0000719739 sivb:OtherDerivativeInstrumentsMember us-gaap:NondesignatedMember sivb:OtherNoninterestIncomeMember sivb:ForeignExchangeForwardContractsNetMember 2018-01-01 2018-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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 June 30, 20182019
OR
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| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________________ to .__________________
Commission File Number: 000-15637
SVB FINANCIAL GROUP
(Exact name of registrant as specified in its charter)
|
| | |
| Delaware | | 91-1962278 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
3003 Tasman Drive, Santa Clara, California95054-1191 |
| | |
3003 Tasman Drive, Santa Clara, California | | 95054-1191 |
(Address of principal executive offices) | | (Zip(Address of principal executive offices) (Zip Code) |
(408) (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. Yesx☒ 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). Yesx☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerx☒ Accelerated filer ¨☐
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
☐Smaller reporting company ¨☐
Emerging growth company ¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
Securities registered pursuant to Section 12(b) of the Act: |
| | | | |
| Title of Each Class | | Trading Symbol | | Name of Exchange on Which Registered |
| Common Stock, par value $0.001 per share | | SIVB | | NASDAQ Global Select Market |
At July 31, 2018, 53,213,7372019, 51,538,553 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
AFS— Available-for-Sale
APIC— Additional Paid-in Capital
ASC— Accounting Standards Codification
ASU— Accounting Standards Update
CET— Common Equity Tier
EHOP— Employee Home Ownership Program of the Company
EPS— Earnings Per Share
ERI— Energy and Resource Innovation
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
HTM— Held-to-Maturity
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
SPD-SVB— SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China)
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 (UNAUDITED)
|
| | | | | | | | |
| (Dollars in thousands, except par value and share data) |
| June 30,
2018 |
| December 31,
2017 |
| Assets |
|
|
|
|
| Cash and cash equivalents |
| $ | 2,712,101 |
|
| $ | 2,923,075 |
|
| Available-for-sale securities, at fair value (cost of $9,717,156 and $11,131,008, respectively) |
| 9,593,366 |
|
| 11,120,664 |
|
| Held-to-maturity securities, at cost (fair value of $15,493,995 and $12,548,280, respectively) |
| 15,898,263 |
|
| 12,663,455 |
|
| Non-marketable and other equity securities |
| 852,505 |
|
| 651,053 |
|
| Total investment securities |
| 26,344,134 |
|
| 24,435,172 |
|
| Loans, net of unearned income |
| 25,996,192 |
|
| 23,106,316 |
|
| Allowance for loan losses |
| (286,709 | ) |
| (255,024 | ) |
| Net loans |
| 25,709,483 |
|
| 22,851,292 |
|
| Premises and equipment, net of accumulated depreciation and amortization |
| 117,603 |
|
| 128,682 |
|
| Accrued interest receivable and other assets |
| 984,424 |
|
| 876,246 |
|
| Total assets |
| $ | 55,867,745 |
|
| $ | 51,214,467 |
|
| Liabilities and total equity |
|
|
|
|
| Liabilities: |
|
|
|
|
| Noninterest-bearing demand deposits |
| $ | 40,593,302 |
|
| $ | 36,655,497 |
|
| Interest-bearing deposits |
| 8,293,993 |
|
| 7,598,578 |
|
| Total deposits |
| 48,887,295 |
|
| 44,254,075 |
|
| Short-term borrowings |
| 417,246 |
|
| 1,033,730 |
|
| Other liabilities |
| 1,062,391 |
|
| 911,755 |
|
| Long-term debt |
| 695,972 |
|
| 695,492 |
|
| Total liabilities |
| 51,062,904 |
|
| 46,895,052 |
|
| Commitments and contingencies (Note 13 and Note 16) |
|
|
|
|
|
| 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; 53,210,627 shares and 52,835,188 shares outstanding, respectively |
| 53 |
|
| 53 |
|
| Additional paid-in capital |
| 1,346,586 |
|
| 1,314,377 |
|
| Retained earnings |
| 3,397,879 |
|
| 2,866,837 |
|
| Accumulated other comprehensive loss |
| (86,865 | ) |
| (1,472 | ) |
| Total SVBFG stockholders’ equity |
| 4,657,653 |
|
| 4,179,795 |
|
| Noncontrolling interests |
| 147,188 |
|
| 139,620 |
|
| Total equity |
| 4,804,841 |
|
| 4,319,415 |
|
| Total liabilities and total equity |
| $ | 55,867,745 |
|
| $ | 51,214,467 |
|
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| |
| Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands, except per share amounts) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| Interest income: |
|
|
|
|
|
|
|
|
| Loans |
| $ | 330,298 |
|
| $ | 250,197 |
|
| $ | 627,371 |
|
| $ | 477,538 |
|
| Investment securities: |
|
|
|
|
|
|
|
|
| Taxable |
| 137,150 |
|
| 95,522 |
|
| 261,627 |
|
| 185,325 |
|
| Non-taxable |
| 7,666 |
|
| 885 |
|
| 12,758 |
|
| 1,531 |
|
| Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
| 6,187 |
|
| 7,323 |
|
| 11,943 |
|
| 10,459 |
|
| Total interest income |
| 481,301 |
|
| 353,927 |
|
| 913,699 |
|
| 674,853 |
|
| Interest expense: |
|
|
|
|
|
|
|
|
| Deposits |
| 6,270 |
|
| 2,197 |
|
| 10,367 |
|
| 3,914 |
|
| Borrowings |
| 8,588 |
|
| 9,034 |
|
| 17,026 |
|
| 18,250 |
|
| Total interest expense |
| 14,858 |
|
| 11,231 |
|
| 27,393 |
|
| 22,164 |
|
| Net interest income |
| 466,443 |
|
| 342,696 |
|
| 886,306 |
|
| 652,689 |
|
| Provision for credit losses |
| 29,080 |
|
| 15,806 |
|
| 57,052 |
|
| 46,540 |
|
| Net interest income after provision for credit losses |
| 437,363 |
|
| 326,890 |
|
| 829,254 |
|
| 606,149 |
|
| Noninterest income: |
|
|
|
|
|
|
|
|
| Gains on investment securities, net |
| 36,114 |
|
| 17,630 |
|
| 45,172 |
|
| 33,600 |
|
| Gains on equity warrant assets, net |
| 19,061 |
|
| 10,820 |
|
| 38,252 |
|
| 17,510 |
|
| Foreign exchange fees |
| 34,077 |
|
| 26,108 |
|
| 67,904 |
|
| 52,355 |
|
| Credit card fees |
| 22,926 |
|
| 18,099 |
|
| 44,618 |
|
| 35,829 |
|
| Deposit service charges |
| 18,794 |
|
| 14,563 |
|
| 36,493 |
|
| 28,538 |
|
| Client investment fees |
| 29,452 |
|
| 12,982 |
|
| 52,327 |
|
| 22,008 |
|
| Lending related fees |
| 9,528 |
|
| 8,509 |
|
| 20,263 |
|
| 17,470 |
|
| Letters of credit and standby letters of credit fees |
| 8,347 |
|
| 7,006 |
|
| 16,529 |
|
| 13,645 |
|
| Other |
| 14,390 |
|
| 12,811 |
|
| 26,649 |
|
| 25,232 |
|
| Total noninterest income |
| 192,689 |
|
| 128,528 |
|
| 348,207 |
|
| 246,187 |
|
| Noninterest expense: |
|
|
|
|
|
|
|
|
| Compensation and benefits |
| 181,955 |
|
| 148,973 |
|
| 347,761 |
|
| 296,149 |
|
| Professional services |
| 46,813 |
|
| 27,925 |
|
| 75,538 |
|
| 53,344 |
|
| Premises and equipment |
| 19,173 |
|
| 18,958 |
|
| 37,718 |
|
| 34,816 |
|
| Net occupancy |
| 13,288 |
|
| 11,126 |
|
| 26,904 |
|
| 22,777 |
|
| Business development and travel |
| 12,095 |
|
| 11,389 |
|
| 23,286 |
|
| 20,584 |
|
| FDIC and state assessments |
| 10,326 |
|
| 9,313 |
|
| 19,756 |
|
| 17,995 |
|
| Correspondent bank fees |
| 3,277 |
|
| 3,163 |
|
| 6,687 |
|
| 6,608 |
|
| Other |
| 18,812 |
|
| 20,399 |
|
| 33,506 |
|
| 36,606 |
|
| Total noninterest expense |
| 305,739 |
|
| 251,246 |
|
| 571,156 |
|
| 488,879 |
|
| Income before income tax expense |
| 324,313 |
|
| 204,172 |
|
| 606,305 |
|
| 363,457 |
|
| Income tax expense |
| 77,287 |
|
| 71,656 |
|
| 151,253 |
|
| 123,061 |
|
| Net income before noncontrolling interests |
| 247,026 |
|
| 132,516 |
|
| 455,052 |
|
| 240,396 |
|
| Net income attributable to noncontrolling interests |
| (9,228 | ) |
| (9,323 | ) |
| (22,293 | ) |
| (15,720 | ) |
| Net income available to common stockholders |
| $ | 237,798 |
|
| $ | 123,193 |
|
| $ | 432,759 |
|
| $ | 224,676 |
|
| Earnings per common share—basic |
| $ | 4.48 |
|
| $ | 2.34 |
|
| $ | 8.17 |
|
| $ | 4.28 |
|
| Earnings per common share—diluted |
| 4.42 |
|
| 2.32 |
|
| 8.05 |
|
| 4.22 |
|
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| |
| Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| Net income before noncontrolling interests |
| $ | 247,026 |
|
| $ | 132,516 |
|
| $ | 455,052 |
|
| $ | 240,396 |
|
| Other comprehensive loss, net of tax: |
| | | |
|
|
|
|
| Change in foreign currency cumulative translation gains and losses: |
| | | |
|
|
|
|
| Foreign currency translation (losses) gains |
| (5,184 | ) |
| 1,578 |
|
| (2,078 | ) |
| 2,535 |
|
| Related tax benefit (expense) |
| 1,433 |
|
| (644 | ) |
| 577 |
|
| (1,034 | ) |
| Change in unrealized gains and losses on available-for-sale securities: |
| | | |
|
|
|
|
| Unrealized holding losses |
| (15,103 | ) |
| (5,639 | ) |
| (73,130 | ) |
| (13,396 | ) |
| Related tax benefit |
| 4,349 |
|
| 2,500 |
|
| 20,275 |
|
| 5,636 |
|
| Reclassification adjustment for losses (gains) included in net income (1) |
| — |
|
| 123 |
|
| — |
|
| (485 | ) |
| Related tax (benefit) expense (1) |
| — |
|
| (50 | ) |
| — |
|
| 198 |
|
| Reclassification of unrealized gains on equity securities to retained earnings for ASU 2016-01 (1) | | — |
| | — |
| | (40,316 | ) | | — |
|
| Related tax expense (1) | | — |
| | — |
| | 11,145 |
| | — |
|
| Amortization of unrealized holding gains on securities transferred from available-for-sale to held-to-maturity |
| (932 | ) |
| (1,566 | ) |
| (2,138 | ) |
| (3,337 | ) |
| Related tax benefit |
| 258 |
|
| 630 |
|
| 591 |
|
| 1,343 |
|
| Reclassification of stranded tax effect to retained earnings for ASU 2018-02 (1) | | — |
| | — |
| | (319 | ) | | — |
|
| Other comprehensive loss, net of tax |
| (15,179 | ) |
| (3,068 | ) |
| (85,393 | ) |
| (8,540 | ) |
| Comprehensive income |
| 231,847 |
|
| 129,448 |
|
| 369,659 |
|
| 231,856 |
|
| Comprehensive income attributable to noncontrolling interests |
| (9,228 | ) |
| (9,323 | ) |
| (22,293 | ) |
| (15,720 | ) |
| Comprehensive income attributable to SVBFG |
| $ | 222,619 |
|
| $ | 120,125 |
|
| $ | 347,366 |
|
| $ | 216,136 |
|
| |
(1) | See "Adoption of New Accounting Standards" in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.
|
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 |
| (Dollars in thousands) |
| Shares |
| Amount |
|
|
|
|
|
|
| Balance at December 31, 2016 |
| 52,254,074 |
| | $ | 52 |
| | $ | 1,242,741 |
| | $ | 2,376,331 |
| | $ | 23,430 |
|
| $ | 3,642,554 |
|
| $ | 134,483 |
|
| $ | 3,777,037 |
|
| Common stock issued under employee benefit plans, net of restricted stock cancellations |
| 419,247 |
| | 1 |
| | 11,821 |
| | — |
| | — |
|
| 11,822 |
|
| — |
|
| 11,822 |
|
| Common stock issued under ESOP |
| 10,838 |
| | — |
| | 2,094 |
| | — |
| | — |
|
| 2,094 |
|
| — |
|
| 2,094 |
|
| Net income |
| — |
| | — |
| | — |
| | 224,676 |
| | — |
|
| 224,676 |
|
| 15,720 |
|
| 240,396 |
|
| Capital calls and distributions, net |
| — |
| | — |
| | — |
| | — |
| | — |
|
| — |
|
| (9,603 | ) |
| (9,603 | ) |
| Net change in unrealized gains and losses on AFS securities, net of tax |
| — |
| | — |
| | — |
| | — |
| | (8,047 | ) |
| (8,047 | ) |
| — |
|
| (8,047 | ) |
| Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax |
| — |
| | — |
| | — |
| | — |
| | (1,994 | ) |
| (1,994 | ) |
| — |
|
| (1,994 | ) |
| Foreign currency translation adjustments, net of tax |
| — |
| | — |
| | — |
| | — |
| | 1,501 |
|
| 1,501 |
|
| — |
|
| 1,501 |
|
| Share-based compensation, net |
| — |
| | — |
| | 26,829 |
| | — |
| | — |
|
| 26,829 |
|
| — |
|
| 26,829 |
|
| Balance at June 30, 2017 |
| 52,684,159 |
|
| $ | 53 |
|
| $ | 1,283,485 |
|
| $ | 2,601,007 |
|
| $ | 14,890 |
|
| $ | 3,899,435 |
|
| $ | 140,600 |
|
| $ | 4,040,035 |
|
| Balance at December 31, 2017 |
| 52,835,188 |
| | $ | 53 |
| | $ | 1,314,377 |
| | $ | 2,866,837 |
| | $ | (1,472 | ) | | $ | 4,179,795 |
| | $ | 139,620 |
| | $ | 4,319,415 |
|
| Cumulative adjustment for ASU 2014-09, net of tax (1) | | — |
| | — |
| | — |
| | (5,802 | ) | | — |
| | (5,802 | ) | | — |
| | (5,802 | ) |
| Cumulative adjustment for ASU 2016-01, net of tax (1) | | — |
| | — |
| | — |
| | 103,766 |
| | (29,171 | ) | | 74,595 |
| | — |
| | 74,595 |
|
| Reclassification of stranded tax effect for ASU 2018-02 (1) | | — |
| | — |
| | — |
| | 319 |
| | (319 | ) | | — |
| | — |
| | — |
|
| Common stock issued under employee benefit plans, net of restricted stock cancellations |
| 365,767 |
| | — |
| | 7,165 |
| | — |
| | — |
|
| 7,165 |
|
| — |
|
| 7,165 |
|
| Common stock issued under ESOP |
| 9,672 |
| | — |
| | 2,577 |
| | — |
| | — |
|
| 2,577 |
|
| — |
|
| 2,577 |
|
| Net income |
| — |
| | — |
| | — |
| | 432,759 |
| | — |
|
| 432,759 |
|
| 22,293 |
|
| 455,052 |
|
| Capital calls and distributions, net |
| — |
| | — |
| | — |
| | — |
| | — |
|
| — |
|
| (14,725 | ) |
| (14,725 | ) |
| Net change in unrealized gains and losses on AFS securities, net of tax |
| — |
| | — |
| | — |
| | — |
| | (52,855 | ) |
| (52,855 | ) |
| — |
|
| (52,855 | ) |
| Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax |
| — |
| | — |
| | — |
| | — |
| | (1,547 | ) |
| (1,547 | ) |
| — |
|
| (1,547 | ) |
| Foreign currency translation adjustments, net of tax |
| — |
| | — |
| | — |
| | — |
| | (1,501 | ) |
| (1,501 | ) |
| — |
|
| (1,501 | ) |
| Share-based compensation, net |
| — |
| | — |
| | 22,467 |
| | — |
| | — |
|
| 22,467 |
|
| — |
|
| 22,467 |
|
| Balance at June 30, 2018 |
| 53,210,627 |
|
| $ | 53 |
|
| $ | 1,346,586 |
|
| $ | 3,397,879 |
|
| $ | (86,865 | ) |
| $ | 4,657,653 |
|
| $ | 147,188 |
|
| $ | 4,804,841 |
|
| |
(1) | See "Adoption of New Accounting Standards" in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.
|
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | | |
| |
| Six months ended June 30, |
| (Dollars in thousands) |
| 2018 |
| 2017 |
| Cash flows from operating activities: |
|
|
|
|
| Net income before noncontrolling interests |
| $ | 455,052 |
|
| $ | 240,396 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| Provision for credit losses |
| 57,052 |
|
| 46,540 |
|
| Changes in fair values of equity warrant assets, net of proceeds from exercises |
| (24,940 | ) | | (9,053 | ) |
| Changes in fair values of derivatives, net |
| (8,768 | ) |
| 8,505 |
|
| Gains on investment securities, net (1) |
| (45,172 | ) | | (20,341 | ) |
| Distributions of earnings from non-marketable and other equity securities (1) | | 27,409 |
| | 27,214 |
|
| Depreciation and amortization |
| 28,902 |
|
| 26,268 |
|
| Amortization of premiums and discounts on investment securities, net |
| (478 | ) |
| 1,747 |
|
| Amortization of share-based compensation |
| 22,467 |
|
| 19,095 |
|
| Amortization of deferred loan fees |
| (65,606 | ) |
| (51,869 | ) |
| Deferred income tax benefit |
| (18,594 | ) |
| (9,827 | ) |
| Excess tax benefit from exercise of stock options and vesting of restricted shares | | (14,488 | ) | | (13,028 | ) |
| Losses from the write-off of premises and equipment | | 7,006 |
| | — |
|
| Other gains | | — |
| | (3,858 | ) |
| Changes in other assets and liabilities: |
|
|
|
|
| Accrued interest receivable and payable, net |
| (28,213 | ) |
| (8,852 | ) |
| Accounts receivable and payable, net |
| (10,169 | ) |
| (6,227 | ) |
| Income tax receivable and payable, net |
| (21,076 | ) |
| 840 |
|
| Accrued compensation |
| (55,814 | ) |
| (51,636 | ) |
| Foreign exchange spot contracts, net |
| 68,870 |
|
| 159,607 |
|
| Other, net |
| (26,060 | ) |
| 41,200 |
|
| Net cash provided by operating activities |
| 347,380 |
|
| 396,721 |
|
| Cash flows from investing activities: |
|
|
|
|
| Purchases of available-for-sale securities |
| (390,758 | ) |
| (1,174,666 | ) |
| Proceeds from sales of available-for-sale securities |
| — |
|
| 5,024 |
|
| Proceeds from maturities and paydowns of available-for-sale securities |
| 1,775,568 |
|
| 1,715,291 |
|
| Purchases of held-to-maturity securities |
| (4,067,389 | ) |
| (2,298,290 | ) |
| Proceeds from maturities and paydowns of held-to-maturity securities |
| 935,820 |
|
| 806,386 |
|
| Purchases of non-marketable and other securities |
| (28,099 | ) |
| (9,488 | ) |
| Proceeds from sales and distributions of capital of non-marketable and other securities (1) |
| 75,139 |
|
| 23,765 |
|
| Net increase in loans |
| (2,855,537 | ) |
| (1,066,056 | ) |
| Purchases of premises and equipment |
| (14,851 | ) |
| (21,496 | ) |
| Net cash used for investing activities |
| (4,570,107 | ) |
| (2,019,530 | ) |
| Cash flows from financing activities: |
|
|
|
|
| Net increase in deposits |
| 4,633,220 |
|
| 3,485,423 |
|
| Net decrease in short-term borrowings |
| (616,484 | ) |
| (512,198 | ) |
| Principal payments of long-term debt | | — |
| | (46,235 | ) |
| (Distributions to noncontrolling interests), net of contributions from noncontrolling interests |
| (14,725 | ) |
| (9,603 | ) |
| Proceeds from issuance of common stock, ESPP and ESOP |
| 9,742 |
|
| 13,916 |
|
| Net cash provided by financing activities |
| 4,011,753 |
|
| 2,931,303 |
|
| Net (decrease) increase in cash and cash equivalents |
| (210,974 | ) |
| 1,308,494 |
|
| Cash and cash equivalents at beginning of period |
| 2,923,075 |
|
| 2,545,750 |
|
| Cash and cash equivalents at end of period |
| $ | 2,712,101 |
|
| $ | 3,854,244 |
|
| Supplemental disclosures: |
|
|
|
|
| Cash paid during the period for: |
|
|
|
|
| Interest |
| $ | 27,730 |
|
| $ | 22,293 |
|
| Income taxes |
| 193,682 |
|
| 137,371 |
|
| Noncash items during the period: |
|
|
|
|
| Changes in unrealized gains and losses on available-for-sale securities, net of tax |
| $ | (52,855 | ) |
| $ | (8,047 | ) |
| Distributions of stock from investments |
| 3,136 |
|
| 2,514 |
|
| |
(1) | During the first quarter of 2018 we adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance was adopted on a retrospective basis and impacted the presentation between investing and operating activities related to distributions and net gains from our nonmarketable and other securities portfolio. See Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.
|
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
| | | | | | | | |
| (Dollars in thousands, except par value and share data) |
| June 30,
2019 |
| December 31,
2018 |
| Assets: |
|
|
|
|
| Cash and cash equivalents |
| $ | 9,020,925 |
|
| $ | 3,571,539 |
|
| Available-for-sale securities, at fair value (cost of $7,842,667 and $7,862,311, respectively) |
| 7,940,322 |
|
| 7,790,043 |
|
| Held-to-maturity securities, at cost (fair value of $15,064,962 and $15,188,236, respectively) |
| 14,868,761 |
|
| 15,487,442 |
|
| Non-marketable and other equity securities |
| 1,079,749 |
|
| 941,104 |
|
| Total investment securities |
| 23,888,832 |
|
| 24,218,589 |
|
| Loans, net of unearned income |
| 29,209,573 |
|
| 28,338,280 |
|
| Allowance for loan losses |
| (301,888 | ) |
| (280,903 | ) |
| Net loans |
| 28,907,685 |
|
| 28,057,377 |
|
| Premises and equipment, net of accumulated depreciation and amortization |
| 141,888 |
|
| 129,213 |
|
| Goodwill | | 137,823 |
| | — |
|
| Other intangible assets, net | | 55,158 |
| | — |
|
| Lease right-of-use assets | | 156,347 |
| | — |
|
| Accrued interest receivable and other assets |
| 1,465,081 |
|
| 951,261 |
|
| Total assets |
| $ | 63,773,739 |
|
| $ | 56,927,979 |
|
| Liabilities and total equity: |
|
|
|
|
| Liabilities: |
|
|
|
|
| Noninterest-bearing demand deposits |
| $ | 39,331,489 |
|
| $ | 39,103,422 |
|
| Interest-bearing deposits |
| 16,279,051 |
|
| 10,225,478 |
|
| Total deposits |
| 55,610,540 |
|
| 49,328,900 |
|
| Short-term borrowings |
| 24,252 |
|
| 631,412 |
|
| Lease liabilities | | 195,326 |
| | — |
|
| Other liabilities |
| 1,540,476 |
|
| 1,006,359 |
|
| Long-term debt |
| 696,970 |
|
| 696,465 |
|
| Total liabilities |
| 58,067,564 |
|
| 51,663,136 |
|
| Commitments and contingencies (Note 16 and Note 19) |
|
|
|
|
|
| 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; 51,561,719 shares and 52,586,498 shares issued and outstanding, respectively |
| 52 |
|
| 53 |
|
| Additional paid-in capital |
| 1,421,565 |
|
| 1,378,438 |
|
| Retained earnings |
| 4,051,194 |
|
| 3,791,838 |
|
| Accumulated other comprehensive income (loss) |
| 81,232 |
|
| (54,120 | ) |
| Total SVBFG stockholders’ equity |
| 5,554,043 |
|
| 5,116,209 |
|
| Noncontrolling interests |
| 152,132 |
|
| 148,634 |
|
| Total equity |
| 5,706,175 |
|
| 5,264,843 |
|
| Total liabilities and total equity |
| $ | 63,773,739 |
|
| $ | 56,927,979 |
|
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| |
| Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands, except per share amounts) |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| Interest income: |
|
|
|
|
|
|
|
|
| Loans |
| $ | 414,077 |
|
| $ | 330,298 |
|
| $ | 808,221 |
|
| $ | 627,371 |
|
| Investment securities: |
|
|
|
|
|
|
|
|
| Taxable |
| 134,395 |
|
| 137,150 |
|
| 261,112 |
|
| 261,627 |
|
| Non-taxable |
| 10,931 |
|
| 7,666 |
|
| 21,868 |
|
| 12,758 |
|
| Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
| 26,364 |
|
| 6,187 |
|
| 45,580 |
|
| 11,943 |
|
| Total interest income |
| 585,767 |
|
| 481,301 |
|
| 1,136,781 |
|
| 913,699 |
|
| Interest expense: |
|
|
|
|
|
|
|
|
| Deposits |
| 47,150 |
|
| 6,270 |
|
| 75,057 |
|
| 10,367 |
|
| Borrowings |
| 9,214 |
|
| 8,588 |
|
| 19,435 |
|
| 17,026 |
|
| Total interest expense |
| 56,364 |
|
| 14,858 |
|
| 94,492 |
|
| 27,393 |
|
| Net interest income |
| 529,403 |
|
| 466,443 |
|
| 1,042,289 |
|
| 886,306 |
|
| Provision for credit losses |
| 23,946 |
|
| 29,080 |
|
| 52,497 |
|
| 57,052 |
|
| Net interest income after provision for credit losses |
| 505,457 |
|
| 437,363 |
|
| 989,792 |
|
| 829,254 |
|
| Noninterest income: |
|
|
|
|
|
|
|
|
| Gains on investment securities, net |
| 47,698 |
|
| 36,114 |
|
| 76,726 |
|
| 45,172 |
|
| Gains on equity warrant assets, net |
| 48,347 |
|
| 19,061 |
|
| 69,652 |
|
| 38,252 |
|
| Client investment fees | | 45,744 |
| | 29,452 |
| | 90,226 |
| | 52,327 |
|
| Foreign exchange fees |
| 38,506 |
|
| 34,077 |
|
| 76,554 |
|
| 67,904 |
|
| Credit card fees |
| 28,790 |
|
| 22,926 |
|
| 56,273 |
|
| 44,618 |
|
| Deposit service charges |
| 22,075 |
|
| 18,794 |
|
| 43,014 |
|
| 36,493 |
|
| Lending related fees |
| 11,213 |
|
| 9,528 |
|
| 25,150 |
|
| 20,263 |
|
| Letters of credit and standby letters of credit fees |
| 11,009 |
|
| 8,347 |
|
| 20,363 |
|
| 16,529 |
|
| Investment banking revenue | | 48,694 |
| | — |
| | 98,489 |
| | — |
|
| Commissions | | 14,429 |
| | — |
| | 28,537 |
| | — |
|
| Other |
| 17,245 |
|
| 14,390 |
|
| 29,142 |
|
| 26,649 |
|
| Total noninterest income |
| 333,750 |
|
| 192,689 |
|
| 614,126 |
|
| 348,207 |
|
| Noninterest expense: |
|
|
|
|
|
|
|
|
| Compensation and benefits |
| 243,172 |
|
| 181,955 |
|
| 481,233 |
|
| 347,761 |
|
| Professional services |
| 40,830 |
|
| 46,813 |
|
| 77,816 |
|
| 75,538 |
|
| Premises and equipment |
| 23,911 |
|
| 19,173 |
|
| 45,611 |
|
| 37,718 |
|
| Net occupancy |
| 16,687 |
|
| 13,288 |
|
| 32,735 |
|
| 26,904 |
|
| Business development and travel |
| 17,022 |
|
| 12,095 |
|
| 32,376 |
|
| 23,286 |
|
| FDIC and state assessments |
| 4,483 |
|
| 10,326 |
|
| 8,462 |
|
| 19,756 |
|
| Other |
| 37,417 |
|
| 22,089 |
|
| 70,953 |
|
| 40,193 |
|
| Total noninterest expense |
| 383,522 |
|
| 305,739 |
|
| 749,186 |
|
| 571,156 |
|
| Income before income tax expense |
| 455,685 |
|
| 324,313 |
|
| 854,732 |
|
| 606,305 |
|
| Income tax expense |
| 119,114 |
|
| 77,287 |
|
| 226,549 |
|
| 151,253 |
|
| Net income before noncontrolling interests |
| 336,571 |
|
| 247,026 |
|
| 628,183 |
|
| 455,052 |
|
| Net income attributable to noncontrolling interests |
| (18,584 | ) |
| (9,228 | ) |
| (21,464 | ) |
| (22,293 | ) |
| Net income available to common stockholders |
| $ | 317,987 |
|
| $ | 237,798 |
|
| $ | 606,719 |
|
| $ | 432,759 |
|
| Earnings per common share—basic |
| $ | 6.12 |
|
| $ | 4.48 |
|
| $ | 11.61 |
|
| $ | 8.17 |
|
| Earnings per common share—diluted |
| 6.08 |
|
| 4.42 |
|
| 11.51 |
|
| 8.05 |
|
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| |
| Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| Net income before noncontrolling interests |
| $ | 336,571 |
|
| $ | 247,026 |
|
| $ | 628,183 |
|
| $ | 455,052 |
|
| Other comprehensive income (loss), net of tax: |
| | | |
|
|
|
|
| Change in foreign currency cumulative translation gains and losses: |
| | | |
|
|
|
|
| Foreign currency translation losses |
| (2,900 | ) |
| (5,184 | ) |
| (94 | ) |
| (2,078 | ) |
| Related tax benefit |
| 808 |
|
| 1,433 |
|
| 26 |
|
| 577 |
|
| Change in unrealized gains and losses on available-for-sale securities: |
| | | |
|
|
|
|
| Unrealized holding gains (losses) |
| 119,182 |
|
| (15,103 | ) |
| 166,018 |
|
| (73,130 | ) |
| Related tax (expense) benefit |
| (33,194 | ) |
| 4,349 |
|
| (46,239 | ) |
| 20,275 |
|
| Reclassification adjustment for losses included in net income |
| 275 |
|
| — |
|
| 3,905 |
|
| — |
|
| Related tax benefit |
| (77 | ) |
| — |
|
| (1,087 | ) |
| — |
|
| Reclassification of unrealized gains on equity securities to retained earnings for ASU 2016-01 | | — |
| | — |
| | — |
| | (40,316 | ) |
| Related tax expense | | — |
| | — |
| | — |
| | 11,145 |
|
| Amortization of unrealized holding gains on securities transferred from available-for-sale to held-to-maturity |
| (719 | ) |
| (932 | ) |
| (1,393 | ) |
| (2,138 | ) |
| Related tax benefit |
| 200 |
|
| 258 |
|
| 388 |
|
| 591 |
|
| Reclassification of stranded tax effect to retained earnings for ASU 2018-02 | | — |
| | — |
| | — |
| | (319 | ) |
| Change in unrealized gains and losses on cash flow hedges: | | | | | | | | |
| Unrealized gains | | 17,554 |
| | — |
| | 18,656 |
| | — |
|
| Related tax expense | | (4,890 | ) | | — |
| | (5,197 | ) | | — |
|
| Reclassification adjustment for losses included in net income | | 508 |
| | — |
| | 511 |
| | — |
|
| Related tax benefit | | (141 | ) | | — |
| | (142 | ) | | — |
|
| Other comprehensive income (loss), net of tax |
| 96,606 |
|
| (15,179 | ) |
| 135,352 |
|
| (85,393 | ) |
| Comprehensive income |
| 433,177 |
|
| 231,847 |
|
| 763,535 |
|
| 369,659 |
|
| Comprehensive income attributable to noncontrolling interests |
| (18,584 | ) |
| (9,228 | ) |
| (21,464 | ) |
| (22,293 | ) |
| Comprehensive income attributable to SVBFG |
| $ | 414,593 |
|
| $ | 222,619 |
|
| $ | 742,071 |
|
| $ | 347,366 |
|
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 |
| (Dollars in thousands) |
| Shares |
| Amount |
|
|
|
|
|
|
| Balance at December 31, 2017 |
| 52,835,188 |
| | $ | 53 |
| | $ | 1,314,377 |
| | $ | 2,866,837 |
| | $ | (1,472 | ) |
| $ | 4,179,795 |
|
| $ | 139,620 |
|
| $ | 4,319,415 |
|
| Cumulative adjustment for adoption of the revenue standard (ASU 2014-09), net of tax |
| — |
| | — |
| | — |
| | (5,802 | ) | | — |
|
| (5,802 | ) |
| — |
|
| (5,802 | ) |
| Cumulative adjustment for adoption of financial instruments (ASU 2016-01), net of tax |
| — |
| | — |
| | — |
| | 103,766 |
| | (29,171 | ) |
| 74,595 |
|
| — |
|
| 74,595 |
|
| Reclassification of stranded tax effect for ASU 2018-02 |
| — |
| | — |
| | — |
| | 319 |
| | (319 | ) |
| — |
|
| — |
|
| — |
|
| Common stock issued under employee benefit plans, net of restricted stock cancellations |
| 365,767 |
| | — |
| | 7,165 |
| | — |
| | — |
|
| 7,165 |
|
| — |
|
| 7,165 |
|
| Common stock issued under ESOP |
| 9,672 |
| | — |
| | 2,577 |
| | — |
| | — |
|
| 2,577 |
|
| — |
|
| 2,577 |
|
| Net income |
| — |
| | — |
| | — |
| | 432,759 |
| | — |
|
| 432,759 |
|
| 22,293 |
|
| 455,052 |
|
| Capital calls and distributions, net |
| — |
| | — |
| | — |
| | — |
| | — |
|
| — |
|
| (14,725 | ) |
| (14,725 | ) |
| Net change in unrealized gains and losses on AFS securities, net of tax |
| — |
| | — |
| | — |
| | — |
| | (52,855 | ) |
| (52,855 | ) |
| — |
|
| (52,855 | ) |
| Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax | | — |
| | — |
| | — |
| | — |
| | (1,547 | ) | | (1,547 | ) | | — |
| | (1,547 | ) |
| Foreign currency translation adjustments, net of tax | | — |
| | — |
| | — |
| | — |
| | (1,501 | ) | | (1,501 | ) | | — |
| | (1,501 | ) |
| Share-based compensation, net | | — |
| | — |
| | 22,467 |
| | — |
| | — |
| | 22,467 |
| | — |
| | 22,467 |
|
| Balance at June 30, 2018 |
| 53,210,627 |
|
| $ | 53 |
|
| $ | 1,346,586 |
|
| $ | 3,397,879 |
|
| $ | (86,865 | ) |
| $ | 4,657,653 |
|
| $ | 147,188 |
|
| $ | 4,804,841 |
|
| Balance at December 31, 2018 |
| 52,586,498 |
| | $ | 53 |
| | $ | 1,378,438 |
| | $ | 3,791,838 |
| | $ | (54,120 | ) | | $ | 5,116,209 |
| | $ | 148,634 |
| | $ | 5,264,843 |
|
| Cumulative adjustment for the adoption of premium amortization on purchased callable debt securities (ASU 2017-08) (1) | | — |
| | — |
| | — |
| | (583 | ) | | — |
| | (583 | ) | | — |
| | (583 | ) |
| Acquisition of SVB Leerink | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,256 |
| | 5,256 |
|
| Common stock issued under employee benefit plans, net of restricted stock cancellations |
| 467,427 |
| | — |
| | 7,853 |
| | — |
| | — |
|
| 7,853 |
|
| — |
|
| 7,853 |
|
| Common stock issued under ESOP |
| 14,442 |
| | — |
| | 3,506 |
| | — |
| | — |
|
| 3,506 |
|
| — |
|
| 3,506 |
|
| Net income |
| — |
| | — |
| | — |
| | 606,719 |
| | — |
|
| 606,719 |
|
| 21,464 |
|
| 628,183 |
|
| Capital calls and distributions, net |
| — |
| | — |
| | — |
| | — |
| | — |
|
| — |
|
| (23,222 | ) |
| (23,222 | ) |
| Net change in unrealized gains and losses on AFS securities, net of tax |
| — |
| | — |
| | — |
| | — |
| | 122,597 |
|
| 122,597 |
|
| — |
|
| 122,597 |
|
| Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax |
| — |
| | — |
| | — |
| | — |
| | (1,005 | ) |
| (1,005 | ) |
| — |
|
| (1,005 | ) |
| Foreign currency translation adjustments, net of tax |
| — |
| | — |
| | — |
| | — |
| | (68 | ) |
| (68 | ) |
| — |
|
| (68 | ) |
| Net change in unrealized gains and losses on cash flow hedges, net of tax | | — |
| | — |
| | — |
| | — |
| | 13,828 |
| | 13,828 |
| | — |
| | 13,828 |
|
| Share-based compensation, net |
| — |
| | — |
| | 31,768 |
| | — |
| | — |
|
| 31,768 |
|
| — |
|
| 31,768 |
|
| Common stock repurchases | | (1,506,648 | ) | | (1 | ) | | — |
| | (346,780 | ) | | — |
| | (346,781 | ) | | — |
| | (346,781 | ) |
| Balance at June 30, 2019 |
| 51,561,719 |
|
| $ | 52 |
|
| $ | 1,421,565 |
|
| $ | 4,051,194 |
|
| $ | 81,232 |
|
| $ | 5,554,043 |
|
| $ | 152,132 |
|
| $ | 5,706,175 |
|
| |
| (1) | See "Adoption of New Accounting Standards" in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details. |
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | | |
| |
| Six months ended June 30, |
| (Dollars in thousands) |
| 2019 |
| 2018 |
| Cash flows from operating activities: |
|
|
|
|
| Net income before noncontrolling interests |
| $ | 628,183 |
|
| $ | 455,052 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| Provision for credit losses |
| 52,497 |
|
| 57,052 |
|
| Changes in fair values of equity warrant assets, net of proceeds from exercises |
| (825 | ) | | (24,940 | ) |
| Changes in fair values of derivatives, net |
| (9,958 | ) |
| (8,768 | ) |
| Gains on investment securities, net |
| (76,726 | ) | | (45,172 | ) |
| Distributions of earnings from non-marketable and other equity securities | | 40,584 |
| | 27,409 |
|
| Depreciation and amortization |
| 40,824 |
|
| 28,902 |
|
| Amortization of premiums and discounts on investment securities, net |
| 4,993 |
|
| (478 | ) |
| Amortization of share-based compensation |
| 31,768 |
|
| 22,467 |
|
| Amortization of deferred loan fees |
| (76,712 | ) |
| (65,606 | ) |
| Deferred income tax benefit |
| (3,854 | ) |
| (18,594 | ) |
| Excess tax benefit from exercise of stock options and vesting of restricted shares | | (7,369 | ) | | (14,488 | ) |
| Losses from the write-off of premises and equipment | | 185 |
| | 7,006 |
|
| Changes in other assets and liabilities: |
|
|
|
|
| Accrued interest receivable and payable, net |
| (3,850 | ) |
| (28,213 | ) |
| Accounts receivable and payable, net |
| 22,308 |
|
| (10,169 | ) |
| Income tax receivable and payable, net |
| (87,097 | ) |
| (21,076 | ) |
| Accrued compensation |
| (175,469 | ) |
| (55,814 | ) |
| Foreign exchange spot contracts, net |
| 108,307 |
|
| 68,870 |
|
| Other, net |
| (37,218 | ) |
| (26,060 | ) |
| Net cash provided by operating activities |
| 450,571 |
|
| 347,380 |
|
| Cash flows from investing activities: |
|
|
|
|
| Purchases of available-for-sale securities |
| (2,553,326 | ) |
| (390,758 | ) |
| Proceeds from sales of available-for-sale securities |
| 2,189,087 |
|
| — |
|
| Proceeds from maturities and paydowns of available-for-sale securities |
| 382,054 |
|
| 1,775,568 |
|
| Purchases of held-to-maturity securities |
| (277,889 | ) |
| (4,067,389 | ) |
| Proceeds from maturities and paydowns of held-to-maturity securities |
| 888,943 |
|
| 935,820 |
|
| Purchases of non-marketable and other equity securities |
| (39,287 | ) |
| (28,099 | ) |
| Proceeds from sales and distributions of capital of non-marketable and other equity securities |
| 59,187 |
|
| 75,139 |
|
| Net increase in loans |
| (844,830 | ) |
| (2,855,537 | ) |
| Purchases of premises and equipment |
| (18,632 | ) |
| (14,851 | ) |
| Acquisition of SVB Leerink, net of cash acquired | | (102,328 | ) | | — |
|
| Net cash used for investing activities |
| (317,021 | ) |
| (4,570,107 | ) |
| Cash flows from financing activities: |
|
|
|
|
| Net increase in deposits |
| 6,281,640 |
|
| 4,633,220 |
|
| Net decrease in short-term borrowings |
| (607,160 | ) |
| (616,484 | ) |
| (Distributions to noncontrolling interests), net of contributions from noncontrolling interests |
| (23,222 | ) |
| (14,725 | ) |
| Common stock repurchases | | (346,781 | ) | | — |
|
| Proceeds from issuance of common stock, ESPP and ESOP |
| 11,359 |
|
| 9,742 |
|
| Net cash provided by financing activities |
| 5,315,836 |
|
| 4,011,753 |
|
| Net increase (decrease) in cash and cash equivalents |
| 5,449,386 |
|
| (210,974 | ) |
| Cash and cash equivalents at beginning of period |
| 3,571,539 |
|
| 2,923,075 |
|
| Cash and cash equivalents at end of period |
| $ | 9,020,925 |
|
| $ | 2,712,101 |
|
| Supplemental disclosures: |
|
|
|
|
| Cash paid during the period for: |
|
|
|
|
| Interest |
| $ | 94,851 |
|
| $ | 27,730 |
|
| Income taxes |
| 310,604 |
|
| 193,682 |
|
| Noncash items during the period: |
|
|
|
|
| Changes in unrealized gains and losses on available-for-sale securities, net of tax |
| $ | 122,597 |
|
| $ | (52,855 | ) |
| Distributions of stock from investments |
| 6,747 |
|
| 3,136 |
|
See accompanying notes to interim consolidated financial statements (unaudited).
SVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SVB Financial Group is a diversified financial services company, as well as a bank holding company and a financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a varietydiverse set 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 unaudited interim consolidated financial statements, when we refer to “SVB Financial Group,” “SVBFG”,“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 (not including subsidiaries).
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 six months ended June 30, 20182019 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, 20172018 (“20172018 Form 10-K”).
The accompanying unaudited interim consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Consolidated Financial Statements and Supplementary Data—Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 20172018 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 and other equity securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and allowance for unfunded credit commitments, and the recognition and measurement of income tax assets and liabilities.
Principles of Consolidation and Presentation
Our unaudited interim consolidated financial statements include the accounts of SVB Financial Group and consolidated entities. We consolidate voting entities in which we have control through voting interests or entities through which we have a controlling financial interest in a variable interest entity (“VIE”). We determine whether we have a controlling financial interest in a VIE by determining if we have: (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses, or (c) the right to receive the expected returns of the entity. Generally, we have significant variable interests if our commitments to a limited partnership investment represent a significant amount of the total commitments to the entity. We also evaluate the impact of related parties on our determination of variable interests in our consolidation conclusions. We consolidate VIEs in which we are the primary beneficiary based on a controlling financial interest. If we are not the primary beneficiary of a VIE, we record our pro-rata interests based on our ownership percentage.
VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. We assess VIEs to determine if we are the primary beneficiary of a VIE. A primary beneficiary is defined as a variable interest holder that has a controlling financial interest. A controlling financial interest requires both: (a) the power to direct the activities that most significantly impact the VIE’s economic performance, and (b) obligation to absorb losses or receive benefits of a VIE that could potentially be significant to a VIE. Under this analysis, we also evaluate kick-out rights and other participating rights, which could provide us a controlling financial interest. The primary beneficiary of a VIE is required to consolidate the VIE.
We also evaluate fees paid to managers of our limited partnership investments. We exclude those fee arrangements that are not deemed to be variable interests from the analysis of our interests in our investments in VIEs and the determination of a primary beneficiary, if any. Fee arrangements based on terms that are customary and commensurate with the services provided are deemed not to be variable interests and are, therefore, excluded.
All significant intercompany accounts and transactions with consolidated entities have been eliminated. We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide.
Adoption of New Accounting Standards
In May 2014,February 2016, the FASB issued a new accounting standard update (ASU 2014-09, Revenue from Contracts2016-02, Leases (Topic 842)), which requires for all operating leases the recognition of a right-of-use ("ROU") asset and a corresponding lease liability, in the statement of financial position. For short term leases (term of 12 months or less), a lessee is permitted to make an accounting election not to recognize lease assets and lease liabilities. The lease cost will be allocated over the lease term on a straight-line basis. There were further amendments, including practical expedients, with Customersthe issuance of ASU 2018-01, “Leases (Topic 606))842): Land Easement Practical Expedient for Transition to Topic 842” in January 2018. In July 2018 the FASB issued ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements", which provides revenue recognition guidance that is intendedus with the option to create greater consistency with respectapply the new leasing standard to how and when revenue from contracts with customers is shown inall open leases as of the income statement. The guidance requires that revenue from contracts with customers be recognized when transfer of control over goods or services is passed to customers in the amount of consideration expected to be received. Subsequent Accounting Standard Updates have been issued clarifying the original pronouncement (ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20).adoption date, on a prospective basis.
On January 1, 2018,2019, we adopted the new accounting standard ASU 2014-09, Revenue from Contracts with Customers2016-02, Leases (Topic 842) and all the related amendments ("new revenuelease standard", "ASC 606"842" or "ASU 2014-09"2016-02") usingutilizing the modified retrospective method appliedpractical expedient to those contracts which were not completedapply the new lease standard as of January 1, 2018.2019 on a prospective basis. We also elected the "package of expedients" and elected as an accounting policy to applyexclude recording ROU assets and lease liabilities for leases that meet the practical expedientdefinition of short-term leases. In addition to excluding short-term leases, we have implemented an accounting policy in which allowsnon-lease components are not separated from lease components in the measurement of ROU assets and lease liabilities for all lease contracts. The "package of expedients" allowed us to expense costs relatedcontinue to obtaining contracts as incurred becauseaccount for existing leases for which the amortization period would have been one year or less.commencement date is before January 1, 2019, in accordance with the previous guidance, Leases (Topic 840), throughout the lease term, including periods after adoption of the new guidance. We recognized the cumulative effect$146 million in ROU assets and $178 million in lease liabilities as a result of initially applying the new revenuelease standard as an adjustment to theour opening consolidated balance of retained earnings.sheet on January 1, 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
We completed a comprehensive scoping exercise See Note 9—"Leases" of the “Notes to determine the revenue streams that are within the scopeInterim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this guidance.report for additional disclosures related to our leases.
In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium. The ASU requires entities to amortize premiums on debt securities by the first call date when the securities have fixed and determinable call dates and prices. The scope of this guidance explicitly excludes net interest income, including interest income earned from our loanthe ASU includes all accounting premiums, such as purchase premiums and fixed income securities portfolios, as well as certain other noninterest income earned from our lending-, investment- and derivative-related activities. Based on our completed assessment, we didcumulative fair value hedge adjustments. The ASU does not identify any material changeschange the accounting for discounts, which continue to the timing or the amounts of our revenue recognition, however, we identified a change in the timing of recognizing fund management fees in other noninterest income for a portion of our SVB Capital funds. Fund management fees for these certain SVB Capital funds will now be recognized atover the time of distribution which typically occurs later in thecontractual life of a security. Adoption of the fund than had been previously recognized. TheASU is on a modified retrospective basis through a cumulative effect adjustment to retained earnings associated with this change was $5.8 million, netas of tax, with an immaterial impact to our net income on an ongoing basis. The impact to net income as a result of applying the new revenue standard were decreases of $0.3 million and $0.9 million for the three and six months ended June 30, 2018, respectively.
The timing of revenue recognition may differ from the timing of cash settlements or invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, and unearned revenue when revenue is recognized subsequent to receipt of consideration.These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. During the three and six months endedJune 30, 2018, changes in our contract assets, contract liabilities and receivables were not material. Additionally, revenues recognized during the three and six months ended June 30, 2018 that were included in the corresponding contract liability balance at the beginning of the period were not material.
The cumulative effectyear of adoption. Adoption of the changes toASU primarily affected our consolidated balance sheets atHTM portfolio of callable state and municipal debt securities. On January 1, 2018, for2019, we adopted the adoption of the new revenue standard were as follows:
|
| | | | | | | | | | | | |
(Dollars in thousands) | | Balance at December 31, 2017 | | Adjustments Due to Adoption of ASC 606 | | Balance at January 1, 2018 |
| Accrued interest receivable and other assets: | | | | | | |
| Accounts receivable | | $ | 55,946 |
| | $ | (34,340 | ) | | $ | 21,606 |
|
| Other liabilities: | | | | | | |
| Deferred revenue | | 27,057 |
| | (26,321 | ) | | 736 |
|
| Current taxes payable | | 4,675 |
| | (2,217 | ) | | 2,458 |
|
| Stockholders' Equity: | | | | | | |
| Retained earnings | | 2,866,837 |
| | (5,802 | ) | | 2,861,035 |
|
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated balance sheets at June 30, 2018ASU and our statements of income for the three and six months ended June 30, 2018, were as follows:
|
| | | | | | | | | | | | |
| | | June 30, 2018 |
| (Dollars in thousands) | | As Reported | | Balances Without Adoption of ASC 606 | | Effect of Change Higher/(Lower) |
| Accrued interest receivable and other assets: | | | | | | |
| Accounts receivable | | $ | 57,740 |
| | $ | 97,584 |
| | $ | (39,844 | ) |
| Other liabilities: | | | | | | |
| Deferred fees | | 479 |
| | 29,964 |
| | (29,485 | ) |
| Current taxes payable (receivable) | | 1,616 |
| | (924 | ) | | 2,540 |
|
| Stockholders' Equity: | | | | | | |
| Retained earnings | | 3,397,879 |
| | 3,403,357 |
| | (5,478 | ) |
|
| | | | | | | | | | | | |
| | | Three months ended June 30, 2018 |
| (Dollars in thousands) | | As Reported | | Balances Without Adoption of ASC 606 | | Effect of Change Higher/(Lower) |
| Other noninterest income: | | | | | | |
| Fund management fees | | $ | 5,929 |
| | $ | 6,308 |
| | $ | (379 | ) |
| Income tax expense | | 77,287 |
| | 77,380 |
| | (93 | ) |
| | | | | | | |
| Net Income available to common stockholders | | 237,798 |
| | 238,084 |
| | (286 | ) |
| Diluted earnings per share | | 4.42 |
| | 4.43 |
| | (0.01 | ) |
|
| | | | | | | | | | | | |
| | | Six months ended June 30, 2018 |
| (Dollars in thousands) | | As Reported | | Balances Without Adoption of ASC 606 | | Effect of Change Higher/(Lower) |
| Other noninterest income: | | | | | | |
| Fund management fees | | $ | 11,665 |
| | $ | 12,914 |
| | $ | (1,249 | ) |
| Income tax expense | | 151,253 |
| | 151,577 |
| | (324 | ) |
| | | | | | | |
| Net Income available to common stockholders | | 432,759 |
| | 433,684 |
| | (925 | ) |
| Diluted earnings per share | | 8.05 |
| | 8.07 |
| | (0.02 | ) |
In February 2018, the FASB issuedrecognized a new accounting standard update (ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU "2018-02")) to address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from H.R.1, known as the Tax Cuts and Jobs Act (the "TCJ Act"). ASU 2018-02 changed current accounting whereby an entity may elect to reclassify the stranded tax effect from AOCInet reduction to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJ Act (or portion thereof) is recorded. ASU 2018-02 is effective for periods beginning after December 15, 2018 and early adoption is permitted. We have elected to early adopt ASU 2018-02 and reclassified approximately $0.3 millionfrom accumulated other comprehensive income to retained earnings within our consolidated statements of stockholders' equity in the first quarter of 2018.$583 thousand.
On January 1, 2018, we adopted the new accounting standard update ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. We adopted this guidance using the modified retrospective method and our equity investments carried at cost with readily determinable fair values were re-measured at fair value and the difference between cost and fair value was recorded as a cumulative-effect adjustment to opening retained earnings as of January 1, 2018. The adjustment to opening retained earnings for these investments was $74.6 million, net of tax, with subsequent changes in the fair value of these equity securities recorded as unrealized gains or losses in our consolidated statements of income. Additionally, in accordance with this guidance, net unrealized gains of $29.2 million, net
of tax, included in accumulated other comprehensive income on January 1, 2018, related to our previously reported available-for-sale equity securities, were reclassified as an adjustment to retained earnings. Subsequent changes in the fair value of these equity securities were recorded as unrealized gains or losses in our consolidated statements of income. Furthermore, for purposes of disclosing the fair value of loans carried at amortized cost, our valuation methodology was updated to conform to an “exit price” concept as required by the standard update, resulting in an immaterial change in the fair value.
In August 2016, the FASB issued a new accounting standard update (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments), which clarifies the guidance on eight specific cash flow issues. We adopted the new accounting standard, specifically as it relates to distributions from our equity method investments, on January 1, 2018. We elected to adopt the nature of distribution approach and applied the guidance retrospectively. The new guidance had an immaterial impact on the presentation between investing and operating activities within our statements of cash flows related to distributions and net gains from our nonmarketable and other securities portfolio.
In November 2016, the FASB issued a new accounting standard update (ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash), which requires that a statement of cash flows explains the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. Previous to the update, there had been some diversity in practice. Given that we had already classified restricted cash such as cash reserves at the Federal Reserve as part of cash and cash equivalents on the cash flow statement, the update had no impact on how we were already reporting and presenting our statement of cash flows.
Recent Accounting Pronouncements
In February 2016, the FASB issued a new accounting standard update (ASU 2016-02, Leases (Topic 842)), which will require for all operating leases the recognition of a right-of-use asset and a corresponding lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. There were further amendments, including practical expedients, with the issuance of ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” in January 2018. In July 2018 the FASB issued ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements", which provides us with the option to apply the new leasing standard to all open leases as of the adoption date, on a prospective basis. This guidance will be effective on January 1, 2019, with early adoption permitted. We plan to adopt the lease accounting guidance on January 1, 2019, on a prospective basis. We intend to elect a "package of expedients" which will result in continuing to account for existing leases for which the commencement date is before January 1, 2019, in accordance with Leases (Topic 840) throughout the lease term, including periods after adoption of the new guidance. We expect the adoption of this standard to have an impact of less than one percent of total assets and liabilities on our consolidated balance sheets reflective of the recognition of right-of-use assets and related lease liabilities associated predominantly with noncancelable operating leases. In addition, we do not expect the adoption of this guidance to have a material impact on our consolidated statements of income.
In June 2016, the FASB issued a new accounting standard update (ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments) ("ASU 2016-13" or "CECL"), which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects a current expected credit loss measurement to estimate the allowance for credit losses ("ACL") over the contractual life of the loan and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance will be effective January 1, 2020, on a modified retrospective approach, with early adoption permitted, but not before January 1, 2019. We currentlyexpect to adopt the guidance in the first quarter of 2020.
Our implementation process includes loss forecasting model development, evaluation of technical accounting topics, updates to our allowance documentation, reporting processes and related internal controls, and overall operational readiness for our adoption of CECL, which will continue throughout 2019, including parallel runs for CECL alongside our current allowance process. The ultimate effect of CECL on our ACL will depend on the size and composition of our portfolio, the portfolio’s credit quality and economic conditions at the time of adoption, as well as any refinements to our models, methodology and other key assumptions. At adoption, we will have a project teamcumulative-effect adjustment to retained earnings for our change in place and subject matter expertsthe ACL.
In August 2018, the FASB issued a new accounting standard update (ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to assistthe Disclosure Requirements for Fair Value Measurement). The ASU primarily modifies certain disclosures with our review of key interpretive issues and the assessment of our existing credit loss forecasting models and processes against the new guidancerespect to determine what modifications may be required. We are currently evaluating the impact thisLevel 3 fair value measurements. This guidance will be effective January 1, 2020, with early adoption permitted. This guidance will not have an impact on our consolidated financial position or results of operationoperations, and stockholders’ equity.we do not expect the adoption of this standard to have a material impact on the disclosures in our Notes to the Consolidated Financial Statements.
Reclassifications
Certain prior period amounts, primarily related to the adoption of new accounting guidance,presentation changes to our financial statement line items and immaterial changes to our reportable segments, have been reclassified to conform to current period presentations.
On January 4, 2019, we completed the acquisition of Leerink Holdings LLC, the Boston-based parent company of healthcare and life science investment bank Leerink Partners LLC, now SVB Leerink Holdings LLC ("SVB Leerink"). The acquisition was previously announced on November 13, 2018. SVB Leerink is an investment bank specializing in Equity & Convertible Capital Markets, Mergers & Acquisitions, Equity Research and Sales & Trading for growth and innovation-minded healthcare and life science companies and operates as a wholly-owned subsidiary of SVB Financial.
The acquisition was accounted for as a business combination and accordingly, the results of SVB Leerink's operations have been included in the Company's unaudited interim consolidated financial statements at and for the three and six months ended June 30, 2019 from the date of acquisition. We acquired SVB Leerink for approximately $273.2 million comprised of cash and share-based replacement award liabilities. In addition, we provided a retention pool for employees of $60.0 million to be paid over five years comprised of a mix of cash and equity issued under the Company's current Equity Incentive Plan. Refer to Note 4—“Share-Based Compensation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for more information. The following table summarizes the allocation of the purchase price to the net assets of SVB Leerink as of January 4, 2019:
|
| | | | |
| (Dollars in thousands) | | January 4, 2019 |
| Cash paid (1) | | $ | 265,601 |
|
| Replacement award liabilities (2) | | 7,629 |
|
| Total purchase consideration | | $ | 273,230 |
|
| Fair value of net assets acquired (1) | | 135,407 |
|
| Goodwill | | $ | 137,823 |
|
| |
| (1) | During the three months ended June 30, 2019, the Company recorded purchase price allocation adjustments based on new information about facts and circumstances that existed at the time of the acquisition. |
| |
| (2) | The replacement award liabilities recognized as part of the total purchase consideration and the post-combination expenses of $9.1 million related to share-based replacement awards will be paid out in cash in accordance with SVB Leerink's original grant date vesting schedules. |
The following table summarizes the estimated fair value of assets acquired and liabilities assumed upon the finalization of the purchase:
|
| | | | |
| (Dollars in thousands) | | January 4, 2019 |
| Assets acquired: | | |
| Cash and cash equivalents | | $ | 163,273 |
|
| Investment securities (1) | | 33,644 |
|
| Accounts receivable (1) | | 36,538 |
|
| Intangible assets | | 60,900 |
|
| Other assets | | 35,128 |
|
| Total assets acquired | | 329,483 |
|
| Liabilities assumed: | | |
| Accrued compensation | | 137,206 |
|
| Due to broker-dealers | | 18,483 |
|
| Other liabilities | | 33,131 |
|
| Noncontrolling interests | | 5,256 |
|
| Total liabilities assumed | | 194,076 |
|
| Fair value of net assets acquired | | $ | 135,407 |
|
| |
| (1) | During the three months ended June 30, 2019, the Company recorded purchase price allocation adjustments described below. |
The Company recognized identifiable intangible assets of $60.9 million and goodwill of $137.8 million as a result of the acquisition. Intangible assets of $60.9 million are subject to amortization over their estimated useful lives. The goodwill recorded includes revenue generating synergies expected from collaboration between SVB Leerink and the Company. All reported goodwill amounts have been allocated to the SVB Leerink reporting segment and are expected to be deductible for tax purposes. During the three months ended June 30, 2019, the Company made measurement period adjustments to reflect facts and circumstances in existence as of the acquisition date. These adjustments resulted in an increase in goodwill from March 31, 2019 of $2.6 million due to the net impact of an increase in cash paid of $2.3 million, an increase in investment securities of $0.7 million and a reduction in accounts receivable of $1.0 million. The fair value of the noncontrolling interests in Leerink Holdings LLC represents the noncontrolling ownership percentage for SVB Leerink's consolidated VIE investment securities which are measured at net asset value.
The following table summarizes the fair value and estimated useful lives of the other intangible assets at the date of acquisition:
|
| | | | | | |
| (Dollars in thousands) | | Estimated Fair Value | | Weighted Average Estimated Useful Life - in Years |
| Other intangible assets: | | | | |
| Customer relationships | | $ | 42,000 |
| | 11.0 |
| Other | | 18,900 |
| | 9.9 |
| Total other intangible assets | | $ | 60,900 |
| |
|
SVB Leerink's net income from January 4, 2019 through June 30, 2019 was approximately $9.7 million. Supplementary pro forma financial information related to the acquisition is not included because the impact to the Company's unaudited interim consolidated statements of income is not material. The following table represents the amount of revenue and earnings attributable to SVB Leerink that is included in our financial results for the three and six months ended June 30, 2019:
|
| | | | | | | | |
| (Dollars in thousands) | | Three months ended June 30, 2019 | | Six months ended June 30, 2019 |
| Net interest income | | $ | 242 |
| | $ | 684 |
|
| Noninterest income | | 67,035 |
| | 135,152 |
|
| Noninterest expense | | 61,935 |
| | 122,475 |
|
| Income before income tax expense | | 5,342 |
| | 13,361 |
|
| Income tax expense | | 1,449 |
| | 3,623 |
|
| Net income attributable to noncontrolling interests | | 35 |
| | 35 |
|
| Net income available to common stockholders | | $ | 3,858 |
| | $ | 9,703 |
|
The following table shows the components of acquisition-related activities expense for the three and six months ended June 30, 2019:
|
| | | | | | | | |
| (Dollars in thousands) | | Three months ended June 30, 2019 | | Six months ended June 30, 2019 |
| Professional fees | | $ | 283 |
| | $ | 651 |
|
| Other | | 69 |
| | 273 |
|
| Total acquisition-related expenses | | $ | 352 |
| | $ | 924 |
|
| |
2.3. | Stockholders' Equity and EPS |
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 six months ended June 30, 20182019 and 2017:2018:
|
| | | | | | | | | | | | | | | | | | |
| | | | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | Income Statement Location | | 2019 | | 2018 | | 2019 | | 2018 |
| Reclassification adjustment for losses on available-for-sale securities included in net income | | Gains on investment securities, net | | $ | 275 |
| | $ | — |
| | $ | 3,905 |
| | $ | — |
|
| Related tax benefit | | Income tax expense | | (77 | ) | | — |
| | (1,087 | ) | | — |
|
| Reclassification adjustment for losses on cash flow hedges included in net income | | Net interest income | | 508 |
| | — |
| | 511 |
| | — |
|
| Related tax benefit | | Income tax expense | | (141 | ) | | — |
| | (142 | ) | | — |
|
| Total reclassification adjustment for losses included in net income, net of tax | | | | $ | 565 |
| | $ | — |
| | $ | 3,187 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | Income Statement Location | | 2018 |
| 2017 | | 2018 | | 2017 |
| Reclassification adjustment for losses (gains) included in net income (1) | | Gains on investment securities, net | | $ | — |
| | $ | 123 |
| | $ | — |
| | $ | (485 | ) |
| Related tax (benefit) expense (1) | | Income tax expense | | — |
| | (50 | ) | | — |
| | 198 |
|
| Total reclassification adjustment for losses (gains) included in net income, net of tax (1) | | | | $ | — |
| | $ | 73 |
| | $ | — |
| | $ | (287 | ) |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Beginning balance | | $ | 797 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Net increase in fair value, net of tax | | 12,664 |
| | — |
| | 13,459 |
| | — |
|
| Net realized loss reclassified to net income, net of tax | | 367 |
| | — |
| | 369 |
| | — |
|
| Ending balance | | $ | 13,828 |
| | $ | — |
| | $ | 13,828 |
| | $ | — |
|
| |
(1) | See "Adoption of New Accounting Standards" in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.
|
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 issuable for stock options and restricted stock unitsunit awards outstanding under our 2006 Equity Incentive Plan 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 six months ended June 30, 20182019 and 20172018:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars and shares in thousands, except per share amounts) | | 2019 | | 2018 | | 2019 | | 2018 |
| Numerator: | | | | | | | | |
| Net income available to common stockholders | | $ | 317,987 |
| | $ | 237,798 |
| | $ | 606,719 |
| | $ | 432,759 |
|
| Denominator: | | | | | | | | |
| Weighted average common shares outstanding—basic | | 51,955 |
| | 53,064 |
| | 52,269 |
| | 52,974 |
|
| Weighted average effect of dilutive securities: | | | | | | | | |
| Stock options and ESPP | | 235 |
| | 400 |
| | 254 |
| | 408 |
|
| Restricted stock units and awards | | 146 |
| | 312 |
| | 192 |
| | 350 |
|
| Weighted average common shares outstanding—diluted | | 52,336 |
| | 53,776 |
| | 52,715 |
| | 53,732 |
|
| Earnings per common share: | | | | | | | | |
| Basic | | $ | 6.12 |
| | $ | 4.48 |
| | $ | 11.61 |
| | $ | 8.17 |
|
| Diluted | | 6.08 |
| | 4.42 |
| | 11.51 |
| | 8.05 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars and shares in thousands, except per share amounts) | | 2018 | | 2017 | | 2018 | | 2017 |
| Numerator: | | | | | | | | |
| Net income available to common stockholders | | $ | 237,798 |
| | $ | 123,193 |
| | $ | 432,759 |
| | $ | 224,676 |
|
| Denominator: | | | | | | | | |
| Weighted average common shares outstanding—basic | | 53,064 |
| | 52,537 |
| | 52,974 |
| | 52,441 |
|
| Weighted average effect of dilutive securities: | | | | | | | | |
| Stock options and ESPP | | 400 |
| | 368 |
| | 408 |
| | 397 |
|
| Restricted stock units | | 312 |
| | 289 |
| | 350 |
| | 342 |
|
| Weighted average common shares outstanding—diluted | | 53,776 |
| | 53,194 |
| | 53,732 |
| | 53,180 |
|
| Earnings per common share: | | | | | | | | |
| Basic | | $ | 4.48 |
| | $ | 2.34 |
| | $ | 8.17 |
| | $ | 4.28 |
|
| Diluted | | 4.42 |
| | 2.32 |
| | 8.05 |
| | 4.22 |
|
The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation due to the antidilutive effect for the three and six months ended June 30, 2019 and 2018:
|
| | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Shares in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Stock options | | 166 |
| | 58 |
| | 128 |
| | 33 |
|
| Restricted stock units | | 333 |
| | 113 |
| | 228 |
| | 59 |
|
| Total | | 499 |
| | 171 |
| | 356 |
| | 92 |
|
Stock Repurchase Program
On November 13, 2018, the Company announced a new program to repurchase up to $500 million of our outstanding common stock (the "Stock Repurchase Program"). For the three months ended June 30, 2019, we repurchased 1.0 million shares of our outstanding common stock for $230.8 million under the Stock Repurchase Program. As of June 30, 2019, we had repurchased 2.2 million shares of our outstanding common stock for $493.9 million under the Stock Repurchase Program.
Consolidated Statement of Changes in Equity
The following table summarizes the changes in our consolidated equity for the three months ended June 30, 2019 and 2017:2018:
|
| | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Shares in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
| Stock options | | 58 |
| | 73 |
| | 33 |
| | 36 |
|
| Restricted stock units | | 113 |
| | — |
| | 59 |
| | — |
|
| Total | | 171 |
| | 73 |
| | 92 |
| | 36 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | | | | | |
| Balance at March 31, 2018 | | 52,922,219 |
| | $ | 53 |
| | $ | 1,326,998 |
| | $ | 3,160,081 |
| | $ | (71,686 | ) | | $ | 4,415,446 |
| | $ | 144,278 |
| | $ | 4,559,724 |
|
| Common stock issued under employee benefit plans, net of restricted stock cancellations | | 288,408 |
| | — |
| | 7,644 |
| | — |
| | — |
| | 7,644 |
| | — |
| | 7,644 |
|
| Net income | | — |
| | — |
| | — |
| | 237,798 |
| | — |
| | 237,798 |
| | 9,228 |
| | 247,026 |
|
| Capital calls and distributions, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,318 | ) | | (6,318 | ) |
| Net change in unrealized gains and losses on AFS securities, net of tax | | — |
| | — |
| | — |
| | — |
| | (10,754 | ) | | (10,754 | ) | | — |
| | (10,754 | ) |
| Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax | | — |
| | — |
| | — |
| | — |
| | (674 | ) | | (674 | ) | | — |
| | (674 | ) |
| Foreign currency translation adjustments, net of tax | | — |
| | — |
| | — |
| | — |
| | (3,751 | ) | | (3,751 | ) | | — |
| | (3,751 | ) |
| Share-based compensation, net | | — |
| | — |
| | 11,944 |
| | — |
| | — |
| | 11,944 |
| | — |
| | 11,944 |
|
| Balance at June 30, 2018 | | 53,210,627 |
| | $ | 53 |
| | $ | 1,346,586 |
| | $ | 3,397,879 |
| | $ | (86,865 | ) | | $ | 4,657,653 |
| | $ | 147,188 |
| | $ | 4,804,841 |
|
| Balance at March 31, 2019 | | 52,322,105 |
| | $ | 52 |
| | $ | 1,394,130 |
| | $ | 3,963,965 |
| | $ | (15,374 | ) | | $ | 5,342,773 |
| | $ | 141,050 |
| | $ | 5,483,823 |
|
| Common stock issued under employee benefit plans, net of restricted stock cancellations | | 257,684 |
| | — |
| | 10,789 |
| | — |
| | — |
| | 10,789 |
| | — |
| | 10,789 |
|
| Net income | | — |
| | — |
| | — |
| | 317,987 |
| | — |
| | 317,987 |
| | 18,584 |
| | 336,571 |
|
| Capital calls and distributions, net | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,502 | ) | | (7,502 | ) |
| Net change in unrealized gains and losses on AFS securities, net of tax | | — |
| | — |
| | — |
| | — |
| | 86,186 |
| | 86,186 |
| | — |
| | 86,186 |
|
| Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax | | — |
| | — |
| | — |
| | — |
| | (519 | ) | | (519 | ) | | — |
| | (519 | ) |
| Foreign currency translation adjustments, net of tax | | — |
| | — |
| | — |
| | — |
| | (2,092 | ) | | (2,092 | ) | | — |
| | (2,092 | ) |
| Net change in unrealized gains and losses on cash flow hedges, net of tax | | — |
| | — |
| | — |
| | — |
| | 13,031 |
| | 13,031 |
| | — |
| | 13,031 |
|
| Share-based compensation, net | | — |
| | — |
| | 16,646 |
| | — |
| | — |
| | 16,646 |
| | — |
| | 16,646 |
|
| Common stock repurchases | | (1,018,070 | ) | | — |
| | — |
| | (230,758 | ) | | — |
| | (230,758 | ) | | — |
| | (230,758 | ) |
| Balance at June 30, 2019 | | 51,561,719 |
| | $ | 52 |
| | $ | 1,421,565 |
| | $ | 4,051,194 |
| | $ | 81,232 |
| | $ | 5,554,043 |
| | $ | 152,132 |
| | $ | 5,706,175 |
|
| |
3.4. | Share-Based Compensation |
For the three and six months endedJune 30, 20182019 and 20172018, we recorded share-based compensation and related tax benefits as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Share-based compensation expense | | $ | 16,646 |
| | $ | 11,944 |
| | $ | 31,768 |
| | $ | 22,467 |
|
| Income tax benefit related to share-based compensation expense | | (3,817 | ) | | (2,743 | ) | | (7,144 | ) | | (5,060 | ) |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
| Share-based compensation expense | | $ | 11,944 |
| | $ | 9,892 |
| | $ | 22,467 |
| | $ | 19,095 |
|
| Income tax benefit related to share-based compensation expense | | (2,743 | ) | | (3,349 | ) | | (5,060 | ) | | (6,364 | ) |
Unrecognized Compensation Expense
As of June 30, 2018,2019, unrecognized share-based compensation expense was as follows:
|
| | | | | | |
| (Dollars in thousands) | | Unrecognized Expense | | Weighted Average Expected Recognition Period - in Years |
| Stock options | | $ | 17,537 |
| | 2.89 |
| Restricted stock units and awards | | 128,493 |
| | 3.10 |
| Total unrecognized share-based compensation expense | | $ | 146,030 |
| | |
|
| | | | | | |
| (Dollars in thousands) | | Unrecognized Expense | | Weighted Average Expected Recognition Period - in Years |
| Stock options | | $ | 15,039 |
| | 3.10 |
| Restricted stock units | | 81,376 |
| | 2.91 |
| Total unrecognized share-based compensation expense | | $ | 96,415 |
| | |
Share-Based Payment Award Activity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the six months endedJune 30, 20182019:
|
| | | | | | | | | | | | | |
| | | Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life - in Years | | Aggregate Intrinsic Value of In-The- Money Options |
| Outstanding at December 31, 2018 | | 679,659 |
| | $ | 137.19 |
| | | | |
| Granted | | 119,835 |
| | 250.31 |
| | | | |
| Exercised | | (88,600 | ) | | 80.99 |
| | | | |
| Forfeited | | (16,265 | ) | | 208.27 |
| | | | |
| Expired | | (720 | ) | | 64.37 |
| | | | |
| Outstanding at June 30, 2019 | | 693,909 |
| | 162.31 |
| | 3.91 | | $ | 52,916,546 |
|
| Vested and expected to vest at June 30, 2019 | | 673,285 |
| | 159.83 |
| | 3.84 | | 52,600,866 |
|
| Exercisable at June 30, 2019 | | 427,405 |
| | 120.15 |
| | 2.71 | | 46,281,877 |
|
|
| | | | | | | | | | | | | |
| | | Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life - in Years | | Aggregate Intrinsic Value of In-The- Money Options |
| Outstanding at December 31, 2017 | | 808,049 |
| | $ | 105.68 |
| | | | |
| Granted | | 87,352 |
| | 305.22 |
| | | | |
| Exercised | | (156,580 | ) | | 84.83 |
| | | | |
| Forfeited | | (1,926 | ) | | 130.69 |
| | | | |
| Expired | | (2,337 | ) | | 60.37 |
| | | | |
| Outstanding at June 30, 2018 | | 734,558 |
| | 133.93 |
| | 3.92 | | $ | 115,185,279 |
|
| Vested and expected to vest at June 30, 2018 | | 710,108 |
| | 131.27 |
| | 3.85 | | 113,119,954 |
|
| Exercisable at June 30, 2018 | | 449,728 |
| | 97.80 |
| | 2.82 | | 85,881,104 |
|
The aggregate intrinsic value of outstanding options shown in the table above represents the pre-tax intrinsic value based on our closing stock price of $288.76$224.59 as of June 30, 2018.2019. The total intrinsic value of options exercised during the three and six months ended June 30, 20182019 was $6.9 million and $14.4 million, respectively, compared to $21.6 million and $31.0 million respectively, compared to $5.6 million and $22.1 million for the comparable 20172018 periods.
The table below provides information for restricted stock units and awards under the 2006 Equity Incentive Plan for the six months endedJune 30, 20182019:
|
| | | | | | | |
| | | Shares | | Weighted Average Grant Date Fair Value |
| Nonvested at December 31, 2018 | | 597,296 |
| | $ | 194.48 |
|
| Granted (1) | | 526,639 |
| | 244.61 |
|
| Vested | | (212,179 | ) | | 150.20 |
|
| Forfeited | | (43,377 | ) | | 179.28 |
|
| Nonvested at June 30, 2019 | | 868,379 |
| | 236.46 |
|
|
| | | | | | | |
| | | Shares | | Weighted Average Grant Date Fair Value |
| Nonvested at December 31, 2017 | | 637,667 |
| | $ | 135.86 |
|
| Granted | | 185,292 |
| | 301.56 |
|
| Vested | | (206,997 | ) | | 130.29 |
|
| Forfeited | | (21,028 | ) | | 148.43 |
|
| Nonvested at June 30, 2018 | | 594,934 |
| | 188.96 |
|
| |
| (1) | On February 1, 2019, we granted 125,160 restricted stock awards to SVB Leerink employees at a market price of $238.28 under the retention plan previously announced on November 13, 2018. The restricted stock awards will vest over a five-year period. |
| |
4.5. | Variable Interest Entities |
Our involvement with VIEs includes our investments in venture capital and private equity funds, debt funds, private and public portfolio companies and our investments in qualified affordable housing projects.
The following table presents the carrying amounts and classification of significant variable interests in consolidated and unconsolidated VIEs as of June 30, 20182019 and December 31, 2017:2018:
| | | (Dollars in thousands) | | Consolidated VIEs | | Unconsolidated VIEs | | Maximum Exposure to Loss in Unconsolidated VIEs | | Consolidated VIEs | | Unconsolidated VIEs | | Maximum Exposure to Loss in Unconsolidated VIEs |
| June 30, 2018: | | | | | | | |
| June 30, 2019: | | | | | | | |
| Assets: | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 4,113 |
| | $ | — |
| | $ | — |
| | $ | 7,387 |
| | $ | — |
| | $ | — |
|
| Non-marketable and other equity securities (1) | | 208,275 |
| | 529,429 |
| | 529,429 |
| | 250,028 |
| | 642,882 |
| | 642,882 |
|
| Accrued interest receivable and other assets | | 397 |
| | — |
| | — |
| | 469 |
| | — |
| | — |
|
| Total assets | | $ | 212,785 |
| | $ | 529,429 |
| | $ | 529,429 |
| | $ | 257,884 |
| | $ | 642,882 |
| | $ | 642,882 |
|
| Liabilities: | | | | | | | | | | | | |
| Other liabilities (1) | | 765 |
| | 161,113 |
| | — |
| | 2,421 |
| | 266,761 |
| | — |
|
| Total liabilities | | $ | 765 |
| | $ | 161,113 |
| | $ | — |
| | $ | 2,421 |
| | $ | 266,761 |
| | $ | — |
|
| December 31, 2017: | | | | | | | |
| December 31, 2018: | | | | | | | |
| Assets: | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 6,674 |
| | $ | — |
| | $ | — |
| | $ | 9,058 |
| | $ | — |
| | $ | — |
|
| Non-marketable and other equity securities (1) | | 190,562 |
| | 346,097 |
| | 346,097 |
| | 221,646 |
| | 568,272 |
| | 568,272 |
|
| Accrued interest receivable and other assets | | 365 |
| | — |
| | — |
| | 228 |
| | — |
| | — |
|
| Total assets | | $ | 197,601 |
| | $ | 346,097 |
| | $ | 346,097 |
| | $ | 230,932 |
| | $ | 568,272 |
| | $ | 568,272 |
|
| Liabilities: | | | | | | | | | | | | |
| Other liabilities (1) | | 990 |
| | 100,891 |
| | — |
| | 919 |
| | 205,685 |
| | — |
|
| Total liabilities | | $ | 990 |
| | $ | 100,891 |
| | $ | — |
| | $ | 919 |
| | $ | 205,685 |
| | $ | — |
|
| |
| (1) | Included in our unconsolidated non-marketable and other equity securities portfolio at June 30, 20182019 and December 31, 20172018 are investments in qualified affordable housing projects of $251.5$394.0 million and $174.2$318.6 million, respectively, and related other liabilities consisting of unfunded credit commitments of $161.1$266.8 million and $100.9$205.7 million, respectively. |
Non-marketable and other equity securities
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies and investments in qualified affordable housing projects. A majority of these investments are through third- party funds
held by SVB Financial in which we do not have controlling or significant variable interests. These investments represent our unconsolidated VIEs in the table above. Our non-marketable and other equity securities portfolio also includes investments from SVB Capital. SVB Capital is the funds management business of SVB Financial Group, which focuses primarily on venture capital investments. The SVB Capital family of funds is comprised of direct venture funds that invest in companies and funds of funds that invest in other venture capital funds. We have a controlling and significant variable interest in four of these SVB Capital funds and consolidate these funds for financial reporting purposes.
All investments are generally nonredeemable and distributions are expected to be received through the liquidation of the underlying investments throughout the life of the investment fund. Investments may only be sold or transferred subject to the notice and approval provisions of the underlying investment agreement. Subject to applicable regulatory requirements, including the Volcker Rule, we also make commitments to invest in venture capital and private equity funds. For additional details, see Note 13—16—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
The Bank also has variable interests in low income housing tax credit funds, in connection with fulfilling its responsibilities under the Community Reinvestment Act (“CRA”), that are designed to generate a return primarily through the realization of federal tax credits. These investments are typically limited partnerships in which the general partner, other than the Bank, holds the power over significant activities of the VIE; therefore, these investments are not consolidated. For additional information on our investments in qualified affordable housing projects, see Note 6—7—“Investment Securities" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
As of June 30, 2018,2019, our exposure to loss with respect to the consolidated VIEs is limited to our net assets of $212.0$255.5 million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $529.4$642.9 million.
| |
5.6. | Cash and Cash Equivalents |
The following table details our cash and cash equivalents at June 30, 20182019 and December 31, 2017:2018:
| | | (Dollars in thousands) | | June 30, 2018 |
| December 31, 2017 | | June 30, 2019 |
| December 31, 2018 |
| Cash and due from banks (1) | | $ | 2,670,473 |
| | $ | 2,672,290 |
| | $ | 8,727,265 |
| | $ | 3,444,971 |
|
| Securities purchased under agreements to resell (2) | | 37,379 |
| | 247,876 |
| | 291,678 |
| | 123,611 |
|
| Other short-term investment securities | | 4,249 |
| | 2,909 |
| | 1,982 |
| | 2,957 |
|
| Total cash and cash equivalents | | $ | 2,712,101 |
| | $ | 2,923,075 |
| | $ | 9,020,925 |
| | $ | 3,571,539 |
|
| |
| (1) | At June 30, 20182019 and December 31, 20172018, $645.8 million6.4 billion and $624.0 million1.7 billion, 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 $1.01.8 billion and $1.11.2 billion, respectively. |
| |
| (2) | At June 30, 20182019 and December 31, 20172018, securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair valuesvalues of $38.1297.7 million an and $252.8126.2 million, respectively. None of these securities were sold or repledged as of June 30, 20182019 and December 31, 20172018. |
| |
6.7. | Investment Securities |
Our investment securities portfolio consists of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest-earning investment securities, and (ii) a non-marketable and other equity securities portfolio, which primarily represents investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised.
Available-for-Sale Securities
The major components of our available-for-sale investment securities portfolio at June 30, 20182019 and December 31, 20172018 are as follows:
| | | | | June 30, 2018 | | June 30, 2019 |
| (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 | | $ | 5,782,879 |
| | $ | 4,186 |
| | $ | (53,995 | ) | | $ | 5,733,070 |
| | $ | 4,757,164 |
| | $ | 69,279 |
| | $ | (5,369 | ) | | $ | 4,821,074 |
|
| U.S. agency debentures | | 1,495,657 |
| | — |
| | (9,793 | ) | | 1,485,864 |
| |
| Foreign government debt securities | | | 9,203 |
| | 8 |
| | — |
| | 9,211 |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | | 1,303,634 |
| | 18,245 |
| | (22 | ) | | 1,321,857 |
|
| Agency-issued collateralized mortgage obligations—fixed rate | | 2,103,572 |
| | 39 |
| | (65,477 | ) | | 2,038,134 |
| | 1,772,666 |
| | 15,569 |
| | (55 | ) | | 1,788,180 |
|
| Agency-issued collateralized mortgage obligations—variable rate | | 335,048 |
| | 1,376 |
| | (126 | ) | | 336,298 |
| |
| Total available-for-sale securities | | $ | 9,717,156 |
| | $ | 5,601 |
| | $ | (129,391 | ) | | $ | 9,593,366 |
| | $ | 7,842,667 |
| | $ | 103,101 |
| | $ | (5,446 | ) | | $ | 7,940,322 |
|
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Carrying Value |
| Available-for-sale securities, at fair value: | | | | | | | | |
| U.S. Treasury securities | | $ | 4,762,182 |
| | $ | 11,638 |
| | $ | (35,562 | ) | | $ | 4,738,258 |
|
| U.S. agency debentures | | 1,090,426 |
| | 61 |
| | (6,370 | ) | | 1,084,117 |
|
| Foreign government debt securities | | 5,815 |
| | — |
| | (3 | ) | | 5,812 |
|
| Residential mortgage-backed securities: | | | | | | | | |
| Agency-issued collateralized mortgage obligations—fixed rate | | 1,922,618 |
| | — |
| | (42,400 | ) | | 1,880,218 |
|
| Agency-issued collateralized mortgage obligations—variable rate | | 81,270 |
| | 383 |
| | (15 | ) | | 81,638 |
|
| Total available-for-sale securities | | $ | 7,862,311 |
| | $ | 12,082 |
| | $ | (84,350 | ) | | $ | 7,790,043 |
|
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2017 |
| (Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Carrying Value |
| Available-for-sale securities, at fair value: | | | | | | | | |
| U.S. Treasury securities | | $ | 6,865,068 |
| | $ | 1,113 |
| | $ | (25,679 | ) | | $ | 6,840,502 |
|
| U.S. agency debentures | | 1,569,195 |
| | 3,569 |
| | (5,636 | ) | | 1,567,128 |
|
| Residential mortgage-backed securities: | | | | | | | | |
| Agency-issued collateralized mortgage obligations—fixed rate | | 2,292,311 |
| | 258 |
| | (25,534 | ) | | 2,267,035 |
|
| Agency-issued collateralized mortgage obligations—variable rate | | 372,481 |
| | 1,375 |
| | (126 | ) | | 373,730 |
|
| Equity securities | | 31,953 |
| | 40,525 |
| | (209 | ) | | 72,269 |
|
| Total available-for-sale securities | | $ | 11,131,008 |
| | $ | 46,840 |
| | $ | (57,184 | ) | | $ | 11,120,664 |
|
The following table summarizes sale activity of available-for-sale securities during the three and six months ended June 30, 20182019 and 20172018 as recorded in the line item “Gains on investment securities, net”,net," a component of noninterest income:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 | | 2019 | | 2018 |
| Sales proceeds | | $ | 1,017,523 |
| | $ | — |
| | $ | 2,189,087 |
| | $ | — |
|
| Net realized gains and losses: | | | | | |
| |
|
| Gross realized gains | | 1,250 |
| | — |
| | 1,250 |
| | — |
|
| Gross realized losses | | (1,525 | ) | | — |
| | (5,155 | ) | | — |
|
| Net realized losses | | $ | (275 | ) | | $ | — |
| | $ | (3,905 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 | | 2018 | | 2017 |
| Sales proceeds | | $ | — |
| | $ | 2,946 |
| | $ | — |
| | $ | 5,024 |
|
| Net realized gains and losses: | | | | | |
| |
|
| Gross realized gains | | — |
| | 418 |
| | — |
| | 1,093 |
|
| Gross realized losses | | — |
| | (541 | ) | | — |
| | (608 | ) |
| Net realized (losses) gains | | $ | — |
| | $ | (123 | ) | | $ | — |
| | $ | 485 |
|
The following tables summarize our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of June 30, 20182019 and December 31, 2017:2018:
| | | | | June 30, 2018 | | June 30, 2019 |
| | | Less than 12 months | | 12 months or longer | | Total | | 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 | | 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 | | $ | 4,492,009 |
| | $ | (48,430 | ) | | $ | 845,938 |
| | $ | (5,565 | ) | | $ | 5,337,947 |
| | $ | (53,995 | ) | | $ | — |
| | $ | — |
| | $ | 2,318,760 |
| | $ | (5,369 | ) | | $ | 2,318,760 |
| | $ | (5,369 | ) |
| U.S. agency debentures | | 1,027,612 |
| | (3,984 | ) | | 458,252 |
| | (5,809 | ) | | 1,485,864 |
| | (9,793 | ) | |
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | | 8,220 |
| | (22 | ) | | — |
| | — |
| | 8,220 |
| | (22 | ) |
| Agency-issued collateralized mortgage obligations—fixed rate | | 1,857,591 |
| | (60,030 | ) | | 166,002 |
| | (5,447 | ) | | 2,023,593 |
| | (65,477 | ) | | — |
| | — |
| | 25,331 |
| | (55 | ) | | 25,331 |
| | (55 | ) |
| Agency-issued collateralized mortgage obligations—variable rate | | 19,068 |
| | (9 | ) | | 46,057 |
| | (117 | ) | | 65,125 |
| | (126 | ) | |
| Total temporarily impaired securities (1) | | $ | 7,396,280 |
| | $ | (112,453 | ) | | $ | 1,516,249 |
| | $ | (16,938 | ) | | $ | 8,912,529 |
| | $ | (129,391 | ) | | $ | 8,220 |
| | $ | (22 | ) | | $ | 2,344,091 |
| | $ | (5,424 | ) | | $ | 2,352,311 |
| | $ | (5,446 | ) |
| |
| (1) | As of June 30, 20182019, we identified a total of 26457 investments that were in unrealized loss positions, of which 6454 investments totaling $1.52.3 billion with unrealized losses of $16.95.4 million have been in an impaired position for a period of time greater than 12 months. As of June 30, 20182019, we do not intend to sell any of our impaired securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis. Based on our analysis as of June 30, 20182019, 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. |
| | | | | December 31, 2017 | | December 31, 2018 |
| | | Less than 12 months | | 12 months or longer | | Total | | 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 | | 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 | | $ | 5,968,914 |
| | $ | (23,397 | ) | | $ | 323,966 |
| | $ | (2,282 | ) | | $ | 6,292,880 |
| | $ | (25,679 | ) | | $ | 494,287 |
| | $ | (3,785 | ) | | $ | 3,568,119 |
| | $ | (31,777 | ) | | $ | 4,062,406 |
| | $ | (35,562 | ) |
| U.S. agency debentures | | 736,541 |
| | (2,289 | ) | | 336,196 |
| | (3,347 | ) | | 1,072,737 |
| | (5,636 | ) | | 443,790 |
| | (1,602 | ) | | 591,216 |
| | (4,768 | ) | | 1,035,006 |
| | (6,370 | ) |
| Foreign government debt securities | | | 5,812 |
| | (3 | ) | | — |
| | — |
| | 5,812 |
| | (3 | ) |
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency-issued collateralized mortgage obligations—fixed rate | | 2,193,277 |
| | (25,534 | ) | | — |
| | — |
| | 2,193,277 |
| | (25,534 | ) | | 13,430 |
| | (22 | ) | | 1,866,788 |
| | (42,378 | ) | | 1,880,218 |
| | (42,400 | ) |
| Agency-issued collateralized mortgage obligations—variable rate | | 13,843 |
| | (3 | ) | | 53,186 |
| | (123 | ) | | 67,029 |
| | (126 | ) | | — |
| | — |
| | 13,516 |
| | (15 | ) | | 13,516 |
| | (15 | ) |
| Equity securities | | 624 |
| | (209 | ) | | — |
| | — |
| | 624 |
| | (209 | ) | |
| Total temporarily impaired securities (1) | | $ | 8,913,199 |
| | $ | (51,432 | ) | | $ | 713,348 |
| | $ | (5,752 | ) | | $ | 9,626,547 |
| | $ | (57,184 | ) | | $ | 957,319 |
| | $ | (5,412 | ) | | $ | 6,039,639 |
| | $ | (78,938 | ) | | $ | 6,996,958 |
| | $ | (84,350 | ) |
| |
| (1) | As of December 31, 20172018, we identified a total of 268200 investments that were in unrealized loss positions, of which 46162 investments totaling $713.3 million6.0 billion with unrealized losses of $5.878.9 million have been in an impaired position for a period of time greater than 12 months. |
The following table summarizes the fixed income securities, carried at fair value, classified as available-for-sale as of June 30, 20182019 by the remaining contractual principal maturities. For U.S. Treasury securities and U.S. agency debentures,foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. 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 interest rate environments.
|
| | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2019 |
| (Dollars in thousands) | | Total | | One Year
or Less | | After One
Year to
Five Years | | After Five
Years to
Ten Years | | After
Ten Years |
| U.S. Treasury securities | | $ | 4,821,074 |
| | $ | 1,677,718 |
| | $ | 1,974,793 |
| | $ | 1,168,563 |
| | $ | — |
|
| Foreign government debt securities | | 9,211 |
| | — |
| | 9,211 |
| | — |
| | — |
|
| Residential mortgage-backed securities: | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 1,321,857 |
| | — |
| | — |
| | — |
| | 1,321,857 |
|
| Agency-issued collateralized mortgage obligations—fixed rate | | 1,788,180 |
| | — |
| | — |
| | 5,244 |
| | 1,782,936 |
|
| Total | | $ | 7,940,322 |
| | $ | 1,677,718 |
| | $ | 1,984,004 |
| | $ | 1,173,807 |
| | $ | 3,104,793 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2018 |
| (Dollars in thousands) | | Total | | One Year
or Less | | After One
Year to
Five Years | | After Five
Years to
Ten Years | | After
Ten Years |
| U.S. Treasury securities | | $ | 5,733,070 |
| | $ | 2,037,522 |
| | $ | 3,349,925 |
| | $ | 345,623 |
| | $ | — |
|
| U.S. agency debentures | | 1,485,864 |
| | 555,737 |
| | 930,127 |
| | — |
| | — |
|
| Residential mortgage-backed securities: | | | | | | | | | | |
Agency-issued collateralized mortgage obligations—fixed rate | | 2,038,134 |
| | — |
| | — |
| | 47,098 |
| | 1,991,036 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 336,298 |
| | — |
| | — |
| | — |
| | 336,298 |
|
| Total | | $ | 9,593,366 |
| | $ | 2,593,259 |
| | $ | 4,280,052 |
| | $ | 392,721 |
| | $ | 2,327,334 |
|
Held-to-Maturity Securities
The components of our held-to-maturity investment securities portfolio at June 30, 20182019 and December 31, 20172018 are as follows:
| | | | | June 30, 2018 | | June 30, 2019 |
| (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) | | $ | 713,809 |
| | $ | — |
| | $ | (13,818 | ) | | $ | 699,991 |
| | $ | 585,817 |
| | $ | 14,111 |
| | $ | — |
| | $ | 599,928 |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 8,588,483 |
| | 1,591 |
| | (210,148 | ) | | 8,379,926 |
| | 7,706,133 |
| | 105,024 |
| | (7,790 | ) | | 7,803,367 |
|
| Agency-issued collateralized mortgage obligations—fixed rate | | 2,494,834 |
| | — |
| | (91,919 | ) | | 2,402,915 |
| | 1,912,839 |
| | 1,780 |
| | (14,322 | ) | | 1,900,297 |
|
| Agency-issued collateralized mortgage obligations—variable rate | | 233,285 |
| | 691 |
| | (31 | ) | | 233,945 |
| | 197,962 |
| | 109 |
| | (357 | ) | | 197,714 |
|
| Agency-issued commercial mortgage-backed securities | | 2,335,971 |
| | 10 |
| | (62,982 | ) | | 2,272,999 |
| | 2,886,958 |
| | 49,057 |
| | (12,455 | ) | | 2,923,560 |
|
| Municipal bonds and notes | | 1,531,881 |
| | 1,280 |
| | (28,942 | ) | | 1,504,219 |
| | 1,579,052 |
| | 61,137 |
| | (93 | ) | | 1,640,096 |
|
| Total held-to-maturity securities | | $ | 15,898,263 |
| | $ | 3,572 |
| | $ | (407,840 | ) | | $ | 15,493,995 |
| | $ | 14,868,761 |
| | $ | 231,218 |
| | $ | (35,017 | ) | | $ | 15,064,962 |
|
| |
| (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, 2017 | | December 31, 2018 |
| (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) | | $ | 659,979 |
| | $ | 3,167 |
| | $ | (1,601 | ) | | $ | 661,545 |
| | $ | 640,990 |
| | $ | 2,148 |
| | $ | (4,850 | ) | | $ | 638,288 |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 6,304,969 |
| | 4,854 |
| | (43,528 | ) | | 6,266,295 |
| | 8,103,638 |
| | 5,011 |
| | (157,767 | ) | | 7,950,882 |
|
| Agency-issued collateralized mortgage obligations—fixed rate | | 2,829,979 |
| | 23 |
| | (54,372 | ) | | 2,775,630 |
| | 2,183,204 |
| | — |
| | (62,272 | ) | | 2,120,932 |
|
| Agency-issued collateralized mortgage obligations—variable rate | | 255,782 |
| | 733 |
| | (34 | ) | | 256,481 |
| | 214,483 |
| | 608 |
| | (14 | ) | | 215,077 |
|
| Agency-issued commercial mortgage-backed securities | | 1,868,985 |
| | 694 |
| | (25,563 | ) | | 1,844,116 |
| | 2,769,706 |
| | 6,969 |
| | (64,374 | ) | | 2,712,301 |
|
| Municipal bonds and notes | | 743,761 |
| | 3,452 |
| | (3,000 | ) | | 744,213 |
| | 1,575,421 |
| | 2,304 |
| | (26,969 | ) | | 1,550,756 |
|
| Total held-to-maturity securities | | $ | 12,663,455 |
| | $ | 12,923 |
| | $ | (128,098 | ) | | $ | 12,548,280 |
| | $ | 15,487,442 |
| | $ | 17,040 |
| | $ | (316,246 | ) | | $ | 15,188,236 |
|
| |
| (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 tables summarize our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of June 30, 20182019 and December 31, 2017:2018:
| | | | | June 30, 2018 | | June 30, 2019 |
| | | Less than 12 months | | 12 months or longer | | Total | | 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 | | 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 | | $ | 645,990 |
| | $ | (10,883 | ) | | $ | 54,001 |
| | $ | (2,935 | ) | | $ | 699,991 |
| | $ | (13,818 | ) | |
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 7,436,980 |
| | (192,418 | ) | | 364,687 |
| | (17,730 | ) | | 7,801,667 |
| | (210,148 | ) | | $ | 23,334 |
| | $ | (99 | ) | | $ | 1,649,553 |
| | $ | (7,691 | ) | | $ | 1,672,887 |
| | $ | (7,790 | ) |
| Agency-issued collateralized mortgage obligations—fixed rate | | 776,389 |
| | (24,833 | ) | | 1,626,527 |
| | (67,086 | ) | | 2,402,916 |
| | (91,919 | ) | | — |
| | — |
| | 1,566,989 |
| | (14,322 | ) | | 1,566,989 |
| | (14,322 | ) |
| Agency-issued collateralized mortgage obligations—variable rate | | 3,687 |
| | (1 | ) | | 8,889 |
| | (30 | ) | | 12,576 |
| | (31 | ) | | 156,837 |
| | (351 | ) | | 7,515 |
| | (6 | ) | | 164,352 |
| | (357 | ) |
| Agency-issued commercial mortgage-backed securities | | 1,460,340 |
| | (38,747 | ) | | 715,596 |
| | (24,235 | ) | | 2,175,936 |
| | (62,982 | ) | | — |
| | — |
| | 1,040,014 |
| | (12,455 | ) | | 1,040,014 |
| | (12,455 | ) |
| Municipal bonds and notes | | 1,046,102 |
| | (28,359 | ) | | 15,859 |
| | (583 | ) | | 1,061,961 |
| | (28,942 | ) | | — |
| | — |
| | 20,962 |
| | (93 | ) | | 20,962 |
| | (93 | ) |
| Total temporarily impaired securities (1) | | $ | 11,369,488 |
| | $ | (295,241 | ) | | $ | 2,785,559 |
| | $ | (112,599 | ) | | $ | 14,155,047 |
| | $ | (407,840 | ) | | $ | 180,171 |
| | $ | (450 | ) | | $ | 4,285,033 |
| | $ | (34,567 | ) | | $ | 4,465,204 |
| | $ | (35,017 | ) |
| |
| (1) | As of June 30, 20182019, we identified a total of 1,236337 investments that were in unrealized loss positions, of which 226324 investments totaling $2.84.3 billion with unrealized losses of $112.634.6 million have been in an impaired position for a period of time greater than 12 months. As of June 30, 20182019, we do not intend to sell any of our impaired 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 June 30, 20182019, 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. |
| | | | | December 31, 2017 | | December 31, 2018 |
| | | Less than 12 months | | 12 months or longer | | Total | | 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 | | 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 | | $ | 104,688 |
| | $ | (1,601 | ) | | $ | — |
| | $ | — |
| | $ | 104,688 |
| | $ | (1,601 | ) | | $ | 291,432 |
| | $ | (2,915 | ) | | $ | 66,624 |
| | $ | (1,935 | ) | | $ | 358,056 |
| | $ | (4,850 | ) |
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 4,270,377 |
| | (34,092 | ) | | 408,913 |
| | (9,436 | ) | | 4,679,290 |
| | (43,528 | ) | | 2,493,156 |
| | (34,956 | ) | | 3,972,690 |
| | (122,811 | ) | | 6,465,846 |
| | (157,767 | ) |
| Agency-issued collateralized mortgage obligations—fixed rate | | 1,011,709 |
| | (13,631 | ) | | 1,741,614 |
| | (40,741 | ) | | 2,753,323 |
| | (54,372 | ) | | 16,952 |
| | (109 | ) | | 2,103,980 |
| | (62,163 | ) | | 2,120,932 |
| | (62,272 | ) |
| Agency-issued collateralized mortgage obligations—variable rate | | — |
| | — |
| | 9,812 |
| | (34 | ) | | 9,812 |
| | (34 | ) | | 3,364 |
| | (1 | ) | | 8,101 |
| | (13 | ) | | 11,465 |
| | (14 | ) |
| Agency-issued commercial mortgage-backed securities | | 979,361 |
| | (11,566 | ) | | 773,712 |
| | (13,997 | ) | | 1,753,073 |
| | (25,563 | ) | | 177,697 |
| | (1,580 | ) | | 1,600,277 |
| | (62,794 | ) | | 1,777,974 |
| | (64,374 | ) |
| Municipal bonds and notes | | 344,796 |
| | (2,103 | ) | | 32,844 |
| | (897 | ) | | 377,640 |
| | (3,000 | ) | | 868,751 |
| | (17,075 | ) | | 340,413 |
| | (9,894 | ) | | 1,209,164 |
| | (26,969 | ) |
| Total temporarily impaired securities (1) | | $ | 6,710,931 |
| | $ | (62,993 | ) | | $ | 2,966,895 |
| | $ | (65,105 | ) | | $ | 9,677,826 |
| | $ | (128,098 | ) | | $ | 3,851,352 |
| | $ | (56,636 | ) | | $ | 8,092,085 |
| | $ | (259,610 | ) | | $ | 11,943,437 |
| | $ | (316,246 | ) |
| |
| (1) | As of December 31, 20172018, we identified a total of 7531,244 investments that were in unrealized loss positions, of which 237695 investments totaling $3.08.1 billion with unrealized losses of $65.1259.6 million have been in an impaired position for a period of time greater than 12 months. |
The following table summarizes the remaining contractual principal maturities on fixed income investment securities classified as held-to-maturity as of June 30, 2018.2019. For U.S. agency debentures, 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 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 interest rate environments.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2019 |
| | | 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 | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. agency debentures | | $ | 585,817 |
| | $ | 599,928 |
| | $ | — |
| | $ | — |
| | $ | 101,464 |
| | $ | 103,530 |
| | $ | 484,353 |
| | $ | 496,398 |
| | $ | — |
| | $ | — |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 7,706,133 |
| | 7,803,367 |
| | — |
| | — |
| | 110,633 |
| | 110,834 |
| | 821,076 |
| | 817,428 |
| | 6,774,424 |
| | 6,875,105 |
|
Agency-issued collateralized mortgage obligations—fixed rate | | 1,912,839 |
| | 1,900,297 |
| | — |
| | — |
| | — |
| | — |
| | 506,773 |
| | 501,451 |
| | 1,406,066 |
| | 1,398,846 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 197,962 |
| | 197,714 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 197,962 |
| | 197,714 |
|
| Agency-issued commercial mortgage-backed securities | | 2,886,958 |
| | 2,923,560 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,886,958 |
| | 2,923,560 |
|
| Municipal bonds and notes | | 1,579,052 |
| | 1,640,096 |
| | 14,977 |
| | 14,984 |
| | 83,468 |
| | 84,297 |
| | 340,526 |
| | 351,481 |
| | 1,140,081 |
| | 1,189,334 |
|
| Total | | $ | 14,868,761 |
| | $ | 15,064,962 |
| | $ | 14,977 |
| | $ | 14,984 |
| | $ | 295,565 |
| | $ | 298,661 |
| | $ | 2,152,728 |
| | $ | 2,166,758 |
| | $ | 12,405,491 |
| | $ | 12,584,559 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2018 |
| | | 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 | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. agency debentures | | $ | 713,809 |
| | $ | 699,991 |
| | $ | — |
| | $ | — |
| | $ | 122,040 |
| | $ | 120,081 |
| | $ | 591,769 |
| | $ | 579,910 |
| | $ | — |
| | $ | — |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 8,588,483 |
| | 8,379,926 |
| | 707 |
| | 706 |
| | 172,594 |
| | 168,271 |
| | 672,564 |
| | 648,623 |
| | 7,742,618 |
| | 7,562,326 |
|
Agency-issued collateralized mortgage obligations—fixed rate | | 2,494,834 |
| | 2,402,915 |
| | — |
| | — |
| | — |
| | — |
| | 412,530 |
| | 394,779 |
| | 2,082,304 |
| | 2,008,136 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 233,285 |
| | 233,945 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 233,285 |
| | 233,945 |
|
| Agency-issued commercial mortgage-backed securities | | 2,335,971 |
| | 2,272,999 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,335,971 |
| | 2,272,999 |
|
| Municipal bonds and notes | | 1,531,881 |
| | 1,504,219 |
| | 7,257 |
| | 7,236 |
| | 75,946 |
| | 74,989 |
| | 259,085 |
| | 250,034 |
| | 1,189,593 |
| | 1,171,960 |
|
| Total | | $ | 15,898,263 |
| | $ | 15,493,995 |
| | $ | 7,964 |
| | $ | 7,942 |
| | $ | 370,580 |
| | $ | 363,341 |
| | $ | 1,935,948 |
| | $ | 1,873,346 |
| | $ | 13,583,771 |
| | $ | 13,249,366 |
|
Non-marketable and Other Equity Securities
The major components of our non-marketable and other equity securities portfolio at June 30, 20182019 and December 31, 20172018 are as follows:
| | | (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| Non-marketable and other equity securities: | | | | | | | | |
| Non-marketable securities (fair value accounting): | | | | | | | | |
| Consolidated venture capital and private equity fund investments (1) | | $ | 133,007 |
| | $ | 128,111 |
| | $ | 110,086 |
| | $ | 118,333 |
|
| Unconsolidated venture capital and private equity fund investments (2) | | 211,113 |
| | 98,548 |
| | 193,206 |
| | 201,098 |
|
| Other investments without a readily determinable fair value (3) | | 24,015 |
| | 27,680 |
| | 42,419 |
| | 25,668 |
|
| Other equity securities in public companies (fair value accounting) (4) | | 4,412 |
| | 310 |
| | 39,808 |
| | 20,398 |
|
| Non-marketable securities (equity method accounting) (5): | | | | | | | | |
| Venture capital and private equity fund investments | | 102,838 |
| | 89,809 |
| | 169,219 |
| | 129,485 |
|
| Debt funds | | 14,215 |
| | 21,183 |
| | 7,168 |
| | 5,826 |
|
| Other investments | | 111,426 |
| | 111,198 |
| | 123,797 |
| | 121,721 |
|
| Investments in qualified affordable housing projects, net (6) | | 251,479 |
| | 174,214 |
| | 394,046 |
| | 318,575 |
|
| Total non-marketable and other equity securities | | $ | 852,505 |
| | $ | 651,053 |
| | $ | 1,079,749 |
| | $ | 941,104 |
|
| |
| (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 June 30, 20182019 and December 31, 20172018 (fair value accounting): |
|
| | | | | | | | | | | | | | |
| | | June 30, 2019 | | December 31, 2018 |
| (Dollars in thousands) | | Amount | | Ownership % | | Amount | | Ownership % |
| Strategic Investors Fund, LP | | $ | 8,860 |
| | 12.6 | % | | $ | 12,452 |
| | 12.6 | % |
| Capital Preferred Return Fund, LP | | 51,801 |
| | 20.0 |
| | 53,957 |
| | 20.0 |
|
| Growth Partners, LP | | 48,984 |
| | 33.0 |
| | 50,845 |
| | 33.0 |
|
| CP I, LP | | 441 |
| | 10.7 |
| | 1,079 |
| | 10.7 |
|
| Total consolidated venture capital and private equity fund investments | | $ | 110,086 |
| | | | $ | 118,333 |
| | |
|
| | | | | | | | | | | | | | |
| | | June 30, 2018 | | December 31, 2017 |
| (Dollars in thousands) | | Amount | | Ownership % | | Amount | | Ownership % |
| Strategic Investors Fund, LP | | $ | 13,972 |
| | 12.6 | % | | $ | 14,673 |
| | 12.6 | % |
| Capital Preferred Return Fund, LP | | 58,148 |
| | 20.0 |
| | 54,147 |
| | 20.0 |
|
| Growth Partners, LP | | 59,886 |
| | 33.0 |
| | 58,372 |
| | 33.0 |
|
| CP I, LP | | 1,001 |
| | 10.7 |
| | 919 |
| | 10.7 |
|
| Total consolidated venture capital and private equity fund investments | | $ | 133,007 |
| | | | $ | 128,111 |
| | |
| |
| (2) | The carrying value represents investments in 226212 and 235213 funds (primarily venture capital funds) at June 30, 20182019 and December 31, 20172018, 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. Effective January 1, 2018 we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we willWe carry our unconsolidated venture capital and private equity fund investments at fair value based on the fund investments' net asset values per share as obtained from the general partners of the investments. For each fund investment, 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 March 31st, for our June 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. We recorded a cumulative adjustment to opening retained earnings on January 1, 2018 for the difference between fair value and cost for these fund investments. The estimated fair value and carrying value of these venture capital and private equity fund investments was $211.1 million as of June 30, 2018. As of December 31, 2017, these investments were carried at cost and had a carrying value of $98.5 million. |
| |
| (3) | Effective January 1, 2018, we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we will report our other investments in the line item "Other investments without a readily determinable fair value". These investments include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. The following table shows the changes to the carrying amount of other investments without a readily determinable fair value for the six months ended June 30, 2018:
|
The following table shows the changes to the carrying amount of other investments without a readily determinable fair value for the six months endedJune 30, 2019:
|
| | | | |
| (Dollars in thousands) | | Six months ended June 30, 2018 |
| Carrying value as of January 1, 2018 | | $ | 27,680 |
|
| Upward carrying value adjustments | | 3,630 |
|
| Downward carrying value adjustments | | (1,611 | ) |
| Additions | | 3,654 |
|
| Sales and dispositions | | (9,338 | ) |
| Carrying value as of June 30, 2018 | | $ | 24,015 |
|
|
| | | | | | | | |
| (Dollars in thousands) | | Six months ended June 30, 2019 | | Cumulative Adjustments |
| Measurement alternative: | | | | |
| Carrying value at June 30, 2019 | | $ | 42,419 |
| | |
| Carrying value adjustments: | | | | |
| Impairment | | $ | — |
| | $ | — |
|
| Upward changes for observable prices | | 2,611 |
| | 3,512 |
|
| Downward changes for observable prices | | (2,376 | ) | | (3,996 | ) |
| |
| (4) | Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets and direct equity investments in public companies held by our consolidated funds. Effective January 1, 2018 we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which requiresChanges in equity securities to be measured at fair value with changes in the fair valueare recognized through net income. Prior to January 1, 2018 we reported equity securities in public companies that we held as a result of exercising public equity warrant assets in available-for-sale securities. On a prospective basis, these equity securities will be reported in non-marketable and other equity securities. |
| |
| (5) | The following table shows the carrying value and our ownership percentage of each investment at June 30, 20182019 and December 31, 20172018 (equity method accounting): |
| | | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| (Dollars in thousands) | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % | | Amount | | Ownership % |
| Venture capital and private equity fund investments: | | | | | | | | | | | | | | | | |
| Strategic Investors Fund II, LP | | $ | 5,003 |
| | 8.6 | % | | $ | 6,342 |
| | 8.6 | % | | $ | 4,200 |
| | 8.6 | % | | $ | 4,670 |
| | 8.6 | % |
| Strategic Investors Fund III, LP | | 18,858 |
| | 5.9 |
| | 18,758 |
| | 5.9 |
| | 16,364 |
| | 5.9 |
| | 17,396 |
| | 5.9 |
|
| Strategic Investors Fund IV, LP | | 29,152 |
| | 5.0 |
| | 25,551 |
| | 5.0 |
| | 28,404 |
| | 5.0 |
| | 28,974 |
| | 5.0 |
|
| Strategic Investors Fund V funds | | 21,247 |
| | Various |
| | 16,856 |
| | Various |
| | 33,300 |
| | Various |
| | 28,189 |
| | Various |
|
| CP II, LP (i) | | 6,792 |
| | 5.1 |
| | 6,700 |
| | 5.1 |
| | 7,450 |
| | 5.1 |
| | 7,122 |
| | 5.1 |
|
| Other venture capital and private equity fund investments | | 21,786 |
| | Various |
| | 15,602 |
| | Various |
| | 79,501 |
| | Various |
| | 43,134 |
| | Various |
|
| Total venture capital and private equity fund investments | | $ | 102,838 |
| | | | $ | 89,809 |
| | | | $ | 169,219 |
| | | | $ | 129,485 |
| | |
| Debt funds: | | | | | | | | | | | | | | | | |
| Gold Hill Capital 2008, LP (ii) | | $ | 11,153 |
| | 15.5 | % | | $ | 18,690 |
| | 15.5 | % | | $ | 5,323 |
| | 15.5 | % | | $ | 3,901 |
| | 15.5 | % |
| Other debt funds | | 3,062 |
| | Various |
| | 2,493 |
| | Various |
| | 1,845 |
| | Various |
| | 1,925 |
| | Various |
|
| Total debt funds | | $ | 14,215 |
| | | | $ | 21,183 |
| | | | $ | 7,168 |
| | | | $ | 5,826 |
| | |
| Other investments: | | | | | | | | | | | | | | | | |
| SPD Silicon Valley Bank Co., Ltd. | | $ | 75,837 |
| | 50.0 | % | | $ | 75,337 |
| | 50.0 | % | | $ | 76,544 |
| | 50.0 | % | | $ | 76,412 |
| | 50.0 | % |
| Other investments | | 35,589 |
| | Various |
| | 35,861 |
| | Various |
| | 47,253 |
| | Various |
| | 45,309 |
| | Various |
|
| Total other investments | | $ | 111,426 |
| | | | $ | 111,198 |
| | | | $ | 123,797 |
| | | | $ | 121,721 |
| | |
| |
| (i) | Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments in Strategic Investors Fund II, LP. |
| |
| (ii) | Our ownership includes 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. |
| |
| (6) | The following table presents the balances of our investments in qualified affordable housing projects and related unfunded commitments included as a component of “other“Other liabilities” on our consolidated balance sheets at June 30, 20182019 and December 31, 20172018: |
| | | (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| Investments in qualified affordable housing projects, net | | $ | 251,479 |
| | $ | 174,214 |
| | $ | 394,046 |
| | 318,575 |
|
| Other liabilities | | 161,113 |
| | 100,891 |
| | 266,761 |
| | 205,685 |
|
The following table presents other information relating to our investments in qualified affordable housing projects for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 | | 2018 | | 2017 | | 2019 |
| 2018 | | 2019 | | 2018 |
| Tax credits and other tax benefits recognized | | $ | 5,207 |
| | $ | 3,968 |
| | $ | 10,629 |
| | $ | 8,660 |
| | $ | 10,988 |
| | $ | 5,207 |
| | $ | 20,245 |
| | $ | 10,629 |
|
| Amortization expense included in provision for income taxes (i) | | 4,705 |
| | 3,385 |
| | 9,497 |
| | 6,621 |
| | 6,758 |
| | 4,705 |
| | 14,394 |
| | 9,497 |
|
| |
| (i) | All investments are amortized using the proportional amortization method and amortization expense is included in the provision for income taxes. |
The following table presents the net gains and losses on non-marketable and other equity securities for the three and six months ended June 30, 20182019 and 20172018 as recorded in the line item “Gains on investment securities, net”,net," a component of noninterest income:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Net gains (losses) on non-marketable and other equity securities: | | | | | | | | |
| Non-marketable securities (fair value accounting): | | | | | | | | |
| Consolidated venture capital and private equity fund investments | | $ | 14,830 |
| | $ | 4,397 |
| | $ | 18,119 |
| | $ | 16,044 |
|
| Unconsolidated venture capital and private equity fund investments | | 10,152 |
| | 19,136 |
| | 18,158 |
| | 30,855 |
|
| Other investments without a readily determinable fair value | | 167 |
| | 60 |
| | 5,172 |
| | 1,801 |
|
| Other equity securities in public companies (fair value accounting) | | 282 |
| | 88 |
| | 12,085 |
| | (22,194 | ) |
| Non-marketable securities (equity method accounting): | | | | | | | | |
| Venture capital and private equity fund investments | | 22,351 |
| | 9,212 |
| | 25,140 |
| | 18,781 |
|
| Debt funds | | 1,342 |
| | 726 |
| | 1,342 |
| | (1,573 | ) |
| Other investments | | (1,151 | ) | | 2,495 |
| | 615 |
| | 1,458 |
|
| Total net gains on non-marketable and other equity securities | | $ | 47,973 |
| | $ | 36,114 |
| | $ | 80,631 |
| | $ | 45,172 |
|
| Less: realized net gains (losses) on sales of securities (1) | | 2,524 |
| | 1,915 |
| | 12,359 |
| | (21,163 | ) |
| Net gains on non-marketable and other equity securities still held | | $ | 45,449 |
| | $ | 34,199 |
| | $ | 68,272 |
| | $ | 66,335 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
| Net gains on non-marketable and other equity securities: | | | | | | | | |
| Non-marketable securities (fair value accounting): | | | | | | | | |
| Consolidated venture capital and private equity fund investments | | $ | 4,397 |
| | $ | 9,713 |
| | $ | 16,044 |
| | $ | 16,176 |
|
| Unconsolidated venture capital and private equity fund investments (1) | | 19,136 |
| | 6,184 |
| | 30,855 |
| | 9,231 |
|
| Other investments without a readily determinable fair value (1) | | 60 |
| | 30 |
| | 1,801 |
| | 3,403 |
|
| Other equity securities in public companies (fair value accounting) (1) | | 88 |
| | (25 | ) | | (22,194 | ) | | (107 | ) |
| Non-marketable securities (equity method accounting): | |
|
| |
|
| | | | |
| Venture capital and private equity fund investments | | 9,212 |
| | 2,657 |
| | 18,781 |
| | 6,391 |
|
| Debt funds | | 726 |
| | 682 |
| | (1,573 | ) | | 251 |
|
| Other investments | | 2,495 |
| | (1,488 | ) | | 1,458 |
| | (2,230 | ) |
| Total net gains on non-marketable and other equity securities | | $ | 36,114 |
| | $ | 17,753 |
| | $ | 45,172 |
| | $ | 33,115 |
|
| Less: Net gains (losses) on non-marketable and other equity securities sold | | 1,915 |
| | 31 |
| | (21,163 | ) | | 3,404 |
|
| Unrealized net gains on non-marketable and other equity securities still held | | $ | 34,199 |
| | $ | 17,722 |
| | $ | 66,335 |
| | $ | 29,711 |
|
| |
| (1) | Prior period amounts are not determined in a manner consistent withRealized gains and losses include sales of non-marketable and other equity securities. No OTTI was recorded during the current period presentation due to the adoption of accounting standard update (ASU 2016-01, Recognitionthree and Measurement of Financial Assetssix months ended June 30, 2019 and Financial Liabilities (Topic 825)).2018. |
| |
7.8. | Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments |
We serve a variety of commercial clients in the technology, life science/healthcare, private equity/venture capital and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications, data, storage, and electronics), software/internet (such as infrastructure software, applications, software services, digital content and advertising technology), and energy and resource innovation (“ERI”). Because of the diverse nature of ERI products and services, for our loan-related reporting purposes, ERI-related loans are reported under our hardware, software/internet, life science/healthcare and other commercial loan categories, as applicable. Our life science/healthcare clients primarily tend to be in the industries of biotechnology, medical devices, healthcare information technology and healthcare services. Loans made to private equity/venture capital firm clients typically enable them to fund investments prior to their receipt of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.
In addition to commercial loans, we make consumer loans through SVB Private Bank and provide real estate secured loans to eligible employees through our EHOP. Our private banking clients are primarily private equity/venture capital professionals and executive leaders in the innovation companies they support. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit.
We also provide community development loans made as part of our responsibilities under the Community Reinvestment Act. These loans are included within “Construction loans” below and are primarily secured by real estate.
The composition of loans, net of unearned income of $165$161 million and $148$173 million at June 30, 20182019 and December 31, 2017,2018, respectively, is presented in the following table:
| | | (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 6,230,358 |
| | $ | 6,172,531 |
| | $ | 6,000,284 |
| | $ | 6,154,755 |
|
| Hardware | | 1,269,241 |
| | 1,193,599 |
| | 1,328,589 |
| | 1,234,557 |
|
| Private equity/venture capital | | 12,224,155 |
| | 9,952,377 |
| | 14,684,900 |
| | 14,110,560 |
|
| Life science/healthcare | | 2,087,872 |
| | 1,808,827 |
| | 2,382,847 |
| | 2,385,612 |
|
| Premium wine | | 198,813 |
| | 204,105 |
| | 236,116 |
| | 249,266 |
|
| Other | | 316,392 |
| | 365,724 |
| | 384,247 |
| | 321,978 |
|
| Total commercial loans | | 22,326,831 |
| | 19,697,163 |
| | 25,016,983 |
| | 24,456,728 |
|
| Real estate secured loans: | | | | | | | | |
| Premium wine (1) | | 685,357 |
| | 669,053 |
| | 753,468 |
| | 710,397 |
|
| Consumer loans (2) | | 2,481,062 |
| | 2,300,506 |
| | 2,808,707 |
| | 2,612,971 |
|
| Other | | 41,275 |
| | 42,068 |
| | 39,666 |
| | 40,435 |
|
| Total real estate secured loans | | 3,207,694 |
| | 3,011,627 |
| | 3,601,841 |
| | 3,363,803 |
|
| Construction loans | | 64,388 |
| | 68,546 |
| | 126,895 |
| | 97,077 |
|
| Consumer loans | | 397,279 |
| | 328,980 |
| | 463,854 |
| | 420,672 |
|
| Total loans, net of unearned income (3) | | $ | 25,996,192 |
| | $ | 23,106,316 |
| | $ | 29,209,573 |
| | $ | 28,338,280 |
|
| |
| (1) | Included in our premium wine portfolio are gross construction loans of $10494 million and $10099 million at June 30, 20182019 and December 31, 20172018, respectively. |
| |
| (2) | Consumer loans secured by real estate at June 30, 20182019 and December 31, 20172018 were comprised of the following: |
|
| | | | | | | | |
| (Dollars in thousands) | | June 30, 2019 | | December 31, 2018 |
| Loans for personal residence | | $ | 2,418,103 |
| | $ | 2,251,292 |
|
| Loans to eligible employees | | 330,374 |
| | 290,194 |
|
| Home equity lines of credit | | 60,230 |
| | 71,485 |
|
| Consumer loans secured by real estate | | $ | 2,808,707 |
| | $ | 2,612,971 |
|
|
| | | | | | | | |
| (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 |
| Loans for personal residence | | $ | 2,144,326 |
| | $ | 1,995,840 |
|
| Loans to eligible employees | | 266,988 |
| | 243,118 |
|
| Home equity lines of credit | | 69,748 |
| | 61,548 |
|
| Consumer loans secured by real estate | | $ | 2,481,062 |
| | $ | 2,300,506 |
|
| |
| (3) | Included within our total loan portfolio are credit card loans of $315377 million and $270335 million at June 30, 20182019 and December 31, 20172018, respectively. |
Credit Quality
The composition of loans, net of unearned income of $165$161 million and $148$173 million at June 30, 20182019 and December 31, 20172018, respectively, broken out by portfolio segment and class of financing receivable, is as follows:
|
| | | | | | | | |
| (Dollars in thousands) | | June 30, 2019 | | December 31, 2018 |
| Commercial loans: | | | | |
| Software/internet | | $ | 6,000,284 |
| | $ | 6,154,755 |
|
| Hardware | | 1,328,589 |
| | 1,234,557 |
|
| Private equity/venture capital | | 14,684,900 |
| | 14,110,560 |
|
| Life science/healthcare | | 2,382,847 |
| | 2,385,612 |
|
| Premium wine | | 989,584 |
| | 959,663 |
|
| Other | | 550,808 |
| | 459,490 |
|
| Total commercial loans | | 25,937,012 |
| | 25,304,637 |
|
| Consumer loans: | | | | |
| Real estate secured loans | | 2,808,707 |
| | 2,612,971 |
|
| Other consumer loans | | 463,854 |
| | 420,672 |
|
| Total consumer loans | | 3,272,561 |
| | 3,033,643 |
|
| Total loans, net of unearned income | | $ | 29,209,573 |
| | $ | 28,338,280 |
|
|
| | | | | | | | |
| (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 |
| Commercial loans: | | | | |
| Software/internet | | $ | 6,230,358 |
| | $ | 6,172,531 |
|
| Hardware | | 1,269,241 |
| | 1,193,599 |
|
| Private equity/venture capital | | 12,224,155 |
| | 9,952,377 |
|
| Life science/healthcare | | 2,087,872 |
| | 1,808,827 |
|
| Premium wine | | 884,170 |
| | 873,158 |
|
| Other | | 422,055 |
| | 476,338 |
|
| Total commercial loans | | 23,117,851 |
| | 20,476,830 |
|
| Consumer loans: | | | | |
| Real estate secured loans | | 2,481,062 |
| | 2,300,506 |
|
| Other consumer loans | | 397,279 |
| | 328,980 |
|
| Total consumer loans | | 2,878,341 |
| | 2,629,486 |
|
| Total loans, net of unearned income | | $ | 25,996,192 |
| | $ | 23,106,316 |
|
The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of June 30, 20182019 and December 31, 20172018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 30 - 59 Days Past Due | | 60 - 89 Days Past Due | | Equal to or Greater Than 90 Days Past Due | | Total Past Due | | Current | | Loans Past Due 90 Days or More Still Accruing Interest |
| June 30, 2019: | | | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 4,693 |
| | $ | 20,568 |
| | $ | 97 |
| | $ | 25,358 |
| | $ | 5,909,916 |
| | $ | 97 |
|
| Hardware | | 347 |
| | 2,507 |
| | 3 |
| | 2,857 |
| | 1,318,806 |
| | 3 |
|
| Private equity/venture capital | | 5,526 |
| | 14 |
| | — |
| | 5,540 |
| | 14,682,798 |
| | — |
|
| Life science/healthcare | | 1,895 |
| | 378 |
| | 11 |
| | 2,284 |
| | 2,394,468 |
| | 11 |
|
| Premium wine | | 821 |
| | — |
| | — |
| | 821 |
| | 988,290 |
| | — |
|
| Other | | 367 |
| | — |
| | — |
| | 367 |
| | 589,456 |
| | — |
|
| Total commercial loans | | 13,649 |
| | 23,467 |
| | 111 |
| | 37,227 |
| | 25,883,734 |
| | 111 |
|
| Consumer loans: | | | | | | | | | | | | |
| Real estate secured loans | | — |
| | 3,294 |
| | — |
| | 3,294 |
| | 2,796,397 |
| | — |
|
| Other consumer loans | | 60 |
| | — |
| | — |
| | 60 |
| | 464,168 |
| | — |
|
| Total consumer loans | | 60 |
| | 3,294 |
| | — |
| | 3,354 |
| | 3,260,565 |
| | — |
|
| Total gross loans excluding impaired loans | | 13,709 |
| | 26,761 |
| | 111 |
| | 40,581 |
| | 29,144,299 |
| | 111 |
|
| Impaired loans | | 2,051 |
| | 4,281 |
| | 14,954 |
| | 21,286 |
| | 164,237 |
| | — |
|
| Total gross loans | | $ | 15,760 |
| | $ | 31,042 |
| | $ | 15,065 |
| | $ | 61,867 |
| | $ | 29,308,536 |
| | $ | 111 |
|
| December 31, 2018: | | | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 28,134 |
| | $ | 6,944 |
| | $ | 378 |
| | $ | 35,456 |
| | $ | 6,059,672 |
| | $ | 378 |
|
| Hardware | | 300 |
| | 34 |
| | 4 |
| | 338 |
| | 1,233,956 |
| | 4 |
|
| Private equity/venture capital | | 59,481 |
| | 11 |
| | — |
| | 59,492 |
| | 14,054,940 |
| | — |
|
| Life science/healthcare | | 16,082 |
| | 817 |
| | 19 |
| | 16,918 |
| | 2,410,091 |
| | 19 |
|
| Premium wine | | 2,953 |
| | 14 |
| | — |
| | 2,967 |
| | 956,285 |
| | — |
|
| Other | | 7,391 |
| | 163 |
| | 1 |
| | 7,555 |
| | 477,442 |
| | 1 |
|
| Total commercial loans | | 114,341 |
| | 7,983 |
| | 402 |
| | 122,726 |
| | 25,192,386 |
| | 402 |
|
| Consumer loans: | | | | | | | | | | | | |
| Real estate secured loans | | 3,598 |
| | 1,750 |
| | 1,562 |
| | 6,910 |
| | 2,598,496 |
| | 1,562 |
|
| Other consumer loans | | 361 |
| | — |
| | — |
| | 361 |
| | 420,359 |
| | — |
|
| Total consumer loans | | 3,959 |
| | 1,750 |
| | 1,562 |
| | 7,271 |
| | 3,018,855 |
| | 1,562 |
|
| Total gross loans excluding impaired loans | | 118,300 |
| | 9,733 |
| | 1,964 |
| | 129,997 |
| | 28,211,241 |
| | 1,964 |
|
| Impaired loans | | 2,843 |
| | 1,181 |
| | 25,092 |
| | 29,116 |
| | 140,958 |
| | — |
|
| Total gross loans | | $ | 121,143 |
| | $ | 10,914 |
| | $ | 27,056 |
| | $ | 159,113 |
| | $ | 28,352,199 |
| | $ | 1,964 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 30 - 59 Days Past Due | | 60 - 89 Days Past Due | | Equal to or Greater Than 90 Days Past Due | | Total Past Due | | Current | | Loans Past Due 90 Days or More Still Accruing Interest |
| June 30, 2018: | | | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 7,996 |
| | $ | 6,271 |
| | $ | 459 |
| | $ | 14,726 |
| | $ | 6,174,542 |
| | $ | 459 |
|
| Hardware | | 645 |
| | 40 |
| | 3 |
| | 688 |
| | 1,238,451 |
| | 3 |
|
| Private equity/venture capital | | 62,536 |
| | 10 |
| | — |
| | 62,546 |
| | 12,170,459 |
| | — |
|
| Life science/healthcare | | 671 |
| | 269 |
| | — |
| | 940 |
| | 2,130,976 |
| | — |
|
| Premium wine | | 3,350 |
| | — |
| | — |
| | 3,350 |
| | 879,176 |
| | — |
|
| Other | | 1 |
| | 3 |
| | — |
| | 4 |
| | 436,011 |
| | — |
|
| Total commercial loans | | 75,199 |
| | 6,593 |
| | 462 |
| | 82,254 |
| | 23,029,615 |
| | 462 |
|
| Consumer loans: | | | | | | | | | | | | |
| Real estate secured loans | | — |
| | — |
| | — |
| | — |
| | 2,473,458 |
| | — |
|
| Other consumer loans | | 1,489 |
| | — |
| | — |
| | 1,489 |
| | 395,787 |
| | — |
|
| Total consumer loans | | 1,489 |
| | — |
| | — |
| | 1,489 |
| | 2,869,245 |
| | — |
|
| Total gross loans excluding impaired loans | | 76,688 |
| | 6,593 |
| | 462 |
| | 83,743 |
| | 25,898,860 |
| | 462 |
|
| Impaired loans | | 1,557 |
| | 2,070 |
| | 36,196 |
| | 39,823 |
| | 138,356 |
| | — |
|
| Total gross loans | | $ | 78,245 |
| | $ | 8,663 |
| | $ | 36,658 |
| | $ | 123,566 |
| | $ | 26,037,216 |
| | $ | 462 |
|
| December 31, 2017: | | | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 14,257 |
| | $ | 6,526 |
| | $ | 141 |
| | $ | 20,924 |
| | $ | 6,101,147 |
| | $ | 141 |
|
| Hardware | | 1,145 |
| | 77 |
| | 50 |
| | 1,272 |
| | 1,163,278 |
| | 50 |
|
| Private equity/venture capital | | 86,566 |
| | 38,580 |
| | — |
| | 125,146 |
| | 9,835,317 |
| | — |
|
| Life science/healthcare | | 4,390 |
| | 191 |
| | — |
| | 4,581 |
| | 1,841,692 |
| | — |
|
| Premium wine | | 418 |
| | — |
| | — |
| | 418 |
| | 871,074 |
| | — |
|
| Other | | 445 |
| | — |
| | — |
| | 445 |
| | 490,292 |
| | — |
|
| Total commercial loans | | 107,221 |
| | 45,374 |
| | 191 |
| | 152,786 |
| | 20,302,800 |
| | 191 |
|
| Consumer loans: | | | | | | | | | | | | |
| Real estate secured loans | | 2,164 |
| | 532 |
| | — |
| | 2,696 |
| | 2,292,980 |
| | — |
|
| Other consumer loans | | 796 |
| | — |
| | — |
| | 796 |
| | 327,234 |
| | — |
|
| Total consumer loans | | 2,960 |
| | 532 |
| | — |
| | 3,492 |
| | 2,620,214 |
| | — |
|
| Total gross loans excluding impaired loans | | 110,181 |
| | 45,906 |
| | 191 |
| | 156,278 |
| | 22,923,014 |
| | 191 |
|
| Impaired loans | | 1,344 |
| | 11,902 |
| | 30,403 |
| | 43,649 |
| | 131,212 |
| | — |
|
| Total gross loans | | $ | 111,525 |
| | $ | 57,808 |
| | $ | 30,594 |
| | $ | 199,927 |
| | $ | 23,054,226 |
| | $ | 191 |
|
The following table summarizes our impaired loans as they relate to our allowance for loan losses, broken out by portfolio segment and class of financing receivable as of June 30, 20182019 and December 31, 20172018:
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Impaired loans for which there is a related allowance for loan losses | | Impaired loans for which there is no related allowance for loan losses | | Total carrying value of impaired loans | | Total unpaid principal of impaired loans |
| June 30, 2019: | | | | | | | | |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 37,016 |
| | $ | 72,060 |
| | $ | 109,076 |
| | $ | 114,285 |
|
| Hardware | | 8,868 |
| | 6,667 |
| | 15,535 |
| | 15,641 |
|
| Private equity/venture capital | | — |
| | — |
| | — |
| | — |
|
| Life science/healthcare | | 41,639 |
| | 9,372 |
| | 51,011 |
| | 78,471 |
|
| Premium wine | | 244 |
| | 784 |
| | 1,028 |
| | 1,108 |
|
| Other | | 3,230 |
| | — |
| | 3,230 |
| | 3,230 |
|
| Total commercial loans | | 90,997 |
| | 88,883 |
| | 179,880 |
| | 212,735 |
|
| Consumer loans: | | | | | | | | |
| Real estate secured loans | | 1,818 |
| | 3,812 |
| | 5,630 |
| | 9,348 |
|
| Other consumer loans | | 13 |
| | — |
| | 13 |
| | 13 |
|
| Total consumer loans | | 1,831 |
| | 3,812 |
| | 5,643 |
| | 9,361 |
|
| Total | | $ | 92,828 |
| | $ | 92,695 |
| | $ | 185,523 |
| | $ | 222,096 |
|
| December 31, 2018: | | | | | | | | |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 49,625 |
| | $ | 65,225 |
| | $ | 114,850 |
| | $ | 131,858 |
|
| Hardware | | 1,256 |
| | 10,250 |
| | 11,506 |
| | 12,159 |
|
| Private equity/venture capital | | — |
| | 3,700 |
| | 3,700 |
| | 3,700 |
|
| Life science/healthcare | | 17,791 |
| | 16,276 |
| | 34,067 |
| | 44,446 |
|
| Premium wine | | — |
| | 1,301 |
| | 1,301 |
| | 1,365 |
|
| Other | | 411 |
| | — |
| | 411 |
| | 411 |
|
| Total commercial loans | | 69,083 |
| | 96,752 |
| | 165,835 |
| | 193,939 |
|
| Consumer loans: | | | | | | | | |
| Real estate secured loans | | 3,919 |
| | 320 |
| | 4,239 |
| | 5,969 |
|
| Other consumer loans | | — |
| | — |
| | — |
| | — |
|
| Total consumer loans | | 3,919 |
| | 320 |
| | 4,239 |
| | 5,969 |
|
| Total | | $ | 73,002 |
| | $ | 97,072 |
| | $ | 170,074 |
| | $ | 199,908 |
|
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Impaired loans for which there is a related allowance for loan losses | | Impaired loans for which there is no related allowance for loan losses | | Total carrying value of impaired loans | | Total unpaid principal of impaired loans |
| June 30, 2018: | | | | | | | | |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 58,136 |
| | $ | 44,384 |
| | $ | 102,520 |
| | $ | 126,752 |
|
| Hardware | | 17,093 |
| | 25,201 |
| | 42,294 |
| | 43,403 |
|
| Private equity/venture capital | | — |
| | — |
| | — |
| | — |
|
| Life science/healthcare | | 26,170 |
| | 250 |
| | 26,420 |
| | 31,517 |
|
| Premium wine | | 331 |
| | 2,193 |
| | 2,524 |
| | 2,576 |
|
| Other | | 8 |
| | — |
| | 8 |
| | 36 |
|
| Total commercial loans | | 101,738 |
| | 72,028 |
| | 173,766 |
| | 204,284 |
|
| Consumer loans: | | | | | | | | |
| Real estate secured loans | | 3,254 |
| | 1,159 |
| | 4,413 |
| | 6,012 |
|
| Other consumer loans | | — |
| | — |
| | — |
| | — |
|
| Total consumer loans | | 3,254 |
| | 1,159 |
| | 4,413 |
| | 6,012 |
|
| Total | | $ | 104,992 |
| | $ | 73,187 |
| | $ | 178,179 |
| | $ | 210,296 |
|
| December 31, 2017: | | | | | | | | |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 49,645 |
| | $ | 61,009 |
| | $ | 110,654 |
| | $ | 129,006 |
|
| Hardware | | 15,637 |
| | 20,713 |
| | 36,350 |
| | 41,721 |
|
| Private equity/venture capital | | 658 |
| | — |
| | 658 |
| | 984 |
|
| Life science/healthcare | | 20,521 |
| | 1,166 |
| | 21,687 |
| | 26,360 |
|
| Premium wine | | — |
| | 2,877 |
| | 2,877 |
| | 2,911 |
|
| Other | | 32 |
| | — |
| | 32 |
| | 165 |
|
| Total commercial loans | | 86,493 |
| | 85,765 |
| | 172,258 |
| | 201,147 |
|
| Consumer loans: | | | | | | | | |
| Real estate secured loans | | 1,331 |
| | 850 |
| | 2,181 |
| | 3,712 |
|
| Other consumer loans | | 422 |
| | — |
| | 422 |
| | 436 |
|
| Total consumer loans | | 1,753 |
| | 850 |
| | 2,603 |
| | 4,148 |
|
| Total | | $ | 88,246 |
| | $ | 86,615 |
| | $ | 174,861 |
| | $ | 205,295 |
|
The following tables summarize our average impaired loans and interest income recognized on impaired loans, broken out by portfolio segment and class of financing receivable for the three and six months ended June 30, 20182019 and 2017:2018:
|
| | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Average impaired loans | | Interest income recognized on impaired loans |
| (Dollars in thousands) | | 2019 |
| 2018 |
| 2019 |
| 2018 |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 101,813 |
| | $ | 110,101 |
| | $ | 1,232 |
| | $ | 315 |
|
| Hardware | | 15,131 |
| | 37,058 |
| | 95 |
| | 237 |
|
| Private equity/venture capital | | 3,860 |
| | 72 |
| | — |
| | — |
|
| Life science/healthcare | | 55,219 |
| | 21,790 |
| | 246 |
| | 5 |
|
| Premium wine | | 1,051 |
| | 2,604 |
| | 14 |
| | 36 |
|
| Other | | 1,078 |
| | 379 |
| | — |
| | — |
|
| Total commercial loans | | 178,152 |
| | 172,004 |
| | 1,587 |
| | 593 |
|
| Consumer loans: | | | | | | | | |
| Real estate secured loans | | 5,412 |
| | 4,466 |
| | — |
| | 3 |
|
| Other consumer loans | | 13 |
| | 693 |
| | — |
| | — |
|
| Total consumer loans | | 5,425 |
| | 5,159 |
| | — |
| | 3 |
|
| Total average impaired loans | | $ | 183,577 |
| | $ | 177,163 |
| | $ | 1,587 |
| | $ | 596 |
|
| | | Three months ended June 30, | | Average impaired loans | | Interest income recognized on impaired loans | |
| Six months ended June 30, | | | Average impaired loans | | Interest income recognized on impaired loans |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| Commercial loans: | | | | | | | | | | | | | | | | |
| Software/internet | | $ | 110,101 |
| | $ | 136,374 |
| | $ | 315 |
| | $ | 711 |
| | $ | 103,062 |
| | $ | 109,444 |
| | $ | 1,835 |
| | $ | 562 |
|
| Hardware | | 37,058 |
| | 29,771 |
| | 237 |
| | 510 |
| | 15,973 |
| | 37,742 |
| | 347 |
| | 289 |
|
| Private equity/venture capital | | 72 |
| | 327 |
| | — |
| | 3 |
| | 4,529 |
| | 187 |
| | — |
| | — |
|
| Life science/healthcare | | 21,790 |
| | 36,033 |
| | 5 |
| | 191 |
| | 49,691 |
| | 22,234 |
| | 593 |
| | 11 |
|
| Premium wine | | 2,604 |
| | 3,221 |
| | 36 |
| | 38 |
| | 1,154 |
| | 2,686 |
| | 33 |
| | 72 |
|
| Other | | 379 |
| | 708 |
| | — |
| | — |
| | 609 |
| | 195 |
| | — |
| | — |
|
| Total commercial loans | | 172,004 |
| | 206,434 |
| | 593 |
| | 1,453 |
| | 175,018 |
| | 172,488 |
| | 2,808 |
| | 934 |
|
| Consumer loans: | | | | | | | | | | | | | | | | |
| Real estate secured loans | | 4,466 |
| | 1,360 |
| | 3 |
| | — |
| | 7,513 |
| | 3,765 |
| | 54 |
| | 8 |
|
| Other consumer loans | | 693 |
| | 1,679 |
| | — |
| | — |
| | 9 |
| | 716 |
| | — |
| | — |
|
| Total consumer loans | | 5,159 |
| | 3,039 |
| | 3 |
| | — |
| | 7,522 |
| | 4,481 |
| | 54 |
| | 8 |
|
| Total average impaired loans | | $ | 177,163 |
| | $ | 209,473 |
| | $ | 596 |
| | $ | 1,453 |
| | $ | 182,540 |
| | $ | 176,969 |
| | $ | 2,862 |
| | $ | 942 |
|
|
| | | | | | | | | | | | | | | | |
| Six months ended June 30, | | Average impaired loans | | Interest income recognized on impaired loans |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 109,444 |
| | $ | 123,145 |
| | $ | 562 |
| | $ | 938 |
|
| Hardware | | 37,742 |
| | 31,940 |
| | 289 |
| | 943 |
|
| Private equity/venture capital | | 187 |
| | 342 |
| | — |
| | 5 |
|
| Life science/healthcare | | 22,234 |
| | 37,488 |
| | 11 |
| | 291 |
|
| Premium wine | | 2,686 |
| | 3,217 |
| | 72 |
| | 76 |
|
| Other | | 195 |
| | 885 |
| | — |
| | — |
|
| Total commercial loans | | 172,488 |
| | 197,017 |
| | 934 |
| | 2,253 |
|
| Consumer loans: | | | | | | | | |
| Real estate secured loans | | 3,765 |
| | 1,424 |
| | 8 |
| | — |
|
| Other consumer loans | | 716 |
| | 1,914 |
| | — |
| | — |
|
| Total consumer loans | | 4,481 |
| | 3,338 |
| | 8 |
| | — |
|
| Total average impaired loans | | $ | 176,969 |
| | $ | 200,355 |
| | $ | 942 |
| | $ | 2,253 |
|
The following tables summarize the activity relating to our allowance for loan losses for the three and six months ended June 30, 20182019 and 20172018, broken out by portfolio segment:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2019 | | Beginning Balance March 31, 2019 | | Charge-offs | | Recoveries | | Provision for Loan Losses | | Foreign Currency Translation Adjustments | | Ending Balance June 30, 2019 |
| (Dollars in thousands) | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 95,683 |
| | $ | (2,937 | ) | | $ | 6,716 |
| | $ | 2,646 |
| | $ | (110 | ) | | $ | 101,998 |
|
| Hardware | | 25,121 |
| | (2,992 | ) | | 3,013 |
| | 1,868 |
| | (78 | ) | | 26,932 |
|
| Private equity/venture capital | | 97,460 |
| | (2,047 | ) | | — |
| | 10,550 |
| | (439 | ) | | 105,524 |
|
| Life science/healthcare | | 55,814 |
| | (17,495 | ) | | 76 |
| | 1,889 |
| | (78 | ) | | 40,206 |
|
| Premium wine | | 3,799 |
| | — |
| | — |
| | 208 |
| | (9 | ) | | 3,998 |
|
| Other | | 3,208 |
| | (4 | ) | | — |
| | 1,134 |
| | (47 | ) | | 4,291 |
|
| Total commercial loans | | 281,085 |
| | (25,475 | ) | | 9,805 |
| | 18,295 |
| | (761 | ) | | 282,949 |
|
| Total consumer loans | | 19,066 |
| | (960 | ) | | 15 |
| | 853 |
| | (35 | ) | | 18,939 |
|
| Total allowance for loan losses | | $ | 300,151 |
| | $ | (26,435 | ) | | $ | 9,820 |
| | $ | 19,148 |
| | $ | (796 | ) | | $ | 301,888 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2018 | | Beginning Balance March 31, 2018 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Foreign Currency Translation Adjustments | | Ending Balance June 30, 2018 |
| (Dollars in thousands) | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 103,295 |
| | $ | (13,402 | ) | | $ | 404 |
| | $ | 13,179 |
| | $ | (828 | ) | | $ | 102,648 |
|
| Hardware | | 28,472 |
| | (461 | ) | | 643 |
| | 6,447 |
| | (406 | ) | | 34,695 |
|
| Private equity/venture capital | | 91,618 |
| | (112 | ) | | — |
| | (2,237 | ) | | 140 |
| | 89,409 |
|
| Life science/healthcare | | 25,806 |
| | — |
| | 3 |
| | 9,876 |
| | (621 | ) | | 35,064 |
|
| Premium wine | | 3,365 |
| | — |
| | — |
| | 78 |
| | (5 | ) | | 3,438 |
|
| Other | | 3,482 |
| | (1,164 | ) | | 566 |
| | 13 |
| | (1 | ) | | 2,896 |
|
| Total commercial loans | | 256,038 |
| | (15,139 | ) | | 1,616 |
| | 27,356 |
| | (1,721 | ) | | 268,150 |
|
| Total consumer loans | | 18,256 |
| | (289 | ) | | 310 |
| | 300 |
| | (18 | ) | | 18,559 |
|
| Total allowance for loan losses | | $ | 274,294 |
| | $ | (15,428 | ) | | $ | 1,926 |
| | $ | 27,656 |
| | $ | (1,739 | ) | | $ | 286,709 |
|
| | | Three months ended June 30, 2017 | | Beginning Balance March 31, 2017 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Foreign Currency Translation Adjustments | | Ending Balance June 30, 2017 | |
| Six months ended June 30, 2019 | | | Beginning Balance December 31, 2018 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Foreign Currency Translation Adjustments | | Ending Balance June 30, 2019 |
| (Dollars in thousands) | | Beginning Balance March 31, 2017 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Foreign Currency Translation Adjustments | | Ending Balance June 30, 2017 | |
| Commercial loans: | | | | | | | | | | | | | |
| Software/internet | | $ | 109,502 |
| | $ | (19,401 | ) | | $ | 1,236 |
| | $ | 1,527 |
| | $ | 73 |
| | $ | 92,937 |
| | $ | 103,567 |
| | $ | (11,191 | ) | | $ | 7,770 |
| | $ | 1,988 |
| | $ | (136 | ) | | $ | 101,998 |
|
| Hardware | | 23,284 |
| | (249 | ) | | 77 |
| | 4,474 |
| | 214 |
| | 27,800 |
| | 19,725 |
| | (3,245 | ) | | 3,069 |
| | 7,252 |
| | 131 |
| | 26,932 |
|
| Private equity/venture capital | | 57,078 |
| | — |
| | — |
| | 9,263 |
| | 444 |
| | 66,785 |
| | 98,581 |
| | (2,047 | ) | | — |
| | 9,471 |
| | (481 | ) | | 105,524 |
|
| Life science/healthcare | | 31,542 |
| | (4,678 | ) | | 8 |
| | 819 |
| | 39 |
| | 27,730 |
| | 32,180 |
| | (17,518 | ) | | 181 |
| | 24,561 |
| | 802 |
| | 40,206 |
|
| Premium wine | | 4,343 |
| | — |
| | — |
| | (1,155 | ) | | (55 | ) | | 3,133 |
| | 3,355 |
| | — |
| | — |
| | 635 |
| | 8 |
| | 3,998 |
|
| Other | | 4,377 |
| | (753 | ) | | 180 |
| | 316 |
| | 15 |
| | 4,135 |
| | 3,558 |
| | (415 | ) | | — |
| | 1,193 |
| | (45 | ) | | 4,291 |
|
| Total commercial loans | | 230,126 |
| | (25,081 | ) | | 1,501 |
| | 15,244 |
| | 730 |
| | 222,520 |
| | 260,966 |
| | (34,416 | ) | | 11,020 |
| | 45,100 |
| | 279 |
| | 282,949 |
|
| Total consumer loans | | 13,004 |
| | — |
| | 1,034 |
| | (59 | ) | | (3 | ) | | 13,976 |
| | 19,937 |
| | (1,019 | ) | | 225 |
| | (131 | ) | | (73 | ) | | 18,939 |
|
| Total allowance for loan losses | | $ | 243,130 |
| | $ | (25,081 | ) | | $ | 2,535 |
| | $ | 15,185 |
| | $ | 727 |
| | $ | 236,496 |
| | $ | 280,903 |
| | $ | (35,435 | ) | | $ | 11,245 |
| | $ | 44,969 |
| | $ | 206 |
| | $ | 301,888 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2018 | | Beginning Balance December 31, 2017 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Foreign Currency Translation Adjustments | | Ending Balance June 30, 2018 |
| (Dollars in thousands) | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 96,104 |
| | $ | (20,073 | ) | | $ | 977 |
| | $ | 25,980 |
| | $ | (340 | ) | | $ | 102,648 |
|
| Hardware | | 27,614 |
| | (3,414 | ) | | 1,231 |
| | 9,551 |
| | (287 | ) | | 34,695 |
|
| Private equity/venture capital | | 82,468 |
| | (112 | ) | | 10 |
| | 6,568 |
| | 475 |
| | 89,409 |
|
| Life science/healthcare | | 24,924 |
| | (864 | ) | | 56 |
| | 11,507 |
| | (559 | ) | | 35,064 |
|
| Premium wine | | 3,532 |
| | — |
| | — |
| | (83 | ) | | (11 | ) | | 3,438 |
|
| Other | | 3,941 |
| | (1,263 | ) | | 1,103 |
| | (893 | ) | | 8 |
| | 2,896 |
|
| Total commercial loans | | 238,583 |
| | (25,726 | ) | | 3,377 |
| | 52,630 |
| | (714 | ) | | 268,150 |
|
| Total consumer loans | | 16,441 |
| | (289 | ) | | 337 |
| | 2,022 |
| | 48 |
| | 18,559 |
|
| Total allowance for loan losses | | $ | 255,024 |
| | $ | (26,015 | ) | | $ | 3,714 |
| | $ | 54,652 |
| | $ | (666 | ) | | $ | 286,709 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2017 | | Beginning Balance December 31, 2016 | | Charge-offs | | Recoveries | | Provision for (Reduction of) Loan Losses | | Foreign Currency Translation Adjustments | | Ending Balance June 30, 2017 |
| (Dollars in thousands) | | | | | | |
| Commercial loans: | | | | | | | | | | | | |
| Software/internet | | $ | 97,388 |
| | $ | (27,381 | ) | | $ | 2,407 |
| | $ | 20,246 |
| | $ | 277 |
| | $ | 92,937 |
|
| Hardware | | 31,166 |
| | (4,273 | ) | | 344 |
| | 394 |
| | 169 |
| | 27,800 |
|
| Private equity/venture capital | | 50,299 |
| | — |
| | — |
| | 15,969 |
| | 517 |
| | 66,785 |
|
| Life science/healthcare | | 25,446 |
| | (6,410 | ) | | 44 |
| | 8,527 |
| | 123 |
| | 27,730 |
|
| Premium wine | | 4,115 |
| | — |
| | — |
| | (929 | ) | | (53 | ) | | 3,133 |
|
| Other | | 4,768 |
| | (1,047 | ) | | 477 |
| | (74 | ) | | 11 |
| | 4,135 |
|
| Total commercial loans | | 213,182 |
| | (39,111 | ) | | 3,272 |
| | 44,133 |
| | 1,044 |
| | 222,520 |
|
| Total consumer loans | | 12,184 |
| | — |
| | 1,055 |
| | 731 |
| | 6 |
| | 13,976 |
|
| Total allowance for loan losses | | $ | 225,366 |
| | $ | (39,111 | ) | | $ | 4,327 |
| | $ | 44,864 |
| | $ | 1,050 |
| | $ | 236,496 |
|
The following table summarizes the activity relating to our allowance for unfunded credit commitments for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 | | 2018 | | 2017 | | 2019 |
| 2018 | | 2019 | | 2018 |
| Beginning balance | | $ | 52,823 |
| | $ | 46,335 |
| | $ | 51,770 |
| | $ | 45,265 |
| |
| Allowance for unfunded credit commitments, beginning balance | | | $ | 57,970 |
| | $ | 52,823 |
| | $ | 55,183 |
| | $ | 51,770 |
|
| Provision for unfunded credit commitments | | 1,424 |
| | 621 |
| | 2,400 |
| | 1,676 |
| | 4,798 |
| | 1,424 |
| | 7,528 |
| | 2,400 |
|
| Foreign currency translation adjustments | | (143 | ) | | 44 |
| | (66 | ) | | 59 |
| | (104 | ) | | (143 | ) | | (47 | ) | | (66 | ) |
| Ending balance (1) | | $ | 54,104 |
| | $ | 47,000 |
| | $ | 54,104 |
|
| $ | 47,000 |
| |
| Allowance for unfunded credit commitments, ending balance (1) | | | $ | 62,664 |
| | $ | 54,104 |
| | $ | 62,664 |
|
| $ | 54,104 |
|
| |
| (1) | See Note 13—16—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional disclosures related to our commitments to extend credit. |
The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of June 30, 20182019 and December 31, 20172018, broken out by portfolio segment:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2019 | | December 31, 2018 |
| | | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment | | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment |
| (Dollars in thousands) | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans |
| Commercial loans: | | | | | | | | | | | | | | | | |
| Software/internet | | $ | 25,284 |
| | $ | 109,076 |
| | $ | 76,714 |
| | $ | 5,891,208 |
| | $ | 28,527 |
| | $ | 114,850 |
| | $ | 75,040 |
| | $ | 6,039,905 |
|
| Hardware | | 8,389 |
| | 15,535 |
| | 18,543 |
| | 1,313,054 |
| | 1,253 |
| | 11,506 |
| | 18,472 |
| | 1,223,051 |
|
| Private equity/venture capital | | — |
| | — |
| | 105,524 |
| | 14,684,900 |
| | — |
| | 3,700 |
| | 98,581 |
| | 14,106,860 |
|
| Life science/healthcare | | 17,722 |
| | 51,011 |
| | 22,484 |
| | 2,331,836 |
| | 7,484 |
| | 34,067 |
| | 24,696 |
| | 2,351,545 |
|
| Premium wine | | 244 |
| | 1,028 |
| | 3,754 |
| | 988,556 |
| | — |
| | 1,301 |
| | 3,355 |
| | 958,362 |
|
| Other | | 1,284 |
| | 3,230 |
| | 3,007 |
| | 547,578 |
| | 411 |
| | 411 |
| | 3,147 |
| | 459,079 |
|
| Total commercial loans | | 52,923 |
| | 179,880 |
| | 230,026 |
| | 25,757,132 |
| | 37,675 |
| | 165,835 |
| | 223,291 |
| | 25,138,802 |
|
| Total consumer loans | | 144 |
| | 5,643 |
| | 18,795 |
| | 3,266,918 |
| | 266 |
| | 4,239 |
| | 19,671 |
| | 3,029,404 |
|
| Total | | $ | 53,067 |
| | $ | 185,523 |
| | $ | 248,821 |
| | $ | 29,024,050 |
| | $ | 37,941 |
| | $ | 170,074 |
| | $ | 242,962 |
| | $ | 28,168,206 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2018 | | December 31, 2017 |
| | | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment | | Individually Evaluated for Impairment | | Collectively Evaluated for Impairment |
| (Dollars in thousands) | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans | | Allowance for loan losses | | Recorded investment in loans |
| Commercial loans: | | | | | | | | | | | | | | | | |
| Software/internet | | $ | 25,320 |
| | $ | 102,520 |
| | $ | 77,328 |
| | $ | 6,127,838 |
| | $ | 23,088 |
| | $ | 110,654 |
| | $ | 73,016 |
| | $ | 6,061,877 |
|
| Hardware | | 13,392 |
| | 42,294 |
| | 21,303 |
| | 1,226,947 |
| | 8,450 |
| | 36,350 |
| | 19,164 |
| | 1,157,249 |
|
| Private equity/venture capital | | — |
| | — |
| | 89,409 |
| | 12,224,155 |
| | 330 |
| | 658 |
| | 82,138 |
| | 9,951,719 |
|
| Life science/healthcare | | 14,442 |
| | 26,420 |
| | 20,622 |
| | 2,061,452 |
| | 9,315 |
| | 21,687 |
| | 15,609 |
| | 1,787,140 |
|
| Premium wine | | — |
| | 2,524 |
| | 3,438 |
| | 881,646 |
| | — |
| | 2,877 |
| | 3,532 |
| | 870,281 |
|
| Other | | 8 |
| | 8 |
| | 2,888 |
| | 422,047 |
| | 32 |
| | 32 |
| | 3,909 |
| | 476,306 |
|
| Total commercial loans | | 53,162 |
| | 173,766 |
| | 214,988 |
| | 22,944,085 |
| | 41,215 |
| | 172,258 |
| | 197,368 |
| | 20,304,572 |
|
| Total consumer loans | | 515 |
| | 4,413 |
| | 18,044 |
| | 2,873,928 |
| | 578 |
| | 2,603 |
| | 15,863 |
| | 2,626,883 |
|
| Total | | $ | 53,677 |
| | $ | 178,179 |
| | $ | 233,032 |
| | $ | 25,818,013 |
| | $ | 41,793 |
| | $ | 174,861 |
| | $ | 213,231 |
| | $ | 22,931,455 |
|
Credit Quality Indicators
For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of “Pass”,“Pass," with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans,loans; however, we consider them as demonstrating higher risk, which requires more frequent review of the individual exposures; these translate to an internal rating of “Performing (Criticized)”." When full repayment of a criticized loan has been deemed improbable under the original contractual terms but full repayment remains probable overall, the loan is considered to be a “Performing Impaired (Criticized)” loan. All of our nonaccrual loans are risk-rated 8 or 9 and are classified under the nonperforming impaired category. (For further description of nonaccrual loans, refer to Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 20172018 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 June 30, 20182019 and December 31, 2017:2018:
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Pass | | Performing (Criticized) | | Performing Impaired (Criticized) | | Nonperforming Impaired (Nonaccrual) | | Total |
| June 30, 2019: | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | |
| Software/internet | | $ | 5,457,188 |
| | $ | 478,086 |
| | $ | 72,060 |
| | $ | 37,016 |
| | $ | 6,044,350 |
|
| Hardware | | 1,185,161 |
| | 136,502 |
| | 6,667 |
| | 8,868 |
| | 1,337,198 |
|
| Private equity/venture capital | | 14,688,329 |
| | 9 |
| | — |
| | — |
| | 14,688,338 |
|
| Life science/healthcare | | 2,310,262 |
| | 86,490 |
| | 9,371 |
| | 41,640 |
| | 2,447,763 |
|
| Premium wine | | 925,649 |
| | 63,462 |
| | 784 |
| | 244 |
| | 990,139 |
|
| Other | | 574,978 |
| | 14,845 |
| | — |
| | 3,230 |
| | 593,053 |
|
| Total commercial loans | | 25,141,567 |
| | 779,394 |
| | 88,882 |
| | 90,998 |
| | 26,100,841 |
|
| Consumer loans: | | | | | | | | | | |
| Real estate secured loans | | 2,787,853 |
| | 11,838 |
| | — |
| | 5,630 |
| | 2,805,321 |
|
| Other consumer loans | | 463,850 |
| | 378 |
| | — |
| | 13 |
| | 464,241 |
|
| Total consumer loans | | 3,251,703 |
| | 12,216 |
| | — |
| | 5,643 |
| | 3,269,562 |
|
| Total gross loans | | $ | 28,393,270 |
| | $ | 791,610 |
| | $ | 88,882 |
| | $ | 96,641 |
| | $ | 29,370,403 |
|
| December 31, 2018: | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | |
| Software/internet | | $ | 5,574,332 |
| | $ | 520,796 |
| | $ | 48,069 |
| | $ | 66,781 |
| | $ | 6,209,978 |
|
| Hardware | | 1,146,985 |
| | 87,309 |
| | 10,250 |
| | 1,256 |
| | 1,245,800 |
|
| Private equity/venture capital | | 14,098,281 |
| | 16,151 |
| | — |
| | 3,700 |
| | 14,118,132 |
|
| Life science/healthcare | | 2,291,356 |
| | 135,653 |
| | 16,276 |
| | 17,791 |
| | 2,461,076 |
|
| Premium wine | | 909,965 |
| | 49,287 |
| | 1,017 |
| | 284 |
| | 960,553 |
|
| Other | | 467,653 |
| | 17,344 |
| | — |
| | 411 |
| | 485,408 |
|
| Total commercial loans | | 24,488,572 |
| | 826,540 |
| | 75,612 |
| | 90,223 |
| | 25,480,947 |
|
| Consumer loans: | | | | | | | | | | |
| Real estate secured loans | | 2,584,261 |
| | 21,145 |
| | 320 |
| | 3,919 |
| | 2,609,645 |
|
| Other consumer loans | | 419,771 |
| | 949 |
| | — |
| | — |
| | 420,720 |
|
| Total consumer loans | | 3,004,032 |
| | 22,094 |
| | 320 |
| | 3,919 |
| | 3,030,365 |
|
| Total gross loans | | $ | 27,492,604 |
| | $ | 848,634 |
| | $ | 75,932 |
| | $ | 94,142 |
| | $ | 28,511,312 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Pass | | Performing (Criticized) | | Performing Impaired (Criticized) | | Nonperforming Impaired (Nonaccrual) | | Total |
| June 30, 2018: | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | |
| Software/internet | | $ | 5,645,661 |
| | $ | 543,607 |
| | $ | 25,369 |
| | $ | 77,151 |
| | $ | 6,291,788 |
|
| Hardware | | 1,163,629 |
| | 75,510 |
| | 25,201 |
| | 17,093 |
| | 1,281,433 |
|
| Private equity/venture capital | | 12,229,454 |
| | 3,551 |
| | — |
| | — |
| | 12,233,005 |
|
| Life science/healthcare | | 1,909,151 |
| | 222,765 |
| | 250 |
| | 26,170 |
| | 2,158,336 |
|
| Premium wine | | 840,649 |
| | 41,877 |
| | 2,193 |
| | 331 |
| | 885,050 |
|
| Other | | 432,652 |
| | 3,363 |
| | — |
| | 8 |
| | 436,023 |
|
| Total commercial loans | | 22,221,196 |
| | 890,673 |
| | 53,013 |
| | 120,753 |
| | 23,285,635 |
|
| Consumer loans: | | | | | | | | | | |
| Real estate secured loans | | 2,462,007 |
| | 11,451 |
| | 324 |
| | 4,089 |
| | 2,477,871 |
|
| Other consumer loans | | 396,902 |
| | 374 |
| | — |
| | — |
| | 397,276 |
|
| Total consumer loans | | 2,858,909 |
| | 11,825 |
| | 324 |
| | 4,089 |
| | 2,875,147 |
|
| Total gross loans | | $ | 25,080,105 |
| | $ | 902,498 |
| | $ | 53,337 |
| | $ | 124,842 |
| | $ | 26,160,782 |
|
| December 31, 2017: | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | |
| Software/internet | | $ | 5,655,739 |
| | $ | 466,332 |
| | $ | 31,794 |
| | $ | 78,860 |
| | $ | 6,232,725 |
|
| Hardware | | 1,112,574 |
| | 51,976 |
| | 20,165 |
| | 16,185 |
| | 1,200,900 |
|
| Private equity/venture capital | | 9,955,082 |
| | 5,381 |
| | — |
| | 658 |
| | 9,961,121 |
|
| Life science/healthcare | | 1,720,613 |
| | 125,660 |
| | 1,167 |
| | 20,520 |
| | 1,867,960 |
|
| Premium wine | | 834,537 |
| | 36,955 |
| | 2,476 |
| | 401 |
| | 874,369 |
|
| Other | | 469,721 |
| | 21,016 |
| | — |
| | 32 |
| | 490,769 |
|
| Total commercial loans | | 19,748,266 |
| | 707,320 |
| | 55,602 |
| | 116,656 |
| | 20,627,844 |
|
| Consumer loans: | | | | | | | | | | |
| Real estate secured loans | | 2,282,375 |
| | 13,301 |
| | — |
| | 2,181 |
| | 2,297,857 |
|
| Other consumer loans | | 326,851 |
| | 1,179 |
| | — |
| | 422 |
| | 328,452 |
|
| Total consumer loans | | 2,609,226 |
| | 14,480 |
| | — |
| | 2,603 |
| | 2,626,309 |
|
| Total gross loans | | $ | 22,357,492 |
| | $ | 721,800 |
| | $ | 55,602 |
| | $ | 119,259 |
| | $ | 23,254,153 |
|
Troubled Debt Restructurings
As of June 30, 20182019, we had 20 TDRs with a total carrying value of $128.9$112.0 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were $0.6$4.3 millionof unfunded commitments available for funding to the clients associated with these TDRs as of June 30, 2018.2019.
The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at June 30, 20182019 and December 31, 2017:2018:
|
| | | | | | | | |
| (Dollars in thousands) | | June 30, 2019 | | December 31, 2018 |
| Loans modified in TDRs: | | | | |
| Commercial loans: | | | | |
| Software/internet | | $ | 79,512 |
| | $ | 58,089 |
|
| Hardware | | 8,159 |
| | 9,665 |
|
| Life science/healthcare | | 19,592 |
| | 12,738 |
|
| Premium wine | | 2,587 |
| | 2,883 |
|
| Total commercial loans | | 109,850 |
| | 83,375 |
|
| Consumer loans: | | | | |
| Other consumer loans | | 2,181 |
| | 320 |
|
| Total loans modified in TDRs | | $ | 112,031 |
| | $ | 83,695 |
|
|
| | | | | | | | |
| (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 |
| Loans modified in TDRs: | | | | |
| Commercial loans: | | | | |
| Software/internet | | $ | 50,202 |
| | $ | 73,455 |
|
| Hardware | | 49,834 |
| | 51,132 |
|
| Private equity/venture capital | | — |
| | 350 |
|
| Life science/healthcare | | 25,460 |
| | 19,235 |
|
| Premium wine | | 3,048 |
| | 3,198 |
|
| Total commercial loans | | 128,544 |
| | 147,370 |
|
| Consumer loans: | | | | |
| Other consumer loans | | 325 |
| | 423 |
|
| Total | | $ | 128,869 |
| | $ | 147,793 |
|
The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 | | 2018 | | 2017 | | 2019 |
| 2018 | | 2019 | | 2018 |
| Loans modified in TDRs during the period: | | | | | | | | | | | | | | | | |
| Commercial loans: | | | | | | | | | | | | | | | | |
| Software/internet | | $ | 14,783 |
| | $ | 16,135 |
| | $ | 14,783 |
| | $ | 22,242 |
| | $ | 55,065 |
| | $ | 14,783 |
| | $ | 55,681 |
| | $ | 14,783 |
|
| Hardware | | 1,954 |
| | — |
| | 3,448 |
| | — |
| | — |
| | 1,954 |
| | — |
| | 3,448 |
|
| Private equity/venture capital | | — |
| | — |
| | — |
| | — |
| |
| Life science/healthcare | | 6,231 |
| | 4,588 |
| | 7,461 |
| | 4,588 |
| | 11,227 |
| | 6,231 |
| | 11,227 |
| | 7,461 |
|
| Premium wine | | — |
| | 190 |
| | — |
| | 190 |
| |
| Total commercial loans | | 22,968 |
| | 20,913 |
| | 25,692 |
| | 27,020 |
| | 66,292 |
| | 22,968 |
| | 66,908 |
| | 25,692 |
|
| Consumer loans: | | | | | | | | | | | | | | | | |
| Other consumer loans | | — |
| | — |
| | 325 |
| | — |
| | 1,865 |
| | — |
| | 1,865 |
| | 325 |
|
| Total consumer loans | | — |
| | — |
| | 325 |
| | — |
| |
| Total loans modified in TDRs during the period (1) | | $ | 22,968 |
| | $ | 20,913 |
| | $ | 26,017 |
| | $ | 27,020 |
| | $ | 68,157 |
| | $ | 22,968 |
| | $ | 68,773 |
| | $ | 26,017 |
|
| |
| (1) | There were $3.4 million and $5.6 million of partial charge-offs for the three and six months endedJune 30, 2019, respectively, and $8.5 million of partial charge-offs for both the three and six months endedJune 30, 2018 and $12.5 million and $15.1 million of partial charge-offs during the three and six months endedJune 30, 2017, respectively.. |
During the three and six months ended June 30, 2019, $66.3 million and $66.9 million, respectively, were modified through payment deferrals granted to our clients. During the three and six months ended June 30, 2019, $1.9 million were modified through partial forgiveness of principal for both periods presented. During the three and six months ended June 30, 2018, all new TDRs of $23.0 million and $26.0 million, respectively, were modified through payment deferrals granted to our clients. During the three and six months ended June 30, 2017, all new TDRs of $20.9 million and $27.0 million, respectively, were modified through payment deferrals granted to our clients.
The related allowance for loan losses for the majority of our TDRs is determined on an individual basis by comparing the carrying value of the loan to the present value of the estimated future cash flows, discounted at the pre-modification contractual interest rate. For certain TDRs, the related allowance for loan losses is determined based on the fair value of the collateral if the loan is collateral dependent.
The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during the three and six months ended June 30, 20182019 and 2017:2018:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| TDRs modified within the previous 12 months that defaulted during the period: | | | | | | | | |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | — |
| | $ | 19,625 |
| | $ | — |
| | $ | 22,657 |
|
| Hardware | | — |
| | 3,449 |
| | — |
| | 3,449 |
|
| Life science/healthcare | | — |
| | 1,230 |
| | — |
| | 1,230 |
|
| Total TDRs modified within the previous 12 months that defaulted in the period | | $ | — |
| | $ | 24,304 |
| | $ | — |
| | $ | 27,336 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
| TDRs modified within the previous 12 months that defaulted during the period: | | | | | | | | |
| Commercial loans: | | | | | | | | |
| Software/internet | | $ | 19,625 |
| | $ | — |
| | $ | 22,657 |
| | $ | — |
|
| Hardware | | 3,449 |
| | — |
| | 3,449 |
| | — |
|
| Life science/healthcare | | 1,230 |
| | — |
| | 1,230 |
| | — |
|
| Premium wine | | — |
| | 190 |
| | — |
| | 190 |
|
| Total TDRs modified within the previous 12 months that defaulted in the period | | $ | 24,304 |
| | $ | 190 |
| | $ | 27,336 |
| | $ | 190 |
|
Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology for TDRs was necessary to determine the allowance for loan losses as of June 30, 2018.2019.
We have operating leases for our corporate offices, data centers and certain equipment utilized at those properties. We are obligated under a number of noncancelable operating leases for premises and equipment that expire at various dates, through 2030, and in most instances, include options to renew or extend at market rates and terms. Such leases may provide for periodic adjustments of rentals during the term of the lease based on changes in various economic indicators.
At the inception of the lease, the lease is evaluated to determine whether the lease will be accounted for as an operating or a finance lease. There were no significant assumptions or judgments required upon applying the new lease standard. Operating lease ROU assets and operating lease liabilities are included in our consolidated balance sheets. We have no leases that meet the definition of a finance lease under ASC 842 and our lessor accounting treatment for subleases is not material. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Total recorded balances for the lease assets and liabilities are as follows:
|
| | | | |
| (Dollars in thousands) | | June 30, 2019 |
| Assets: | | |
| Right-of-use assets - operating leases (1) | | $ | 156,347 |
|
| Liabilities: | | |
| Lease liabilities - operating leases (1) | | 195,326 |
|
| |
| (1) | Included in these amounts are $23.3 million and $32.3 million of ROU assets and lease liabilities, respectively, attributable to the inclusion of SVB Leerink in our financial results at June 30, 2019. |
The components of our lease cost and supplemental cash flow information related to leases for the three and six months ended June 30, 2019 were as follows:
|
| | | | | | | | |
| (Dollars in thousands) | | Three months ended June 30, 2019 | | Six months ended June 30, 2019 |
| Operating lease cost | | $ | 9,462 |
| | $ | 18,980 |
|
| Short-term lease cost | | 582 |
| | 845 |
|
| Variable lease cost | | 933 |
| | 1,779 |
|
| Less: sublease income | | (1,115 | ) | | (2,223 | ) |
| Total lease cost, net | | $ | 9,862 |
| | $ | 19,381 |
|
| Supplemental cash flows information: | | | | |
| Cash paid for operating leases | | $ | 10,884 |
| | $ | 21,238 |
|
The table below presents additional information related to the Company's leases as of June 30, 2019:
|
| | | |
| | June 30, 2019 |
| Weighted-average remaining term (in years) - operating leases | | 6.22 |
|
| Weighted-average discount rate - operating leases (1) | | 3.19 | % |
| |
| (1) | The incremental borrowing rate used to calculate the lease liability was determined based on the facts and circumstances of the economic environment and the Company’s credit standing as of the effective date of ASC 842. Additionally, the total lease term and total lease payments were also considered in determining the rate. Based on these considerations the Company identified credit terms available under its existing credit lines which represent a collateralized borrowing rate that has varying credit terms that could be matched to total lease terms and total lease payments in ultimately determining the implied borrowing rate in each lease contract. |
The following table presents our undiscounted future cash payments for our operating lease liabilities as of June 30, 2019:
|
| | | | |
Years ended December 31, (Dollars in thousands) | | Operating Leases |
| 2019 (excluding the six months ended June 30, 2019) | | $ | 21,753 |
|
| 2020 | | 40,222 |
|
| 2021 | | 37,410 |
|
| 2022 | | 31,853 |
|
| 2023 | | 30,384 |
|
| 2024 and thereafter | | 38,204 |
|
| Total future lease payments (1) | | $ | 199,826 |
|
| Less: imputed interest | | (4,500 | ) |
| Total lease liabilities | | $ | 195,326 |
|
| |
| (1) | As of June 30, 2019, we have additional operating leases that have not yet commenced. We estimate that we will record additional operating lease liabilities of $30.1 million upon commencement. These operating leases will commence in 2019 with lease terms of one to ten years. |
The following table presents minimum future payments under noncancelable operating leases under ASC 840, as of December 31, 2018:
|
| | | | |
| (Dollars in thousands) | | Amount |
| 2019 | | $ | 38,609 |
|
| 2020 | | 37,575 |
|
| 2021 | | 35,854 |
|
| 2022 | | 31,659 |
|
| 2023 | | 30,904 |
|
| 2024 and thereafter | | 49,071 |
|
| Total minimum future payments | | $ | 223,672 |
|
| |
10. | Goodwill and Other Intangible Assets |
Goodwill
On January 4, 2019, we completed the acquisition of Leerink Holdings LLC, the Boston-based parent company of healthcare and life science investment bank Leerink Partners LLC, now SVB Leerink. We recognized identifiable intangible assets of $60.9 million and goodwill of $137.8 million as a result of the acquisition. For additional information, refer to Note 2—“Business Combination” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report. The goodwill of $137.8 million includes revenue generating synergies expected from collaboration between SVB Leerink and the Company.
The changes in goodwill were as follows for the six months ended June 30, 2019:
|
| | | | |
| (Dollars in thousands) | | Goodwill |
| Beginning balance at December 31, 2018 | | $ | — |
|
| Acquisitions (1) | | 137,823 |
|
| Ending balance at June 30, 2019 | | $ | 137,823 |
|
| |
| (1) | All reported goodwill amounts have been allocated to the SVB Leerink reporting segment and are expected to be deductible for tax purposes. Refer to Note 15—“Segment Reporting” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional information. |
Other Intangible Assets
The components of net other intangible assets related to the acquisition of SVB Leerink were as follows:
|
| | | | | | | | | | | | |
| | | June 30, 2019 |
| (Dollars in thousands) | | Gross Amount | | Accumulated Amortization | | Net Carrying Amount |
| Other intangible assets: | | | | | | |
| Customer relationships | | $ | 42,000 |
| | $ | 1,910 |
| | $ | 40,090 |
|
| Other | | 18,900 |
| | 3,832 |
| | 15,068 |
|
| Total other intangible assets | | $ | 60,900 |
| | $ | 5,742 |
| | $ | 55,158 |
|
For the six months ended June 30, 2019, we recorded amortization expense of $5.7 million. Assuming no future impairments of other intangible assets or additional acquisitions or dispositions, the following table presents the Company's future expected amortization expense for other intangible assets that will continue to be amortized:
|
| | | | |
Years ended December 31, (Dollars in thousands) | | Other Intangible Assets |
| 2019 (excluding the six months ended June 30, 2019) | | $ | 5,742 |
|
| 2020 | | 5,382 |
|
| 2021 | | 4,732 |
|
| 2022 | | 4,732 |
|
| 2023 | | 4,732 |
|
| 2024 and thereafter | | 29,838 |
|
| Total future amortization expense | | $ | 55,158 |
|
| |
| 11. | Short-Term Borrowings and Long-Term Debt |
The following table represents outstanding short-term borrowings and long-term debt at June 30, 20182019 and December 31, 20172018:
| | | | | | | | | Carrying Value | | | | | | Carrying Value |
| (Dollars in thousands) | | Maturity | | Principal value at June 30, 2018 | | June 30,
2018 | | December 31,
2017 | | Maturity | | Principal value at June 30, 2019 | | June 30,
2019 | | December 31,
2018 |
| Short-term borrowings: | | | | | | | | | | | | |
| Short-term FHLB advances | | July 2, 2018 | | $ | 400,000 |
| | $ | 400,000 |
| | $ | 700,000 |
| |
| |
|
| | $ | — |
| | $ | 300,000 |
|
| Federal funds purchased | |
| | — |
| | — |
| | 330,000 |
| |
| Securities sold under agreement to repurchase | | | (1) | |
|
| | — |
| | 319,414 |
|
| Other short-term borrowings | | (1) | | 17,246 |
| | 17,246 |
| | 3,730 |
| | (2) | | $ | 24,252 |
| | 24,252 |
| | 11,998 |
|
| Total short-term borrowings | | | | $ | 417,246 |
| | $ | 1,033,730 |
| | | | $ | 24,252 |
| | $ | 631,412 |
|
| Long-term debt: | | | | | | | | | | | | |
| 3.50% Senior Notes | | January 29, 2025 | | $ | 350,000 |
| | $ | 347,470 |
| | $ | 347,303 |
| | January 29, 2025 | | $ | 350,000 |
| | $ | 347,812 |
| | $ | 347,639 |
|
| 5.375% Senior Notes | | September 15, 2020 | | 350,000 |
| | 348,502 |
| | 348,189 |
| | September 15, 2020 | | 350,000 |
| | 349,158 |
| | 348,826 |
|
| Total long-term debt | | | | $ | 695,972 |
| | $ | 695,492 |
| | | | $ | 696,970 |
| | $ | 696,465 |
|
| |
| (1) | Securities sold under repurchase agreements are effectively short-term borrowings collateralized by U.S. Treasury securities. |
| |
| (2) | Represents cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor. |
Interest expense related to short-term borrowings and long-term debt was $9.2 million and $19.4 million for the three and six months ended June 30, 2019, respectively, and $8.6 million and $17.0 million for the three and six months ended June 30,2018, respectively, and $9.0 million and $18.3 million for the three and six months ended June 30, 2017, respectively.2018. The weighted average interest rate associated with our overnight short-term borrowings was 2.04 percent as of June 30, 2018 and 1.392.62 percent as of December 31, 2017.2018. There were no overnight short-term borrowings as of June 30, 2019.
Short-term Borrowings
Available Lines of Credit
We have certain facilities in place to enable us to access short-term borrowings on a secured (using loans and AFS securities as collateral) and unsecured basis. TheseOur secured facilities include repurchase agreements and uncommitted federal funds lines with various financial institutions. As of June 30, 2018, we did not have any borrowings outstanding against our uncommitted federal funds lines. We also pledge securitiescollateral pledged to the FHLB of San Francisco and the discount window at the FRB. The fair valueFRB (using both fixed income securities and loans as collateral). Our unsecured facility consists of our uncommitted federal funds lines. As of June 30, 2019, collateral pledged to the FHLB of San Francisco (comprisedwas comprised primarily of fixed income investment securities and loans and U.S. Treasury securities) at June 30, 2018 totaled $3.8had a carrying value of $4.6 billion, of which $3.4$4.1 billion was unused and available to support additional borrowings. The fair valueAs of June 30, 2019, collateral pledged atto the discount window ofat the FRB (comprised primarilywas comprised of U.S. Treasuryfixed income investment securities and U.S. agency debentures) at June 30, 2018 totaled $0.9had a carrying value of $0.6 billion,, all of which was unused and available to support additional borrowings. Our total unused and available borrowing capacity for our uncommitted federal funds lines totaled $1.9 billion at June 30, 2019. Our total unused and available borrowing capacity under our master repurchase agreements with various financial institutions totaled $3.3 billion at June 30, 2019.
| |
9.12. | 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, which may include currency exchange rate risks and interest rate risks. 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 on our variable-interest rate loan portfolio, we enter into interest rate swap contracts to hedge against future changes in interest rates by using hedging instruments to lock in future cash inflows that would otherwise be impacted by movements in the market interest rates. We designate these interest rate swap contracts as cash flow hedges that qualify for hedge accounting under ASC 815, Derivatives and Hedging ("ASC 815"), and record them in other assets and other liabilities. For qualifying cash flow hedges, changes in the fair value of the derivative are recorded in accumulated other comprehensive income and recognized in earnings as the hedged item affects earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item in the line item "Loans" as part of interest income, a component of consolidated net income.
We assess hedge effectiveness under ASC 815 on a quarterly basis to ensure all hedges remain highly effective to ensure hedge accounting under ASC 815 can be applied. If the hedging relationship no longer exists or no longer qualifies as a hedge per ASC 815, any amounts remaining as gain or loss in accumulated other comprehensive income are reclassified into earnings in the line item "Loans" as part of interest income, a component of consolidated net income. As of June 30, 2019, no derivatives classified as hedges were terminated or were disqualified for hedge accounting. The maximum length of time over which the forecasted transactions are hedged is approximately six years.
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. We do not designate any foreign exchange forward contracts as derivative instruments that qualify for hedge accounting. Gains or losses from changes in currency rates on foreign currency denominated instruments are recorded in the line item “other”“Other” as part of noninterest income, a component of consolidated net 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 in the line item “other”“Other” as part of noninterest income, a component of consolidated net income.
Other Derivative Instruments
Also included in our derivative instruments are equity warrant assets and client forward and option contracts, and client interest rate contracts. For further description of these other derivative instruments, refer to Note 2-“Summary of Significant Accounting Policies" under Part II, Item 8 of our 20172018 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 and fair value of our derivative financial instruments at June 30, 20182019 and December 31, 20172018 were as follows:
| | | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| | | Notional or Contractual Amount | | Fair Value | | Notional or Contractual Amount | | Fair Value | | Notional or Contractual Amount | | Fair Value | | Notional or Contractual Amount | | Fair Value |
| (Dollars in thousands) | |
| Derivative Assets (1) |
| Derivative Liabilities (1) | | Derivative Assets (1) |
| Derivative Liabilities (1) | |
| Derivative Assets (1) |
| Derivative Liabilities (1) | | Derivative Assets (1) |
| Derivative Liabilities (1) |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | |
| Interest rate risks: | | | | | | | | | | | | | |
| Interest rate swaps | | | $ | 1,015,000 |
| | $ | 19,558 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest rate swaps | | | 250,000 |
| | — |
| | 391 |
| | — |
| | — |
| | — |
|
| Derivatives not designated as hedging instruments: | |
|
|
|
|
| |
| | |
|
| |
|
|
|
|
| |
| | |
|
|
Currency exchange risks: | |
|
|
|
|
| |
| | |
|
| |
|
|
|
|
| |
| | |
|
|
| Foreign exchange forwards | | $ | 501,372 |
|
| $ | 16,250 |
|
| $ | — |
| | $ | 50,889 |
| | $ | 414 |
|
| $ | — |
| | 37,120 |
|
| 1,081 |
|
| — |
| | 263,733 |
| | 4,767 |
|
| — |
|
| Foreign exchange forwards | | 243,969 |
|
| — |
|
| 9,636 |
| | 425,055 |
| | — |
|
| 5,201 |
| | 275,704 |
|
| — |
|
| 4,210 |
| | 178,310 |
| | — |
|
| 1,094 |
|
Other derivative instruments: | |
|
| |
| | |
| | |
| | |
|
| |
| | |
| | |
| |
| Equity warrant assets | | 227,490 |
|
| 143,725 |
|
| — |
| | 211,253 |
| | 123,763 |
|
| — |
| | 221,013 |
|
| 158,048 |
|
| — |
| | 223,532 |
| | 149,238 |
|
| — |
|
| Client foreign exchange forwards | | 2,582,993 |
|
| 81,395 |
|
| — |
| | 2,203,643 |
| | 95,035 |
|
| — |
| | 3,447,213 |
|
| 92,623 |
|
| — |
| | 2,759,878 |
| | 93,876 |
|
| — |
|
| Client foreign exchange forwards | | 2,305,484 |
|
| — |
|
| 73,323 |
| | 2,092,207 |
| | — |
|
| 90,253 |
| | 3,137,742 |
|
| — |
|
| 81,489 |
| | 2,568,085 |
| | — |
|
| 85,706 |
|
| Client foreign currency options | | 107,907 |
|
| 1,713 |
|
| — |
| | 102,678 |
| | 1,187 |
|
| — |
| | 87,439 |
|
| 758 |
|
| — |
| | 93,556 |
| | 1,759 |
|
| — |
|
| Client foreign currency options | | 107,907 |
|
| — |
|
| 1,713 |
| | 102,678 |
| | — |
|
| 1,187 |
| | 87,538 |
|
| — |
|
| 758 |
| | 93,579 |
| | — |
|
| 1,759 |
|
| Client interest rate derivatives (2) | | 919,033 |
|
| 6,422 |
|
| — |
| | 726,984 |
| | 11,753 |
|
| — |
| | 1,159,613 |
|
| 19,440 |
|
| — |
| | 1,020,416 |
| | 8,499 |
|
| — |
|
| Client interest rate derivatives | | 1,274,209 |
|
| — |
|
| 12,532 |
| | 782,586 |
| | — |
|
| 11,940 |
| |
| Total Derivatives not designated as hedging instruments | | | | $ | 249,505 |
|
| $ | 97,204 |
| | | | $ | 232,152 |
|
| $ | 108,581 |
| |
| Client interest rate derivatives (2) | | | 1,237,704 |
|
| — |
|
| 25,803 |
| | 1,337,328 |
| | — |
|
| 9,491 |
|
| Total derivatives not designated as hedging instruments | | | | | 271,950 |
|
| 112,260 |
| | | | 258,139 |
|
| 98,050 |
|
| Total derivatives | | | | | $ | 291,508 |
| | $ | 112,651 |
| | | | $ | 258,139 |
| | $ | 98,050 |
|
| |
| (1) | Derivative assets and liabilities are included in "accruedAccrued interest receivable and other assets" and "otherOther liabilities", respectively, on our consolidated balance sheets. |
| |
| (2) | The amount reported for June 30, 20182019 reflects rule changes implemented by two central clearing houses that allowrequire entities to elect to treat derivative assets, liabilities and the related variation margin as settlement of the related derivative fair values for legal and accounting purposes, as opposed to presenting gross derivative assets and liabilities. As a result, client interest rate derivatives at June 30, 2018, reflect reductions of approximately $5.84.2 million and $0.4 million of derivative assets that previously would have been reported on a gross basisat June 30, 2019 and approximately $281.8 million in related notional amounts for these derivative assets cleared through central clearing houses.December 31, 2018, respectively. |
A summary of our derivative activity and the related impact on our consolidated statements of income for the three and six months ended June 30, 20182019 and 20172018 is as follows:
|
| | | | | | | | | | | | | | | | | | |
| | | | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | Statement of income location | | 2019 | | 2018 | | 2019 | | 2018 |
| Derivatives designated as hedging instruments: | | | | | | | | | | |
Interest rate risks: | | | | | | | | | | |
| Amounts reclassified from accumulated other comprehensive income into income | | Interest income—loans | | $ | (508 | ) | | $ | — |
| | $ | (511 | ) | | $ | — |
|
| Derivatives not designated as hedging instruments: | | | | | | | | | | |
Currency exchange risks: | | | | | | | | | | |
| Gains (losses) on revaluations of internal foreign currency instruments, net | | Other noninterest income | | $ | 2,491 |
| | $ | (319 | ) | | $ | 3,541 |
| | $ | 2,607 |
|
| (Losses) gains on internal foreign exchange forward contracts, net | | Other noninterest income | | (3,274 | ) | | 459 |
| | (3,743 | ) | | (3,053 | ) |
| Net (losses) gains associated with internal currency risk | | | | $ | (783 | ) | | $ | 140 |
| | $ | (202 | ) | | $ | (446 | ) |
Other derivative instruments: | | | | | | | | | | |
| Gains (losses) on revaluations of client foreign currency instruments, net | | Other noninterest income | | $ | 959 |
| | $ | (2,748 | ) | | $ | (12,612 | ) | | $ | 4,905 |
|
| Gains (losses) on client foreign exchange forward contracts, net | | Other noninterest income | | 411 |
| | 2,844 |
| | 13,065 |
| | (4,270 | ) |
| Net gains associated with client currency risk | | | | $ | 1,370 |
| | $ | 96 |
| | $ | 453 |
| | $ | 635 |
|
| Net gains on equity warrant assets | | Gains on equity warrant assets, net | | $ | 48,347 |
| | $ | 19,061 |
| | $ | 69,652 |
| | $ | 38,252 |
|
| Net (losses) gains on other derivatives | | Other noninterest income | | $ | (1,131 | ) | | $ | (10 | ) | | $ | (1,496 | ) | | $ | 421 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | Statement of income location | | 2018 | | 2017 | | 2018 | | 2017 |
| Derivatives designated as hedging instruments: | | | | | | | | | | |
Interest rate risks: | | | | | | | | | | |
| Net cash benefit associated with interest rate swaps | | Interest expense—borrowings | | $ | — |
| | $ | 381 |
| | $ | — |
| | $ | 935 |
|
| Changes in fair value of interest rate swaps | | Other noninterest income | | — |
| | (6 | ) | | — |
| | (7 | ) |
| Net gains associated with interest rate risk derivatives | | | | $ | — |
| | $ | 375 |
| | $ | — |
| | $ | 928 |
|
| Derivatives not designated as hedging instruments: | | | | | | | | | | |
Currency exchange risks: | | | | | | | | | | |
| (Losses) gains on revaluations of internal foreign currency instruments, net | | Other noninterest income | | $ | (319 | ) | | $ | 14,596 |
| | $ | 2,607 |
| | $ | 18,704 |
|
| Gains (losses) on internal foreign exchange forward contracts, net | | Other noninterest income | | 459 |
| | (14,554 | ) | | (3,053 | ) | | (17,799 | ) |
| Net gains (losses) associated with internal currency risk | | | | $ | 140 |
| | $ | 42 |
| | $ | (446 | ) | | $ | 905 |
|
Other derivative instruments: | | | | | | | | | | |
| (Losses) gains on revaluations of client foreign currency instruments, net | | Other noninterest income | | $ | (2,748 | ) | | $ | 2,375 |
| | $ | 4,905 |
| | $ | 5,129 |
|
| Gains (losses) on client foreign exchange forward contracts, net | | Other noninterest income | | 2,844 |
| | (2,190 | ) | | (4,270 | ) | | (4,479 | ) |
| Net gains associated with client currency risk | | | | $ | 96 |
| | $ | 185 |
| | $ | 635 |
| | $ | 650 |
|
| Net gains on equity warrant assets | | Gains on equity warrant assets, net | | $ | 19,061 |
| | $ | 10,820 |
| | $ | 38,252 |
| | $ | 17,510 |
|
| Net (losses) gains on other derivatives | | Other noninterest income | | $ | (10 | ) | | $ | (210 | ) | | $ | 421 |
| | $ | (486 | ) |
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 June 30, 20182019 and December 31, 20172018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | Gross Amounts Not Offset in the Statement of Financial Position but Subject to Master Netting Arrangements | | Net Amount |
| (Dollars in thousands) | | | | | Financial Instruments | | Cash Collateral Received (1) | |
| June 30, 2019 | | | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | | | |
| Interest rate swaps | | $ | 19,558 |
| | $ | — |
| | $ | 19,558 |
| | $ | (19,558 | ) | | $ | — |
| | $ | — |
|
| Foreign exchange forwards | | 93,704 |
| | — |
| | 93,704 |
| | (30,435 | ) | | (24,171 | ) | | 39,098 |
|
| Foreign currency options | | 758 |
| | — |
| | 758 |
| | (246 | ) | | (59 | ) | | 453 |
|
| Client interest rate derivatives | | 19,440 |
| | — |
| | 19,440 |
| | (19,418 | ) | | (22 | ) | | — |
|
| Total derivative assets | | 133,460 |
| | — |
| | 133,460 |
| | (69,657 | ) | | (24,252 | ) | | 39,551 |
|
| Reverse repurchase, securities borrowing, and similar arrangements | | 291,678 |
| | — |
| | 291,678 |
| | (291,678 | ) | | — |
| | — |
|
| Total | | $ | 425,138 |
| | $ | — |
| | $ | 425,138 |
| | $ | (361,335 | ) | | $ | (24,252 | ) | | $ | 39,551 |
|
| December 31, 2018 | | | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | | | |
| Foreign exchange forwards | | $ | 98,643 |
| | $ | — |
| | $ | 98,643 |
| | $ | (38,213 | ) | | $ | (11,825 | ) | | $ | 48,605 |
|
| Foreign currency options | | 1,759 |
| | — |
| | 1,759 |
| | (613 | ) | | (90 | ) | | 1,056 |
|
| Client interest rate derivatives | | 8,499 |
| | — |
| | 8,499 |
| | (8,416 | ) | | (83 | ) | | — |
|
| Total derivative assets | | 108,901 |
| | — |
| | 108,901 |
| | (47,242 | ) | | (11,998 | ) | | 49,661 |
|
| Reverse repurchase, securities borrowing, and similar arrangements | | 123,611 |
| | — |
| | 123,611 |
| | (123,611 | ) | | — |
| | — |
|
| Total | | $ | 232,512 |
| | $ | — |
| | $ | 232,512 |
| | $ | (170,853 | ) | | $ | (11,998 | ) | | $ | 49,661 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements | | Net Amount |
| (Dollars in thousands) | | | | | Financial Instruments | | Cash Collateral Received (1) | |
| June 30, 2018 | | | | | | | | | | | | |
| Derivative Assets: | | | | | | | | | | | | |
| Foreign exchange forwards | | $ | 97,645 |
| | $ | — |
| | $ | 97,645 |
| | $ | (32,627 | ) | | $ | (14,416 | ) | | $ | 50,602 |
|
| Foreign currency options | | 1,713 |
| | — |
| | 1,713 |
| | (973 | ) | | — |
| | 740 |
|
| Client interest rate derivatives | | 6,422 |
| | — |
| | 6,422 |
| | (3,592 | ) | | (2,830 | ) | | — |
|
| Total derivative assets | | 105,780 |
| | — |
| | 105,780 |
| | (37,192 | ) | | (17,246 | ) | | 51,342 |
|
| Reverse repurchase, securities borrowing, and similar arrangements | | 37,379 |
| | — |
| | 37,379 |
| | (37,379 | ) | | — |
| | — |
|
| Total | | $ | 143,159 |
| | $ | — |
| | $ | 143,159 |
| | $ | (74,571 | ) | | $ | (17,246 | ) | | $ | 51,342 |
|
| December 31, 2017 | | | | | | | | | | | | |
| Derivative Assets: | | | | | | | | | | | | |
| Foreign exchange forwards | | $ | 95,449 |
| | $ | — |
| | $ | 95,449 |
| | $ | (14,570 | ) | | $ | (3,616 | ) | | $ | 77,263 |
|
| Foreign currency options | | 1,187 |
| | — |
| | 1,187 |
| | (557 | ) | | — |
| | 630 |
|
| Client interest rate derivatives | | 11,753 |
| | — |
| | 11,753 |
| | (11,627 | ) | | (114 | ) | | 12 |
|
| Total derivative assets | | 108,389 |
| | — |
| | 108,389 |
| | (26,754 | ) | | (3,730 | ) | | 77,905 |
|
| Reverse repurchase, securities borrowing, and similar arrangements | | 247,876 |
| | — |
| | 247,876 |
| | (247,876 | ) | | — |
| | — |
|
| Total | | $ | 356,265 |
| | $ | — |
| | $ | 356,265 |
| | $ | (274,630 | ) | | $ | (3,730 | ) | | $ | 77,905 |
|
| |
| (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“Short-term borrowings” on our consolidated balance sheets. |
The following table summarizes our liabilities subject to enforceable master netting arrangements as of June 30, 20182019 and December 31, 20172018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | Gross Amounts Not Offset in the Statement of Financial Position but Subject to Master Netting Arrangements | | Net Amount |
| (Dollars in thousands) | | | | | Financial Instruments | | Cash Collateral Pledged (1) | |
| June 30, 2019 | | | | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | |
| Interest rate swaps | | $ | 391 |
| | $ | — |
| | $ | 391 |
| | $ | (391 | ) | | $ | — |
| | $ | — |
|
| Foreign exchange forwards | | 85,699 |
| | — |
| | 85,699 |
| | (17,096 | ) | | (29,296 | ) | | 39,307 |
|
| Foreign currency options | | 758 |
| | — |
| | 758 |
| | (475 | ) | | — |
| | 283 |
|
| Client interest rate derivatives | | 25,803 |
| | — |
| | 25,803 |
| | — |
| | (25,579 | ) | | 224 |
|
| Total derivative liabilities | | 112,651 |
| | — |
| | 112,651 |
| | (17,962 | ) | | (54,875 | ) | | 39,814 |
|
| Repurchase, securities lending, and similar arrangements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | | $ | 112,651 |
| | $ | — |
| | $ | 112,651 |
| | $ | (17,962 | ) | | $ | (54,875 | ) | | $ | 39,814 |
|
| December 31, 2018 | | | | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | |
| Foreign exchange forwards | | $ | 86,800 |
| | $ | — |
| | $ | 86,800 |
| | $ | (24,778 | ) | | $ | (20,732 | ) | | $ | 41,290 |
|
| Foreign currency options | | 1,759 |
| | — |
| | 1,759 |
| | (1,054 | ) | | — |
| | 705 |
|
| Client interest rate derivatives | | 9,491 |
| | — |
| | 9,491 |
| | — |
| | (9,207 | ) | | 284 |
|
| Total derivative liabilities | | 98,050 |
| | — |
| | 98,050 |
| | (25,832 | ) | | (29,939 | ) | | 42,279 |
|
| Repurchase, securities lending, and similar arrangements | | 319,414 |
| | — |
| | 319,414 |
| | — |
| | — |
| | 319,414 |
|
| Total | | $ | 417,464 |
| | $ | — |
| | $ | 417,464 |
| | $ | (25,832 | ) | | $ | (29,939 | ) | | $ | 361,693 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements | | Net Amount |
| (Dollars in thousands) | | | | | Financial Instruments | | Cash Collateral Pledged (1) | |
| June 30, 2018 | | | | | | | | | | | | |
| Derivative Liabilities: | | | | | | | | | | | | |
| Foreign exchange forwards | | $ | 82,959 |
| | $ | — |
| | $ | 82,959 |
| | $ | (14,638 | ) | | $ | (41,113 | ) | | $ | 27,208 |
|
| Foreign currency options | | 1,713 |
| | — |
| | 1,713 |
| | (772 | ) | | — |
| | 941 |
|
| Client interest rate derivatives | | 12,532 |
| | — |
| | 12,532 |
| | — |
| | (12,448 | ) | | 84 |
|
| Total derivative liabilities | | 97,204 |
| | — |
| | 97,204 |
| | (15,410 | ) | | (53,561 | ) | | 28,233 |
|
| Repurchase, securities lending, and similar arrangements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | | $ | 97,204 |
| | $ | — |
| | $ | 97,204 |
| | $ | (15,410 | ) | | $ | (53,561 | ) | | $ | 28,233 |
|
| December 31, 2017 | | | | | | | | | | | | |
| Derivative Liabilities: | | | | | | | | | | | | |
| Foreign exchange forwards | | $ | 95,454 |
| | $ | — |
| | $ | 95,454 |
| | $ | (10,997 | ) | | $ | (69,110 | ) | | $ | 15,347 |
|
| Foreign currency options | | 1,187 |
| | — |
| | 1,187 |
| | (501 | ) | | (130 | ) | | 556 |
|
| Client interest rate derivatives | | 11,940 |
| | — |
| | 11,940 |
| | — |
| | (11,924 | ) | | 16 |
|
| Total derivative liabilities | | 108,581 |
| | — |
| | 108,581 |
| | (11,498 | ) | | (81,164 | ) | | 15,919 |
|
| Repurchase, securities lending, and similar arrangements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | | $ | 108,581 |
| | $ | — |
| | $ | 108,581 |
| | $ | (11,498 | ) | | $ | (81,164 | ) | | $ | 15,919 |
|
| |
| (1) | Cash collateral pledged to our counterparties in relation to market value exposures of derivative contracts in a liability position isand repurchase agreements are recorded as a component of “cash“Cash and cash equivalents" on our consolidated balance sheets. |
On January 1, 2018, we adopted Topic 606 usingaccounting standard ASU 2014-09, Revenue from Contracts with Customers and all the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our previous accounting methodology under Topic 605. Arelated amendments ("ASC 606" or "ASU 2014-09"). Included below is a summary of noninterest income, as well as the impact of such adoption, for the three and six months ended June 30, 20182019 and 2017 is as follows:2018:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 |
| 2019 |
| 2018 |
| Noninterest income: | | | | | | | | |
| Gains on investment securities, net | | $ | 47,698 |
| | $ | 36,114 |
| | $ | 76,726 |
| | $ | 45,172 |
|
| Gains on equity warrant assets, net | | 48,347 |
| | 19,061 |
| | 69,652 |
| | 38,252 |
|
| Client investment fees | | 45,744 |
| | 29,452 |
| | 90,226 |
| | 52,327 |
|
| Foreign exchange fees | | 38,506 |
| | 34,077 |
| | 76,554 |
| | 67,904 |
|
| Credit card fees | | 28,790 |
| | 22,926 |
| | 56,273 |
| | 44,618 |
|
| Deposit service charges | | 22,075 |
| | 18,794 |
| | 43,014 |
| | 36,493 |
|
| Lending related fees | | 11,213 |
| | 9,528 |
| | 25,150 |
| | 20,263 |
|
| Letters of credit and standby letters of credit fees | | 11,009 |
| | 8,347 |
| | 20,363 |
| | 16,529 |
|
| Investment banking revenue | | 48,694 |
| | — |
| | 98,489 |
| | — |
|
| Commissions | | 14,429 |
| | — |
| | 28,537 |
| | — |
|
| Other | | 17,245 |
| | 14,390 |
| | 29,142 |
| | 26,649 |
|
| Total noninterest income | | $ | 333,750 |
| | $ | 192,689 |
| | $ | 614,126 |
| | $ | 348,207 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 |
| Noninterest income: | | | | | | | | |
| Gains on investment securities, net | | $ | 36,114 |
| | $ | 17,630 |
| | $ | 45,172 |
| | $ | 33,600 |
|
| Gains on equity warrant assets, net | | 19,061 |
| | 10,820 |
| | 38,252 |
| | 17,510 |
|
| Foreign exchange fees | | 34,077 |
| | 26,108 |
| | 67,904 |
| | 52,355 |
|
| Credit card fees | | 22,926 |
| | 18,099 |
| | 44,618 |
| | 35,829 |
|
| Deposit service charges | | 18,794 |
| | 14,563 |
| | 36,493 |
| | 28,538 |
|
| Client investment fees | | 29,452 |
| | 12,982 |
| | 52,327 |
| | 22,008 |
|
| Lending related fees | | 9,528 |
| | 8,509 |
| | 20,263 |
| | 17,470 |
|
| Letters of credit and standby letters of credit fees | | 8,347 |
| | 7,006 |
| | 16,529 |
| | 13,645 |
|
| Other | | 14,390 |
| | 12,811 |
| | 26,649 |
| | 25,232 |
|
| Total noninterest income | | $ | 192,689 |
| | $ | 128,528 |
| | $ | 348,207 |
| | $ | 246,187 |
|
Gains on investment securities, net
Net gains on investment securities include both gains and losses from our non-marketable and other equity securities, which include public equity securities held as a result of exercised equity warrant assets, gains and losses from sales of our AFS debt securities portfolio, when applicable, and carried interest.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, our China Joint Venture, debt funds, private and public portfolio companies, which include public equity securities held as a result of exercised equity warrant assets and investments in qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains from non-marketable and other equity securities for any single period are typically driven by valuation changes, and are therefore subject to potential increases or decreases in future periods. Such variability may lead to volatility in the gains or losses from investment securities. As such, our results for a particular period are not necessarily indicative of our expected performance in a future period.changes.
The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (i.e., lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, and the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes.
Carried interest is comprised of preferential allocations of profits recognizable when the return on assets of our individual managed fund of funds and direct venture funds exceeds certain performance targets and is payable to us, as the general partners of the managed funds. The carried interest we earn is often shared with employees, who are also members of the general partner entities. We record carried interest on a quarterly basis by measuring fund performance to date versus the performance target. For our unconsolidated managed funds, carried interest is recorded as gains on investment securities, net. For our consolidated managed funds, it is recorded as a component of net income attributable to noncontrolling interests. Carried interest allocated to others is recorded as a component of net income attributable to noncontrolling interests. Any carried interest paid to us (or our employees) may be subject to reversal to the extent fund performance declines to a level where inception to date carried interest is lower than actual payments made by the funds. The limited partnership agreements for our funds provide that carried interest is generally not paid to the general partners until the funds have provided a full return of contributed capital to the limited partners. Accrued, but unpaid carried interest may be subject to reversal to the extent that the fund performance declines
to a level where inception-to-date carried interest is less than prior amounts recognized. Carried interest income is accounted for under an ownership model based on ASC 323 — Equity Method of Accounting and ASC 810 — Consolidation.
Our available-for-sale securities portfolio is a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk.
Gains on investment securities are recognized outside of the scope of the new revenue standardASC 606 as it explicitly excludes noninterest income earned from our investment-related activities. A summary of gains and losses on investment securities for the three and six months ended June 30, 20182019 and 20172018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 |
| 2019 |
| 2018 |
| Gains on non-marketable and other equity securities, net | | $ | 47,973 |
| | $ | 36,114 |
| | $ | 80,631 |
| | $ | 45,172 |
|
| Losses on sales of available-for-sale securities, net | | (275 | ) | | — |
| | (3,905 | ) | | — |
|
| Total gains on investment securities, net | | $ | 47,698 |
| | $ | 36,114 |
| | $ | 76,726 |
| | $ | 45,172 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 |
| Gains on non-marketable and other equity securities, net | | $ | 36,114 |
| | $ | 17,753 |
| | $ | 45,172 |
| | $ | 33,115 |
|
| (Losses) gains on sales of available-for-sale securities, net | | — |
| | (123 | ) | | — |
| | 485 |
|
| Total gains on investment securities, net | | $ | 36,114 |
| | $ | 17,630 |
| | $ | 45,172 |
| | $ | 33,600 |
|
Gains on equity warrant assets, net
In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. Any changes in fair value from the grant date fair value of equity warrant assets will be recognized as increases or decreases to other assets on our balance sheet and as net gains or losses on equity warrant assets, in noninterest income, a component of consolidated net income. Gains on equity warrant assets are recognized outside of the scope of the new revenue standardASC 606 as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of net gains on equity warrant assets for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 |
| 2019 |
| 2018 |
| Equity warrant assets: | | | | | | | | |
| Gains on exercises, net | | $ | 40,226 |
| | $ | 8,875 |
| | $ | 49,180 |
| | $ | 20,509 |
|
| Terminations | | (1,045 | ) | | (826 | ) | | (1,884 | ) | | (1,726 | ) |
| Changes in fair value, net | | 9,166 |
| | 11,012 |
| | 22,356 |
| | 19,469 |
|
| Total net gains on equity warrant assets | | $ | 48,347 |
| | $ | 19,061 |
| | $ | 69,652 |
| | $ | 38,252 |
|
Client investment fees
Client investment fees include fees earned from discretionary investment management services for substantially all clients, managing clients’ portfolios based on their investment policies, strategies and 2017objectives and investment advisory fees. Revenue is recognized on a monthly basis upon completion of our performance obligation and consideration is typically received in the subsequent month. Included in our sweep money market fees are Rule 12(b)-1 fees, revenue sharing and customer transactional-based fees. Rule 12(b)-1 fees and revenue sharing are recognized as earned based on client funds that are invested in the period, typically monthly. Transactional based fees are earned and recognized on fixed income securities when the transaction is executed on the clients' behalf. Amounts paid to third-party service providers are predominantly expensed, such that client investment fees are recorded gross of payments made to third parties. A summary of client investment fees by instrument type for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 |
| Equity warrant assets: | | | | | | | | |
| Gains on exercises, net | | $ | 8,875 |
| | $ | 3,121 |
| | $ | 20,509 |
| | $ | 11,345 |
|
| Cancellations and expirations | | (826 | ) | | (571 | ) | | (1,726 | ) | | (1,129 | ) |
| Changes in fair value, net | | 11,012 |
| | 8,270 |
| | 19,469 |
| | 7,294 |
|
| Total net gains on equity warrant assets | | $ | 19,061 |
| | $ | 10,820 |
| | $ | 38,252 |
| | $ | 17,510 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Client investment fees by type: | | | | | | | | |
| Sweep money market fees | | $ | 26,952 |
| | $ | 17,178 |
| | $ | 53,496 |
| | $ | 29,500 |
|
| Asset management fees (1) | | 6,956 |
| | 5,730 |
| | 13,628 |
| | 11,088 |
|
| Repurchase agreement fees | | 11,836 |
| | 6,544 |
| | 23,102 |
| | 11,739 |
|
| Total client investment fees (2) | | $ | 45,744 |
| | $ | 29,452 |
| | $ | 90,226 |
| | $ | 52,327 |
|
| |
| (1) | Represents fees earned from investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. |
| |
| (2) | Represents fees earned on client investment funds which are maintained at third-party financial institutions and are not recorded on our balance sheet. |
Foreign exchange fees
Foreign exchange fees represent the income differential between purchases and sales of foreign currency on behalf of our clients, primarily from spot contracts. Foreign exchange spot contract fees are recognized upon the completion of the single performance obligation, the execution of a spot trade in exchange for a fee. In line with customary business practice, the legal right transfers to the client upon execution of a foreign exchange contract on the trade date, and as such, we currently recognize our fees based on the trade date and are typically settled within two business days.
Forward contract and option premium fees are recognized outside of the scope of the new revenue standardASC 606 as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of foreign exchange fee income by instrument type for the three and six months ended June 30, 20182019 and 20172018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 |
| 2019 |
| 2018 |
| Foreign exchange fees by instrument type: | | | | | | | | |
| Spot contract commissions | | $ | 34,696 |
| | $ | 31,548 |
| | $ | 69,725 |
| | $ | 62,750 |
|
| Forward contract commissions | | 3,778 |
| | 2,455 |
| | 6,773 |
| | 4,940 |
|
| Option premium fees | | 32 |
| | 74 |
| | 56 |
| | 214 |
|
| Total foreign exchange fees | | $ | 38,506 |
| | $ | 34,077 |
| | $ | 76,554 |
| | $ | 67,904 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 |
| Foreign exchange fees by instrument type: | | | | | | | | |
| Spot contract commissions | | $ | 31,548 |
| | $ | 23,583 |
| | $ | 62,750 |
| | $ | 46,007 |
|
| Forward contract commissions | | 2,455 |
| | 2,470 |
| | 4,940 |
| | 6,071 |
|
| Option premium fees | | 74 |
| | 55 |
| | 214 |
| | 277 |
|
| Total foreign exchange fees | | $ | 34,077 |
| | $ | 26,108 |
| | $ | 67,904 |
| | $ | 52,355 |
|
Credit card fees
Credit card fees include interchange income from credit and debit cards and fees earned from processing transactions for merchants. Interchange income is earned after satisfying our performance obligation of providing nightly settlement services to a payment network. Costs related to rewards programs are recorded when the rewards are earned by the customer and presented as a reduction to interchange fee income. Rewards programs continue to be accounted for under ASC 310 - Receivables. Our performance obligations for merchant service fees are to transmit data and funds between the merchant and the payment network. Credit card interchange and merchant service fees are earned daily upon completion of transaction settlement services.
Annual card service fees are recognized on a straight-line basis over a 12-month period and continue to be accounted for under ASC 310 - Receivables.
A summary of credit card fees by instrument type for the three and six months ended June 30, 20182019 and 20172018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 |
| 2019 |
| 2018 |
| Credit card fees by instrument type: | | | | | | | | |
| Card interchange fees, net | | $ | 22,855 |
| | $ | 18,137 |
| | $ | 44,248 |
| | $ | 35,697 |
|
| Merchant service fees | | 4,286 |
| | 3,425 |
| | 8,821 |
| | 6,331 |
|
| Card service fees | | 1,649 |
| | 1,364 |
| | 3,204 |
| | 2,590 |
|
| Total credit card fees | | $ | 28,790 |
| | $ | 22,926 |
| | $ | 56,273 |
| | $ | 44,618 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 |
| Credit card fees by instrument type: | | | | | | | | |
| Card interchange fees, net | | $ | 18,137 |
| | $ | 14,033 |
| | $ | 35,697 |
| | $ | 28,003 |
|
| Merchant service fees | | 3,425 |
| | 2,883 |
| | 6,331 |
| | 5,623 |
|
| Card service fees | | 1,364 |
| | 1,183 |
| | 2,590 |
| | 2,203 |
|
| Total credit card fees | | $ | 22,926 |
| | $ | 18,099 |
| | $ | 44,618 |
| | $ | 35,829 |
|
Deposit service charges
Deposit service charges include fees earned from performing cash management activities and other deposit account services. Deposit services include, but are not limited to, the following: receivables services, which include merchant services, remote capture, lockbox, electronic deposit capture, and fraud control services. Payment and cash management products and services include wire transfer and automated clearing house payment services to enable clients to transfer funds more quickly, as well as business bill pay, business credit and debit cards, account analysis, and disbursement services. Deposit service charges are recognized over the period in which the related performance obligation is provided, generally on a monthly basis.
Client investment fees
Client investment fees include fees earned from discretionary investment management services for substantially all clients, managing clients’ portfolios based on their investment policies, strategiesbasis, and objectives and receives investment advisory fees. Revenue is recognized on a monthly basis upon completion of our performance obligation and consideration is typically receivedare presented in the subsequent month. Included in our sweep money market fees are Rule 12(b)-1 fees,"Disaggregation of revenue sharing and from customer transactional based fees. Rule 12(b)-1 fees and revenue sharing are recognized as earned based on client funds that are invested in the period, typically monthly. Transactional based fees are earned and recognized on fixed income securities when the transaction is executed on the clients' behalf. Amounts paid to third-party service providers are predominantly expensed, such that client investment fees are recorded gross of payments made to third parties. A summary of client investment fees by instrument type for the three and six months ended June 30, 2018 and 2017, is as follows:contracts with customers"table below.
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 |
| Client investment fees by type: | | | | | | | | |
| Sweep money market fees | | $ | 17,178 |
| | $ | 6,474 |
| | $ | 29,500 |
| | $ | 10,870 |
|
| Asset management fees (1) | | 5,730 |
| | 4,111 |
| | 11,088 |
| | 7,490 |
|
| Repurchase agreement fees | | 6,544 |
| | 2,397 |
| | 11,739 |
| | 3,648 |
|
| Total client investment fees (2) | | $ | 29,452 |
| | $ | 12,982 |
| | $ | 52,327 |
| | $ | 22,008 |
|
| |
(1) | Represents fees earned from investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. |
| |
(2) | Represents fees earned on client investment funds which are maintained at third-party financial institutions and are not recorded on our balance sheet. |
Lending related fees
Unused commitment fees, minimum finance fees and unused line fees are recognized as earned on a monthly basis. Fees that qualify for syndication treatment are recognized at the completion of the syndicated loan deal for which the fees were received. Lending related fees are recognized outside of the scope of the new revenue standardASC 606 as it explicitly excludes noninterest income earned from our lending-related activities. A summary of lending related fees by instrument type for the three and six months ended June 30, 20182019 and 20172018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 |
| 2019 |
| 2018 |
| Lending related fees by instrument type: | | | | | | | | |
| Unused commitment fees | | $ | 7,051 |
| | $ | 7,827 |
| | $ | 16,721 |
| | $ | 16,584 |
|
| Other | | 4,162 |
| | 1,701 |
| | 8,429 |
| | 3,679 |
|
| Total lending related fees | | $ | 11,213 |
| | $ | 9,528 |
| | $ | 25,150 |
| | $ | 20,263 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| 2018 |
| 2017 |
| Lending related fees by instrument type: | | | | | | | | |
| Unused commitment fees | | $ | 7,827 |
| | $ | 7,021 |
| | $ | 16,584 |
| | $ | 13,588 |
|
| Other | | 1,701 |
| | 1,488 |
| | 3,679 |
| | 3,882 |
|
| Total lending related fees | | $ | 9,528 |
| | $ | 8,509 |
| | $ | 20,263 |
| | $ | 17,470 |
|
Letters of credit and standby letters of credit fees
Commercial and standby letters of credit represent conditional commitments issued by us on behalf of a client to guarantee the performance of the client to a third party when certain specified future events have occurred. Fees generated from letters of credit and standby letters of credit are deferred as a component of other liabilities and recognized in noninterest income over the commitment period using the straight-line method, based on the likelihood that the commitment being drawn down will be remote. Letters of credit and standby letters of credit fees are recognized outside of the scope of the new revenue standardASC 606 as it explicitly excludes noninterest income earned from our lending-relatedlending related activities.
Investment banking revenue
The Company earns investment banking revenue from clients for providing services related to securities underwriting, private placements and advisory services on strategic matters such as mergers and acquisitions. Underwriting fees are attributable to public and private offerings of equity and debt securities and are recognized at the point in time when the offering has been deemed to be completed by the lead manager of the underwriting group. Once the offering is completed, the performance obligation has been satisfied and the Company recognizes the applicable management fee as well the underwriting fee, net of consideration payable to customers. The Company recognizes private placement fees at the point in time when the private placement is completed, which is generally when the client accepts capital from the fund raise. Advisory fees from mergers and acquisitions engagements are generally recognized at the point in time when the related transaction is completed. Expenses are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other deal-related expenses are expensed as incurred. The Company has determined that it acts as principal in the majority of these transactions and therefore presents expenses gross within other operating expenses.
A summary of investment banking revenue by instrument type for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Investment banking revenue: | | | | | | | | |
| Underwriting fees | | $ | 42,584 |
| | $ | — |
| | $ | 78,356 |
| | $ | — |
|
| Advisory fees | | 5,315 |
| | — |
| | 17,588 |
| | — |
|
| Private placements and other | | 795 |
| | — |
| | 2,545 |
| | — |
|
| Total investment banking revenue | | $ | 48,694 |
| | $ | — |
| | $ | 98,489 |
| | $ | — |
|
Commissions
Commissions include commissions received from customers for the execution of agency-based brokerage transactions in listed and over-the-counter equities. The execution of each trade order represents a distinct performance obligation and the transaction price is fixed at the point in time or trade order execution. Trade execution is satisfied at the point in time that the customer has control of the asset and as such, fees are recorded on a trade date basis. Commission are presented in the "Disaggregation of revenue from contracts with customers"table below.
Other
Other noninterest income primarily includes income from fund management fees and service revenue. Fund management fees are comprised of fees charged directly to our managed funds of funds and direct venture funds. Fund management fees are based upon the contractual terms of the limited partnership agreements and are generally recognized as earned over the specified contract period, which is generally equal to the life of the individual fund. Fund management fees are calculated as a percentage of committed capital and collected in advance and are received quarterly. Fund management fees for certain of our limited partnership agreements are calculated as a percentage of distributions made by the funds and revenue is recorded only at the time of a distribution event. As distribution events are not predetermined for these certain funds, management fees are considered variable and constrained under the new revenue standard.ASC 606.
Other noninterest incomeservice revenue primarily consists of dividend income on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income. We recognize revenue when our performance obligations are met and record revenues on a daily/monthly basis, quarterly, semi-annually or annual basis. For event driven revenue sources, we recognize revenue when: (i) persuasive evidence of an arrangement exists, (ii) we have performed the service, provided we have no other remaining obligations to the customer, (iii) the fee is fixed or determinable and (iv) collectability is probable.
A summary of other noninterest income by instrument type for the three and six months ended June 30, 20182019 and 20172018 is as follows:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| Other noninterest income by instrument type: | | | | | | | | | | | | | | | | |
| Fund management fees | | $ | 5,929 |
| | $ | 5,536 |
| | $ | 11,665 |
| | $ | 10,705 |
| | $ | 7,758 |
| | $ | 5,929 |
| | $ | 15,799 |
| | $ | 11,665 |
|
| Net gains on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1) | | 236 |
| | 227 |
| | 189 |
| | 1,555 |
| | 587 |
| | 236 |
| | 251 |
| | 189 |
|
| Other service revenue | | 8,225 |
| | 7,048 |
| | 14,795 |
| | 12,972 |
| | 8,900 |
| | 8,225 |
| | 13,092 |
| | 14,795 |
|
| Total other noninterest income | | $ | 14,390 |
| | $ | 12,811 |
| | $ | 26,649 |
| | $ | 25,232 |
| | $ | 17,245 |
| | $ | 14,390 |
| | $ | 29,142 |
| | $ | 26,649 |
|
| |
| (1) | Represents the net revaluation of client and internal foreign currency denominated financial instruments. We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client and internal foreign currency denominated financial instruments. |
Disaggregation of Revenuerevenue from Contractscontracts with Customerscustomers
The following tables presentspresent our revenues from contracts with customers disaggregated by revenue source and segment for the three and six months ended June 30, 2019 and 2018:
| | Three months ended June 30, 2018 (Dollars in thousands) | | Global Commercial Bank | | SVB Private Bank | | SVB Capital | | Other Income | | Total | |
Three months ended June 30, 2019 (Dollars in thousands) | | | Global
Commercial
Bank (2) | | SVB Private
Bank | | SVB Capital (2) | | SVB
Leerink (2) | | Other Items | | Total |
| Revenue from contracts with customers: | | | | | | | | | | | | | | | | | | | | | | |
| Client investment fees | | | $ | 18,325 |
| | $ | 466 |
| | $ | — |
| | $ | — |
| | $ | 26,953 |
| | $ | 45,744 |
|
| Spot contract commissions | | $ | 31,350 |
| | $ | 144 |
| | $ | — |
| | $ | 54 |
| | $ | 31,548 |
| | 34,428 |
| | 165 |
| | — |
| | — |
| | 103 |
| | 34,696 |
|
| Card interchange fees, gross | | 31,734 |
| | — |
| | — |
| | 104 |
| | 31,838 |
| | 41,887 |
| | — |
| | — |
| | — |
| | 190 |
| | 42,077 |
|
| Merchant service fees | | 3,425 |
| | — |
| | — |
| | — |
| | 3,425 |
| | 4,286 |
| | — |
| | — |
| | — |
| | — |
| | 4,286 |
|
| Deposit service charges | | 18,386 |
| | 31 |
| | — |
| | 377 |
| | 18,794 |
| | 21,750 |
| | 33 |
| | — |
| | — |
| | 292 |
| | 22,075 |
|
| Client investment fees | | 11,895 |
| | 379 |
| | — |
| | 17,178 |
| | 29,452 |
| |
| Investment banking revenue | | | — |
| | — |
| | — |
| | 48,694 |
| | — |
| | 48,694 |
|
| Commissions | | | — |
| | — |
| | — |
| | 14,429 |
| | — |
| | 14,429 |
|
| Fund management fees | | — |
| | — |
| | 5,929 |
| | — |
| | 5,929 |
| | — |
| | — |
| | 6,328 |
| | 1,430 |
| | — |
| | 7,758 |
|
| Correspondent bank rebates | | 1,473 |
| | — |
| | — |
| | — |
| | 1,473 |
| | 1,612 |
| | — |
| | — |
| | — |
| | — |
| | 1,612 |
|
| Total revenue from contracts with customers | | $ | 98,263 |
| | $ | 554 |
| | $ | 5,929 |
| | $ | 17,713 |
| | $ | 122,459 |
| | $ | 122,288 |
| | $ | 664 |
| | $ | 6,328 |
| | $ | 64,553 |
| | $ | 27,538 |
| | $ | 221,371 |
|
| | | | | | | | | | | | |
| Revenues outside the scope of ASC 606 (1) | | 14,982 |
| | 10 |
| | 22,569 |
| | 32,669 |
| | 70,230 |
| | 8,364 |
| | 22 |
| | 33,731 |
| | 2,447 |
| | 67,815 |
| | 112,379 |
|
| Total noninterest income | | $ | 113,245 |
| | $ | 564 |
| | $ | 28,498 |
| | $ | 50,382 |
| | $ | 192,689 |
| | $ | 130,652 |
| | $ | 686 |
| | $ | 40,059 |
| | $ | 67,000 |
| | $ | 95,353 |
| | $ | 333,750 |
|
| |
| (1) | Amounts are accounted for under separate guidance than ASC 606. |
| |
| (2) | Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items." |
| | Six months ended June 30, 2018 (Dollars in thousands) | | Global Commercial Bank | | SVB Private Bank | | SVB Capital | | Other Income | | Total | |
Three months ended June 30,2018 (Dollars in thousands) | | | Global
Commercial
Bank (2) | | SVB Private
Bank | | SVB Capital (2) | | Other Items | | Total |
| Revenue from contracts with customers: | | | | | | | | | | | | | | | | | | | | |
| Client investment fees | | | $ | 11,895 |
| | $ | 379 |
| | $ | — |
| | $ | 17,178 |
| | $ | 29,452 |
|
| Spot contract commissions | | $ | 62,322 |
| | $ | 323 |
| | $ | — |
| | $ | 105 |
| | $ | 62,750 |
| | 31,350 |
| | 144 |
| | — |
| | 54 |
| | 31,548 |
|
| Card interchange fees, gross | | 61,183 |
| | — |
| | — |
| | 203 |
| | 61,386 |
| | 31,734 |
| | — |
| | — |
| | 104 |
| | 31,838 |
|
| Merchant service fees | | 6,331 |
| | — |
| | — |
| | — |
| | 6,331 |
| | 3,425 |
| | — |
| | — |
| | — |
| | 3,425 |
|
| Deposit service charges | | 35,426 |
| | 59 |
| | — |
| | 1,008 |
| | 36,493 |
| | 18,386 |
| | 31 |
| | — |
| | 377 |
| | 18,794 |
|
| Client investment fees | | 22,145 |
| | 681 |
| | — |
| | 29,501 |
| | 52,327 |
| |
| Fund management fees | | — |
| | — |
| | 11,665 |
| | — |
| | 11,665 |
| | — |
| | — |
| | 5,929 |
| | — |
| | 5,929 |
|
| Correspondent bank rebates | | 2,869 |
| | — |
| | — |
| | — |
| | 2,869 |
| | 1,473 |
| | — |
| | — |
| | — |
| | 1,473 |
|
| Total revenue from contracts with customers | | $ | 190,276 |
| | $ | 1,063 |
| | $ | 11,665 |
| | $ | 30,817 |
| | $ | 233,821 |
| | $ | 98,263 |
| | $ | 554 |
| | $ | 5,929 |
| | $ | 17,713 |
| | $ | 122,459 |
|
| | | | | | | | | | | | |
| Revenues outside the scope of ASC 606 (1) | | 22,315 |
| | 9 |
| | 45,744 |
| | 46,318 |
| | 114,386 |
| | 13,411 |
| | 11 |
| | 23,460 |
| | 33,348 |
| | 70,230 |
|
| Total noninterest income | | $ | 212,591 |
| | $ | 1,072 |
| | $ | 57,409 |
| | $ | 77,135 |
| | $ | 348,207 |
| | $ | 111,674 |
| | $ | 565 |
| | $ | 29,389 |
| | $ | 51,061 |
| | $ | 192,689 |
|
| |
| (1) | Amounts are accounted for under separate guidance than ASC 606. |
| |
| (2) | Global Commercial Bank’s and SVB Capital’s components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items." |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2019 (Dollars in thousands) | | Global
Commercial
Bank (2) | | SVB Private
Bank | | SVB Capital (2) | | SVB
Leerink (2) | | Other Items | | Total |
| Revenue from contracts with customers: | | | | | | | | | | | | |
| Client investment fees | | $ | 35,884 |
| | $ | 846 |
| | $ | — |
| | $ | — |
| | $ | 53,496 |
| | $ | 90,226 |
|
| Spot contract commissions | | 69,233 |
| | 288 |
| | — |
| | — |
| | 204 |
| | 69,725 |
|
| Card interchange fees, gross | | 80,601 |
| | — |
| | — |
| | — |
| | 337 |
| | 80,938 |
|
| Merchant service fees | | 8,821 |
| | — |
| | — |
| | — |
| | — |
| | 8,821 |
|
| Deposit service charges | | 42,543 |
| | 68 |
| | — |
| | — |
| | 403 |
| | 43,014 |
|
| Investment banking revenue | | — |
| | — |
| | — |
| | 98,489 |
| | — |
| | 98,489 |
|
| Commissions | | — |
| | — |
| | — |
| | 28,537 |
| | — |
| | 28,537 |
|
| Fund management fees | | — |
| | — |
| | 12,987 |
| | 2,812 |
| | — |
| | 15,799 |
|
| Correspondent bank rebates | | 3,079 |
| | — |
| | — |
| | — |
| | — |
| | 3,079 |
|
| Total revenue from contracts with customers | | $ | 240,161 |
| | $ | 1,202 |
| | $ | 12,987 |
| | $ | 129,838 |
| | $ | 54,440 |
| | $ | 438,628 |
|
| Revenues outside the scope of ASC 606 (1) | | 16,808 |
| | (6 | ) | | 51,917 |
| | 5,279 |
| | 101,500 |
| | 175,498 |
|
| Total noninterest income | | $ | 256,969 |
| | $ | 1,196 |
| | $ | 64,904 |
| | $ | 135,117 |
| | $ | 155,940 |
| | $ | 614,126 |
|
| |
11.(1) | Amounts are accounted for under separate guidance than ASC 606. |
| |
| (2) | Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items." |
|
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30,2018 (Dollars in thousands) | | Global
Commercial
Bank (2) | | SVB Private
Bank | | SVB Capital (2) | | Other Items | | Total |
| Revenue from contracts with customers: | | | | | | | | | | |
| Client investment fees | | $ | 22,145 |
| | $ | 681 |
| | $ | — |
| | $ | 29,501 |
| | $ | 52,327 |
|
| Spot contract commissions | | 62,322 |
| | 323 |
| | — |
| | 105 |
| | 62,750 |
|
| Card interchange fees, gross | | 61,183 |
| | — |
| | — |
| | 203 |
| | 61,386 |
|
| Merchant service fees | | 6,331 |
| | — |
| | — |
| | — |
| | 6,331 |
|
| Deposit service charges | | 35,426 |
| | 59 |
| | — |
| | 1,008 |
| | 36,493 |
|
| Fund management fees | | — |
| | — |
| | 11,665 |
| | — |
| | 11,665 |
|
| Correspondent bank rebates | | 2,869 |
| | — |
| | — |
| | — |
| | 2,869 |
|
| Total revenue from contracts with customers | | $ | 190,276 |
| | $ | 1,063 |
| | $ | 11,665 |
| | $ | 30,817 |
| | $ | 233,821 |
|
| Revenues outside the scope of ASC 606 (1) | | 19,284 |
| | 9 |
| | 47,698 |
| | 47,395 |
| | 114,386 |
|
| Total noninterest income | | $ | 209,560 |
| | $ | 1,072 |
| | $ | 59,363 |
| | $ | 78,212 |
| | $ | 348,207 |
|
| |
| (1) | Amounts are accounted for under separate guidance than ASC 606. |
| |
| (2) | Global Commercial Bank’s and SVB Capital’s components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items." |
The timing of revenue recognition may differ from the timing of cash settlements or invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, and unearned revenue when revenue is recognized subsequent to receipt of consideration. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. During the three and six months ended June 30, 2019 and 2018, changes in our contract assets, contract liabilities and receivables were not material. Additionally, revenues recognized during the three and six months ended June 30, 2019 and 2018 that were included in the corresponding contract liability balance at the beginning of the periods were not material.
| |
| 14. | Other Noninterest Expense |
A summary of other noninterest expense for the three and six months ended June 30, 20182019 and 20172018 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Lending and other client related processing costs | | $ | 8,763 |
| | $ | 7,403 |
| | $ | 13,940 |
| | $ | 10,603 |
|
| Correspondent bank fees | | 3,569 |
| | 3,277 |
| | 7,313 |
| | 6,687 |
|
| Investment banking activities | | 3,869 |
| | — |
| | 8,054 |
| | — |
|
| Trade order execution costs | | 2,828 |
| | — |
| | 5,344 |
| | — |
|
| Data processing services | | 2,659 |
| | 2,703 |
| | 5,558 |
| | 5,195 |
|
| Telephone | | 2,422 |
| | 2,378 |
| | 5,163 |
| | 4,756 |
|
| Dues and publications | | 860 |
| | 845 |
| | 2,384 |
| | 1,694 |
|
| Postage and supplies | | 678 |
| | 813 |
| | 1,448 |
| | 1,480 |
|
| Other | | 11,769 |
| | 4,670 |
| | 21,749 |
| | 9,778 |
|
| Total other noninterest expense | | $ | 37,417 |
| | $ | 22,089 |
| | $ | 70,953 |
| | $ | 40,193 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
| Lending and other client related processing costs | | $ | 7,403 |
| | $ | 6,332 |
| | $ | 10,603 |
| | $ | 11,871 |
|
| Data processing services | | 2,703 |
| | 2,428 |
| | 5,195 |
| | 5,010 |
|
| Telephone | | 2,378 |
| | 2,671 |
| | 4,756 |
| | 5,374 |
|
| Dues and publications | | 845 |
| | 677 |
| | 1,694 |
| | 1,472 |
|
| Postage and supplies | | 813 |
| | 652 |
| | 1,480 |
| | 1,401 |
|
| Other | | 4,670 |
| | 7,639 |
| | 9,778 |
| | 11,478 |
|
| Total other noninterest expense | | $ | 18,812 |
| | $ | 20,399 |
| | $ | 33,506 |
| | $ | 36,606 |
|
We have threefour reportable segments for management reporting purposes: Global Commercial Bank, SVB Private Bank, SVB Capital and SVB Capital.Leerink. SVB Leerink is a new reportable segment and was created as a result of the acquisition of Leerink Holdings LLC effective January 4, 2019. The results of our operating segments are based on our internal management reporting process.
Our Global Commercial Bank and SVB Private Bank 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, these 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 a funding credit is given for deposits raised, and a funding charge is made for loans funded.funded loans. FTP is calculated at an instrument level based on account characteristics.
We also evaluate performance based on provision for credit 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 tax expense or the provision for unfunded credit commitments (included in provision for credit losses) 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 threefour operating segments for which we report our financial information:
Global Commercial Bank is comprised of results from the following:
| |
| • | 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 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 servesWe broadly serve clients within the United States,U.S., as well as non-U.S. clients in key international innovation markets. In addition, the Bank and its subsidiaries offer a variety of investment services and solutions 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 clients. |
| |
| ◦ | Our SVBWine practice provides banking products and services to our premium wine industry clients, including vineyard development loans.
|
| |
| ◦ | SVB Analytics previously provided equity valuation services and currently provides research for investors and companies in the global innovation economy. In September 2017, SVB Analytics sold its equity valuation services business. |
| |
| ◦ | Debt Fund Investments is comprised of our investments in certain debt funds in which we are a strategic investor. |
SVB Private Bank is the private banking division of the Bank, which provides a range of personal financial solutions for consumers. Our clients are primarily private equity/venture capital 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 funds management business of SVBFG, which focuses primarily on venture capital investments. 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 that invest in other venture capital funds. SVB Capital generates income for the Company primarily from investment returns (including carried interest allocations) and management fees.
| |
| • | SVB Private Bank is the private banking division of the Bank, which provides a range of personal financial solutions for consumers. Our clients are primarily private equity/venture capital 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 products, as well as cash and wealth management services. |
| |
| • | SVB Capital is the funds management business of SVBFG, which focuses primarily on venture capital investments. 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 that invest in other venture capital funds. SVB Capital generates income for the Company primarily from investment returns (including carried interest allocations) and management fees. |
| |
| • | SVB Leerink is an investment bank specializing in the equity and convertible capital markets, mergers and acquisitions, equity research and sales and trading for growth and innovation-minded healthcare and life science companies and operates as a wholly-owned subsidiary of SVB Financial. SVB Leerink provides investment banking services across all subsectors of healthcare including: biotechnology, pharmaceuticals, medical devices, diagnostic and life science tools, healthcare services and digital health. SVB Leerink focuses on two primary lines of business: (i) investment banking focused on providing companies with capital-raising services, financial advice on mergers and acquisitions, sales and trading services and equity research, and (ii) sponsorship of private investment funds. |
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 six months ended June 30, 20182019 and 20172018 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) | | SVB Leerink (1) | | Other Items (2) | | Total |
| Three months ended June 30, 2019 | | | | | | | | | | | | | |
| Net interest income | | | $ | 461,752 |
| | $ | 12,277 |
| | $ | 6 |
| | $ | 242 |
| | $ | 55,126 |
| | $ | 529,403 |
|
| Provision for credit losses | | | (18,295 | ) | | (853 | ) | | — |
| | — |
| | (4,798 | ) | | (23,946 | ) |
| Noninterest income | | | 130,652 |
| | 686 |
| | 40,059 |
| | 67,000 |
| | 95,353 |
| | 333,750 |
|
| Noninterest expense (3) | | | (206,902 | ) | | (9,526 | ) | | (7,883 | ) | | (61,935 | ) | | (97,276 | ) | | (383,522 | ) |
| Income before income tax expense (4) | | | $ | 367,207 |
| | $ | 2,584 |
| | $ | 32,182 |
| | $ | 5,307 |
| | $ | 48,405 |
| | $ | 455,685 |
|
| Total average loans, net of unearned income | | | $ | 25,724,704 |
| | $ | 3,217,597 |
| | $ | — |
| | $ | — |
| | $ | 464,319 |
| | $ | 29,406,620 |
|
| Total average assets (5) (6) | | | 60,502,170 |
| | 2,432,358 |
| | 373,167 |
| | 410,279 |
| | (3,017,488 | ) | | 60,700,486 |
|
| Total average deposits | | | 51,126,806 |
| | 1,394,905 |
| | — |
| | — |
| | 440,497 |
| | 52,962,208 |
|
| Three months ended June 30, 2018 | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 409,057 |
| | $ | 15,645 |
| | $ | 9 |
| | $ | 41,732 |
| | $ | 466,443 |
| | $ | 409,057 |
| | $ | 15,600 |
| | $ | 9 |
| | $ | — |
| | $ | 41,777 |
| | $ | 466,443 |
|
| Provision for credit losses | | (27,356 | ) | | (300 | ) | | — |
| | (1,424 | ) | | (29,080 | ) | | (27,356 | ) | | (300 | ) | | — |
| | — |
| | (1,424 | ) | | (29,080 | ) |
| Noninterest income | | 113,245 |
| | 564 |
| | 28,498 |
| | 50,382 |
| | 192,689 |
| | 111,674 |
| | 565 |
| | 29,389 |
| | — |
| | 51,061 |
| | 192,689 |
|
| Noninterest expense (3) | | (197,695 | ) | | (5,927 | ) | | (5,666 | ) | | (96,451 | ) | | (305,739 | ) | | (196,992 | ) | | (7,974 | ) | | (5,666 | ) | | — |
| | (95,107 | ) | | (305,739 | ) |
| Income (loss) before income tax expense (4) | | $ | 297,251 |
| | $ | 9,982 |
| | $ | 22,841 |
| | $ | (5,761 | ) | | $ | 324,313 |
| | $ | 296,383 |
| | $ | 7,891 |
| | $ | 23,732 |
| | $ | — |
| | $ | (3,693 | ) | | $ | 324,313 |
|
| Total average loans, net of unearned income | | $ | 21,714,870 |
| | $ | 2,777,617 |
| | $ | — |
| | $ | 366,016 |
| | $ | 24,858,503 |
| | $ | 21,714,870 |
| | $ | 2,777,617 |
| | $ | — |
| | $ | — |
| | $ | 366,016 |
| | $ | 24,858,503 |
|
| Total average assets (5) | | 52,540,865 |
| | 2,515,984 |
| | 369,841 |
| | (1,006,044 | ) | | 54,420,646 |
| | 52,561,973 |
| | 2,515,984 |
| | 369,841 |
| | — |
| | (1,027,152 | ) | | 54,420,646 |
|
| Total average deposits | | 45,991,701 |
| | 1,480,162 |
| | — |
| | 500,088 |
| | 47,971,951 |
| | 45,991,701 |
| | 1,480,162 |
| | — |
| | — |
| | 500,088 |
| | 47,971,951 |
|
| Three months ended June 30, 2017 | | | | | | | | | | | |
| Six months ended June 30, 2019 | | | | | | | | | | | | | |
| Net interest income | | $ | 311,051 |
| | $ | 14,742 |
| | $ | 16 |
| | $ | 16,887 |
| | $ | 342,696 |
| | $ | 907,628 |
| | $ | 24,258 |
| | $ | 12 |
| | $ | 684 |
| | $ | 109,707 |
| | $ | 1,042,289 |
|
| Provision for credit losses | | (14,856 | ) | | (329 | ) | | — |
| | (621 | ) | | (15,806 | ) | |
| (Provision for) reduction of credit losses | | | (45,100 | ) | | 131 |
| | — |
| | — |
| | (7,528 | ) | | (52,497 | ) |
| Noninterest income | | 83,904 |
| | 536 |
| | 15,019 |
| | 29,069 |
| | 128,528 |
| | 256,969 |
| | 1,196 |
| | 64,904 |
| | 135,117 |
| | 155,940 |
| | 614,126 |
|
| Noninterest expense (3) | | (176,702 | ) | | (4,050 | ) | | (6,192 | ) | | (64,302 | ) | | (251,246 | ) | | (404,147 | ) | | (18,378 | ) | | (13,665 | ) | | (122,475 | ) | | (190,521 | ) | | (749,186 | ) |
| Income (loss) before income tax expense (4) | | $ | 203,397 |
| | $ | 10,899 |
| | $ | 8,843 |
| | $ | (18,967 | ) | | $ | 204,172 |
| |
| Income before income tax expense (4) | | | $ | 715,350 |
| | $ | 7,207 |
| | $ | 51,251 |
| | $ | 13,326 |
| | $ | 67,598 |
| | $ | 854,732 |
|
| Total average loans, net of unearned income | | $ | 17,907,635 |
| | $ | 2,365,464 |
| | $ | — |
| | $ | 235,442 |
| | $ | 20,508,541 |
| | $ | 25,264,010 |
| | $ | 3,152,104 |
| | $ | — |
| | $ | — |
| | $ | 484,046 |
| | $ | 28,900,160 |
|
| Total average assets (5) | | 45,478,211 |
| | 2,397,188 |
| | 355,292 |
| | (681,327 | ) | | 47,549,364 |
| |
| Total average assets (5) (6) | | | 58,214,465 |
| | 2,469,804 |
| | 375,934 |
| | 355,609 |
| | (2,292,578 | ) | | 59,123,234 |
|
| Total average deposits | | 40,477,823 |
| | 1,302,890 |
| | — |
| | 357,933 |
| | 42,138,646 |
| | 49,371,589 |
| | 1,442,803 |
| | — |
| | — |
| | 532,788 |
| | 51,347,180 |
|
| Six months ended June 30, 2018 | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 778,924 |
| | $ | 31,892 |
| | $ | 16 |
| | $ | 75,474 |
| | $ | 886,306 |
| | $ | 778,924 |
| | $ | 31,847 |
| | $ | 16 |
| | $ | — |
| | $ | 75,519 |
| | $ | 886,306 |
|
| Provision for credit losses | | (52,630 | ) | | (2,022 | ) | | — |
| | (2,400 | ) | | (57,052 | ) | | (52,630 | ) | | (2,022 | ) | | — |
| | — |
| | (2,400 | ) | | (57,052 | ) |
| Noninterest income | | 212,591 |
| | 1,072 |
| | 57,409 |
| | 77,135 |
| | 348,207 |
| | 209,560 |
| | 1,072 |
| | 59,363 |
| | — |
| | 78,212 |
| | 348,207 |
|
| Noninterest expense (3) | | (382,261 | ) | | (11,969 | ) | | (10,713 | ) | | (166,213 | ) | | (571,156 | ) | | (382,251 | ) | | (16,199 | ) | | (10,712 | ) | | — |
| | (161,994 | ) | | (571,156 | ) |
| Income (loss) before income tax expense (4) | | $ | 556,624 |
| | $ | 18,973 |
| | $ | 46,712 |
| | $ | (16,004 | ) | | $ | 606,305 |
| | $ | 553,603 |
| | $ | 14,698 |
| | $ | 48,667 |
| | $ | — |
| | $ | (10,663 | ) | | $ | 606,305 |
|
| Total average loans, net of unearned income | | $ | 21,199,897 |
| | $ | 2,722,444 |
| | $ | — |
| | $ | 413,421 |
| | $ | 24,335,762 |
| | $ | 21,199,897 |
| | $ | 2,722,444 |
| | $ | — |
| | $ | — |
| | $ | 413,421 |
| | $ | 24,335,762 |
|
| Total average assets (5) | | 51,252,398 |
| | 2,553,024 |
| | 371,572 |
| | (777,378 | ) | | 53,399,616 |
| | 51,274,033 |
| | 2,553,024 |
| | 371,572 |
| | — |
| | (799,013 | ) | | 53,399,616 |
|
| Total average deposits | | 45,022,054 |
| | 1,526,038 |
| | — |
| | 496,078 |
| | 47,044,170 |
| | 45,022,054 |
| | 1,526,038 |
| | — |
| | — |
| | 496,078 |
| | 47,044,170 |
|
| Six months ended June 30, 2017 | | | | | | | | | | | |
| Net interest income | | $ | 586,929 |
| | $ | 28,352 |
| | $ | 16 |
| | $ | 37,392 |
| | $ | 652,689 |
| |
| Provision for credit losses | | (43,745 | ) | | (1,119 | ) | | — |
| | (1,676 | ) | | (46,540 | ) | |
| Noninterest income | | 163,423 |
| | 1,254 |
| | 31,794 |
| | 49,716 |
| | 246,187 |
| |
| Noninterest expense (3) | | (349,548 | ) | | (7,968 | ) | | (9,664 | ) | | (121,699 | ) | | (488,879 | ) | |
| Income (loss) before income tax expense (4) | | $ | 357,059 |
| | $ | 20,519 |
| | $ | 22,146 |
| | $ | (36,267 | ) | | $ | 363,457 |
| |
| Total average loans, net of unearned income | | $ | 17,778,065 |
| | $ | 2,305,723 |
| | $ | — |
| | $ | 206,353 |
| | $ | 20,290,141 |
| |
| Total average assets (5) | | 44,188,162 |
| | 2,335,350 |
| | 364,036 |
| | (456,138 | ) | | 46,431,410 |
| |
| Total average deposits | | 39,393,219 |
| | 1,319,776 |
| | — |
| | 341,618 |
| | 41,054,613 |
| |
| |
| (1) | Global Commercial Bank’s, SVB Capital’s and SVB Capital’sLeerink'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”.Items." |
| |
| (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. Net interest income consists primarily of interest earned from our fixed income investment portfolio, net of FTP. Noninterest income consists primarily of gains on equity warrant assets, and gains or losses on the sale of fixed income investments and gains on equity securities from exercised warrant |
assets. Noninterest expense consists primarily of expenses associated with corporate support functions such as finance, human resources, marketing, legal and other expenses.
| |
| (3) | The Global Commercial Bank segment includes direct depreciation and amortization of $5.64.8 million and $7.25.5 million for the three months ended June 30, 20182019 and 20172018, respectively, and $11.19.6 million and $13.411.0 million for the six months endedJune 30, 20182019 and 2017, respectively.2018. |
| |
| (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 average liabilities and total average stockholders’ equity for each segment to reconcile the results to the consolidated financial statements prepared in conformity with GAAP. |
| |
| (6) | Included in the total average assets for SVB Leerink is goodwill of $137.8 million for both the three and six months ended June 30, 2019 related to the acquisition effective January 4, 2019. |
| |
13.16. | 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, 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.
Commitments to Extend Credit
The following table summarizes information related to our commitments to extend credit at June 30, 20182019 and December 31, 20172018:
| | | (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| Loan commitments available for funding: (1) | | | | | | | | |
| Fixed interest rate commitments | | $ | 1,803,673 |
| | $ | 1,478,157 |
| | $ | 1,917,907 |
| | $ | 1,839,190 |
|
| Variable interest rate commitments | | 14,904,556 |
| | 14,034,169 |
| | 16,484,542 |
| | 14,821,815 |
|
| Total loan commitments available for funding | | 16,708,229 |
| | 15,512,326 |
| | 18,402,449 |
| | 16,661,005 |
|
| Commercial and standby letters of credit (2) | | 2,020,131 |
| | 1,950,211 |
| | 2,549,620 |
| | 2,252,016 |
|
| Total unfunded credit commitments | | $ | 18,728,360 |
| | $ | 17,462,537 |
| | $ | 20,952,069 |
| | $ | 18,913,021 |
|
| Commitments unavailable for funding (3) | | $ | 2,747,090 |
| | $ | 2,117,057 |
| | $ | 2,922,238 |
| | $ | 2,723,835 |
|
| Allowance for unfunded credit commitments (4) | | 54,104 |
| | 51,770 |
| | 62,664 |
| | 55,183 |
|
| |
| (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) | Our allowance for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit. |
Commercial and Standby Letters of Credit
The table below summarizes our commercial and standby letters of credit at June 30, 20182019. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Expires In One Year or Less | | Expires After One Year | | Total Amount Outstanding | | Maximum Amount of Future Payments |
| Financial standby letters of credit | | $ | 2,290,762 |
| | $ | 95,663 |
| | $ | 2,386,425 |
| | $ | 2,386,425 |
|
| Performance standby letters of credit | | 125,310 |
| | 22,804 |
| | 148,114 |
| | 148,114 |
|
| Commercial letters of credit | | 14,781 |
| | 300 |
| | 15,081 |
| | 15,081 |
|
| Total | | $ | 2,430,853 |
| | $ | 118,767 |
| | $ | 2,549,620 |
| | $ | 2,549,620 |
|
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Expires In One Year or Less | | Expires After One Year | | Total Amount Outstanding | | Maximum Amount of Future Payments |
| Financial standby letters of credit | | $ | 1,850,099 |
| | $ | 43,050 |
| | $ | 1,893,149 |
| | $ | 1,893,149 |
|
| Performance standby letters of credit | | 99,750 |
| | 13,345 |
| | 113,095 |
| | 113,095 |
|
| Commercial letters of credit | | 13,836 |
| | 51 |
| | 13,887 |
| | 13,887 |
|
| Total | | $ | 1,963,685 |
| | $ | 56,446 |
| | $ | 2,020,131 |
| | $ | 2,020,131 |
|
Deferred fees related to financial and performance standby letters of credit were $11.1$16.2 million at June 30, 20182019 and $12.4$14.1 million at December 31, 2017.2018. At June 30, 2018,2019, collateral in the form of cash of $961.0 million$1.4 billion was 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
Subject to applicable regulatory requirements, including the Volcker Rule, we make commitments to invest in venture capital and private equity funds, which generally makesmake investments in 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 call most of the capital commitments over 5 to 7 years, and in certain cases, the funds may not call 100% of committed capital. 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 June 30, 20182019:
| | | (Dollars in thousands) | | SVBFG Capital Commitments | | SVBFG Unfunded Commitments | | SVBFG Ownership of each Fund (3) | | SVBFG Capital Commitments | | SVBFG Unfunded Commitments | | SVBFG Ownership of each Fund (3) |
| CP I, LP | | $ | 6,000 |
| | $ | 270 |
| | 10.7 | % | | $ | 6,000 |
| | $ | 270 |
| | 10.7 | % |
| CP II, LP (1) | | 1,200 |
| | 162 |
| | 5.1 |
| | 1,200 |
| | 162 |
| | 5.1 |
|
| Shanghai Yangpu Venture Capital Fund (LP) | | 924 |
| | — |
| | 6.8 |
| |
| Capital Preferred Return Fund, LP | | | 12,688 |
| | — |
| | 20.0 |
|
| Growth Partners, LP | | | 24,670 |
| | 1,340 |
| | 33.0 |
|
| Strategic Investors Fund, LP | | 15,300 |
| | 688 |
| | 12.6 |
| | 15,300 |
| | 688 |
| | 12.6 |
|
| Strategic Investors Fund II, LP | | 15,000 |
| | 1,050 |
| | 8.6 |
| | 15,000 |
| | 1,050 |
| | 8.6 |
|
| Strategic Investors Fund III, LP | | 15,000 |
| | 1,275 |
| | 5.9 |
| | 15,000 |
| | 1,275 |
| | 5.9 |
|
| Strategic Investors Fund IV, LP | | 12,239 |
| | 2,325 |
| | 5.0 |
| | 12,239 |
| | 2,325 |
| | 5.0 |
|
| Strategic Investors Fund V funds | | 515 |
| | 131 |
| | Various |
| | 515 |
| | 131 |
| | Various |
|
| Capital Preferred Return Fund, LP | | 12,688 |
| | — |
| | 20.0 |
| |
| Growth Partners, LP | | 24,670 |
| | 1,340 |
| | 33.0 |
| |
| Other venture capital and private equity fund investments (equity method accounting) | | | 21,813 |
| | 5,914 |
| | Various |
|
| Debt funds (equity method accounting) | | 58,493 |
| | — |
| | Various |
| | 58,493 |
| | — |
| | Various |
|
| Other fund investments (2) | | 304,184 |
| | 9,685 |
| | Various |
| | 295,648 |
| | 7,709 |
| | Various |
|
| Total | | $ | 466,213 |
| | $ | 16,926 |
| | | | $ | 478,566 |
| | $ | 20,864 |
| | |
| |
| (1) | Our ownership includes direct ownership of 1.3 percent and indirect ownership interest of 3.8 percent through our investment in Strategic Investors Fund II, LP. |
| |
| (2) | Represents commitments to 232215 funds (primarily venture capital funds) where our ownership interest is generally less than five percent of the voting interests of each such fund. |
| |
| (3) | We are subject to the Volcker Rule, which restricts or limits us from sponsoring or having ownership interests in “covered” funds including venture capital and private equity funds. See “Business - Supervision and Regulation” under Part 1, Item 1 of our 20172018 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 June 30, 20182019:
|
| | | | |
| (Dollars in thousands) | | Unfunded Commitments |
| Strategic Investors Fund, LP | | $ | 1,338 |
|
| Capital Preferred Return Fund, LP | | 1,572 |
|
| Growth Partners, LP | | 2,527 |
|
| Total | | $ | 5,437 |
|
|
| | | | |
| (Dollars in thousands) | | Unfunded Commitments |
| Strategic Investors Fund, LP | | $ | 1,338 |
|
| Capital Preferred Return Fund, LP | | 2,700 |
|
| Growth Partners, LP | | 1,895 |
|
| Total | | $ | 5,933 |
|
We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions and have identified our federal tax and California tax returns as major tax filings. Our U.S. federal tax returns for 20142015 and subsequent tax years remain open to full examination. Our California tax returns for 20132015 and subsequent tax years remain open to full examination.
At June 30, 2018,2019, our unrecognized tax benefit was $13.6$13.3 million, the recognition of which would reduce our income tax expense by $10.5$10.4 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 or six months ended June 30, 2018.2019.
| |
15.18. | Fair Value of Financial Instruments |
Fair Value Measurements
Our available-for-sale securities, derivative instruments and certain non-marketable and other equity 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 on 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, foreign government debt 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 independent pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent brokers. We perform a monthly analysis on the values received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and ongoing review of third-party pricing methodologies, review of pricing trends and monitoring of trading volumes. 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. We ensure prices received from independent brokers represent a reasonable estimate of the fair value through the use of observable market inputs including comparable trades, yield curve, spreads and, when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. 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.
Other equity 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. Certain sales restriction discounts generally range from 10 percent to 20 percent depending on the duration of the sale restrictions which typically range from three to six 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.
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.
Interest rate derivative and interest rate swap assets and liabilities: Fair value measurements of interest rate derivatives 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.
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 not measured at net asset value: 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,measurement; however, we generally consider all factors available through ongoing communication with the portfolio companies and venture capital fund managers to determine whether there are changes to the portfolio company or the environment that indicate a change in the fair value measurement.
Equity warrant assets (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 percent for certain warrants that have lock-up 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 zero 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 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 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 June 30, 20182019:
| | | (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at June 30, 2018 | | Level 1 | | Level 2 | | Level 3 | | Balance at June 30, 2019 |
| Assets: | | | | | | | | | | | | | | | | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | | $ | 5,733,070 |
| | $ | — |
| | $ | — |
| | $ | 5,733,070 |
| | $ | 4,821,074 |
| | $ | — |
| | $ | — |
| | $ | 4,821,074 |
|
| U.S. agency debentures | | — |
| | 1,485,864 |
| | — |
| | 1,485,864 |
| |
| Foreign government debt securities | | | 9,211 |
| | — |
| | — |
| | 9,211 |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | | — |
| | 1,321,857 |
| | — |
| | 1,321,857 |
|
Agency-issued collateralized mortgage obligations—fixed rate | | — |
| | 2,038,134 |
| | — |
| | 2,038,134 |
| | — |
| | 1,788,180 |
| | — |
| | 1,788,180 |
|
Agency-issued collateralized mortgage obligations—variable rate | | — |
| | 336,298 |
| | — |
| | 336,298 |
| |
| Total available-for-sale securities | | 5,733,070 |
| | 3,860,296 |
| | — |
| | 9,593,366 |
| | 4,830,285 |
| | 3,110,037 |
| | — |
| | 7,940,322 |
|
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | | | | | | | | | |
| Non-marketable securities: | | | | | | | | | | | | | | | | |
| Venture capital and private equity fund investments measured at net asset value | | — |
| | — |
| | — |
| | 343,119 |
| | — |
| | — |
| | — |
| | 302,852 |
|
| Venture capital and private equity fund investments not measured at net asset value (1) | | — |
| | — |
| | 1,001 |
| | 1,001 |
| | — |
| | — |
| | 441 |
| | 441 |
|
| Other equity securities in public companies | | 835 |
| | 3,577 |
| | — |
| | 4,412 |
| | 5,068 |
| | 34,740 |
| | — |
| | 39,808 |
|
| Total non-marketable and other equity securities (fair value accounting) | | 835 |
| | 3,577 |
| | 1,001 |
| | 348,532 |
| | 5,068 |
| | 34,740 |
| | 441 |
| | 343,101 |
|
| Other assets: | | | | | | | | | | | | | | | | |
| Foreign exchange forward and option contracts | | — |
| | 99,358 |
| | — |
| | 99,358 |
| | — |
| | 94,462 |
| | — |
| | 94,462 |
|
| Equity warrant assets | | — |
| | 5,972 |
| | 137,753 |
| | 143,725 |
| | — |
| | 10,278 |
| | 147,770 |
| | 158,048 |
|
| Interest rate swaps | | | — |
| | 19,558 |
| | — |
| | 19,558 |
|
| Client interest rate derivatives | | — |
| | 6,422 |
| | — |
| | 6,422 |
| | — |
| | 19,440 |
| | — |
| | 19,440 |
|
| Total assets | | $ | 5,733,905 |
| | $ | 3,975,625 |
| | $ | 138,754 |
| | $ | 10,191,403 |
| | $ | 4,835,353 |
| | $ | 3,288,515 |
| | $ | 148,211 |
| | $ | 8,574,931 |
|
| Liabilities: | | | | | | | | | | | | | | | | |
| Foreign exchange forward and option contracts | | $ | — |
| | $ | 84,672 |
| | $ | — |
| | $ | 84,672 |
| | $ | — |
| | $ | 86,457 |
| | $ | — |
| | $ | 86,457 |
|
| Interest rate swaps | | | — |
| | 391 |
| | — |
| | 391 |
|
| Client interest rate derivatives | | — |
| | 12,532 |
| | — |
| | 12,532 |
| | — |
| | 25,803 |
| | — |
| | 25,803 |
|
| Total liabilities | | $ | — |
| | $ | 97,204 |
| | $ | — |
| | $ | 97,204 |
| | $ | — |
| | $ | 112,651 |
| | $ | — |
| | $ | 112,651 |
|
| |
| (1) | Included in Level 3 assets is $0.9 million394 thousand 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, 20172018:
| | | (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2017 | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2018 |
| Assets: | | | | | | | | | | | | | | | | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | | $ | 6,840,502 |
| | $ | — |
| | $ | — |
| | $ | 6,840,502 |
| | $ | 4,738,258 |
| | $ | — |
| | $ | — |
| | $ | 4,738,258 |
|
| U.S. agency debentures | | — |
| | 1,567,128 |
| | — |
| | 1,567,128 |
| | — |
| | 1,084,117 |
| | — |
| | 1,084,117 |
|
| Foreign government debt securities | | | 5,812 |
| | — |
| | — |
| | 5,812 |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
| Agency-issued collateralized mortgage obligations—fixed rate | | — |
| | 2,267,035 |
| | — |
| | 2,267,035 |
| | — |
| | 1,880,218 |
| | — |
| | 1,880,218 |
|
| Agency-issued collateralized mortgage obligations—variable rate | | — |
| | 373,730 |
| | — |
| | 373,730 |
| | — |
| | 81,638 |
| | — |
| | 81,638 |
|
| Equity securities | | 158 |
| | 72,111 |
| | — |
| | 72,269 |
| |
| Total available-for-sale securities | | 6,840,660 |
| | 4,280,004 |
| | — |
| | 11,120,664 |
| | 4,744,070 |
| | 3,045,973 |
| | — |
| | 7,790,043 |
|
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | | | | | | | | | |
| Non-marketable securities: | | | | | | | | | | | | | | | | |
| Venture capital and private equity fund investments measured at net asset value | | — |
| | — |
| | — |
| | 127,192 |
| | — |
| | — |
| | — |
| | 318,352 |
|
| Venture capital and private equity fund investments not measured at net asset value (1) | | — |
| | — |
| | 919 |
| | 919 |
| | — |
| | — |
| | 1,079 |
| | 1,079 |
|
Other equity securities in public companies (1) | | 310 |
| | — |
| | — |
| | 310 |
| | 1,181 |
| | 19,217 |
| | — |
| | 20,398 |
|
| Total non-marketable and other equity securities (fair value accounting) | | 310 |
| | — |
| | 919 |
| | 128,421 |
| | 1,181 |
| | 19,217 |
| | 1,079 |
| | 339,829 |
|
| Other assets: | | | | | | | | | | | | | | | | |
| Foreign exchange forward and option contracts | | — |
| | 96,636 |
| | — |
| | 96,636 |
| | — |
| | 100,402 |
| | — |
| | 100,402 |
|
| Equity warrant assets | | — |
| | 2,432 |
| | 121,331 |
| | 123,763 |
| | — |
| | 4,039 |
| | 145,199 |
| | 149,238 |
|
| Client interest rate derivatives | | — |
| | 11,753 |
| | — |
| | 11,753 |
| | — |
| | 8,499 |
| | — |
| | 8,499 |
|
| Total assets | | $ | 6,840,970 |
| | $ | 4,390,825 |
| | $ | 122,250 |
| | $ | 11,481,237 |
| | $ | 4,745,251 |
| | $ | 3,178,130 |
| | $ | 146,278 |
| | $ | 8,388,011 |
|
| Liabilities: | | | | | | | | | | | | | | | | |
| Foreign exchange forward and option contracts | | $ | — |
| | $ | 96,641 |
| | $ | — |
| | $ | 96,641 |
| | $ | — |
| | $ | 88,559 |
| | $ | — |
| | $ | 88,559 |
|
| Client interest rate derivatives | | — |
| | 11,940 |
| | — |
| | 11,940 |
| | — |
| | 9,491 |
| | — |
| | 9,491 |
|
| Total liabilities | | $ | — |
| | $ | 108,581 |
| | $ | — |
| | $ | 108,581 |
| | $ | — |
| | $ | 98,050 |
| | $ | — |
| | $ | 98,050 |
|
| |
| (1) | Included in Level 1 and Level 3 assets are is $0.2 million and $0.8 million, respectively,964 thousand 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 six months ended June 30, 20182019 and 20172018:
| | | (Dollars in thousands) | | Beginning Balance | | Total Realized and Unrealized Gains (Losses) Included in Income | | Sales | | Issuances | | Distributions and Other Settlements | | Transfers Out of Level 3 | | Ending Balance | | Beginning Balance | | Total Realized and Unrealized Gains (Losses) Included in Income | | Purchases | | Sales/Exits | | Issuances | | Distributions and Other Settlements | | Transfers Out of Level 3 | | Ending Balance |
| Three months ended June 30, 2018 | | | | | | | | | | | | | | | |
| Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | |
| Three months ended June 30, 2019 | | | | | | | | | | | | | | | | | |
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | | | | | | | | | | |
| Venture capital and private equity fund investments not measured at net asset value (1) | | $ | 1,001 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,001 |
| | $ | 1,035 |
| | $ | 2 |
| | $ | — |
| | $ | (596 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 441 |
|
| Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity warrant assets (2) | | 131,506 |
| | 18,249 |
| | (15,235 | ) | | 4,299 |
| | — |
| | (1,066 | ) | | 137,753 |
| | 156,749 |
| | 46,645 |
| | — |
| | (55,568 | ) | | 3,041 |
| | — |
| | (3,097 | ) | | 147,770 |
|
| Total assets | | $ | 132,507 |
| | $ | 18,249 |
| | $ | (15,235 | ) | | $ | 4,299 |
| | $ | — |
| | $ | (1,066 | ) | | $ | 138,754 |
| | $ | 157,784 |
| | $ | 46,647 |
| | $ | — |
| | $ | (56,164 | ) | | $ | 3,041 |
| | $ | — |
| | $ | (3,097 | ) | | $ | 148,211 |
|
| Three months ended June 30, 2017 | | | | | | | | | | | | | | | |
| Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | |
| Three months ended June 30, 2018 | | | | | | | | | | | | | | | | | |
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | | | | | | | | | | |
| Venture capital and private equity fund investments not measured at net asset value (1) | | | $ | 1,001 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,001 |
|
| Other assets: | | | | | | | | | | | | | | | | | |
| Equity warrant assets (2) | | | 131,506 |
| | 18,249 |
| | — |
| | (15,235 | ) | | 4,299 |
| | — |
| | (1,066 | ) | | 137,753 |
|
| Total assets | | | $ | 132,507 |
| | $ | 18,249 |
| | $ | — |
| | $ | (15,235 | ) | | $ | 4,299 |
| | $ | — |
| | $ | (1,066 | ) | | $ | 138,754 |
|
| Six months ended June 30, 2019 | | | | | | | | | | | | | | | | | |
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | | | | | | | | | | |
| Venture capital and private equity fund investments not measured at net asset value (1) | | $ | 2,040 |
| | $ | (143 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,897 |
| | $ | 1,079 |
| | $ | (45 | ) | | $ | — |
| | $ | (596 | ) | | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 441 |
|
| Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity warrant assets (2) | | 122,199 |
| | 10,586 |
| | (6,500 | ) | | 3,419 |
| | — |
| | (752 | ) | | 128,952 |
| | 145,199 |
| | 65,811 |
| | 575 |
| | (67,873 | ) | | 7,584 |
| | — |
| | (3,526 | ) | | 147,770 |
|
| Total assets | | $ | 124,239 |
| | $ | 10,443 |
| | $ | (6,500 | ) | | $ | 3,419 |
| | $ | — |
| | $ | (752 | ) | | $ | 130,849 |
| | $ | 146,278 |
| | $ | 65,766 |
| | $ | 575 |
| | $ | (68,469 | ) | | $ | 7,584 |
| | $ | 3 |
| | $ | (3,526 | ) | | $ | 148,211 |
|
| Six months ended June 30, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | |
| Other venture capital investments (1) | | $ | 919 |
| | $ | 82 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,001 |
| |
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | | | | | | | | | | |
| Venture capital and private equity fund investments not measured at net asset value (1) | | | $ | 919 |
| | $ | 82 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,001 |
|
| Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity warrant assets (2) | | 121,331 |
| | 36,860 |
| | (27,363 | ) | | 9,198 |
| | — |
| | (2,273 | ) | | 137,753 |
| | 121,331 |
| | 36,860 |
| | — |
| | (27,363 | ) | | 9,198 |
| | — |
| | (2,273 | ) | | 137,753 |
|
| Total assets | | $ | 122,250 |
| | $ | 36,942 |
| | $ | (27,363 | ) | | $ | 9,198 |
| | $ | — |
| | $ | (2,273 | ) | | $ | 138,754 |
| | $ | 122,250 |
| | $ | 36,942 |
| | $ | — |
| | $ | (27,363 | ) | | $ | 9,198 |
| | $ | — |
| | $ | (2,273 | ) | | $ | 138,754 |
|
| Six months ended June 30, 2017 | | | | | | | | | | | | | | | |
| Non-marketable and other securities (fair value accounting): | | | | | | | | | | | | | | | |
| Other venture capital investments (1) | | $ | 2,040 |
| | $ | (143 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,897 |
| |
| Other assets: | | | | | | | | | | | | | | | |
| Equity warrant assets (2) | | 128,813 |
| | 17,195 |
| | (23,586 | ) | | 7,449 |
| | — |
| | (919 | ) | | 128,952 |
| |
| Total assets | | $ | 130,853 |
| | $ | 17,052 |
| | $ | (23,586 | ) | | $ | 7,449 |
| | $ | — |
| | $ | (919 | ) | | $ | 130,849 |
| |
| |
| (1) | Realized and unrealized gains (losses) are recorded in the line item “Gains on investment securities, net”,net," a component of noninterest income. |
| |
| (2) | Realized and unrealized gains (losses) are recorded in the line item “Gains on equity warrant assets, net”,net," a component of noninterest income. |
The following table presents the amount of net unrealized gains and losses included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at June 30, 20182019 and 20172018:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2019 | | 2018 |
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | |
| Venture capital and private equity fund investments not measured at net asset value (1) | | $ | 2 |
| | $ | — |
| | $ | (45 | ) | | $ | 82 |
|
| Other assets: | | | | | | | | |
| Equity warrant assets (2) | | 4,416 |
| | 10,236 |
| | 19,188 |
| | 18,147 |
|
| Total unrealized gains, net | | $ | 4,418 |
| | $ | 10,236 |
| | $ | 19,143 |
| | $ | 18,229 |
|
| Unrealized (losses) gains attributable to noncontrolling interests (1) | | $ | (1 | ) | | $ | — |
| | $ | (40 | ) | | $ | 73 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
| Non-marketable and other securities (fair value accounting): | | | | | | | | |
| Venture capital and private equity fund investments not measured at net asset value (1) | | $ | — |
| | $ | (143 | ) | | $ | 82 |
| | $ | (143 | ) |
| Other assets: | | | | | | | | |
| Equity warrant assets (2) | | 10,236 |
| | 7,984 |
| | 18,147 |
| | 7,440 |
|
| Total unrealized gains, net | | $ | 10,236 |
| | $ | 7,841 |
| | $ | 18,229 |
| | $ | 7,297 |
|
| Unrealized (losses) gains attributable to noncontrolling interests (1) | | $ | — |
| | $ | (127 | ) | | $ | 73 |
| | $ | (127 | ) |
| |
| (1) | Unrealized gains (losses) are recorded in the line item “Gains on investment securities, net”," a component of noninterest income. |
| |
| (2) | Unrealized gains (losses) are recorded in the line item “Gains on equity warrant assets, net”," a component of noninterest income. |
The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of current sales restrictions to which these securities are subject, the actual sales of securities and the timing of such actual sales.
The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at June 30, 20182019 and December 31, 2017.2018. 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 |
| June 30, 2018: | | | | | |
| June 30, 2019: | | | | | |
| Venture capital and private equity fund investments (fair value accounting) | | $ | 1,001 |
| | Private company equity pricing | | (1) | | (1 | ) | | $ | 441 |
| | Private company equity pricing | | (1) | | (1 | ) |
| Equity warrant assets (public portfolio) | | 2,065 |
| | Black-Scholes option pricing model | | Volatility | | 48.6 | % | | 3,775 |
| | Black-Scholes option pricing model | | Volatility | | 42.3 | % |
| | | | Risk-Free interest rate | | 2.8 |
| | | | Risk-Free interest rate | | 1.9 |
|
| | | | Sales restrictions discount (2) | | 18.6 |
| | | | Sales restrictions discount (2) | | 16.2 |
|
| Equity warrant assets (private portfolio) | | 135,688 |
| | Black-Scholes option pricing model | | Volatility | | 37.8 |
| | 143,995 |
| | Black-Scholes option pricing model | | Volatility | | 38.9 |
|
| | | | Risk-Free interest rate | | 2.5 |
| | | | Risk-Free interest rate | | 1.7 |
|
| | | | Marketability discount (3) | | 16.6 |
| | | | Marketability discount (3) | | 18.6 |
|
| | | | Remaining life assumption (4) | | 45.0 |
| | | | Remaining life assumption (4) | | 45.0 |
|
| December 31, 2017: | | | | | |
| December 31, 2018: | | | | | |
Venture capital and private equity fund investments (fair value accounting)
| | $ | 919 |
| | Private company equity pricing | | (1) | | (1 | ) | | $ | 1,079 |
| | Private company equity pricing | | (1) | | (1 | ) |
| Equity warrant assets (public portfolio) | | 1,936 |
| | Black-Scholes option pricing model | | Volatility | | 47.9 | % | | 2,757 |
| | Black-Scholes option pricing model | | Volatility | | 54.7 | % |
| | | | Risk-Free interest rate | | 2.1 |
| | | | Risk-Free interest rate | | 2.6 |
|
| | | | Sales restrictions discount (2) | | 15.5 |
| | | | Sales restrictions discount (2) | | 18.5 |
|
| Equity warrant assets (private portfolio) | | 119,395 |
| | Black-Scholes option pricing model | | Volatility | | 36.7 |
| | 142,442 |
| | Black-Scholes option pricing model | | Volatility | | 38.5 |
|
| | | | Risk-Free interest rate | | 1.8 |
| | | | Risk-Free interest rate | | 2.5 |
|
| | | | Marketability discount (3) | | 16.4 |
| | | | Marketability discount (3) | | 17.7 |
|
| | | | Remaining life assumption (4) | | 45.0 |
| | | | Remaining life assumption (4) | | 45.0 |
|
| |
| (1) | In determining the fair value of our venture capital and private equity fund investment portfolio (not measured at net asset value), 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. We use company provided valuation reports, if available, to support our valuation |
assumptions. 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 three to six months. 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 upon various 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 cancellationsterminations and exercises. At June 30, 20182019, the weighted average contractual remaining term was 6.1 years, compared to our estimated remaining life of 2.72.8 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption. |
For the three and six months ended June 30, 20182019 and 2017,2018, we did not have any transfers between Level 2 and Level 1 or transfers between Level 3 and Level 1. All transfers from Level 3 to Level 2 for the three and six months ended June 30, 20182019 and 20172018 were due to the transfer of equity warrant assets from our private portfolio to our public portfolio (see our Level 3 reconciliation above). All amounts reported as transfers represent the fair value as of the date of the change in circumstances that caused the transfer.
Financial Instruments not Carried at Fair Value
FASB guidance over financial instruments requires that we disclose estimated fair values for our financial instruments not carried at fair value. The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at June 30, 20182019 and December 31, 20172018:
| | | | | | | Estimated Fair Value | | | | Estimated Fair Value |
| (Dollars in thousands) | | Carrying Amount | | Total | | Level 1 | | Level 2 | | Level 3 | | Carrying Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| June 30, 2018: | | | | | | | | | | | |
| June 30, 2019: | | | | | | | | | | | |
| Financial assets: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 2,712,101 |
| | $ | 2,712,101 |
| | $ | 2,712,101 |
| | $ | — |
| | $ | — |
| | $ | 9,020,925 |
| | $ | 9,020,925 |
| | $ | 9,020,925 |
| | $ | — |
| | $ | — |
|
| Held-to-maturity securities | | 15,898,263 |
| | 15,493,995 |
| | — |
| | 15,493,995 |
| | — |
| | 14,868,761 |
| | 15,064,962 |
| | — |
| | 15,064,962 |
| | — |
|
| Non-marketable securities not measured at net asset value | | 116,484 |
| | 116,484 |
| | — |
| | — |
| | 116,484 |
| | 151,431 |
| | 151,431 |
| | — |
| | — |
| | 151,431 |
|
| Non-marketable securities measured at net asset value | | 136,010 |
| | 136,010 |
| | — |
| | — |
| | — |
| | 191,172 |
| | 191,172 |
| | — |
| | — |
| | — |
|
| Net commercial loans | | 22,849,701 |
| | 23,139,492 |
| | — |
| | — |
| | 23,139,492 |
| | 25,654,063 |
| | 26,263,514 |
| | — |
| | — |
| | 26,263,514 |
|
| Net consumer loans | | 2,859,782 |
| | 2,872,681 |
| | — |
| | — |
| | 2,872,681 |
| | 3,253,622 |
| | 3,330,518 |
| | — |
| | — |
| | 3,330,518 |
|
| FHLB and Federal Reserve Bank stock | | 58,864 |
| | 58,864 |
| | — |
| | — |
| | 58,864 |
| | 59,508 |
| | 59,508 |
| | — |
| | — |
| | 59,508 |
|
| Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | 417,246 |
| | 417,246 |
| | 417,246 |
| | — |
| | — |
| | 24,252 |
| | 24,252 |
| | — |
| | 24,252 |
| | — |
|
| Non-maturity deposits (1) | | 48,825,291 |
| | 48,825,291 |
| | 48,825,291 |
| | — |
| | — |
| | 55,452,274 |
| | 55,452,274 |
| | 55,452,274 |
| | — |
| | — |
|
| Time deposits | | 62,004 |
| | 61,732 |
| | — |
| | 61,732 |
| | — |
| | 158,266 |
| | 157,958 |
| | — |
| | 157,958 |
| | — |
|
| 3.50% Senior Notes | | 347,470 |
| | 339,283 |
| | — |
| | 339,283 |
| | — |
| | 347,812 |
| | 357,368 |
| | — |
| | 357,368 |
| | — |
|
| 5.375% Senior Notes | | 348,502 |
| | 364,980 |
| | — |
| | 364,980 |
| | — |
| | 349,158 |
| | 362,114 |
| | — |
| | 362,114 |
| | — |
|
| Off-balance sheet financial assets: | | | | | | | | | | | | | | | | | | | | |
| Commitments to extend credit | | — |
| | 23,553 |
| | — |
| | — |
| | 23,553 |
| | — |
| | 24,349 |
| | — |
| | — |
| | 24,349 |
|
| December 31, 2017: | | | | | | | | | | | |
| December 31, 2018: | | | | | | | | | | | |
| Financial assets: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 2,923,075 |
| | $ | 2,923,075 |
| | $ | 2,923,075 |
| | $ | — |
| | $ | — |
| | $ | 3,571,539 |
| | $ | 3,571,539 |
| | $ | 3,571,539 |
| | $ | — |
| | $ | — |
|
| Held-to-maturity securities | | 12,663,455 |
| | 12,548,280 |
| | — |
| | 12,548,280 |
| | — |
| | 15,487,442 |
| | 15,188,236 |
| | — |
| | 15,188,236 |
| | — |
|
| Non-marketable securities (cost and equity method accounting) not measured at net asset value | | 120,019 |
| | 126,345 |
| | — |
| | — |
| | 126,345 |
| |
| Non-marketable securities (cost and equity method accounting) measured at net asset value | | 228,399 |
| | 331,496 |
| | — |
| | — |
| | — |
| |
| Non-marketable securities not measured at net asset value | | | 131,453 |
| | 131,453 |
| | — |
| | — |
| | 131,453 |
|
| Non-marketable securities measured at net asset value | | | 151,247 |
| | 151,247 |
| | — |
| | — |
| | — |
|
| Net commercial loans | | 20,238,247 |
| | 20,520,623 |
| | — |
| | — |
| | 20,520,623 |
| | 25,043,671 |
| | 25,463,968 |
| | — |
| | — |
| | 25,463,968 |
|
| Net consumer loans | | 2,613,045 |
| | 2,593,538 |
| | — |
| | — |
| | 2,593,538 |
| | 3,013,706 |
| | 3,064,093 |
| | — |
| | — |
| | 3,064,093 |
|
| FHLB and Federal Reserve Bank stock | | 60,020 |
| | 60,020 |
| | — |
| | — |
| | 60,020 |
| | 58,878 |
| | 58,878 |
| | — |
| | — |
| | 58,878 |
|
| Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | 1,033,730 |
| | 1,033,730 |
| | 1,033,730 |
| | — |
| | — |
| | 631,412 |
| | 631,412 |
| | — |
| | 631,412 |
| | — |
|
| Non-maturity deposits (1) | | 44,206,929 |
| | 44,206,929 |
| | 44,206,929 |
| | — |
| | — |
| | 49,278,174 |
| | 49,278,174 |
| | 49,278,174 |
| | — |
| | — |
|
| Time deposits | | 47,146 |
| | 46,885 |
| | — |
| | 46,885 |
| | — |
| | 50,726 |
| | 50,337 |
| | — |
| | 50,337 |
| | — |
|
| 3.50% Senior Notes | | 347,303 |
| | 352,058 |
| | — |
| | 352,058 |
| | — |
| | 347,639 |
| | 336,088 |
| | — |
| | 336,088 |
| | — |
|
| 5.375% Senior Notes | | 348,189 |
| | 374,483 |
| | — |
| | 374,483 |
| | — |
| | 348,826 |
| | 361,281 |
| | — |
| | 361,281 |
| | — |
|
| Off-balance sheet financial assets: | | | | | | | | | | | | | | | | | | | | |
| Commitments to extend credit | | — |
| | 22,208 |
| | — |
| | — |
| | 22,208 |
| | — |
| | 22,930 |
| | — |
| | — |
| | 22,930 |
|
| |
| (1) | Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits. |
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 IPO 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 March 31st, for our June 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
The following table is a summary of the estimated fair values of these investments and remaining unfunded commitments for each major category of these investments as of June 30, 20182019:
| | | (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) | | $ | 343,119 |
| | $ | 343,119 |
| | $ | 13,639 |
| | $ | 302,852 |
| | $ | 302,852 |
| | $ | 12,259 |
|
| Non-marketable securities (equity method accounting): | | | | | | | | | | | | |
| Venture capital and private equity fund investments (2) | | 102,838 |
| | 102,838 |
| | 4,943 |
| | 169,219 |
| | 169,219 |
| | 10,857 |
|
| Debt funds (2) | | 14,215 |
| | 14,215 |
| | — |
| | 7,168 |
| | 7,168 |
| | — |
|
| Other investments (2) | | 18,957 |
| | 18,957 |
| | 886 |
| | 14,785 |
| | 14,785 |
| | 886 |
|
| Total | | $ | 479,129 |
| | $ | 479,129 |
| | $ | 19,468 |
| | $ | 494,024 |
| | $ | 494,024 |
| | $ | 24,002 |
|
| |
| (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 (consolidated VIEs) and investments in venture capital and private equity fund investments (unconsolidated VIEs). Collectively, these investments in venture capital and private equity funds are primarily in U.S. and global technology and life science/healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $97.881.1 million and $4.54.1 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) | Venture capital and private equity fund investments, debt funds, and other fund investments within non-marketable securities (equity method accounting) include funds that invest in or lend money to primarily U.S. and global technology and life science/healthcare companies. It is estimated that we will receive distributions from the funds over the next 5 to 8 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 and/or our affiliates, and we may from time to time be involved in other legal or regulatory proceedings. In accordance with applicable accounting guidance, we establish accruals for all such matters, including 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 matters 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 aim to disclose information relating to such potential loss. We also aim to disclose information relating to any material potential loss that is probable but not reasonably estimable. In such cases, where reasonably practicable, we aim to 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 any such matters, nor do we currently expect 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.
We have no material related party transactions requiring disclosure. In the ordinary course of business, the Bank may extend credit to related parties, including executive officers, directors, principal shareholders and their related interests. Additionally, we provide real estate secured loans to eligible employees through our EHOP. For additional details, see Note 17—“Employee Compensation and Benefit Plans" under Part II, Item 8 of our 20172018 Form 10-K.
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 safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In 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:
Financial projections, including with respect to 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 funding and investment levels;
Forecasts of future interest rates, economic performance, and income from investments;
Forecasts of expected levels of provisions for loan losses, nonperforming loans, loan growth and client funds; and
Descriptions of assumptions underlying or relating to any of the foregoing.
You can identify these and other forward-looking statements by the use of words such as “becoming,” “may,” “will,” “should,” "could,""would," “predict,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “assume,” “seek,” “expect,” “plan,” “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. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among 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, and the impact of international market and economic events on us;
The impact of governmental policy, legal requirements and regulations, including the Economic Growth, Regulatory Relief and Consumer Protection Act and the Dodd-Frank Act, promulgated by the Federal Reserve and other regulatory requirements;
The impact of lawsuits and claims, as well as legal or regulatory proceedings;
The impact of changes in accounting standards and tax laws, including the impact of the Tax Cuts and Jobs Act;laws;
The levels of equity capital available to our client or portfolio companies;
The effectiveness of our risk management framework and quantitative models;
Our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives;initiatives, including through the integration of SVB Leerink; and
| |
| • | Other factors as discussed in “Risk Factors” under Part I, Item 1A in our 2018 Form 10-K. |
Other factors as discussed in “Risk Factors” under Part I, Item 1A in our 2017 Form 10-K.
We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this 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 required by law.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and accompanying notes as presented in Part I, Item 1 of this report and in conjunction with our 20172018 Form 10-K.
Reclassifications
Certain prior period amounts, primarily related to the adoption of new accounting guidance,presentation changes to our financial statement line items and immaterial changes to our reportable segments, have been reclassified to conform to current period presentations.
Management’s Overview of Second Quarter 20182019 Performance
Overall, we had an excellentcontinued to deliver strong results in the second quarter in 2018, which wasof 2019, marked by strongcontinued healthy balance sheet growth, in net interest income, outstanding total client funds growth, higherstable credit quality, robust core fee income continued stable credit quality and strong gains on equity warrants and investment securities. Additionally, we saw higher noninterest expense, primarily related to the write-off of previously capitalized costs in connection with the Economic Growth, Regulatory Relief and Consumer Protection Act, as well as expenses incurred associated with increased investment in client experience and employee enablement and incentive compensation tied to our outperformance.warrants. Our core business continued to perform well as a result of our ongoing focus on innovation companies and their investors and continued efforts to secure client relationships. We saw continued success in working with private equity/venture capital firms, our technology and life science/healthcare clients and clients in our private bank division.
A summary of our performance for the three months ended June 30, 20182019 (compared to the three months ended June 30, 2017,2018, where applicable) is as follows:
|
| | |
| BALANCE SHEET | | EARNINGS |
Assets.$54.460.7 billion in average total assets (up 14.5%11.5%).$55.9 $63.8 billion in period-end total assets (up 15.4%14.2%). Loans. $24.9$29.4 billion in average total loan balances, net of unearned income (up 21.2%18.3%). $26.0$29.2 billion in period-end total loan balances, net of unearned income (up 23.9%12.4%). Total Client Funds. (on-balance sheet deposits and off-balance sheet client investment funds). $119.3$142.6 billion in average total client fund balances (up 30.7%19.6%). $124.7$147.1 billion in period-end total client fund balances (up 32.1%18.0%). AFS/HTM Fixed Income Investments.$25.223.1 billion in average fixed income investment securities (up 16.9%(down 8.1%). $25.5$22.8 billion in period-end fixed income investment securities (up 15.8%(down 10.5%).
| | EPS. Earnings per diluted share of $4.42$6.08 (up 90.5%37.6%). Net Income. Consolidated net income available to common stockholders of $237.8$318.0 million (up 93.0%33.7%). - Net interest income of $466.4$529.4 million (up 36.1%13.5%). - Net interest margin of 3.59%3.68% (up 599 bps). - Noninterest income of $192.7$333.8 million (up 49.9%73.2%), with non-GAAP core fee income+ of $123.1$157.3 million (up 41.1%27.8%). - Noninterest expense of $305.7$383.5 million (up 21.7%25.4%).
ROE.Return on average equity (annualized) (“ROE”) performance of 20.82%23.29%. Operating Efficiency Ratio.Operating efficiency ratio of 46.39%44.43% with a non-GAAP core operating efficiency ratio of 45.49%++.
|
| | | |
| CAPITAL | | CREDIT QUALITY |
Capital.Continued strong capital, levels, with all capital ratios considered “well-capitalized” under banking regulations. SVBFG and SVB capital ratios, respectively, were: - CET 1 risk-based capital ratio of 12.92% and 11.76%12.50%. - Tier 1 risk-based capital ratio of 13.10%13.08% and 11.76%12.50%. - Total risk-based capital ratio of 14.03%13.97% and 12.72%13.44%. - Tier 1 leverage ratio of 8.81%8.82% and 7.72%8.17%.
| | Credit Quality.Continued disciplined underwriting. - Allowance for loan losses of 1.10%1.03% as a percentage of period-end total gross loans. - Provision for loan losses of 0.42%0.26% as a percentage of period-end total gross loans (annualized). - Net loan charge-offs of 0.22%0.23% as a percentage of average total gross loans (annualized).
|
+ Consists of fee income for deposit services, letters of credit and standby letters of credit, credit cards, client investments, foreign exchange and lending-related activities. This is a non-GAAP financial metric.measure. (See the non-GAAP reconciliation under “Results of Operations—Noninterest Income”)
++ This ratio excludes certain financial line items where performance is typically subject to market or other conditions beyond our control and excludes SVB Leerink revenue and expenses. It is calculated by dividing noninterest expense after adjusting for noninterest expense attributable to SVB Leerink by total revenue after adjusting for noninterest income attributable to SVB Leerink, net gains or losses on investment securities and equity warrant assets, investment banking revenue and commissions. Additionally, noninterest expense and total revenue are adjusted for income or losses and expenses attributable to noncontrolling interests and adjustments to net interest income for a taxable equivalent basis. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under "Results of Operations-Noninterest Expense").
A summary of our performance for the three and six months ended June 30, 20182019 and 20172018 is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands, except per share data, employees and ratios) | | 2018 |
| 2017 | | % Change | | 2018 | | 2017 | | % Change |
| | | | | | | | | | | | | | | |
| Diluted earnings per common share | | $ | 4.42 |
| | $ | 2.32 |
| | 90.5 |
| % | | $ | 8.05 |
| | $ | 4.22 |
| | 90.8 |
| % |
| Net income available to common stockholders | | 237,798 |
| | 123,193 |
| | 93.0 |
| | | 432,759 |
| | 224,676 |
| | 92.6 |
| |
| Net interest income | | 466,443 |
| | 342,696 |
| | 36.1 |
| | | 886,306 |
| | 652,689 |
| | 35.8 |
| |
| Net interest margin | | 3.59 | % | | 3.00 | % | | 59 |
| bps | | 3.49 | % | | 2.94 | % | | 55 |
| bps |
| Provision for credit losses | | $ | 29,080 |
| | $ | 15,806 |
| | 84.0 |
| % | | $ | 57,052 |
| | $ | 46,540 |
| | 22.6 |
| % |
| Noninterest income | | 192,689 |
| | 128,528 |
| | 49.9 |
| | | 348,207 |
| | 246,187 |
| | 41.4 |
| |
| Noninterest expense | | 305,739 |
| | 251,246 |
| | 21.7 |
| | | 571,156 |
| | 488,879 |
| | 16.8 |
| |
| Non-GAAP core fee income (1) | | 123,124 |
| | 87,267 |
| | 41.1 |
| | | 238,134 |
| | 169,845 |
| | 40.2 |
| |
| Non-GAAP noninterest income, net of noncontrolling interests (1) | | 183,244 |
| | 118,992 |
| | 54.0 |
| | | 325,738 |
| | 230,092 |
| | 41.6 |
| |
| Non-GAAP noninterest expense, net of noncontrolling interests(2) | | 305,512 |
| | 251,023 |
| | 21.7 |
| | | 570,961 |
| | 488,487 |
| | 16.9 |
| |
| Balance Sheet: | |
| | | | | | |
| | | | | |
| Average available-for-sale securities | | $ | 10,048,423 |
| | $ | 12,393,079 |
| | (18.9 | ) | % | | $ | 10,396,533 |
| | $ | 12,471,237 |
| | (16.6 | ) | % |
| Average held-to-maturity securities | | 15,112,154 |
| | 9,128,407 |
| | 65.6 |
| | | 14,178,427 |
| | 8,865,752 |
| | 59.9 |
| |
| Average loans, net of unearned income | | 24,858,503 |
| | 20,508,541 |
| | 21.2 |
|
| | 24,335,762 |
| | 20,290,141 |
| | 19.9 |
| |
| Average noninterest-bearing demand deposits | | 39,814,450 |
| | 34,629,070 |
| | 15.0 |
| | | 38,887,766 |
| | 33,674,549 |
| | 15.5 |
| |
| Average interest-bearing deposits | | 8,157,501 |
| | 7,509,576 |
| | 8.6 |
| | | 8,156,404 |
| | 7,380,064 |
| | 10.5 |
| |
| Average total deposits | | 47,971,951 |
| | 42,138,646 |
| | 13.8 |
| | | 47,044,170 |
| | 41,054,613 |
| | 14.6 |
| |
| Earnings Ratios: | |
| | | | | | |
| | | | | |
| Return on average assets (annualized) (3) | | 1.75 | % | | 1.04 | % | | 68.3 |
| % | | 1.63 | % | | 0.98 | % | | 66.3 |
| % |
| Return on average SVBFG stockholders’ equity (annualized) (4) | | 20.82 |
| | 12.75 |
| | 63.3 |
| | | 19.51 |
| | 11.91 |
| | 63.8 |
| |
| Asset Quality Ratios: | |
| | | | | | |
| | | | | |
| Allowance for loan losses as a % of total period-end gross loans | | 1.10 | % | | 1.12 | % | | (2 | ) | bps | | 1.10 | % | | 1.12 | % | | (2 | ) | bps |
| Allowance for loan losses for performing loans as a % of total gross performing loans | | 0.90 |
| | 0.93 |
| | (3 | ) | | | 0.90 |
| | 0.93 |
| | (3 | ) | |
| Gross loan charge-offs as a % of average total gross loans (annualized) | | 0.25 |
| | 0.49 |
| | (24 | ) | | | 0.21 |
| | 0.39 |
| | (18 | ) | |
| Net loan charge-offs as a % of average total gross loans (annualized) | | 0.22 |
| | 0.44 |
| | (22 | ) | | | 0.18 |
| | 0.34 |
| | (16 | ) | |
| Capital Ratios: | |
| | | | | | |
| | | | | |
| CET 1 risk-based capital ratio | | 12.92 | % | | 13.05 | % | | (13 | ) | bps | | 12.92 | % | | 13.05 | % | | (13 | ) | bps |
| Tier 1 risk-based capital ratio | | 13.10 |
| | 13.43 |
| | (33 | ) | | | 13.10 |
| | 13.43 |
| | (33 | ) | |
| Total risk-based capital ratio | | 14.03 |
| | 14.39 |
| | (36 | ) | | | 14.03 |
| | 14.39 |
| | (36 | ) | |
| Tier 1 leverage ratio | | 8.81 |
| | 8.40 |
| | 41 |
| | | 8.81 |
| | 8.40 |
| | 41 |
| |
| Tangible common equity to tangible assets (5) | | 8.34 |
| | 8.06 |
| | 28 |
| | | 8.34 |
| | 8.06 |
| | 28 |
| |
| Tangible common equity to risk-weighted assets (5) | | 12.68 |
| | 13.11 |
| | (43 | ) | | | 12.68 |
| | 13.11 |
| | (43 | ) | |
| Bank CET 1 risk-based capital ratio | | 11.76 |
| | 12.59 |
| | (83 | ) | | | 11.76 |
| | 12.59 |
| | (83 | ) | |
| Bank tier 1 risk-based capital ratio | | 11.76 |
| | 12.59 |
| | (83 | ) | | | 11.76 |
| | 12.59 |
| | (83 | ) | |
| Bank total risk-based capital ratio | | 12.72 |
| | 13.59 |
| | (87 | ) | | | 12.72 |
| | 13.59 |
| | (87 | ) | |
| Bank tier 1 leverage ratio | | 7.72 |
| | 7.66 |
| | 6 |
| | | 7.72 |
| | 7.66 |
| | 6 |
| |
| Bank tangible common equity to tangible assets (5) | | 7.39 |
| | 7.58 |
| | (19 | ) | | | 7.39 |
| | 7.58 |
| | (19 | ) | |
| Bank tangible common equity to risk-weighted assets (5) | | 11.52 |
| | 12.65 |
| | (113 | ) | | | 11.52 |
| | 12.65 |
| | (113 | ) | |
| Other Ratios: | |
| | | | | | |
| | | | | |
| GAAP operating efficiency ratio (6) | | 46.39 | % | | 53.32 | % | | (13.0 | ) | % | | 46.27 | % | | 54.39 | % | | (14.9 | ) | % |
| Non-GAAP operating efficiency ratio (2) | | 46.88 |
| | 54.32 |
| | (13.7 | ) | | | 46.98 |
| | 55.28 |
| | (15.0 | ) | |
| Book value per common share (7) | | $ | 87.53 |
| | $ | 74.02 |
| | 18.3 |
| | | $ | 87.53 |
| | $ | 74.02 |
| | 18.3 |
| |
| Other Statistics: | |
| | | | | | |
| | | | | |
| Average full-time equivalent employees | | 2,591 |
| | 2,372 |
| | 9.2 |
| % | | 2,545 |
| | 2,358 |
| | 7.9 |
| % |
| Period-end full-time equivalent employees | | 2,626 |
| | 2,380 |
| | 10.3 |
| | | 2,626 |
| | 2,380 |
| | 10.3 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands, except per share data, employees and ratios) | | 2019 |
| 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Income Statement: | | | | | | | | | | | | | | |
| Diluted earnings per share | | $ | 6.08 |
| | $ | 4.42 |
| | 37.6 |
| % | | $ | 11.51 |
| | $ | 8.05 |
| | 43.0 |
| % |
| Net income available to common stockholders | | 317,987 |
| | 237,798 |
| | 33.7 |
| | | 606,719 |
| | 432,759 |
| | 40.2 |
| |
| Net interest income | | 529,403 |
| | 466,443 |
| | 13.5 |
| | | 1,042,289 |
| | 886,306 |
| | 17.6 |
| |
| Net interest margin | | 3.68 | % | | 3.59 | % | | 9 |
| bps | | 3.74 | % | | 3.49 | % | | 25 |
| bps |
| Provision for credit losses | | $ | 23,946 |
| | $ | 29,080 |
| | (17.7 | ) | % | | $ | 52,497 |
| | $ | 57,052 |
| | (8.0 | ) | % |
| Noninterest income | | 333,750 |
| | 192,689 |
| | 73.2 |
| | | 614,126 |
| | 348,207 |
| | 76.4 |
| |
| Noninterest expense | | 383,522 |
| | 305,739 |
| | 25.4 |
| | | 749,186 |
| | 571,156 |
| | 31.2 |
| |
| Non-GAAP core fee income (1) | | 157,337 |
| | 123,124 |
| | 27.8 |
| | | 311,580 |
| | 238,134 |
| | 30.8 |
| |
| Non-GAAP core fee income, including investment banking revenue and commissions (1) | | 220,460 |
| | 123,124 |
| | 79.1 |
| | | 438,606 |
| | 238,134 |
| | 84.2 |
| |
| Non-GAAP noninterest income, net of noncontrolling interests (1) | | 315,014 |
| | 183,244 |
| | 71.9 |
| | | 592,142 |
| | 325,738 |
| | 81.8 |
| |
| Non-GAAP noninterest expense, net of noncontrolling interests (2) | | 383,354 |
| | 305,512 |
| | 25.5 |
| | | 748,639 |
| | 570,961 |
| | 31.1 |
| |
| Balance Sheet: | |
| | | | | | |
| | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Average available-for-sale securities | | $ | 8,205,333 |
| | $ | 10,048,423 |
| | (18.3 | ) | % | | $ | 7,541,439 |
| | $ | 10,396,533 |
| | (27.5 | ) | % |
| Average held-to-maturity securities | | 14,922,589 |
| | 15,112,154 |
| | (1.3 | ) | | | 15,072,441 |
| | 14,178,427 |
| | 6.3 |
| |
| Average loans, net of unearned income | | 29,406,620 |
| | 24,858,503 |
| | 18.3 |
|
| | 28,900,160 |
| | 24,335,762 |
| | 18.8 |
| |
| Average noninterest-bearing demand deposits | | 38,117,893 |
| | 39,814,450 |
| | (4.3 | ) | | | 38,170,001 |
| | 38,887,766 |
| | (1.8 | ) | |
| Average interest-bearing deposits | | 14,844,315 |
| | 8,157,501 |
| | 82.0 |
| | | 13,177,179 |
| | 8,156,404 |
| | 61.6 |
| |
| Average total deposits | | 52,962,208 |
| | 47,971,951 |
| | 10.4 |
| | | 51,347,180 |
| | 47,044,170 |
| | 9.1 |
| |
| Earnings Ratios: | |
| | | | | | |
| | | | | |
| Return on average assets (annualized) (3) | | 2.10 | % | | 1.75 | % | | 20.0 |
| % | | 2.07 | % | | 1.63 | % | | 27.0 |
| % |
| Return on average SVBFG stockholders’ equity (annualized) (4) | | 23.29 |
| | 20.82 |
| | 11.9 |
| | | 22.74 |
| | 19.51 |
| | 16.6 |
| |
| Asset Quality Ratios: | |
| | | | | | |
| | | | | |
| Allowance for loan losses as a % of total period-end gross loans | | 1.03 | % | | 1.10 | % | | (7 | ) | bps | | 1.03 | % | | 1.10 | % | | (7 | ) | bps |
| Allowance for loan losses for performing loans as a % of total gross performing loans | | 0.85 |
| | 0.90 |
| | (5 | ) | | | 0.85 |
| | 0.90 |
| | (5 | ) | |
| Gross loan charge-offs as a % of average total gross loans (annualized) | | 0.36 |
| | 0.25 |
| | 11 |
| | | 0.25 |
| | 0.21 |
| | 4 |
| |
| Net loan charge-offs as a % of average total gross loans (annualized) | | 0.23 |
| | 0.22 |
| | 1 |
| | | 0.17 |
| | 0.18 |
| | (1 | ) | |
| Capital Ratios: | |
| | | | | | |
| | | | | |
| SVBFG CET 1 risk-based capital ratio | | 12.92 | % | | 12.92 | % | | — |
| bps | | 12.92 | % | | 12.92 | % | | — |
| bps |
| SVBFG tier 1 risk-based capital ratio | | 13.08 |
| | 13.10 |
| | (2 | ) | | | 13.08 |
| | 13.10 |
| | (2 | ) | |
| SVBFG total risk-based capital ratio | | 13.97 |
| | 14.03 |
| | (6 | ) | | | 13.97 |
| | 14.03 |
| | (6 | ) | |
| SVBFG tier 1 leverage ratio | | 8.82 |
| | 8.81 |
| | 1 |
| | | 8.82 |
| | 8.81 |
| | 1 |
| |
| SVBFG tangible common equity to tangible assets (5) | | 8.43 |
| | 8.34 |
| | 9 |
| | | 8.43 |
| | 8.34 |
| | 9 |
| |
| SVBFG tangible common equity to risk-weighted assets (5) | | 13.13 |
| | 12.68 |
| | 45 |
| | | 13.13 |
| | 12.68 |
| | 45 |
| |
| Bank CET 1 risk-based capital ratio | | 12.50 |
| | 11.76 |
| | 74 |
| | | 12.50 |
| | 11.76 |
| | 74 |
| |
| Bank tier 1 risk-based capital ratio | | 12.50 |
| | 11.76 |
| | 74 |
| | | 12.50 |
| | 11.76 |
| | 74 |
| |
| Bank total risk-based capital ratio | | 13.44 |
| | 12.72 |
| | 72 |
| | | 13.44 |
| | 12.72 |
| | 72 |
| |
| Bank tier 1 leverage ratio | | 8.17 |
| | 7.72 |
| | 45 |
| | | 8.17 |
| | 7.72 |
| | 45 |
| |
| Bank tangible common equity to tangible assets (5) | | 7.91 |
| | 7.39 |
| | 52 |
| | | 7.91 |
| | 7.39 |
| | 52 |
| |
| Bank tangible common equity to risk-weighted assets (5) | | 12.72 |
| | 11.52 |
| | 120 |
| | | 12.72 |
| | 11.52 |
| | 120 |
| |
| Other Ratios: | |
| | | | | | |
| | | | | |
| GAAP operating efficiency ratio (6) | | 44.43 | % | | 46.39 | % | | (4.2 | ) | % | | 45.23 | % | | 46.27 | % | | (2.2 | ) | % |
| Non-GAAP core operating efficiency ratio (2) | | 45.49 |
| | 50.40 |
| | (9.7 | ) | | | 45.11 |
| | 49.45 |
| | (8.8 | ) | |
| Total costs of deposits (annualized) (7) | | 0.36 |
| | 0.05 |
| | 620.0 |
| | | 0.29 |
| | 0.04 |
| | 625.0 |
| |
| Book value per common share (8) | | $ | 107.72 |
| | $ | 87.53 |
| | 23.1 |
| | | $ | 107.72 |
| | $ | 87.53 |
| | 23.1 |
| |
| Other Statistics: | |
| | | | | | |
| | | | | |
| Average full-time equivalent employees | | 3,287 |
| | 2,591 |
| | 26.9 |
| % | | 3,257 |
| | 2,545 |
| | 28.0 |
| % |
| Period-end full-time equivalent employees | | 3,314 |
| | 2,626 |
| | 26.2 |
| | | 3,314 |
| | 2,626 |
| | 26.2 |
| |
| |
| (1) | See “Results of Operations–Noninterest Income” for a description and reconciliation of non-GAAP core fee income and noninterest income.non-GAAP core fee income including investment banking revenue and commissions. |
| |
| (2) | See “Results of Operations–Noninterest Expense” for a description and reconciliation of non-GAAP noninterest expense and non-GAAP core operating efficiency ratio. |
| |
| (3) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets. |
| |
| (4) | Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders’ equity. |
| |
| (5) | 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. |
| |
| (6) | The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income. |
| |
| (7) | Ratio represents annualized total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits. |
| |
| (8) | 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.
There have been no significant changes during the six months ended June 30, 20182019 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 20172018 Form 10-K.
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
Net interest income is defined as the difference betweenbetween: (i) interest earned on loans, fixed income investment portfolio (available-for-saleinvestments in our available-for-sale and held-to-maturity securities)securities portfolios and short-term investment securities, and the(ii) interest paid on funding sources which consist primarily of interest-bearing deposits and borrowings. Net interest income is our principal source of revenue.sources. 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 21.0 percent for the three and six months ended June 30, 2018 and 35.0 percent for the three and six months ended June 30, 2017.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 compositionmix 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.
| | | | | 2018 Compared to 2017 | | 2018 Compared to 2017 | | 2019 Compared to 2018 | | 2019 Compared to 2018 |
| | | Three months ended June 30, increase (decrease) due to change in | | Six months ended June 30, increase (decrease) due to change in | | Three months ended June 30, increase (decrease) due to change in | | Six months ended June 30, increase (decrease) due to change in |
| (Dollars in thousands) | | Volume | | Rate | | Total | | Volume | | Rate | | Total | | 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 | | $ | (4,105 | ) | | $ | 2,969 |
| | $ | (1,136 | ) | | $ | (3,200 | ) | | $ | 4,684 |
| | $ | 1,484 |
| |
| Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities | | | $ | 14,919 |
| | $ | 5,258 |
| | $ | 20,177 |
| | $ | 22,222 |
| | $ | 11,415 |
| | $ | 33,637 |
|
| Fixed income investment portfolio (taxable) | | 23,256 |
| | 18,372 |
| | 41,628 |
| | 42,418 |
| | 33,884 |
| | 76,302 |
| | (14,317 | ) | | 11,562 |
| | (2,755 | ) | | (26,529 | ) | | 26,014 |
| | (515 | ) |
| Fixed income investment portfolio (non-taxable) | | 8,315 |
| | 28 |
| | 8,343 |
| | 13,940 |
| | (146 | ) | | 13,794 |
| | 3,782 |
| | 350 |
| | 4,132 |
| | 10,402 |
| | 1,129 |
| | 11,531 |
|
| Loans, net of unearned income | | 57,797 |
| | 22,303 |
| | 80,100 |
| | 104,296 |
| | 45,537 |
| | 149,833 |
| | 64,043 |
| | 19,737 |
| | 83,780 |
| | 127,648 |
| | 53,202 |
| | 180,850 |
|
| Increase in interest income, net | | 85,263 |
| | 43,672 |
| | 128,935 |
| | 157,454 |
| | 83,959 |
| | 241,413 |
| | 68,427 |
| | 36,907 |
| | 105,334 |
| | 133,743 |
| | 91,760 |
| | 225,503 |
|
| Interest expense: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing checking and savings accounts | | 25 |
| | — |
| | 25 |
| | 65 |
| | 1 |
| | 66 |
| | (23 | ) | | 17 |
| | (6 | ) | | (34 | ) | | 28 |
| | (6 | ) |
| Money market deposits | | 554 |
| | 3,500 |
| | 4,054 |
| | 1,087 |
| | 5,324 |
| | 6,411 |
| | 20,849 |
| | 14,379 |
| | 35,228 |
| | 26,549 |
| | 26,655 |
| | 53,204 |
|
| Money market deposits in foreign offices | | 1 |
| | (2 | ) | | (1 | ) | | 4 |
| | (3 | ) | | 1 |
| | (5 | ) | | — |
| | (5 | ) | | (10 | ) | | 2 |
| | (8 | ) |
| Time deposits | | 4 |
| | 4 |
| | 8 |
| | 1 |
| | 3 |
| | 4 |
| | 43 |
| | 105 |
| | 148 |
| | 36 |
| | 128 |
| | 164 |
|
| Sweep deposits in foreign offices | | (8 | ) | | (4 | ) | | (12 | ) | | (21 | ) | | (8 | ) | | (29 | ) | | 1,583 |
| | 3,931 |
| | 5,514 |
| | 4,058 |
| | 7,278 |
| | 11,336 |
|
| Total increase in deposits expense | | 576 |
| | 3,498 |
| | 4,074 |
| | 1,136 |
| | 5,317 |
| | 6,453 |
| | 22,447 |
| | 18,432 |
| | 40,879 |
| | 30,599 |
| | 34,091 |
| | 64,690 |
|
| Short-term borrowings | | 568 |
| | 1 |
| | 569 |
| | 711 |
| | 172 |
| | 883 |
| | 430 |
| | 185 |
| | 615 |
| | 1,935 |
| | 450 |
| | 2,385 |
|
| 3.50% Senior Notes | | 3 |
| | — |
| | 3 |
| | 6 |
| | — |
| | 6 |
| | 3 |
| | — |
| | 3 |
| | 7 |
| | — |
| | 7 |
|
| 5.375% Senior Notes | | 8 |
| | — |
| | 8 |
| | 17 |
| | — |
| | 17 |
| | 9 |
| | — |
| | 9 |
| | 17 |
| | — |
| | 17 |
|
| Junior Subordinated Debentures | | (831 | ) | | — |
| | (831 | ) | | (1,663 | ) | | — |
| | (1,663 | ) | |
| 6.05% Subordinated Notes | | (196 | ) | | — |
| | (196 | ) | | (467 | ) | | — |
| | (467 | ) | |
| Total (decrease) increase in borrowings expense | | (448 | ) | | 1 |
| | (447 | ) | | (1,396 | ) | | 172 |
| | (1,224 | ) | |
| Increase (decrease) in interest expense, net | | 128 |
| | 3,499 |
| | 3,627 |
| | (260 | ) | | 5,489 |
| | 5,229 |
| |
| Total increase in borrowings expense | | | 442 |
| | 185 |
| | 627 |
| | 1,959 |
| | 450 |
| | 2,409 |
|
| Increase in interest expense, net | | | 22,889 |
| | 18,617 |
| | 41,506 |
| | 32,558 |
| | 34,541 |
| | 67,099 |
|
| Increase in net interest income | | $ | 85,135 |
| | $ | 40,173 |
| | $ | 125,308 |
| | $ | 157,714 |
| | $ | 78,470 |
| | $ | 236,184 |
| | $ | 45,538 |
| | $ | 18,290 |
| | $ | 63,828 |
| | $ | 101,185 |
| | $ | 57,219 |
| | $ | 158,404 |
|
Net Interest Income (Fully Taxable Equivalent Basis)
Three months ended June 30, 20182019 and 20172018
Net interest income increased by $125.3$63.8 million to $468.5$532.3 million for the three months ended June 30, 2018,2019, compared to $343.2$468.5 million for the comparable 20172018 period. Overall, our net interest income increased primarily from interest earned on loans, reflective of higher average loan balances driven by strong loan growth from our private equity/venture capital loan portfolio as well as increases from our life science/healthcare and software/internetprivate bank loan portfolios and rate increases subsequent to June 30, 2017.2018. In addition, we saw an increase in interest earned onincome from our fixed incomeinterest earning cash and short-term investment securities portfolio reflective of higher average fixed income investment securities balances driven by higher average deposit balances as well as an increase in yieldyields from rate increases. These increases were partially offset by an increase in interest paid on our interest-bearing deposits due to the increase in average interest-bearing deposits as well as continued market rate adjustments on our interest-bearing deposits.
The main factors affecting interest income and interest expense for the three months ended June 30, 2018,2019, compared to the comparable 20172018 period are discussed below:
Interest income for the three months endedJune 30, 2018 increased by $128.9 million due primarily to:
| |
| • | Interest income for the three months endedJune 30, 2019 increased by $105.3 million due primarily to: |
| |
| ◦ | An $80.183.8 million increase in interest income on loans to $330.3414.1 million for the three months endedJune 30, 20182019, compared to $250.2330.3 million for the comparable 20172018 period. The increase was reflective of an increase in average loan balances of $4.34.5 billion and an increase in the overall loan yield of 4432 basis points to 5.335.65 percent from 4.895.33 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased 5229 basis points to 4.725.01 percent from 4.204.72 percent, reflective primarily of the benefit of interest rate increases.increases since the second quarter of 2018. Loan fee yields were down three basis points to 61remained relatively flat, while loan interest recoveries contributed 3 basis points for the three months endedJune 30, 2018, 2019, and |
| |
| ◦ | A $50.0$20.2 million increase in interest income on fixed incomefrom our interest-earning cash and short-term investment securities to $146.9 million for the three months endedJune 30, 2018, compared to $96.9 million for the comparable 2017 period.securities. The increase was reflectivedue to the increase of an increase$3.1 billion in average fixed income investments of $3.6 billion due to growth in average depositinterest-earning Federal Reserve cash balances and an increase in our fixed income investment securities yield of 53 basis points to 2.34 percent from 1.81 percent resulting primarily from higher reinvestment yields on maturing fixed income investments as well as higher yields on new purchases the benefit from the impact of the increases in the Federal Funds target rate since June 30, 2018. |
| |
| • | Interest expense for the three months endedJune 30, 2019 increased by $41.5 milliondue to interest rate increases, andprimarily to: |
| |
| ◦ | A $1.140.9 million decrease increase in interest income from our interest earning cash and short-term investment securities. The decrease was due primarily to a decrease of $1.6 billion in average interest-earning Federal Reserve cash balances. |
Interest expense for the three months endedJune 30, 2018 increased by $3.6 milliondue primarily to:
| |
◦ | A $4.1 million increase inexpense on deposits interest expense due primarily to an increase in interest paid on our interest-bearing money market and foreign sweep deposits as a result of market rate adjustments, and
|
| |
◦ | A $0.4 million decrease in borrowings interest expense primarily due to the repaymentgrowth in average interest-bearing deposits of our 6.05% Subordinated Notes and the redemption of our Junior Subordinated Debentures in 2017.$6.7 billion as well as market rate adjustments.
|
Six months ended June 30, 2019 and 2018
The main factors affecting interest income and interest expense for the six months ended June 30, 2018,2019, compared to the comparable 20172018 period are discussed below:
Interest income for the six months endedJune 30, 2018 increased by $241.4 million due primarily to:
| |
| • | Interest income for the six months endedJune 30, 2019 increased by $225.5 million due primarily to: |
| |
| ◦ | A $149.8180.9 million increase in interest income on loans to $627.4808.2 million for the six months endedJune 30, 20182019,compared to $477.5627.4 million for the comparable 20172018 period. The increase was reflective of an increase in average loan balances of $4.0$4.6 billion and an increase in the overall loan yield of 4544 basis points to 5.205.64 percent from 4.755.20 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased 42 basis points to 4.645.05 percent from 4.124.63 percent, reflective of the benefit of interest rate increases, partially offset by the strong growth of our lower yielding private equity/venture capital loan portfolio. Our private equity/venture capital loan portfolio represented 46.850.0 percent and 42.246.8 percent of our total gross loan portfolio at June 30, 2019 and 2018, and 2017, respectively. The increase in grossLoan fee yields remained flat, while loan yields of 52interest recoveries contributed 2 basis points were partially offset by a decrease in fee income from early pay-offs reflective offor the increasing rate environment,six months ended June 30, 2019, and |
| |
| ◦ | A $90.1$33.6 million increase in interest income on fixed income investment securities to $277.8 million for the six months endedJune 30, 2018, compared to $187.7 million for the comparable 2017 period. The increase was reflective of an increase in average fixed income investments of $3.2 billion due to growth in average deposit balances and an increase in our fixed income investment securities yield of 51 basis points to 2.28 percent from 1.77 percent resulting primarily from higher reinvestment yields on maturing fixed income investments as well as higher yields on new purchases due to interest rate increases, and |
| |
◦ | A $1.5 million increase in interest income from our interest earning cash and short-term investment securities.The increase was due to the increase of $2.4 billion in average interest-earning Federal Reserve cash balances driven by deposit growth and the benefit from the impact of the increases in the Federal Funds target rate offset by lower average balances of $0.7 billion.since June 30, 2018.
|
Interest expense for the six months endedJune 30, 2018 increased by $5.2 million primarily due to:
| |
| • | Interest expense for the six months endedJune 30, 2019 increased by $67.1 million primarily due to: |
| |
| ◦ | AnA $64.7 million increase in deposits interest expense of $6.5 million,on deposits due primarily to an increase in interest paid on our interest-bearing money market deposits as a result of market rate adjustments, and
|
| |
◦ | A $1.2 million decrease in borrowings interest expense primarily foreign sweep deposits due to the repaymentgrowth in average interest-bearing deposits of our 6.05% Subordinated Notes and the redemption of our Junior Subordinated Debentures in 2017.$5.0 billion as well as market rate adjustments.
|
Net Interest Margin (Fully Taxable Equivalent Basis)
Three months ended June 30, 20182019 and 20172018
Our net interest margin increased by 59 basis points to 3.59 percent for the three months endedJune 30, 2018, compared to 3.00 percent for the comparable 2017 period. The higher margin during the second quarter of 2018 was reflective primarily of the increases in the Federal Funds target rate since the second quarter of 2017 as well as a shift in the mix of the growth in our interest-earning assets to higher-yielding loans and fixed income investment securities from our interest earning cash and other short-term investment securities. Average loans and fixed income investment securities represented 47.5 percent and 48.0 percent, respectively, of quarter-to-date average interest earnings assets compared to 44.6 percent and 46.9 percent, respectively, for the comparable 2017 period.
| |
| • | Our net interest margin increased by 9 basis points to 3.68 percent for the three months endedJune 30, 2019, compared to 3.59 percent for the comparable 2018 period. The higher margin for the second quarter of 2019 was reflective primarily of the increases in the Federal Funds target rate since June 30, 2018, as well as a shift in the mix of the growth in our interest-earning assets to higher-yielding loans from our fixed income investment securities portfolio. Average loans represented 50.8 percent of average interest earnings assets for the three months ended June 30, 2019, compared to 47.5 percent for the comparable 2018 period. |
Six months ended June 30, 20182019 and 20172018
| |
| • | Our net interest margin increased by 25 basis points to 3.74 percent for the six months endedJune 30, 2019, compared to 3.49 percent for the comparable 2018 period. The higher margin for the six months ended June 30, 2019 was reflective primarily of the increases in the Federal Funds target rate since June 30, 2018, as well as a shift in the mix of the growth in our interest-earning assets to higher-yielding loans from our fixed income investment securities portfolio. Average loans represented 51.2 percent of year-to-date average interest earnings assets, compared to 47.3 percent for the comparable 2018 period. |
Our net interest margin increased by 55 basis points to 3.49 percent for the six months endedJune 30, 2018, compared to 2.94 percent for the comparable 2017 period. The higher margin for the six months ended June 30, 2018, was reflective primarily of the increases in the Federal Funds target rate since June 30, 2017, as well as a shift in the mix of the growth in our interest-earning assets to higher-yielding loans and fixed income investment securities from our interest earning cash and other short-term investment securities. Average loans and fixed income investment securities
represented 47.3 percent and 47.8 percent, respectively, of year-to-date average interest earnings assets compared to 45.3 percent and 47.6 percent, respectively, for the comparable 2017 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 six months ended June 30, 20182019 and 20172018:
Average Balances, Rates and Yields for the Three Months Ended June 30, 20182019 and 20172018
| | | | | Three months ended June 30, | | Three months ended June 30, |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| (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) | | $ | 2,346,820 |
| | $ | 6,187 |
| | 1.06 | % | | $ | 3,903,377 |
| | $ | 7,323 |
| | 0.75 | % | | $ | 5,405,899 |
| | $ | 26,364 |
| | 1.96 | % | | $ | 2,346,820 |
| | $ | 6,187 |
| | 1.06 | % |
| Investment securities: (2) | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | 10,048,423 |
| | 46,606 |
| | 1.86 |
| | 12,393,079 |
| | 48,271 |
| | 1.56 |
| | 8,205,333 |
| | 45,347 |
| | 2.22 |
| | 10,048,423 |
| | 46,606 |
| | 1.86 |
|
| Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | 13,969,843 |
| | 90,544 |
| | 2.60 |
| | 8,964,785 |
| | 47,251 |
| | 2.11 |
| | 13,350,533 |
| | 89,048 |
| | 2.68 |
| | 13,969,843 |
| | 90,544 |
| | 2.60 |
|
| Non-taxable (3) | | 1,142,311 |
| | 9,704 |
| | 3.41 |
| | 163,622 |
| | 1,361 |
| | 3.34 |
| | 1,572,056 |
| | 13,836 |
| | 3.53 |
| | 1,142,311 |
| | 9,704 |
| | 3.41 |
|
| Total loans, net of unearned income (4) (5) | | 24,858,503 |
| | 330,297 |
| | 5.33 |
| | 20,508,541 |
| | 250,197 |
| | 4.89 |
| | 29,406,620 |
| | 414,077 |
| | 5.65 |
| | 24,858,503 |
| | 330,297 |
| | 5.33 |
|
| Total interest-earning assets | | 52,365,900 |
| | 483,338 |
| | 3.70 |
| | 45,933,404 |
| | 354,403 |
| | 3.10 |
| | 57,940,441 |
| | 588,672 |
| | 4.07 |
| | 52,365,900 |
| | 483,338 |
| | 3.70 |
|
| Cash and due from banks | | 534,908 |
| | | | | | 356,884 |
| | | | | | 542,345 |
| | | | | | 534,908 |
| | | | |
| Allowance for loan losses | | (280,679 | ) | | | | | | (250,167 | ) | | | | | | (311,709 | ) | | | | | | (280,679 | ) | | | | |
| Other assets (6) | | 1,800,517 |
| | | | | | 1,509,243 |
| | | | | | 2,529,409 |
| | | | | | 1,800,517 |
| | | | |
| Total assets | | $ | 54,420,646 |
| | | | | | $ | 47,549,364 |
| | | | | | $ | 60,700,486 |
| | | | | | $ | 54,420,646 |
| | | | |
Funding sources: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing checking and savings accounts | | $ | 554,411 |
| | $ | 106 |
| | 0.08 | % | | $ | 424,070 |
| | $ | 81 |
| | 0.08 | % | | $ | 459,972 |
| | $ | 100 |
| | 0.09 | % | | $ | 554,411 |
| | $ | 106 |
| | 0.08 | % |
| Money market deposits | | 6,265,809 |
| | 6,021 |
| | 0.39 |
| | 5,689,552 |
| | 1,967 |
| | 0.14 |
| | 12,669,422 |
| | 41,249 |
| | 1.31 |
| | 6,265,809 |
| | 6,021 |
| | 0.39 |
|
| Money market deposits in foreign offices | | 220,334 |
| | 21 |
| | 0.04 |
| | 210,069 |
| | 22 |
| | 0.04 |
| | 162,586 |
| | 16 |
| | 0.04 |
| | 220,334 |
| | 21 |
| | 0.04 |
|
| Time deposits | | 56,755 |
| | 23 |
| | 0.16 |
| | 47,376 |
| | 15 |
| | 0.13 |
| | 75,721 |
| | 171 |
| | 0.91 |
| | 56,755 |
| | 23 |
| | 0.16 |
|
| Sweep deposits in foreign offices | | 1,060,192 |
| | 100 |
| | 0.04 |
| | 1,138,509 |
| | 112 |
| | 0.04 |
| | 1,476,614 |
| | 5,614 |
| | 1.52 |
| | 1,060,192 |
| | 100 |
| | 0.04 |
|
| Total interest-bearing deposits | | 8,157,501 |
| | 6,271 |
| | 0.31 |
| | 7,509,576 |
| | 2,197 |
| | 0.12 |
| | 14,844,315 |
| | 47,150 |
| | 1.27 |
| | 8,157,501 |
| | 6,271 |
| | 0.31 |
|
| Short-term borrowings | | 121,098 |
| | 580 |
| | 1.92 |
| | 2,690 |
| | 11 |
| | 1.64 |
| | 188,998 |
| | 1,195 |
| | 2.54 |
| | 121,098 |
| | 580 |
| | 1.92 |
|
| 3.50% Senior Notes | | 347,415 |
| | 3,146 |
| | 3.63 |
| | 347,087 |
| | 3,143 |
| | 3.63 |
| | 347,755 |
| | 3,149 |
| | 3.63 |
| | 347,415 |
| | 3,146 |
| | 3.63 |
|
| 5.375% Senior Notes | | 348,399 |
| | 4,861 |
| | 5.60 |
| | 347,785 |
| | 4,853 |
| | 5.60 |
| | 349,048 |
| | 4,870 |
| | 5.60 |
| | 348,399 |
| | 4,861 |
| | 5.60 |
|
| Junior Subordinated Debentures | | — |
| | — |
| | — |
| | 54,435 |
| | 831 |
| | 6.12 |
| |
| 6.05% Subordinated Notes | | — |
| | — |
| | — |
| | 30,934 |
| | 196 |
| | 2.54 |
| |
| Total interest-bearing liabilities | | 8,974,413 |
| | 14,858 |
| | 0.66 |
| | 8,292,507 |
| | 11,231 |
| | 0.54 |
| | 15,730,116 |
| | 56,364 |
| | 1.44 |
| | 8,974,413 |
| | 14,858 |
| | 0.66 |
|
| Portion of noninterest-bearing funding sources | | 43,391,487 |
| | | | | | 37,640,897 |
| | | | | | 42,210,325 |
| | | | | | 43,391,487 |
| | | | |
| Total funding sources | | 52,365,900 |
| | 14,858 |
| | 0.11 |
| | 45,933,404 |
| | 11,231 |
| | 0.10 |
| | 57,940,441 |
| | 56,364 |
| | 0.39 |
| | 52,365,900 |
| | 14,858 |
| | 0.11 |
|
Noninterest-bearing funding sources: | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | 39,814,450 |
| | | | | | 34,629,070 |
| | | | | | 38,117,893 |
| | | | | | 39,814,450 |
| | | | |
| Other liabilities | | 908,594 |
| | | | | | 617,097 |
| | | | | | 1,232,464 |
| | | | | | 908,594 |
| | | | |
| SVBFG stockholders’ equity | | 4,581,591 |
| | | | | | 3,874,880 |
| | | | | | 5,477,148 |
| | | | | | 4,581,591 |
| | | | |
| Noncontrolling interests | | 141,598 |
| | | | | | 135,810 |
| | | | | | 142,865 |
| | | | | | 141,598 |
| | | | |
| Portion used to fund interest-earning assets | | (43,391,487 | ) | | | | | | (37,640,897 | ) | | | | | | (42,210,325 | ) | | | | | | (43,391,487 | ) | | | | |
| Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity | | $ | 54,420,646 |
| | | | | | $ | 47,549,364 |
| | | | | | $ | 60,700,486 |
| | | | | | $ | 54,420,646 |
| | | | |
| Net interest income and margin | | | | $ | 468,480 |
| | 3.59 | % | | | | $ | 343,172 |
| | 3.00 | % | | | | $ | 532,308 |
| | 3.68 | % | | | | $ | 468,480 |
| | 3.59 | % |
| Total deposits | | $ | 47,971,951 |
| | | | | | $ | 42,138,646 |
| | | | | | $ | 52,962,208 |
| | | | | | $ | 47,971,951 |
| | | | |
Reconciliation to reported net interest income: | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments for taxable equivalent basis | | | | (2,037 | ) | | | | | | (476 | ) | | | | | | (2,905 | ) | | | | | | (2,037 | ) | | |
| Net interest income, as reported | | | | $ | 466,443 |
| | | | | | $ | 342,696 |
| | | | | | $ | 529,403 |
| | | | | | $ | 466,443 |
| | |
| |
(1) | Includes average interest-earning deposits in other financial institutions of $0.9 billion and $1.0 billion for both the three months ended June 30, 2018,2019 and 2017, respectively.2018. For the three months ended June 30, 2018,2019 and 20172018, balances also include $3.7 billion and $1.3 billion and $2.8 billion, respectively, deposited at the FRB, earning interest at the Federal Funds target rate. |
| |
| (2) | Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
| |
| (3) | Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent for the three months ended June 30, 2018, and 35.0 percent for the three months ended June 30, 2017.all periods presented. |
| |
| (4) | Nonaccrual loans are reflected in the average balances of loans. |
| |
| (5) | Interest income includes loan fees of $3844.1 million and $3337.8 million for the three months ended June 30, 2018,2019 and 20172018, respectively. |
| |
| (6) | Average investment securities of $1.0 billion and $773 million and $663 million for the three months ended June 30, 2018,2019 and 20172018, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted primarily of non-marketable and other equity securities. |
Average Balances, Rates and Yields for the Six Months Ended June 30, 20182019 and 20172018
| | | | | Six months ended June 30, | | Six months ended June 30, |
| | | 2018 | | 2017 | | 2019 | | 2018 |
| (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) | | $ | 2,529,384 |
| | $ | 11,943 |
| | 0.95 | % | | $ | 3,207,021 |
| | $ | 10,459 |
| | 0.66 | % | | $ | 4,935,751 |
| | $ | 45,580 |
| | 1.86 | % | | $ | 2,529,384 |
| | $ | 11,943 |
| | 0.95 | % |
| Investment securities: (2) | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | 10,396,533 |
| | 94,582 |
| | 1.83 |
| | 12,471,237 |
| | 93,978 |
| | 1.52 |
| | 7,541,439 |
| | 80,769 |
| | 2.16 |
| | 10,396,533 |
| | 94,582 |
| | 1.83 |
|
| Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable |
| 13,196,969 |
| | 167,045 |
| | 2.55 |
| | 8,731,526 |
| | 91,347 |
| | 2.11 |
|
| 13,500,091 |
| | 180,343 |
| | 2.69 |
| | 13,196,969 |
| | 167,045 |
| | 2.55 |
|
| Non-taxable (3) |
| 981,458 |
| | 16,149 |
| | 3.32 |
| | 134,226 |
| | 2,355 |
| | 3.54 |
|
| 1,572,350 |
| | 27,680 |
| | 3.55 |
| | 981,458 |
| | 16,149 |
| | 3.32 |
|
| Total loans, net of unearned income (4) (5) | | 24,335,762 |
| | 627,371 |
| | 5.20 |
| | 20,290,141 |
| | 477,538 |
| | 4.75 |
| | 28,900,160 |
| | 808,221 |
| | 5.64 |
| | 24,335,762 |
| | 627,371 |
| | 5.20 |
|
| Total interest-earning assets | | 51,440,106 |
| | 917,090 |
| | 3.60 |
| | 44,834,151 |
| | 675,677 |
| | 3.04 |
| | 56,449,791 |
| | 1,142,593 |
| | 4.08 |
| | 51,440,106 |
| | 917,090 |
| | 3.60 |
|
| Cash and due from banks | | 467,954 |
| | | | | | 355,790 |
| | | | | | 534,769 |
| | | | | | 467,954 |
| | | | |
| Allowance for loan losses | | (271,931 | ) | | | | | | (242,264 | ) | | | | | | (300,381 | ) | | | | | | (271,931 | ) | | | | |
| Other assets (6) | | 1,763,487 |
| | | | | | 1,483,733 |
| | | | | | 2,439,055 |
| | | | | | 1,763,487 |
| | | | |
| Total assets | | $ | 53,399,616 |
| | | | | | $ | 46,431,410 |
| | | | | | $ | 59,123,234 |
| | | | | | $ | 53,399,616 |
| | | | |
Funding sources: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing checking and savings accounts | | $ | 581,399 |
| | $ | 222 |
| | 0.08 | % | | $ | 409,579 |
| | $ | 156 |
| | 0.08 | % | | $ | 502,369 |
| | $ | 216 |
| | 0.09 | % | | $ | 581,399 |
| | $ | 222 |
| | 0.08 | % |
| Money market deposits | | 6,301,677 |
| | 9,876 |
| | 0.32 |
| | 5,608,069 |
| | 3,465 |
| | 0.12 |
| | 10,881,455 |
| | 63,080 |
| | 1.17 |
| | 6,301,677 |
| | 9,876 |
| | 0.32 |
|
| Money market deposits in foreign offices | | 200,922 |
| | 39 |
| | 0.04 |
| | 180,934 |
| | 38 |
| | 0.04 |
| | 155,503 |
| | 31 |
| | 0.04 |
| | 200,922 |
| | 39 |
| | 0.04 |
|
| Time deposits | | 51,919 |
| | 36 |
| | 0.14 |
| | 50,576 |
| | 32 |
| | 0.13 |
| | 63,275 |
| | 200 |
| | 0.64 |
| | 51,919 |
| | 36 |
| | 0.14 |
|
| Sweep deposits in foreign offices | | 1,020,487 |
| | 194 |
| | 0.04 |
| | 1,130,906 |
| | 223 |
| | 0.04 |
| | 1,574,577 |
| | 11,530 |
| | 1.48 |
| | 1,020,487 |
| | 194 |
| | 0.04 |
|
| Total interest-bearing deposits | | 8,156,404 |
| | 10,367 |
| | 0.26 |
| | 7,380,064 |
| | 3,914 |
| | 0.11 |
| | 13,177,179 |
| | 75,057 |
| | 1.15 |
| | 8,156,404 |
| | 10,367 |
| | 0.26 |
|
| Short-term borrowings | | 116,605 |
| | 1,014 |
| | 1.75 |
| | 34,902 |
| | 131 |
| | 0.76 |
| | 270,740 |
| | 3,399 |
| | 2.53 |
| | 116,605 |
| | 1,014 |
| | 1.75 |
|
| 3.50% Senior Notes | | 347,373 |
| | 6,291 |
| | 3.65 |
| | 347,047 |
| | 6,285 |
| | 3.65 |
| | 347,712 |
| | 6,298 |
| | 3.65 |
| | 347,373 |
| | 6,291 |
| | 3.65 |
|
| 5.375% Senior Notes | | 348,321 |
| | 9,721 |
| | 5.63 |
| | 347,711 |
| | 9,704 |
| | 5.63 |
| | 348,966 |
| | 9,738 |
| | 5.63 |
| | 348,321 |
| | 9,721 |
| | 5.63 |
|
| Junior Subordinated Debentures | | — |
| | — |
| | — |
| | 54,456 |
| | 1,663 |
| | 6.16 |
| |
| 6.05% Subordinated Notes | | — |
| | — |
| | — |
| | 38,673 |
| | 467 |
| | 2.44 |
| |
| Total interest-bearing liabilities | | 8,968,703 |
| | 27,393 |
| | 0.62 |
| | 8,202,853 |
| | 22,164 |
| | 0.54 |
| | 14,144,597 |
| | 94,492 |
| | 1.35 |
| | 8,968,703 |
| | 27,393 |
| | 0.62 |
|
| Portion of noninterest-bearing funding sources | | 42,471,403 |
| | | | | | 36,631,298 |
| | | | | | 42,305,194 |
| | | | | | 42,471,403 |
| | | | |
| Total funding sources | | 51,440,106 |
| | 27,393 |
| | 0.11 |
| | 44,834,151 |
| | 22,164 |
| | 0.10 |
| | 56,449,791 |
| | 94,492 |
| | 0.34 |
| | 51,440,106 |
| | 27,393 |
| | 0.11 |
|
Noninterest-bearing funding sources: | | | | | | | | | | | | | | | | | | | | | | | | |
| Demand deposits | | 38,887,766 |
| | | | | | 33,674,549 |
| | | | | | 38,170,001 |
| | | | | | 38,887,766 |
| | | | |
| Other liabilities | | 930,193 |
| | | | | | 614,961 |
| | | | | | 1,280,981 |
| | | | | | 930,193 |
| | | | |
| SVBFG stockholders’ equity | | 4,473,729 |
| | | | | | 3,803,902 |
| | | | | | 5,381,022 |
| | | | | | 4,473,729 |
| | | | |
| Noncontrolling interests | | 139,225 |
| | | | | | 135,145 |
| | | | | | 146,633 |
| | | | | | 139,225 |
| | | | |
| Portion used to fund interest-earning assets | | (42,471,403 | ) | | | | | | (36,631,298 | ) | | | | | | (42,305,194 | ) | | | | | | (42,471,403 | ) | | | | |
| Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity | | $ | 53,399,616 |
| | | | | | $ | 46,431,410 |
| | | | | | $ | 59,123,234 |
| | | | | | $ | 53,399,616 |
| | | | |
| Net interest income and margin | | | | $ | 889,697 |
| | 3.49 | % | | | | $ | 653,513 |
| | 2.94 | % | | | | $ | 1,048,101 |
| | 3.74 | % | | | | $ | 889,697 |
| | 3.49 | % |
| Total deposits | | $ | 47,044,170 |
| | | | | | $ | 41,054,613 |
| | | | | | $ | 51,347,180 |
| | | | | | $ | 47,044,170 |
| | | | |
Reconciliation to reported net interest income: | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjustments for taxable equivalent basis | | | | (3,391 | ) | | | | | | (824 | ) | | | | | | (5,812 | ) | | | | | | (3,391 | ) | | |
| Net interest income, as reported | | | | $ | 886,306 |
| | | | | | $ | 652,689 |
| | | | | | $ | 1,042,289 |
| | | | | | $ | 886,306 |
| | |
| |
| (1) | Includes average interest-earning deposits in other financial institutions of $0.8 billion and $1.1 billion and $0.9 billion for the six months endedJune 30, 20182019, and 20172018, respectively. The balance also includes $3.3 billion and $1.3 billion and $2.2 billion deposited at the FRB, earning interest at the Federal Funds target rate for the six months endedJune 30, 20182019, and 20172018, respectively. |
| |
| (2) | Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. |
| |
| (3) | Interest income on non-taxable available-for-sale securities is presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 21.0 percent for the six months ended June 30, 2018, and 35.0 percent for the six months ended June 30, 2017.all periods presented. |
| |
| (4) | Nonaccrual loans are reflected in the average balances of loans. |
| |
| (5) | Interest income includes loan fees of $6880.8 million and $6067.7 million for the six months endedJune 30, 20182019, and 20172018, respectively. |
| |
| (6) | Average investment securities of $963 million and $780 million and $661 million for the six months endedJune 30, 20182019, and 20172018, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable securities. |
Provision for Credit Losses
The provision for credit losses is the combination of both the provision for loan losses and the provision for unfunded credit commitments. Our provision for loan losses is a function of our reserve methodology, which is used to determine an appropriate allowance for loan losses for the period. Our reserve methodology 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 risk of the loan portfolio. Our provision for unfunded credit commitments is determined using a methodology that is similar to the methodology used for calculating the allowance for loan losses, adjusted for factors specific to binding commitments, including the probability of funding and exposure at funding. Our provision for credit losses equals our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date.
The following table summarizes our allowance for loan losses and the allowance for unfunded credit commitments for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands, except ratios) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| Allowance for loan losses, beginning balance | | $ | 274,294 |
| | $ | 243,130 |
| | $ | 255,024 |
| | $ | 225,366 |
| | $ | 300,151 |
| | $ | 274,294 |
| | $ | 280,903 |
| | $ | 255,024 |
|
| Provision for loan losses | | 27,656 |
| | 15,185 |
| | 54,652 |
| | 44,864 |
| | 19,148 |
| | 27,656 |
| | 44,969 |
| | 54,652 |
|
| Gross loan charge-offs | | (15,428 | ) | | (25,081 | ) | | (26,015 | ) | | (39,111 | ) | | (26,435 | ) | | (15,428 | ) | | (35,435 | ) | | (26,015 | ) |
| Loan recoveries | | 1,926 |
| | 2,535 |
| | 3,714 |
| | 4,327 |
| | 9,820 |
| | 1,926 |
| | 11,245 |
| | 3,714 |
|
| Foreign currency translation adjustments | | (1,739 | ) | | 727 |
| | (666 | ) | | 1,050 |
| | (796 | ) | | (1,739 | ) | | 206 |
| | (666 | ) |
| Allowance for loan losses, ending balance | | $ | 286,709 |
| | $ | 236,496 |
| | $ | 286,709 |
| | $ | 236,496 |
| | $ | 301,888 |
| | $ | 286,709 |
| | $ | 301,888 |
| | $ | 286,709 |
|
| Allowance for unfunded credit commitments, beginning balance | | $ | 52,823 |
| | $ | 46,335 |
| | $ | 51,770 |
| | $ | 45,265 |
| | 57,970 |
| | 52,823 |
| | 55,183 |
| | 51,770 |
|
| Provision for unfunded credit commitments | | 1,424 |
| | 621 |
| | 2,400 |
| | 1,676 |
| | 4,798 |
| | 1,424 |
| | 7,528 |
| | 2,400 |
|
| Foreign currency translation adjustments | | (143 | ) | | 44 |
| | (66 | ) | | 59 |
| | (104 | ) | | (143 | ) | | (47 | ) | | (66 | ) |
| Allowance for unfunded credit commitments, ending balance (1) | | $ | 54,104 |
| | $ | 47,000 |
| | $ | 54,104 |
| | $ | 47,000 |
| | $ | 62,664 |
| | $ | 54,104 |
| | $ | 62,664 |
| | $ | 54,104 |
|
| Ratios and other information: | | | | | | | | | | | | | | | | |
| Provision for loan losses as a percentage of period-end total gross loans (annualized) | | 0.42 | % | | 0.29 | % | | 0.42 | % | | 0.43 | % | | 0.26 | % | | 0.42 | % | | 0.31 | % | | 0.42 | % |
| Gross loan charge-offs as a percentage of average total gross loans (annualized) | | 0.25 |
| | 0.49 |
| | 0.21 |
| | 0.39 |
| | 0.36 |
| | 0.25 |
| | 0.25 |
| | 0.21 |
|
| Net loan charge-offs as a percentage of average total gross loans (annualized) | | 0.22 |
| | 0.44 |
| | 0.18 |
| | 0.34 |
| | 0.23 |
| | 0.22 |
| | 0.17 |
| | 0.18 |
|
| Allowance for loan losses as a percentage of period-end total gross loans | | 1.10 |
| | 1.12 |
| | 1.10 |
| | 1.12 |
| | 1.03 |
| | 1.10 |
| | 1.03 |
| | 1.10 |
|
| Provision for credit losses | | $ | 29,080 |
| | $ | 15,806 |
| | $ | 57,052 |
| | $ | 46,540 |
| | $ | 23,946 |
| | $ | 29,080 |
| | $ | 52,497 |
| | $ | 57,052 |
|
| Period-end total gross loans | | 26,160,782 |
| | 21,103,946 |
| | 26,160,782 |
| | 21,103,946 |
| | 29,370,403 |
| | 26,160,782 |
| | 29,370,403 |
| | 26,160,782 |
|
| Average total gross loans | | 25,014,587 |
| | 20,632,237 |
| | 24,488,608 |
| | 20,412,123 |
| | 29,568,968 |
| | 25,014,587 |
| | 29,065,111 |
| | 24,488,608 |
|
| |
| (1) | The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”“Other liabilities” on our consolidated balance sheets. |
Three months ended June 30, 20182019 and 20172018
Our provision for credit losses was $23.9 million for the three months ended June 30, 2019, consisting of a provision for loan losses of $19.1 million and a provision for unfunded credit commitments of $4.8 million.Our provision for credit losses was $29.1 million for the three months ended June 30, 2018, consisting of a provision for loan losses of $27.7 million and a provision for unfunded credit commitments of $1.4 million. Our
The provision for creditloan losses was $15.8of $19.1 million for the three months ended June 30, 2017, consisting2019 reflects an increase of a provision$7.5 million for our performing loans, $10.9 million for net new nonaccrual loans, $7.3 million for charge-offs not specifically reserved for and $3.2 million in additional reserves for period-end loan lossesgrowth, partially offset by recoveries of $15.2 million and a$9.8 million.
The provision for unfunded credit commitments of $0.6 million.$4.8 million was driven primarily by growth in unfunded credit commitments of $0.7 billion for three months ended June 30, 2019.
The provision for loan losses of $27.7 million for the three months ended June 30, 2018 reflects primarily an increase of $13.4 million in net new specific reserves for nonaccrual loans, additional reserves of $12.5 million for period-end loan growth, $11.4 million for charge-offs not specifically reserved for and an additional $3.4 million for performing loan reserves, partially
offset by a decrease in reserves of $12.5 million for our performing loans from certain reserve methodology enhancements made to our qualitative reserve for large loan exposure as a result of growth within our higher credit quality private equity/venture capital loan portfolios.
The provision for unfunded credit commitments of $1.4 million for the three months ended June 30, 2018 was primarily driven by increased reserves of $4.5 million from growth in unfunded credit commitment balances of $1.6 billion, partially offset by a decrease in reserves of $3.5 million reflective of the methodology enhancements mentioned above.
The provision forGross loan losses of $15.2charge-offs were $26.4 million for the three months ended June 30, 20172019, of which $7.3 million was not specifically reserved for in prior quarters. Gross loan charge-offs were primarily reflects $12.7 million in net new specific reserves for nonaccrual loans and a $5.0 million increase in reserves for period-end loan growth, partially offsetdriven by a benefit from improved credit quality and the continued shift$13.1 million charge-off for one mid-stage life science/healthcare portfolio client previously included in our nonaccrual loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.
portfolio. The provision for unfunded credit commitments of $0.6 million for three months ended June 30, 2017 was drivenremaining charge-offs came primarily by an increase of $0.7 billion in unfunded credit commitment balances.from our early-stage clients.
Gross loan charge-offs were $15.4 million for the three months ended June 30, 2018, of which $11.4 million was not specifically reserved for in prior quarters. Gross loan charge-offs included $13.4 million from our software/internet loan portfolio and consisted primarily of $8.7 million for one sponsor-led buyout loan with the remaining $4.7 million primarily from early-stage clients.
Gross loan charge-offs were $25.1 million for the three months ended June 30, 2017, of which $5.5 million was not specifically reserved for in prior quarters. Gross loan charge-offs included two Corporate Finance client loans in our software/internet loan portfolio totaling $13.0 million and $11.7 million from early-stage clients, primarily from our software/internet and life science/healthcare loan portfolios.
Six months ended June 30, 20182019 and 20172018
Our provision for credit losses was $52.5 million for the six months ended June 30, 2019, consisting of a provision for loan losses of $45.0 million and a provision for unfunded credit commitments of $7.5 million. Our provision for credit losses was $57.1 million for the six months ended June 30, 2018, consisting of a provision for loan losses of $54.7 million and a provision for unfunded credit commitments of $2.4 million. Our
The provision for creditloan losses was $46.5of $45.0 million for the six months ended June 30, 2017, consisting2019 was reflective primarily of a provision$38.4 million in net new specific reserves for nonaccrual loans, $12.2 million for charge-offs not specifically reserved for in prior quarters, $7.3 million from period-end loan lossesgrowth, partially offset by recoveries of $44.9 million and a provision for unfunded credit commitments of $1.7$11.2 million.
The provision for loan losses of $54.7 million for the six months ended June 30, 2018 was reflective primarily of $26.5 million from period-end loan growth, $24.7 million in net new specific reserves for nonaccrual loans and $14.8 million for charge-offs not specifically reserved for in prior quarters, offset by a decrease in reserves of $12.5 million for our performing loans from certain reserve methodology enhancements made to our qualitative reserve for large loan exposure as a result of growth within our higher credit quality private equity/venture capital loan portfolios.
The provision for unfunded credit commitments of $7.5 million for six months ended June 30, 2019 was driven primarily by growth in unfunded credit commitments of $2.0 billion.
Gross loan losses of $44.9charge-offs were $35.4 million for the six months ended June 30, 2017 was reflective primarily of $38.1 million in net new specific reserves for nonaccrual loans and $10.0 million from period-end loan growth, partially offset by a benefit from improved credit quality and the continued shift in our loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.
The provision for unfunded credit commitments of $2.4 million for six months ended June 30, 2018 was drivenprimarily by increased reserves of $4.5 million from growth in unfunded credit commitment balances, offset by a decrease in reserves reflective of the methodology enhancements mentioned above. Our provision for unfunded credit commitments was $1.7 million for the six months ended June 30, 2017.
Gross loan charge-offs were $26.0 million for the six months ended June 30, 2018,2019, of which $14.8$12.2 million was not specifically reserved for in prior quarters. Gross loan charge-offs included $17.5 million from our life science/healthcare loan portfolio and $11.2 million from our software/internet loan portfolio. Gross loan charge-offs for our life science/healthcare portfolio were driven primarily by $13.1 million from one mid-stage client. Gross loan charge-offs for our software/internet loan portfolio were driven primarily by our early-stage clients.
Gross loan charge-offs of $26.0 million for the six months ended June 30, 2018 included $20.1 million from our software/internet loan portfolio and $4.3 million from our hardware loan portfolio and consisted primarily of $10.5 million from early-stage clients, $8.7 million for one sponsor-led buyout loan and $3.2 million from one late-stage client. Gross loan charge-offs of $39.1 million for the six months ended June 30, 2017, included $24.1 million from our early-stage portfolio and $13.0 million from two late-stage loans. These charge-offs were primarily from our software/internet loan portfolio.
See “Consolidated Financial Condition—Credit Quality and Allowance for Loan Losses” below and Note 7—8—“Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for further details on our allowance for loan losses.
Noninterest Income
For the three and six months ended June 30, 2018,2019, noninterest income was $333.8 million and $614.1 million, respectively, compared to $192.7 million and $348.2 million respectively, compared to $128.5 million and $246.2 million for the comparable 20172018 periods. For the three and six months ended June 30, 2018,2019, non-GAAP noninterest income, net of noncontrolling interests was $315.0 million and $592.1 million, respectively, compared to $183.2 million and $325.7 million respectively, compared to $119.0 million and $230.1 million for the comparable 20172018 periods. For the three and six months ended June 30, 2019, non-GAAP core fee income including investment banking revenue and commissions was $220.5 million and $438.6 million, respectively, compared to $123.1 million and $238.1 million for the comparable 2018 periods. For the three and six months ended June 30, 2019, non-GAAP core fee income was $157.3 million and $311.6 million, respectively, compared to $123.1 million and $238.1 million respectively, compared to $87.3 million and $169.8
million for the comparable 20172018 periods. (See reconciliations of non-GAAP measures used below under “Use of Non-GAAP Financial Measures”.)
Use of Non-GAAP Financial Measures
To supplement our unaudited interim consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP core fee income including investment banking revenue and commissions, non-GAAP noninterest income, and non-GAAP net gains on investment securities). These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
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 items that represent income attributable to investors other than us and our subsidiaries and certain other non-recurring items. 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, and not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.
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 SVB Leerink, the entire income or loss from funds consolidated in accordance with ASC Topic 810 as discussed in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report. We are required under GAAP to consolidate 100% of the results of these entities, 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 tables below for noninterest income and net gains on investment securities exclude noncontrolling interests.
Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets. Core fee income includes client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees client investment fees and letters of credit and standby letters of credit fees.
Core fee income including investment banking revenue and commissions is a non-GAAP measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control.
The following table provides a reconciliation of GAAP noninterest income to non-GAAP noninterest income, net of noncontrolling interests, for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| GAAP noninterest income | | $ | 192,689 |
|
| $ | 128,528 |
| | 49.9 | % | | $ | 348,207 |
|
| $ | 246,187 |
| | 41.4 | % | | $ | 333,750 |
|
| $ | 192,689 |
| | 73.2 | % | | $ | 614,126 |
|
| $ | 348,207 |
| | 76.4 | % |
| Less: income attributable to noncontrolling interests, including carried interest allocation | | 9,445 |
| | 9,536 |
| | (1.0 | ) | | 22,469 |
| | 16,095 |
| | 39.6 |
| | 18,736 |
| | 9,445 |
| | 98.4 |
| | 21,984 |
| | 22,469 |
| | (2.2 | ) |
| Non-GAAP noninterest income, net of noncontrolling interests | | $ | 183,244 |
| | $ | 118,992 |
| | 54.0 |
| | $ | 325,738 |
| | $ | 230,092 |
| | 41.6 |
| | $ | 315,014 |
| | $ | 183,244 |
| | 71.9 |
| | $ | 592,142 |
| | $ | 325,738 |
| | 81.8 |
|
The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| GAAP noninterest income | | $ | 192,689 |
| | $ | 128,528 |
| | 49.9 | % | | $ | 348,207 |
| | $ | 246,187 |
| | 41.4 | % | | $ | 333,750 |
| | $ | 192,689 |
| | 73.2 | % | | $ | 614,126 |
| | $ | 348,207 |
| | 76.4 | % |
| Less: gains on investment securities, net | | 36,114 |
| | 17,630 |
| | 104.8 |
| | 45,172 |
| | 33,600 |
| | 34.4 |
| | 47,698 |
| | 36,114 |
| | 32.1 |
| | 76,726 |
| | 45,172 |
| | 69.9 |
|
| Less: gains on equity warrant assets, net | | 19,061 |
| | 10,820 |
| | 76.2 |
| | 38,252 |
| | 17,510 |
| | 118.5 |
| | 48,347 |
| | 19,061 |
| | 153.6 |
| | 69,652 |
| | 38,252 |
| | 82.1 |
|
| Less: other noninterest income | | 14,390 |
| | 12,811 |
| | 12.3 |
| | 26,649 |
| | 25,232 |
| | 5.6 |
| | 17,245 |
| | 14,390 |
| | 19.8 |
| | 29,142 |
| | 26,649 |
| | 9.4 |
|
| Non-GAAP core fee income (1) | | $ | 123,124 |
| | $ | 87,267 |
| | 41.1 |
| | $ | 238,134 |
| | $ | 169,845 |
| | 40.2 |
| |
| Non-GAAP core fee income including investment banking revenue and commissions (1) | | | $ | 220,460 |
| | $ | 123,124 |
| | 79.1 |
| | $ | 438,606 |
| | $ | 238,134 |
| | 84.2 |
|
| Less: investment banking revenue | | | 48,694 |
| | — |
| | — |
| | 98,489 |
| | — |
| | — |
|
| Less: commissions | | | 14,429 |
| | — |
| | — |
| | 28,537 |
| | — |
| | — |
|
| Non-GAAP core fee income (2) | | | $ | 157,337 |
| | $ | 123,124 |
| | 27.8 |
| | $ | 311,580 |
| | $ | 238,134 |
| | 30.8 |
|
| |
| (1) | Non-GAAP core fee income including investment banking revenue and commissions represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. |
| |
| (2) | Non-GAAP core fee income represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, as well as our investment banking revenue and commissions, and includes client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit and standby letters of credit fees. |
Gains on Investment Securities, Net
Net gains and losses on investment securities include gains and losses from our non-marketable and other equity securities, which include public equity securities held as a result of exercised equity warrant assets, as well as gains and losses from sales of our AFS debt securities portfolio, when applicable.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies and investments in qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains and losses from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains or losses from non-marketable and other equity 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 or losses from investment securities. 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 or losses will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (i.e.(e.g. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, and the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes.
Our AFS securities portfolio is a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk.
Three months ended June 30, 20182019 and 20172018
For the three months ended June 30, 2018,2019, we had net gains on investment securities of $36.1$47.7 million, compared to $17.6$36.1 million for the comparable 20172018 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $26.4$29.1 million for the three months ended June 30, 2018,2019, compared to $8.2non-GAAP net gains, net of controlling interest of $26.4 million for the comparable 20172018 period.
Non-GAAP net gains on investment securities, net of noncontrolling interests, of $26.4$29.1 million for the three months ended June 30, 20182019 were driven by the following:
Gains of $18.1 million from our strategic and other investments portfolio, comprised primarily of net unrealized valuation increases in both private and public company investments held in our strategic venture capital funds, and
Gains of $7.7 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the public company investments held by the funds in this portfolio.
| |
| • | Gains of $15.5 million from managed funds of funds portfolio, related primarily to net unrealized valuation increases in the public company investments held by the funds in the portfolio, and |
| |
| • | Gains of $7.3 million from our strategic and other investments portfolio, comprised primarily of net unrealized valuation increases in private and public companies held in our strategic venture capital funds. |
Six months ended June 30, 20182019 and 20172018
For the six months ended June 30, 2018,2019, we had net gains on investment securities of $45.2$76.7 million, compared to $33.6$45.2 million for the comparable 20172018 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $22.6$54.7 million for the six months endedJune 30, 2018,2019, compared to $17.7$22.6 million for the comparable 20172018 period.
Non-GAAP net gains, net of noncontrolling interests, of $22.6$54.7 million for the six months ended June 30, 20182019 were driven primarily by the following:
Gains of $30.8 million from our strategic and other investments portfolio, attributable primarily to net unrealized valuation increases in both private and public company investments held in our strategic venture capital funds,
Losses of $22.1 million from our public equity securities portfolio primarily reflective of net losses on sales of shares of Roku, Inc. ("Roku"), from exercised warrants in 2017, which were sold in the first quarter of 2018, and
Gains of $14.6 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the public company investments held by the funds in the portfolio.
| |
| • | Gains of $22.3 million from our strategic and other investments portfolio, comprised primarily of net unrealized valuation increases in private and public companies held in our strategic venture capital funds and a realized gain for one company in our direct equity portfolio due to M&A activity, |
| |
| • | Gains of $18.0 million from managed funds of funds portfolio, related primarily to net unrealized valuation increases in the public company investments held by the funds in the portfolio, and |
| |
| • | Gains of $10.1 million from our public equity securities portfolio primarily attributable to the sale of our shares from exercised warrants in one company which were sold as soon as practicable following the lock-up period expiration. |
The following tables provide a reconciliation of GAAP total gains (losses) on investment securities, net, to non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three and six months ended June 30, 20182019 and 2017:2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Managed
Funds of
Funds | | Managed
Direct
Venture
Funds | | Public Equity Securities (1) | | Debt Funds | | Sales of AFS Securities (1) | | Strategic and Other Investments | | Total |
| Three months ended June 30, 2018 | | | | | | | | | | | | | | |
| Total gains (losses) on investment securities, net |
| $ | 17,531 |
| | $ | (405 | ) |
| $ | 140 |
|
| $ | 726 |
|
| $ | — |
|
| $ | 18,122 |
| | $ | 36,114 |
|
| Less: income (loss) attributable to noncontrolling interests, including carried interest allocation |
| 9,793 |
| | (121 | ) |
| — |
|
| — |
|
| — |
|
| — |
| | 9,672 |
|
| Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | | $ | 7,738 |
| | $ | (284 | ) | | $ | 140 |
| | $ | 726 |
| | $ | — |
| | $ | 18,122 |
| | $ | 26,442 |
|
| | | | | | | | | | | | | | | |
| Six months ended June 30, 2018 | | | | | | | | | | | | | | |
| Total gains (losses) on investment securities, net | | $ | 36,604 |
| | $ | 1,514 |
| | $ | (22,142 | ) | | $ | (1,573 | ) | | $ | — |
| | $ | 30,769 |
| | $ | 45,172 |
|
| Less: income attributable to noncontrolling interests, including carried interest allocation | | 21,990 |
| | 587 |
| | — |
| | — |
| | — |
| | — |
| | 22,577 |
|
| Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | | $ | 14,614 |
| | $ | 927 |
| | $ | (22,142 | ) | | $ | (1,573 | ) | | $ | — |
| | $ | 30,769 |
| | $ | 22,595 |
|
| |
(1) | Effective January 1, 2018, we adopted Accounting Standard update ("ASU") 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, resulting in the reclassification of public equity securities out of our AFS securities portfolio into our non-marketable and other equity securities portfolio. This guidance was adopted using the modified retrospective method with a cumulative adjustment to opening retained earnings. As such, prior period amounts have not been restated. |
| | | (Dollars in thousands) | | Managed
Funds of
Funds | | Managed
Direct
Venture
Funds | | Debt
Funds | | Sales of AFS Securities | | Strategic
and Other
Investments | | Total | | Managed
Funds of
Funds | | Managed
Direct
Venture
Funds | | Public Equity Securities | | Debt Funds | | Sales of AFS Securities | | Strategic and Other Investments | | SVB Leerink | | Total |
| Three months ended June 30, 2017 | | | | | | | | | | | | | |
| Three months ended June 30, 2019 | | | | | | | | | | | | | | | | | |
| Total gains (losses) on investment securities, net | |
| $ | 32,335 |
| | $ | 4,101 |
|
| $ | 444 |
|
| $ | 1,342 |
|
| $ | (275 | ) |
| $ | 7,311 |
| | $ | 2,440 |
| | $ | 47,698 |
|
| Less: income attributable to noncontrolling interests, including carried interest allocation | |
| 16,852 |
| | 1,711 |
|
| — |
|
| — |
|
| — |
|
| — |
| | 35 |
| | 18,598 |
|
| Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | | | $ | 15,483 |
| | $ | 2,390 |
| | $ | 444 |
| | $ | 1,342 |
| | $ | (275 | ) | | $ | 7,311 |
| | $ | 2,405 |
| | $ | 29,100 |
|
| | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2018 | | | | | | | | | | | | | | | | | |
| Total gains (losses) on investment securities, net | | $ | 12,145 |
| | $ | 69 |
| | $ | 682 |
| | $ | (123 | ) | | $ | 4,857 |
| | $ | 17,630 |
| | $ | 17,531 |
| | $ | (405 | ) | | $ | 140 |
| | $ | 726 |
| | $ | — |
| | $ | 18,122 |
| | $ | — |
| | $ | 36,114 |
|
| Less: income (loss) attributable to noncontrolling interests, including carried interest allocation | | 9,490 |
| | (25 | ) | | — |
| | — |
| | — |
| | 9,465 |
| | 9,793 |
| | (121 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | 9,672 |
|
| Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | | $ | 2,655 |
| | $ | 94 |
| | $ | 682 |
| | $ | (123 | ) | | $ | 4,857 |
| | $ | 8,165 |
| | $ | 7,738 |
| | $ | (284 | ) | | $ | 140 |
| | $ | 726 |
| | $ | — |
| | $ | 18,122 |
| | $ | — |
| | $ | 26,442 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2017 | | | | | | | | | | | | | |
| Total gains on investment securities, net | | $ | 22,178 |
| | $ | 165 |
| | $ | 251 |
| | $ | 485 |
| | $ | 10,521 |
| | $ | 33,600 |
| |
| Six months ended June 30, 2019 | | | | | | | | | | | | | | | | | |
| Total gains (losses) on investment securities, net | | | $ | 38,564 |
| | $ | 3,467 |
| | $ | 10,080 |
| | $ | 1,342 |
| | $ | (3,905 | ) | | $ | 22,313 |
| | $ | 4,865 |
| | $ | 76,726 |
|
| Less: income attributable to noncontrolling interests, including carried interest allocation | | 15,910 |
| | 17 |
| | — |
| | — |
| | — |
| | 15,927 |
| | 20,597 |
| | 1,402 |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | 22,034 |
|
| Non-GAAP net gains on investment securities, net of noncontrolling interests | | $ | 6,268 |
| | $ | 148 |
| | $ | 251 |
| | $ | 485 |
| | $ | 10,521 |
| | $ | 17,673 |
| |
| Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | | | $ | 17,967 |
| | $ | 2,065 |
| | $ | 10,080 |
| | $ | 1,342 |
| | $ | (3,905 | ) | | $ | 22,313 |
| | $ | 4,830 |
| | $ | 54,692 |
|
| | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2018 | | | | | | | | | | | | | | | | | |
| Total gains (losses) on investment securities, net | | | $ | 36,604 |
| | $ | 1,514 |
| | $ | (22,142 | ) | | $ | (1,573 | ) | | $ | — |
| | $ | 30,769 |
| | $ | — |
| | $ | 45,172 |
|
| Less: income attributable to noncontrolling interests, including carried interest allocation | | | 21,990 |
| | 587 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22,577 |
|
| Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests | | | $ | 14,614 |
| | $ | 927 |
| | $ | (22,142 | ) | | $ | (1,573 | ) | | $ | — |
| | $ | 30,769 |
| | $ | — |
| | $ | 22,595 |
|
Gains on Equity Warrant Assets, Net
Three months ended June 30, 20182019 and 20172018
Net gains on equity warrant assets were $19.1$48.3 million for the three months ended June 30, 2018,2019, compared to net gains of $10.8$19.1 million for the comparable 20172018 period. Net gains on equity warrant assets for the three months ended June 30, 20182019 consisted of:
| |
| • | Net gains of $40.2 million from the exercise of equity warrant assets compared to net gains of $8.9 million, primarily driven by healthy gains from IPO activity, and |
| |
| • | Net gains of $9.2 million from increases in warrant valuations compared to net gains of $11.0 million, driven by valuation increases in our private company warrant portfolio driven by healthy funding rounds during the three months ended June 30, 2019. |
Net gains of $11.0 million from changes in warrant valuation increases compared to net gains of $8.3 million, driven by our private company warrant portfolio and reflective of increased M&A exit activity and comparable market valuations during the three months ended June 30, 2018, and
Net gains of $8.9 million from the exercise of equity warrant assets compared to net gains of $3.1 million, primarily driven by increased IPO and M&A activity during the three months ended June 30, 2018.
Six months ended June 30, 20182019 and 20172018
Net gains on equity warrant assets were $38.3$69.7 million for the six months ended June 30, 2018,2019, compared to net gains of $17.5$38.3 million for the comparable 20172018 period. Net gains on equity warrant assets for the six months ended June 30, 20182019 consisted of:
Net gains of $20.5 million from the exercise of equity warrant assets compared to net gains of $11.3 million , reflective primarily of increased IPO and M&A activity during the six months endedJune 30, 2018, and
Net gains of $19.5 million from changes in warrant valuation increases compared to net gains of $7.3 million, driven by our private company warrant portfolio and reflective of increased M&A activity during the six months endedJune 30, 2018.
| |
| • | Net gains of $49.2 million from the exercise of equity warrant assets compared to net gains of $20.5 million, reflective primarily of increased IPO activity during the six months endedJune 30, 2019, and |
| |
| • | Net gains of $22.4 million from changes in warrant valuation increases compared to net gains of $19.5 million, driven by valuation increases in our private company warrant portfolio during the six months endedJune 30, 2019. |
A summary of gains on equity warrant assets, net, for the three and six months ended June 30, 20182019 and 20172018 is as follows:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Equity warrant assets (1) | | | | | | | | | | | | | |
| Equity warrant assets (1): | | | | | | | | | | | | | |
| Gains on exercises, net | | $ | 8,875 |
| | $ | 3,121 |
| | 184.4 | % | | $ | 20,509 |
| | $ | 11,345 |
| | 80.8 | % | | $ | 40,226 |
| | $ | 8,875 |
| | NM |
| | $ | 49,180 |
| | $ | 20,509 |
| | 139.8 | % |
| Cancellations and expirations | | (826 | ) | | (571 | ) | | 44.7 |
| | (1,726 | ) | | (1,129 | ) | | 52.9 |
| |
| Terminations | | | (1,045 | ) | | (826 | ) | | 26.5 |
| | (1,884 | ) | | (1,726 | ) | | 9.2 |
|
| Changes in fair value, net | | 11,012 |
| | 8,270 |
| | 33.2 |
| | 19,469 |
| | 7,294 |
| | 166.9 |
| | 9,166 |
| | 11,012 |
| | (16.8 | ) | | 22,356 |
| | 19,469 |
| | 14.8 |
|
| Gains on equity warrant assets, net | | $ | 19,061 |
| | $ | 10,820 |
| | 76.2 |
| | $ | 38,252 |
| | $ | 17,510 |
| | 118.5 |
| |
| Total gains on equity warrant assets, net | | | $ | 48,347 |
| | $ | 19,061 |
| | 153.6 |
| | $ | 69,652 |
| | $ | 38,252 |
| | 82.1 |
|
NM—Not meaningful
| |
| (1) | At June 30, 20182019, we held warrants in 1,9672,173 companies, compared to 1,8081,967 companies at June 30, 20172018. The total fair value of our warrant portfolio was $143.7158.0 million at June 30, 2019 and $143.7 million at June 30, 2018. Warrants in 22 companies each had fair values greater than $1.0 million and $131.8collectively represented $51.8 million, or 32.8 percent, of the fair value of the total warrant portfolio at June 30, 20172019. Warrants in 15 companies each had fair values greater than $1.0 million and collectively represented $38.6 million, or 26.8 percent, of the fair value of the total warrant portfolio at June 30, 2018. |
of the total warrant portfolio at June 30, 2018. Warrants in 15 companies each had fair values greater than $1.0 million and collectively represented $39.4 million, or 30.0 percent, of the fair value of the total warrant portfolio at June 30, 2017.
Non-GAAP Core Fee Income
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Non-GAAP core fee income (1): | | | | | | | | | | | | | | | | | | | | | | | | |
| Client investment fees | | | $ | 45,744 |
| | $ | 29,452 |
| | 55.3 | % | | $ | 90,226 |
| | $ | 52,327 |
| | 72.4 | % |
| Foreign exchange fees | | $ | 34,077 |
| | $ | 26,108 |
| | 30.5 | % | | $ | 67,904 |
| | $ | 52,355 |
| | 29.7 | % | | 38,506 |
| | 34,077 |
| | 13.0 |
| | 76,554 |
| | 67,904 |
| | 12.7 |
|
| Credit card fees | | 22,926 |
| | 18,099 |
| | 26.7 |
| | 44,618 |
| | 35,829 |
| | 24.5 |
| | 28,790 |
| | 22,926 |
| | 25.6 |
| | 56,273 |
| | 44,618 |
| | 26.1 |
|
| Deposit service charges | | 18,794 |
| | 14,563 |
| | 29.1 |
| | 36,493 |
| | 28,538 |
| | 27.9 |
| | 22,075 |
| | 18,794 |
| | 17.5 |
| | 43,014 |
| | 36,493 |
| | 17.9 |
|
| Client investment fees | | 29,452 |
| | 12,982 |
| | 126.9 |
| | 52,327 |
| | 22,008 |
| | 137.8 |
| |
| Lending related fees | | 9,528 |
| | 8,509 |
| | 12.0 |
| | 20,263 |
| | 17,470 |
| | 16.0 |
| | 11,213 |
| | 9,528 |
| | 17.7 |
| | 25,150 |
| | 20,263 |
| | 24.1 |
|
| Letters of credit and standby letters of credit fees | | 8,347 |
| | 7,006 |
| | 19.1 |
| | 16,529 |
| | 13,645 |
| | 21.1 |
| | 11,009 |
| | 8,347 |
| | 31.9 |
| | 20,363 |
| | 16,529 |
| | 23.2 |
|
| Total non-GAAP core fee income (1) | | $ | 123,124 |
| | $ | 87,267 |
| | 41.1 |
| | $ | 238,134 |
| | $ | 169,845 |
| | 40.2 |
| | $ | 157,337 |
| | $ | 123,124 |
| | 27.8 |
| | $ | 311,580 |
| | $ | 238,134 |
| | 30.8 |
|
| Investment banking revenue | | | 48,694 |
| | — |
| | — |
| | 98,489 |
| | — |
| | — |
|
| Commissions | | | 14,429 |
| | — |
| | — |
| | 28,537 |
| | — |
| | — |
|
| Total non-GAAP core fee income including investment banking revenue and commissions (2) | | | $ | 220,460 |
| | $ | 123,124 |
| | 79.1 |
| | $ | 438,606 |
| | $ | 238,134 |
| | 84.2 |
|
| |
| (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. See “Use of Non-GAAP Measures” above. |
| |
| (2) | 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, as well as investment banking revenue and commissions. See “Use of Non-GAAP Measures” above. |
Foreign ExchangeClient Investment Fees
Foreign exchangeClient investment fees were $34.1$45.7 million and $67.9$90.2 million for the three and six months ended June 30, 2018, respectively,2019, compared to $26.1 million and $52.4 million for the comparable 2017 periods. The increases in foreign exchange fees were driven primarily by increases in spot contract commissions driven by increased volume of trades for the three and six months ended June 30, 2018 compared to the 2017 periods. The volume of trades for spot contracts increased 35.1 percent and 33.1 percent for the three and six months ended June 30, 2018, respectively, compared to the comparable 2017 periods reflective primarily of our global expansion initiative and increased client engagement efforts. A summary of foreign exchange fee income by instrument type for the three and six months ended June 30, 2018 and 2017 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 |
| % Change | | 2018 | | 2017 | | % Change |
| Foreign exchange fees by instrument type: | | | | | | | | | | | | |
| Spot contract commissions | | $ | 31,548 |
| | $ | 23,583 |
| | 33.8 | % | | $ | 62,750 |
| | $ | 46,007 |
| | 36.4 | % |
| Forward contract commissions | | 2,455 |
| | 2,470 |
| | (0.6 | ) | | 4,940 |
| | 6,071 |
| | (18.6 | ) |
| Option premium fees | | 74 |
| | 55 |
| | 34.5 |
| | 214 |
| | 277 |
| | (22.7 | ) |
| Total foreign exchange fees | | $ | 34,077 |
| | $ | 26,108 |
| | 30.5 |
| | $ | 67,904 |
| | $ | 52,355 |
| | 29.7 |
|
Credit Card Fees
Credit card fees were $22.9 million and $44.6 million for the three and six months endedJune 30, 2018, respectively, compared to $18.1 million and $35.8 million for the comparable 2017 periods. The increases were primarily due to higher net interchange fee income driven by an increase in transaction volume reflective of higher spend by our commercial clients and our focus on our credit card business as a key area targeted for growth. The increases in gross interchange fee income were partially offset by increases in rebate/rewards expense for the three and six months ended June 30, 2018. A summary of credit card fees by instrument type for the three and six months ended June 30, 2018 and 2017 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change |
| Credit card fees by instrument type: | | | | | | | | | | | | |
| Card interchange fees, net | | $ | 18,137 |
| | $ | 14,033 |
| | 29.2 | % | | $ | 35,697 |
| | $ | 28,003 |
| | 27.5 | % |
| Merchant service fees | | 3,425 |
| | 2,883 |
| | 18.8 |
| | 6,331 |
| | 5,623 |
| | 12.6 |
|
| Card service fees | | 1,364 |
| | 1,183 |
| | 15.3 |
| | 2,590 |
| | 2,203 |
| | 17.6 |
|
| Total credit card fees | | $ | 22,926 |
| | $ | 18,099 |
| | 26.7 |
| | $ | 44,618 |
| | $ | 35,829 |
| | 24.5 |
|
Deposit Service Charges
Deposit service charges were $18.8 million and $36.5 million for the three and six months ended June 30, 2018, respectively, compared to $14.6 million and $28.5 million for the comparable 2017 periods. The increases were reflective of higher deposit client counts, as well as higher volumes of our transaction-based fee products, during the three and six months ended June 30, 2018.
Client Investment Fees
Client investment fees were $29.5 million and $52.3 million for the three and six months ended June 30,comparable 2018 respectively, compared to $13.0 million and $22.0 million for the comparable 2017 periods. The increases were reflective of the large increaseincreases in average client investment funds driven by our clients’ increased utilization of our off-balance sheet sweep money market funds and products managed by SVB Asset Management. Client investment fees also benefited from improved spreads on our client investment funds due to increases in general market rates andsince the reintroduction of fees that had been previously waived due to the low rate environment.second quarter ended June 30, 2018. A summary of client investment fees by instrument type for the three and six months ended June 30, 20182019 and 20172018 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change |
| Client investment fees by type: | | | | | | | | | | | | |
| Sweep money market fees | | $ | 17,178 |
| | $ | 6,474 |
| | 165.3 | % | | $ | 29,500 |
| | $ | 10,870 |
| | 171.4 | % |
| Asset management fees | | 5,730 |
| | 4,111 |
| | 39.4 |
| | 11,088 |
| | 7,490 |
| | 48.0 |
|
| Repurchase agreement fees | | 6,544 |
| | 2,397 |
| | 173.0 |
| | 11,739 |
| | 3,648 |
| | NM |
|
| Total client investment fees | | $ | 29,452 |
| | $ | 12,982 |
| | 126.9 |
| | $ | 52,327 |
| | $ | 22,008 |
| | 137.8 |
|
NM—Not meaningful |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Client investment fees by type: | | | | | | | | | | | | |
| Sweep money market fees | | $ | 26,952 |
| | $ | 17,178 |
| | 56.9 | % | | $ | 53,496 |
| | $ | 29,500 |
| | 81.3 | % |
| Asset management fees | | 6,956 |
| | 5,730 |
| | 21.4 |
| | 13,628 |
| | 11,088 |
| | 22.9 |
|
| Repurchase agreement fees | | 11,836 |
| | 6,544 |
| | 80.9 |
| | 23,102 |
| | 11,739 |
| | 96.8 |
|
| Total client investment fees | | $ | 45,744 |
| | $ | 29,452 |
| | 55.3 |
| | $ | 90,226 |
| | $ | 52,327 |
| | 72.4 |
|
The following table summarizes average client investment funds for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, |
| Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in millions) | | 2018 |
| 2017 |
| % Change |
| 2018 |
| 2017 |
| % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Sweep money market funds | | $ | 30,164 |
| | $ | 18,464 |
| | 63.4 | % | | $ | 28,148 |
| | $ | 18,091 |
| | 55.6 | % | | $ | 40,017 |
| | $ | 30,164 |
| | 32.7 | % | | $ | 39,911 |
| | $ | 28,148 |
| | 41.8 | % |
| Client investment assets under management(1) | | 33,443 |
| | 24,423 |
| | 36.9 |
| | 32,071 |
| | 23,735 |
| | 35.1 |
| |
| Client investment assets under management (1) | | | 40,825 |
| | 33,443 |
| | 22.1 |
| | 40,036 |
| | 32,071 |
| | 24.8 |
|
| Repurchase agreements | | 7,705 |
| | 6,223 |
| | 23.8 |
| | 7,626 |
| | 5,794 |
| | 31.6 |
| | 8,810 |
| | 7,705 |
| | 14.3 |
| | 8,586 |
| | 7,626 |
| | 12.6 |
|
| Total average client investment funds (2) | | $ | 71,312 |
| | $ | 49,110 |
| | 45.2 |
| | $ | 67,845 |
| | $ | 47,620 |
| | 42.5 |
| | $ | 89,652 |
| | $ | 71,312 |
| | 25.7 |
| | $ | 88,533 |
| | $ | 67,845 |
| | 30.5 |
|
| |
| (1) | These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. |
| |
| (2) | Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet. |
The following table summarizes period-end client investment funds at June 30, 20182019 and December 31, 2017:2018:
| | | (Dollars in millions) | | June 30, 2018 | | December 31, 2017 | | % Change | | June 30, 2019 | | December 31, 2018 | | % Change |
| Sweep money market funds | | $ | 31,859 |
| | $ | 23,911 |
| | 33.2 | % | | $ | 40,008 |
| | $ | 38,348 |
| | 4.3 | % |
| Client investment assets under management (1) | | 35,509 |
| | 29,344 |
| | 21.0 |
| | 41,614 |
| | 39,214 |
| | 6.1 |
|
| Repurchase agreements | | 8,406 |
| | 7,074 |
| | 18.8 |
| | 9,873 |
| | 8,422 |
| | 17.2 |
|
| Total period-end client investment funds (2) | | $ | 75,774 |
| | $ | 60,329 |
| | 25.6 |
| | $ | 91,495 |
| | $ | 85,984 |
| | 6.4 |
|
| |
| (1) | These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. |
| |
| (2) | Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet. |
Foreign Exchange Fees
Foreign exchange fees were $38.5 million and $76.6 million for the three and six months ended June 30, 2019, respectively, compared to $34.1 million and $67.9 million for the comparable 2018 periods. The increase in foreign exchange fees was driven primarily by increases in spot contract commissions driven by increased volume of trades for the three and six months ended June 30, 2019 compared to the 2018 periods. The volume of trades for spot contracts increased 13.8 and 17.9 percent for the three and six months ended June 30, 2019, respectively, compared to the comparable 2018 periods reflective primarily of our global expansion initiative and increased client engagement efforts. A summary of foreign exchange fee income by instrument type for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 |
| 2018 |
| % Change | | 2019 | | 2018 | | % Change |
| Foreign exchange fees by instrument type: | | | | | | | | | | | | |
| Spot contract commissions | | $ | 34,696 |
| | $ | 31,548 |
| | 10.0 | % | | $ | 69,725 |
| | $ | 62,750 |
| | 11.1 | % |
| Forward contract commissions | | 3,778 |
| | 2,455 |
| | 53.9 |
| | 6,773 |
| | 4,940 |
| | 37.1 |
|
| Option premium fees | | 32 |
| | 74 |
| | (56.8 | ) | | 56 |
| | 214 |
| | (73.8 | ) |
| Total foreign exchange fees | | $ | 38,506 |
| | $ | 34,077 |
| | 13.0 |
| | $ | 76,554 |
| | $ | 67,904 |
| | 12.7 |
|
Credit Card Fees
Credit card fees were $28.8 million and $56.3 million for the three and six months endedJune 30, 2019, respectively, compared to $22.9 million and $44.6 million for the comparable 2018 periods. The increases were primarily due to higher gross interchange fee income driven by an increase in transaction volume reflective of higher spending by our commercial clients and our focus on our credit card business as a key area targeted for growth. The increase in gross interchange fee income was partially offset by an increase in rebates/rewards expense for the three and six months ended June 30, 2019. A summary of credit card fees by instrument type for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Credit card fees by instrument type: | | | | | | | | | | | | |
| Card interchange fees, net | | $ | 22,855 |
| | $ | 18,137 |
| | 26.0 | % | | $ | 44,248 |
| | $ | 35,697 |
| | 24.0 | % |
| Merchant service fees | | 4,286 |
| | 3,425 |
| | 25.1 |
| | 8,821 |
| | 6,331 |
| | 39.3 |
|
| Card service fees | | 1,649 |
| | 1,364 |
| | 20.9 |
| | 3,204 |
| | 2,590 |
| | 23.7 |
|
| Total credit card fees | | $ | 28,790 |
| | $ | 22,926 |
| | 25.6 |
| | $ | 56,273 |
| | $ | 44,618 |
| | 26.1 |
|
Deposit Service Charges
Deposit service charges were $22.1 million and $43.0 million for the three and six months ended June 30, 2019, respectively, compared to $18.8 million and $36.5 million for the comparable 2018 periods. The increases were reflective of higher deposit client counts as well as higher volumes of our transaction-based fee products during the three and six months ended June 30, 2019.
Lending Related Fees
Lending related fees were $11.2 million and $25.2 million for the three and six months ended June 30, 2019, respectively,
compared to $9.5 million and $20.3 million for the comparable 2018 periods. The increases were due primarily to an increase in syndication fee income for the three and six months ended June 30, 2019. A summary of lending related fees by type for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Lending related fees by instrument type: | | | | | | | | | | | | |
| Unused commitment fees | | $ | 7,051 |
| | $ | 7,827 |
| | (9.9 | )% | | $ | 16,721 |
| | $ | 16,584 |
| | 0.8 | % |
| Other | | 4,162 |
| | 1,701 |
| | 144.7 |
| | 8,429 |
| | 3,679 |
| | 129.1 |
|
| Total lending related fees | | $ | 11,213 |
| | $ | 9,528 |
| | 17.7 |
| | $ | 25,150 |
| | $ | 20,263 |
| | 24.1 |
|
Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees were $11.0 million and $20.4 million for the three and six months ended June 30, 2019, respectively, compared to $8.3 million and $16.5 million for the comparable 2018 periods. The increases were primarily driven by increases in deferred fee income reflective of larger letter of credit issuances.
Investment Banking Revenue
Investment banking revenue was $48.7 million and $98.5 million for the three and six months ended June 30, 2019, respectively, consisting primarily of underwriting fees. A summary of investment banking revenue by type for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Investment banking revenue: | | | | | | | | | | | | |
| Underwriting fees | | $ | 42,584 |
| | $ | — |
| | — |
| | $ | 78,356 |
| | $ | — |
| | — |
|
| Advisory fees | | 5,315 |
| | — |
| | — |
| | 17,588 |
| | — |
| | — |
|
| Private placements and other | | 795 |
| | — |
| | — |
| | 2,545 |
| | — |
| | — |
|
| Total investment banking revenue | | $ | 48,694 |
| | $ | — |
| | — |
| | $ | 98,489 |
| | $ | — |
| | — |
|
Commissions
Commissions for the three and six months ended June 30, 2019 were $14.4 million and $28.5 million, respectively, which were driven by client trading activity, consistent with market volumes.
Other Noninterest Income
Total other noninterest income was $17.2 million and $29.1 million for the three and six months ended June 30, 2019, respectively, compared to $14.4 million and $26.6 million for the comparable 2018 periods. The increases were due primarily to an increase in fund management fees due to the inclusion of SVB Leerink in our financial results as of January 4, 2019. A summary of other noninterest income for the three and six months ended June 30, 2019 and 2018 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Other noninterest income by instrument type: | | | | | | | | | | | | |
| Fund management fees | | $ | 7,758 |
| | $ | 5,929 |
| | 30.8 | % | | $ | 15,799 |
| | $ | 11,665 |
| | 35.4 | % |
| Net gains on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1) | | 587 |
| | 236 |
| | 148.7 |
| | 251 |
| | 189 |
| | 32.8 |
|
| Other service revenue (2) | | 8,900 |
| | 8,225 |
| | 8.2 |
| | 13,092 |
| | 14,795 |
| | (11.5 | ) |
| Total other noninterest income | | $ | 17,245 |
| | $ | 14,390 |
| | 19.8 |
| | $ | 29,142 |
| | $ | 26,649 |
| | 9.4 |
|
| |
| (1) | Represents the net revaluation of client and internal foreign currency denominated financial instruments. We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client and internal foreign currency denominated financial instruments. |
| |
| (2) | Includes dividends on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest, valuation fee income and other fee income. |
Noninterest Expense
A summary of noninterest expense for the three and six months ended June 30, 20182019 and 20172018 is as follows:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 |
| 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 |
| 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Compensation and benefits | | $ | 181,955 |
| | $ | 148,973 |
| | 22.1 | % | | $ | 347,761 |
| | $ | 296,149 |
| | 17.4 | % | | $ | 243,172 |
| | $ | 181,955 |
| | 33.6 | % | | $ | 481,233 |
| | $ | 347,761 |
| | 38.4 | % |
| Professional services | | 46,813 |
| | 27,925 |
| | 67.6 |
| | 75,538 |
| | 53,344 |
| | 41.6 |
| | 40,830 |
| | 46,813 |
| | (12.8 | ) | | 77,816 |
| | 75,538 |
| | 3.0 |
|
| Premises and equipment | | 19,173 |
| | 18,958 |
| | 1.1 |
| | 37,718 |
| | 34,816 |
| | 8.3 |
| | 23,911 |
| | 19,173 |
| | 24.7 |
| | 45,611 |
| | 37,718 |
| | 20.9 |
|
| Net occupancy | | 13,288 |
| | 11,126 |
| | 19.4 |
| | 26,904 |
| | 22,777 |
| | 18.1 |
| | 16,687 |
| | 13,288 |
| | 25.6 |
| | 32,735 |
| | 26,904 |
| | 21.7 |
|
| Business development and travel | | 12,095 |
| | 11,389 |
| | 6.2 |
| | 23,286 |
| | 20,584 |
| | 13.1 |
| | 17,022 |
| | 12,095 |
| | 40.7 |
| | 32,376 |
| | 23,286 |
| | 39.0 |
|
| FDIC and state assessments | | 10,326 |
| | 9,313 |
| | 10.9 |
| | 19,756 |
| | 17,995 |
| | 9.8 |
| | 4,483 |
| | 10,326 |
| | (56.6 | ) | | 8,462 |
| | 19,756 |
| | (57.2 | ) |
| Correspondent bank fees | | 3,277 |
| | 3,163 |
| | 3.6 |
| | 6,687 |
| | 6,608 |
| | 1.2 |
| |
| Other | | 18,812 |
| | 20,399 |
| | (7.8 | ) | | 33,506 |
| | 36,606 |
| | (8.5 | ) | | 37,417 |
| | 22,089 |
| | 69.4 |
| | 70,953 |
| | 40,193 |
| | 76.5 |
|
| Total noninterest expense | | $ | 305,739 |
| | $ | 251,246 |
| | 21.7 |
| | $ | 571,156 |
| | $ | 488,879 |
| | 16.8 |
| | $ | 383,522 |
| | $ | 305,739 |
| | 25.4 |
| | $ | 749,186 |
| | $ | 571,156 |
| | 31.2 |
|
Included in noninterest expense is expense attributable to noncontrolling interests. See below for a description and reconciliation of non-GAAP noninterest expense and non-GAAP core 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 core operating efficiency ratio, which excludes noncontrolling interests.interests and SVB Leerink. 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 core operating efficiency ratio both net of noncontrolling interests for the three and six months ended June 30, 20182019 and 20172018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands, except ratios) | | 2018 |
| 2017 | | % Change | | 2018 | | 2017 | | % Change | |
| Non-GAAP core operating efficiency ratio (Dollars in thousands, except ratios) | | | 2019 |
| 2018 | | % Change | | 2019 | | 2018 | | % Change |
| GAAP noninterest expense | | $ | 305,739 |
| | $ | 251,246 |
| | 21.7 | % | | $ | 571,156 |
| | $ | 488,879 |
| | 16.8 | % | | $ | 383,522 |
| | $ | 305,739 |
| | 25.4 | % | | $ | 749,186 |
| | $ | 571,156 |
| | 31.2 | % |
| Less: amounts attributable to noncontrolling interests | | 227 |
| | 223 |
| | 1.8 |
| | 195 |
| | 392 |
| | (50.3 | ) | |
| Less: expense attributable to noncontrolling interests | | | 168 |
| | 227 |
| | (26.0 | ) | | 547 |
| | 195 |
| | 180.5 |
|
| Non-GAAP noninterest expense, net of noncontrolling interests | | $ | 305,512 |
| | $ | 251,023 |
| | 21.7 |
| | $ | 570,961 |
| | $ | 488,487 |
| | 16.9 |
| | 383,354 |
| | 305,512 |
| | 25.5 |
| | 748,639 |
| | 570,961 |
| | 31.1 |
|
| Less: expense attributable to SVB Leerink | | | 61,935 |
| | — |
| | — |
| | 122,475 |
| | — |
| | — |
|
| Non-GAAP noninterest expense, net of noncontrolling interests and SVB Leerink | | | $ | 321,419 |
| | $ | 305,512 |
| | 5.2 |
| | $ | 626,164 |
| | $ | 570,961 |
| | 9.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| GAAP net interest income | | $ | 466,443 |
| | $ | 342,696 |
| | 36.1 |
| | $ | 886,306 |
| | $ | 652,689 |
| | 35.8 |
| | $ | 529,403 |
| | $ | 466,443 |
| | 13.5 |
| | $ | 1,042,289 |
| | $ | 886,306 |
| | 17.6 |
|
| Adjustments for taxable equivalent basis | | 2,037 |
| | 476 |
| | NM |
| | 3,391 |
| | 824 |
| | NM |
| | 2,905 |
| | 2,037 |
| | 42.6 |
| | 5,812 |
| | 3,391 |
| | 71.4 |
|
| Non-GAAP taxable equivalent net interest income | | $ | 468,480 |
| | $ | 343,172 |
| | 36.5 |
| | $ | 889,697 |
| | $ | 653,513 |
| | 36.1 |
| | 532,308 |
| | 468,480 |
| | 13.6 |
| | 1,048,101 |
| | 889,697 |
| | 17.8 |
|
| Less: income attributable to noncontrolling interests | | 10 |
| | 10 |
| | — |
| | 19 |
| | 17 |
| | 11.8 |
| | 16 |
| | 10 |
| | 60.0 |
| | 27 |
| | 19 |
| | 42.1 |
|
| Non-GAAP taxable equivalent net interest income, net of noncontrolling interests | | $ | 468,470 |
| | $ | 343,162 |
| | 36.5 |
| | $ | 889,678 |
| | $ | 653,496 |
| | 36.1 |
| | 532,292 |
| | 468,470 |
| | 13.6 |
| | 1,048,074 |
| | 889,678 |
| | 17.8 |
|
| Less: net interest income attributable to SVB Leerink | | | 242 |
| | — |
| | — |
| | 684 |
| | — |
| | — |
|
| Non-GAAP taxable equivalent net interest income, net of noncontrolling interests and SVB Leerink | | | $ | 532,050 |
| | $ | 468,470 |
| | 13.6 |
| | $ | 1,047,390 |
| | $ | 889,678 |
| | 17.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| GAAP noninterest income | | $ | 192,689 |
| | $ | 128,528 |
| | 49.9 |
| | $ | 348,207 |
| | $ | 246,187 |
| | 41.4 |
| | $ | 333,750 |
| | $ | 192,689 |
| | 73.2 |
| | $ | 614,126 |
| | $ | 348,207 |
| | 76.4 |
|
| Less: income attributable to noncontrolling interests | | 9,445 |
| | 9,536 |
| | (1.0 | ) | | 22,469 |
| | 16,095 |
| | 39.6 |
| |
| Less: income attributable to noncontrolling interests, including carried interest allocation | | | 18,736 |
| | 9,445 |
| | 98.4 |
| | 21,984 |
| | 22,469 |
| | (2.2 | ) |
| Non-GAAP noninterest income, net of noncontrolling interests | | $ | 183,244 |
| | $ | 118,992 |
| | 54.0 |
| | $ | 325,738 |
| | $ | 230,092 |
| | 41.6 |
| | 315,014 |
| | 183,244 |
| | 71.9 |
| | 592,142 |
| | 325,738 |
| | 81.8 |
|
| Less: non-GAAP net gains on investment securities, net of noncontrolling interests | | | 29,100 |
| | 26,442 |
| | 10.1 |
| | 54,692 |
| | 22,595 |
| | 142.1 |
|
| Less: net gains on equity warrant assets | | | 48,347 |
| | 19,061 |
| | 153.6 |
| | 69,652 |
| | 38,252 |
| | 82.1 |
|
| Less: investment banking revenue | | | 48,694 |
| | — |
| | — |
| | 98,489 |
| | — |
| | — |
|
| Less: commissions | | | 14,429 |
| | — |
| | — |
| | 28,537 |
| | — |
| | — |
|
| Non-GAAP noninterest income, net of noncontrolling interests and net of net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions | | | $ | 174,444 |
| | $ | 137,741 |
| | 26.6 |
| | $ | 340,772 |
| | $ | 264,891 |
| | 28.6 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| GAAP total revenue | | $ | 659,132 |
| | $ | 471,224 |
| | 39.9 |
| | $ | 1,234,513 |
| | $ | 898,876 |
| | 37.3 |
| | $ | 863,153 |
| | $ | 659,132 |
| | 31.0 |
| | $ | 1,656,415 |
| | $ | 1,234,513 |
| | 34.2 |
|
| Non-GAAP taxable equivalent revenue, net of noncontrolling interests | | $ | 651,714 |
| | $ | 462,154 |
| | 41.0 |
| | $ | 1,215,416 |
| | $ | 883,588 |
| | 37.6 |
| |
| Non-GAAP taxable equivalent revenue, net of noncontrolling interests and SVB Leerink, net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions | | | $ | 706,494 |
| | $ | 606,211 |
| | 16.5 |
| | $ | 1,388,162 |
| | $ | 1,154,569 |
| | 20.2 |
|
| | | | | | | | | | | | | | |
| GAAP operating efficiency ratio | | 46.39 | % | | 53.32 | % | | (13.0 | ) | | 46.27 | % | | 54.39 | % | | (14.9 | ) | | 44.43 | % | | 46.39 | % | | (4.2 | ) | | 45.23 | % | | 46.27 | % | | (2.2 | ) |
| Non-GAAP operating efficiency ratio (1) | | 46.88 |
| | 54.32 |
| | (13.7 | ) | | 46.98 |
| | 55.28 |
| | (15.0 | ) | |
| Non-GAAP core operating efficiency ratio (1) | | | 45.49 |
| | 50.40 |
| | (9.7 | ) | | 45.11 |
| | 49.45 |
| | (8.8 | ) |
NM—Not meaningful
| |
| (1) | The non-GAAP core operating efficiency ratio is calculated by dividing non-GAAP noninterest expense after adjusting for noninterest expense attributable to SVB Leerink by total revenue after adjusting for net ofinterest income attributable to SVB Leerink, net gains or losses on investment securities and equity warrant assets, investment banking revenue and commissions. Additionally, noninterest expense and total revenue are adjusted for income or losses and expenses attributable to noncontrolling interests by non-GAAP taxable-equivalent revenue,and adjustments to net of noncontrolling interests.interest income for a taxable equivalent basis. |
Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands, except employees) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Compensation and benefits: | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and wages | | $ | 76,831 |
| | $ | 68,029 |
| | 12.9 | % | | $ | 149,870 |
| | $ | 134,888 |
| | 11.1 | % | | $ | 105,799 |
| | $ | 76,831 |
| | 37.7 | % | | $ | 206,999 |
| | $ | 149,870 |
| | 38.1 | % |
| Incentive compensation & ESOP | | 54,382 |
| | 36,824 |
| | 47.7 |
| | 98,015 |
| | 70,642 |
| | 38.7 |
| | 72,576 |
| | 54,382 |
| | 33.5 |
| | 143,128 |
| | 98,015 |
| | 46.0 |
|
| Other employee incentives and benefits (1) | | 50,742 |
| | 44,120 |
| | 15.0 |
| | 99,876 |
| | 90,619 |
| | 10.2 |
| | 64,797 |
| | 50,742 |
| | 27.7 |
| | 131,106 |
| | 99,876 |
| | 31.3 |
|
| Total compensation and benefits | | $ | 181,955 |
| | $ | 148,973 |
| | 22.1 |
| | $ | 347,761 |
| | $ | 296,149 |
| | 17.4 |
| | $ | 243,172 |
| | $ | 181,955 |
| | 33.6 |
| | $ | 481,233 |
| | $ | 347,761 |
| | 38.4 |
|
| Period-end full-time equivalent employees | | 2,626 |
| | 2,380 |
| | 10.3 |
| | 2,626 |
| | 2,380 |
| | 10.3 |
| | 3,314 |
| | 2,626 |
| | 26.2 |
| | 3,314 |
| | 2,626 |
| | 26.2 |
|
| Average full-time equivalent employees | | 2,591 |
| | 2,372 |
| | 9.2 |
| | 2,545 |
| | 2,358 |
| | 7.9 |
| | 3,287 |
| | 2,591 |
| | 26.9 |
| | 3,257 |
| | 2,545 |
| | 28.0 |
|
| |
(1) | Other employee incentives and benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee-related expenses. |
Compensation and benefits expense was $182.0$243.2 million for the three months ended June 30, 2018,2019, compared to $149.0$182.0 million for the comparable 20172018 period. The key changes in factors affecting compensation and benefits expense were as follows:
An increase of $17.6 million in incentive compensation and ESOP expense reflective primarily of our strong 2018 full-year expected performance as compared to 2017 as well as an increase in the number of average FTE since June 30, 2017,
An increase of $8.8$29.0 million in salaries and wages reflective primarily of the increase in the number of average FTE by 219696 to 2,5913,287 for the second quarter of 20182019, of which 230 FTEs were attributable to the acquisition of SVB Leerink compared to the same period in 2017,2018, as well as merit increases,annual pay raises,
An increase of $18.2 million in incentive compensation and ESOP expense reflective primarily of the inclusion of SVB Leerink in our financial results for the second quarter of 2019, and
An increase of $6.6$14.0 million in other employee incentives and benefits primarily driven by an increase in employer payroll taxes of $2.7 million, reflective of the increase in the number of average FTE since the second quarter of 2017, as well as an increase of $2.1$4.7 million in share-based compensation expense primarily due to our accruals based on our performance expectations for our outstanding performance-basedthe increased restricted stock awards comparedgranted during 2019, $2.8 million for increased warrant compensation expense due to our estimate for the second quarter of 2017, reflective ofexceptional gains on equity warrant assets, and other miscellaneous employee expenses related to the increase in our stock price relative to our peers.average FTEs as noted above.
Compensation and benefits expense was $347.8$481.2 million for the six months ended June 30, 2018,2019, compared to $296.1$347.8 million for the comparable 20172018 period. The key changes in factors affecting compensation and benefits expense were as follows:
An increase of $27.4 million in incentive compensation and ESOP expense reflective primarily of our strong 2018 full-year expected performance as compared to 2017 as well as an increase in the number of average FTE since June 30, 2017,
An increase of $15.0$57.1 million in salaries and wages reflective primarily of the increase in the number of average FTE by 187712 to 2,5453,257 for the second halfsix months ended June 30, 2019, of 2018which 231 FTEs were attributable to the acquisition of SVB Leerink compared to the same period in 2017,2018, as well as merit increases,annual pay raises,
An increase of $45.1 million in incentive compensation and ESOP expense reflective primarily of the inclusion of SVB Leerink in our financial results for the six months ended June 30, 2019, and
An increase of $9.3$31.2 million in other employee incentives and benefits primarily driven by an increase in employer payroll taxes of $3.9 million, reflective of the increase in the number of average FTE since the second half of 2017, as well as an increase of $3.4$9.3 million in share-based compensation expense primarily due to our accruals based on our performance expectations for our outstanding performance-basedthe increased restricted stock awards comparedgranted during 2019, $5.7 million for increased warrant compensation expense due to our estimate for the second half of 2017, reflective ofexceptional gains on equity warrant assets, and other miscellaneous employee expenses related to the increase in our stock price relative to our peers.average FTEs as noted above.
Our variable compensation plans consist primarily 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 20172018 Form 10-K). Total costs incurred under these plans were $61.8$85.4 million and $115.0$172.0 million for the three and six months ended June 30, 2018,2019, respectively, compared to $43.1$61.8 million and $87.4$115.0 million for the comparable 20172018 periods. These amounts are included in total compensation and benefits expense discussed above.
Professional Services
Professional services expense was $46.8$40.8 million and $75.5$77.8 million for the three and six months ended June 30, 2018,2019, respectively, compared to $27.9$46.8 million and $53.3$75.5 million for the comparable 20172018 periods. The increases were primarily related to enhancements in our regulatory, risk and compliance infrastructure to support our momentum as we continue to grow both domestically and globally as well as investments made in projects, systems and technology to support our revenue growth and related initiatives and other operating costs. Professional services expensedecrease for the three and six months ended June 30, 2018, included2019 was primarily related to a $6.0 million write-off in the three months ended June 30, 2018 for capitalized costs in connection with the Economic Growth, Regulatory Relief and Consumer Protection Act, which includes regulatory reformAct. The increase for the six months ended June 30, 2019 was primarily due to the increase in legal and consulting costs related to the acquisition of the threshold for which certain enhanced prudential standards apply from $50 billion to $250 billion.SVB Leerink.
Net OccupancyPremises and Equipment
Net occupancyPremises and equipment expense was $13.3$23.9 million and $26.9$45.6 million for the three and six months ended June 30, 2018,2019, respectively, compared to $11.1$19.2 million and $22.8$37.7 million for the comparable 20172018 periods. The increases related to investments in projects, systems and technology to support our revenue growth and related initiatives as well as other operating costs.
Net Occupancy
Net occupancy expense was $16.7 million and $32.7 million for the three and six months ended June 30, 2019, respectively, compared to $13.3 million and $26.9 million for the comparable 2018 periods. The increases were primarily due to lease renewals at higher costs, reflective of market conditions, and the expansion of certain offices to support our growth. Additionally, for the three and six months ended June 30, 2019, $1.9 million and $3.7 million, respectively, were directly attributable to the inclusion of SVB Leerink in our financial results effective January 1, 2019.
FDIC and State Assessments
FDIC and state assessments expense was $4.5 million and $8.5 million for the three and six months ended June 30, 2019, respectively, compared to $10.3 million and $19.8 million for the comparable 2018 periods. The decreases were primarily due to the elimination of the FDIC surcharge for banks effective October 1, 2018, reflective of the deposit insurance fund reserve ratio reaching its minimum funding requirements.
Business Development and Travel
Business development and travel expense was $12.1$17.0 million and $23.3$32.4 million for the three and six months ended June 30, 2018,2019, respectively, compared to $11.4$12.1 million and $20.6$23.3 million for the comparable 2017 period.2018 periods. The increases were to support expansion initiatives as we continue to grow both domestically and globally.
Other Noninterest Expense
Total other noninterest expense was $18.8$37.4 million and $33.5$71.0 million for the three and six months ended June 30, 2018,2019, respectively, compared to $20.4$22.1 million and $36.6 $40.2 millionfor the comparable2017 2018 periods. The decreasesincreases were driven primarily by certain reimbursement incentives received associated with a new vendor agreement signed duringongoing expenses related to the first quarter 2018.
consolidation of SVB Leerink, specifically, $9.6 million and $19.1 million of the overall increases for the three and six months ended June 30, 2019, respectively, were related to expenses for investment banking and trade order execution costs as well as amortization of intangible assets recorded as part of the acquisition.
A summary of other noninterest expense for the three and six months ended June 30, 20182019 and 20172018 is as follows:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Lending and other client related processing costs | | $ | 7,403 |
| | $ | 6,332 |
| | 16.9 | % | | $ | 10,603 |
| | $ | 11,871 |
| | (10.7 | )% | | $ | 8,763 |
| | $ | 7,403 |
| | 18.4 | % | | $ | 13,940 |
| | $ | 10,603 |
| | 31.5 | % |
| Correspondent bank fees | | | 3,569 |
| | 3,277 |
| | 8.9 |
| | 7,313 |
| | 6,687 |
| | 9.4 |
|
| Investment banking activities | | | 3,869 |
| | — |
| | — |
| | 8,054 |
| | — |
| | — |
|
| Trade order execution costs | | | 2,828 |
| | — |
| | — |
| | 5,344 |
| | — |
| | — |
|
| Data processing services | | 2,703 |
| | 2,428 |
| | 11.3 |
| | 5,195 |
| | 5,010 |
| | 3.7 |
| | 2,659 |
| | 2,703 |
| | (1.6 | ) | | 5,558 |
| | 5,195 |
| | 7.0 |
|
| Telephone | | 2,378 |
| | 2,671 |
| | (11.0 | ) | | 4,756 |
| | 5,374 |
| | (11.5 | ) | | 2,422 |
| | 2,378 |
| | 1.9 |
| | 5,163 |
| | 4,756 |
| | 8.6 |
|
| Dues and publications | | 845 |
| | 677 |
| | 24.8 |
| | 1,694 |
| | 1,472 |
| | 15.1 |
| | 860 |
| | 845 |
| | 1.8 |
| | 2,384 |
| | 1,694 |
| | 40.7 |
|
| Postage and supplies | | 813 |
| | 652 |
| | 24.7 |
| | 1,480 |
| | 1,401 |
| | 5.6 |
| | 678 |
| | 813 |
| | (16.6 | ) | | 1,448 |
| | 1,480 |
| | (2.2 | ) |
| Other | | 4,670 |
| | 7,639 |
| | (38.9 | ) | | 9,778 |
| | 11,478 |
| | (14.8 | ) | | 11,769 |
| | 4,670 |
| | 152.0 |
| | 21,749 |
| | 9,778 |
| | 122.4 |
|
| Total other noninterest expense | | $ | 18,812 |
| | $ | 20,399 |
| | (7.8 | ) | | $ | 33,506 |
| | $ | 36,606 |
| | (8.5 | ) | | $ | 37,417 |
| | $ | 22,089 |
| | 69.4 |
| | $ | 70,953 |
| | $ | 40,193 |
| | 76.5 |
|
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“net income attributable to noncontrolling interests” on our statements of income.
In the table below, noninterest income consists primarily of net 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 managed funds’ general partners. A summary of net income attributable to noncontrolling interests for the three and six months ended June 30, 20182019 and 20172018 is as follows:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Net interest income (1) | | $ | (10 | ) | | $ | (10 | ) | | — | % | | $ | (19 | ) | | $ | (17 | ) | | 11.8 | % | | $ | (16 | ) | | $ | (10 | ) | | 60.0 | % | | $ | (27 | ) | | $ | (19 | ) | | 42.1 | % |
| Noninterest income (1) | | (7,856 | ) | | (9,264 | ) | | (15.2 | ) | | (17,378 | ) | | (14,718 | ) | | 18.1 |
| | (12,406 | ) | | (7,856 | ) | | 57.9 |
| | (14,676 | ) | | (17,378 | ) | | (15.5 | ) |
| Noninterest expense (1) | | 227 |
| | 223 |
| | 1.8 |
| | 195 |
| | 392 |
| | (50.3 | ) | | 168 |
| | 227 |
| | (26.0 | ) | | 547 |
| | 195 |
| | 180.5 |
|
| Carried interest allocation (2) | | (1,589 | ) | | (272 | ) | | NM |
| | (5,091 | ) | | (1,377 | ) | | NM |
| | (6,330 | ) | | (1,589 | ) | | NM |
| | (7,308 | ) | | (5,091 | ) | | 43.5 |
|
| Net income attributable to noncontrolling interests | | $ | (9,228 | ) | | $ | (9,323 | ) | | (1.0 | ) | | $ | (22,293 | ) | | $ | (15,720 | ) | | 41.8 |
| | $ | (18,584 | ) | | $ | (9,228 | ) | | 101.4 |
| | $ | (21,464 | ) | | $ | (22,293 | ) | | (3.7 | ) |
NM—Not meaningful
| |
| (1) | Represents noncontrolling interests’ share in net interest income, noninterest income or loss 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. |
Three months ended June 30, 20182019 and 20172018
Net income attributable to noncontrolling interests was $9.218.6 million for the three months ended June 30, 2018,2019, compared to $9.3$9.2 million for the comparable 20172018 period. Net income attributable to noncontrolling interests of $9.2$18.6 million for the three months ended June 30, 20182019 was primarily a result of $9.4 million net gains on investment securities (including carried interest allocation) from our managed funds of funds in the portfolio, related primarily to net unrealized valuation increases in thefor public company investments held by the funds duringin the second quarter of 2018.portfolio. See “Results of Operations—Noninterest Income—Gains on Investment Securities, Net”.
Six months ended June 30, 20182019 and 2017
2018
Net income attributable to noncontrolling interests was $22.3$21.5 million for the six months ended June 30, 2018,2019, compared to $15.7$22.3 million for the comparable 20172018 period. Net income attributable to noncontrolling interests of $22.3$21.5 million for the six months ended June 30, 20182019 was primarily a result of $22.5 million net gains on investment securities (including carried interest allocation) from our managed funds of funds in the portfolio, duerelated primarily to net unrealized valuation increases offor public company investments held by the funds.funds in the portfolio. See “Results of Operations—Noninterest Income—Gains on Investment Securities, Net”.
Income Taxes
On December 22, 2017, the TCJ Act was signed into law. The TCJ Act amends the Internal Revenue Code to, among other things, reduce tax rates, and make changes to credits and deductions for individuals and businesses. For businesses, the TCJ Act permanently lowers the Federal corporate tax rate to 21.0 percent from the prior maximum rate of 35.0 percent, effective for tax years including or commencing January 1, 2018.
The Company has also considered the provisions of the TCJ Act related to non-U.S. operations which would potentially impact the Company’s income tax provision. Such provisions include the one-time transition tax (“TT”) on foreign earnings and the new base erosion anti-avoidance tax (“BEAT”). Based on analyses performed by the Company as of June 30, 2018, the impact of both of these provisions continue to have an immaterial impact on the Company’s income tax provision.
Our effective income tax expense rate was 24.527.3 percent and 25.927.2 percent for the three and six months ended June 30, 2018,2019, respectively, compared to 36.824.5 percent and 35.425.9 percent for the comparable 20172018 periods. 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.
The reductionsincreases in the effective tax rate for the three and six months ended June 30, 2018 were2019 was due primarily dueto a decrease in the tax benefit for share-based compensation expense related to the lower Federal corporate tax rate as a resultannual release of restricted stock awards. The decrease in the TCJ Act effective January 1, 2018, partially offsetbenefit was driven by the period-over-period reduction in tax benefits associated with employee stock transactions as a result of the reductiondecrease in the Federal statutory rate and a one-time benefitstock price of $4.7 million recorded inSIVB since the period ended March 31, 2017, for the return of tax funds related to a prior year's tax return.
The effective tax rate for the three months ended June 30, 2018, and 2017, included the recognition of tax benefits of $12.0 million and $7.0 million, respectively, due to the adoption and implementation of ASU 2016-09 in the firstsecond quarter of 2017. The effective tax rate for the six months ended June 30, 2018, and 2017, included the recognition of tax benefits of $14.5 million and $13.1 million, respectively.
The Company has considered the provisions of the TCJ Act and analyzed for potential impact to its income tax provision for the fiscal year ending December 31, 2018. Aside from the items noted above, the Company is not aware of any further items which could materially impact its financial statements for the three and six months ended June 30, 2018.
Operating Segment Results
We have threefour segments for which we report our financial information: Global Commercial Bank, SVB Private Bank, SVB Capital and SVB Capital.Leerink. SVB Leerink is a new reportable segment for 2019 as a result of the acquisition of SVB Leerink effective January 4, 2019.
We report segment information based on the “management” approach. 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 12—15—“Segment Reporting” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.
The following is our reportable segment information for the three and six months ended June 30, 20182019 and 20172018:
Global Commercial Bank
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Net interest income | | $ | 409,057 |
| | $ | 311,051 |
| | 31.5 | % | | $ | 778,924 |
| | $ | 586,929 |
| | 32.7 | % | | $ | 461,752 |
| | $ | 409,057 |
| | 12.9 | % | | $ | 907,628 |
| | $ | 778,924 |
| | 16.5 | % |
| Provision for credit losses | | (27,356 | ) | | (14,856 | ) | | 84.1 |
| | (52,630 | ) | | (43,745 | ) | | 20.3 |
| | (18,295 | ) | | (27,356 | ) | | (33.1 | ) | | (45,100 | ) | | (52,630 | ) | | (14.3 | ) |
| Noninterest income | | 113,245 |
| | 83,904 |
| | 35.0 |
| | 212,591 |
| | 163,423 |
| | 30.1 |
| | 130,652 |
| | 111,674 |
| | 17.0 |
| | 256,969 |
| | 209,560 |
| | 22.6 |
|
| Noninterest expense | | (197,695 | ) | | (176,702 | ) | | 11.9 |
| | (382,261 | ) | | (349,548 | ) | | 9.4 |
| | (206,902 | ) | | (196,992 | ) | | 5.0 |
| | (404,147 | ) | | (382,251 | ) | | 5.7 |
|
| Income before income tax expense | | $ | 297,251 |
| | $ | 203,397 |
| | 46.1 |
| | $ | 556,624 |
| | $ | 357,059 |
| | 55.9 |
| | $ | 367,207 |
| | $ | 296,383 |
| | 23.9 |
| | $ | 715,350 |
| | $ | 553,603 |
| | 29.2 |
|
| Total average loans, net of unearned income | | $ | 21,714,870 |
| | $ | 17,907,635 |
| | 21.3 |
| | $ | 21,199,897 |
| | $ | 17,778,065 |
| | 19.2 |
| | $ | 25,724,704 |
| | $ | 21,714,870 |
| | 18.5 |
| | $ | 25,264,010 |
| | $ | 21,199,897 |
| | 19.2 |
|
| Total average assets | | 52,540,865 |
| | 45,478,211 |
| | 15.5 |
| | 51,252,398 |
| | 44,188,162 |
| | 16.0 |
| | 60,502,170 |
| | 52,561,973 |
| | 15.1 |
| | 58,214,465 |
| | 51,274,033 |
| | 13.5 |
|
| Total average deposits | | 45,991,701 |
| | 40,477,823 |
| | 13.6 |
| | 45,022,054 |
| | 39,393,219 |
| | 14.3 |
| | 51,126,806 |
| | 45,991,701 |
| | 11.2 |
| | 49,371,589 |
| | 45,022,054 |
| | 9.7 |
|
Three months ended June 30, 20182019 and 20172018
Income before income tax expense from our Global Commercial Bank (“GCB”) increased to $297.3$367.2 million for the three months ended June 30, 2018,2019, compared to $203.4$296.4 million for the comparable 20172018 period, which reflected the continued acquisition of new clients and growth of our core commercial business. The key components of GCB's performance for the three months ended June 30, 20182019 compared to the comparable 20172018 period are discussed below.
Net interest income from GCB increased by $98.0$52.7 million for the three months ended June 30, 2018,2019, due primarily to an increase in loan interest income resulting mainly from higher average loan balances, as well as from an increase in loan yields as a result of rate increases.
GCB had a provision for credit losses of $27.4$18.3 million for the three months ended June 30, 2018,2019, compared to $14.9$27.4 million for the comparable 20172018 period. The provision of $18.3 million for the three months ended June 30, 2019 primarily reflects an increase of $7.5 million for our performing loans, $10.9 million for net new nonaccrual loans, $7.3 million for charge-offs not
specifically reserved for and $3.2 million in additional reserves for period-end loan growth, partially offset by recoveries of $9.8 million.
The provision of $27.4 million for the three months ended June 30, 2018 reflects primarily an increase ofreflected $13.4 million in net new specific reserves for nonaccrual loans, additional$12.5 million increase in reserves for period-end loan growth, $11.4 million of charge-offs not specifically reserved for and $3.4 million for performing loan reserves, partially offset by a decrease in reserves of $12.5 million for period-endour performing loans from certain reserve methodology enhancements made to our qualitative reserve for large loan exposure as a result of growth $11.4within our higher credit quality private equity/venture capital loan portfolios.
Noninterest income increased by $19.0 million for the three months ended June 30, 2019related primarily to an overall increase in our non-GAAP core fee income (higher client investment fees, credit card fees and foreign exchange fees). These increases were due primarily to the continued growth of our client base and work with larger global companies reflective of investments in our platform, capabilities and global reach.
Noninterest expense increased by $9.9 million for the three months ended June 30, 2019, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of higher salaries and wages expenses. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased by 339 to 2,261 FTEs for the three months ended June 30, 2019, compared to 1,922 FTEs for the comparable 2018 period.
Six months ended June 30, 2019 and 2018
Net interest income from our GCB increased by $128.7 million for the six months ended June 30, 2019, due primarily to an increase in loan interest income resulting mainly from higher average loan balances as well as from an increase in loan yields as a result of rate increases.
GCB had a provision for credit losses of $45.1 million for the six months ended June 30, 2019, compared to a provision of $52.6 million for the comparable 2018 period. The provision of $45.1 million for the six months ended June 30, 2019 was reflective primarily of $38.4 million in net new specific reserves for nonaccrual loans, $12.2 million for charge-offs not specifically reserved for and an additional $3.4in prior quarters, $7.3 million for performingperiod-end loan growth, partially offset by recoveries of $11.2 million.
The provision of $52.6 million for the six months ended June 30, 2018 was reflective primarily of $26.5 million from period-end loan growth, $24.7 million in net new specific reserves for nonaccrual loans and $14.8 million for charge-offs not specifically reserved for, partially offset by a decrease in reserves of $12.5 million for our performing loans from certain reserve methodology enhancements made to our qualitative reserve for large loan exposure as a result of growth within our higher credit quality private equity/venture capital loan portfolios.
The provision of $14.9Noninterest income increased by $47.4 million for the threesix months ended June 30, 2017 primarily reflected $12.7 million in net new specific reserves for nonaccrual loans and a $5.0 million increase in reserves for period-end loan growth, partially offset by a benefit from improved credit quality from the continued shift in our loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.
Noninterest income increased by $29.3 million for the three months ended June 30, 2018,2019, related primarily to an overall increase in our non-GAAP core fee income (higher client investment fees, credit card fees, foreign exchange fees client investment fees and credit card fees)deposit service charges). This increase was due primarily to the continued growth of our client base and work with larger global companies reflective of investments in our platform, capabilities and global reach.
Noninterest expense increased by $21.0$21.9 million for the threesix months ended June 30, 2018,2019, due primarily to increased expenses for compensation and benefits and professional services expenses.expense. Compensation and benefits expense increased by $20.3$20.4 million primarily as a result of increased incentive compensation and ESOP expense, salaries and wages and other employee benefits. The increase in incentive compensation and ESOP expense is reflective primarily of our strong 2018 full-year expected performance as compared to 2017 as well as an increase in FTE.wages. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased by 131346 to 1,977 FTEs for the three months ended June 30, 2018, compared to 1,846 FTEs for the comparable 2017 period. The increase in total other employee benefits was related to various expenses, particularly employer payroll taxes reflective of the increase in the number of average FTE since the second quarter of 2017 and increased share-based compensation expense associated primarily with our performance-based restricted stock unit awards.
Six months ended June 30, 2018 and 2017
Net interest income from our GCB increased by $192.0 million for the six months ended June 30, 2018, due primarily to an increase in loan interest income resulting mainly from higher average loan balances as well as from an increase in loan yields as a result of rate increases.
GCB had a provision for credit losses of $52.6 million for the six months ended June 30, 2018, compared to a provision of $43.7 million for the comparable 2017 period. The provision of $52.6 million for the six months ended June 30, 2018 was reflective primarily of $26.5 million from period-end loan growth, $24.7 million in net new specific reserves for nonaccrual loans and $14.8 million for charge-offs not specifically reserved for, offset by a decrease in reserves of $12.5 million for our performing loans from certain reserve methodology enhancements made to our qualitative reserve for large loan exposure as a result of growth within our higher credit quality private equity/venture capital loan portfolios.
The provision of $43.7 million for the six months ended June 30, 2017 was reflective primarily of $38.1 million in net new specific reserves for nonaccrual loans and $10.0 million from period-end loan growth, partially offset by a benefit from improved credit quality and the continued shift in our loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.
Noninterest income increased by $49.2 million for the six months ended June 30, 2018, related primarily to an overall increase in our non-GAAP core fee income (higher foreign exchange fees, credit card fees and client investment fees). This increase was due primarily to the continued growth of our client base and work with larger global companies reflective of investments in our platform, capabilities and global reach.
Noninterest expense increased by $32.7 million for the six months ended June 30, 2018, due primarily to increased expenses for compensation and benefits and professional services expenses. Compensation and benefits expense increased by $33.5 million primarily as a result of increased incentive compensation and ESOP expense, salaries and wages and other employee benefits. The increase in incentive compensation and ESOP expense is reflective primarily of our strong 2018 full-year expected performance as compared to 2017 as well as an increase in FTE. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased by 106 to 1,9502,242 FTEs for the six months ended June 30, 2018,2019, compared to 1,8441,896 FTEs for the comparable 20172018 period. The increase in total other employee benefits was related to various expenses, particularly employer payroll taxes reflective of the increase in the number of average FTE since the second half of 2017 and increased share-based compensation expense associated primarily with our performance-based restricted stock unit awards.
SVB Private Bank
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Net interest income | | $ | 15,645 |
| | $ | 14,742 |
| | 6.1 | % | | $ | 31,892 |
| | $ | 28,352 |
| | 12.5 | % | | $ | 12,277 |
| | $ | 15,600 |
| | (21.3 | )% | | $ | 24,258 |
| | $ | 31,847 |
| | (23.8 | )% |
| Provision for credit losses | | (300 | ) | | (329 | ) | | (8.8 | ) | | (2,022 | ) | | (1,119 | ) | | 80.7 |
| |
| (Provision for) reduction of credit losses | | | (853 | ) | | (300 | ) | | 184.3 |
| | 131 |
| | (2,022 | ) | | (106.5 | ) |
| Noninterest income | | 564 |
| | 536 |
| | 5.2 |
| | 1,072 |
| | 1,254 |
| | (14.5 | ) | | 686 |
| | 565 |
| | 21.4 |
| | 1,196 |
| | 1,072 |
| | 11.6 |
|
| Noninterest expense | | (5,927 | ) | | (4,050 | ) | | 46.3 |
| | (11,969 | ) | | (7,968 | ) | | 50.2 |
| | (9,526 | ) | | (7,974 | ) | | 19.5 |
| | (18,378 | ) | | (16,199 | ) | | 13.5 |
|
| Income before income tax expense | | $ | 9,982 |
| | $ | 10,899 |
| | (8.4 | ) | | $ | 18,973 |
| | $ | 20,519 |
| | (7.5 | ) | | $ | 2,584 |
| | $ | 7,891 |
| | (67.3 | ) | | $ | 7,207 |
| | $ | 14,698 |
| | (51.0 | ) |
| Total average loans, net of unearned income | | $ | 2,777,617 |
| | $ | 2,365,464 |
| | 17.4 |
| | $ | 2,722,444 |
| | $ | 2,305,723 |
| | 18.1 |
| | $ | 3,217,597 |
| | $ | 2,777,617 |
| | 15.8 |
| | $ | 3,152,104 |
| | $ | 2,722,444 |
| | 15.8 |
|
| Total average assets | | 2,515,984 |
| | 2,397,188 |
| | 5.0 |
| | 2,553,024 |
| | 2,335,350 |
| | 9.3 |
| | 2,432,358 |
| | 2,515,984 |
| | (3.3 | ) | | 2,469,804 |
| | 2,553,024 |
| | (3.3 | ) |
| Total average deposits | | 1,480,162 |
| | 1,302,890 |
| | 13.6 |
| | 1,526,038 |
| | 1,319,776 |
| | 15.6 |
| | 1,394,905 |
| | 1,480,162 |
| | (5.8 | ) | | 1,442,803 |
| | 1,526,038 |
| | (5.5 | ) |
Three months ended June 30, 20182019 and 20172018
Net interest income from our SVB Private Bank increaseddecreased by $0.9$3.3 million for the three months ended June 30, 2018,2019, due primarily to higher interest incomepaid on interest-bearing deposits due to loan growth, partially offset by a higher funding chargethe continued market rate adjustments for loans funded.the three months ended June 30, 2019 as compared to the 2018 comparable period.
Noninterest expense increased by $1.9$1.6 million for the three months ended June 30, 2018,2019, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of increased salaries and wages reflective of the increase in number of average FTE since the second quarter of 2017, and higher incentive compensation expenses, reflective primarily of our strong 2018 full-year expected performance as compared to 2017.2018.
Six months ended June 30, 20182019 and 20172018
Net interest income from our SVB Private Bank increaseddecreased by $3.5$7.6 million for the six months ended June 30, 2018,2019, due primarily to higher interest incomepaid on interest-bearing deposits due to loan growth, partially offsetthe continued market rate adjustments for the six months ended June 30, 2019 as compared to the 2018 comparable period.
Noninterest expense increased by a higher funding charge for loans funded.
SVB Private Bank had a provision for credit losses of $2.0$2.2 million for the six months ended June 30, 2018, compared to $1.1 million for the comparable 2017 period. The provisions for both the six months ended June 30, 2018 and 2017 were due primarily to reserves for period-end loan growth.
Noninterest expense increased by $4.0 million for the six months ended June 30, 2018,2019, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of increased salaries and wages reflective primarily of the increase in the number of average FTE since the second half of 2017, and higher incentive compensation expenses, reflective primarily of our strong 2018 full-year expected performance as compared to 2017.June 30, 2018.
SVB Capital
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Net interest income | | $ | 9 |
| | $ | 16 |
| | (43.8 | )% | | $ | 16 |
| | $ | 16 |
| | — | % | | $ | 6 |
| | $ | 9 |
| | (33.3 | )% | | $ | 12 |
| | $ | 16 |
| | (25.0 | )% |
| Noninterest income | | 28,498 |
| | 15,019 |
| | 89.7 |
| | 57,409 |
| | 31,794 |
| | 80.6 |
| | 40,059 |
| | 29,389 |
| | 36.3 |
| | 64,904 |
| | 59,363 |
| | 9.3 |
|
| Noninterest expense | | (5,666 | ) | | (6,192 | ) | | (8.5 | ) | | (10,713 | ) | | (9,664 | ) | | 10.9 |
| | (7,883 | ) | | (5,666 | ) | | 39.1 |
| | (13,665 | ) | | (10,712 | ) | | 27.6 |
|
| Income before income tax expense | | $ | 22,841 |
| | $ | 8,843 |
| | 158.3 |
| | $ | 46,712 |
| | $ | 22,146 |
| | 110.9 |
| | $ | 32,182 |
| | $ | 23,732 |
| | 35.6 |
| | $ | 51,251 |
| | $ | 48,667 |
| | 5.3 |
|
| Total average assets | | $ | 369,841 |
| | $ | 355,292 |
| | 4.1 |
| | $ | 371,572 |
| | $ | 364,036 |
| | 2.1 |
| | $ | 373,167 |
| | $ | 369,841 |
| | 0.9 |
| | $ | 375,934 |
| | $ | 371,572 |
| | 1.2 |
|
SVB Capital’s components of noninterest income primarily include net gains and losses on non-marketable and other equity securities, carried interest and fund management fees. All components of income before income tax expense and average assets 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.
Three months endedJune 30, 20182019 and 20172018
SVB Capital had noninterest income of $28.5$40.1 million for the three months ended June 30, 2018,2019, compared to $15.0$29.4 million for the comparable 20172018 period. The increase in noninterest income was due primarily to higher net gains on investment securities compared to the comparable 20172018 period. SVB Capital’s components of noninterest income primarily include the following:
| |
| • | Net gains on investment securities of $27.9 million for the three months endedJune 30, 2019, compared to net gains of $21.1 million for the comparable 2018 period. The net gains on investment securities of $27.9 million were related primarily to gains from our managed funds of funds and our strategic venture capital fund investments reflective of net unrealized valuation increases in public and private company securities held in our funds, and |
| |
| • | Fund management fees of $6.3 million for the three months endedJune 30, 2019, compared to $5.9 million for the comparable 2018 period. |
Net gains on investment securities of $20.9 million for the three months ended June 30, 2018, compared to net gains of $9.1 million for the comparable 2017 period. The increase in net gains on investment securities for the three months ended June 30, 2018, was related primarily to gains from our strategic venture capital fund investments reflective of gains from net unrealized valuation increases in public company investments held in our strategic venture capital funds and net unrealized valuation increases in the public company investments held by our managed funds of funds, and
Fund management fees of $5.9 million compared to $5.5 million for the comparable 2017 period.
Six months ended June 30, 20182019 and 20172018
SVB Capital had noninterest income of $57.4$64.9 million for the six months ended June 30, 2018,2019, compared to $31.8$59.4 million for the comparable 20172018 period. The increase in noninterest income was due primarily to higher net gains on investment securitiesfund management fees and other noninterest income compared to the comparable 20172018 period. SVB Capital’s components of noninterest income primarily include the following:
| |
| • | Fund management fees of $13.0 million for the six months endedJune 30, 2019, compared to $11.7 million for the comparable 2018 period. |
SVB Leerink
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2019 | | 2018 | | % Change | | 2019 | | 2018 | | % Change |
| Net interest income | | $ | 242 |
| | $ | — |
| | — | | $ | 684 |
| | $ | — |
| | — |
| Noninterest income | | 67,000 |
| | — |
| | — | | 135,117 |
| | — |
| | — |
| Noninterest expense | | (61,935 | ) | | — |
| | — | | (122,475 | ) | | — |
| | — |
| Income before income tax expense | | $ | 5,307 |
| | $ | — |
| | — | | $ | 13,326 |
| | $ | — |
| | — |
| Total average assets | | $ | 410,279 |
| | $ | — |
| | — | | $ | 355,609 |
| | $ | — |
| | — |
SVB Leerink’s components of noninterest income primarily include investment banking revenue, commissions and net gains and losses on investmentnon-marketable and other equity securities, carried interest and fund management fees. All components of $43.8income before income tax expense discussed below are net of noncontrolling interests.
Three months ended June 30, 2019
SVB Leerink had noninterest income of $67.0 million for the sixthree months endedJune 30, 2018, compared to net gains2019, primarily consisting of $19.9$48.7 million of investment banking revenue, $14.4 million of commissions and $1.4 million in fund management fees.
SVB Leerink had noninterest expense of $61.9 million for the comparable 2017 period. The net gains onthree months ended June 30, 2019, primarily consisting of $44.3 million in compensation and benefits expense and $11.3 million in other noninterest expense, driven by investment securitiesbanking and trade order execution costs as well as amortization of $43.8intangible assets recorded as part of the acquisition.
Six months endedJune 30, 2019
SVB Leerink had noninterest income of $135.1 million were related to gains from our strategic venture capital fund investments reflective of net unrealized valuation increases in both public and private company investments held in our strategic venture capital funds and gains from net unrealized valuation increases in public company investments held by our managed funds of funds, offset by losses from our public equity securities portfolio reflective of net losses on sales of shares of Roku, from exercised warrants in 2017, which were sold in the first quarter of 2018, and
Fund management fees of $11.7 million compared to $10.7 million for the comparable 2017 period.six months ended June 30, 2019, primarily consisting of $98.5 million of investment banking revenue, $28.5 million of commissions and $2.8 million in fund management fees.
SVB Leerink had noninterest expense of $122.5 million for the six months ended June 30, 2019, primarily consisting of $87.2 million in compensation and benefits expense and $22.2 million in other noninterest expense, driven by investment banking and trade order execution costs as well as amortization of intangible assets recorded as part of the acquisition.
Consolidated Financial Condition
Our total assets, and total liabilities and stockholders' equity, were $55.9$63.8 billion at June 30, 20182019 compared to $51.2$56.9 billion at December 31, 2017,2018, an increase of $4.7$6.9 billion, or 9.112.0 percent. Refer below to 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 $2.7$9.0 billion at June 30, 2018, a decrease2019, an increase of $0.2$5.4 billion, or 7.2152.6 percent, compared to $2.9$3.6 billion at December 31, 2017.
2018. As of June 30, 2018, $0.62019, $6.4 billion 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 $1.0$1.8 billion. As of December 31, 2017, $0.62018, $1.7 billion 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 $1.1$1.2 billion.
Investment Securities
Investment securities totaled $26.3$23.9 billion at June 30, 2018, an increase2019, a decrease of $1.9$0.3 billion, or 7.81.4 percent,, compared to $24.4$24.2 billion at December 31, 2017.2018. Our investment securities portfolio is comprised of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest earning fixed income investment securities; and (ii) a non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised.
Available-for-Sale Securities
Period-end available-for-sale securities were $9.6$7.9 billion at June 30, 20182019 compared to $11.1$7.8 billion at December 31, 2017, a decrease2018, an increase of $1.5$0.1 billion, or 13.71.9 percent. The $1.5$0.1 billion decreaseincrease in period-end AFS securities balances from December 31, 20172018 to June 30, 2018,2019, was due primarily to $1.8 billionthe increase in the fair value of our AFS securities portfolio $166.0 million ($119.8 million net of tax) driven primarily by decreases in market interest rates at June 30, 2019, compared to December 31, 2018. Portfolio purchases and cash flows from paydowns and maturities partially offset by purchases of $0.4 billion.sales were both $2.6 billion during the six months ended June 30, 2019. Securities classified as available-for-sale are carried at fair value with changes in fair value recorded as unrealized gains or losses in a separate component of stockholders' equity. During the six months ending June 30, 2018 the AFS portfolio had unrealized losses of $73.1 million ($52.9 million net of tax), primarily driven by increases in period-end market interest rates.
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as available-for-sale as of June 30, 2018.2019. The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. For U.S. Treasury securities and U.S. agency debentures,foreign government debt 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 interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.
| | | | | June 30, 2018 | | June 30, 2019 |
| | | 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 | | $ | 5,733,070 |
| | 1.67 | % | | $ | 2,037,522 |
| | 1.39 | % | | $ | 3,349,925 |
| | 1.71 | % | | $ | 345,623 |
| | 2.99 | % | | $ | — |
| | — | % | | $ | 4,821,074 |
| | 2.02 | % | | $ | 1,677,718 |
| | 1.64 | % | | $ | 1,974,793 |
| | 2.13 | % | | $ | 1,168,563 |
| | 2.40 | % | | $ | — |
| | — | % |
| U.S. agency debentures | | 1,485,864 |
| | 1.75 |
| | 555,737 |
| | 1.51 |
| | 930,127 |
| | 1.89 |
| | — |
| | — |
| | — |
| | — |
| |
| Foreign government debt securities | | | 9,211 |
| | (0.41 | ) | | — |
| | — |
| | 9,211 |
| | (0.41 | ) | | — |
| | — |
| | — |
| | — |
|
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Agency-issued collateralized mortgage obligations—fixed rate | | 2,038,134 |
| | 2.59 |
| | — |
| | — |
| | — |
| | — |
| | 47,098 |
| | 2.63 |
| | 1,991,036 |
| | 2.58 |
| |
Agency-issued collateralized mortgage obligations—variable rate | | 336,298 |
| | 0.71 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | | | 336,298 |
| | 0.71 |
| |
| Agency-issued mortgage-backed securities | | | 1,321,857 |
| | 3.01 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,321,857 |
| | 3.01 |
|
| Agency-issued collateralized mortgage obligations—fixed rate | | | 1,788,180 |
| | 2.58 |
| | — |
| | — |
| | — |
| | — |
| | 5,244 |
| | 2.97 |
| | 1,782,936 |
| | 2.58 |
|
| Total | | $ | 9,593,366 |
| | 1.84 |
| | $ | 2,593,259 |
| | 1.42 |
| | $ | 4,280,052 |
| | 1.75 |
| | $ | 392,721 |
| | 2.95 |
| | $ | 2,327,334 |
| | 2.31 |
| | $ | 7,940,322 |
| | 2.31 |
| | $ | 1,677,718 |
| | 1.64 |
| | $ | 1,984,004 |
| | 2.12 |
| | $ | 1,173,807 |
| | 2.40 |
| | $ | 3,104,793 |
| | 2.77 |
|
Held-to-Maturity Securities
Period-end held-to-maturity securities were $15.9$14.9 billion at June 30, 20182019 compared to $12.7$15.5 billion at December 31, 2017, an increase2018, a decrease of $3.2$0.6 billion, or 25.54.0 percent. The $3.2$0.6 billion increasedecrease in period-end HTM security balances from December 31, 20172018 to June 30, 20182019 was due primarily to new purchasespay downs and maturities of $4.1$0.9 billion, with $3.3 billion of agency backed mortgage securities purchases and $0.8 billion of municipal bond purchases, partially offset by $0.9the purchase of $0.3 billion in portfolio paydowns and maturities.of securities.
Securities classified as held-to-maturity are accounted for at cost with no adjustments for changes in fair value. For securities previously re-designated as held-to-maturity from available-for-sale, the net unrealized gains at the date of transfer will continue to be reported as a separate component of shareholders' equity and amortized over the life of the securities in a manner consistent with the amortization of a premium or discount.
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 June 30, 2018.2019. 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 21.0 percent. The weighted average yield is computed using the amortized cost of fixed income investment securities. For U.S. agency debentures, 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 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 interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.
| | | | | June 30, 2018 | | June 30, 2019 |
| | | 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 | | $ | 713,809 |
| | 2.67 | % | | $ | — |
| | — | % | | $ | 122,040 |
| | 2.61 | % | | $ | 591,769 |
| | 2.68 | % | | $ | — |
| | — | % | | $ | 585,817 |
| | 2.65 | % | | $ | — |
| | — | % | | $ | 101,464 |
| | 2.70 | % | | $ | 484,353 |
| | 2.64 | % | | $ | — |
| | — | % |
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Agency-issued mortgage-backed securities | | 8,588,483 |
| | 2.87 |
| | 707 |
| | 7.52 |
| | 172,594 |
| | 2.17 |
| | 672,564 |
| | 2.40 |
| | 7,742,618 |
| | 2.93 |
| | 7,706,133 |
| | 2.90 |
| | — |
| | — |
| | 110,633 |
| | 2.01 |
| | 821,076 |
| | 2.48 |
| | 6,774,424 |
| | 2.96 |
|
Agency-issued collateralized mortgage obligations—fixed rate | | 2,494,834 |
| | 1.78 |
| | — |
| | — |
| | — |
| | — |
| | 412,530 |
| | 1.48 |
| | 2,082,304 |
| | 1.84 |
| | 1,912,839 |
| | 1.78 |
| | — |
| | — |
| | — |
| | — |
| | 506,773 |
| | 1.61 |
| | 1,406,066 |
| | 1.84 |
|
Agency-issued collateralized mortgage obligations—variable rate | | 233,285 |
| | 0.74 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 233,285 |
| | 0.74 |
| | 197,962 |
| | 0.74 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 197,962 |
| | 0.74 |
|
| Agency-issued commercial mortgage-backed securities | | 2,335,971 |
| | 2.79 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,335,971 |
| | 2.79 |
| | 2,886,958 |
| | 2.82 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,886,958 |
| | 2.82 |
|
| Municipal bonds and notes | | 1,531,881 |
| | 3.57 |
| | 7,257 |
| | 2.84 |
| | 75,946 |
| | 2.14 |
| | 259,085 |
| | 2.64 |
| | 1,189,593 |
| | 3.87 |
| | 1,579,052 |
| | 3.61 |
| | 14,977 |
| | 2.29 |
| | 83,468 |
| | 2.15 |
| | 340,526 |
| | 2.83 |
| | 1,140,081 |
| | 3.96 |
|
| Total | | $ | 15,898,263 |
| | 2.71 |
| | $ | 7,964 |
| | 3.26 |
| | $ | 370,580 |
| | 2.31 |
| | $ | 1,935,948 |
| | 2.32 |
| | $ | 13,583,771 |
| | 2.78 |
| | $ | 14,868,761 |
| | 2.78 |
| | $ | 14,977 |
| | 2.29 |
| | $ | 295,565 |
| | 2.29 |
| | $ | 2,152,728 |
| | 2.36 |
| | $ | 12,405,491 |
| | 2.86 |
|
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. OurThe estimated weighted-average duration of our fixed income investment securities portfolio average duration was 3.73.5 yearsand 3.03.8 years at June 30, 20182019 and December 31, 2017,2018, respectively.
Non-Marketable and Other Equity Securities
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies, including public equity securities held as a result of equity warrant assets exercised, and investments in qualified affordable housing projects. Included in our non-marketable and other equity 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 equity securities compared to the amounts attributable to SVBFG.
Period-end non-marketable and other equity securities were $852.5 million$1.1 billion at June 30, 20182019 compared to $651.1$941.1 million at December 31, 2017,2018, an increase of $201.4$138.6 million, or 30.914.7 percent. Non-marketable and other equity securities, net of noncontrolling interests were $722.3$931.5 million at June 30, 2018,2019, compared to $530.6$806.1 million at December 31, 2017. 2018.The increase was mostlyprimarily attributable to accounting changes related to the adoptionequity securities from exercised equity warrant assets, valuation increases in our managed funds of ASU 2016-01, Recognitionfunds investments and Measurement of Financial Assets and Financial Liabilities, which requires equityan increase in new investments (except those accounted for under the equity method of accounting) to be measured at fair value and eliminated the cost method of accounting. As part of this adoption we recorded an adjustment to opening retained earnings for cost method investments measured at NAV and increased the carrying value ofwithin our unconsolidated venture capital and private equity fund investments.qualified housing projects portfolio. We also increased our investmentsinvestment in qualified affordable housing projectsnon-marketable and other equity securities by $77.3$35.7 million for additional tax benefits as partto the inclusion of SVB Leerink in our strategy to reduce our effective tax rate.financial results at June 30, 2019. The following table summarizes the carrying value (as reported) of non-marketable and other equity securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at June 30, 20182019 and December 31, 2017:2018:
| | | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| (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 |
| Non-marketable and other equity securities (fair value accounting): | | | | | | | | | |
| Non-marketable and other equity securities: | | | | | | | | | |
| Non-marketable securities (fair value accounting): | | | | | | | | | |
| Consolidated venture capital and private equity fund investments (1) | | $ | 133,007 |
| | $ | 34,331 |
| | $ | 128,111 |
| | $ | 33,044 |
| | $ | 110,086 |
| | $ | 28,631 |
| | $ | 118,333 |
| | $ | 30,235 |
|
| Unconsolidated venture capital and private equity fund investments (2) | | 211,113 |
| | 211,113 |
| | 98,548 |
| | 98,548 |
| | 193,206 |
| | 193,206 |
| | 201,098 |
| | 201,098 |
|
| Other investments without a readily determinable fair value (3) | | 24,015 |
| | 24,015 |
| | 27,680 |
| | 27,680 |
| | 42,419 |
| | 42,419 |
| | 25,668 |
| | 25,668 |
|
| Other equity securities in public companies (4) | | 4,412 |
| | 3,968 |
| | 310 |
| | 103 |
| |
| Other equity securities in public companies (fair value accounting (4) | | | 39,808 |
| | 37,156 |
| | 20,398 |
| | 20,098 |
|
| Non-marketable securities (equity method accounting) (5): | | | | | | | | | | | | | | | | |
| Venture capital and private equity fund investments | | 102,838 |
| | 71,742 |
| | 89,809 |
| | 64,675 |
| | 169,219 |
| | 105,056 |
| | 129,485 |
| | 82,921 |
|
| Debt funds | | 14,215 |
| | 14,215 |
| | 21,183 |
| | 21,183 |
| | 7,168 |
| | 7,168 |
| | 5,826 |
| | 5,826 |
|
| Other investments | | 111,426 |
| | 111,426 |
| | 111,198 |
| | 111,198 |
| | 123,797 |
| | 123,797 |
| | 121,721 |
| | 121,721 |
|
| Investments in qualified affordable housing projects, net | | 251,479 |
| | 251,479 |
| | 174,214 |
| | 174,214 |
| | 394,046 |
| | 394,046 |
| | 318,575 |
| | 318,575 |
|
| Total non-marketable and other equity securities | | $ | 852,505 |
| | $ | 722,289 |
| | $ | 651,053 |
| | $ | 530,645 |
| | $ | 1,079,749 |
| | $ | 931,479 |
| | $ | 941,104 |
| | $ | 806,142 |
|
| |
| (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 June 30, 20182019 and December 31, 20172018: |
| | | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| (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 |
| Strategic Investors Fund, LP | | $ | 13,972 |
| | $ | 1,755 |
| | $ | 14,673 |
| | $ | 1,843 |
| | $ | 8,860 |
| | $ | 1,113 |
| | $ | 12,452 |
| | $ | 1,564 |
|
| Capital Preferred Return Fund, LP | | 58,148 |
| | 12,532 |
| | 54,147 |
| | 11,670 |
| | 51,801 |
| | 11,164 |
| | 53,957 |
| | 11,629 |
|
| Growth Partners, LP | | 59,886 |
| | 19,937 |
| | 58,372 |
| | 19,432 |
| | 48,984 |
| | 16,307 |
| | 50,845 |
| | 16,927 |
|
| CP I, LP | | 1,001 |
| | 107 |
| | 919 |
| | 99 |
| | 441 |
| | 47 |
| | 1,079 |
| | 115 |
|
| Total consolidated venture capital and private equity fund investments | | $ | 133,007 |
| | $ | 34,331 |
| | $ | 128,111 |
| | $ | 33,044 |
| | $ | 110,086 |
| | $ | 28,631 |
| | $ | 118,333 |
| | $ | 30,235 |
|
| |
| (2) | The carrying value represents investments in 226212 and 235213 funds (primarily venture capital funds) at June 30, 20182019 and December 31, 20172018, 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. Effective January 1, 2018, we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we will carry our unconsolidated venture capital and private equity fund investments at fair value based on the fund investments' net asset values per share as obtained from the general partners of the funds. We will 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, March 31st, for our June 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. We recorded a cumulative adjustment to opening retained earnings on January 1, 2018 for the difference between fair value and cost for these fund investments. The estimated fair value and carrying value of these venture capital and private equity fund investments was $211.1 million as of June 30, 2018. As of December 31, 2017, these investments were carried at cost and had a carrying value of $98.5 million. |
financial policies.Our unconsolidated venture capital and private equity fund investments are carried at fair value based on the fund investments' net asset values per share as obtained from the general partners of the funds. For each fund investment, 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, March 31st, for our June 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
| |
| (3) | Effective January 1, 2018, we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we will report our other investments in the line itemInvestments classified as "Other investments without a readily determinable fair value". These investments include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. For further details on the carrying value of these investments refer to Note 6—7—“Investment Securities" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
|
| |
| (4) | Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets and direct equity investments in public companies held by our consolidated funds. Effective January 1, 2018 we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which requires equity securities to be measured at fair value with changesChanges in the fair value recognized through net income. Prior to January 1, 2018 we reported equity securities in public companies that we held as a result of exercising public equity warrant assets in available-for-sale securities. On a prospective basis, these equity securities will be reported in non-marketable and other equity securities. |
| |
| (5) | The following table shows the carrying value and amount attributable to SVBFGour ownership percentage of each investment at June 30, 20182019 and December 31, 20172018 (equity method accounting): |
| | | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| (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 |
| Venture capital and private equity fund investments: | | | | | | | | | | | | | | | | |
| Strategic Investors Fund II, LP | | $ | 5,003 |
| | $ | 4,692 |
| | $ | 6,342 |
| | $ | 5,971 |
| | $ | 4,200 |
| | $ | 3,953 |
| | $ | 4,670 |
| | $ | 4,366 |
|
| Strategic Investors Fund III, LP | | 18,858 |
| | 15,266 |
| | 18,758 |
| | 15,211 |
| | 16,364 |
| | 13,284 |
| | 17,396 |
| | 14,059 |
|
| Strategic Investors Fund IV, LP | | 29,152 |
| | 24,657 |
| | 25,551 |
| | 21,739 |
| | 28,404 |
| | 23,936 |
| | 28,974 |
| | 24,388 |
|
| Strategic Investors Fund V, LP | | 21,247 |
| | 11,155 |
| | 16,856 |
| | 8,849 |
| | 33,300 |
| | 17,483 |
| | 28,189 |
| | 14,799 |
|
| CP II, LP (i) | | 6,792 |
| | 4,110 |
| | 6,700 |
| | 4,056 |
| | 7,450 |
| | 4,505 |
| | 7,122 |
| | 4,308 |
|
| Other venture capital and private equity fund investments | | 21,786 |
| | 11,862 |
| | 15,602 |
| | 8,849 |
| | 79,501 |
| | 41,895 |
| | 43,134 |
| | 21,001 |
|
| Total venture capital and private equity fund investments | | $ | 102,838 |
| | $ | 71,742 |
| | $ | 89,809 |
| | $ | 64,675 |
| | $ | 169,219 |
| | $ | 105,056 |
| | $ | 129,485 |
| | $ | 82,921 |
|
| Debt funds: | | | | | | | | | | | | | | | | |
| Gold Hill Capital 2008, LP (ii) | | $ | 11,153 |
| | $ | 11,153 |
| | $ | 18,690 |
| | $ | 18,690 |
| | $ | 5,323 |
| | $ | 5,323 |
| | $ | 3,901 |
| | $ | 3,901 |
|
| Other debt funds | | 3,062 |
| | 3,062 |
| | 2,493 |
| | 2,493 |
| | 1,845 |
| | 1,845 |
| | 1,925 |
| | 1,925 |
|
| Total debt funds | | $ | 14,215 |
| | $ | 14,215 |
| | $ | 21,183 |
| | $ | 21,183 |
| | $ | 7,168 |
| | $ | 7,168 |
| | $ | 5,826 |
| | $ | 5,826 |
|
| Other investments: | | | | | | | | | | | | | | | | |
| SPD Silicon Valley Bank Co., Ltd. | | $ | 75,837 |
| | $ | 75,837 |
| | $ | 75,337 |
| | $ | 75,337 |
| | $ | 76,544 |
| | $ | 76,544 |
| | $ | 76,412 |
| | $ | 76,412 |
|
| Other investments | | 35,589 |
| | 35,589 |
| | 35,861 |
| | 35,861 |
| | 47,253 |
| | 47,253 |
| | 45,309 |
| | 45,309 |
|
| Total other investments | | $ | 111,426 |
| | $ | 111,426 |
| | $ | 111,198 |
| | $ | 111,198 |
| | $ | 123,797 |
| | $ | 123,797 |
| | $ | 121,721 |
| | $ | 121,721 |
|
| |
| (i) | Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments in Strategic Investors Fund II, LP. |
| |
| (ii) | Our ownership includes 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. |
Volcker Rule
On June 6, 2017, we received notice that the Board of Governors of the Federal Reserve System approved the Company’s application for an extension of the permitted conformance period for the Company’s investments in “illiquid” covered funds. The approval extends the deadline by which the Company must sell, divest, restructure or otherwise conform such investments
to the provisions of the Volcker Rule until the earlier of (i) July 21, 2022, or (ii) the date by which each fund matures by its terms or is otherwise conformed to the Volcker Rule.
As implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker Rule prohibits, subject to certain exceptions, a banking entity, such as the Company, from sponsoring or investing in covered funds, defined to include many venture capital and private equity funds. As noted above, the Company currently maintains certain investments deemed to be prohibited investments in “illiquid” covered funds, which are now covered under the approved extension. As of June 30, 2018,2019, such prohibited investments had an estimated aggregate carrying value and fair value of approximately $258$231.5 million. (For more information about the Volcker Rule, see “Business—Supervision and Regulation” under Part 1, Item 1 of our 20172018 Form 10-K.)
Loans
Loans, net of unearned income, increased by $2.9$0.9 billion to $26.0$29.2 billion at June 30, 2018,2019, compared to $23.1$28.3 billion at December 31, 2017.2018. Unearned income was $165$161 million at June 30, 20182019 and $148$173 million at December 31, 2017.2018. Total grossloans were $26.2$29.4 billion at June 30, 2018,2019, an increase of $2.9$0.9 billion, compared to $23.3$28.5 billion at December 31, 2017.2018. Period-end loans increased compared to December 31, 2017,2018, driven primarily by loan growth in our private equity/venture capital portfolio as well as from our life science/healthcare and private bank loan portfolios.portfolio.
The breakdown of total gross loans and total loans as a percentage of total gross loans by industry sector is as follows:
| | | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| (Dollars in thousands) | | Amount | | Percentage | | Amount | | Percentage | | Amount | | Percentage | | Amount | | Percentage |
| Commercial loans: | | | | | | | | | | | | | | | | |
| Software/internet | | $ | 6,291,788 |
| | 24.0 | % | | $ | 6,232,725 |
| | 26.8 | % | | $ | 6,044,350 |
| | 20.6 | % | | $ | 6,209,978 |
| | 21.8 | % |
| Hardware | | 1,281,433 |
| | 4.9 |
| | 1,200,900 |
| | 5.2 |
| | 1,337,198 |
| | 4.6 |
| | 1,245,800 |
| | 4.4 |
|
| Private equity/venture capital | | 12,233,005 |
| | 46.8 |
| | 9,961,121 |
| | 42.8 |
| | 14,688,338 |
| | 50.0 |
| | 14,118,132 |
| | 49.5 |
|
| Life science/healthcare | | 2,158,336 |
| | 8.3 |
| | 1,867,960 |
| | 8.0 |
| | 2,447,763 |
| | 8.3 |
| | 2,461,076 |
| | 8.6 |
|
| Premium wine | | 198,809 |
| | 0.8 |
| | 204,257 |
| | 0.9 |
| | 236,128 |
| | 0.8 |
| | 249,316 |
| | 0.9 |
|
| Other | | 329,260 |
| | 1.2 |
| | 379,431 |
| | 1.6 |
| | 439,237 |
| | 1.5 |
| | 346,747 |
| | 1.2 |
|
| Total commercial loans | | 22,492,631 |
| | 86.0 |
| | 19,846,394 |
| | 85.3 |
| |
| Commercial loans | | | 25,193,014 |
| | 85.8 |
| | 24,631,049 |
| | 86.4 |
|
| Real estate secured loans: | | | | | | | | | | | | | | | | |
| Premium wine | | 686,241 |
| | 2.6 |
| | 670,112 |
| | 2.9 |
| | 754,011 |
| | 2.6 |
| | 711,237 |
| | 2.5 |
|
| Consumer | | 2,477,871 |
| | 9.5 |
| | 2,297,857 |
| | 9.9 |
| | 2,805,321 |
| | 9.5 |
| | 2,609,645 |
| | 9.2 |
|
| Other | | 41,477 |
| | 0.2 |
| | 42,230 |
| | 0.2 |
| | 39,816 |
| | 0.1 |
| | 40,627 |
| | 0.1 |
|
| Total real estate secured loans | | 3,205,589 |
| | 12.3 |
| | 3,010,199 |
| | 13.0 |
| |
| Real estate secured loans | | | 3,599,148 |
| | 12.2 |
| | 3,361,509 |
| | 11.8 |
|
| Construction loans | | 65,286 |
| | 0.2 |
| | 69,108 |
| | 0.3 |
| | 114,000 |
| | 0.4 |
| | 98,034 |
| | 0.3 |
|
| Consumer loans | | 397,276 |
| | 1.5 |
| | 328,452 |
| | 1.4 |
| | 464,241 |
| | 1.6 |
| | 420,720 |
| | 1.5 |
|
| Total gross loans | | $ | 26,160,782 |
| | 100.0 |
| | $ | 23,254,153 |
| | 100.0 |
| | $ | 29,370,403 |
| | 100.0 |
| | $ | 28,511,312 |
| | 100.0 |
|
Loan Concentration
The following table provides a summary of gross loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of June 30, 20182019:
| | | | | June 30, 2018 | | June 30, 2019 |
| (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/internet | | $ | 1,539,475 |
| | $ | 1,008,935 |
| | $ | 1,632,610 |
| | $ | 1,311,264 |
| | $ | 799,504 |
| | $ | 6,291,788 |
| | $ | 1,597,365 |
| | $ | 853,329 |
| | $ | 1,456,360 |
| | $ | 1,062,847 |
| | $ | 1,074,449 |
| | $ | 6,044,350 |
|
| Hardware | | 280,723 |
| | 156,107 |
| | 222,416 |
| | 335,955 |
| | 286,232 |
| | 1,281,433 |
| | 330,322 |
| | 132,284 |
| | 167,021 |
| | 360,166 |
| | 347,405 |
| | 1,337,198 |
|
| Private equity/venture capital | | 805,821 |
| | 979,953 |
| | 1,720,124 |
| | 1,395,524 |
| | 7,331,583 |
| | 12,233,005 |
| | 923,420 |
| | 1,115,977 |
| | 2,120,821 |
| | 1,892,364 |
| | 8,635,756 |
| | 14,688,338 |
|
| Life science/healthcare | | 304,936 |
| | 468,496 |
| | 579,664 |
| | 437,771 |
| | 367,469 |
| | 2,158,336 |
| | 320,548 |
| | 438,764 |
| | 694,111 |
| | 387,936 |
| | 606,404 |
| | 2,447,763 |
|
| Premium wine | | 66,605 |
| | 31,382 |
| | 41,388 |
| | 59,434 |
| | — |
| | 198,809 |
| | 72,052 |
| | 50,417 |
| | 34,185 |
| | 54,164 |
| | 25,310 |
| | 236,128 |
|
| Other | | 218,862 |
| | 16,769 |
| | 58,901 |
| | — |
| | 34,728 |
| | 329,260 |
| | 345,959 |
| | 18,340 |
| | 26,653 |
| | 48,285 |
| | — |
| | 439,237 |
|
| Commercial loans | | 3,216,422 |
| | 2,661,642 |
| | 4,255,103 |
| | 3,539,948 |
| | 8,819,516 |
| | 22,492,631 |
| | 3,589,666 |
| | 2,609,111 |
| | 4,499,151 |
| | 3,805,762 |
| | 10,689,324 |
| | 25,193,014 |
|
| Real estate secured loans: | | | | | | | | | | | | | | | | | | | | | | | | |
| Premium wine | | 166,024 |
| | 183,678 |
| | 225,818 |
| | 110,721 |
| | — |
| | 686,241 |
| | 175,937 |
| | 188,975 |
| | 237,404 |
| | 113,292 |
| | 38,403 |
| | 754,011 |
|
| Consumer | | 2,120,801 |
| | 257,917 |
| | 99,153 |
| | — |
| | — |
| | 2,477,871 |
| | 2,440,617 |
| | 252,781 |
| | 111,923 |
| | — |
| | — |
| | 2,805,321 |
|
| Other | | 7,635 |
| | — |
| | 33,842 |
| | — |
| | — |
| | 41,477 |
| | 7,377 |
| | — |
| | 32,439 |
| | — |
| | — |
| | 39,816 |
|
| Real estate secured loans | | 2,294,460 |
| | 441,595 |
| | 358,813 |
| | 110,721 |
| | — |
| | 3,205,589 |
| | 2,623,931 |
| | 441,756 |
| | 381,766 |
| | 113,292 |
| | 38,403 |
| | 3,599,148 |
|
| Construction loans | | 12,257 |
| | 39,472 |
| | 13,557 |
| | — |
| | — |
| | 65,286 |
| | 23,098 |
| | 11,773 |
| | 57,984 |
| | 21,145 |
| | — |
| | 114,000 |
|
| Consumer loans | | 144,545 |
| | 45,198 |
| | 50,204 |
| | 120,974 |
| | 36,355 |
| | 397,276 |
| | 181,347 |
| | 47,290 |
| | 69,471 |
| | 92,514 |
| | 73,619 |
| | 464,241 |
|
| Total gross loans | | $ | 5,667,684 |
| | $ | 3,187,907 |
| | $ | 4,677,677 |
| | $ | 3,771,643 |
| | $ | 8,855,871 |
| | $ | 26,160,782 |
| | $ | 6,418,042 |
| | $ | 3,109,930 |
| | $ | 5,008,372 |
| | $ | 4,032,713 |
| | $ | 10,801,346 |
| | $ | 29,370,403 |
|
At June 30, 2018,2019, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $12.6$14.8 billion, or 48.350.5 percent of our total gross loan portfolio. These loans represented 318362 clients, and of these loans, $28.2 million nonewere on nonaccrual status as of June 30, 2018.2019.
The following table provides a summary of gross 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, 20172018:
| | | | | December 31, 2017 | | December 31, 2018 |
| (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/internet | | $ | 1,558,717 |
| | $ | 974,959 |
| | $ | 1,545,194 |
| | $ | 1,190,247 |
| | $ | 963,608 |
| | $ | 6,232,725 |
| | $ | 1,515,096 |
| | $ | 918,647 |
| | $ | 1,520,634 |
| | $ | 1,221,250 |
| | $ | 1,034,351 |
| | $ | 6,209,978 |
|
| Hardware | | 258,586 |
| | 138,254 |
| | 253,978 |
| | 217,425 |
| | 332,657 |
| | 1,200,900 |
| | 292,022 |
| | 152,061 |
| | 196,763 |
| | 386,288 |
| | 218,666 |
| | 1,245,800 |
|
| Private equity/venture capital | | 697,427 |
| | 807,596 |
| | 1,617,121 |
| | 1,142,818 |
| | 5,696,159 |
| | 9,961,121 |
| | 836,894 |
| | 1,012,605 |
| | 2,120,918 |
| | 2,135,279 |
| | 8,012,436 |
| | 14,118,132 |
|
| Life science/healthcare | | 321,738 |
| | 450,445 |
| | 576,926 |
| | 313,656 |
| | 205,195 |
| | 1,867,960 |
| | 273,075 |
| | 477,046 |
| | 645,895 |
| | 410,127 |
| | 654,933 |
| | 2,461,076 |
|
| Premium wine | | 60,663 |
| | 37,845 |
| | 64,062 |
| | 32,423 |
| | 9,264 |
| | 204,257 |
| | 70,573 |
| | 55,852 |
| | 48,656 |
| | 65,035 |
| | 9,200 |
| | 249,316 |
|
| Other | | 149,825 |
| | 23,096 |
| | 103,989 |
| | 25,599 |
| | 76,922 |
| | 379,431 |
| | 246,011 |
| | 18,921 |
| | 10,911 |
| | 70,904 |
| | — |
| | 346,747 |
|
| Commercial loans | | 3,046,956 |
| | 2,432,195 |
| | 4,161,270 |
| | 2,922,168 |
| | 7,283,805 |
| | 19,846,394 |
| | 3,233,671 |
| | 2,635,132 |
| | 4,543,777 |
| | 4,288,883 |
| | 9,929,586 |
| | 24,631,049 |
|
| Real estate secured loans: | | | | | | | | | | | | | | | | | | | | | | | | |
| Premium wine | | 150,563 |
| | 187,272 |
| | 220,062 |
| | 89,561 |
| | 22,654 |
| | 670,112 |
| | 168,130 |
| | 173,882 |
| | 263,093 |
| | 83,945 |
| | 22,187 |
| | 711,237 |
|
| Consumer loans | | 1,989,973 |
| | 224,825 |
| | 83,059 |
| | — |
| | — |
| | 2,297,857 |
| | 2,258,479 |
| | 239,400 |
| | 111,766 |
| | — |
| | — |
| | 2,609,645 |
|
| Other | | 7,763 |
| | — |
| | 14,134 |
| | 20,333 |
| | — |
| | 42,230 |
| | 7,506 |
| | — |
| | 33,121 |
| | — |
| | — |
| | 40,627 |
|
| Real estate secured loans | | 2,148,299 |
| | 412,097 |
| | 317,255 |
| | 109,894 |
| | 22,654 |
| | 3,010,199 |
| | 2,434,115 |
| | 413,282 |
| | 407,980 |
| | 83,945 |
| | 22,187 |
| | 3,361,509 |
|
| Construction loans | | 12,178 |
| | 34,029 |
| | — |
| | 22,901 |
| | — |
| | 69,108 |
| | 7,076 |
| | 15,064 |
| | 75,894 |
| | — |
| | — |
| | 98,034 |
|
| Consumer loans | | 146,395 |
| | 49,921 |
| | 17,120 |
| | 78,742 |
| | 36,274 |
| | 328,452 |
| | 148,391 |
| | 55,401 |
| | 51,409 |
| | 93,690 |
| | 71,829 |
| | 420,720 |
|
| Total gross loans | | $ | 5,353,828 |
| | $ | 2,928,242 |
| | $ | 4,495,645 |
| | $ | 3,133,705 |
| | $ | 7,342,733 |
| | $ | 23,254,153 |
| | $ | 5,823,253 |
| | $ | 3,118,879 |
| | $ | 5,079,060 |
| | $ | 4,466,518 |
| | $ | 10,023,602 |
| | $ | 28,511,312 |
|
At December 31, 2017,2018, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $10.5$14.5 billion, or 45.150.8 percent of our total gross loan portfolio. These loans represented 277361 clients, and of these loans, $52.1$27.5 million were on nonaccrual status as of December 31, 2017.2018.
The credit profile of our loan portfolio clients varies based on the nature of the lending we do for different market segments. Our three main market segments include (i) technology (software/internet and hardware) and life science/healthcare, (ii) private equity/venture capital, and (iii) SVB Private Bank.
(i) Technology and Life Science/Healthcare
Our technology and life science/healthcare loan portfolios include loans to clients at allthe various stages of their life cycles and represent the largest segments of our loan portfolio. The primary underwriting method for our technology and life science/healthcare portfolios are classified as investor dependent, balance sheet dependent or cash flow dependent.
Investor dependent loans represent a relatively small percentage of our overall portfolio at 11 percent of total gross loans at both June 30, 20182019 and December 31, 2017.2018. These loans are made to companies in both our Accelerator (early-stage) and Growth practices. Investor dependent loans typically have 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 capital firms or others, or in some cases, a successful sale to a third party or an IPO. Venture capital firms may provide financing selectively, at reduced amounts, or on less favorable terms, which may have an adverse effect on our borrowers' ability 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 that the company would need to be sold to repay the 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.
Balance sheet dependent loans, which includesinclude asset-based loans, represented 9eight percent of total gross loans at both June 30, 2018 compared to 10 percent at2019 and December 31, 2017.2018. Balance sheet dependent loans are structured to require constant current asset coverage (i.e., cash, cash equivalents, accounts receivable and, to a much lesser extent, inventory) in an amount that exceeds the outstanding debt. These loans are generally made to companies in our Growth and Corporate Finance practices. Our asset-based lending, which includes working capital lines and accounts receivable financing, both represented two percent of total gross loans as of June 30, 2018, and both represented threeone percent of total gross loans at both June 30, 2019 and December 31, 2017.2018. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.
Cash flow dependent loans, which include sponsored buyout lending, represented 1815 percent of total gross loans at June 30, 2018,2019, compared to 1916 percent at December 31, 2017.2018. Cash flow dependent loans require the borrower to maintain cash flow from operations that is sufficient to service all debt. Borrowers must demonstrate normalized cash flow in excess
of all fixed charges associated with operating the business. Sponsored buyout loans represented eightseven percent of total gross
loans at June 30, 20182019 compared to nineeight percent at December 31, 2017.2018. These loans are typically used to assist a select group of experienced private equity sponsors with the acquisition of businesses, are larger in size, and repayment is generally dependent upon the cash flows of the acquired company. The acquired companies are typically established, later-stage businesses of scale and characterized by reasonable levels of leverage and loan structures that include meaningful financial covenants. The sponsor's equity contribution is often 50 percent or more of the acquisition price.
(ii) Private Equity/Venture Capital
We also provide financial services to clients in the private equity/venture capital community. At June 30, 2018, ourOur lending to private equity/venture capital firms and funds represented 47 percent of total gross loans, compared to 4350 percent of total gross loans at both June 30, 2019 and December 31, 2017.2018. The vast majority of this portfolio consists of 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. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds' remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are often secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.
(iii) SVB Private Bank
Our SVB Private Bank clients are primarily private equity/venture capital professionals and executive leaders of the innovation companies they support. Our lending to SVB Private Bank clients represented 11 percent of total gross loans at both June 30, 20182019 and December 31, 2017. 2018.Many of these clients have mortgages, which represented 86 percent of this portfolio at June 30, 2018;2019; the balance of this portfolio consisted of home equity lines of credit, restricted stock purchase loans, capital call lines of credit, and other secured and unsecured lending.
State Concentrations
Approximately 3029 percent and 1110 percent of our outstanding total gross loan balances as of June 30, 20182019 were to borrowers based in California and New York, respectively, compared to 3128 percent and 10 percent as of December 31, 2017.2018. Additionally, as of June 30, 2019, borrowers in Massachusetts increased to 10 percent of our outstanding gross loan balances compared to 9 percent as of December 31, 2018. Other than California, and New York and Massachusetts, there are no states with gross loan balances greater than or equal to 10 percent.
See generally “Risk Factors–Credit Risks” set forth under Part I, Item 1A in our 20172018 Form 10-K.
Credit Quality Indicators
As of June 30, 20182019 and December 31, 2017,2018, our total criticized loans and impaired loans both represented three and four percent of our total gross loans.loans, respectively. Criticized and impaired loans to early-stage clients represented 18 percent and 2219 percent of our total criticized and impaired loan balances at June 30, 20182019 and December 31, 2017,2018, respectively. Loans to early-stage clients represent a relatively small percentage of our overall portfolio at six percent of total gross loans at both June 30, 2019 and December 31, 2018. It is common for an 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. Based on our experience, for most early-stage clients, this situation typically lasts one to two quarters and generally resolves itself with a subsequent round of venture funding, though there are exceptions, from time to time. As a result, we expect that each of our early-stage clients will reside in our criticized portfolio during a portion of their life cycle.
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) | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| Gross nonaccrual, past due, and restructured loans: | | | | | |
| Gross nonperforming, past due, and restructured loans: | | | | | |
| Nonaccrual loans | | $ | 124,842 |
| | $ | 119,259 |
| | $ | 96,641 |
| | $ | 94,142 |
|
| Loans past due 90 days or more still accruing interest | | 462 |
| | 191 |
| | 111 |
| | 1,964 |
|
| Total nonperforming loans | | 125,304 |
| | 119,450 |
| | 96,752 |
| | 96,106 |
|
| OREO and other foreclosed assets | | — |
| | — |
| | — |
| | — |
|
| Total nonperforming assets | | $ | 125,304 |
| | $ | 119,450 |
| | $ | 96,752 |
| | $ | 96,106 |
|
| Performing TDRs | | $ | 42,408 |
| | $ | 71,468 |
| | $ | 70,292 |
| | $ | 31,639 |
|
| Nonperforming loans as a percentage of total gross loans | | 0.48 | % | | 0.51 | % | | 0.33 | % | | 0.34 | % |
| Nonperforming assets as a percentage of total assets | | 0.22 |
| | 0.23 |
| | 0.15 |
| | 0.17 |
|
| Allowance for loan losses | | $ | 286,709 |
| | $ | 255,024 |
| | $ | 301,888 |
| | $ | 280,903 |
|
| As a percentage of total gross loans | | 1.10 | % | | 1.10 | % | | 1.03 | % | | 0.99 | % |
| As a percentage of total gross nonperforming loans | | 228.81 |
| | 213.50 |
| | 312.02 |
| | 292.28 |
|
| Allowance for loan losses for nonaccrual loans | | $ | 53,677 |
| | $ | 41,793 |
| | $ | 53,067 |
| | $ | 37,941 |
|
| As a percentage of total gross loans | | 0.21 | % | | 0.18 | % | | 0.18 | % | | 0.13 | % |
| As a percentage of total gross nonperforming loans | | 42.84 |
| | 34.99 |
| | 54.85 |
| | 39.48 |
|
| Allowance for loan losses for total gross performing loans | | $ | 233,032 |
| | $ | 213,231 |
| | $ | 248,821 |
| | $ | 242,962 |
|
| As a percentage of total gross loans | | 0.89 | % | | 0.92 | % | | 0.85 | % | | 0.85 | % |
| As a percentage of total gross performing loans | | 0.90 |
| | 0.92 |
| | 0.85 |
| | 0.86 |
|
| Total gross loans | | $ | 26,160,782 |
| | $ | 23,254,153 |
| | $ | 29,370,403 |
| | $ | 28,511,312 |
|
| Total gross performing loans | | 26,035,478 |
| | 23,134,703 |
| | 29,273,651 |
| | 28,415,206 |
|
| Allowance for unfunded credit commitments (1) | | 54,104 |
| | 51,770 |
| | 62,664 |
| | 55,183 |
|
| As a percentage of total unfunded credit commitments | | 0.29 | % | | 0.30 | % | | 0.30 | % | | 0.29 | % |
| Total unfunded credit commitments (2) | | $ | 18,728,360 |
| | $ | 17,462,537 |
| | $ | 20,952,069 |
| | $ | 18,913,021 |
|
| |
| (1) | The “allowance for unfunded credit commitments” is included as a component of other liabilities and any provision is included in the “provision for credit losses” in the statement of income. See “Provision for credit losses”Credit Losses” for a discussion of the changes to the allowance. |
| |
| (2) | Includes unfunded loan commitments and letters of credit. |
Our allowance for loan losses as a percentage of total gross loans remained flat at 1.10increased four basis points to 1.03 percent at June 30, 2018,2019, compared to 0.99 percent at December 31, 20172018 reflective of a decrease in reserves for performing loans of three basis points, offset by an increase in reserves for nonaccrual loans of three basis points.partially offset by a decrease in the reserves for gross performing loans.
Our allowance for loan losses for performing loans was $233.0$248.8 million at June 30, 2018,2019, compared to $213.2$243.0 million at December 31, 2017.2018. The $19.8$5.8 million increase in reserves for performing loans was reflectivedriven primarily by the overall growth in loans during the six months ended June 30, 2019 as well as the continued change in the mix of an increase in reserves of $26.5 million for period-endthe overall loan growth of $2.9 billion, partially offset by a decrease in reserves of $12.5 million for our performing loans from certain reserve methodology enhancements made to our qualitative reserve for large loan exposure as a result of growth within our higher credit quality private equity/venture capital loan portfolios.portfolio.
Our allowance for loan losses for nonaccrual loans was $53.7$53.1 million at June 30, 2018,2019, compared to $41.8$37.9 million at December 31, 2017.2018. The $11.9$15.2 million increase in the allowancereserves for nonaccrual loans included $34.5 million ofwas due to new nonaccrual loan reserves offsetof $60.8 million driven primarily by $11.0 million of charge-offsthree clients in our life science/healthcare loan portfolio and $11.6 million of reserve releases. New nonaccrual loan reserves of $34.5 million were mostly attributable totwo clients in our software/internet loan portfolio.portfolio, partially offset by $45.6 million of repayments and charge-offs.
The following table presents a summary of changes in nonaccrual loans for the three and six months ended June 30, 20182019 and 2017:2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| Balance, beginning of period | | $ | 116,667 |
| | $ | 138,764 |
| | $ | 119,259 |
| | $ | 118,979 |
| | $ | 133,623 |
| | $ | 116,667 |
| | $ | 94,142 |
| | $ | 119,259 |
|
| Additions | | 28,960 |
| | 22,015 |
| | 50,763 |
| | 56,339 |
| | 39,460 |
| | 28,960 |
| | 90,317 |
| | 50,763 |
|
| Paydowns | | (16,411 | ) | | (17,789 | ) | | (33,659 | ) | | (22,116 | ) | | (57,507 | ) | | (16,411 | ) | | (63,937 | ) | | (33,659 | ) |
| Charge-offs | | (4,467 | ) | | (22,817 | ) | | (11,579 | ) | | (33,028 | ) | | (18,935 | ) | | (4,467 | ) | | (23,830 | ) | | (11,579 | ) |
| Other reductions | | — |
| | (1 | ) | | (35 | ) | | (2 | ) | | — |
| | — |
| | (51 | ) | | (35 | ) |
| Balance, end of period | | $ | 124,749 |
| | $ | 120,172 |
| | $ | 124,749 |
| | $ | 120,172 |
| | $ | 96,641 |
| | $ | 124,749 |
| | $ | 96,641 |
| | $ | 124,749 |
|
Our nonaccrual loans as of June 30, 20182019 included $102.1$51.7 million from sevenfive clients (six(two software/internet clients represent $91.2represented $21.1 million and one hardware client represents $11.0three life science/healthcare clients represented $30.6 million). TwoOne of these loans areis a sponsored buyout loansloan that werewas added to our nonaccrual portfolio in 2015, anotherone is a Corporate FinanceGrowth client that was added during 2016,2018 and the remaining three are new nonaccrual loans added during 2019 from our Growth practice (one added during 2017 and the remaining were added during 2018).practice. The total credit exposure for these sevenfive largest nonaccrual loans is $102.5was $52.6 million as of June 30, 2019, for which we have specifically reserved $41.6$26.1 million.
Average nonaccrual loans for the three and six months ended June 30, 20182019 were $97.6 million and $102.0 million, respectively, compared to $127.4 million and $119.5 million respectively, compared to $128.9 million and $127.1 million for the comparable 20172018 periods. The $1.5$29.8 million decrease in average nonaccrual loans for the three months ended June 30, 20182019 compared to June 30, 20172018 was primarily from our software/internet and life science/healthcarehardware loan portfolios partially offset by an increase in our hardware loanlife science/healthcare portfolio. If the nonaccrual loans had not been impaired, $2.1nonperforming, $1.4 million and $4.0$3.1 million in interest income would have been recorded for the three and six months ended June 30, 2018,2019, respectively, compared to $2.1 million and $3.9$4.0 million for the comparable 20172018 periods.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at June 30, 20182019 and December 31, 20172018 is as follows:
| | | (Dollars in thousands) | | June 30, 2018 |
| December 31, 2017 | | % Change | | June 30, 2019 |
| December 31, 2018 | | % Change |
| Derivative assets (1) | | | $ | 291,508 |
| | $ | 258,139 |
| | 12.9 | % |
| Foreign exchange spot contract assets, gross | | $ | 206,289 |
| | $ | 208,738 |
| | (1.2 | )% | | 465,509 |
| | 152,268 |
| | NM |
|
| Derivative assets, gross (1) | | 249,505 |
| | 232,152 |
| | 7.5 |
| |
| Accrued interest receivable | | 169,649 |
| | 141,773 |
| | 19.7 |
| | 201,418 |
| | 197,927 |
| | 1.8 |
|
| FHLB and Federal Reserve Bank stock | | 58,864 |
| | 60,020 |
| | (1.9 | ) | | 59,508 |
| | 58,878 |
| | 1.1 |
|
| Net deferred tax assets | | 75,286 |
| | 63,845 |
| | 17.9 |
| | 30,135 |
| | 65,433 |
| | (53.9 | ) |
| Accounts receivable | | 57,740 |
| | 55,946 |
| | 3.2 |
| | 67,053 |
| | 55,807 |
| | 20.2 |
|
| Other assets | | 167,091 |
| | 113,772 |
| | 46.9 |
| | 349,950 |
| | 162,809 |
| | 114.9 |
|
| Total accrued interest receivable and other assets | | $ | 984,424 |
| | $ | 876,246 |
| | 12.3 |
| | $ | 1,465,081 |
| | $ | 951,261 |
| | 54.0 |
|
NM—Not meaningful
| |
| (1) | See “Derivatives” section below. |
Accrued Interest ReceivableForeign Exchange Spot Contract Assets
Foreign exchange spot contract assets represent unsettled client trades at the end of the period. The increase of $27.9$313.2 million in accrued interest receivable was primarily reflectivedue to an overall increase in the amount of the strong growth of our loans. Period-end loan balances were $26.0 billion, an increase of $2.9 billion, or 12.5 percent,unsettled spot trades at period-end as compared to December 31, 2017.2018.
Net Deferred Tax Assets
The increasedecrease of $11.4$35.3 million in net deferred tax assets was primarily due to the decreasean increase in the fair value of AFS securities an increase the allowance for loan losses and the recognition of tax over book gains on warrant exercises. The increasedue to a decrease in net deferred tax assets was partially offset by an increase in the deferred tax liabilitymarket interest rates as a result of the change in book accounting following the adoption of ASU 2016-01.compared to December 31, 2018.
Other Assets
Other assets includes various asset amounts for other operational transactions. The increase of $53.3$187.1 million was primarily due to a $34.7$101.1 million increase in current taxtaxes receivable due to estimated tax payments made during the paymentsix months ended June 30,
2019. Additionally, an increase in excessother assets of $43.5 million was due primarily to the current quarter's tax provision. Prepaidinclusion of SVB Leerink in our financial results at June 30, 2019. Merchant card receivables increased $18.9 million due to the timing of settlement and prepaid assets also increased $11.7$14.4 million primarily due to the annual timing of prepaid software agreement renewals.
Derivatives
Derivative instruments are recorded as a component of other assets and other liabilities on the balance sheet. The following table provides a summary of derivative assets and liabilities net at June 30, 20182019 and December 31, 2017:2018:
| | | (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 | | % Change | | June 30, 2019 | | December 31, 2018 | | % Change |
| Assets: | | | | | | | | | | | | |
| Equity warrant assets | | $ | 143,725 |
| | $ | 123,763 |
| | 16.1 | % | | $ | 158,048 |
| | $ | 149,238 |
| | 5.9 | % |
| Foreign exchange forward and option contracts | | 99,358 |
| | 96,636 |
| | 2.8 |
| | 94,462 |
| | 100,402 |
| | (5.9 | ) |
| Client interest rate derivatives | | 6,422 |
| | 11,753 |
| | (45.4 | ) | | 19,440 |
| | 8,499 |
| | 128.7 |
|
| Interest rate swaps | | | 19,558 |
| | — |
| | — |
|
| Total derivative assets | | $ | 249,505 |
| | $ | 232,152 |
| | 7.5 |
| | $ | 291,508 |
| | $ | 258,139 |
| | 12.9 |
|
| Liabilities: | | | | | | | | | | | | |
| Foreign exchange forward and option contracts | | $ | 84,672 |
| | $ | 96,641 |
| | (12.4 | ) | | $ | 86,457 |
| | $ | 88,559 |
| | (2.4 | ) |
| Client interest rate derivatives | | 12,532 |
| | 11,940 |
| | 5.0 |
| | 25,803 |
| | 9,491 |
| | 171.9 |
|
| Interest rate swaps | | | 391 |
| | — |
| | — |
|
| Total derivative liabilities | | $ | 97,204 |
| | $ | 108,581 |
| | (10.5 | ) | | $ | 112,651 |
| | $ | 98,050 |
| | 14.9 |
|
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 June 30, 2018,2019, we held warrants in 1,9672,173 companies, compared to 1,8682,095 companies at December 31, 2017.2018. Warrants in 1522 companies each had values greater than $1.0 million and collectively represented $38.6$51.8 million, or 26.832.8 percent, of the fair value of the total warrant portfolio at June 30, 2018.2019. The change in fair value of equity warrant assets is recorded in gains"Gains on equity warrant assets, net" in noninterest income, a component of consolidated net income. The following table provides a summary of transactions and valuation changes for equity warrant assets for the three and six months ended June 30, 20182019 and 2017: 2018:
| | | | | Three months ended June 30, | | Six months ended June 30, | | Three months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| Balance, beginning of period | | $ | 135,669 |
| | $ | 124,233 |
| | $ | 123,763 |
| | $ | 131,123 |
| | $ | 162,215 |
| | $ | 135,669 |
| | $ | 149,238 |
| | $ | 123,763 |
|
| New equity warrant assets | | 4,299 |
| | 3,419 |
| | 9,398 |
| | 7,492 |
| | 3,051 |
| | 4,299 |
| | 7,521 |
| | 9,398 |
|
| Non-cash changes in fair value, net | | 11,012 |
| | 8,270 |
| | 19,469 |
| | 7,294 |
| | 9,166 |
| | 11,012 |
| | 22,356 |
| | 19,469 |
|
| Exercised equity warrant assets | | (6,429 | ) | | (3,601 | ) | | (7,179 | ) | | (13,030 | ) | | (15,339 | ) | | (6,429 | ) | | (19,183 | ) | | (7,179 | ) |
| Terminated equity warrant assets | | (826 | ) | | (571 | ) | | (1,726 | ) | | (1,129 | ) | | (1,045 | ) | | (826 | ) | | (1,884 | ) | | (1,726 | ) |
| Balance, end of period | | $ | 143,725 |
| | $ | 131,750 |
| | $ | 143,725 |
| | $ | 131,750 |
| | $ | 158,048 |
| | $ | 143,725 |
| | $ | 158,048 |
| | $ | 143,725 |
|
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’ needs. 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. Net gains and losses on the revaluation of foreign currency denominated instruments are recorded in 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. Our net exposure for foreign exchange forward and foreign currency option contracts, net of cash collateral, was $41.4$6.6 million at June 30, 20182019 and $65.6$20.7 million at December 31, 2017.2018. For additional information on our foreign exchange forward contracts and foreign currency option contracts,
see Note 9—12—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Client Interest Rate Derivatives
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. Our net exposure for client interest rate derivative contracts, net of cash collateral, was $3.7$19.6 million at June 30, 20182019 and $11.7$8.7 million at December 31, 2017.2018. For additional information on our client interest rate derivatives, see Note 9—12—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Interest Rate Swaps
To manage interest rate risk on our variable-interest rate loan portfolio, we enter into interest rate swap contracts to hedge against future changes in interest rates by using hedging instruments to lock in future cash inflows that would otherwise be impacted by movements in the market interest rates. We designate these interest rate swap contracts as cash flow hedges that qualify for hedge accounting under ASC 815 and record them in other assets and other liabilities. For additional information on our interest rate swaps, see Note 12—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” and "Quantitative and Qualitative Disclosures about Market Risk" under Part I, Item 1 of this report.
Deposits
Deposits were $48.9$55.6 billion at June 30, 2018,2019, an increase of $4.6$6.3 billion, or 10.512.7 percent, compared to $44.3$49.3 billion at December 31, 2017.2018. The increase in deposits was driven primarily by growth across a majority of our portfolio segments. The leading contributors were our technology and life science/healthcare client portfolios, attributable primarily to a healthy equity funding environment across a majority of our market segments withand robust activities in the IPO and secondary public offeringSPO markets as well as strongcontinued healthy new client acquisition. Our SVB Global, Private Equity Division and Life Sciences market segments were the leading contributors to growth in deposits for the second half of 2018.
At June 30, 2018,2019, the aggregate balance of time deposit accounts individually equal to or greater than $100,000 totaled $57$154 million, compared to $41$46 million at December 31, 2017.2018. At June 30, 2018,2019, all 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. Approximately 15 percent and 1416 percent of our total deposits at June 30, 20182019 and December 31, 2017,2018, respectively, were from our clients in Asia.
Short-Term Borrowings
WeAs of June 30, 2019, we had $0.4no overnight borrowings and $24.3 million in other short-term borrowings consisting of cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor. As of December 31, 2018, we had $0.6 billion in short-term borrowings, at June 30, 2018, comparedconsisting of $0.3 billion in advances from the FHLB and $0.3 billion in securities sold under an agreement to $1.0 billion at December 31, 2017. On June 29, 2018, we borrowed a total of $0.4 billion from our overnight credit facilities to support the short-term liquidity needs of the Bank. These borrowings were repaid, subsequent to quarter-end, on July 2, 2018.
Long-Term Debt
Our long-term debt was $696.0 million at June 30, 2018 and $695.5 million at December 31, 2017. As of June 30, 2018, long-term debt included our 3.50% Senior Notes and 5.375% Senior Notes.repurchase. For more information on our long-termshort-term debt, see Note 8—11—“Short-Term Borrowings and Long-Term Debt” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Our long-term debt was $697.0 million at June 30, 2019 and $696.5 million at December 31, 2018. As of June 30, 2019, long-term debt included our 3.50% Senior Notes and 5.375% Senior Notes. For more information on our long-term debt, see Note 11—“Short-Term Borrowings and Long-Term Debt” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Other Liabilities
A summary of other liabilities at June 30, 20182019 and December 31, 20172018 is as follows:
| | | (Dollars in thousands) | | June 30, 2018 | | December 31, 2017 | | % Change | | June 30, 2019 | | December 31, 2018 | | % Change |
| Foreign exchange spot contract liabilities, gross | | $ | 269,228 |
| | $ | 202,807 |
| | 32.8 |
| | $ | 591,903 |
| | $ | 170,355 |
| | NM |
|
| Accrued compensation | | 111,717 |
| | 167,531 |
| | (33.3 | ) | | 194,176 |
| | 224,405 |
| | (13.5 | ) |
| Allowance for unfunded credit commitments | | 54,103 |
| | 51,770 |
| | 4.5 |
| | 62,664 |
| | 55,183 |
| | 13.6 |
|
| Derivative liabilities, gross (1) | | 97,204 |
| | 108,581 |
| | (10.5 | ) | |
| Other | | 530,139 |
| | 381,066 |
| | 39.1 |
| |
| Derivative liabilities (1) | | | 112,651 |
| | 98,050 |
| | 14.9 |
|
| Other liabilities | | | 579,082 |
| | 458,366 |
| | 26.3 |
|
| Total other liabilities | | $ | 1,062,391 |
| | $ | 911,755 |
| | 16.5 |
| | $ | 1,540,476 |
| | $ | 1,006,359 |
| | 53.1 |
|
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 $66.4$421.5 million was due primarily to increased client trade activityan increase in the amount of unsettled spot trades at period-end as compared to December 31, 2017.2018.
Accrued Compensation
Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, ESOP and other compensation arrangements. The decrease of $55.8$30.2 million was primarily the result of the payout of our 20172018 incentive compensation plans during the first quarter of 2018,2019, partially offset by
higher incentive compensation incentive plan accruals for the six months ended June 30, 2018 reflective2019 primarily of our strong full-year expected performance as well as andue to the increase in the number of average FTEs duringfor the first half of 2018.2019.
Other Liabilities
Other liabilities includes various accrued liability amounts for other operational transactions. The increase of $149.1$120.7 million was reflective primarily of a $107.8 million increase in unsettled fixed income investment securities purchases, a $60.2$61.1 million increase in new commitments for our qualified affordable tax credit funds, partially offset by a $16.7$12.0 million decreaseincrease in foreign currency unsettled tradeaccrued rebate liabilities due to the timing of settlement at June 30, 20182019 as compared to December 31, 2017.2018. In addition, an increase of $14.3 million in other liabilities was attributable to the inclusion of SVB Leerink in our financial results at June 30, 2019.
Noncontrolling Interests
Noncontrolling interests totaled $147.2$152.1 million and $139.6$148.6 million at June 30, 20182019 and December 31, 2017,2018, respectively.The $7.6$3.5 million increase was due primarily to income attributable to noncontrolling interests of $22.3$21.5 million as well as an additional $5.3 million attributable to the acquisition of SVB Leerink in our financial results for the six months ended June 30, 2019, partially offset by net distributions of $14.7$23.3 million to limited partners from various managed funds of funds for the six months ended June 30, 2018.funds.
Fair Value Measurements
The following table summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 20182019 and December 31, 20172018:
| | | | | June 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| (Dollars in thousands) | | Total Balance | | Level 3 | | Total Balance | | Level 3 | | Total Balance | | Level 3 | | Total Balance | | Level 3 |
| Assets carried at fair value | | $ | 10,191,403 |
| | $ | 138,754 |
| | $ | 11,481,237 |
| | $ | 122,250 |
| | $ | 8,574,931 |
| | $ | 148,211 |
| | $ | 8,388,011 |
| | $ | 146,278 |
|
| As a percentage of total assets | | 18.2 | % | | 0.2 | % | | 22.4 | % | | 0.2 | % | | 13.4 | % | | 0.2 | % | | 14.7 | % | | 0.3 | % |
| Liabilities carried at fair value | | $ | 97,204 |
| | $ | — |
| | $ | 108,581 |
| | $ | — |
| | $ | 112,651 |
| | $ | — |
| | $ | 98,050 |
| | $ | — |
|
| As a percentage of total liabilities | | 0.2 | % | | — | % | | 0.2 | % | | — | % | | 0.2 | % | | — | % | | 0.2 | % | | — | % |
| As a percentage of assets carried at fair value | | | | 1.4 | % | | | | 1.1 | % | | | | 1.7 | % | | | | 1.7 | % |
Financial assets valued using Level 3 measurements consist of our non-marketable investment securities in shares of private company stock and equity warrant assets (rights to shares of private and public company capital stock). The valuation methodologies of our non-marketable securities carried under fair value accounting and equity warrant assets involve a significant degree of management judgment. Refer to Note 15—18—“Fair Value of Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for a summary of the valuation techniques and significant 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. See “Risk Factors” set forth in our 20172018 Form 10-K.
During the three and six months ended June 30, 2019, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $46.6 million and $65.8 million, respectively, primarily reflective of valuation increases from our private company warrant portfolio driven by healthy funding rounds and net gains realized on exercised warrant assets due to IPO activity. During the three and six months ended June 30, 2018, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $18.2 million and $36.9 million, respectively, primarily reflective of valuation increases from our public and private company warrant portfolios and net gains realized on exercised warrant assets due to IPO and M&A activity. During the three and six months ended June 30, 2017, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $10.4 million and $17.1 million, respectively, primarily reflective of valuation increases from our public and private company warrant portfolios and net gains realized on exercised warrant assets due to IPO and M&A activity.
Capital Resources
We maintain an adequate capital base to support anticipated asset growth, operating needs and credit and other business risks, and to provide for SVB Financial and the Bank to be in compliance with all regulatory capital guidelines.guidelines, including the joint agency rules implementing the "Basel III" capital rules. 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 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 capital stress tests allow us to assess the impact of adverse changes in the economy and interest rates on our capital adequacy position.
SVBFG Stockholders’ Equity
SVBFG stockholders’ equity totaled $4.7$5.6 billion at June 30, 2018,2019, an increase of $477.9$437.8 million, or 11.48.6 percent, compared to $4.2$5.1 billion at December 31, 2017.2018. This increase was due primarily to net income of $432.8$606.7 million for the six months endedJune 30, 2018 and an increase in accumulated other comprehensive income reflective primarily of a $166.0 million ($119.8 million net increase to equity of $68.8 million related to the adoption of new accounting guidance partially offset by a decreasetax) increase in the fair value of our AFS securities portfolio of $52.9 million, net of tax, driven by increasesdecreases in period-end market interest rates. The increases were partially offset by a $346.8 million decrease in SVBFG stockholders' equity related to the repurchase of our outstanding common stock.
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 regulatory capital requirements administered by state and federal banking agencies.
Regulatory capital ratios for SVB Financial and the Bank exceeded minimum federal regulatory guidelines for a well-capitalized depository institution as of June 30, 20182019 and December 31, 2017.2018. Capital ratios for SVB Financial and the Bank, compared to the minimum regulatory ratios applicable to bank holding companies and banks to be considered “well capitalized” and “adequately capitalized”,capitalized," are set forth below:
| | | | | | | | | Minimum Ratios under Applicable Regulatory Capital Adequacy Requirements | | | | | | Minimum Ratios under Applicable Regulatory Capital Adequacy Requirements |
| | | June 30,
2018 | | December 31, 2017 | | “Well Capitalized” | | “Adequately Capitalized” | | June 30,
2019 | | December 31, 2018 | | “Well Capitalized” | | “Adequately Capitalized” |
| SVB Financial: | | | | | | | | | | | | | | | | |
| CET 1 risk-based capital ratio | | 12.92 | % | | 12.78 | % | | 6.5 | % | | 4.5 | % | | 12.92 | % | | 13.41 | % | | 6.5 | % | | 4.5 | % |
| Tier 1 risk-based capital ratio | | 13.10 |
| | 12.97 |
| | 8.0 |
| | 6.0 |
| | 13.08 |
| | 13.58 |
| | 8.0 |
| | 6.0 |
|
| Total risk-based capital ratio | | 14.03 |
| | 13.96 |
| | 10.0 |
| | 8.0 |
| | 13.97 |
| | 14.45 |
| | 10.0 |
| | 8.0 |
|
| Tier 1 leverage ratio | | 8.81 |
| | 8.34 |
| | N/A |
| | 4.0 |
| | 8.82 |
| | 9.06 |
| | N/A |
| | 4.0 |
|
| Tangible common equity to tangible assets ratio (1) | | 8.34 |
| | 8.16 |
| | N/A |
| | N/A |
| | 8.43 |
| | 8.99 |
| | N/A |
| | N/A |
|
| Tangible common equity to risk-weighted assets ratio (1) | | 12.68 |
| | 12.77 |
| | N/A |
| | N/A |
| | 13.13 |
| | 13.28 |
| | N/A |
| | N/A |
|
| Bank: | | | | | | | | | | | | | | | | |
| CET 1 risk-based capital ratio | | 11.76 | % | | 12.06 | % | | 6.5 | % | | 4.5 | % | | 12.50 | % | | 12.41 | % | | 6.5 | % | | 4.5 | % |
| Tier 1 risk-based capital ratio | | 11.76 |
| | 12.06 |
| | 8.0 |
| | 6.0 |
| | 12.50 |
| | 12.41 |
| | 8.0 |
| | 6.0 |
|
| Total risk-based capital ratio | | 12.72 |
| | 13.04 |
| | 10.0 |
| | 8.0 |
| | 13.44 |
| | 13.32 |
| | 10.0 |
| | 8.0 |
|
| Tier 1 leverage ratio | | 7.72 |
| | 7.56 |
| | 5.0 |
| | 4.0 |
| | 8.17 |
| | 8.10 |
| | 5.0 |
| | 4.0 |
|
| Tangible common equity to tangible assets ratio (1) | | 7.39 |
| | 7.47 |
| | N/A |
| | N/A |
| | 7.91 |
| | 8.13 |
| | N/A |
| | N/A |
|
| Tangible common equity to risk-weighted assets ratio (1) | | 11.52 |
| | 11.98 |
| | N/A |
| | N/A |
| | 12.72 |
| | 12.28 |
| | N/A |
| | N/A |
|
| |
| (1) | See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. |
CapitalRisk-based capital ratios (CET 1, tier 1, and total risk-based capital)capital, and tier 1 leverage ratio) for SVB Financial increaseddecreased as of June 30, 2018,2019, compared to the same ratios as of December 31, 2017 primarily2018 as a result of the adoption of new accounting guidance that resulted in a netan increase in capital of $68.8 million. This increase in capital from the adoption of the new accounting guidance, in addition to net income of $432.8 million, more than offset the increases in risk-weighted assets, primarily attributabledriven by increases in funded loans and loan commitments. The decrease in the tier 1 leverage ratio is due to our robustthe increase in average assets driven by an increase in the average loan growthportfolio and investment securities.
Risk-based capital ratios (CET 1, tier 1, total risk-based capital, and tier 1 leverage ratio) for the first half of 2018. Overall, excluding the impact of the adoption of new accounting guidance, SVB Financial Group's risk-based capital ratios would have decreasedBank increased as of June 30, 2018,2019, compared to the same ratios as of December 31, 2017.
Capital ratios (CET 1, tier 1, and total risk-based capital) for the Bank decreased as of June 30, 2018, compared to the same ratios as of December 31, 2017.2018. The decreaseincrease in the Bank's capital ratios reflected $55.0is due to the increase in net income partially offset by $297.0 million of cash dividends paid by the Bank to our bank holding company, SVB Financial, during the six months ended June 30, 2018.
Both SVB Financial and2019. The increase in the Bank's tier 1 leverage ratios increased as of June 30, 2018, compared to December 31, 2017,ratio is due to proportionally higherthe increase in regulatory capital fromdriven by the increase in net income toand partially offset by the increase in average assets growth during the second of 2018. assets.
All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable 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, these financial measures should be considered in addition to, not as a substitute for or preferable to, comparable financial measures prepared in accordance with GAAP. These ratios are calculated by dividing total SVBFG stockholders' equity, by total period-end assets and risk-weighted assets, after reducing both amounts by acquired intangibles, if any. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies.
The following table provides a reconciliation of non-GAAP financial measures with financial measures defined by GAAP for SVB Financial and the Bank for the periods ended June 30, 20182019 and December 31, 20172018:
| | | | | SVB Financial | | Bank | | SVB Financial | | Bank |
Non-GAAP tangible common equity and tangible assets (Dollars in thousands, except ratios) | | June 30,
2018 | | December 31,
2017 | | June 30,
2018 | | December 31,
2017 | | June 30,
2019 | | December 31,
2018 | | June 30,
2019 | | December 31,
2018 |
| GAAP SVBFG stockholders’ equity | | $ | 4,657,653 |
| | $ | 4,179,795 |
| | $ | 4,068,918 |
| | $ | 3,762,542 |
| | $ | 5,554,043 |
| | $ | 5,116,209 |
| | $ | 4,936,520 |
| | $ | 4,554,814 |
|
| Less: intangible assets | | | 192,981 |
| | — |
| | — |
| | — |
|
| Tangible common equity | | $ | 4,657,653 |
| | $ | 4,179,795 |
| | $ | 4,068,918 |
| | $ | 3,762,542 |
| | $ | 5,361,062 |
| | $ | 5,116,209 |
| | $ | 4,936,520 |
| | $ | 4,554,814 |
|
| GAAP total assets | | $ | 55,867,745 |
| | $ | 51,214,467 |
| | $ | 55,035,371 |
| | $ | 50,383,774 |
| | $ | 63,773,739 |
| | $ | 56,927,979 |
| | $ | 62,380,814 |
| | $ | 56,047,134 |
|
| Less: intangible assets | | | 192,981 |
| | — |
| | — |
| | — |
|
| Tangible assets | | $ | 55,867,745 |
| | $ | 51,214,467 |
| | $ | 55,035,371 |
| | $ | 50,383,774 |
| | $ | 63,580,758 |
| | $ | 56,927,979 |
| | $ | 62,380,814 |
| | $ | 56,047,134 |
|
| Risk-weighted assets | | $ | 36,727,118 |
| | $ | 32,736,959 |
| | $ | 35,326,564 |
| | $ | 31,403,489 |
| | $ | 40,843,334 |
| | $ | 38,527,853 |
| | $ | 38,821,244 |
| | $ | 37,104,080 |
|
| Tangible common equity to tangible assets | | 8.34 | % | | 8.16 | % | | 7.39 | % | | 7.47 | % | |
| Tangible common equity to risk-weighted assets | | 12.68 |
| | 12.77 |
| | 11.52 |
| | 11.98 |
| |
| Non-GAAP tangible common equity to tangible assets | | | 8.43 | % | | 8.99 | % | | 7.91 | % | | 8.13 | % |
| Non-GAAP tangible common equity to risk-weighted assets | | | 13.13 |
| | 13.28 |
| | 12.72 |
| | 12.28 |
|
The tangible common equity to tangible assets ratio decreased for the Bank primarily as a result of the $55.0$297.0 million in cash dividends paid by the Bank to our bank holding company, SVB Financial Group, during the six months ended June 30, 2018.2019. The tangible common equity to risk-weighted assets ratio decreasedincreased for both SVB Financial and the Bank. The decrease wasBank as a result of the proportionally higher increase in risk-weighted assetstangible common equity relative to the increase in tangible common equity.risk-weighted assets. The growth in period-end risk-weighted assets was primarily due to increases in cash and cash equivalents and period-end loan growth and higher investment balances driven by increases in deposits.growth.
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 13—16—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Commitments to Invest in Venture Capital and 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-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 13—16—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Liquidity
The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations, including, as necessary, paying creditors, meeting depositors’ needs, accommodating loan demand and growth, funding investments, repurchasing securities and other operating or capital needs, without incurring undue cost or risk, or causing a disruption to normal operating conditions.
We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Our Asset/Liability Committee (“ALCO”), which is a management committee, provides oversight to the liquidity management process and recommends policy guidelines for the approval of the Finance
Committee of our Board of Directors, and courses of action to address our actual and projected liquidity needs. Additionally, we routinely conduct liquidity stress testing as part of our liquidity management practices.
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 for our off-balance sheet products which may impact deposit levels. At June 30, 2018,2019, our period-end total deposit balances were $48.9$55.6 billion, compared to $44.3$49.3 billion at December 31, 2017.2018.
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.
We have certain facilities in place to enable us to access short-term borrowings on a secured (using loans and AFS securities as collateral) and an unsecured basis. TheseOur secured facilities include repurchase agreements and uncommitted federal funds lines with various financial institutions. We also pledge securitiescollateral pledged to the FHLB of San Francisco and the discount window at the Federal Reserve Bank. The fair valueFRB (using both fixed income securities and loans as collateral). Our unsecured facility consists of our uncommitted federal funds lines. As of June 30, 2019, collateral pledged to the FHLB of San Francisco (comprisedwas comprised primarily of fixed income investment securities and loans and U.S. Treasury securities) at June 30, 2018 totaled $3.8had a carrying value of $4.6 billion, of which $3.4$4.1 billion was unused and available to support additional borrowings. The fair valueAs of June 30, 2019, collateral pledged atto the discount window ofat the FRB (comprised primarilywas comprised of U.S. Treasuryfixed income investment securities and U.S. agency debentures) at June 30, 2018 totaled $0.9had a carrying value of $0.6 billion, all of which was unused and available to support additional borrowings. Our total unused and available borrowing capacity for our uncommitted federal funds lines totaled $1.9 billion at June 30, 2019. Our total unused and available borrowing capacity under our master repurchase agreements with various financial institutions totaled $3.3 billion at June 30, 2019.
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. Consistent with recent prior quarters, the Bank has paid a quarterly dividend to SVB Financial. For the three and six months ended June 30, 2018,2019, the dividend amount paid was $30$130.0 million and $55$297.0 million, respectively. 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 20172018 Form 10-K.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for the six months ended June 30, 20182019 and 2017.2018. For further details, see our “Interim Consolidated Statements of Cash Flows (Unaudited)” under Part I, Item 1 of this report.
| | | | | Six months ended June 30, | | Six months ended June 30, |
| (Dollars in thousands) | | 2018 | | 2017 | | 2019 | | 2018 |
| Average cash and cash equivalents | | $ | 2,997,338 |
| | $ | 3,562,811 |
| | $ | 5,470,520 |
| | $ | 2,997,338 |
|
| Percentage of total average assets | | 5.6 | % | | 7.7 | % | | 9.3 | % | | 5.6 | % |
| Net cash provided by operating activities | | $ | 347,380 |
| | $ | 396,721 |
| | $ | 450,571 |
| | $ | 347,380 |
|
| Net cash used for investing activities | | (4,570,107 | ) | | (2,019,530 | ) | | (317,021 | ) | | (4,570,107 | ) |
| Net cash provided by financing activities | | 4,011,753 |
| | 2,931,303 |
| | 5,315,836 |
| | 4,011,753 |
|
| Net (decrease) increase in cash and cash equivalents | | $ | (210,974 | ) | | $ | 1,308,494 |
| |
| Net increase (decrease) in cash and cash equivalents | | | $ | 5,449,386 |
| | $ | (210,974 | ) |
Average cash and cash equivalents decreasedincreased by $0.6$2.5 billion, or 15.982.5 percent, to $3.0$5.5 billion for the six months ended June 30, 2018,2019, compared to $3.6$3.0 billion for the comparable 20172018 period.
Cash provided by operating activities was $347.4$450.6 million for the six months ended June 30, 2018,2019, reflective primarily of net income before noncontrolling interests of $455.1$628.2 million, partially offset by a net decreasesdecrease of $177.6 million in adjustments to reconcile net income to net cash.cash driven primarily by the changes in our foreign exchange spot contracts.
Cash used for investing activities of $4.6$0.3 billion for the six months ended June 30, 20182019 was driven by $4.5an $0.8 billion increase in purchasesloan balances and a net cash outflow of fixed income investment securities$0.1 billion for the acquisition of SVB Leerink, partially offset by $2.7 billion of proceeds from maturities and principal paydownsnet cash inflows from our fixed income investment and non-marketable equity securities portfolio. Additionally, $2.9of $0.6 billion.
Cash provided by financing activities was $5.3 billion in cash outflows were used to fund loan growth duringfor the six months ended June 30, 2018.
Cash provided by financing activities was $4.0 billion for the six months endedJune 30, 2018,2019, reflective primarily of a net increase of $4.6$6.3 billion in deposits, partially offset by a decrease of $0.6 billion in paydowns of our short-term overnight borrowings.borrowings and $0.4 billion cash outflows related to repurchases of our outstanding common stock.
Cash and cash equivalents were $2.7$9.0 billion and $3.9$2.7 billion, respectively, at June 30, 20182019 and June 30, 2017.2018.
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, equity price risk, including the effect of competition on product pricing. While allAll of these risks are important considerations, allbut are also inherently difficult to predict and it is equally difficult to assess the impact of each on the overall simulation results. Consequently, simulations used to analyze the sensitivity of net interest income to changes in interest rate riskrates will differ from actual results due to differences in the timing and frequency andor rate resets, the magnitude of changes in market rates, the impact of competition, fluctuating business conditions, and the impact of strategies taken by management to mitigate these risks.
Interest rate risk is managed by our ALCO. ALCO reviews the sensitivity of the market valuation on earning assets and funding liabilities and the modeled 12-month forward lookingprojection of net interest income from changes in interest rates, structural changes in investment and funding portfolios, loan and deposit activity and current market conditions. Adherence with relevant metrics included in our Interest Rate Risk Policy, which is approved by the Finance Committee of our Board of Directors, isare monitored on an ongoing basis.
Management ofManaging interest rate risk is carried outdone 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 derivatives, such as interest rate swaps, to assist in managing interest rate risk.
We utilize a simulation model to perform sensitivity analysis on the economic value of our equity and our net interest income under a variety of interest rate scenarios, balance sheet forecasts and business strategies. The simulation model provides a dynamic assessment of interest rate sensitivity embedded within our balance sheet which measures the potential variability in economic value and net interest income relating solely to changes in market interest rates over time. We review our interest rate risk position and sensitivity to market interest rates on a quarterly basis at a minimum.regularly.
Model Simulation and Sensitivity Analysis
A specific application of our simulation model involves measurement of the impact of changes in market interest rates on ourthe 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, if any.liabilities. Another application of the simulation model measures the impact of changes in market interest rates on our net interest income (“NII”) assuming a static balance sheet size and composition as of the period-end reporting date. Meaning,For the NII simulation, the level of market interest rates as well as the size and composition of earning assets and funding liabilitiesthe balance sheet are held constant over the simulation horizon. Simulated cash flows during the scenario horizon are assumed to be replaced as they occur, which restoresmaintains the balance sheet toat its originalcurrent size and composition. More specifically, with respect to earning assets, loan maturities, principal maturities, paydowns and calls on investments are added back as replacement balances as they occur during the simulation horizon. Yield and spread assumptions on cash and investment balances reflect current market rates.rates and the shape of the yield curve. Yield and spread assumptions on loans reflect recent market impacts on product pricing. Similarly, we make certain deposit decay rate assumptions on demand deposits and interest bearing deposits, which are replenished to hold the level and mix of funding liabilities constant. Changes in market interest rates that affect usnet interest income are principally short-term interest rates and include the following benchmark indexes: (i) the National and SVB Prime rates,Rate, (ii) 1-month and 3-month LIBOR, and (iii) the Federal 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, simulated changes in deposit pricing relative to changes in market rates, commonly referred to as deposit beta, generally follow overall changes in short-term interest rates, although actual changes may lag in terms of timing and magnitude. Overall,
Increases in short-term interest rates since the assumed weightedend of 2015 and corresponding increases in deposit rates paid to our clients to attract new deposit funding and retain existing funds has resulted in an increase in our realized beta onto approximately 50 percent, as measured since the beginning of the increasing rate cycle, which is higher than the approximate 35 percent beta used in prior periods. Additionally, management expects deposit repricing behavior in a falling rate environment to be different than repricing behavior in a rising rate environment. This results in an "asymmetrical" beta assumption being applied in the NII and EVE simulation models for interest bearing deposits. This model assumes the overall beta for interest bearing deposits is approximately 35.0 percent, which means deposit repricing is assumed toin a falling rate environment would be approximately 35.060 percent. That is, overall changes in interest bearing deposit rates would be approximately 60 percent of a giventhe change in short-term interestmarket rates. ThisIn a rising rate environment, this beta assumption is only 50 percent. These repricing isassumptions are reflected as a changechanges in interest expense on interest bearing deposit balances. Because the updated beta assumptions used as of June 30, 2019 represent deposit repricing that more closely follows the repricing behavior of the loan portfolio, overall NII sensitivity is lower in both increasing and decreasing rate scenarios when compared to results using the prior deposit beta assumptions. Therefore, when comparing the change to modeled results using a lower beta assumption, modeled sensitivity changed from -14.4% to -12.4% in the -100 basis point scenario and from 14.3% to 13.4% in the +100 bps scenario when compared to the modeled sensitivity as of March 31, 2019.
The following table presents our EVE and NII sensitivity exposure related to an instantaneous and sustained parallel shift in market interest rates of 100 and 200 bpsbasis points ("bps") at June 30, 20182019 and at December 31, 2017:2018. Net Interest Income sensitivity for December 31, 2018 has been revised to reflect the higher beta assumptions for purposes of comparison. Modeled Economic Value of Equity for December 31, 2018 has not been adjusted as the assumption change had an immaterial impact.
|
| | | | | | | | | | | | | | | | | | | | | | |
| Change in interest rates (bps) (Dollars in thousands) | | Estimated | | Estimated Increase/(Decrease) in EVE | | Estimated | | Estimated Increase/(Decrease) in NII |
| | EVE | | Amount | | Percent | | NII | | Amount | | Percent |
| June 30, 2018: | | | | | | | | | | | | |
| 200 | | $ | 8,785,908 |
| | $ | 373,102 |
| | 4.4 | % | | $ | 2,203,720 |
| | $ | 407,219 |
| | 22.7 | % |
| 100 | | 8,582,937 |
| | 170,131 |
| | 2.0 |
| | 1,991,979 |
| | 195,478 |
| | 10.9 |
|
| — | | 8,412,806 |
| | — |
| | — |
| | 1,796,501 |
| | — |
| | — |
|
| -100 | | 8,079,862 |
| | (332,944 | ) | | (4.0 | ) | | 1,549,652 |
| | (246,849 | ) | | (13.7 | ) |
| -200 | | 7,258,778 |
| | (1,154,028 | ) | | (13.7 | ) | | 1,311,789 |
| | (484,712 | ) | | (27.0 | ) |
| | | | | | | | | | | | | |
| December 31, 2017: | | | | | | | | | | | | |
| 200 | | $ | 8,091,107 |
| | $ | 805,624 |
| | 11.1 | % | | $ | 1,885,885 |
| | $ | 400,127 |
| | 26.9 | % |
| 100 | | 7,716,066 |
| | 430,583 |
| | 5.9 |
| | 1,683,742 |
| | 197,984 |
| | 13.3 |
|
| — | | 7,285,483 |
| | — |
| | — |
| | 1,485,758 |
| | — |
| | — |
|
| -100 | | 6,637,588 |
| | (647,895 | ) | | (8.9 | ) | | 1,252,063 |
| | (233,695 | ) | | (15.7 | ) |
| -200 | | 5,718,401 |
| | (1,567,082 | ) | | (21.5 | ) | | 1,108,712 |
| | (377,046 | ) | | (25.4 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
Change in interest rates (bps) (Dollars in thousands) | | Estimated | | Estimated Increase/(Decrease) in EVE | | Estimated | | Estimated Increase/(Decrease) in NII |
| | EVE | | Amount | | Percent | | NII | | Amount | | Percent |
| June 30, 2019: | | | | | | | | | | | | |
| +200 | | $ | 9,416,810 |
| | $ | 236,121 |
| | 2.6 | % | | $ | 2,566,645 |
| | $ | 540,243 |
| | 26.7 | % |
| +100 | | 9,300,936 |
| | 120,247 |
| | 1.3 |
| | 2,297,781 |
| | 271,379 |
| | 13.4 |
|
| — | | 9,180,689 |
| | — |
| | — |
| | 2,026,402 |
| | — |
| | — |
|
| -100 | | 8,920,500 |
| | (260,189 | ) | | (2.8 | ) | | 1,775,994 |
| | (250,408 | ) | | (12.4 | ) |
| -200 | | 8,308,538 |
| | (872,151 | ) | | (9.5 | ) | | 1,529,641 |
| | (496,761 | ) | | (24.5 | ) |
| | | | | | | | | | | | | |
| December 31, 2018: (as revised) | | | | | | | | | | | | |
| +200 | | $ | 9,348,408 |
| | $ | 504,405 |
| | 5.7 | % | | $ | 2,583,577 |
| | $ | 499,257 |
| | 24.0 | % |
| +100 | | 9,090,781 |
| | 246,778 |
| | 2.8 |
| | 2,334,040 |
| | 249,720 |
| | 12.0 |
|
| — | | 8,844,003 |
| | — |
| | — |
| | 2,084,320 |
| | — |
| | — |
|
| -100 | | 8,470,501 |
| | (373,502 | ) | | (4.2 | ) | | 1,840,190 |
| | (244,130 | ) | | (11.7 | ) |
| -200 | | 7,590,973 |
| | (1,253,030 | ) | | (14.2 | ) | | 1,543,150 |
| | (541,170 | ) | | (26.0 | ) |
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 to determine discounting factors on projected cash flows. The model simulations and calculations are highly assumption-dependent and will change regularly as the composition of earning assets and funding liabilities change (including the impact of changes in the value of interest rate derivatives, if any), as interest rate environments evolve, and as we change our assumptions in response to relevant market conditions, competition or business circumstances. These calculations do not reflect forecast changes in our balance sheet or changes we may make to reduce our EVE exposure 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, basis risk, and yield spread compression, 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 our estimate of the underlying value of equity or forecast of NII.
Our base case EVE as of June 30, 20182019 increased from December 31, 20172018 by $1.1 billion,$337 million, driven by changes in balance sheet composition as well as risingchanges in interest rates. At June 30, 2018,2019, as compared to December 31, 2017,2018, total loan balances increased by $2.9$0.9 billion, primarily in Prime-basedPrime and LIBOR indexed variable rate loans. Total fixed income securities alsodecreased by $0.5 billion and cash and cash equivalents increased by $1.7$5.4 billion due to purchases of fixed rate long maturity instruments suchdriven by increases in period-end deposit growth. Total deposit growth was $6.3 billion as pass-through mortgage-backed securities and municipal debt securities combined with run-off of shorter maturity U.S. Treasury securities. Additionally, total deposits increased by $4.6 billion.
Marginally higher LIBOR/swap rates in the 3- to 24-month tenors continue to drive a relatively flat yield curve compared to December 31, 2017. These higher rates2018.
Overall balance sheet growth contributed to the $1.1 billiona $609 million increase in total change in base EVE, mainly impactinghowever, this was offset by a decrease of $272 million as a result of lower LIBOR/swap rates across the market value of deposits. Continued investment in 30-year pass-through mortgage-backed securities and municipal securities resulted in a $261 million decrease incurve. In general, EVE sensitivity in the +100 bps rate shock scenario. Comparedwas lower as of June 30, 2019, compared to December 31, 2017, EVE in the -100 and -200 bps rate shock scenarios increased $315 million and $413 million, respectively. This represents a decrease in the sensitivity, primarily2018, due to changes in the investment portfolio composition described above.elevated levels of short duration cash relative other assets and liabilities impacted by changing market discount rates.
12-Month Net Interest Income Simulation
Our estimatedstatic 12-month NII forecastmodeled projection at June 30, 2018 increased from2019 decreased compared to December 31, 20172018 by $311$58 million, primarily due to changes in our balance sheet composition with increased modeled interest income of $97 million, more than offset by an increase in interest expense of $157 million. As of June 30, 2019, an increase in interest income was due primarily to elevated cash levels while relatively higher interest bearing deposits and higher deposit rates resulted in increases in interest expense when compared to December 31, 2018. Comparing the same periods, modeled interest income from loans was $17 million lower as of June 30, 2019 due to lower loan interest rates despite an increase in loan balances relative to December 31, 2018. Lower loan interest income was offset by $15 million lower modeled interest expense on short-term borrowings.
The majority of higher yieldingour loans are indexed to the National Prime Rate and investments as described in1-month and 3-month LIBOR index rates. In the EVE section above. As rates rise,positive parallel simulated rate shock scenarios, interest income on assets that are tied to variable rate indexes, primarily our variable rate loans, are expected to benefitcontribute a positive impact on our base 12-month NII projections. In addition, theThe opposite is true for negative rate shock scenarios.
The 12-month NII simulations include repricing assumptions on our interest bearing deposit products which we set at our discretion based on client needs and our overall funding mix. Repricing of interest bearing deposits impacts estimated interest expense. As noted previously, repricing deposit rates are generally assumed to be less than one-half of the amountabout 50 percent of simulated changesincreases in short-term marketinterest rates and about 60 percent of simulated decreases in short-term interest rates.
At June 30, 2018, our NII sensitivity which is measured as the percentage change in projected 12-month forward net interest income earned in various+/- 100 and +/- 200 basis point interest rate shock scenarios compared to a base scenario where asset and liability balances, composition, and the level of market interest rates remain unchanged, decreased to 10.9are held constant over the forecast horizon. At June 30, 2019, NII sensitivity was 13.4 percent in the +100 bps interest rate scenario, compared to 13.312.0 percent at December 31, 2017.2018. Our NII sensitivity in the +200 bps interest rate shock scenario declined to 22.7was 26.7 percent compared to 26.924.0 percent at December 31, 2017. The slight decline in NII sensitivity is the result of an increase in the composition of longer duration securities in our fixed income portfolio. Despite the decrease in NII sensitivity in rising interest rate scenarios, the current level of variable rate loans, coupled with a large proportion of non-interest bearing deposit balances is expected to result in an increased NII result in a rising rate environment.2018. NII sensitivity in the -100 bps scenario of negative 13.712.4 percent was also lower at June 30, 20182019 compared to a negative 15.711.7 percent at December 31, 2017.2018. The -200 bps scenario currently indicates a greater percentage change in NII of negative 24.5 percent at June 30, 20182019 compared to negative 26.0 percent at December 31, 2017. This is2018. At June 30, 2019, NII sensitivity percentages are inclusive of the resultincome or expense associated with interest rate swaps that are part of our hedging initiatives which began during the six months ended June 30, 2019, in an effort to reduce the impact of a full -200 bps decline inpotential decreasing rates on NII. On June 30, 2019, the outstanding notional amount of receive fixed interest rate scenario. At December 31, 2017, the -200swaps was $1.3 billion and reduced our projected base 12-month NII by $7 million. The +100 bps scenario was floored at zero percent,reflects a total net negative impact to NII of $19 million from the interest rate swaps and therefore only producedthe -100 bps scenario reflects a drop in ratestotal net positive impact to NII of approximately 150 bps.$6 million.
The simulation model used in the above analysis incorporates embedded floors on loans, where present, in our interest rate scenarios, which prevent model benchmark rates from moving below zero percent in the down200 bps rate scenarios. The embedded floors are also a factor in the up rate scenarios to the extent a simulated increase in rates is needed before floored
rates are cleared. 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 changes in client behavior and at management's discretion. Actual changes in our deposit pricing strategies may differ from our current model assumptions and may have an impact on our actual sensitivity overall.
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
Except as set forth below, 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.
Beginning January 1, 2018,2019, we implemented ASC 606, Revenue from Contracts with Customers.842, Leases. Although the new revenuelease standard is expected to havehad an immaterial impact on our ongoing net income,consolidated financial statements, we did implement changes to our processes related to revenue recognition and the control activities withinto properly identify and record them. These included the development of new policies, based on the five-step model provided in the new revenue standard,controls, new training, ongoing contract review requirements, and gathering of information provided for disclosures.
PART II–OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to Note 16—19—“Legal Matters” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
ITEM 1A. RISK FACTORS
There are no material changes to the risk factors set forth in our 20172018 Annual Report on 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
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Exhibit
Number
| | Exhibit Description | | Incorporated by Reference | | Filed
Herewith
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Form | | File No. | | Exhibit | | Filing Date | |
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| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
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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Exhibit Number | | Exhibit Description | | Incorporated by Reference | | Filed Herewith |
| Form | | File No. | | Exhibit | | Filing Date | |
| | | | 10-Q | | 000-15637 | | 3.1 | | May 9, 2019 | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 |
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 |
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Date: August 7, 20189, 2019 | | /s/ DANIEL BECK |
| | | Daniel Beck |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
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| | | SVB Financial Group |
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Date: August 7, 20189, 2019 | | /s/ KAMRAN HUSAIN |
| | | Kamran Husain |
| | | Chief Accounting Officer |
| | | (Principal Accounting Officer) |