Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses 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 and electronics), software and related services, and energy and resource innovation. Because of the diverse nature of ERI products and services, ERI-related loans are reported under our hardware, software and internet, life science/healthcare and other commercial loan categories, as applicable, for loan-related reporting. 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 $125 million and $115 million at December 31, 2016 and 2015 , respectively, is presented in the following table: December 31, (Dollars in thousands) 2016 2015 Commercial loans: Software and internet $ 5,627,031 $ 5,437,915 Hardware 1,180,398 1,071,528 Private equity/venture capital 7,691,148 5,467,577 Life science/healthcare 1,853,004 1,710,642 Premium wine 200,156 201,175 Other 393,551 312,278 Total commercial loans 16,945,288 14,201,115 Real estate secured loans: Premium wine (1) 678,166 646,120 Consumer loans (2) 1,926,968 1,544,440 Other 43,487 44,830 Total real estate secured loans 2,648,621 2,235,390 Construction loans 64,671 78,682 Consumer loans 241,364 226,883 Total loans, net of unearned income (3) $ 19,899,944 $ 16,742,070 (1) Included in our premium wine portfolio are gross construction loans of $110 million and $121 million at December 31, 2016 and 2015 , respectively. (2) Consumer loans secured by real estate at December 31, 2016 and 2015 were comprised of the following: December 31, (Dollars in thousands) 2016 2015 Loans for personal residence $ 1,655,349 $ 1,312,818 Loans to eligible employees 199,291 156,001 Home equity lines of credit 72,328 75,621 Consumer loans secured by real estate $ 1,926,968 $ 1,544,440 (3) Included within our total loan portfolio are credit card loans of $224 million and $177 million at December 31, 2016 and 2015 , respectively. Credit Quality The composition of loans, net of unearned income of $125 million and $115 million at December 31, 2016 and 2015 , respectively, broken out by portfolio segment and class of financing receivable, is as follows: December 31, (Dollars in thousands) 2016 2015 Commercial loans: Software and internet $ 5,627,031 $ 5,437,915 Hardware 1,180,398 1,071,528 Private equity/venture capital 7,691,148 5,467,577 Life science/healthcare 1,853,004 1,710,642 Premium wine 878,322 847,295 Other 501,709 435,790 Total commercial loans 17,731,612 14,970,747 Consumer loans: Real estate secured loans 1,926,968 1,544,440 Other consumer loans 241,364 226,883 Total consumer loans 2,168,332 1,771,323 Total loans, net of unearned income $ 19,899,944 $ 16,742,070 The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of December 31, 2016 and 2015 : (Dollars in thousands) 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Loans Past Due 90 Days or More Still Accruing Interest December 31, 2016: Commercial loans: Software and internet $ 37,087 $ 1,162 $ 6 $ 38,255 $ 5,507,575 $ 6 Hardware 5,591 36 27 5,654 1,118,065 27 Private equity/venture capital 689 — — 689 7,747,222 — Life science/healthcare 283 551 — 834 1,827,490 — Premium wine 1,003 4 — 1,007 876,185 — Other 34 300 — 334 504,021 — Total commercial loans 44,687 2,053 33 46,773 17,580,558 33 Consumer loans: Real estate secured loans 850 — — 850 1,923,266 — Other consumer loans 1,402 — — 1,402 237,353 — Total consumer loans 2,252 — — 2,252 2,160,619 — Total gross loans excluding impaired loans 46,939 2,053 33 49,025 19,741,177 33 Impaired loans 34,636 3,451 11,180 49,267 185,193 — Total gross loans $ 81,575 $ 5,504 $ 11,213 $ 98,292 $ 19,926,370 $ 33 December 31, 2015: Commercial loans: Software and internet $ 3,384 $ 6,638 $ — $ 10,022 $ 5,371,222 $ — Hardware 1,061 66 — 1,127 1,051,368 — Private equity/venture capital — 17 — 17 5,511,912 — Life science/healthcare 853 6,537 — 7,390 1,665,801 — Premium wine 16 65 — 81 847,249 — Other 14 22 — 36 438,313 — Total commercial loans 5,328 13,345 — 18,673 14,885,865 — Consumer loans: Real estate secured loans 4,911 865 — 5,776 1,537,421 — Other consumer loans 228 115 — 343 226,369 — Total consumer loans 5,139 980 — 6,119 1,763,790 — Total gross loans excluding impaired loans 10,467 14,325 — 24,792 16,649,655 — Impaired loans 333 — 7,221 7,554 175,130 — Total gross loans $ 10,800 $ 14,325 $ 7,221 $ 32,346 $ 16,824,785 $ — 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 for the years ended December 31, 2016 and 2015 : (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 December 31, 2016: Commercial loans: Software and internet $ 121,658 $ 1,090 $ 122,748 $ 129,648 Hardware 65,395 — 65,395 70,683 Private equity/venture capital — — — — Life science/healthcare 38,361 — 38,361 41,130 Premium wine 3,187 — 3,187 3,187 Other 867 — 867 867 Total commercial loans 229,468 1,090 230,558 245,515 Consumer loans: Real estate secured loans 1,504 — 1,504 2,779 Other consumer loans 2,398 — 2,398 2,398 Total consumer loans 3,902 — 3,902 5,177 Total $ 233,370 $ 1,090 $ 234,460 $ 250,692 December 31, 2015: Commercial loans: Software and internet $ 100,866 $ — $ 100,866 $ 125,494 Hardware 27,736 — 27,736 27,869 Private equity/venture capital — — — — Life science/healthcare 50,429 925 51,354 55,310 Premium wine 898 1,167 2,065 2,604 Other 520 — 520 520 Total commercial loans 180,449 2,092 182,541 211,797 Consumer loans: Real estate secured loans 143 — 143 1,393 Other consumer loans — — — — Total consumer loans 143 — 143 1,393 Total $ 180,592 $ 2,092 $ 182,684 $ 213,190 The following table summarizes our average impaired loans and the related interest income while impaired, broken out by portfolio segment and class of financing receivable during 2016 , 2015 and 2014 : Year ended December 31, (Dollars in thousands) Average impaired loans Interest income on impaired loans 2016 2015 2014 2016 2015 2014 (1) Commercial loans: Software and internet $ 89,462 $ 63,825 $ 14,357 $ 1,054 $ 344 $ — Hardware 39,108 8,854 6,634 2,624 574 — Private equity/venture capital — — — — — — Life science/healthcare 40,620 18,083 516 155 132 — Premium wine 2,056 1,455 1,381 28 12 — Other 3,442 2,758 1,088 6 8 — Total commercial loans 174,688 94,975 23,976 3,867 1,070 — Consumer loans: Real estate secured loans 588 172 218 — — — Other consumer loans 1,136 41 322 17 — — Total consumer loans 1,724 213 540 17 — — Total average impaired loans $ 176,412 $ 95,188 $ 24,516 $ 3,884 $ 1,070 $ — (1) In 2014, all impaired loans were nonaccrual loans and no interest income was recognized. The following tables summarize the activity relating to our allowance for loan losses for 2016 , 2015 and 2014 broken out by portfolio segment: Year ended December 31, 2016 (Dollars in thousands) Beginning Balance December 31, 2015 Charge-offs Recoveries Provision for (Reduction of) Loan Losses Foreign Currency Translation Adjustments Ending Balance December 31, 2016 Commercial loans: Software and internet $ 103,045 $ (68,784 ) $ 7,278 $ 58,350 $ (2,501 ) $ 97,388 Hardware 23,085 (13,233 ) 1,667 20,851 (1,204 ) 31,166 Private equity/venture capital 35,282 — — 15,114 (97 ) 50,299 Life science/healthcare 36,576 (9,693 ) 1,129 (2,543 ) (23 ) 25,446 Premium wine 5,205 — — (1,260 ) 170 4,115 Other 4,252 (5,045 ) 1,880 3,373 308 4,768 Total commercial loans 207,445 (96,755 ) 11,954 93,885 (3,347 ) 213,182 Consumer loans 10,168 (102 ) 258 1,812 48 12,184 Total allowance for loan losses $ 217,613 $ (96,857 ) $ 12,212 $ 95,697 $ (3,299 ) $ 225,366 Year ended December 31, 2015 (Dollars in thousands) Beginning Balance December 31, 2014 Charge-offs Recoveries Provision for (Reduction of) Loan Losses Foreign Currency Translation Adjustments Ending Balance December 31, 2015 Commercial loans: Software and internet $ 80,981 $ (33,246 ) $ 1,621 $ 53,696 $ (7 ) $ 103,045 Hardware 25,860 (5,145 ) 3,332 (1,035 ) 73 23,085 Private equity/venture capital 27,997 — — 7,391 (106 ) 35,282 Life science/healthcare 15,208 (7,291 ) 277 28,400 (18 ) 36,576 Premium wine 4,473 — 7 725 — 5,205 Other 3,253 (4,990 ) 809 5,736 (556 ) 4,252 Total commercial loans 157,772 (50,672 ) 6,046 94,913 (614 ) 207,445 Consumer loans 7,587 (296 ) 163 2,716 (2 ) 10,168 Total allowance for loan losses $ 165,359 $ (50,968 ) $ 6,209 $ 97,629 $ (616 ) $ 217,613 Year ended December 31, 2014 Beginning Balance December 31, 2013 Charge-offs Recoveries Provision for Loan Losses Foreign Currency Translation Adjustments Ending Balance December 31, 2014 Commercial loans: Software and internet $ 64,084 $ (21,031 ) $ 1,425 $ 36,547 $ (44 ) $ 80,981 Hardware 36,553 (15,265 ) 2,238 2,417 (83 ) 25,860 Private equity/venture capital 16,385 — — 11,632 (20 ) 27,997 Life science/healthcare 11,926 (2,951 ) 374 5,925 (66 ) 15,208 Premium wine 3,914 (35 ) 240 354 — 4,473 Other 3,680 (3,886 ) 1,748 1,760 (49 ) 3,253 Total commercial loans 136,542 (43,168 ) 6,025 58,635 (262 ) 157,772 Consumer loans 6,344 — 379 851 13 7,587 Total allowance for loan losses $ 142,886 $ (43,168 ) $ 6,404 $ 59,486 $ (249 ) $ 165,359 The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of December 31, 2016 and 2015 , broken out by portfolio segment: December 31, 2016 December 31, 2015 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 and internet $ 28,245 $ 122,748 $ 69,143 $ 5,504,283 $ 34,098 $ 100,866 $ 68,947 $ 5,337,049 Hardware 9,995 65,395 21,171 1,115,003 3,160 27,736 19,925 1,043,792 Private equity/venture capital — — 50,299 7,691,148 — — 35,282 5,467,577 Life science/healthcare 8,709 38,361 16,737 1,814,643 20,230 51,354 16,346 1,659,288 Premium wine 520 3,187 3,595 875,135 90 2,065 5,115 845,230 Other 233 867 4,535 500,842 52 520 4,200 435,270 Total commercial loans 47,702 230,558 165,480 17,501,054 57,630 182,541 149,815 14,788,206 Consumer loans 1,123 3,902 11,061 2,164,430 143 143 10,025 1,771,180 Total $ 48,825 $ 234,460 $ 176,541 $ 19,665,484 $ 57,773 $ 182,684 $ 159,840 $ 16,559,386 Credit Quality Indicators For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of “Pass”, with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans, however, we consider them as demonstrating higher risk, which requires more frequent review of the individual exposures; these translate to an internal rating of “Performing (Criticized)”. When a significant payment delay occurs on a criticized loan, the loan is impaired. The loan is also considered for nonaccrual status if full repayment is determined to be improbable. All of our nonaccrual loans are risk-rated 8 or 9 and are classified under the nonperforming impaired category. (For a further description of nonaccrual loans, refer to Note 2—"Summary of Significant Accounting Policies" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report ). 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 December 31, 2016 and 2015 : (Dollars in thousands) Pass Performing (Criticized) Performing Impaired (Criticized) Nonperforming Impaired (Nonaccrual) Total December 31, 2016: Commercial loans: Software and internet $ 4,924,923 $ 620,907 $ 46,143 $ 76,605 $ 5,668,578 Hardware 985,889 137,830 58,814 6,581 1,189,114 Private equity/venture capital 7,747,317 594 — — 7,747,911 Life science/healthcare 1,707,499 120,825 6,578 31,783 1,866,685 Premium wine 865,354 11,838 2,696 491 880,379 Other 480,845 23,510 464 403 505,222 Total commercial loans 16,711,827 915,504 114,695 115,863 17,857,889 Consumer loans: Real estate secured loans 1,914,512 9,604 — 1,504 1,925,620 Other consumer loans 238,256 499 786 1,612 241,153 Total consumer loans 2,152,768 10,103 786 3,116 2,166,773 Total gross loans $ 18,864,595 $ 925,607 $ 115,481 $ 118,979 $ 20,024,662 December 31, 2015: Commercial loans: Software and internet $ 4,933,179 $ 448,065 $ 23,321 $ 77,545 $ 5,482,110 Hardware 955,675 96,820 27,306 430 1,080,231 Private equity/venture capital 5,474,929 37,000 — — 5,511,929 Life science/healthcare 1,544,555 128,636 7,247 44,107 1,724,545 Premium wine 825,058 22,272 898 1,167 849,395 Other 429,481 8,868 520 — 438,869 Total commercial loans 14,162,877 741,661 59,292 123,249 15,087,079 Consumer loans: Real estate secured loans 1,539,468 3,729 — 143 1,543,340 Other consumer loans 224,601 2,111 — — 226,712 Total consumer loans 1,764,069 5,840 — 143 1,770,052 Total gross loans $ 15,926,946 $ 747,501 $ 59,292 $ 123,392 $ 16,857,131 TDRs As of December 31, 2016 we had 20 TDRs with a total carrying value of $96.1 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. This compares to 17 TDRs with a total carrying value of $111.7 million as of December 31, 2015 . There were unfunded commitments available for funding of $1.6 million to the clients associated with these TDRs as of December 31, 2016 . The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at December 31, 2016 and 2015 : December 31, (Dollars in thousands) 2016 2015 Loans modified in TDRs: Commercial loans: Software and internet $ 52,646 $ 56,790 Hardware 14,870 473 Life science/healthcare 24,176 51,878 Premium wine 3,194 2,065 Other 387 519 Total commercial loans 95,273 111,725 Consumer loans: Other consumer loans 786 — Total consumer loans 786 — Total loans modified in TDRs $ 96,059 $ 111,725 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 2016 , 2015 and 2014 : Year ended December 31, (Dollars in thousands) 2016 2015 2014 Loans modified in TDRs during the period: Commercial loans: Software and internet $ 23,574 $ 56,790 $ 1,033 Hardware 14,870 286 1,118 Private equity/venture capital — — — Life science/healthcare 1,638 51,878 — Premium wine 677 898 587 Other — 519 — Total commercial loans 40,759 110,371 2,738 Consumer loans: Other consumer loans 786 — — Total consumer loans 786 — — Total loans modified in TDRs during the period (1) $ 41,545 $ 110,371 $ 2,738 (1) During 2016 we had $3.6 million of partial charge-offs on loans classified as TDRs. We had $23.5 million of partial charge-offs in 2015 and we did not have any partial charge-offs in 2014. All new TDRs in 2016 and 2015 were modified through payment deferrals granted to our clients. New TDRs in 2014 included $1.7 million of payment deferrals and $1.0 million of principal forgiveness. 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 their respective periods, broken out by portfolio segment and class of financing receivable. During the 2014 year, there were no TDRs modified within the previous 12 months that defaulted. December 31, (Dollars in thousands) 2016 2015 2014 TDRs modified within the previous 12 months that defaulted during the period: Commercial loans: Software and internet $ — $ 16,804 $ — Hardware 134 286 — Premium wine 491 — — Life science/healthcare — 943 — Total commercial loans 625 18,033 — Consumer loans: Other consumer loans 786 — — Total TDRs modified within the previous 12 months that defaulted in the period $ 1,411 $ 18,033 $ — Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology was necessary to determine the allowance for loan losses as of December 31, 2016 . |