| | $ | 18,402 |
| | (78.0 | )% |
Cancellations and expirations | | (61 | ) | | (149 | ) | | (59.1 | ) | | (577 | ) | | (371 | ) | | 55.5 |
| | (292 | ) | | (87 | ) | | NM |
|
Changes in fair value | | 6,430 |
| | 14,471 |
| | (55.6 | ) | | 22,693 |
| | 22,963 |
| | (1.2 | ) | | 16,527 |
| | 7,058 |
| | 134.2 |
|
Net gains on equity warrant assets | | 13,157 |
| | 18,780 |
| | (29.9 | ) | | 50,859 |
| | 29,475 |
| | 72.5 |
| | 20,278 |
| | 25,373 |
| | (20.1 | ) |
Gains on foreign exchange forward contracts, net: | | | | | | | | | | | | | | | | | | |
Gains (losses) on client foreign exchange forward contracts, net (2) | | 886 |
| | (411 | ) | | NM |
| | 1,358 |
| | (237 | ) | | NM |
| |
(Losses) gains on client foreign exchange forward contracts, net (2) | | | (507 | ) | | 302 |
| | NM |
|
Gains (losses) on internal foreign exchange forward contracts, net (3) | | 12,529 |
| | (8,423 | ) | | NM |
| | 12,038 |
| | (1,511 | ) | | NM |
| | 20,018 |
| | (1,029 | ) | | NM |
|
Total gains (losses) on foreign exchange forward contracts, net | | 13,415 |
| | (8,834 | ) | | NM |
| | 13,396 |
| | (1,748 | ) | | NM |
| | 19,511 |
| | (727 | ) | | NM |
|
Changes in fair value of interest rate swaps | | (12 | ) | | (7 | ) | | 71.4 |
| | (37 | ) | | 20 |
| | NM |
| | (3 | ) | | (12 | ) | | (75.0 | ) |
Net (losses) gains on other derivatives (4) | | (22 | ) | | (517 | ) | | (95.7 | ) | | (738 | ) | | 55 |
| | NM |
| |
Net losses on other derivatives (4) | | | (57 | ) | | (467 | ) | | (87.8 | ) |
Gains on derivative instruments, net | | $ | 26,538 |
| | $ | 9,422 |
| | 181.7 |
| | $ | 63,480 |
| | $ | 27,802 |
| | 128.3 |
| | $ | 39,729 |
| | $ | 24,167 |
| | 64.4 |
|
NM—Not meaningful
| |
(1) | At September 30, 2014March 31, 2015, we held warrants in 1,4151,525 companies, compared to 1,3091,343 companies at September 30, 2013March 31, 2014. The total value of our warrant portfolio was $124 million at March 31, 2015 and $91 million at March 31, 2014. Of the 1,525 companies, 25 companies made up approximately 40 percent of the fair value of the portfolio at March 31, 2015. |
| |
(2) | Represents the net (losses) gains for foreign exchange forward contracts executed on behalf of clients, excluding any spread or fees earned in connection with these trades. |
| |
(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 instruments. Refer to revaluation of foreign currency instruments included in the line item "other" within noninterest income for the amount we were able to partially offset. |
| |
(4) | Primarily represents the change in fair value of loan conversion options held by SVB Financial and our interest rate swap.options. |
Net gains on derivative instruments were $26.5$39.7 million for the three months ended September 30, 2014March 31, 2015, compared to net gains of $9.4$24.2 million for the comparable 20132014 period. The increase in netNet gains on derivative instruments was primarily attributable to the following:
Net gains on equity warrant assets of $13.220.3 million, which consisted of:
Net gains of $16.5 million from changes in warrant valuations for the three months ended September 30, 2014March 31, 2015, compared to $18.8$7.1 million for the comparable 20132014 period. The $5.6 million decrease waswarrant valuation gains were primarily due to net gains of $6.4 million from increases in warrant valuations, primarily attributable to our private company warrant portfolio, of which $10.9 million was attributable to four companies.
Net gains of $4.0 million from the exercise of equity warrant assets for the three months ended March 31, 2015, compared to $18.4 million for the comparable 2014 period. The net gains of $14.5$4.0 million for the comparable 2013 period, from increases were comprised of various exercises in warrant valuations, primarily attributable to our publicprivate company warrant portfolio which includedportfolio. For the three months ended March 31, 2014, $15.2 million in gains were reflective of the exercise of FireEye and Twitterequity warrants.
Net gains of $12.520.0 million on internal foreign exchange forward contracts hedging certain ofused to economically reduce our foreign exchange exposure to foreign currency denominated instruments for the three months endedSeptember 30, 2014, March 31, 2015, compared to net losses of $8.4$1.0 million for the comparable 20132014 period. The highernet gains for the three months endedSeptember 30, 2014of $20.0 million were primarily attributable to the strengthening of the U.S. Dollar against the Euro and Pound Sterling. These gains are offset by net losses of $12.6$20.2 million from the revaluation of foreign currency denominated instruments that are included in the line item "other" within noninterest income as noted below.
Net gains on derivative instruments were $63.5 million for the nine months ended September 30, 2014, compared to net gains of $27.8 million for the comparable 2013 period. The increase in net gains on derivative instruments was primarily attributable to the following:
Net gains on equity warrant assets of $50.9 million for the nine months endedSeptember 30, 2014, compared to $29.5 million for the comparable 2013 period. The $21.4 million increase was primarily due to net gains of $28.7
million from the exercise of equity warrant assets, primarily reflective of the exercise and conversion of several of our public equity warrants including, FireEye and Twitter, compared to $6.9 million for the comparable 2013 period.
Net gains of $12.0 million on foreign exchange forward contracts hedging certain of our foreign currency denominated instruments for the nine months endedSeptember 30, 2014, compared to net losses of $1.5 million for the comparable 2013 period. The gains recognized for the nine months ended September 30, 2014 were primarily attributable to the strengthening of the U.S. Dollar against the Euro and Pound Sterling, however, the gains are offset by losses of $12.3 million from the revaluation of foreign currency denominated instruments that are included in the line item "other" within noninterest income as noted below.
Foreign Exchange Fees
Foreign exchange fees were $17.917.7 million and $53.0 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $13.717.2 million and $41.5 million for the comparable 20132014 periods.period. The increase was primarily due to increased utilization of foreign currency products by our clients, resulting in an increase in the number of trades and commissioned notional volumes.volumes, offset by continued pressure on spreads.
Credit Card Fees
Credit card fees were $10.912.1 million and $31.4 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $8.210.3 million and $23.2 million for the comparable 20132014 periods.period. The increase reflectsreflected increased client utilization of our credit card products and custom payment solutions by new and existing clients.
Deposit Service Charges
Deposit service charges were $10.1 million and $29.3$10.7 million for the three and nine months ended September 30, 2014, respectively,March 31, 2015, compared to $8.9 million and $26.6$9.6 million for the comparable 2013 periods.2014 period. The increases areincrease was reflective of the increase in the number of deposit clients, as well as increases in transaction volumes and size, during the three and nine months ended September 30, 2014.March 31, 2015.
Lending Related Fees
Lending related fees were $6.0 million and $18.2$8.0 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $5.36.3 million and $13.8 million for the comparable 20132014 periods.period. The increase was primarily due to an increase in loan syndication fee income and an increase in unused commitment fees for the first quarter of 2015. Loan syndication fees increased from $0.8 million to $1.8 million as a result of an increase in syndication activity for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Unused loan commitments also increased as our loan commitments available for funding balance increased from $9.8$11.4 billion to $13.5$14.2 billion.
Letters of Credit and Standby letters of Credit Fees
Letters of credit and standby letters of credit fees were $5.2 million for the three months ended March 31, 2015, compared to $4.1 million for the comparable 2014 period. The increase was primarily driven by an increase in deferred fee income reflective of an increase in larger letter of credit issuances during the fourth quarter of 2014.
Client Investment Fees
Client investment fees were $3.84.5 million and $10.8 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $3.4 million and $10.4 million for the comparable 20132014 periods.period. The nominal changeincrease was reflective of an increase in average client investment funds partially offset by lower margins earned on certain products due to low rates in the short-term fixed income markets. There was anThe increase in average client investment funds driven by our clients’ increased utilization of our off-balance sheet products managed by SVB Asset Management, as well as our cash sweep product. The increases in average balances were partially offset by historically low yields on certain products. The following table summarizes average client investment funds for the three and nine months ended September 30, 2014March 31, 2015 and 2013:2014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in millions) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Client directed investment assets (1) | | $ | 7,168 |
| | $ | 7,412 |
| | (3.3 | )% | | $ | 7,288 |
| | $ | 7,052 |
| | 3.3 | % | | $ | 7,017 |
| | $ | 7,182 |
| | (2.3 | )% |
Client investment assets under management (2) | | 17,006 |
| | 11,925 |
| | 42.6 |
| | 15,541 |
| | 11,577 |
| | 34.2 |
| | 17,712 |
| | 13,537 |
| | 30.8 |
|
Sweep money market funds | | 6,814 |
| | 5,622 |
| | 21.2 |
| | 6,597 |
| | 4,920 |
| | 34.1 |
| | 8,896 |
| | 6,416 |
| | 38.7 |
|
Total average client investment funds (3) | | $ | 30,988 |
| | $ | 24,959 |
| | 24.2 |
| | $ | 29,426 |
| | $ | 23,549 |
| | 25.0 |
| | $ | 33,625 |
| | $ | 27,135 |
| | 23.9 |
|
| |
(1) | Comprised of mutual funds and Repurchase Agreement Program assets. |
| |
(2) | These funds represent investments in third party money market mutual funds and fixed-income securities managed by SVB Asset Management. |
| |
(3) | 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 September 30, 2014March 31, 2015 and December 31, 20132014:
| | (Dollars in millions) | | September 30, 2014 | | December 31, 2013 | | % Change | | March 31, 2015 | | December 31, 2014 | | % Change |
Client directed investment assets | | $ | 6,491 |
| | $ | 7,073 |
| | (8.2 | )% | | $ | 7,344 |
| | $ | 6,158 |
| | 19.3 | % |
Client investment assets under management | | 17,376 |
| | 12,677 |
| | 37.1 |
| | 17,956 |
| | 18,253 |
| | (1.6 | ) |
Sweep money market funds | | 7,277 |
| | 6,613 |
| | 10.0 |
| | 9,870 |
| | 7,957 |
| | 24.0 |
|
Total period-end client investment funds | | $ | 31,144 |
| | $ | 26,363 |
| | 18.1 |
| | $ | 35,170 |
| | $ | 32,368 |
| | 8.7 |
|
Other Noninterest (Loss) Income
A summary of other noninterest (loss) income for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Fund management fees | | $ | 3,574 |
| | $ | 2,822 |
| | 26.6 | % | | $ | 9,888 |
| | $ | 8,531 |
| | 15.9 | % | | $ | 3,722 |
| | $ | 2,755 |
| | 35.1 | % |
Service-based fee income | | 2,180 |
| | 1,901 |
| | 14.7 |
| | 6,459 |
| | 5,706 |
| | 13.2 |
| | 2,150 |
| | 2,027 |
| | 6.1 |
|
(Losses) gains on revaluation of foreign currency instruments (1) | | (12,640 | ) | | 8,069 |
| | NM |
| | (12,347 | ) | | 444 |
| | NM |
| | (20,159 | ) | | 978 |
| | NM |
|
Other (2) | | 1,525 |
| | 4,369 |
| | (65.1 | ) | | 10,601 |
| | 9,667 |
| | 9.7 |
| | 5,207 |
| | 5,440 |
| | (4.3 | ) |
Total other noninterest (loss) income | | $ | (5,361 | ) | | $ | 17,161 |
| | (131.2 | ) | | $ | 14,601 |
| | $ | 24,348 |
| | (40.0 | ) | | $ | (9,080 | ) | | $ | 11,200 |
| | (181.1 | ) |
NM—Not meaningful
| |
(1) | Represents the revaluation of foreign currency denominated financial instruments issued and held by us, primarily loans, deposits and cash. These instruments partially offset the impact of changes in internal foreign exchange forward contracts. Refer to internal foreign exchange forward contracts, net included within gains on derivative instruments as noted above. |
| |
(2) | Includes dividends on FHLB/FRB stock, correspondent bank rebate income and other fee income. |
Total loss in other noninterest income was $5.4$9.1 million for the three months ended September 30, 2014,March 31, 2015, compared to income of $17.2$11.2 million for the comparable 20132014 period. The income in other noninterest income was $14.6 million for the nine months ended September 30, 2014, compared to $24.3 million for the comparable 2013 period. The decreasesdecrease of $22.6 million and $9.7$20.3 million for the three and nine months ended September 30, 2014, respectively, wereMarch 31, 2015 was primarily due to losses of $12.6$20.2 million and $12.3 million, respectively, from the revaluation of foreign currency instruments, compared to net gains of $8.1$1.0 million and $0.4 million, respectively, for the comparable periodsperiod of 2013.2014. The losses from the revaluation of foreign currency instruments were offset by net gains of $12.5 million and $12.0$20.0 million for the three and nine months ended September 30, 2014, respectively,March 31, 2015, compared to net losses of $8.4$1.0 million and $1.5 million, respectively for the comparable periodsperiod of 2013,2014, on internal foreign exchange forward contracts economically hedging certain of these instruments, which are included within noninterest income in the line item "gains on derivative instruments" as noted above.
Overall Summary of Investments in FireEye
Our FireEye-related investments held duringDuring the thirdfirst quarter of 2014 were primarily shares of FireEye common stock ("FireEye Shares") held by2015, our managed direct venture funds from prior investments. As of September 30, 2014, our managed funds (including SVB Financial's interest) held approximately 4.9 million shares of FireEye Shares.
Duringdistributed the nine months ended September 30, 2014, net losses, related to FireEye Shares held by our managed direct venture funds, were $21.7 million ($4.2 million net of noncontrolling interests) and primarily consisted of unrealized losses resulting from the decline in the common stock price of FireEye.
As of September 30, 2014, our managed funds (including SVB Financial's interest) held approximately 4.9remaining 2.5 million shares of FireEye common stock ("FireEye Shares")to their respective investors (including the Company), resulting in $15.9 million of realized gains on investment securities ($3.3 million net of noncontrolling interests and inclusive of the Company's carried interests). From September 30, 2014 to November 5, 2014, the market share priceAll distributed shares of FireEye’sFireEye common stock has slightly decreased from $30.56 to $30.04the Company were sold during the first quarter of 2015 and as such there has not been a significant decline in the valuation of our remainingMarch 31, 2015, we no longer hold any shares of FireEye related investments.
Investment gains (or losses) relating to the remaining 4.9 million FireEye Shares held bycommon stock, either directly or through our managed funds are based on valuation changes or the sale of any securities, and are subject to FireEye's stock price, which is subject to market conditions and
various other factors. Additionally, any future gains and losses reported above with respect to the remaining shares held by our managed funds at September 30, 2014 are currently unrealized, and the extent such gains (or losses) will become realized is subject to a variety of factors, including among other things, changes in prevailing market prices and the timing of any sales or distribution of securities, which are subject to our funds' separate discretionary securities sales/distribution governance processes.
direct venture funds.
Noninterest Expense
A summary of noninterest expense for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 |
| 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 |
| 2014 | | % Change |
Compensation and benefits | | $ | 99,932 |
| | $ | 96,869 |
| | 3.2 | % | | $ | 302,259 |
| | $ | 270,315 |
| | 11.8 | % | | $ | 115,770 |
| | $ | 102,507 |
| | 12.9 | % |
Professional services | | 26,081 |
| | 18,966 |
| | 37.5 |
| | 68,383 |
| | 52,759 |
| | 29.6 |
| | 24,185 |
| | 21,189 |
| | 14.1 |
|
Premises and equipment | | 12,631 |
| | 12,171 |
| | 3.8 |
| | 36,267 |
| | 34,298 |
| | 5.7 |
| | 12,657 |
| | 11,582 |
| | 9.3 |
|
Business development and travel | | 10,022 |
| | 7,378 |
| | 35.8 |
| | 29,465 |
| | 23,433 |
| | 25.7 |
| | 11,112 |
| | 10,194 |
| | 9.0 |
|
Net occupancy | | 7,437 |
| | 5,898 |
| | 26.1 |
| | 22,436 |
| | 17,460 |
| | 28.5 |
| | 7,313 |
| | 7,320 |
| | (0.1 | ) |
FDIC assessments | | 4,587 |
| | 2,913 |
| | 57.5 |
| | 13,660 |
| | 9,148 |
| | 49.3 |
| |
FDIC and state assessments | | | 5,789 |
| | 4,128 |
| | 40.2 |
|
Correspondent bank fees | | 3,278 |
| | 2,906 |
| | 12.8 |
| | 9,755 |
| | 9,009 |
| | 8.3 |
| | 3,421 |
| | 3,203 |
| | 6.8 |
|
Provision for unfunded credit commitments | | 2,225 |
| | 2,774 |
| | (19.8 | ) | | 5,533 |
| | 6,135 |
| | (9.8 | ) | | 2,263 |
| | 1,123 |
| | 101.5 |
|
Other(1) | | 15,796 |
| | 10,649 |
| | 48.3 |
| | 40,113 |
| | 30,273 |
| | 32.5 |
| | 13,598 |
| | 9,162 |
| | 48.4 |
|
Total noninterest expense(1) | | $ | 181,989 |
| | $ | 160,524 |
| | 13.4 |
| | $ | 527,871 |
| | $ | 452,830 |
| | 16.6 |
| | $ | 196,108 |
| | $ | 170,408 |
| | 15.1 |
|
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
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.
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 for the three and nine months ended September 30, 2014March 31, 2015 and 20132014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
Non-GAAP operating efficiency ratio, net of noncontrolling interests (Dollars in thousands, except ratios) | | 2014 |
| 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 |
| 2014 | | % Change |
GAAP noninterest expense(1) | | $ | 181,989 |
| | $ | 160,524 |
| | 13.4 | % | | $ | 527,871 |
| | $ | 452,830 |
| | 16.6 | % | | $ | 196,108 |
| | $ | 170,408 |
| | 15.1 | % |
Less: amounts attributable to noncontrolling interests | | 4,743 |
| | 3,290 |
| | 44.2 |
| | 13,331 |
| | 9,017 |
| | 47.8 |
| | 5,463 |
| | 3,321 |
| | 64.5 |
|
Non-GAAP noninterest expense, net of noncontrolling interests | | $ | 177,246 |
| | $ | 157,234 |
| | 12.7 |
| | $ | 514,540 |
| | $ | 443,813 |
| | 15.9 |
| | $ | 190,645 |
| | $ | 167,087 |
| | 14.1 |
|
GAAP taxable equivalent net interest income | | $ | 220,981 |
| | $ | 177,525 |
| | 24.5 |
| | $ | 623,130 |
| | $ | 511,640 |
| | 21.8 |
| |
GAAP net interest income | | | $ | 238,890 |
| | $ | 196,328 |
| | 21.7 |
|
Adjustments for taxable equivalent basis | | | 416 |
| | 429 |
| | (3.0 | ) |
Non-GAAP taxable equivalent net interest income | | | $ | 239,306 |
| | $ | 196,757 |
| | 21.6 |
|
Less: income attributable to noncontrolling interests | | 9 |
| | 19 |
| | (52.6 | ) | | 12 |
| | 63 |
| | (81.0 | ) | | 35 |
| | 8 |
| | NM |
|
Non-GAAP taxable equivalent net interest income, net of noncontrolling interests | | $ | 220,972 |
| | $ | 177,506 |
| | 24.5 |
| | $ | 623,118 |
| | $ | 511,577 |
| | 21.8 |
| | $ | 239,271 |
| | $ | 196,749 |
| | 21.6 |
|
GAAP noninterest income | | $ | 80,167 |
| | $ | 257,650 |
| | (68.9 | ) | | $ | 404,602 |
| | $ | 434,493 |
| | (6.9 | ) | | $ | 172,018 |
| | $ | 310,225 |
| | (44.6 | ) |
Non-GAAP noninterest income, net of noncontrolling interests | | 75,256 |
| | 105,820 |
| | (28.9 | ) | | 248,298 |
| | 229,422 |
| | 8.2 |
| | 109,824 |
| | 123,507 |
| | (11.1 | ) |
GAAP taxable equivalent revenue | | $ | 301,148 |
| | $ | 435,175 |
| | (30.8 | ) | | $ | 1,027,732 |
| | $ | 946,133 |
| | 8.6 |
| |
GAAP total revenue | | | $ | 410,908 |
| | $ | 506,553 |
| | (18.9 | ) |
Non-GAAP taxable equivalent revenue, net of noncontrolling interests | | $ | 296,228 |
| | $ | 283,326 |
| | 4.6 |
| | $ | 871,416 |
| | $ | 740,999 |
| | 17.6 |
| | $ | 349,095 |
| | $ | 320,256 |
| | 9.0 |
|
GAAP operating efficiency ratio | | 60.43 | % | | 36.89 | % | | 63.8 |
| | 51.36 | % | | 47.86 | % | | 7.3 |
| | 47.73 | % | | 33.64 | % | | 41.9 |
|
Non-GAAP operating efficiency ratio (1) | | 59.83 | % | | 55.50 | % | | 7.8 |
| | 59.05 | % | | 59.89 | % | | (1.4 | ) | |
Non-GAAP operating efficiency ratio (2) | | | 54.61 |
| | 52.17 |
| | 4.7 |
|
NM—Not meaningful
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
| |
(2) | The non-GAAP operating efficiency ratio is calculated by dividing non-GAAP noninterest expense, net of noncontrolling interests, by non-GAAP taxable-equivalent revenue, net of noncontrolling interests. |
Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense for the three and nine months ended September 30, 2014March 31, 2015 and 20132014:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Compensation and benefits | | | | | | | | | | | | | | | | | | |
Salaries and wages | | $ | 47,106 |
| | $ | 39,926 |
| | 18.0 | % | | $ | 136,616 |
| | $ | 118,458 |
| | 15.3 | % | | $ | 51,425 |
| | $ | 44,353 |
| | 15.9 | % |
Incentive compensation & ESOP | | 26,161 |
| | 30,599 |
| | (14.5 | ) | | 80,355 |
| | 74,452 |
| | 7.9 |
| | 28,543 |
| | 26,448 |
| | 7.9 |
|
Other employee benefits (1) | | 26,665 |
| | 26,344 |
| | 1.2 |
| | 85,288 |
| | 77,405 |
| | 10.2 |
| | 35,802 |
| | 31,706 |
| | 12.9 |
|
Total compensation and benefits | | $ | 99,932 |
| | $ | 96,869 |
| | 3.2 |
| | $ | 302,259 |
| | $ | 270,315 |
| | 11.8 |
| | $ | 115,770 |
| | $ | 102,507 |
| | 12.9 |
|
Period-end full-time equivalent employees | | 1,881 |
| | 1,683 |
| | 11.8 |
| | 1,881 |
| | 1,683 |
| | 11.8 |
| | 1,965 |
| | 1,737 |
| | 13.1 |
|
Average full-time equivalent employees | | 1,850 |
| | 1,675 |
| | 10.4 |
| | 1,784 |
| | 1,662 |
| | 7.3 |
| | 1,955 |
| | 1,735 |
| | 12.7 |
|
| |
(1) | Other employee benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention program plans, agency fees and other employee related expenses. |
Compensation and benefits expense was $99.9$115.8 million for the three months ended September 30, 2014March 31, 2015, compared to $96.9$102.5 million for the comparable 20132014 period. The key changes in factors affecting compensation and benefits expense were as follows:
An increase of $7.2$7.1 million in salaries and wages, expense, primarily due to an increase in the number of average FTEs.full-time employees ("FTE") as well as annual merit increases that took effect during the first quarter of 2015. Average FTEs increased by 175220 to 1,8501,955 FTEs for the three months ended September 30, 2014March 31, 2015, compared to 1,6751,735 FTEs for the comparable 20132014 period,period.
An increase of $4.1 million in other employee benefits, primarily due to supportexpenses related to our product development, operational and sales and advisory teams,Warrant Incentive Plan driven by gains recorded on our equity warrant assets during the first quarter of 2015, as well as to supporthigher employer payroll taxes, 401(k) contribution expense, and share-based plan expense, primarily as a result of the increase in the valuation of our commercial banking operations and initiatives.
common stock.A decreaseAn increase of $4.42.1 million in incentive compensation and ESOP expense, primarily reflective of current expectations for our internal performance targets for 2014.
Compensation and benefits expense was $302.3 million for the nine months endedSeptember 30, 2014, compared to $270.3 million for the comparable 2013 period. The key changes in factors affecting compensation and benefits expense were as follows:
An increase of $18.2 million in salaries and wages expense, primarily due to an increase in the number of average FTEs. Average FTEs increased by 122 to 1,784 FTEs for thenine months endedSeptember 30, 2014, compared to 1,662 FTEs for the comparable 2013 period.
An increase of $5.9 million in incentive compensation and ESOP expense, primarily reflective of our continued strong performance in 2014 and an increase in the number of average FTEs compared to the nine months endedSeptember 30, 2014.
An increase of $7.9 million in other employee benefits, primarily due to an increase in share-based compensation expense mainly as a result of the increase in the valuation of our common stock as well as an increase in contract agency fees primarily supporting our commercial banking operations. These increases were offset by a decrease in warrant incentive compensation expense, which was higher in the third quarter of 2013 due to the impact of the increase in valuation related to FireEye after its IPO.2015.
Our variable compensation plans primarily consist of our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, 401(k) and ESOP Plan, Retention Program and Warrant Incentive Plan (See descriptions in our 20132014 Form 10-K). Total costs incurred under these plans were $29.6 million and $94.6$38.9 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $36.434.8 million and $89.4 million for the comparable 20132014 periods, respectively.period. These amounts are included in total compensation and benefits expense discussed above.
Professional Services
Professional services expense was $26.124.2 million and $68.4 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $19.021.2 million and $52.8 million for the comparable 20132014 periods.period. The increase was primarily due to increased activities to support our expansion of product offerings as well as our continued investment into ongoing business and IT infrastructure initiatives.
Premises and Equipment
Premises and equipment expense was $12.7 million for the three months ended March 31, 2015, compared to $11.6 million for the comparable 2014 period. The increase was primarily due to increased spending to enhance and maintain our IT infrastructure.
Business Development and Travel
Business development and travel was $10.0 million and $29.5$11.1 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $7.4 million and $23.4$10.2 million for the comparable 20132014 periods.period. The increase was primarily due to an increase in client related events supportingthe increased business development efforts during the first quarter of 2015 to support the growth of our business as well as employee related expenses due to the increase in average FTEs.business.
FDIC and State Assessments
Net occupancyFDIC and state assessments expense was $7.4 million and $22.4$5.8 million for the three and nine months ended September 30, 2014March 31, 2015, respectively, compared to $5.9 million and $17.5$4.1 million for the comparable 20132014 periods. The increase was reflective of lease renewals at higher rates, reflective of market conditions, and the expansion of certain existing offices.
FDIC Assessments
FDIC assessments expense was $4.6 million and $13.7 million for the three and nine months ended September 30, 2014, respectively, compared to $2.9 million and $9.1 million for the comparable 2013 periods, respectively.period. The increase was primarily due to the increase of $11.5 billion in average assets sincefor the thirdfirst quarter of 2013.2015.
Provision for Unfunded Credit Commitments
We recorded a provision for unfunded credit commitments of $2.2 million and $5.5 million for the three and nine months ended September 30, 2014, respectively, compared to a provision of $2.8 million and $6.1 million for the comparable 2013 periods, respectively. The provision of $2.22.3 million for the three months ended September 30, March 31, 2015, compared to a provision of $1.1 million for the comparable 2014 was primarily reflective of a $1.1 billion increase in total unfunded commitments during the third quarter of 2014.period. The provision of $5.5$2.3 million for the nine months ended September 30, 2014 was primarily reflective of a $3.2 billion increasedue to growth in total unfundedloan commitments available for funding and commercial and standby letters of credit, commitments during the nine months ended September 30,which increased by $779.7 million to $15.5 billion at March 31, 2015 from $14.7 billion at December 31, 2014.
Other Noninterest Expense
A summary of other noninterest expense for the three and nine months ended September 30, 2014March 31, 2015 and 20132014 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Client services | | $ | 3,215 |
| | $ | 1,920 |
| | 67.4 | % | | $ | 8,160 |
| | $ | 5,711 |
| | 42.9 | % | | $ | 3,549 |
| | $ | 2,359 |
| | 50.4 | % |
Tax credit fund amortization | | 2,228 |
| | 1,519 |
| | 46.7 |
| | 6,758 |
| | 4,174 |
| | 61.9 |
| |
Telephone | | | 1,959 |
| | 1,748 |
| | 12.1 |
|
Data processing services | | 2,229 |
| | 2,020 |
| | 10.3 |
| | 6,497 |
| | 5,814 |
| | 11.7 |
| | 1,833 |
| | 2,227 |
| | (17.7 | ) |
Telephone | | 1,931 |
| | 1,571 |
| | 22.9 |
| | 5,217 |
| | 4,640 |
| | 12.4 |
| |
Postage and supplies | | 763 |
| | 559 |
| | 36.5 |
| | 2,248 |
| | 1,777 |
| | 26.5 |
| | 765 |
| | 769 |
| | (0.5 | ) |
Dues and publications | | 719 |
| | 399 |
| | 80.2 |
| | 1,852 |
| | 1,302 |
| | 42.2 |
| | 585 |
| | 497 |
| | 17.7 |
|
Other | | 4,711 |
| | 2,661 |
| | 77.0 |
| | 9,381 |
| | 6,855 |
| | 36.8 |
| | 4,907 |
| | 1,562 |
| | NM |
|
Total other noninterest expense | | $ | 15,796 |
| | $ | 10,649 |
| | 48.3 |
| | $ | 40,113 |
| | $ | 30,273 |
| | 32.5 |
| |
Total other noninterest expense (1) | | | $ | 13,598 |
| | $ | 9,162 |
| | 48.4 |
|
NM—Not meaningful
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
Other noninterest expense was $15.8$13.6 million for the three months ended September 30, 2014,March 31, 2015, compared to $10.6$9.2 million for the comparable 20132014 period. The increase of $5.2$4.4 million for the three month period was primarily due to a $1.3$1.1 million increase in client services, related to increased transaction processing volumes and $0.7 million increase in tax credit fund amortization expense reflective of approximately $28.3 million in additional tax credit fund investment purchases since September 30, 2013 and $0.7 million for increased marketing expense for advertising/promotion in new and existing markets, included in other.
Other noninterest expense was $40.1 million for the nine months endedSeptember 30, 2014, compared to $30.3 million for the comparable 2013 period. The increase of $9.8 million for the nine month period was primarily due to the increase in tax credit fund amortization expense of $2.6 million reflective of approximately $28.3 million in additional tax credit fund investment purchases since September 30, 2013 and an increase of $2.4 million in client services expense, related to increased transaction processing volumes, and $1.0 million for increased marketing expense for advertising/promotion in new and existing markets, included in other.volumes.
Net Income Attributable to Noncontrolling Interests
Included in net income is income and expense attributable to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net Income Attributable to Noncontrolling Interests” on our statements of income.
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 Financial’s subsidiaries as the funds’ general partners. A summary of net income attributable to noncontrolling interests for the three and nine months ended September 30,March 31, 2015 and 2014 and 2013 is as follows:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Net interest income (1) | | $ | (9 | ) | | $ | (19 | ) | | (52.6 | )% | | $ | (12 | ) | | $ | (63 | ) | | (81.0 | )% | | $ | (35 | ) | | $ | (8 | ) | | NM |
|
Noninterest income (1) | | (1,185 | ) | | (169,126 | ) | | (99.3 | ) | | (159,362 | ) | | (223,912 | ) | | (28.8 | ) | | (66,895 | ) | | (202,138 | ) | | (66.9 | ) |
Noninterest expense (1) | | 4,743 |
| | 3,290 |
| | 44.2 |
| | 13,331 |
| | 9,017 |
| | 47.8 |
| | 5,463 |
| | 3,321 |
| | 64.5 |
|
Carried interest (loss) income (2) | | (3,726 | ) | | 17,296 |
| | (121.5 | ) | | 3,058 |
| | 18,841 |
| | (83.8 | ) | |
Carried interest income (2) | | | 4,701 |
| | 15,420 |
| | (69.5 | ) |
Net income attributable to noncontrolling interests | | $ | (177 | ) | | $ | (148,559 | ) | | (99.9 | ) | | $ | (142,985 | ) | | $ | (196,117 | ) | | (27.1 | ) | | $ | (56,766 | ) | | $ | (183,405 | ) | | (69.0 | ) |
NM—Not meaningful
| |
(1) | Represents noncontrolling interests’ share in net interest income, noninterest income and noninterest expense. |
| |
(2) | Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds. |
Net income attributable to noncontrolling interests was $0.2$56.8 million for the thirdfirst quarter of 2014,2015, compared to $148.6$183.4 million for the comparable 20132014 period. Net income attributable to noncontrolling interests of $0.2$56.8 million for the thirdfirst quarter of 20142015 was primarily a result of the following:
Noninterest income of $1.2 million consisting primarily of the following:
Net gains on investment securities (including carried interest) attributable to noncontrolling interests of $6.8$63.6 million ($3.168.3 million excluding carried interest) primarily from gains of $38.2$44.2 million from our managed funds of funds partially offset by lossesand gains of $31.4$19.4 million from our managed direct venture funds primarily related to the decline in the FireEye valuation.valuation increases. See "Results of Operations—Noninterest Income—Gains on Investment Securities, Net". The decrease of $21.1$10.7 million in carried interest income is primarily related to a loss of $3.7 million for the third quarter of 2014 compared to income of $17.3 million for the comparable 2013 period, also primarily reflects the impact of the decline in FireEye valuationslower gains in our managed direct venture funds and
Net losses attributable to noncontrolling interests of $1.7 million, included in noninterest income, from foreign currency translation adjustments on our foreign investments, in our managed funds of funds, as a result of the significant increase in the value of the U.S. dollar during the third quarter of 2014.FireEye; and
Noninterest expense of $4.7$5.5 million, primarily related to management fees paid by the noncontrolling interests to our subsidiaries that serve as the general partner.
Net income attributable to noncontrolling interests was $143.0 million for the nine months ended September 30, 2014, compared to $196.1 million for the comparable 2013 period. Net income attributable to noncontrolling interests of $143.0 million for the nine months ended September 30, 2014 was primarily a result of the following:
Noninterest income of $159.4 million consisting primarily of the following:
Net gains on investment securities (including carried interest) attributable to noncontrolling interests of $158.1 million ($161.1 million excluding carried interest) primarily from gains of $175.1 million from our managed funds of funds partially offset by losses of $17.1 million from our managed direct venture funds primarily related to the decline in the FireEye valuation. "Results of Operations—Noninterest Income—Gains on Investment Securities, Net". The decrease of $15.7 million in carried interest income, to $3.1 million for the nine months ended September 30, 2014 compared to $18.8 million for the comparable 2013 period, also primarily reflects the impact of the decline in FireEye valuations in our managed direct funds, and
Net losses attributable to noncontrolling interests of $1.5 million, included in noninterest income, from foreign currency translation adjustments on our foreign investments, in our managed funds of funds, as a result of the significant increase in the value of the U.S. dollar during the third quarter of 2014.
Noninterest expense of $13.3 million, primarily related to management fees paid by the noncontrolling interests to our subsidiaries that serve as the general partner.
Income Taxes
Our effective income tax expense rate was 38.241.6 percent for the three months ended September 30, 2014,March 31, 2015, compared to 41.240.3 percent for the three months ended September 30, 2013. March 31, 2014.Results, and the related tax effect, for prior periods were revised to reflect the retrospective application of adopting new accounting guidance in 2015 related to our investments in qualified affordable housing projects (ASU 2014-01).
The components of our tax rate were consistent for both the thirdfirst quarter of 2015 and first three quarters of 2014 and 2013, respectively. Our effective income tax expense rate was 39.1 percent for the nine months ended September 30, 2014, compared to 39.8 percent for the comparable 2013 period.2014. The decreaseincrease in our effective tax rate is primarily attributable to increasedthe unremitted earnings from the pending sale of SVBIF.
For prior periods, pursuant to ASU 2014-01, (i) amortization expense related to our low income housing tax credits was reclassified from Other noninterest expense to Income tax expense, (ii) additional amortization, net of the associated tax benefits, was recognized on tax-exempt investmentsin Income tax expense as a result of additional purchases made duringour adoption of the threeproportional amortization method and nine months ended September 30,(iii) net deferred tax assets, related to our low income housing tax investments, were written-off. The cumulative effect to retained earnings as of January 1, 2015 of adopting this guidance was a reduction of $4.7 million, inclusive of a $4.6 million reduction to retained earnings as of January 1, 2014. Our previously reported net income for the first quarter of 2014 decreased $0.4 million. This reduction had no impact on first quarter 2014 diluted earnings per share.
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, which designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 10—11—”Segment 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 institution’s sources and uses of funds. It is the mechanism by which an earnings credit is given for deposits raised, and an earnings charge is made for funded loans.
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 segment’s noninterest expense, we consider the direct costs incurred by the operating segment as well as certain allocated direct costs. As part of this review, we allocate certain corporate overhead costs to a corporate account. We do not allocate income taxes to our segments. Additionally, our management reporting model is predicated on average asset balances; therefore, period-end asset balances are not presented for segment reporting purposes.
Changes in an individual client’s primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods. The following is our reportable segment information for the three and nine months ended September 30, 2014March 31, 2015 and 20132014:
Global Commercial Bank
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Net interest income | | $ | 187,184 |
| | $ | 162,371 |
| | 15.3 | % | | $ | 541,375 |
| | $ | 465,893 |
| | 16.2 | % | | $ | 203,755 |
| | $ | 175,303 |
| | 16.2 | % |
Provision for loan losses | | (16,185 | ) | | (11,633 | ) | | 39.1 |
| | (18,833 | ) | | (36,030 | ) | | (47.7 | ) | | (6,460 | ) | | (807 | ) | | NM |
|
Noninterest income | | 57,756 |
| | 49,991 |
| | 15.5 |
| | 169,414 |
| | 144,893 |
| | 16.9 |
| | 64,689 |
| | 58,635 |
| | 10.3 |
|
Noninterest expense | | (128,685 | ) | | (107,495 | ) | | 19.7 |
| | (374,289 | ) | | (313,080 | ) | | 19.6 |
| | (136,282 | ) | | (120,706 | ) | | 12.9 |
|
Income before income tax expense | | $ | 100,070 |
| | $ | 93,234 |
| | 7.3 |
| | $ | 317,667 |
| | $ | 261,676 |
| | 21.4 |
| | $ | 125,702 |
| | $ | 112,425 |
| | 11.8 |
|
Total average loans, net of unearned income | | $ | 10,192,945 |
| | $ | 8,576,443 |
| | 18.8 |
| | $ | 9,917,115 |
| | $ | 8,175,626 |
| | 21.3 |
| | $ | 12,729,630 |
| | $ | 9,677,957 |
| | 31.5 |
|
Total average assets | | 31,809,853 |
| | 21,336,583 |
| | 49.1 |
| | 28,828,400 |
| | 20,732,425 |
| | 39.0 |
| | 35,962,427 |
| | 25,504,407 |
| | 41.0 |
|
Total average deposits | | 28,795,499 |
| | 18,994,374 |
| | 51.6 |
| | 26,020,715 |
| | 18,480,510 |
| | 40.8 |
| | 32,472,827 |
| | 22,877,819 |
| | 41.9 |
|
NM—Not meaningful
Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013March 31, 2014
Income before income tax expense from our Global Commercial Bank (“GCB”) increased to $100.1$125.7 million for the three months ended September 30, 2014,March 31, 2015, compared to $93.2$112.4 million for the comparable 20132014 period. Income before income tax expense was primarily driven by higher net interest income due to strong average loan growth. The key components of GCB's performance for the three months ended September 30, 2014March 31, 2015 compared to the comparable 20132014 period are discussed below.
Net interest income from our GCB increased by $24.828.5 million for the three months ended September 30, 2014March 31, 2015, primarily due to a $13.8$15.3 million increase in loan interest income resulting mainly from an increase in average loan balances, partially offset by lower loan yields. Additionally, GCB had a $19.0$17.6 million increase in the FTP earned for deposits due to strong average deposit growth. These increases were partially offset by a $4.0$3.3 million decrease in the FTP earned for deposits from decreases in market interest rates.
GCB had a provision for loan losses of $6.5 million for the three months ended March 31, 2015, compared to $0.8 million for the comparable 2014 period. The provision of $6.5 million for the three months ended March 31, 2015 was primarily driven by an increase of $8.7 million in the reserve for impaired loans, primarily reflective of an increase in the reserve for a previously impaired loan, as well as $3.9 million for net charge-offs. These increases were offset by a $6.8 million decrease in the reserve due to the improvement of the credit quality of our performing loans.
The provision of $0.8 million for the three months ended March 31, 2014 was primarily attributable to net charge-offs, a decrease in our reserve for impaired loans due to repayments on impaired loan balances and improvement in the overall credit quality of gross performing loans.
Noninterest income increased by $16.26.1 million for the three months ended September 30, 2014, compared to $11.6 million for the comparable 2013 period. The provision of $16.2 million for the three months ended September 30, 2014 was primarily driven from net charge-offs, period-end loan growth and the change in composition of our performing loan portfolio, offset by a decrease in the reserve for impaired loans resulting from a decrease in impaired loan balances. The provision of $11.6 million for the three months ended September 30, 2013 was primarily attributable to net charge-offs, an increase in our reserve for impaired loans and period-end loan growth.
Noninterest income increased by $7.8 million for the three months endedSeptember 30, 2014March 31, 2015, primarily related to higher foreign exchangecredit card fees, credit cardlending related fees and deposit service charges. The increase in foreign exchangecredit card fees was primarily due to
reflects increased client utilization of foreign currencyour credit card products and custom payment solutions by our clients, resultingnew and existing clients. The increase in lending related fees is due to an increase in the number of tradesloan syndication fee income and commissioned notional volumes. Thean increase in credit cardunused commitment fees was primarily due to increases in client volumes andfor the additionfirst quarter of new credit card clients.2015. The increase in deposit service charges is reflective of the increase in the number of deposit clients, as well as increases in transaction volumes and size.
Noninterest expense increased by $21.2$15.6 million for the three months ended September 30, 2014,March 31, 2015, primarily due to increased activities to support our expansion of product offerings as well as our continued investment into ongoing business and IT infrastructure initiatives. Also, increases in compensation and benefits expenses related to our salaries and wages contributed to the increase.expenses. The increase in our salaries and wages expenses was primarily due to an increase in the average number of FTEs at GCB, which increased by 151162 to 1,5031,532 FTEs for the three months ended September 30, 2014,March 31, 2015, compared to 1,3521,370 FTEs for the comparable 20132014 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. Net occupancy costsHigher expenses for GCBFDIC and state assessments, and premises and equipment, also increased duecontributed to the impact of lease renewals at higher rates, reflective of market conditions, and the expansion of certain existing offices.
Nine months endedSeptember 30, 2014 compared to the nine months ended September 30, 2013
Net interest income from our Global Commercial Bank (“GCB”) increased by $75.5 millionincrease in noninterest expense for the nine months ended September 30, 2014, primarily due to an increase in loan interest income resulting mainly from an increase in average loan balances and an increase in the FTP earned for deposits due to deposit growth.GCB segment. These increases were partially offset by a decreaseresult of the continued growth of the GCB segment, in the FTP earned for deposits from decreases in market interest rates.
We had a provision for loan losses for GCBwhich average assets increased $10.5 billion to $36.0 billion as of $18.8 million for the nine months ended September 30, 2014, compared to a provisionMarch 31, 2015.
Noninterest income increased by $24.5 million for the nine months ended September 30, 2014, primarily due to an increase in foreign exchange fees, credit card fees and unused commitment fees. The increase in foreign exchange fees was primarily due to increased utilization of foreign currency products by our clients, resulting in an increase in the number of trades and commissioned notional volumes. The increase in credit card fees was primarily due to the addition of new credit card clients and an increase in client activity. The increase in unused commitment fees was primarily due to an increase in unfunded credit commitments.
Noninterest expense increased by $61.2 million for the nine months ended September 30, 2014, primarily due to an increase in salaries and wages, net occupancy and professional services. The increase in salaries and wages was primarily due to an increase in the average number of FTEs at GCB, which increased by 107 to 1,448 for the nine months ended September 30, 2014, compared to 1,341 for the comparable 2013 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 due to increased activities to support our expansion of product offerings as well as our continued investment into ongoing business and IT infrastructure initiatives. Net occupancy costs increased due to the impact of lease renewals at higher rates, reflective of market conditions, and the expansion of certain existing offices.
SVB Private Bank
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Net interest income | | $ | 7,344 |
| | $ | 6,195 |
| | 18.5 | % | | $ | 23,529 |
| | $ | 18,226 |
| | 29.1 | % | | $ | 9,723 |
| | $ | 6,892 |
| | 41.1 | % |
(Provision for) reduction of loan losses | | (425 | ) | | 995 |
| | (142.7 | ) | | (218 | ) | | 1,007 |
| | (121.6 | ) | |
Reduction of loan losses | | | 8 |
| | 313 |
| | (97.4 | ) |
Noninterest income | | 491 |
| | 380 |
| | 29.2 |
| | 1,121 |
| | 867 |
| | 29.3 |
| | 397 |
| | 274 |
| | 44.9 |
|
Noninterest expense | | (2,574 | ) | | (2,484 | ) | | 3.6 |
| | (7,709 | ) | | (6,263 | ) | | 23.1 |
| | (2,747 | ) | | (2,495 | ) | | 10.1 |
|
Income before income tax expense | | $ | 4,836 |
| | $ | 5,086 |
| | (4.9 | ) | | $ | 16,723 |
| | $ | 13,837 |
| | 20.9 |
| | $ | 7,381 |
| | $ | 4,984 |
| | 48.1 |
|
Total average loans, net of unearned income | | $ | 1,190,986 |
| | $ | 942,411 |
| | 26.4 |
| | $ | 1,120,647 |
| | $ | 886,679 |
| | 26.4 |
| | $ | 1,374,189 |
| | $ | 1,049,901 |
| | 30.9 |
|
Total average assets | | 1,129,947 |
| | 998,640 |
| | 13.1 |
| | 1,027,707 |
| | 910,551 |
| | 12.9 |
| | 1,921,554 |
| | 967,873 |
| | 98.5 |
|
Total average deposits | | 877,701 |
| | 535,611 |
| | 63.9 |
| | 805,167 |
| | 493,204 |
| | 63.3 |
| | 1,251,939 |
| | 745,083 |
| | 68.0 |
|
Three months endedSeptember 30, 2014 March 31, 2015 compared to the three months endedSeptember 30, 2013 March 31, 2014
Net interest income from SVB Private Bank increased by $1.1$2.8 million for the three months ended September 30, 2014, primarily due to an increase in loan interest income resulting primarily from an increase in average loan balances and loan yields.
We had a provision for loan losses from SVB Private Bank of $0.4 million for the three months ended September 30, 2014, primarily due to period-end loan growth. For the three months ended September 30, 2013, the reduction of loan losses of $1.0 million was primarily due to a decrease in the reserve for impaired loans resulting from lower impaired loan balances.
Nine months endedSeptember 30, 2014 compared to the nine months ended September 30, 2013
Net interest income from SVB Private Bank increased by $5.3 million for the nine months ended September 30, 2014,March 31, 2015, primarily due to an increase in loan interest income resulting from an increase in average loan balances.balances as well as an increase in the FTP earned for deposits due to strong average deposit growth.
Noninterest expense increased by $1.4 million for the nine months ended September 30, 2014, primarily driven by expenses related to our new Wealth Advisory practice.
SVB Capital
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change | | 2015 | | 2014 | | % Change |
Net interest income | | $ | 12 |
| | $ | 1 |
| | NM |
| | $ | 55 |
| | $ | 5 |
| | NM |
| |
Net interest (loss) income | | | $ | (24 | ) | | $ | 14 |
| | NM |
|
Noninterest income | | 1,064 |
| | 35,457 |
| | (97.0 | ) | | 35,617 |
| | 48,179 |
| | (26.1 | ) | | 21,141 |
| | 37,672 |
| | (43.9 | ) |
Noninterest expense | | (3,036 | ) | | (2,728 | ) | | 11.3 |
| | (8,815 | ) | | (7,871 | ) | | 12.0 |
| | (3,891 | ) | | (2,635 | ) | | 47.7 |
|
(Loss) income before income tax expense | | $ | (1,960 | ) | | $ | 32,730 |
| | (106.0 | ) | | $ | 26,857 |
| | $ | 40,313 |
| | (33.4 | ) | |
Income before income tax expense | | | $ | 17,226 |
| | $ | 35,051 |
| | (50.9 | ) |
Total average assets | | $ | 302,949 |
| | $ | 329,680 |
| | (8.1 | ) | | $ | 328,048 |
| | $ | 277,136 |
| | 18.4 |
| | $ | 269,982 |
| | $ | 340,990 |
| | (20.8 | ) |
NM - Not meaningful
SVB Capital’s components of noninterest (loss) income primarily include net gains and losses on non-marketable and other securities, carried interest and fund management fees. All components of (loss) 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 September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013March 31, 2014
SVB Capital had noninterest income of $1.121.1 million for the three months ended September 30, 2014March 31, 2015, compared to noninterest income of $35.5$37.7 million for the comparable 20132014 period. The decrease in noninterest income was primarily due to net lossesa decrease in gains on investment securities relatedcompared to valuation declines.the first quarter of 2014. SVB Capital’s components of noninterest income primarily include the following:
Net lossesgains on investment securities of $2.1$15.4 million for the three months ended September 30, 2014March 31, 2015, compared to net gains of $31.8$34.3 million for the comparable 20132014 period. The net lossesgains on investment securities of $2.1$15.4 million for the three months ended September 30, 2014March 31, 2015 were primarily driven by gains from distributions of investments, including the remaining shares of FireEye common stock, as well as unrealized valuation losses and reductions in carried interest allocations in two of our managed direct venture funds, related to FireEye. These losses were partially offset by gains from our managed funds of funds primarily related to unrealized valuation adjustments of two of our funds of funds and strategic and other investments, primarily driven by strong distributions from strategic venture capital fund investments.increases.
Fund management fees of $3.63.7 million andcompared to $2.8 million for the three months ended September 30,comparable 2014 and 2013, respectively. period. The increase is primarily due to the addition of the Capital Partners III, LP fund in 2014.the second quarter of 2014 and the Strategic Investors Fund VII Funds in the first quarter of 2015.
Nine months endedSeptember 30, 2014 compared to the nine months ended September 30, 2013
Noninterest income decreased by $12.6 million to $35.6 million for the nine months ended September 30, 2014, primarily due to valuation declines in our investment securities. SVB Capital’s components of noninterest income primarily include the following:
Net gains on investment securities of $25.4 million for the nine months ended September 30, 2014, compared to net gains of $39.0 million for the comparable 2013 period. The net gains on investment securities of $25.4 million for the nine months ended September 30, 2014 were primarily driven by unrealized valuation gains from our managed funds of funds and gains from our strategic and other investments, which were primarily driven by strong distributions from strategic venture capital fund investments as well as the sale of one of our direct equity investments, for which we recorded a realized gain of $4.7 million, partially offset by losses from two of our managed direct venture funds, related to FireEye.
Fund management fees of $9.9 million for the nine months ended September 30, 2014, compared to $8.5 million for the comparable 2013 period. Fund management fees increased primarily due to the addition of the Capital Partners III, LP fund in 2014.
Consolidated Financial Condition
Our total assets, total liabilities and stockholders' equity were $36.039.7 billion at September 30,March 31, 2015 compared to $39.3 billion at December 31, 2014,, an increase of $9.60.4 billion, or 36.40.9 percent, compared to $26.4 billion at December 31, 2013. Below is a summary of the individual components driving the changes in total assets, total liabilities and stockholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents totaled $1.91.3 billion at September 30, 2014March 31, 2015, an increasea decrease of $0.4$0.5 billion, or 21.727.2 percent, compared to $1.51.8 billion at December 31, 20132014. The increasedecrease in cash flows was primarily reflective of a $7.3 billionthe increase in average deposits and $0.4of $0.6 billion in net proceeds from our stock offering in the second quarter of 2014, offset by an increase of $4.6 billion in averagefixed income investment securities and $1.7 billion in average loans.securities.
As of September 30, 2014March 31, 2015 and December 31, 20132014, $883$236 million and $715861 million, respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $442460 million and $300440 million, respectively.
Investment Securities
Investment securities totaled $21.723.3 billion at September 30, 2014March 31, 2015, an increase of $8.10.6 billion, or 59.82.6 percent, compared to $13.622.7 billion at December 31, 20132014. Our investment securities portfolio consists of an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which primarily represent interest-earning investment securities,fixed income investments, and a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business. The increase of $8.1$0.6 billion included an increase of $8.0 billionwas primarily in our fixed income securities portfolio as well as an increase of $0.1 billion inwith our non-marketable and other securities reflective of our significant deposit growth during the nine months ended September 30, 2014.portfolio remaining relatively flat. 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 earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/
liability management objectives. Available-for-salePeriod-end available-for-sale securities were $13.3$13.7 billion at September 30,March 31, 2015 compared to $13.5 billion at December 31, 2014, an increase of $1.3$0.2 billion, or 11.2 percent, compared to $12.0 billion at December 31, 2013.1.5 percent. The increase was due to purchases of new available-for-sale securities of $8.1$0.6 billion, which were primarilyentirely comprised of fixed-rate U.S. Treasury securities, partially offset by a $5.4$0.4 billion transfer of securities out of our available-for-sale securities portfolio into a held-to-maturity securities portfolio as discussed below andin paydowns, scheduled maturities and called maturitiesmaturities. A decrease in market interest rates at period-end resulted in an increase in the fair value of $1.4 billion.our AFS securities portfolio of $87.1 million. The $87.1 million increase in fair value is reflected as a $51.9 million (net of tax) increase in accumulated other comprehensive income.
Securities classified as available-for-sale are carried at fair market value with changes in fair market value recorded as unrealized gains or losses in a separate component of shareholders equity.
Held-to-Maturity Securities
During the second quarter of 2014, we re-designated certain securities from the classification of “available-for-sale” to “held-to-maturity." The securities re-designated primarily consisted of agency-issued mortgage securities and CMOs with a total carrying value of $5.4 billion at June 1, 2014. At the time of re-designation the securities had unrealized gains totaling $22.5 million, net of tax, recorded in accumulated other comprehensive income and are being amortized over the life of the securities in a manner consistent with the amortization of a premium or discount. Our decision to re-designate the securities was based on our ability and intent to hold these securities to maturity. Factors used in assessing the ability to hold these securities to maturity were future liquidity needs and sources of funding.
Period-end held-to-maturity securities were $6.7$7.8 billion at September 30, 2014. During the nine months endedMarch 31, 2015 compared to $7.4 billion at December 31, 2014, an increase of 2014, there were$0.4 billion, or 5.3 percent. The increase was due to purchases of $1.6$0.7 billion, which were primarily comprised of agency-issued mortgageGovernment National Mortgage Association ("GNMA") backed securities, partially offset by paydowns and maturities of $0.3 billion. Average held-to-maturity securities were $2.5 billion for the nine months ended at September 30, 2014.
Securities classified as held-to-maturity are accounted for at cost with no adjustments for changes in fair value. For securities re-designated as held-to-maturity from available-for-sale, the unrealized gains at the date of transfer will continue to be reported as a separate component of shareholders' equity and amortized as mentioned above.
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. At September 30, 2014March 31, 2015 and December 31, 2013,2014, our estimated fixed income securities portfolio duration was 3.02.7 years and 3.32.8 years, respectively.
Non-Marketable and Other Securities
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, debt funds and private and public portfolio companies. A majority of these investments are managed through our SVB Capital funds business in funds of funds and direct venture and private equity funds. Included in our non-marketable and other 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 and other securities compared to the amounts attributable to SVBFG.
Non-marketable and other securities were $1.7 billion at September 30,March 31, 2015 compared to $1.7 billion at December 31, 2014,, an increase a decrease of $0.1 billion21.3 million, or 6.81.2 percent, compared to $1.6 billion at December 31, 2013.. The increasedecrease was primarily attributabledue to valuation gainsdistributions received from funds in our managed funds of funds driven by valuation gains in fund investments. The increase was partially offset by valuation declines inand distributions of investments from our managed direct venture funds, primarily attributable to declinespartially offset by capital calls made by our managed funds of funds and valuation increases in the market share priceour managed funds of FireEye.funds. The following table summarizes the carrying value (as reported) of non-marketable and other securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at September 30, 2014March 31, 2015 and December 31, 20132014:
|
| | | | | | | | | | | | | | | | |
| | March 31, 2015 | | December 31, 2014 |
(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) | | $ | 1,195,303 |
| | $ | 84,462 |
| | $ | 1,130,882 |
| | $ | 84,368 |
|
Other venture capital investments (2) | | 78,850 |
| | 2,231 |
| | 71,204 |
| | 1,823 |
|
Other securities (fair value accounting) (3) | | 11,936 |
| | 2,793 |
| | 108,251 |
| | 7,802 |
|
Non-marketable securities (equity method accounting): | | | | | | | | |
Other investments | | 145,942 |
| | 145,942 |
| | 142,674 |
| | 142,674 |
|
Non-marketable securities (cost method accounting): | | | | | | | | |
Venture capital and private equity fund investments | | 134,575 |
| | 134,575 |
| | 140,551 |
| | 140,551 |
|
Other investments (4) | | 14,910 |
| | 14,910 |
| | 13,423 |
| | 13,423 |
|
Investments in qualified affordable housing projects (4) | | 125,357 |
| | 125,357 |
| | 121,155 |
| | 121,155 |
|
Total non-marketable and other securities | | $ | 1,706,873 |
| | $ | 510,270 |
| | $ | 1,728,140 |
| | $ | 511,796 |
|
|
| | | | | | | | | | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
(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) | | $ | 1,078,911 |
| | $ | 83,546 |
| | $ | 862,972 |
| | $ | 76,505 |
|
Other venture capital investments (2) | | 43,863 |
| | 1,938 |
| | 32,839 |
| | 2,097 |
|
Other securities (fair value accounting) (3) | | 181,265 |
| | 17,652 |
| | 321,374 |
| | 23,058 |
|
Non-marketable securities (equity method accounting): | | | | | | | | |
Other investments | | 141,913 |
| | 141,913 |
| | 142,883 |
| | 142,883 |
|
Low income housing tax credit funds | | 98,417 |
| | 98,417 |
| | 72,241 |
| | 72,241 |
|
Non-marketable securities (cost method accounting): | | | | | | | | |
Venture capital and private equity fund investments | | 142,710 |
| | 142,710 |
| | 148,994 |
| | 148,994 |
|
Other investments | | 16,471 |
| | 16,471 |
| | 14,191 |
| | 14,191 |
|
Total non-marketable and other securities | | $ | 1,703,550 |
| | $ | 502,647 |
| | $ | 1,595,494 |
| | $ | 479,969 |
|
| |
(1) | The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and amounts attributable to SVBFG for each fund at September 30, 2014March 31, 2015 and December 31, 20132014: |
| | | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
(Dollars in thousands) | | Carrying value (as reported) | | Amount attributable to SVBFG | | Carrying value (as reported) | | Amount attributable to SVBFG | | Carrying value (as reported) | | Amount attributable to SVBFG | | Carrying value (as reported) | | Amount attributable to SVBFG |
SVB Strategic Investors Fund, LP | | $ | 25,625 |
| | $ | 3,219 |
| | $ | 29,104 |
| | $ | 3,656 |
| | $ | 23,953 |
| | $ | 3,009 |
| | $ | 24,645 |
| | $ | 3,096 |
|
SVB Strategic Investors Fund II, LP | | 92,681 |
| | 7,944 |
| | 96,185 |
| | 8,244 |
| | 89,219 |
| | 7,647 |
| | 97,250 |
| | 8,336 |
|
SVB Strategic Investors Fund III, LP | | 248,816 |
| | 14,608 |
| | 260,272 |
| | 15,280 |
| | 257,539 |
| | 15,120 |
| | 269,821 |
| | 15,841 |
|
SVB Strategic Investors Fund IV, LP | | 308,332 |
| | 15,417 |
| | 226,729 |
| | 11,337 |
| | 297,752 |
| | 14,888 |
| | 291,291 |
| | 14,564 |
|
Strategic Investors Fund V Funds | | 214,863 |
| | 327 |
| | 118,181 |
| | 184 |
| | 260,292 |
| | 405 |
| | 226,111 |
| | 350 |
|
Strategic Investors Fund VI Funds | | 56,958 |
| | 88 |
| | 7,944 |
| | 12 |
| | 127,721 |
| | — |
| | 89,605 |
| | — |
|
Strategic Investors Fund VII Funds | | | 2,212 |
| | — |
| | — |
| | — |
|
SVB Capital Preferred Return Fund, LP | | 61,876 |
| | 13,335 |
| | 59,028 |
| | 12,722 |
| | 64,417 |
| | 13,883 |
| | 62,110 |
| | 13,386 |
|
SVB Capital—NT Growth Partners, LP | | 61,818 |
| | 20,953 |
| | 61,126 |
| | 21,339 |
| | 64,078 |
| | 21,719 |
| | 61,973 |
| | 21,006 |
|
SVB Capital Partners II, LP | | 302 |
| | 15 |
| | 708 |
| | 36 |
| | 346 |
| | 17 |
| | 302 |
| | 15 |
|
Other private equity fund | | 7,640 |
| | 7,640 |
| | 3,695 |
| | 3,695 |
| | 7,774 |
| | 7,774 |
| | 7,774 |
| | 7,774 |
|
Total venture capital and private equity fund investments | | $ | 1,078,911 |
| | $ | 83,546 |
| | $ | 862,972 |
| | $ | 76,505 |
| | $ | 1,195,303 |
| | $ | 84,462 |
| | $ | 1,130,882 |
| | $ | 84,368 |
|
| |
(2) | The following table shows the amounts of other venture capital investments held by the following consolidated funds and amounts attributable to SVBFG for each fund at September 30, 2014March 31, 2015 and December 31, 20132014: |
| | | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
(Dollars in thousands) | | Carrying value (as reported) | | Amount attributable to SVBFG | | Carrying value (as reported) | | Amount attributable to SVBFG | | Carrying value (as reported) | | Amount attributable to SVBFG | | Carrying value (as reported) | | Amount attributable to SVBFG |
Silicon Valley BancVentures, LP | | $ | 5,616 |
| | $ | 601 |
| | $ | 6,564 |
| | $ | 702 |
| | $ | 3,390 |
| | $ | 363 |
| | $ | 3,291 |
| | $ | 352 |
|
SVB Capital Partners II, LP | | 17,802 |
| | 904 |
| | 22,684 |
| | 1,152 |
| | 27,215 |
| | 1,382 |
| | 20,481 |
| | 1,040 |
|
Capital Partners III, LP | | 15,000 |
| | 65 |
| | — |
| | — |
| | 41,055 |
| | — |
| | 41,055 |
| | — |
|
SVB Capital Shanghai Yangpu Venture Capital Fund | | 5,445 |
| | 368 |
| | 3,591 |
| | 243 |
| | 7,190 |
| | 486 |
| | 6,377 |
| | 431 |
|
Total other venture capital investments | | $ | 43,863 |
| | $ | 1,938 |
| | $ | 32,839 |
| | $ | 2,097 |
| | $ | 78,850 |
| | $ | 2,231 |
| | $ | 71,204 |
| | $ | 1,823 |
|
| |
(3) | Investments classified as other securities (fair value accounting) represent direct equity investments in public companies held by our consolidated funds. At September 30,December 31, 2014, the amount primarily includesincluded total unrealized gains of $143.8 million in one public company, FireEye. The extent suchDuring the first quarter of 2015, our managed direct venture funds distributed the remaining 2.5 million FireEye Shares to their respective investors (including the Company), resulting in $15.9 million of realized gains (or losses) will become realized is subjecton investment securities ($3.3 million net of noncontrolling interests but inclusive of the Company's carried interests). All distributed shares of FireEye common stock to a varietythe Company were sold during the first quarter of factors,2015 and as of March 31, 2015, we no longer hold any shares of FireEye common stock, either directly or through our managed direct venture funds. |
including among other things, changes in prevailing market prices and the timing of any sales or distribution of securities, which are subject to our funds' separate discretionary securities sales/distribution governance processes.
| |
(4) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
Volcker Rule
As discussed in "Business - Supervision and Regulation" under Item 1 of Part I of our 20132014 Form 10-K, federal regulatory agencies adopted final rules implementing the Volcker Rule“Volcker Rule” under the Dodd-Frank Act which,restricts, among other things, restrictsa bank's proprietary trading activities and a bank's ability to sponsor or limits banks andinvest in certain of their affiliates from sponsoring or having ownership interests in "covered funds"privately offered funds, including certain venture capital, hedge and private equity funds. UnderOn December 10, 2013, the federal bank regulatory agencies, the SEC and the CFTC adopted final regulations implementing the Volcker Rule, theseRule. The final regulations became effective on April 1, 2014, subject to a conformance timeline pursuant to which affected entities (referred to as "banking entities") are required to bring their activities and investments into conformance with the prohibitions and restrictions willof the Volcker Rule and the final regulations thereunder.
Subject to certain exceptions, the Volcker Rule prohibits a banking entity from engaging in “proprietary trading,” which is defined as engaging as principal for the “trading account” of the banking entity in securities or certain other financial instruments. Certain forms of proprietary trading may qualify as “permitted activities,” and thus not be subject to the ban on proprietary trading, such as market-making related activities, risk-mitigating hedging activities, trading in U.S. government or agency obligations, or certain other U.S. state or municipal obligations, and the obligations of Fannie Mae, Freddie Mac or Ginnie Mae. Based on this definition and the exceptions provided under the recently-issued regulations, we do not believe that we engage in any proprietary trading that is prohibited under the Volcker Rule.
Additionally, subject to certain exceptions, the rule prohibits a banking entity from sponsoring or investing in “covered funds,” which includes many venture capital, private equity and hedge funds. One such exception permits a banking entity to sponsor and invest in a covered fund that it organizes and offers to customers, provided that additional requirements are met. These permitted investments generally are limited to three percent of the total ownership interests in each covered fund. In addition, the aggregate investments a banking entity makes in all covered funds generally are limited to three percent of the institution’s Tier 1 capital.
Under the final regulations, the Volcker Rule’s prohibitions and restrictions apply to SVB Financial, the Bank and any affiliate of SVB Financial or the Bank (including the SVB Capital funds).Bank. SVB Financial maintains investments in certain venture capital and private equity funds which are covered funds under the Volcker Rule, that it did not organize;sponsor; maintains investments in covered fundssponsored-funds that it organized, which investments exceed a three percent per fund limit that is generally imposed by the Volcker Rule;of each such fund’s total ownership interests; and it hasits aggregate investments in all covered funds that may exceed three percent of its Tier 1 capital, which is another limit generally imposed by the Volcker Rule.capital. SVB Financial (including its affiliates) expects, therefore, that it will be required to reduce the level of its investments in covered funds over time and to forego investment opportunities in certain funds in the future. SVB Financial is generally required by the final rules to come into conformance with thesethe Volcker Rule’s requirements regarding covered funds by July 2015.21, 2016 with respect to covered funds in which SVB Financial invested or SVB Financial sponsored as of December 31, 2013. The time periodFederal Reserve Board has indicated that it intends to divest an investment that is not permitted by the final rule may be extended byextend this conformance deadline to July 21, 2017. In addition, the Federal Reserve Board may extend the conformance deadline for up to two one-year extensions (which may be granted on a case-by-case or industry-wide basis), and an additional extension of up to five years (until July 21, 2022) for ownership interests in fundsinvestments that are considered illiquid. We intend to seek the maximum extensions (up to July 21, 2022) available to us. However, there is no guarantee that the Federal Reserve Board will grant any of these extensions. If we are not successful in obtaining one or more of these extensions or if the Federal Reserve does not otherwise provide any relief of from the restrictions under
We estimate that our total venture capital and private equity fund investments deemed to be prohibited covered fund interests and therefore subject to the Volcker Rule, we may be forced to divest certain of our investments on terms that may not be favorable to us.
We currently estimate that the covered fund ownership interests that we hold which are prohibited by the Volcker RuleRule’s restrictions, have,had, as of September 30, 2014,March 31, 2015, an aggregate carrying value of approximately $250$237 million (and an aggregate fair value of $345$339 million). These covered fund ownership interests are our ownershipcomprised of interests (excluding any noncontrolling interests)attributable, solely, to the Company in our consolidated managed funds and certain of our non-marketable securities.
We continue to assess the financial impact of the Volcker Rulethese rules on our fund investments, as well as the impact of other Volcker Rule restrictions on other areas of our business. The actual and expected financial impact from these restrictions on our investments, if any, will be dependent on a variety of factors, including: our ability to obtain regulatory extensions; our ability to sell the investments; our carrying value at the time of any sale; the actual sales price realized; the timing of such sales; and any subsequently-issued regulatory guidance or interpretations of the rules. (See “Risk Factors” under Item 1A of Part I of our 20132014 Form 10-K.)
Loans
Loans, net of unearned income were $12.0increased by $55.3 million to $14.4 billion at September 30, 2014, an increase of $1.1 billion, or 10.2 percent,March 31, 2015, compared to $10.9$14.4 billion at December 31, 2013.2014. Unearned income was $95$107.2 million at September 30, 2014March 31, 2015 and $89$104.5 million at December 31, 2013.2014. Total gross loans were $12.1$14.5 billion at September 30, 2014,March 31, 2015, an increase of $1.1 billion, or 10.2 percent,$58.0 million, compared to $11.0$14.5 billion at December 31, 2013. 2014.Period-end loan growth came primarily from our technologylife science and life scienceshealthcare and venture capital/private equity loanconsumer loans portfolios. The breakdown of total gross loans and total loans as a percentage of total gross loans by category is as follows:
| | | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
(Dollars in thousands) | | Amount | | Percentage | | Amount | | Percentage | | Amount | | Percentage | | Amount | | Percentage |
Commercial loans: | | | | | | | | | | | | | | | | |
Software | | $ | 4,545,324 |
| | 37.5 | % | | $ | 4,141,358 |
| | 37.7 | % | |
Software and internet | | | $ | 4,913,747 |
| | 33.8 | % | | $ | 4,996,246 |
| | 34.5 | % |
Hardware | | 1,082,090 |
| | 8.9 |
| | 1,224,480 |
| | 11.1 |
| | 1,076,625 |
| | 7.4 |
| | 1,140,494 |
| | 7.9 |
|
Venture capital/private equity | | 2,948,335 |
| | 24.3 |
| | 2,408,426 |
| | 21.9 |
| |
Life science | | 1,257,130 |
| | 10.4 |
| | 1,181,266 |
| | 10.7 |
| |
Private equity/venture capital | | | 4,547,637 |
| | 31.2 |
| | 4,621,299 |
| | 31.9 |
|
Life science & healthcare | | | 1,411,563 |
| | 9.7 |
| | 1,300,727 |
| | 9.0 |
|
Premium wine | | 188,415 |
| | 1.6 |
| | 151,255 |
| | 1.4 |
| | 187,681 |
| | 1.3 |
| | 189,142 |
| | 1.3 |
|
Other | | 244,067 |
| | 2.0 |
| | 291,630 |
| | 2.7 |
| | 291,513 |
| | 2.0 |
| | 236,519 |
| | 1.6 |
|
Total commercial loans | | 10,265,361 |
| | 84.7 |
| | 9,398,415 |
| | 85.5 |
| | 12,428,766 |
| | 85.4 |
| | 12,484,427 |
| | 86.2 |
|
Real estate secured loans: | | | | | | | | | | | | | | | | |
Premium wine | | 563,655 |
| | 4.7 |
| | 515,942 |
| | 4.7 |
| | 613,786 |
| | 4.2 |
| | 607,507 |
| | 4.2 |
|
Consumer | | 1,047,487 |
| | 8.6 |
| | 873,070 |
| | 7.9 |
| | 1,208,637 |
| | 8.3 |
| | 1,117,661 |
| | 7.7 |
|
Other | | 30,433 |
| | 0.3 |
| | 31,033 |
| | 0.3 |
| | 39,763 |
| | 0.3 |
| | 39,983 |
| | 0.3 |
|
Total real estate secured loans | | 1,641,575 |
| | 13.6 |
| | 1,420,045 |
| | 12.9 |
| | 1,862,186 |
| | 12.8 |
| | 1,765,151 |
| | 12.2 |
|
Construction loans | | 80,273 |
| | 0.7 |
| | 77,165 |
| | 0.7 |
| | 85,906 |
| | 0.6 |
| | 78,851 |
| | 0.5 |
|
Consumer loans | | 125,265 |
| | 1.0 |
| | 99,643 |
| | 0.9 |
| | 169,887 |
| | 1.2 |
| | 160,337 |
| | 1.1 |
|
Total gross loans | | $ | 12,112,474 |
| | 100.0 |
| | $ | 10,995,268 |
| | 100.0 |
| | $ | 14,546,745 |
| | 100.0 |
| | $ | 14,488,766 |
| | 100.0 |
|
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 September 30, 2014March 31, 2015:
| | | | September 30, 2014 | | March 31, 2015 |
(Dollars in thousands) | | Less than Five Million | | Five to Ten Million | | Ten to Twenty Million | | Twenty to Thirty Million | | Thirty Million or More | | Total | | Less than Five Million | | Five to Ten Million | | Ten to Twenty Million | | Twenty to Thirty Million | | Thirty Million or More | | Total |
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Software | | $ | 1,175,657 |
| | $ | 641,936 |
| | $ | 1,127,447 |
| | $ | 913,954 |
| | $ | 686,330 |
| | $ | 4,545,324 |
| |
Software and internet | | | $ | 1,260,920 |
| | $ | 710,163 |
| | $ | 1,131,750 |
| | $ | 949,232 |
| | $ | 861,682 |
| | $ | 4,913,747 |
|
Hardware | | 222,205 |
| | 188,390 |
| | 268,112 |
| | 98,991 |
| | 304,392 |
| | 1,082,090 |
| | 209,985 |
| | 173,100 |
| | 192,084 |
| | 255,133 |
| | 246,323 |
| | 1,076,625 |
|
Venture capital/private equity | | 385,885 |
| | 364,155 |
| | 505,735 |
| | 427,908 |
| | 1,264,652 |
| | 2,948,335 |
| |
Life science | | 314,294 |
| | 283,420 |
| | 230,209 |
| | 198,403 |
| | 230,804 |
| | 1,257,130 |
| |
Private equity/venture capital | | | 476,151 |
| | 384,079 |
| | 619,386 |
| | 534,209 |
| | 2,533,812 |
| | 4,547,637 |
|
Life science & healthcare | | | 343,139 |
| | 248,020 |
| | 343,008 |
| | 256,166 |
| | 221,230 |
| | 1,411,563 |
|
Premium wine | | 78,377 |
| | 35,250 |
| | 46,363 |
| | 28,425 |
| | — |
| | 188,415 |
| | 82,062 |
| | 28,110 |
| | 49,627 |
| | 27,882 |
| | — |
| | 187,681 |
|
Other | | 121,453 |
| | 30,376 |
| | 57,238 |
| | — |
| | 35,000 |
| | 244,067 |
| | 135,570 |
| | 32,740 |
| | 28,892 |
| | 23,156 |
| | 71,155 |
| | 291,513 |
|
Commercial loans | | 2,297,871 |
| | 1,543,527 |
| | 2,235,104 |
| | 1,667,681 |
| | 2,521,178 |
| | 10,265,361 |
| | 2,507,827 |
| | 1,576,212 |
| | 2,364,747 |
| | 2,045,778 |
| | 3,934,202 |
| | 12,428,766 |
|
Real estate secured loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Premium wine | | 153,846 |
| | 159,018 |
| | 169,327 |
| | 81,464 |
| | — |
| | 563,655 |
| | 157,425 |
| | 165,439 |
| | 210,831 |
| | 80,091 |
| | — |
| | 613,786 |
|
Consumer | | 912,095 |
| | 111,670 |
| | 23,722 |
| | — |
| | — |
| | 1,047,487 |
| | 1,060,639 |
| | 137,611 |
| | 10,387 |
| | — |
| | — |
| | 1,208,637 |
|
Other | | 2,500 |
| | 5,000 |
| | — |
| | 22,933 |
| | — |
| | 30,433 |
| | — |
| | 5,980 |
| | 11,250 |
| | 22,533 |
| | — |
| | 39,763 |
|
Real estate secured loans | | 1,068,441 |
| | 275,688 |
| | 193,049 |
| | 104,397 |
| | — |
| | 1,641,575 |
| | 1,218,064 |
| | 309,030 |
| | 232,468 |
| | 102,624 |
| | — |
| | 1,862,186 |
|
Construction loans | | 11,927 |
| | 41,881 |
| | 26,465 |
| | — |
| | — |
| | 80,273 |
| | 13,988 |
| | 31,398 |
| | 40,520 |
| | — |
| | — |
| | 85,906 |
|
Consumer loans | | 61,923 |
| | 20,989 |
| | 12,353 |
| | — |
| | 30,000 |
| | 125,265 |
| | 71,443 |
| | 16,868 |
| | 18,576 |
| | 20,000 |
| | 43,000 |
| | 169,887 |
|
Total gross loans | | $ | 3,440,162 |
| | $ | 1,882,085 |
| | $ | 2,466,971 |
| | $ | 1,772,078 |
| | $ | 2,551,178 |
| | $ | 12,112,474 |
| | $ | 3,811,322 |
| | $ | 1,933,508 |
| | $ | 2,656,311 |
| | $ | 2,168,402 |
| | $ | 3,977,202 |
| | $ | 14,546,745 |
|
At September 30, 2014,March 31, 2015, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $4.3$6.1 billion, or 35.742.2 percent of our portfolio. These loans represented 127167 clients, and of these loans, none$27.5 million were on nonaccrual status as of September 30, 2014.March 31, 2015.
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, 20132014:
| | | | December 31, 2013 | | December 31, 2014 |
(Dollars in thousands) | | Less than Five Million | | Five to Ten Million | | Ten to Twenty Million | | Twenty to Thirty Million | | Thirty Million or More | | Total | | Less than Five Million | | Five to Ten Million | | Ten to Twenty Million | | Twenty to Thirty Million | | Thirty Million or More | | Total |
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Software | | $ | 1,031,179 |
| | $ | 647,060 |
| | $ | 905,815 |
| | $ | 832,375 |
| | $ | 724,929 |
| | $ | 4,141,358 |
| |
Software and internet | | | $ | 1,214,082 |
| | $ | 670,212 |
| | $ | 1,174,410 |
| | $ | 917,546 |
| | $ | 1,019,996 |
| | $ | 4,996,246 |
|
Hardware | | 280,794 |
| | 205,705 |
| | 187,140 |
| | 235,973 |
| | 314,868 |
| | 1,224,480 |
| | 204,513 |
| | 226,135 |
| | 240,039 |
| | 146,826 |
| | 322,981 |
| | 1,140,494 |
|
Venture capital/private equity | | 328,073 |
| | 248,787 |
| | 371,980 |
| | 201,193 |
| | 1,258,393 |
| | 2,408,426 |
| |
Life science | | 332,991 |
| | 262,420 |
| | 249,749 |
| | 122,426 |
| | 213,680 |
| | 1,181,266 |
| |
Private equity/venture capital | | | 426,985 |
| | 445,677 |
| | 677,568 |
| | 568,743 |
| | 2,502,326 |
| | 4,621,299 |
|
Life science & healthcare | | | 340,214 |
| | 238,585 |
| | 284,618 |
| | 216,805 |
| | 220,505 |
| | 1,300,727 |
|
Premium wine (1) | | 77,431 |
| | 24,667 |
| | 24,810 |
| | 24,347 |
| | — |
| | 151,255 |
| | 77,409 |
| | 38,413 |
| | 45,222 |
| | 28,098 |
| | — |
| | 189,142 |
|
Other | | 131,351 |
| | 48,698 |
| | — |
| | 76,581 |
| | 35,000 |
| | 291,630 |
| | 101,779 |
| | 42,906 |
| | 36,904 |
| | 23,235 |
| | 31,695 |
| | 236,519 |
|
Commercial loans | | 2,181,819 |
| | 1,437,337 |
| | 1,739,494 |
| | 1,492,895 |
| | 2,546,870 |
| | 9,398,415 |
| | 2,364,982 |
| | 1,661,928 |
| | 2,458,761 |
| | 1,901,253 |
| | 4,097,503 |
| | 12,484,427 |
|
Real estate secured loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Premium wine (1) | | 136,748 |
| | 128,291 |
| | 146,439 |
| | 73,594 |
| | 30,870 |
| | 515,942 |
| | 151,314 |
| | 169,719 |
| | 205,692 |
| | 80,782 |
| | — |
| | 607,507 |
|
Consumer loans (2) | | 760,693 |
| | 82,545 |
| | 9,832 |
| | 20,000 |
| | — |
| | 873,070 |
| | 977,747 |
| | 139,914 |
| | — |
| | — |
| | — |
| | 1,117,661 |
|
Other | | 2,500 |
| | 5,000 |
| | — |
| | 23,533 |
| | — |
| | 31,033 |
| | — |
| | 6,000 |
| | 11,250 |
| | 22,733 |
| | — |
| | 39,983 |
|
Real estate secured loans | | 899,941 |
| | 215,836 |
| | 156,271 |
| | 117,127 |
| | 30,870 |
| | 1,420,045 |
| | 1,129,061 |
| | 315,633 |
| | 216,942 |
| | 103,515 |
| | — |
| | 1,765,151 |
|
Construction loans | | 16,432 |
| | 48,359 |
| | 12,374 |
| | — |
| | — |
| | 77,165 |
| | 14,069 |
| | 24,194 |
| | 40,588 |
| | — |
| | — |
| | 78,851 |
|
Consumer loans (2) | | 46,019 |
| | 20,022 |
| | 600 |
| | 3,003 |
| | 29,999 |
| | 99,643 |
| | 65,326 |
| | 22,593 |
| | 16,418 |
| | 20,000 |
| | 36,000 |
| | 160,337 |
|
Total gross loans | | $ | 3,144,211 |
| | $ | 1,721,554 |
| | $ | 1,908,739 |
| | $ | 1,613,025 |
| | $ | 2,607,739 |
| | $ | 10,995,268 |
| | $ | 3,573,438 |
| | $ | 2,024,348 |
| | $ | 2,732,709 |
| | $ | 2,024,768 |
| | $ | 4,133,503 |
| | $ | 14,488,766 |
|
At December 31, 2013,2014, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $4.2$6.2 billion, or 38.442.5 percent of our portfolio. These loans represented 122170 clients, and of these loans, none$28 million were on nonaccrual status as of December 31, 2013.2014.
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 sciencesscience & healthcare loan portfolioportfolios 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 10.56.5 percent of total gross loans at September 30, 2014March 31, 2015, compared to 9.27.9 percent at December 31, 20132014. 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 capitalist firms or others, or in some cases, a successful sale to a third party or an IPO. 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 September 30, 2014March 31, 2015, our lending to private equity/venture capital/private equitycapital firms represented 24.331.2 percent of total gross loans, compared to 21.931.9 percent of total gross loans at December 31, 20132014. 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 September 30, 2014March 31, 2015, sponsor-led buyout loans represented 15.512.8 percent of total gross loans, compared to 12.513.2 percent of total gross loans at December 31, 20132014. These loans are typically larger in nature and repayment is generally dependent upon the cash flows of the acquired company. However, these loans are typically highly-secured and therefore carry lower credit risk.The increase from December 31, 2013 to September 30, 2014 was primarily due to the use, by us, of an expanded definition for loans in the sponsor-led buyout loan portfolio.
At September 30, 2014March 31, 2015, our asset-based lending, which consists primarily of working capital lines and accounts receivable factoring represented 7.36.5 percent and 3.83.1 percent, respectively, of total gross loans, compared to 7.37.1 percent and 4.23.8 percent, respectively, at December 31, 20132014. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.
Approximately 36.334.9 percent and 10.5 percent of our outstanding total gross loan balances as of September 30, 2014March 31, 2015 were to borrowers based in California and New York, respectively, compared to 39.734.5 percent and 9.6 percent as of December 31, 20132014. Other than California and New York, there are no states with gross loan balances greater than 10 percent.
See generally “Risk Factors–Credit Risks” set forth under Item 1A, Part I in our 20132014 Form 10-K.
Credit Quality Indicators
As of September 30, 2014March 31, 2015, our criticized and impaired loans represented 6.55.6 percent of our total gross loans compared to 5.75.2 percent at December 31, 20132014. A majority of our criticized loans are from our SVB Accelerator portfolio, serving our emerging or early stage clients. Loans to early stage clients make up 10.56.5 percent of our loan portfolio. It is common for an emerging or early stage client’s 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 a limited number of 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.
Credit Quality and Allowance for Loan Losses
Nonperforming assets consist of loans on nonaccrual status, loans past due 90 days or more still accruing interest, and Other Real Estate Owned ("OREO") and other foreclosed assets. 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) | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 |
Gross nonperforming, past due, and restructured loans: | | | | | | | | |
Impaired loans | | $ | 11,687 |
| | $ | 51,649 |
| | $ | 42,382 |
| | $ | 38,137 |
|
Loans past due 90 days or more still accruing interest | | 125 |
| | 99 |
| | 3,099 |
| | 1,302 |
|
Total nonperforming loans | | 11,812 |
| | 51,748 |
| | 45,481 |
| | 39,439 |
|
OREO and other foreclosed assets | | 561 |
| | 1,001 |
| | 545 |
| | 561 |
|
Total nonperforming assets | | $ | 12,373 |
| | $ | 52,749 |
| | $ | 46,026 |
| | $ | 40,000 |
|
Performing TDRs | | $ | 890 |
| | $ | 403 |
| | $ | 5,809 |
| | $ | 587 |
|
Nonperforming loans as a percentage of total gross loans | | 0.10 | % | | 0.47 | % | | 0.31 | % | | 0.27 | % |
Nonperforming assets as a percentage of total assets | | 0.03 |
| | 0.20 |
| | 0.12 |
| | 0.10 |
|
Allowance for loan losses | | $ | 129,061 |
| | $ | 142,886 |
| | $ | 167,875 |
| | $ | 165,359 |
|
As a percentage of total gross loans | | 1.07 | % | | 1.30 | % | | 1.15 | % | | 1.14 | % |
As a percentage of total gross nonperforming loans | | 1,092.63 |
| | 276.12 |
| | 369.11 |
| | 419.28 |
|
Allowance for loan losses for impaired loans | | $ | 2,325 |
| | $ | 21,277 |
| | $ | 23,822 |
| | $ | 15,051 |
|
As a percentage of total gross loans | | 0.02 | % | | 0.19 | % | | 0.16 | % | | 0.10 | % |
As a percentage of total gross nonperforming loans | | 19.68 |
| | 41.12 |
| | 52.38 |
| | 38.16 |
|
Allowance for loan losses for total gross performing loans | | $ | 126,736 |
| | $ | 121,609 |
| | $ | 144,053 |
| | $ | 150,308 |
|
As a percentage of total gross loans | | 1.05 | % | | 1.11 | % | | 0.99 | % | | 1.04 | % |
As a percentage of total gross performing loans | | 1.05 |
| | 1.11 |
| | 0.99 |
| | 1.04 |
|
Total gross loans | | $ | 12,112,474 |
| | $ | 10,995,268 |
| | $ | 14,546,745 |
| | $ | 14,488,766 |
|
Total gross performing loans | | 12,100,662 |
| | 10,943,520 |
| | 14,501,264 |
| | 14,449,327 |
|
Reserve for unfunded credit commitments (1) | | 35,489 |
| | 29,983 |
| | 38,628 |
| | 36,419 |
|
As a percentage of total unfunded credit commitments | | 0.24 | % | | 0.26 | % | | 0.25 | % | | 0.25 | % |
Total unfunded credit commitments (2) | | $ | 14,631,637 |
| | $ | 11,470,722 |
| | $ | 15,485,514 |
| | $ | 14,705,785 |
|
| |
(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 decreasedincreased to 1.071.15 percent at September 30, 2014,March 31, 2015, compared to 1.301.14 percent at December 31, 2013.2014. This decreaseincrease was primarily driven by a decreasean increase in reserves for a previously impaired loans primarily due to repayments of impaired loans as well as the improvement in the credit quality of theloan, partially offset by a lower reserve for our gross performing loan portfolio. Our reserve percentage for performing loans
reserve percentage for performing loans decreased to 1.050.99 percent at September 30, 2014,March 31, 2015, compared to 1.111.04 percent at December 31, 2013, primarily due to2014, reflective of the continued strong performanceshift in the mix of our performingoverall loan portfolio to our higher quality private equity/venture capital loan portfolio.
Our nonperforming loans were $11.845.5 million at September 30, 2014March 31, 2015, compared to $51.739.4 million at December 31, 20132014. Our impaired loan balance decreased $40.0increased $4.3 million as a result of $34.7 million in net repayments and $21.1 million in charge-offs, offset by $15.9$9.3 million in new impaired loans.loans, partially offset by $2.5 million in charge-offs and $2.5 million in repayments. The allowance for loan losses related tofor impaired loans was $2.3$23.8 million at September 30, 2014,March 31, 2015, compared to $21.3$15.1 million at December 31, 2013.2014.
Average impaired loans for the three and nine months ended September 30, 2014March 31, 2015 were $15.0$39.5 million and $25.8 million, respectively, compared to $39.3 million and $40.7$35.7 million for the comparable 2013 periods.2014 period. If the impaired loans had not been impaired, $0.2 million and $1.0$0.3 million in interest income would have been recorded for the three and nine months ended September 30, 2014March 31, 2015, compared to $0.2 million and $1.4$0.4 million for the comparable 2013 periods.2014 period.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at September 30, 2014March 31, 2015 and December 31, 20132014 is as follows:
| | (Dollars in thousands) | | September 30, 2014 |
| December 31, 2013 | | % Change | | March 31, 2015 |
| December 31, 2014 | | % Change |
Derivative assets, gross (1) | | $ | 119,332 |
| | $ | 127,114 |
| | (6.1 | )% | | $ | 186,198 |
| | $ | 157,990 |
| | 17.9 | % |
Foreign exchange spot contract assets, gross | | 83,185 |
| | 73,423 |
| | 13.3 |
| | 265,135 |
| | 51,972 |
| | NM |
|
Accrued interest receivable | | 81,334 |
| | 67,772 |
| | 20.0 |
| | 91,415 |
| | 94,180 |
| | (2.9 | ) |
FHLB and Federal Reserve Bank stock | | 41,026 |
| | 40,632 |
| | 1.0 |
| | 53,496 |
| | 53,496 |
| | — |
|
Accounts receivable | | 30,573 |
| | 15,773 |
| | 93.8 |
| | 23,443 |
| | 20,092 |
| | 16.7 |
|
Deferred tax assets(2) | | 40,525 |
| | 68,237 |
| | (40.6 | ) | | 10,838 |
| | 45,979 |
| | (76.4 | ) |
Other assets | | 110,989 |
| | 72,159 |
| | 53.8 |
| | 132,446 |
| | 131,580 |
| | 0.7 |
|
Total accrued interest receivable and other assets | | $ | 506,964 |
| | $ | 465,110 |
| | 9.0 |
| | $ | 762,971 |
| | $ | 555,289 |
| | 37.4 |
|
NM—Not meaningful
| |
(1) | See “Derivatives” section below. |
| |
(2) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted during the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
Foreign Exchange Spot Contract Assets
Foreign exchange spot contract assets represent unsettled client trades at the end of the period. The increase of $9.8 million was primarily due to increased client trade activity at period-end, and is consistent with the increase in foreign exchange spot contract liabilities (see “Other Liabilities” section below).
Accrued Interest Receivable
Accrued interest receivable consists of interest on our investment securities and loans.The increase of $13.6$213.2 million was primarily due to an overall increase in activity which included several large client trades at period-end.
Accrued Interest Receivable
The decrease of $2.8 million in accrued interest receivable on our loans dueis primarily reflective of two fewer days in the first quarter of 2015 (compared to an increase in our average loan portfolio as well as an increase in interest receivable on our investment securities from growth in our fixed income investment portfolio.the fourth quarter of 2014).
Net Deferred Tax Assets
AsThe decrease of September 30, 2014, we were$35.1 million in a net deferred tax asset position of$40.5 million, comparedassets primarily relates to a net deferred tax asset position of $68.2 million at December 31, 2013. The decrease in our net deferred tax asset position of $27.7 million is primarily reflective of the increase in the fair value of our investmentavailable-for-sale securities portfolio due to the decreaseresulting from decreases in period-end market interest rates.
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 September 30, 2014March 31, 2015 and December 31, 20132014:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | % Change | | March 31, 2015 | | December 31, 2014 | | % Change |
Assets: | | | | | | | | | | | | |
Equity warrant assets | | $ | 94,960 |
| | $ | 103,513 |
| | (8.3 | )% | | $ | 124,456 |
| | $ | 116,604 |
| | 6.7 | % |
Foreign exchange forward and option contracts | | 17,234 |
| | 15,530 |
| | 11.0 |
| | 54,495 |
| | 34,231 |
| | 59.2 |
|
Interest rate swaps | | 4,965 |
| | 6,492 |
| | (23.5 | ) | | 4,340 |
| | 4,609 |
| | (5.8 | ) |
Loan conversion options | | — |
| | 314 |
| | (100.0 | ) | |
Client interest rate derivatives | | 2,173 |
| | 1,265 |
| | 71.8 |
| | 2,907 |
| | 2,546 |
| | 14.2 |
|
Total derivative assets | | $ | 119,332 |
| | $ | 127,114 |
| | (6.1 | ) | | $ | 186,198 |
| | $ | 157,990 |
| | 17.9 |
|
Liabilities: | | | | | | | | | | | | |
Foreign exchange forward and option contracts | | $ | (15,833 | ) | | $ | (12,617 | ) | | 25.5 |
| | $ | (45,727 | ) | | $ | (28,363 | ) | | 61.2 |
|
Client interest rate derivatives | | (2,317 | ) | | (1,396 | ) | | 66.0 |
| | (3,166 | ) | | (2,748 | ) | | 15.2 |
|
Total derivative liabilities | | $ | (18,150 | ) | | $ | (14,013 | ) | | 29.5 |
| | $ | (48,893 | ) | | $ | (31,111 | ) | | 57.2 |
|
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 & healthcare industries. At September 30, 2014,March 31, 2015, we held warrants in 1,4151,525 companies, compared to 1,3201,478 companies at December 31, 2013.2014. Of the 1,525 companies, 25 companies made up approximately 40 percent of the fair value of the portfolio at March 31, 2015. 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 nine months ended September 30, 2014March 31, 2015 and 2013:2014:
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
(Dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 |
Balance, beginning of period | | $ | 88,905 |
| | $ | 76,584 |
| | $ | 103,513 |
| | $ | 74,272 |
|
New equity warrant assets | | 3,488 |
| | 4,490 |
| | 10,919 |
| | 10,934 |
|
Non-cash increases in fair value | | 6,430 |
| | 14,471 |
| | 23,262 |
| | 22,963 |
|
Exercised equity warrant assets (1) | | (3,802 | ) | | (3,144 | ) | | (42,157 | ) | | (15,546 | ) |
Terminated equity warrant assets | | (61 | ) | | (149 | ) | | (577 | ) | | (371 | ) |
Balance, end of period | | $ | 94,960 |
| | $ | 92,252 |
| | $ | 94,960 |
| | $ | 92,252 |
|
(1) Includes the exercise of several of our public equity warrants, including FireEye and Twitter, during the nine months ended September 30, 2014. |
| | | | | | | | |
| | Three months ended March 31, |
(Dollars in thousands) | | 2015 | | 2014 |
Balance, beginning of period | | $ | 116,604 |
| | $ | 103,513 |
|
New equity warrant assets | | 2,487 |
| | 4,079 |
|
Non-cash increases in fair value | | 16,527 |
| | 7,058 |
|
Exercised equity warrant assets | | (10,870 | ) | | (23,428 | ) |
Terminated equity warrant assets | | (292 | ) | | (87 | ) |
Balance, end of period | | $ | 124,456 |
| | $ | 91,135 |
|
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 also enter into forward contracts with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments. Revaluations of foreign currency denominated instruments are recorded inon the line item “Other” as part of noninterest income, a component of consolidated net income. We have not experienced nonperformance by any of our counterparties and therefore have not incurred any related losses. Further, we anticipate performance by all counterparties. As a result of cash collateral received, we did not have any net exposure for foreign exchange forward and foreign currency option contracts at September 30, 2014March 31, 2015 and our net exposure at December 31, 20132014 was $2.9$1.1 million. For additional information on our foreign exchange forward contracts and foreign currency option contracts, see Note 8-9- “Derivative Financial Instruments” of the “Notes to the Consolidated Financial Statements” under Part I, Item I in this report.
Interest Rate Swaps
For information on our interest rate swaps, see Note 8–9–“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)”Statements” under Part I, Item 1 of this report.
Deposits
Deposits were $31.133.9 billion at September 30, 2014March 31, 2015, an increasea decrease of $8.7$0.4 billion,, or 38.51.4 percent, compared to $22.534.3 billion at December 31, 20132014. The increaseoverall decrease in deposit balances was driven by increases in our noninterest-demand and money market deposits of $6.6 billion and $2.1 billion, respectively, primarily related to strong financing, IPO and M&A activity in 2014 resulting in increased balances from existing clients and also reflective of the increased utilization of off-balance sheet client investment funds by our clients at the end of the first quarter of 2015 contributing to a decrease of approximately $1.2 billion. This decrease was offset by $0.8 billion in period-end deposit growth primarily from newour Accelerator/Early-stage clients including strong levelsresulting from continued venture capital funding activity during the first quarter of early-stage and venture capital/private client additions. During the nine months ended September 30, 2014, we experienced significant growth in our deposit levels and expect to see continued growth into 2015. At September 30, 2014, 27.8March 31, 2015, 24.0 percent of our total deposits were interest-bearing deposits, compared to 29.328.4 percent at December 31, 2013.2014.
At September 30, 2014,March 31, 2015, the aggregate balance of time deposit accounts individually equal to or greater than $100,000 totaled $147$87.5 million, compared to $197$116.0 million at December 31, 2013.2014. At September 30, 2014, allMarch 31, 2015, $87.3 million of the 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.
Short-Term Borrowings
Short-term borrowings were $6.677.8 million at September 30, 2014March 31, 2015, compared to $5.17.8 million at December 31, 20132014. The increase was due to a $60.0 million short-term advance from our FHLB line of credit and an increase of $10.0 million in the amount of collateral held from our counterparties in relation to exposures in our favor on outstanding derivative contracts.
Long-Term Debt
Our long-term debt was $454 million at September 30, 2014 and $455$802.9 million at March 31, 2015 and $453.4 million at December 31, 20132014. The increase in our long-term debt was due to the issuance of 3.50% Senior Notes during the first quarter of 2015.
. As of both September 30, 2014 and DecemberMarch 31, 20132015, long-term debt included our 3.50% Senior Notes, 5.375% Senior Notes, 6.05% Subordinated Notes and 7.0% Junior Subordinated Debentures. For more information on our long-term debt, see Note 7–8–“Short-term Borrowings and Long-Term Debt” of the “Notes to Interimthe Consolidated Financial Statements (unaudited).”Statements” under Part I, Item I in this report.
Other Liabilities
A summary of other liabilities at September 30, 2014March 31, 2015 and December 31, 20132014 is as follows:
| | (Dollars in thousands) | | September 30, 2014 | | December 31, 2013 | | % Change | | March 31, 2015 | | December 31, 2014 | | % Change |
Foreign exchange spot contract liabilities, gross | | $ | 197,844 |
| | $ | 90,725 |
| | 118.1 | % | | $ | 342,096 |
| | $ | 94,999 |
| | NM |
|
Accrued compensation | | 92,893 |
| | 117,134 |
| | (20.7 | ) | | 46,227 |
| | 120,841 |
| | (61.7 | ) |
Reserve for unfunded credit commitments | | 35,489 |
| | 29,983 |
| | 18.4 |
| | 38,628 |
| | 36,419 |
| | 6.1 |
|
Derivative liabilities, gross (1) | | 18,150 |
| | 14,013 |
| | 29.5 |
| | 48,893 |
| | 31,111 |
| | 57.2 |
|
Other | | 173,086 |
| | 152,731 |
| | 13.3 |
| | 210,657 |
| | 200,123 |
| | 5.3 |
|
Total other liabilities | | $ | 517,462 |
| | $ | 404,586 |
| | 27.9 |
| | $ | 686,501 |
| | $ | 483,493 |
| | 42.0 |
|
NM—Not meaningful
| |
(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 increase of $107$247.1 million was primarily due to increased client trade activity at period-end, and is consistent with thean overall increase in foreign exchange spot contract assets. (See “Accrued Interest Receivable and Other Assets” section above).activity which included several large client trades at period-end.
Accrued Compensation
Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, ESOP/profit sharing and other compensation arrangements. The decrease of $24.2$74.6 million was primarily the result of 20132014 incentive compensation payouts during the first quarter of 2014,2015, partially offset by additional accruals for the ninethree months ended September 30, 2014.March 31, 2015.
Reserve for Unfunded Credit Commitments
Our reserve for unfunded credit commitments increased to $35.5$38.6 million at September 30, 2014March 31, 2015, compared to $30.0$36.4 million at December 31, 20132014, due primarily to a $3.1 billion$780 million increase in unfunded credit commitments from $11.5 billion to $14.6 billion forduring the nine months ended September 30, 2014.first quarter of 2015.
Noncontrolling Interests
Noncontrolling interests totaled $1.21.3 billion and $1.11.2 billion at September 30, 2014March 31, 2015 and December 31, 20132014, respectively. The increase of $0.1 billion was primarily due to net income attributable to noncontrolling interests of $143.0$56.8 million for the ninethree months ended September 30, 2014,March 31, 2015, driven by gains on investment securities and carried interest of $175.1$44.2 million from our managed funds of funds partially offset by losses of $17.1and $19.4 million from our managed direct venture funds.funds, partially offset by $5.5 million in non-interest expenses primarily related to management fees paid by the noncontrolling interests to our subsidiaries that serve as the general partner.
Fair Value Measurements
The following table summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014March 31, 2015 and December 31, 20132014.
|
| | | | | | | | | | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
(Dollars in thousands) | | Total Balance | | Level 3 | | Total Balance | | Level 3 |
Assets carried at fair value | | $ | 14,756,807 |
| | $ | 1,216,171 |
| | $ | 13,331,120 |
| | $ | 1,314,951 |
|
As a percentage of total assets | | 40.9 | % | | 3.4 | % | | 50.5 | % | | 5.0 | % |
Liabilities carried at fair value | | $ | 18,150 |
| | $ | — |
| | $ | 14,013 |
| | $ | — |
|
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 | | 91.8 | % | | 8.2 | % | | 90.1 | % | | 9.9 | % |
As of September 30, 2014, our available-for-sale securities, consisting primarily of U.S. Treasuries, agency-issued mortgage-backed securities and debentures issued by the U.S. government and its agencies, totaled $13.3 billion, or 90.4 percent of our portfolio of assets measured at fair value on a recurring basis, compared to $12.0 billion, or 89.9 percent, as of December 31, 2013. With the exception of U.S. Treasuries, which are classified as Level 1, 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. |
| | | | | | | | | | | | | | | | |
| | March 31, 2015 | | December 31, 2014 |
(Dollars in thousands) | | Total Balance | | Level 3 | | Total Balance | | Level 3 |
Assets carried at fair value | | $ | 15,219,210 |
| | $ | 1,396,414 |
| | $ | 15,008,982 |
| | $ | 1,316,784 |
|
As a percentage of total assets | | 38.3 | % | | 3.5 | % | | 38.2 | % | | 3.3 | % |
Liabilities carried at fair value | | $ | 48,893 |
| | $ | — |
| | $ | 31,111 |
| | $ | — |
|
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 | | 90.8 | % | | 9.2 | % | | 91.2 | % | | 8.8 | % |
Financial assets valued using Level 3 measurements consist of our investmentsnon-marketable securities (investments in venture capital and private equity funds and direct equity investments in privatelyprivately-held companies, and publicly held companies, as well asother investment securities in shares of public company stock subject to certain sales restrictions for which the sales restriction has not been lifted) and equity warrant assets in shares(shares of private and public company capital stock.
During the three and nine months ended September 30, 2014, the Level 3 assets that are measured atstock). The valuation methodologies of our non-marketable securities carried under fair value on a recurring basis experienced net realized and unrealized gains of $62.8 million and $355.9 million (which is inclusive of noncontrolling interest), respectively, primarily due to valuation increases in underlying fund investments in our managed funds and from our equity warrant assets, as well as gains from liquidity events and distributions. During the three and nine months ended September 30, 2013, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $200.3 million and $265.7 million (which is inclusive of noncontrolling interest), respectively.
The valuation of non-marketable securitiesaccounting and equity warrant assets in sharesinvolve a significant degree of private company capital stock is subjectmanagement judgment. Refer to Note 14—“Fair Value of Financial Instruments” of the “Notes to Interim Consolidated Financial Statements” under Part I, Item 1 of this report for a summary of the valuation techniques and significant judgment. inputs used for each class of Level 3 assets.
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 and there can be no assurances that we will realize the full value of these securities, which could result in significant losses.losses (See “Risk Factors” set forth in our 20132014 Form 10-K).
During the three months ended March 31, 2015, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $73.4 million (which is inclusive of noncontrolling interest), primarily due to valuation increases in underlying investments in our managed funds, as well as gains from liquidity events and distributions. During the three months ended March 31, 2014, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $240.2 million (which is inclusive of noncontrolling interest).
Capital Resources
We maintain an adequate capital base 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 our capital stock or other securities. In consultation with the Finance Committee of our Board of Directors, management engages in regular capital planning processes in an effort to optimize the 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. In addition, we conduct capital stress tests as part of our annual capital planning process. The stress tests allow us to assess the impact of adverse changes in the economy and interest rates on our capital adequacy position.
To support the continued growth
SVBFG Stockholders’ Equity
SVBFG stockholders’ equity totaled $2.7$3.0 billion at September 30, 2014,March 31, 2015, an increase of $0.7$0.2 billion, or 38.45.6 percent, compared to $2.0$2.8 billion at December 31, 2013.2014. This increase was primarily due to the $434.9 million in proceeds received in conjunction with the common stock equity offering as mentioned above and net income of $205.1$89 million for the ninethree months ended September 30, 2014.March 31, 2015. Additionally, the increase in the net balance of our accumulated other comprehensive income to $18.7$93 million from a net loss of $48.8$43 million at December 31, 2013,2014, was primarily driven by a $96.3$87 million increase in the fair value of our fixed income security portfolios ($57.552 million net of tax), which resulted from a decrease in the period-end market interest rates for the ninethree months ended September 30, 2014.March 31, 2015.
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 (i) total risk-based capital, (ii) tier 1 risk-based capital, (iii) CET 1 risk-based capital and (iii)(iv) tier 1 leverage ratio for bank holding companies and banks are 8.0%, 4.0% 6.0%, 4.5%and 4.0%, respectively.
To be classified as “well capitalized” under these capital guidelines, minimum ratios for total risk-based capital, tier 1 risk-based capital and tierCET 1 risk-based capital for bank holding companies and banks are 10.0%, 8.0% and 6.0%6.5%, 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.
Beginning in 2015, SVB Financial and the Bank are subject to a new regulatory capital measure called "Common Equity Tier 1" ("CET1") and a related regulatory capital ratio of CET 1 to risk-weighted assets implemented under "Basel III" regulatory capital reforms and changes required by the Dodd-Frank Act.
Regulatory capital ratios for SVB Financial and the Bank exceeded minimum federal regulatory guidelines for a well-capitalized depository institution as of September 30, 2014March 31, 2015 and December 31, 2013.2014. 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:
|
| | | | | | | | | | | | |
| | September 30, 2014 | | December 31, 2013 | | Minimum ratio to be “Well Capitalized” | | Minimum ratio to be “Adequately Capitalized” |
SVB Financial: | | | | | | | | |
Total risk-based capital ratio | | 14.97 | % | | 13.13 | % | | 10.0 | % | | 8.0 | % |
Tier 1 risk-based capital ratio | | 14.03 |
| | 11.94 |
| | 6.0 |
| | 4.0 |
|
Tier 1 leverage ratio | | 8.22 |
| | 8.31 |
| | N/A |
| | 4.0 |
|
Tangible common equity to tangible assets ratio (1)(2) | | 7.55 |
| | 7.44 |
| | N/A |
| | N/A |
|
Tangible common equity to risk-weighted assets ratio (1)(2) | | 13.97 |
| | 11.63 |
| | N/A |
| | N/A |
|
Bank: | | | | | | | | |
Total risk-based capital ratio | | 13.06 | % | | 11.32 | % | | 10.0 | % | | 8.0 | % |
Tier 1 risk-based capital ratio | | 12.11 |
| | 10.11 |
| | 6.0 |
| | 4.0 |
|
Tier 1 leverage ratio | | 7.05 |
| | 7.04 |
| | 5.0 |
| | 4.0 |
|
Tangible common equity to tangible assets ratio (1)(2) | | 6.76 |
| | 6.59 |
| | N/A |
| | N/A |
|
Tangible common equity to risk-weighted assets ratio (1)(2) | | 12.14 |
| | 9.87 |
| | N/A |
| | N/A |
|
|
| | | | | | | | | | | | |
| | March 31, 2015 | | December 31, 2014 | | Minimum ratio to be “Well Capitalized” | | Minimum ratio to be “Adequately Capitalized” |
SVB Financial: | | | | | | | | |
CET 1 risk-based capital ratio (1) | | 12.21 | % | | — | % | | 6.5 | % | | 4.5 | % |
Tier 1 risk-based capital ratio (2) | | 12.42 |
| | 12.91 |
| | 8.0 |
| | 6.0 |
|
Total risk-based capital ratio (2) | | 13.38 |
| | 13.92 |
| | 10.0 |
| | 8.0 |
|
Tier 1 leverage ratio (2) | | 7.71 |
| | 7.74 |
| | N/A |
| | 4.0 |
|
Tangible common equity to tangible assets ratio (3)(4)(5) | | 7.49 |
| | 7.15 |
| | N/A |
| | N/A |
|
Tangible common equity to risk-weighted assets ratio (3)(4)(5) | | 12.60 |
| | 12.93 |
| | N/A |
| | N/A |
|
Bank: | | | | | | | | |
CET 1 risk-based capital ratio (1) | | 12.36 | % | | — | % | | 6.5 | % | | 4.5 | % |
Tier 1 risk-based capital ratio (2) | | 12.36 |
| | 11.09 |
| | 8.0 |
| | 6.0 |
|
Total risk-based capital ratio (2) | | 13.35 |
| | 12.12 |
| | 10.0 |
| | 8.0 |
|
Tier 1 leverage ratio (2) | | 7.43 |
| | 6.64 |
| | 5.0 |
| | 4.0 |
|
Tangible common equity to tangible assets ratio (3)(4)(5) | | 7.60 |
| | 6.38 |
| | N/A |
| | N/A |
|
Tangible common equity to risk-weighted assets ratio (3)(4)(5) | | 12.77 |
| | 11.19 |
| | N/A |
| | N/A |
|
| |
(1) | As of March 31, 2015, Common Equity Tier 1 ("CET 1") is a new ratio requirement under the Basel III Capital Rules and represents, common stock, plus related surplus and retained earnings, plus limited amounts of minority interest in the form of common stock, less certain regulatory deductions, divided by total risk-weighted assets. |
| |
(2) | Ratios as of March 31, 2015 reflect the adoption of the Basel III Capital Rules in effect beginning January 1, 2015. Ratios for prior periods represent the previous capital rules under Basel I. |
| |
(3) | See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. |
| |
(2)(4) | The Federal Reserve Bank 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. |
| |
(5) | Prior period ratios have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
Our total risk-based capital ratio and tier 1 capital ratio, for both SVB Financial and the Bank, increasedcompared to December 31, 2013, primarily reflective of growth in retained earnings and SVB Financial's common stock offering during May 2014, which resulted in the issuance of 4,485,000 shares and net proceeds of $434.9 million, of which $400 million was contributed to the Bank and had a positive impact on Bank level capital ratios. The increase in our total risk-based capital ratios and tier 1 risk-based capital ratios reflect the increase in regulatory capital partially offset by the increase in risk-weighted assets during the period, primarily due to growth in our loans and our period-end unfunded commitments. The tier 1 leverage ratio for SVB Financial decreased compared to December 31, 2013 due2014, primarily reflective of the treatment of certain unused commitments and equity exposures under the new regulatory capital rules implementing the "Basel III" capital standards, which became effective January 1, 2015. For the Bank, our total risk-based capital, tier 1 capital, and leverage ratios as of March 31, 2015 increased compared to the same ratios as of December 31, 2014. This increase in total average assets during the period, primarily duewas a result of SVB Financial's contribution of capital to the significant growth in client deposits that flowed into our investment securities portfolio, cash and loans,Bank totaling $350 million, which more than offsetwas funded primarily by the increase in regulatory capital.Our tier 1 leverage ratio fornet proceeds from the Bank held relatively flat as our growth in regulatory capital matched our growth in assets. We continue to target a tier 1 leverage ratio for the Bank generally between 7 and 8 percent; though we may, from time to time, manage at levels outside of the target range based on various considerations, including changes in assets or capital mix, market conditions and management's expectations. While we expect our earnings to support a meaningful amountissuance of our deposit growth, we will continue to evaluate the options available to us to support our growth and tier 1 leverage ratio for the Bank, such as contributing cash3.50% Senior Notes. The capital contribution from SVB Financial to the Bank or potentially raising capital, including debt securities. provides continued support of our clients' growth. The increases in the Bank's ratios, resulting from the contribution, were partially offset by the impact of the new regulatory requirements discussed above. All of our capital ratios are above the levels to be considered “well capitalized" under banking regulations.
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 Company’s 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 stockholder’s 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 for SVB Financial and the Bank for the periods ending September 30, 2014March 31, 2015 and December 31, 20132014:
| | | | SVB Financial | | Bank | | SVB Financial | | Bank |
Non-GAAP tangible common equity and tangible assets (dollars in thousands, except ratios) | | September 30, 2014 | | December 31, 2013 | | September 30, 2014 | | December 31, 2013 | | March 31, 2015 | | December 31, 2014 | | March 31, 2015 | | December 31, 2014 |
GAAP SVBFG stockholders’ equity(1) | | $ | 2,721,957 |
| | $ | 1,966,270 |
| | $ | 2,324,461 |
| | $ | 1,639,024 |
| | $ | 2,971,637 |
| | $ | 2,813,072 |
| | $ | 2,886,173 |
| | $ | 2,399,411 |
|
Tangible common equity(1) | | $ | 2,721,957 |
| | $ | 1,966,270 |
| | $ | 2,324,461 |
| | $ | 1,639,024 |
| | $ | 2,971,637 |
| | $ | 2,813,072 |
| | $ | 2,886,173 |
| | $ | 2,399,411 |
|
GAAP Total assets(1) | | $ | 36,041,007 |
| | $ | 26,417,189 |
| | $ | 34,363,687 |
| | $ | 24,854,119 |
| | $ | 39,695,990 |
| | $ | 39,339,950 |
| | $ | 37,974,587 |
| | $ | 37,607,973 |
|
Tangible assets(1) | | $ | 36,041,007 |
| | $ | 26,417,189 |
| | $ | 34,363,687 |
| | $ | 24,854,119 |
| | $ | 39,695,990 |
| | $ | 39,339,950 |
| | $ | 37,974,587 |
| | $ | 37,607,973 |
|
Risk-weighted assets(2) | | $ | 19,482,333 |
| | $ | 16,901,501 |
| | $ | 19,144,527 |
| | $ | 16,612,870 |
| | $ | 23,576,724 |
| | $ | 21,755,091 |
| | $ | 22,602,065 |
| | $ | 21,450,480 |
|
Tangible common equity to tangible assets(1) | | 7.55 | % | | 7.44 | % | | 6.76 | % | | 6.59 | % | | 7.49 | % | | 7.15 | % | | 7.60 | % | | 6.38 | % |
Tangible common equity to risk-weighted assets | | 13.97 |
| | 11.63 |
| | 12.14 |
| | 9.87 |
| |
Tangible common equity to risk-weighted assets (1) (2) | | | 12.60 |
| | 12.93 |
| | 12.77 |
| | 11.19 |
|
| |
(1) | Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report. |
| |
(2) | Amounts and ratios as of March 31, 2015 reflect the adoption of the Basel III Capital Rules in effect beginning January 1, 2015. Amounts and ratios for prior periods represent the previous capital rules under Basel I. |
The tangible common equity to tangible assets ratio increased for SVB Financial and the Bank due to increases in total equity. See "SVBFG Stockholders’ Equity" above for further details on changes to the individual components of our equity balance.
For both SVB Financial, andthe tangible common equity to risk-weighted assets ratio decreased due to increases in risk-weighted assets, partially offset by increases in common equity, which primarily reflects the impact of the new regulatory requirements discussed above. For the Bank, the tangible common equity to risk-weighted assets ratiosratio increased due to increases in totaltangible common equity, partially offset by increases in risk-weighted assets, which primarily reflects growthassets. These increases were a result of SVB Financial's contribution of capital to the Bank, partially offset by the impact of the new regulatory requirements discussed above.
As discussed in our loan balancesAnnual Report on Form 10-K for the year ended December 31, 2014 in Item 1 “Business” under “Supervision and Regulation-Regulatory Capital”, in July 2013, the Federal Reserve Board, FDIC and OCC published final rules establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The new rules became effective for SVB Financial and the Bank in January 2015, with some rules being transitioned into full effectiveness over two to four years. For comparative period-over-period purposes, we have published capital ratios for SVB Financial above as of March 31, 2015 using our period-end unfunded loan commitments.historical methodology
in our investor materials and this Quarterly Report on Form 10-Q as of and for the three months ended March 31, 2015. Unlike the Bank, SVB Financial holds interests in funds which make its capital calculations more complex, both due to the new capital rules that became effective in January 2015 and to the application of GAAP, including ASU 2015-02, Consolidation (Topic 810), as described in Note 1 of the Notes to Consolidated Financial Statements. SVB Financial is still confirming its capital ratios as of March 31, 2015 under these new rules. Subject to such confirmation, actual capital ratios (common equity tier 1, tier 1 capital, total risk based capital and tier 1 leverage ratios) for SVB Financial (but not for the Bank) may be lower within a preliminary estimated range of 0.50% to 1.25% each than those set forth above; however, SVB Financial expects that these ratios will still exceed minimum federal regulatory ratios for a “well-capitalized” institution as of March 31, 2015. SVB Financial currently intends to early adopt ASU 2015-02 during the second quarter of 2015, which would be expected to mitigate such impact.
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 11—12—“Off-Balance Sheet Arrangements, Guarantees, and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)”Statements” under Part I, Item 1 of this report.
Commitments to Invest in Venture Capital/Private Equity Funds
Subject to applicable regulatory requirements, including the Volcker Rule, we make investments. 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 10-year10-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 5 to 7 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.
For further details on our commitments to invest in venture capital and private equity funds, refer to Note 11—12—“Off-Balance Sheet Arrangements, Guarantees, and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)”Statements” 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.
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. We may also offer more investment alternatives off the balance sheet which may impact deposit levels. At September 30, 2014,March 31, 2015, our period-end total deposit balances
increased decreased by $8.6$0.4 billion to $31.1$33.9 billion, compared to $22.5$34.3 billion at December 31, 2013.2014. The overall increasedecrease in deposit balances was due toprimarily reflective of the additionincreased utilization of new clients and increased fundraising activityoff-balance sheet client investment funds by our clients at the end of the first quarter of 2015 contributing to a decrease of approximately $1.2 billion. This decrease was offset by $0.8 billion in period-end deposit growth primarily from our Accelerator/Early-stage clients resulting from continued venture capital/private equity clients.capital funding activity during the first quarter of 2015.
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 Financial’s 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 “Business—Supervision and Regulation—Restriction on Dividends” under Part I, Item 1 of our 20132014 Form 10-K.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for the ninethree months ended September 30, 2014March 31, 2015 and 20132014. For further details, see our "Interim Consolidated Statements of Cash Flows"Flows (Unaudited)" under Part I, Item 1 of this report.
| | | | Nine months ended September 30, | | Three months ended March 31, |
(Dollars in thousands) | | 2014 | | 2013 | | 2015 | | 2014 |
Average cash and cash equivalents | | $ | 2,930,003 |
| | $ | 1,317,455 |
| | $ | 1,815,098 |
| | $ | 2,746,668 |
|
Percentage of total average assets | | 9.3 | % | | 5.9 | % | | 4.6 | % | | 9.9 | % |
Net cash provided by operating activities | | $ | 207,207 |
| | $ | 98,042 |
| | $ | 47,616 |
| | $ | 49,990 |
|
Net cash (used for) provided by investing activities | | (8,947,778 | ) | | 124,879 |
| |
Net cash provided by financing activities | | 9,074,329 |
| | 710,840 |
| |
Net increase in cash and cash equivalents | | $ | 333,758 |
| | $ | 933,761 |
| |
Net cash used for investing activities | | | (488,590 | ) | | (716,619 | ) |
Net cash (used for) provided by financing activities | | | (52,721 | ) | | 2,990,314 |
|
Net (decrease) increase in cash and cash equivalents | | | $ | (493,695 | ) | | $ | 2,323,685 |
|
Average cash and cash equivalents increaseddecreased by $1.60.9 billion, or 122.433.9 percent, to $2.91.8 billion for the ninethree months ended September 30, 2014March 31, 2015, compared to $1.32.7 billion for the comparable 20132014 period. The increasedecrease was primarily due to the continueddeployment of cash into our fixed income investment portfolio and to fund our strong growth in client deposit balances.loan growth. Average depositsinvestments increased by $7.9$8.9 billion to $26.9$21.1 billion for the ninethree months ended September 30, 2014,March 31, 2015, compared to $19.0$12.2 billion for the comparable 20132014 period. Average loans increased $3.2 billion to $14.0 billion for the three months ended March 31, 2015, compared to $10.8 billion for the comparable 2014 period.
Cash provided by operating activities was $207$48 million for the ninethree months ended September 30, 2014,March 31, 2015, primarily reflective of net income before noncontrolling interests of $348$145 million and an increase in cash from unsettled client purchases of foreign exchange spot contracts of $97$34 million partially offset by non-cash net gains on investment securities of $172$83 million and incentive compensation payouts during the first quarter of 2015 of $75 million.
Cash used for investing activities of $8.9 billion$489 million for the ninethree months ended September 30, 2014March 31, 2015 included $9.6$1.3 billion for purchases of fixed income securities, and $1.1 billion for the increase in loan balances, partially offset by $1.7 billion$761 million from maturities and paydowns from our fixed income securities investments.
Cash provided byused for financing activities was $9.1 billion$53 million for the ninethree months ended September 30, 2014,March 31, 2015, primarily reflective of a net increasedecrease of $8.7 billion$492 million in deposits and $435partially offset by $416 million in increased borrowing, primarily related to the net proceeds received in conjunction withfrom the common stock equity offering in the second quarterissuance of 2014.our 3.50% Senior Notes of approximately $346 million.
Cash and cash equivalents were $1.91.3 billion at both, September 30,March 31, 2015, compared to $3.9 billion at March 31, 2014 and September 30, 2013.
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 interest rate sensitive risks 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 fixed income securities portfolio, 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; (2) 1-month and 3-month LIBOR; and (3) Fed Funds target rate. Changes in these short-term rates impact interest earned on our variable rate loans, variable rate investment securities and balances held as cash and cash equivalents. Additionally, deposit pricing generally follows overall changes in short-term interest rates.
The following table presents our EVE and NII sensitivity exposure at September 30, 2014March 31, 2015 and December 31, 20132014, 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 | | Estimated | | Estimated Increase/(Decrease) In EVE | | Estimated | | Estimated Increase/ (Decrease) In NII |
Change in interest rates (basis points) | | EVE | | Amount | | Percent | | NII | | Amount | | Percent | | EVE | | Amount | | Percent | | NII | | Amount | | Percent |
| | (Dollars in thousands) | | (Dollars in thousands) |
September 30, 2014: | | | | | | | | | | | | | |
March 31, 2015: | | | | | | | | | | | | | |
+200 | | $ | 6,122,674 |
| | $ | 958,409 |
| | 18.6 | % | | $ | 1,101,195 |
| | $ | 170,682 |
| | 18.3 | % | | $ | 6,170,314 |
| | $ | 1,331,570 |
| | 27.5 | % | | $ | 1,232,699 |
| | $ | 223,812 |
| | 22.2 | % |
+100 | | 5,655,385 |
| | 491,120 |
| | 9.5 |
| | 1,009,031 |
| | 78,518 |
| | 8.4 |
| | 5,509,774 |
| | 671,030 |
| | 13.9 |
| | 1,115,237 |
| | 106,350 |
| | 10.5 |
|
— | | 5,164,265 |
| | — |
| | — |
| | 930,513 |
| | — |
| | — |
| | 4,838,744 |
| | — |
| | — |
| | 1,008,887 |
| | — |
| | — |
|
-100 | | 4,821,473 |
| | (342,792 | ) | | (6.6 | ) | | 902,796 |
| | (27,717 | ) | | (3.0 | ) | | 5,122,695 |
| | 283,951 |
| | 5.9 |
| | 970,130 |
| | (38,757 | ) | | (3.8 | ) |
-200 | | 5,075,194 |
| | (89,071 | ) | | (1.7 | ) | | 875,798 |
| | (54,715 | ) | | (5.9 | ) | | 5,168,953 |
| | 330,209 |
| | 6.8 |
| | 949,883 |
| | (59,004 | ) | | (5.8 | ) |
December 31, 2013: | | | | | | | | | | | | | |
December 31, 2014: | | | | | | | | | | | | | |
+200 | | $ | 4,656,411 |
| | $ | 477,866 |
| | 11.4 | % | | $ | 990,190 |
| | $ | 161,314 |
| | 19.5 | % | | $ | 6,201,773 |
| | $ | 1,237,900 |
| | 24.9 | % | | $ | 1,242,321 |
| | $ | 223,059 |
| | 21.9 | % |
+100 | | 4,382,397 |
| | 203,852 |
| | 4.9 |
| | 899,336 |
| | 70,460 |
| | 8.5 |
| | 5,598,887 |
| | 635,014 |
| | 12.8 |
| | 1,124,643 |
| | 105,381 |
| | 10.3 |
|
— | | 4,178,545 |
| | — |
| | — |
| | 828,876 |
| | — |
| | — |
| | 4,963,873 |
| | — |
| | — |
| | 1,019,262 |
| | — |
| | — |
|
-100 | | 3,960,086 |
| | (218,459 | ) | | (5.2 | ) | | 826,222 |
| | (2,654 | ) | | (0.3 | ) | | 4,927,749 |
| | (36,124 | ) | | (0.7 | ) | | 979,982 |
| | (39,280 | ) | | (3.9 | ) |
-200 | | 4,041,604 |
| | (136,941 | ) | | (3.3 | ) | | 822,448 |
| | (6,428 | ) | | (0.8 | ) | | 5,119,636 |
| | 155,763 |
| | 3.1 |
| | 953,556 |
| | (65,706 | ) | | (6.4 | ) |
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. In addition, we assume different deposit balance decay rates for each interest rate scenario based on a historical deposit study of our clients.
Our base case EVE at September 30, 2014 increasedMarch 31, 2015 decreased from December 31, 20132014 by $986$125 million, primarily caused by a flatter yield curve due to market conditions and the change in balance sheet mix, offset by flatter market yield curves due to market conditions.mix. The flatter market yield curve hasnegatively impacted the EVE by $183 million. The change in balance sheet mix had a $326positive impact of $58 million to our base. This net impact was reflective of a $602 million increase in fixed income investment securities, a $492 million decrease in deposits, and a $55 million increase in our period-end loan portfolio. This positive impact was offset by an increase of $419 million in borrowings, and a $488 million decrease in cash and cash equivalents. EVE sensitivity increased in the simulated upward interest rate movements due to a $1.1 billion increase in noninterest-bearing deposits. In the simulated downward interest rate movements, EVE sensitivity increased due to lower rates in the long-end of the yield curve reducing the down-rate shock effects for the noninterest-bearing deposits, while the positive impact from the loan and investment portfolios further increased EVE sensitivity.
12-Month Net Interest Income Simulation
Our estimated 12-month NII at March 31, 2015 decreased from December 31, 2014 by $10 million negative impact on the EVE, which offsets some of the positive impacts fromprimarily due to the change in the balance sheet mix. The changeNII was impacted by the increase of $419 million in balance sheet mixborrowings, the decrease of $488 million in cash and cash equivalents, and lower yields on loans. This impact was reflective of period-end increases of $8.0positively offset by the decrease in interest-bearing deposits by $1.6 billion and the increase in fixed income investment securities and $1.1 billion in loans, partially offset by an increase of $8.7 billion in deposits. EVE$602 million. NII sensitivity increasedremained flat in both the simulated upward and downward interest rate movementsmovements. In the simulated upward scenarios, the sensitivity remained approximately stable due to the increase inrelatively unchanged mix between fixed income securities and the $6.6 billion increase in noninterest-bearing deposits.variable assets at March 31, 2015 as compared to December 31, 2014. In the simulated downward 200 bps interest rate movement, a relatively smaller decrease in EVE isscenarios, sensitivity remained flat for the loan and investment securities due to the limited market value impact on deposits. The limited impact on deposits is attributed to deposit rates being at or near their absolute floors and a relative increase deposit balances.
12-Month Net Interest Income Simulation
Our expected 12-month net interest income at September 30, 2014 increased by $102 million as compared to December 31, 2013, primarily due to an increase in the period-end total interest earning assets attributable to an increase of $8.0 billion in our fixed income securities portfolio and an increase of $1.1 billion in our loans. These increases were partially offset by lower yields on investments and loans as well as an increase of $2.1 billion in interest-bearing deposits. The slight change in the intermediate portion of the yield curve attributed $7.4 million to the increase. Net interest income sensitivity in the simulated upward interestcurrent rate movement, measured as a percentage change from the base, decreased slightly due to growth in interest-bearing deposits offsetting some of the benefits from the upward rate movement. The NII sensitivity increased in the simulated downward interest rate movements due to a lower market yield curve compared to levels at December 31, 2013. The change in the market yield curve increased the estimated prepayment of mortgage securities, which are assumed to be reinvested at lower market rates and, in turn, reduce interest income earned.environment.
The simulation model used in the above analysis embeds floors in our interest rate scenarios, which prevent model benchmark rates from moving below 0.0%. In addition, we assume different deposit balance decay rates for each interest rate scenario based on a historical deposit study of our clients. 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 Company’s disclosure controls and procedures were effective.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s 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.
PART II–OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to Note 14–15–“Legal Matters” of the “Notes to Interim Consolidated Financial Statements (unaudited)”Statements” 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 20132014 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.
SIGNATURES
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.
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| | SVB Financial Group |
| |
Date: November 7, 2014May 11, 2015 | | /s/ MICHAEL DESCHENEAUX |
| | Michael Descheneaux |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
| |
| | SVB Financial Group |
| |
Date: November 7, 2014May 11, 2015 | | /s/ KAMRAN HUSAIN |
| | Kamran Husain |
| | Chief Accounting Officer |
| | (Principal Accounting Officer) |
INDEX TO EXHIBITS
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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 as of October 30, 2003 | | 8-K | | 000-15637 | | 4.15 | | November 19, 2003 | | |
4.5 | | Guarantee Agreement, dated as of 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 as of October 30, 2003 | | 8-K | | 000-15637 | | 4.18 | | November 19, 2003 | | |
4.8 | | Officers’ Certificate and Company Order, dated as of 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 | | 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 | | |
4.10 | | Form of 5.375% Senior Note due 2020 | | 8-K | | 000-15637 | | 4.2 | | September 20, 2010 | | |
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 |
|
| | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Incorporated by Reference | | Filed Herewith |
Form | | File No. | | Exhibit | | Filing Date | |
4.1 | | Officer's Certificate, dated as of January 29, 2015, relating to the 3.50% Senior Notes due 2025 | | 8-K | | 000-15637 | | 4.2 | | January 29, 2015 | | |
4.2 | | Form of 3.50% Senior Note due 2025 | | 8-K | | 000-15637 | | 4.3 | | January 29, 2015 | | |
10.1 | | Form of Incentive Stock Option Agreement under 2006 Equity Incentive Plan | | 8-K | | 000-15637 | | 10.2 | | January 9, 2015 | | |
10.2 | | Form of Nonqualified Stock Option Agreement under 2006 Equity Incentive Plan | | 8-K | | 000-15637 | | 10.3 | | January 9, 2015 | | |
10.3 | | Form of Restricted Stock Unit Agreement under 2006 Equity Incentive Plan (Subject to Time-Based Vesting) | | 8-K | | 000-15637 | | 10.4 | | January 9, 2015 | | |
10.4 | | Form of Restricted Stock Unit Agreement under 2006 Equity Incentive Plan (Subject to Performance-Based Vesting) | | 8-K | | 000-15637 | | 10.5 | | January 9, 2015 | | |
10.5 | | Form of Restricted Stock Award Agreement under 2006 Equity Incentive Plan | | 8-K | | 000-15637 | | 10.6 | | January 9, 2015 | | |
10.6 | | Form of Stock Appreciation Rights Agreement under 2006 Equity Incentive Plan | | 8-K | | 000-15637 | | 10.7 | | January 9, 2015 | | |
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 |
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* | Denotes management contract or any compensatory plan, contract or arrangement |
** | Furnished herewith |