SVB Financial Group
SVB FINANCIAL GROUP (Form: 10-Q, Received: 05/10/2013 14:56:48)
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 March 31, 2013
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 April 30, 2013 , 45,079,184 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

AOCI – Accumulated Other Comprehensive Income
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
FTP – Funds Transfer Pricing
GAAP - Accounting principles generally accepted in the United States of America
IASB – International Accounting Standards Board
IPO – Initial Public Offering
IRS – Internal Revenue Service
IT – Information Technology
LIBOR – London Interbank Offered Rate
M&A – Merger and Acquisition
OTTI – Other Than Temporary Impairment
SEC – Securities and Exchange Commission
TDR – Troubled Debt Restructuring
UK – United Kingdom
VIE – Variable Interest Entity

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)
 
March 31,
2013
 
December 31,
2012
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,519,249

 
$
1,008,983

Available-for-sale securities
 
10,908,163

 
11,343,177

Non-marketable securities
 
1,215,788

 
1,184,265

Investment securities
 
12,123,951

 
12,527,442

Loans, net of unearned income
 
8,844,890

 
8,946,933

Allowance for loan losses
 
(112,205
)
 
(110,651
)
Net loans
 
8,732,685

 
8,836,282

Premises and equipment, net of accumulated depreciation and amortization
 
65,713

 
66,545

Accrued interest receivable and other assets
 
354,402

 
326,871

Total assets
 
$
22,796,000

 
$
22,766,123

Liabilities and total equity
 
 
 
 
Liabilities:
 
 
 
 
Noninterest-bearing demand deposits
 
$
14,038,587

 
$
13,875,275

Interest-bearing deposits
 
5,271,321

 
5,301,177

Total deposits
 
19,309,908

 
19,176,452

Short-term borrowings
 
7,460

 
166,110

Other liabilities
 
359,380

 
360,566

Long-term debt
 
457,194

 
457,762

Total liabilities
 
20,133,942

 
20,160,890

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; 44,970,402 shares and 44,627,182 shares outstanding, respectively
 
45

 
45

Additional paid-in capital
 
570,789

 
547,079

Retained earnings
 
1,215,770

 
1,174,878

Accumulated other comprehensive income
 
95,615

 
108,553

Total SVBFG stockholders’ equity
 
1,882,219

 
1,830,555

Noncontrolling interests
 
779,839

 
774,678

Total equity
 
2,662,058

 
2,605,233

Total liabilities and total equity
 
$
22,796,000

 
$
22,766,123

 
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 March 31,
(Dollars in thousands, except per share amounts)
 
2013
 
2012
Interest income:
 
 
 
 
Loans
 
$
123,744

 
$
109,461

Available-for-sale securities:
 
 
 
 
Taxable
 
45,752

 
47,375

Non-taxable
 
799

 
900

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities
 
719

 
1,038

Total interest income
 
171,014

 
158,774

Interest expense:
 
 
 
 
Deposits
 
2,051

 
1,481

Borrowings
 
5,794

 
6,356

Total interest expense
 
7,845

 
7,837

Net interest income
 
163,169

 
150,937

Provision for loan losses
 
5,813

 
14,529

Net interest income after provision for loan losses
 
157,356

 
136,408

Noninterest income:
 
 
 
 
Gains on investment securities, net (includes losses of $45 and $874, respectively, in unrealized net losses on available-for-sale securities reclassified out of AOCI)
 
27,438

 
7,839

Foreign exchange fees
 
13,448

 
12,103

Gains on derivative instruments, net
 
11,040

 
5,976

Deposit service charges
 
8,793

 
8,096

Credit card fees
 
7,448

 
5,668

Client investment fees
 
3,475

 
2,897

Letters of credit and standby letters of credit income
 
3,435

 
3,636

Other
 
3,527

 
13,078

Total noninterest income
 
78,604

 
59,293

Noninterest expense:
 
 
 
 
Compensation and benefits
 
88,704

 
83,737

Professional services
 
17,160

 
14,607

Premises and equipment
 
10,725

 
7,564

Business development and travel
 
8,272

 
7,746

Net occupancy
 
5,767

 
5,623

FDIC assessments
 
3,382

 
2,498

Correspondent bank fees
 
3,055

 
2,688

Provision for (reduction of) unfunded credit commitments
 
2,014

 
(258
)
Other
 
9,935

 
7,807

Total noninterest expense
 
149,014

 
132,012

Income before income tax expense
 
86,946

 
63,689

Income tax expense (includes income tax benefits of $18 and $357, respectively, from AOCI reclassification items)
 
26,401

 
23,756

Net income before noncontrolling interests
 
60,545

 
39,933

Net income attributable to noncontrolling interests
 
(19,654
)
 
(5,143
)
Net income available to common stockholders
 
$
40,891

 
$
34,790

Earnings per common share—basic
 
$
0.91

 
$
0.79

Earnings per common share—diluted
 
0.90

 
0.78

 

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 March 31,
(Dollars in thousands)
 
2013
 
2012
Net income before noncontrolling interests
 
$
60,545

 
$
39,933

Other comprehensive income, net of tax:
 
 
 
 
Change in cumulative translation gains:
 
 
 
 
Foreign currency translation (losses) gains
 
(826
)
 
2,472

Related tax benefit (expense)
 
297

 
(1,013
)
Change in unrealized (losses) gains on available-for-sale securities:
 
 
 
 
Unrealized holding (losses) gains
 
(22,102
)
 
3,269

Related tax benefit (expense)
 
9,666

 
(1,335
)
Reclassification adjustment for losses included in net income
 
45

 
874

Related tax benefit
 
(18
)
 
(357
)
Other comprehensive (losses) income, net of tax
 
(12,938
)
 
3,910

Comprehensive income
 
47,607

 
43,843

Comprehensive income attributable to noncontrolling interests
 
(19,654
)
 
(5,143
)
Comprehensive income attributable to SVBFG
 
$
27,953

 
$
38,700

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

6

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, 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
 
505,618
 

 
17,900

 

 

 
17,900

 

 
17,900

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
 
 

 
3,819

 

 

 
3,819

 

 
3,819

Net income
 
 

 

 
34,790

 

 
34,790

 
5,143

 
39,933

Capital calls and distributions, net
 
 

 

 

 

 

 
17,073

 
17,073

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

 

 

 
2,451

 
2,451

 

 
2,451

Foreign currency translation adjustments, net of tax
 
 

 

 

 
1,459

 
1,459

 

 
1,459

Share-based compensation expense
 
 

 
5,334

 

 

 
5,334

 

 
5,334

Balance at March 31, 2012
 
44,087,110
 
$
44

 
$
515,614

 
$
1,034,523

 
$
89,309

 
$
1,639,490

 
$
703,213

 
$
2,342,703

Balance at December 31, 2012
 
44,627,182
 
$
45

 
$
547,079

 
$
1,174,878

 
$
108,553

 
$
1,830,555

 
$
774,678

 
$
2,605,233

Common stock issued under employee benefit plans, net of restricted stock cancellations
 
268,274
 

 
12,895

 

 

 
12,895

 

 
12,895

Common stock issued under ESOP
 
74,946
 

 
5,166

 

 

 
5,166

 

 
5,166

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

 
(637
)
 

 

 
(637
)
 

 
(637
)
Net income
 
 

 

 
40,891

 

 
40,891

 
19,654

 
60,545

Capital calls and (distributions), net
 
 

 

 

 

 

 
(14,493
)
 
(14,493
)
Net change in unrealized gains on available-for-sale securities, net of tax
 
 

 

 

 
(12,409
)
 
(12,409
)
 

 
(12,409
)
Foreign currency translation adjustments, net of tax
 
 

 

 

 
(529
)
 
(529
)
 

 
(529
)
Share-based compensation expense
 
 

 
6,286

 

 

 
6,286

 

 
6,286

Other, net
 
 

 

 
1

 

 
1

 

 
1

Balance at March 31, 2013
 
44,970,402

 
$
45

 
$
570,789

 
$
1,215,770

 
$
95,615

 
$
1,882,219

 
$
779,839

 
$
2,662,058

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

7

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Three months ended March 31,
(Dollars in thousands)
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income before noncontrolling interests
 
$
60,545

 
$
39,933

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
5,813

 
14,529

Provision for (reduction of) unfunded credit commitments
 
2,014

 
(258
)
Changes in fair values of derivatives, net
 
757

 
(3,370
)
Gains on investment securities, net
 
(27,438
)
 
(7,839
)
Depreciation and amortization
 
8,479

 
6,454

Amortization of premiums and discounts on available-for-sale securities, net
 
8,348

 
9,869

Tax (expense) benefit from stock exercises
 
(1,247
)
 
790

Amortization of share-based compensation
 
5,826

 
5,149

Amortization of deferred loan fees
 
(15,040
)
 
(15,488
)
Deferred income tax expense
 
(19
)
 
(1,570
)
Losses from the write-off of premises and equipment
 
363

 

Changes in other assets and liabilities:
 
 
 
 
Accrued interest receivable and payable, net
 
(4,735
)
 
(6,399
)
Accounts receivable and payable, net
 
6,220

 
14,631

Income tax payable and receivable, net
 
6,236

 
14,013

Accrued compensation
 
(62,375
)
 
(66,240
)
Foreign exchange spot contracts, net
 
26,534

 
(21,154
)
Other, net
 
(21,325
)
 
6,078

Net cash used for operating activities
 
(1,044
)
 
(10,872
)
Cash flows from investing activities:
 
 
 
 
Purchases of available-for-sale securities
 
(219,987
)
 
(1,777,958
)
Proceeds from sales of available-for-sale securities
 
581

 
3,219

Proceeds from maturities and pay downs of available-for-sale securities
 
653,764

 
777,717

Purchases of nonmarketable securities (cost and equity method accounting)
 
(5,112
)
 
(9,005
)
Proceeds from sales of nonmarketable securities (cost and equity method accounting)
 
7,942

 
11,317

Purchases of nonmarketable securities (fair value accounting)
 
(30,342
)
 
(29,440
)
Proceeds from sales and distributions of nonmarketable securities (fair value accounting)
 
21,748

 
25,545

Net decrease (increase) in loans
 
108,971

 
(144,957
)
Proceeds from recoveries of charged-off loans
 
1,367

 
3,436

Purchases of premises and equipment
 
(6,606
)
 
(8,054
)
Net cash provided by (used for) investing activities
 
532,326

 
(1,148,180
)
Cash flows from financing activities:
 
 
 
 
Net increase in deposits
 
133,456

 
7,346

(Decrease) increase in short-term borrowings
 
(158,650
)
 
849,380

Capital contributions from noncontrolling interests, net of distributions
 
(14,493
)
 
17,073

Tax benefit from stock exercises
 
610

 
3,029

Proceeds from issuance of common stock and ESPP
 
18,061

 
17,900

Net cash (used for) provided by financing activities
 
(21,016
)
 
894,728

Net increase (decrease) in cash and cash equivalents
 
510,266

 
(264,324
)
Cash and cash equivalents at beginning of period
 
1,008,983

 
1,114,948

Cash and cash equivalents at end of period
 
$
1,519,249

 
$
850,624

Supplemental disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
12,372

 
$
12,012

Income taxes
 
19,318

 
6,556

Noncash items during the period:
 
 
 
 
Unrealized (losses) gains on available-for-sale securities, net of tax
 
$
(12,409
)
 
$
2,451



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 months ended March 31, 2013 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, 2012 (“ 2012 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 2012 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 whether we are the primary beneficiary based on the following:
1.
We have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance;
2.
The aggregate indirect and direct variable interests held by the Company have the obligation to absorb losses or the right to receive benefits from the entity that could be significant to the VIE; and,
3.
Qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE.
Voting interest entities in which we have a controlling financial interest or VIEs in which we are the primary beneficiary are consolidated into our financial statements.

9


We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide. We are variable interest holders in certain partnerships for which we are the primary beneficiary. We perform on-going reassessments on the status of the entities and whether facts or circumstances have changed in relation to previously evaluated voting interest entities and our involvement in VIEs which could cause our consolidation conclusion to change.
Impact of Adopting ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities
In December 2011, the FASB issued a new accounting standard, which requires new disclosures surrounding derivative instruments and certain financial 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 on or after January 1, 2013, and was therefore adopted in the first quarter of 2013. The standard increased the disclosure requirements for derivative instruments and certain financial instruments that are subject to master netting arrangements, and did not have any impact on our financial position, results of operations or stockholders' equity. See Note 8 - “Derivative Financial Instruments” for further details.
Impact of Adopting ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
In February 2013, the FASB issued a new accounting standard, which requires new disclosures surrounding the effect of reclassifications out of accumulated other comprehensive income. This standard requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component and by the respective line items of net income. The guidance was effective on a prospective basis for the interim and annual reporting periods beginning after January 1, 2013, and was therefore adopted in the first quarter of 2013. This standard increased the disclosure requirements for reclassifications out of accumulated other comprehensive income, and did not have any impact on our financial position, results of operations or stockholders’ equity. See our "Interim Consolidated Statements of Income" for more details.
Reclassifications
Certain prior period amounts have been reclassified to conform to 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 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 months ended March 31, 2013 and 2012 :
 
 
Three months ended March 31,
(Dollars and shares in thousands, except per share amounts)
 
2013
 
2012
Numerator:
 
 
 
 
Net income available to common stockholders
 
$
40,891

 
$
34,790

Denominator:
 
 
 
 
Weighted average common shares outstanding-basic
 
44,802

 
43,780

Weighted average effect of dilutive securities:
 
 
 
 
Stock options and ESPP
 
402

 
501

Restricted stock units
 
189

 
179

Denominator for diluted calculation
 
45,393

 
44,460

Earnings per common share:
 
 
 
 
Basic
 
$
0.91

 
$
0.79

Diluted
 
$
0.90

 
$
0.78


10


The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation as they were deemed to be antidilutive for the three months ended March 31, 2013 and 2012 :
 
 
Three months ended March 31,
(Shares in thousands)
 
2013
 
2012
Stock options
 
708

 
121

Restricted stock units
 

 
1

Total
 
708

 
122

3.
Share-Based Compensation
For the three months ended March 31, 2013 and 2012 , we recorded share-based compensation and related tax benefits as follows:  
 
 
Three months ended March 31,
(Dollars in thousands)
 
2013
 
2012
Share-based compensation expense
 
$
5,826

 
$
5,149

Income tax benefit related to share-based compensation expense
 
(1,603
)
 
(1,199
)
Unrecognized Compensation Expense
As of March 31, 2013 , unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Average
Expected
Recognition
  Period - in Years  
Stock options
 
$
13,646

 
2.43
Restricted stock units
 
21,643

 
2.51
Total unrecognized share-based compensation expense
 
$
35,289

 
 
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 three months ended March 31, 2013 :
 
 
Options
 
Weighted
Average
 Exercise Price 
 
Weighted
Average
Remaining
Contractual
  Life in Years  
 
Aggregate
  Intrinsic Value  
of In-The-
Money
Options
Outstanding at December 31, 2012
 
2,060,413

 
$
49.15

 
 
 
 
Granted
 

 

 
 
 
 
Exercised
 
(265,814
)
 
48.53

 
 
 
 
Forfeited
 
(8,769
)
 
52.95

 
 
 
 
Expired
 
(200
)
 
46.48

 
 
 
 
Outstanding at March 31, 2013
 
1,785,630

 
49.22

 
4.05
 
$
38,785,843

Vested and expected to vest at March 31, 2013
 
1,725,072

 
48.84

 
4.00
 
38,116,691

Exercisable at March 31, 2013
 
831,168

 
43.23

 
2.89
 
23,032,874

The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $70.94 as of March 31, 2013 . The total intrinsic value of options exercised during the three months ended March 31, 2013 was $4.7 million , compared to $11.9 million for the comparable 2012 period.

11


The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the three months ended March 31, 2013 :
 
 
Shares    
 
Weighted
Average
    Grant Date Fair    
Value
Nonvested at December 31, 2012
 
585,543

 
$
59.42

Granted
 
3,700

 
60.92

Vested
 
(4,228
)
 
47.89

Forfeited
 
(3,334
)
 
57.97

Nonvested at March 31, 2013
 
581,681

 
59.52

4.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at March 31, 2013 and December 31, 2012 :
(Dollars in thousands)
 
March 31, 2013
 
December 31, 2012
Cash and due from banks (1)
 
$
1,144,926

 
$
752,056

Securities purchased under agreements to resell (2)
 
338,687

 
133,357

Other short-term investment securities
 
35,636

 
123,570

Total cash and cash equivalents
 
$
1,519,249

 
$
1,008,983

 
 
(1)
At March 31, 2013 and December 31, 2012 , $634 million and $72 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 $213 million and $283 million , respectively.
(2)
At March 31, 2013 and December 31, 2012 , securities purchased under agreements to resell were collateralized by U.S. treasury securities and U.S. agency securities with aggregate fair values of $345 million and $136 million , respectively. None of these securities received as collateral were sold or repledged as of March 31, 2013 or December 31, 2012 .
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 March 31, 2013 and December 31, 2012 are as follows:
 
 
March 31, 2013
 
December 31, 2012
(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
 
$
99,993

 
$
53

 
$

 
$
100,046

 
$
25,057

 
$
190

 
$

 
$
25,247

U.S. agency debentures
 
3,415,170

 
69,116

 
(383
)
 
3,483,903

 
3,370,455

 
77,173

 

 
3,447,628

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
1,308,099

 
40,177

 
(446
)
 
1,347,830

 
1,428,682

 
44,858

 
(107
)
 
1,473,433

Agency-issued collateralized mortgage obligations—fixed rate
 
3,818,389

 
38,200

 
(1,522
)
 
3,855,067

 
4,063,020

 
41,949

 
(995
)
 
4,103,974

Agency-issued collateralized mortgage obligations—variable rate
 
1,593,456

 
9,425

 
(28
)
 
1,602,853

 
1,760,551

 
12,201

 
(4
)
 
1,772,748

Agency-issued commercial mortgage-backed securities
 
414,300

 
6,275

 
(1,240
)
 
419,335

 
416,487

 
6,100

 
(489
)
 
422,098

Municipal bonds and notes
 
83,299

 
7,204

 

 
90,503

 
85,790

 
7,750

 
(11
)
 
93,529

Equity securities
 
6,486

 
3,219

 
(1,079
)
 
8,626

 
2,108

 
2,739

 
(327
)
 
4,520

Total available-for-sale securities
 
$
10,739,192

 
$
173,669

 
$
(4,698
)
 
$
10,908,163

 
$
11,152,150

 
$
192,960

 
$
(1,933
)
 
$
11,343,177

Non-marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (1)
 
 
 
 
 
 
 
701,076

 
 
 
 
 
 
 
665,921

Other venture capital investments (2)
 
 
 
 
 
 
 
124,786

 
 
 
 
 
 
 
127,091

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other investments (3)
 
 
 
 
 
 
 
140,607

 
 
 
 
 
 
 
139,330

Low income housing tax credit funds
 
 
 
 
 
 
 
69,263

 
 
 
 
 
 
 
70,318

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (4)
 
 
 
 
 
 
 
160,870

 
 
 
 
 
 
 
161,884

Other investments
 
 
 
 
 
 
 
19,186

 
 
 
 
 
 
 
19,721

Total non-marketable securities
 
 
 
 
 
 
 
1,215,788

 
 
 
 
 
 
 
1,184,265

Total investment securities
 
 
 
 
 
 
 
$
12,123,951

 
 
 
 
 
 
 
$
12,527,442

 
 


13


(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 March 31, 2013 and December 31, 2012 (fair value accounting):
 
 
March 31, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
SVB Strategic Investors Fund, LP
 
$
32,142

 
12.6
%
 
$
32,850

 
12.6
%
SVB Strategic Investors Fund II, LP
 
92,834

 
8.6

 
91,294

 
8.6

SVB Strategic Investors Fund III, LP
 
212,392

 
5.9

 
209,696

 
5.9

SVB Strategic Investors Fund IV, LP
 
189,369

 
5.0

 
169,931

 
5.0

Strategic Investors Fund V Funds
 
51,985

 
Various

 
40,622

 
Various

SVB Capital Preferred Return Fund, LP
 
54,919

 
20.0

 
53,643

 
20.0

SVB Capital—NT Growth Partners, LP
 
59,835

 
33.0

 
60,120

 
33.0

SVB Capital Partners II, LP (i)
 
1,138

 
5.1

 
1,303

 
5.1

Other private equity fund (ii)
 
6,462

 
58.2

 
6,462

 
58.2

Total venture capital and private equity fund investments
 
$
701,076

 
 
 
$
665,921

 
 
 
 
(i)
At March 31, 2013 , 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 March 31, 2013 , 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 March 31, 2013 and December 31, 2012 (fair value accounting):
 
 
March 31, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Silicon Valley BancVentures, LP
 
$
39,971

 
10.7
%
 
$
43,493

 
10.7
%
SVB Capital Partners II, LP (i)
 
80,966

 
5.1

 
79,761

 
5.1

SVB Capital Shanghai Yangpu Venture Capital Fund
 
3,849

 
6.8

 
3,837

 
6.8

Total other venture capital investments
 
$
124,786

 
 
 
$
127,091

 
 
 
 
(i)
At March 31, 2013 , 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 March 31, 2013 and December 31, 2012 (equity method accounting):
 
 
March 31, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Gold Hill Venture Lending 03, LP (i)
 
$
11,794

 
9.3
%
 
$
9,413

 
9.3
%
Gold Hill Capital 2008, LP (ii)
 
20,047

 
15.5

 
20,893

 
15.5

China Joint Venture investment
 
79,210

 
50.0

 
78,545

 
50.0

Other investments
 
29,556

 
Various

 
30,479

 
Various

Total other investments (equity method accounting)
 
$
140,607

 
 
 
$
139,330

 
 
 
 
(i)
At March 31, 2013 , we had a direct ownership interest of 4.8 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Venture Lending Partners 03, LLC (“GHLLC”) of 4.5 percent .
(ii)
At March 31, 2013 , 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 .


14


(4)
Represents investments in 309 and 324 funds (primarily venture capital funds) at March 31, 2013 and December 31, 2012 , 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 March 31, 2013 , we recognized OTTI losses of $0.5 million resulting from other-than-temporary declines in value for 16 of the 309 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 March 31, 2013 , the carrying value of these venture capital and private equity fund investments (cost method accounting) was $161 million , and the estimated fair value was $200 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 March 31, 2013 :
 
 
March 31, 2013
 
 
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
 
$
303,265

 
$
(383
)
 
$

 
$

 
$
303,265

 
$
(383
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
22,351

 
(446
)
 

 

 
22,351

 
(446
)
Agency-issued collateralized mortgage obligations—fixed rate
 
252,341

 
(1,021
)
 
95,676

 
(501
)
 
348,017

 
(1,522
)
Agency-issued collateralized mortgage obligations—variable rate
 

 

 
5,239

 
(28
)
 
5,239

 
(28
)
Agency-issued commercial mortgage-backed securities
 
99,554

 
(1,240
)
 

 

 
99,554

 
(1,240
)
Equity securities
 
2,815

 
(866
)
 
309

 
(213
)
 
3,124

 
(1,079
)
Total temporarily impaired securities (1)
 
$
680,326

 
$
(3,956
)
 
$
101,224

 
$
(742
)
 
$
781,550

 
$
(4,698
)
 
 
(1)
As of March 31, 2013 , we identified a total of 39 investments that were in unrealized loss positions, of which 9 investments totaling $101.2 million with unrealized losses of $0.7 million have been in an impaired position for a period of time greater than 12 months. As of March 31, 2013 , 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 March 31, 2013 , 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.

15


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, 2012 :
 
 
December 31, 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 mortgage-backed securities
 
$
22,831

 
$
(107
)
 
$

 
$

 
$
22,831

 
$
(107
)
Agency-issued collateralized mortgage obligations—fixed rate
 
461,397

 
(995
)
 

 

 
461,397

 
(995
)
Agency-issued collateralized mortgage obligations—variable rate
 

 

 
7,908

 
(4
)
 
7,908

 
(4
)
Agency-issued commercial mortgage-backed securities
 
150,581

 
(489
)
 

 

 
150,581

 
(489
)
Municipal bonds and notes
 
2,098

 
(11
)
 

 

 
2,098

 
(11
)
Equity securities
 
97

 
(61
)
 
255

 
(266
)
 
352

 
(327
)
Total temporarily impaired securities
 
$
637,004

 
$
(1,663
)
 
$
8,163

 
$
(270
)
 
$
645,167

 
$
(1,933
)


16


The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on debt securities classified as available-for-sale as of March 31, 2013 . Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent . The weighted average yield is computed using the amortized cost of debt securities, which are reported at fair value. For U.S. treasury securities, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure.
 
 
March 31, 2013
 
 
Total
 
One Year
or Less
 
After One
Year to
Five Years
 
After Five
Years to
Ten Years
 
After
Ten Years
(Dollars in thousands)
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
U.S. treasury securities
 
$
100,046

 
0.68
%
 
$
100,046

 
0.68
%
 
$

 
%
 
$

 
%
 
$

 
%
U.S. agency debentures
 
3,483,903

 
1.54

 
151,367

 
1.30

 
2,584,574

 
1.48

 
747,962

 
1.76

 

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
1,347,830

 
2.32

 

 

 

 

 
1,228,081

 
2.26

 
119,749

 
2.98

Agency-issued collateralized mortgage obligations - fixed rate
 
3,855,067

 
1.94

 

 

 

 

 

 

 
3,855,067

 
1.94

Agency-issued collateralized mortgage obligations - variable rate
 
1,602,853

 
0.70

 

 

 

 

 

 

 
1,602,853

 
0.70

Agency-issued commercial mortgage-backed securities
 
419,335

 
1.82

 

 

 

 

 

 

 
419,335

 
1.82

Municipal bonds and notes
 
90,503

 
5.98

 
938

 
5.32

 
19,133

 
5.65

 
49,986

 
6.02

 
20,446

 
6.25

Total
 
$
10,899,537

 
1.69

 
$
252,351

 
1.07

 
$
2,603,707

 
1.51

 
$
2,026,029

 
2.17

 
$
6,017,450

 
1.64


17


The following table presents the components of gains and losses (realized and unrealized) on investment securities for the three months ended March 31, 2013 and 2012 :
 
 
Three months ended March 31,
(Dollars in thousands)
 
2013
 
2012
Gross gains on investment securities:
 
 
 
 
Available-for-sale securities, at fair value (1)
 
$

 
$
21

Marketable securities (fair value accounting)
 
1,918

 
316

Non-marketable securities (fair value accounting):
 
 
 
 
Venture capital and private equity fund investments
 
27,381

 
26,110

Other venture capital investments
 
2,640

 
1,777

Other investments
 

 
21

Non-marketable securities (equity method accounting):
 
 
 
 
Other investments
 
2,715

 
1,422

Non-marketable securities (cost method accounting):
 
 
 
 
Venture capital and private equity fund investments
 
1,023

 
407

Other investments
 
145

 
42

Total gross gains on investment securities
 
35,822

 
30,116

Gross losses on investment securities:
 
 
 
 
Available-for-sale securities, at fair value (1)
 
(45
)
 
(895
)
Marketable securities (fair value accounting)
 
(2,073
)
 

Non-marketable securities (fair value accounting):
 
 
 
 
Venture capital and private equity fund investments
 
(4,742
)
 
(13,915
)
Other venture capital investments
 
(464
)
 
(6,663
)
Non-marketable securities (equity method accounting):
 
 
 
 
Other investments
 
(245
)
 
(376
)
Non-marketable securities (cost method accounting):