SVB Financial Group
SVB FINANCIAL GROUP (Form: 10-Q, Received: 11/09/2012 06:01:42)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
  (Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         .
Commission File Number: 000-15637  
SVB FINANCIAL GROUP
(Exact name of registrant as specified in its charter)
  
Delaware
 
91-1962278
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3003 Tasman Drive, Santa Clara, California
 
95054-1191
(Address of principal executive offices)
 
(Zip Code)
(408) 654-7400
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer   x     Accelerated filer   ¨     Non-accelerated filer   ¨     Smaller reporting company   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
At October 31, 2012 , 44,517,133 shares of the registrant’s common stock ($0.001 par value) were outstanding.


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

2

Table of Contents

Glossary of Acronyms used in this Report

AICPA – American Institute of Certified Public Accountants
ASC — Accounting Standards Codification
ASU – Accounting Standards Update
EHOP – Employee Home Ownership Program of the Company
EPS – Earnings Per Share
ESOP – Employee Stock Ownership Plan of the Company
ESPP – 1999 Employee Stock Purchase Plan of the Company
FASB – Financial Accounting Standards Board
FDIC – Federal Deposit Insurance Corporation
FHLB – Federal Home Loan Bank
FRB – Federal Reserve Bank
GAAP - Accounting principles generally accepted in the United States of America
IASB – International Accounting Standards Board
IFRS – International Financial Reporting Standards
IPO – Initial Public Offering
IRS – Internal Revenue Service
IT – Information Technology
LIBOR – London Interbank Offered Rate
M&A – Merger and Acquisition
OTTI – Other Than Temporary Impairment
SEC – Securities and Exchange Commission
TDR – Troubled Debt Restructuring
UK – United Kingdom
VIE – Variable Interest Entity

3

Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1.        INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
(Dollars in thousands, except par value and share data)
 
September 30,
2012
 
December 31,
2011
Assets
 
 
 
 
Cash and cash equivalents
 
$
906,680

 
$
1,114,948

Available-for-sale securities
 
11,047,730

 
10,536,046

Non-marketable securities
 
1,163,815

 
1,004,440

Investment securities
 
12,211,545

 
11,540,486

Loans, net of unearned income
 
8,192,369

 
6,970,082

Allowance for loan losses
 
(101,524
)
 
(89,947
)
Net loans
 
8,090,845

 
6,880,135

Premises and equipment, net of accumulated depreciation and amortization
 
68,270

 
56,471

Accrued interest receivable and other assets
 
299,594

 
376,854

Total assets
 
$
21,576,934

 
$
19,968,894

Liabilities and total equity
 
 
 
 
Liabilities:
 
 
 
 
Noninterest-bearing demand deposits
 
$
12,598,639

 
$
11,861,888

Interest-bearing deposits
 
5,126,427

 
4,847,648

Total deposits
 
17,725,066

 
16,709,536

Short-term borrowings
 
508,170

 

Other liabilities
 
330,038

 
405,321

Long-term debt
 
458,314

 
603,648

Total liabilities
 
19,021,588

 
17,718,505

Commitments and contingencies (Note 11 and Note 14)
 

 


SVBFG stockholders’ equity:
 
 
 
 
Preferred stock, $0.001 par value, 20,000,000 shares authorized;
no shares issued and outstanding
 

 

Common stock, $0.001 par value, 150,000,000 shares authorized;
44,510,524 shares and 43,507,932 shares outstanding, respectively
 
45

 
44

Additional paid-in capital
 
538,454

 
484,216

Retained earnings
 
1,124,415

 
999,733

Accumulated other comprehensive income
 
122,010

 
85,399

Total SVBFG stockholders’ equity
 
1,784,924

 
1,569,392

Noncontrolling interests
 
770,422

 
680,997

Total equity
 
2,555,346

 
2,250,389

Total liabilities and total equity
 
$
21,576,934


$
19,968,894

 

 
See accompanying notes to interim consolidated financial statements (unaudited).

4

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands, except per share amounts)
 
2012
 
2011
 
2012
 
2011
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
121,446

 
$
101,693

 
$
344,842

 
$
284,935

Available-for-sale securities:
 
 
 
 
 
 
 
 
Taxable
 
38,493

 
39,357

 
129,940

 
124,956

Non-taxable
 
894

 
899

 
2,693

 
2,723

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities
 
1,125

 
1,375

 
3,075

 
4,972

Total interest income
 
161,958

 
143,324

 
480,550

 
417,586

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
1,740

 
1,715

 
4,835

 
7,379

Borrowings
 
5,788

 
6,154

 
18,414

 
24,000

Total interest expense
 
7,528

 
7,869

 
23,249

 
31,379

Net interest income
 
154,430

 
135,455

 
457,301

 
386,207

Provision for (reduction of) loan losses
 
6,788

 
769

 
29,316

 
(2,144
)
Net interest income after provision for loan losses
 
147,642

 
134,686

 
427,985

 
388,351

Noninterest income:
 
 
 
 
 
 
 
 
Gains on investment securities, net
 
20,228

 
52,262

 
53,876

 
175,279

Foreign exchange fees
 
12,211

 
11,546

 
36,345

 
32,397

Deposit service charges
 
8,369

 
8,259

 
24,834

 
23,214

Credit card fees
 
6,348

 
4,506

 
18,185

 
12,687

Gains on derivative instruments, net
 
1,111

 
9,951

 
15,800

 
24,153

Letters of credit and standby letters of credit income
 
3,495

 
3,040

 
10,427

 
8,452

Client investment fees
 
3,954

 
2,939

 
10,226

 
9,707

Other
 
13,423

 
3,108

 
39,165

 
23,384

Total noninterest income
 
69,139

 
95,611

 
208,858

 
309,273

Noninterest expense:
 
 
 
 
 
 
 
 
Compensation and benefits
 
79,262

 
77,009

 
243,384

 
232,529

Professional services
 
17,759

 
16,122

 
48,880

 
43,000

Premises and equipment
 
11,247

 
7,220

 
28,230

 
19,572

Business development and travel
 
6,838

 
5,886

 
21,743

 
17,429

Net occupancy
 
5,666

 
4,967

 
16,667

 
14,163

Correspondent bank fees
 
3,000

 
2,336

 
8,528

 
6,701

FDIC assessments
 
2,836

 
2,302

 
8,065

 
7,940

(Reduction of) provision for unfunded credit commitments
 
(400
)
 
2,055

 
1,264

 
2,131

Other
 
8,963

 
9,554

 
26,188

 
22,453

Total noninterest expense
 
135,171

 
127,451

 
402,949

 
365,918

Income before income tax expense
 
81,610

 
102,846

 
233,894

 
331,706

Income tax expense
 
28,470

 
26,770

 
83,743

 
92,803

Net income before noncontrolling interests
 
53,140

 
76,076

 
150,151

 
238,903

Net income attributable to noncontrolling interests
 
(10,851
)
 
(38,505
)
 
(25,469
)
 
(102,575
)
Net income available to common stockholders
 
$
42,289

 
$
37,571

 
$
124,682

 
$
136,328

Earnings per common share—basic
 
$
0.95

 
$
0.87

 
$
2.82

 
$
3.18

Earnings per common share—diluted
 
0.94

 
0.86

 
2.79

 
3.12

  See accompanying notes to interim consolidated financial statements (unaudited).

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2012
 
2011
 
2012
 
2011
Net income before noncontrolling interests
 
$
53,140

 
$
76,076

 
$
150,151

 
$
238,903

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Change in cumulative translation gains:
 
 
 
 
 
 
 
 
Foreign currency translation gains (losses)
 
2,940

 
(5,573
)
 
755

 
(3,682
)
Related tax (expense) benefit
 
(1,190
)
 
2,280

 
(314
)
 
1,506

Change in unrealized gains on available-for-sale securities:
 
 
 
 
 
 
 
 
Unrealized holding gains
 
27,596

 
93,701

 
64,631

 
168,378

Related tax expense
 
(11,473
)
 
(38,329
)
 
(26,290
)
 
(68,858
)
Reclassification adjustment for losses (gains) included in net income
 
101

 
(5
)
 
(3,592
)
 
(37,288
)
Related tax (benefit) expense
 
(41
)
 
2

 
1,421

 
15,254

Other comprehensive income, net of tax
 
17,933

 
52,076

 
36,611

 
75,310

Comprehensive income
 
71,073

 
128,152

 
186,762

 
314,213

Comprehensive income attributable to noncontrolling interests
 
(10,851
)
 
(38,505
)
 
(25,469
)
 
(102,575
)
Comprehensive income attributable to SVBFG
 
$
60,222

 
$
89,647

 
$
161,293

 
$
211,638

 
 
 
 
 







See accompanying notes to interim consolidated financial statements (unaudited).

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive Income
 
Total SVBFG
Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
(Dollars in thousands)
 
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2010
 
42,268,201

 
$
42

 
$
422,334

 
$
827,831

 
$
24,143

 
$
1,274,350

 
$
473,928

 
$
1,748,278

Common stock issued under employee benefit plans, net of restricted stock cancellations
 
999,655

 
1

 
30,271

 

 

 
30,272

 

 
30,272

Common stock issued upon settlement of 3.875% Convertible Notes, net of shares received from associated convertible note hedge
 
1,024

 

 

 

 

 

 

 

Income tax benefit from stock options exercised, vesting of restricted stock and other
 

 

 
6,548

 

 

 
6,548

 

 
6,548

Net income
 

 

 

 
136,328

 

 
136,328

 
102,575

 
238,903

Capital calls and distributions, net
 

 

 

 

 

 

 
79,727

 
79,727

Net change in unrealized gains on available-for-sale securities, net of tax
 

 

 

 

 
77,486

 
77,486

 

 
77,486

Foreign currency translation adjustments, net of tax
 

 

 

 

 
(2,176
)
 
(2,176
)
 

 
(2,176
)
Share-based compensation expense
 

 

 
13,290

 

 

 
13,290

 

 
13,290

Balance at September 30, 2011
 
43,268,880

 
$
43

 
$
472,443

 
$
964,159

 
$
99,453

 
$
1,536,098

 
$
656,230

 
$
2,192,328

Balance at December 31, 2011
 
43,507,932

 
$
44

 
$
484,216

 
$
999,733

 
$
85,399

 
$
1,569,392

 
$
680,997

 
$
2,250,389

Common stock issued under employee benefit plans, net of restricted stock cancellations
 
929,032

 
1

 
27,350

 

 

 
27,351

 

 
27,351

Common stock issued under ESOP
 
73,560

 

 
4,345

 

 

 
4,345

 

 
4,345

Income tax benefit from stock options exercised, vesting of restricted stock and other
 

 

 
6,312

 

 

 
6,312

 

 
6,312

Net income
 

 

 

 
124,682

 

 
124,682

 
25,469

 
150,151

Capital calls and distributions, net
 

 

 

 

 

 

 
63,956

 
63,956

Net change in unrealized gains on available-for-sale securities, net of tax
 

 

 

 

 
36,170

 
36,170

 

 
36,170

Foreign currency translation adjustments, net of tax
 

 

 

 

 
441

 
441

 

 
441

Share-based compensation expense
 

 

 
16,231

 

 

 
16,231

 

 
16,231

Balance at September 30, 2012
 
44,510,524

 
$
45

 
$
538,454

 
$
1,124,415

 
$
122,010

 
$
1,784,924

 
$
770,422

 
$
2,555,346

   

See accompanying notes to interim consolidated financial statements (unaudited).

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Nine months ended September 30,
(Dollars in thousands)
 
2012
 
2011
Cash flows from operating activities:
 
 
 
 
Net income before noncontrolling interests
 
$
150,151

 
$
238,903

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for (reduction of) loan losses
 
29,316

 
(2,144
)
Provision for unfunded credit commitments
 
1,264

 
2,131

Changes in fair values of derivatives, net
 
(4,411
)
 
(20,334
)
Gains on investment securities, net
 
(53,876
)
 
(175,279
)
Depreciation and amortization
 
22,651

 
19,999

Amortization of premiums and discounts on available-for-sale securities, net
 
42,511

 
18,170

Tax benefit from stock exercises
 
1,245

 
854

Amortization of share-based compensation
 
16,594

 
13,501

Amortization of deferred loan fees
 
(42,308
)
 
(43,806
)
Deferred income tax expense
 
(997
)
 
3,135

Gain on the sale of certain assets related to our equity services management business
 
(4,243
)
 

Net gain from note repurchases and termination of corresponding interest rate swaps
 

 
(3,123
)
Changes in other assets and liabilities:
 
 
 
 
Accrued interest receivable and payable, net
 
(9,084
)
 
(13,919
)
Accounts receivable and payable, net
 
33,277

 
(3,441
)
Income tax payable and receivable, net
 
6,223

 
8,174

Prepaid FDIC assessments and amortization
 
6,896

 
6,468

Accrued compensation
 
(40,600
)
 
9,968

Foreign exchange spot contracts, net
 
(41,188
)
 
10,587

Other, net
 
12,244

 
20,344

Net cash provided by operating activities
 
125,665

 
90,188

Cash flows from investing activities:
 
 
 
 
Purchases of available-for-sale securities
 
(2,859,155
)
 
(5,034,425
)
Proceeds from sales of available-for-sale securities
 
326,178

 
1,414,794

Proceeds from maturities and pay downs of available-for-sale securities
 
2,047,753

 
2,048,439

Purchases of nonmarketable securities (cost and equity method accounting)
 
(114,134
)
 
(43,260
)
Proceeds from sales of nonmarketable securities (cost and equity method accounting)
 
31,903

 
21,524

Purchases of nonmarketable securities (fair value accounting)
 
(99,062
)
 
(127,362
)
Proceeds from sales and distributions of nonmarketable securities (fair value accounting)
 
94,188

 
66,541

Net increase in loans
 
(1,218,366
)
 
(792,169
)
Proceeds from recoveries of charged-off loans
 
8,018

 
21,626

Purchases of premises and equipment
 
(31,548
)
 
(21,600
)
Proceeds from the sale of certain assets related to our equity services management business
 
2,870

 

Net cash used for investing activities
 
(1,811,355
)
 
(2,445,892
)
Cash flows from financing activities:
 
 
 
 
Net increase in deposits
 
1,015,530

 
1,802,281

Increase (decrease) in short-term borrowings
 
508,170

 
(37,245
)
Principal payments of other long term debt
 
(1,222
)
 

Capital contributions from noncontrolling interests, net of distributions
 
63,956

 
79,727

Tax benefit from stock exercises
 
5,067

 
5,694

Proceeds from issuance of common stock and ESPP
 
27,350

 
30,271

Principal payments of 5.70% Senior Notes
 
(141,429
)
 

Payments for repurchases of portions of 5.70% Senior Notes and 6.05% Subordinated Notes, including repurchase premiums and associated fees
 

 
(346,443
)
Proceeds from termination of portions of interest rate swaps associated with 5.70% Senior Notes and 6.05% Subordinated Notes
 

 
36,959

Payments for settlement of 3.875% Convertible Notes
 

 
(250,000
)
Net cash provided by financing activities
 
1,477,422

 
1,321,244

Net decrease in cash and cash equivalents
 
(208,268
)
 
(1,034,460
)
Cash and cash equivalents at beginning of period
 
1,114,948

 
3,076,432

Cash and cash equivalents at end of period
 
$
906,680

 
$
2,041,972

Supplemental disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
28,000

 
$
37,776

Income taxes
 
69,094

 
74,313

Noncash items during the period:
 
 
 
 
Unrealized gains on available-for-sale securities, net of tax
 
$
36,170

 
$
77,486

See accompanying notes to interim consolidated financial statements (unaudited).

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Basis of Presentation
SVB Financial Group is a diversified financial services company, as well as a bank holding company and financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services to support our clients of all sizes and stages throughout their life cycles. In these notes to our consolidated financial statements, when we refer to “SVB Financial Group,” “SVBFG”, the “Company,” “we,” “our,” “us” or use similar words, we mean SVB Financial Group and all of its subsidiaries collectively, including Silicon Valley Bank (the “Bank”), unless the context requires otherwise. When we refer to “SVB Financial” or the “Parent” we are referring only to the parent company, SVB Financial Group, unless the context requires otherwise.
The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature that are, in the opinion of management, necessary to fairly present our financial position, results of operations and cash flows in accordance with GAAP. Such unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and nine months ended September 30, 2012 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, 2011 (“ 2011 Form 10-K”).
The accompanying unaudited interim consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Consolidated Financial Statements and Supplementary Data—Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2011 Form 10-K.
The preparation of unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates may change as new information is obtained. Significant items that are subject to such estimates include measurements of fair value, the valuation of non-marketable securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and reserve for unfunded credit commitments, and the recognition and measurement of income tax assets and liabilities.
Principles of Consolidation and Presentation
Our consolidated financial statements include the accounts of SVB Financial Group and entities in which we have a controlling financial interest. We determine whether we have a controlling financial interest in an entity by evaluating whether the entity is a voting interest entity or a variable interest entity and whether the accounting guidance requires consolidation. All significant intercompany accounts and transactions have been eliminated.
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entity’s operations. For these types of entities, the Company’s determination of whether it has a controlling interest is based on ownership of the majority of the entities’ voting equity interest or through control of management of the entities.
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. We determine whether we have a controlling financial interest in a VIE by considering whether our involvement with the VIE is significant and designates us as the primary beneficiary based on the following:
1.
We have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance;
2.
The aggregate indirect and direct variable interests held by the Company have the obligation to absorb losses or the right to receive benefits from the entity that could be significant to the VIE; and,
3.
Qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE.
Voting interest entities in which we have a controlling financial interest or VIEs in which we are the primary beneficiary are consolidated into our financial statements.
We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide. We are variable interest holders in certain partnerships for which we are the primary beneficiary.

9


We perform on-going reassessments on the status of the entities and whether facts or circumstances have changed in relation to previously evaluated voting interest entities and our involvement in VIEs which could cause our consolidation conclusion to change.
Impact of Adopting ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
In May 2011, the FASB issued a new accounting standard which requires new disclosures and clarifies existing guidance surrounding fair value measurement. This standard was issued concurrently with the IASB’s issuance of a fair value measurement standard with the objective of a converged definition of fair value measurement and disclosure guidance. The new guidance clarified that the principal market for a financial instrument should be determined based on the market with the greatest volume and level of activity. This new guidance was effective on a prospective basis for interim and annual reporting periods beginning after December 15, 2011, and was therefore adopted effective January 1, 2012. This standard clarified how fair value is measured and increased the disclosure requirements for fair value measurements, and did not have a material impact on our financial position, results of operations or stockholders’ equity. See Note 13 – “Fair Value of Financial Instruments” for further details.
Impact of Adopting ASU No. 2011-05, Presentation of Comprehensive Income
In June 2011, the FASB issued a new accounting standard, which requires presentation of the components of total comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of which option is chosen, reclassification adjustments for items that are reclassified from other comprehensive income to net income are required to be shown on the face of the financial statements. In December 2011, the FASB approved a proposed update, which indefinitely defers the requirements of ASU No. 2011-05 to present components of reclassifications of other comprehensive income on the face of the income statement. This new guidance did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance was effective on a retrospective basis for the interim and annual reporting periods beginning after December 15, 2011, and was therefore adopted effective January 1, 2012. This standard only clarified the presentation of comprehensive income and did not affect our financial position, results of operations or stockholders’ equity.
Recent Accounting Pronouncements
In December 2011, the FASB issued a new accounting standard (ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities ), which requires new disclosures surrounding financial instruments and derivative instruments that are offset on the statement of financial position, or are eligible for offset subject to a master netting arrangement. This standard was issued concurrent with the IASB’s issuance of a similar standard with the objective of converged disclosure guidance. The guidance is effective on a retrospective basis for the interim and annual reporting periods beginning after January 1, 2013. We are currently assessing the impact of this guidance, however we do not expect it to have a material impact on our financial position, results of operations or stockholders’ equity.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentations.
2.
Stockholders’ Equity and EPS
EPS
Basic EPS is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options and restricted stock units outstanding under our equity incentive plans, our ESPP, and for certain prior periods, our 3.875% convertible senior notes (“3.875% Convertible Notes”). Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive. The following is a reconciliation of basic EPS to diluted EPS for the three and nine months ended September 30, 2012 and 2011 :

10


 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars and shares in thousands, except per share amounts)
 
2012
 
2011
 
2012
 
2011
Numerator:
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
42,289

 
$
37,571

 
$
124,682

 
$
136,328

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
 
44,449

 
43,233

 
44,147

 
42,882

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and ESPP
 
346

 
452

 
402

 
610

Restricted stock units
 
120

 
106

 
143

 
122

3.875% Convertible Notes (1)
 

 

 

 
27

Denominator for diluted calculation
 
44,915

 
43,791

 
44,692

 
43,641

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.95

 
$
0.87

 
$
2.82

 
$
3.18

Diluted
 
$
0.94

 
$
0.86

 
$
2.79

 
$
3.12

 
 
(1)
Our $250 million 3.875% Convertible Notes matured on April 15, 2011 .
The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation as they were deemed to be antidilutive for the three and nine months ended September 30, 2012 and 2011 :
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Shares in thousands)
 
2012
 
2011
 
2012
 
2011
Stock options
 
795

 
1,264

 
658

 
663

Restricted stock units
 
220

 
279

 

 
128

Total
 
1,015

 
1,543

 
658

 
791

3.
Share-Based Compensation
For the three and nine months ended September 30, 2012 and 2011 , we recorded share-based compensation and related tax benefits as follows:  
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2012
 
2011
 
2012
 
2011
Share-based compensation expense
 
$
5,617

 
$
4,552

 
$
16,594

 
$
13,501

Income tax benefit related to share-based compensation expense
 
(1,720
)
 
(1,256
)
 
(4,408
)
 
(3,532
)
Unrecognized Compensation Expense
As of September 30, 2012 , unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Average
Expected
Recognition
  Period - in Years  
Stock options
 
$
17,308

 
2.80
Restricted stock units
 
26,662

 
2.81
Total unrecognized share-based compensation expense
 
$
43,970

 
 
Share-Based Payment Award Activity
The table below provides stock option information related to the 1997 Equity Incentive Plan and the 2006 Equity Incentive Plan for the nine months ended September 30, 2012 :

11


 
 
Options
 
Weighted
Average
 Exercise Price 
 
Weighted
Average
Remaining
Contractual
  Life in Years  
 
Aggregate
  Intrinsic Value  
of In-The-
Money
Options
Outstanding at December 31, 2011
 
2,439,360

 
$
42.64

 
 
 
 
Granted
 
395,563

 
63.90

 
 
 
 
Exercised
 
(680,929
)
 
35.28

 
 
 
 
Forfeited
 
(56,996
)
 
47.90

 
 
 
 
Expired
 
(4,568
)
 
42.50

 
 
 
 
Outstanding at September 30, 2012
 
2,092,430

 
48.91

 
4.14
 
$
25,582,079

Vested and expected to vest at September 30, 2012
 
2,003,907

 
48.50

 
4.07
 
25,221,007

Exercisable at September 30, 2012
 
1,088,716

 
44.35

 
2.88
 
17,542,729

The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $60.46 as of September 30, 2012 . The total intrinsic value of options exercised during the three and nine months ended September 30, 2012 was $3.0 million and $16.7 million , respectively, compared to $3.2 million and $19.0 million for the comparable 2011 periods.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the nine months ended September 30, 2012 :
 
 
Shares    
 
Weighted
Average
    Grant Date Fair    
Value
Nonvested at December 31, 2011
 
499,119

 
$
52.72

Granted
 
313,040

 
63.83

Vested
 
(144,953
)
 
51.25

Forfeited
 
(26,700
)
 
54.89

Nonvested at September 30, 2012
 
640,506

 
58.39

4.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at September 30, 2012 and December 31, 2011 :
(Dollars in thousands)
 
September 30, 2012
 
December 31, 2011
Cash and due from banks (1)
 
$
678,239

 
$
852,010

Securities purchased under agreements to resell (2)
 
116,276

 
175,553

Other short-term investment securities
 
112,165

 
87,385

Total cash and cash equivalents
 
$
906,680

 
$
1,114,948

 
 
(1)
At September 30, 2012 and December 31, 2011 , $139.1 million and $100.1 million , respectively, of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $187.6 million and $371.5 million , respectively.
(2)
At September 30, 2012 and December 31, 2011 , securities purchased under agreements to resell were collateralized by U.S. treasury securities and U.S. agency securities with aggregate fair values of $118.6 million and $179.1 million , respectively. None of these securities received as collateral were sold or repledged as of September 30, 2012 and December 31, 2011 .
5.
Investment Securities
Our investment securities portfolio consists of both an available-for-sale securities portfolio, which represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business.

12


The major components of our investment securities portfolio at September 30, 2012 and December 31, 2011 are as follows:
 
 
September 30, 2012
 
December 31, 2011
(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
 
$
25,101

 
$
328

 
$

 
$
25,429

 
$
25,233

 
$
731

 
$

 
$
25,964

U.S. agency debentures
 
2,857,336

 
78,814

 

 
2,936,150

 
2,822,158

 
52,864

 
(90
)
 
2,874,932

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
1,535,934

 
54,648

 

 
1,590,582

 
1,529,466

 
34,926

 
(106
)
 
1,564,286

Agency-issued collateralized mortgage obligations—fixed rate
 
4,119,707

 
49,160

 
(742
)
 
4,168,125

 
3,317,285

 
56,546

 
(71
)
 
3,373,760

Agency-issued collateralized mortgage obligations—variable rate
 
1,928,853

 
10,951

 
(5
)
 
1,939,799

 
2,416,158

 
1,554

 
(4,334
)
 
2,413,378

Agency-issued commercial mortgage-backed securities
 
273,021

 
6,486

 

 
279,507

 
176,646

 
2,047

 

 
178,693

Municipal bonds and notes
 
91,643

 
8,578

 

 
100,221

 
92,241

 
8,257

 

 
100,498

Equity securities
 
3,941

 
4,265

 
(289
)
 
7,917

 
5,554

 
180

 
(1,199
)
 
4,535

Total available-for-sale securities
 
$
10,835,536

 
$
213,230

 
$
(1,036
)
 
$
11,047,730

 
$
10,384,741

 
$
157,105

 
$
(5,800
)
 
$
10,536,046

Non-marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (1)
 
 
 
 
 
 
 
658,409

 
 
 
 
 
 
 
611,824

Other venture capital investments (2)
 
 
 
 
 
 
 
118,622

 
 
 
 
 
 
 
124,121

Other investments
 
 
 
 
 
 
 

 
 
 
 
 
 
 
987

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other investments (3)
 
 
 
 
 
 
 
141,761

 
 
 
 
 
 
 
68,252

Low income housing tax credit funds
 
 
 
 
 
 
 
66,806

 
 
 
 
 
 
 
34,894

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (4)
 
 
 
 
 
 
 
158,275

 
 
 
 
 
 
 
145,007

Other investments
 
 
 
 
 
 
 
19,942

 
 
 
 
 
 
 
19,355

Total non-marketable securities
 
 
 
 
 
 
 
1,163,815

 
 
 
 
 
 
 
1,004,440

Total investment securities
 
 
 
 
 
 
 
$
12,211,545

 
 
 
 
 
 
 
$
11,540,486

 
 
(1)
The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and our ownership percentage of each fund at September 30, 2012 and December 31, 2011 (fair value accounting):

13


 
 
September 30, 2012
 
December 31, 2011
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
SVB Strategic Investors Fund, LP
 
$
35,963

 
12.6
%
 
$
39,567

 
12.6
%
SVB Strategic Investors Fund II, LP
 
103,302

 
8.6

 
122,619

 
8.6

SVB Strategic Investors Fund III, LP
 
208,809

 
5.9

 
218,429

 
5.9

SVB Strategic Investors Fund IV, LP
 
161,082

 
5.0

 
122,076

 
5.0

Strategic Investors Fund V Funds
 
28,908

 
Various

 
8,838

 
0.3

SVB Capital Preferred Return Fund, LP
 
51,460

 
20.0

 
42,580

 
20.0

SVB Capital—NT Growth Partners, LP
 
61,253

 
33.0

 
43,958

 
33.0

SVB Capital Partners II, LP (i)
 
1,341

 
5.1

 
2,390

 
5.1

Other private equity fund (ii)
 
6,291

 
58.2

 
11,367

 
58.2

Total venture capital and private equity fund investments
 
$
658,409

 
 
 
$
611,824

 
 
 
 
(i)
At September 30, 2012 , we had a direct ownership interest of 1.3 percent and an indirect ownership interest of 3.8 percent in the fund through our ownership interest of SVB Strategic Investors Fund II, LP.
(ii)
At September 30, 2012 , we had a direct ownership interest of 41.5 percent and indirect ownership interests of 12.6 percent and 4.1 percent in the fund through our ownership interest of SVB Capital—NT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively.
(2)
The following table shows the amounts of other venture capital investments held by the following consolidated funds and our ownership percentage of each fund at September 30, 2012 and December 31, 2011 (fair value accounting):
 
 
September 30, 2012
 
December 31, 2011
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Silicon Valley BancVentures, LP
 
$
16,737

 
10.7
%
 
$
17,878

 
10.7
%
SVB Capital Partners II, LP (i)
 
55,686

 
5.1

 
61,099

 
5.1

SVB India Capital Partners I, LP
 
42,713

 
14.4

 
42,832

 
14.4

SVB Capital Shanghai Yangpu Venture Capital Fund
 
3,486

 
6.8

 
2,312

 
6.8

Total other venture capital investments
 
$
118,622

 
 
 
$
124,121

 
 
 
 
(i)
At September 30, 2012 , we had a direct ownership interest of 1.3 percent and an indirect ownership interest of 3.8 percent in the fund through our ownership of SVB Strategic Investors Fund II, LP.
(3)
The following table shows the carrying value and our ownership percentage of each investment at September 30, 2012 and December 31, 2011 (equity method accounting):
 
 
September 30, 2012
 
December 31, 2011
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Gold Hill Venture Lending 03, LP (i)
 
$
9,187

 
9.3
%
 
$
16,072

 
9.3
%
Gold Hill Capital 2008, LP (ii)
 
20,491

 
15.5

 
19,328

 
15.5

Partners for Growth II, LP
 
3,199

 
24.2

 
3,785

 
24.2

China Joint Venture investment (iii)
 
78,484

 
50.0

 

 

Other investments
 
30,400

 
N/A 

 
29,067

 
N/A 

Total other investments (equity method accounting)
 
$
141,761

 
 
 
$
68,252

 
 
 
 
(i)
At September 30, 2012 , we had a direct ownership interest of 4.8 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Venture Lending Partners 3, LLC (“GHLLC”) of 4.5 percent .
(ii)
At September 30, 2012 , we had a direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent .
(iii)
On May 3, 2012, we contributed $79.7 million to SPD Silicon Valley Bank Co., Ltd. ("SPD-SVB"), our joint venture bank in China.

14


(4)
Represents investments in 325 and 329 funds (primarily venture capital funds) at September 30, 2012 and December 31, 2011 , respectively, where our ownership interest is less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating activities and financial policies. For the three months ended September 30, 2012 , we recognized OTTI losses of $0.4 million resulting from other-than-temporary declines in value for 17 of the 325 investments. For the nine months ended September 30, 2012 , we recognized OTTI losses of $0.9 million resulting from other-than-temporary declines in value for 43 of the 325 investments. The OTTI losses are included in net gains on investment securities, a component of noninterest income. We concluded that any declines in value for the remaining investments were temporary and as such, no OTTI was required to be recognized. At September 30, 2012 , the carrying value of these venture capital and private equity fund investments (cost method accounting) was $158.3 million , and the estimated fair value was $190.0 million .
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of September 30, 2012 :
 
 
September 30, 2012
 
 
Less than 12 months
 
12 months or longer
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
$
205,942

 
$
(742
)
 
$

 
$

 
$
205,942

 
$
(742
)
Agency-issued collateralized mortgage obligations—variable rate
 
10,611

 
(5
)
 

 

 
10,611

 
(5
)
Equity securities
 
1,551

 
(95
)
 
250

 
(194
)
 
1,801

 
(289
)
Total temporarily impaired securities (1)
 
$
218,104

 
$
(842
)
 
$
250

 
$
(194
)
 
$
218,354

 
$
(1,036
)
 
 
(1)
As of September 30, 2012 , we identified a total of 10 investments that were in unrealized loss positions, of which three investments totaling $0.3 million with unrealized losses of $0.2 million have been in an impaired position for a period of time greater than 12 months. As of September 30, 2012 , we do not intend to sell any impaired debt or equity securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis. Based on our analysis as of September 30, 2012 , we deem all impairments to be temporary, and therefore changes in value for our temporarily impaired securities as of the same date are included in other comprehensive income. Market valuations and impairment analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis.
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of December 31, 2011 :
 
 
December 31, 2011
 
 
Less than 12 months
 
12 months or longer
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
U.S. agency debentures
 
$
50,994

 
$
(90
)
 
$

 
$

 
$
50,994

 
$
(90
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
54,588

 
(106
)
 

 

 
54,588

 
(106
)
Agency-issued collateralized mortgage obligations—fixed rate
 
50,125

 
(71
)
 

 

 
50,125

 
(71
)
Agency-issued collateralized mortgage obligations—variable rate
 
1,521,589

 
(4,334
)
 

 

 
1,521,589

 
(4,334
)
Equity securities
 
3,831

 
(1,199
)
 

 

 
3,831

 
(1,199
)
Total temporarily impaired securities