SVB Financial Group
SVB FINANCIAL GROUP (Form: 10-Q, Received: 08/08/2013 16:49:06)
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 June 30, 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 July 31, 2013 , 45,551,222 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
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)
 
June 30,
2013
 
December 31,
2012
Assets
 
 
 
 
Cash and cash equivalents
 
$
873,251

 
$
1,008,983

Available-for-sale securities
 
10,043,341

 
11,343,177

Non-marketable securities
 
1,255,425

 
1,184,265

Investment securities
 
11,298,766

 
12,527,442

Loans, net of unearned income
 
9,622,172

 
8,946,933

Allowance for loan losses
 
(119,571
)
 
(110,651
)
Net loans
 
9,502,601

 
8,836,282

Premises and equipment, net of accumulated depreciation and amortization
 
65,644

 
66,545

Accrued interest receivable and other assets
 
413,639

 
326,871

Total assets
 
$
22,153,901

 
$
22,766,123

Liabilities and total equity
 
 
 
 
Liabilities:
 
 
 
 
Noninterest-bearing demand deposits
 
$
13,213,558

 
$
13,875,275

Interest-bearing deposits
 
5,476,516

 
5,301,177

Total deposits
 
18,690,074

 
19,176,452

Short-term borrowings
 
5,400

 
166,110

Other liabilities
 
330,394

 
360,566

Long-term debt
 
455,938

 
457,762

Total liabilities
 
19,481,806

 
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; 45,460,543 shares and 44,627,182 shares outstanding, respectively
 
45

 
45

Additional paid-in capital
 
593,328

 
547,079

Retained earnings
 
1,264,354

 
1,174,878

Accumulated other comprehensive (loss) income
 
(9,771
)
 
108,553

Total SVBFG stockholders’ equity
 
1,847,956

 
1,830,555

Noncontrolling interests
 
824,139

 
774,678

Total equity
 
2,672,095

 
2,605,233

Total liabilities and total equity
 
$
22,153,901

 
$
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 June 30,
 
Six months ended June 30,
(Dollars in thousands, except per share amounts)
 
2013
 
2012
 
2013
 
2012
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
131,785

 
$
113,935

 
$
255,529

 
$
223,396

Available-for-sale securities:
 
 
 
 
 
 
 
 
Taxable
 
44,657

 
44,072

 
90,409

 
91,447

Non-taxable
 
807

 
899

 
1,606

 
1,799

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities
 
734

 
912

 
1,453

 
1,950

Total interest income
 
177,983

 
159,818

 
348,997

 
318,592

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
2,085

 
1,614

 
4,136

 
3,095

Borrowings
 
5,817

 
6,270

 
11,611

 
12,626

Total interest expense
 
7,902

 
7,884

 
15,747

 
15,721

Net interest income
 
170,081

 
151,934

 
333,250

 
302,871

Provision for loan losses
 
18,572

 
7,999

 
24,385

 
22,528

Net interest income after provision for loan losses
 
151,509

 
143,935

 
308,865

 
280,343

Noninterest income:
 
 
 
 
 
 
 
 
Gains on investment securities, net
 
40,561

 
25,809

 
67,999

 
33,648

Foreign exchange fees
 
12,778

 
12,031

 
26,226

 
24,134

Gains on derivative instruments, net
 
8,976

 
8,713

 
20,016

 
14,689

Deposit service charges
 
8,907

 
8,369

 
17,700

 
16,465

Credit card fees
 
7,609

 
6,169

 
15,057

 
11,837

Client investment fees
 
3,524

 
3,375

 
6,999

 
6,272

Letters of credit and standby letters of credit income
 
3,654

 
3,296

 
7,089

 
6,932

Other
 
12,230

 
12,664

 
15,757

 
25,742

Total noninterest income
 
98,239

 
80,426

 
176,843

 
139,719

Noninterest expense:
 
 
 
 
 
 
 
 
Compensation and benefits
 
84,742

 
80,385

 
173,446

 
164,122

Professional services
 
16,633

 
16,514

 
33,793

 
31,121

Premises and equipment
 
11,402

 
9,419

 
22,127

 
16,983

Business development and travel
 
7,783

 
7,159

 
16,055

 
14,905

Net occupancy
 
5,795

 
5,378

 
11,562

 
11,001

FDIC assessments
 
2,853

 
2,731

 
6,235

 
5,229

Correspondent bank fees
 
3,049

 
2,840

 
6,104

 
5,528

Provision for unfunded credit commitments
 
1,347

 
1,922

 
3,361

 
1,664

Other
 
9,688

 
9,418

 
19,623

 
17,225

Total noninterest expense
 
143,292

 
135,766

 
292,306

 
267,778

Income before income tax expense
 
106,456

 
88,595

 
193,402

 
152,284

Income tax expense
 
29,968

 
31,517

 
56,369

 
55,273

Net income before noncontrolling interests
 
76,488

 
57,078

 
137,033

 
97,011

Net income attributable to noncontrolling interests
 
(27,904
)
 
(9,475
)
 
(47,558
)
 
(14,618
)
Net income available to common stockholders
 
$
48,584

 
$
47,603

 
$
89,475

 
$
82,393

Earnings per common share—basic
 
$
1.08

 
$
1.08

 
$
1.99

 
$
1.87

Earnings per common share—diluted
 
1.06

 
1.06

 
1.96

 
1.85

 

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

5

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands)
 
2013
 
2012
 
2013
 
2012
Net income before noncontrolling interests
 
$
76,488

 
$
57,078

 
$
137,033

 
$
97,011

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
Change in cumulative translation loss:
 
 
 
 
 
 
 
 
Foreign currency translation loss
 
(3,975
)
 
(4,657
)
 
(4,801
)
 
(2,185
)
Related tax benefit
 
1,611

 
1,889

 
1,908

 
876

Change in unrealized (losses) gains on available-for-sale securities:
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains
 
(172,209
)
 
33,766

 
(194,311
)
 
37,035

Related tax benefit (expense)
 
69,666

 
(13,482
)
 
79,332

 
(14,817
)
Reclassification adjustment for gains included in net income
 
(775
)
 
(4,567
)
 
(730
)
 
(3,693
)
Related tax expense
 
296

 
1,819

 
278

 
1,462

Other comprehensive (loss) income, net of tax
 
(105,386
)
 
14,768

 
(118,324
)
 
18,678

Comprehensive (loss) income
 
(28,898
)
 
71,846

 
18,709

 
115,689

Comprehensive income attributable to noncontrolling interests
 
(27,904
)
 
(9,475
)
 
(47,558
)
 
(14,618
)
Comprehensive (loss) income attributable to SVBFG
 
$
(56,802
)
 
$
62,371

 
$
(28,849
)
 
$
101,071

 
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 (Loss) 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
 
821,462

 

 
24,303

 

 

 
24,303

 

 
24,303

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
 

 

 
5,323

 

 

 
5,323

 

 
5,323

Net income
 

 

 

 
82,393

 

 
82,393

 
14,618

 
97,011

Capital calls and distributions, net
 

 

 

 

 

 

 
33,350

 
33,350

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

 

 

 

 
19,987

 
19,987

 

 
19,987

Foreign currency translation adjustments, net of tax
 

 

 

 

 
(1,309
)
 
(1,309
)
 

 
(1,309
)
Share-based compensation expense
 

 

 
10,926

 

 

 
10,926

 

 
10,926

Balance at June 30, 2012
 
44,402,954

 
$
44

 
$
529,113

 
$
1,082,126

 
$
104,077

 
$
1,715,360

 
$
728,965

 
$
2,444,325

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
 
758,415

 

 
27,120

 

 

 
27,120

 

 
27,120

Common stock issued under ESOP
 
74,946

 

 
5,166

 

 

 
5,166

 

 
5,166

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

 

 
1,515

 

 

 
1,515

 

 
1,515

Net income
 

 

 

 
89,475

 

 
89,475

 
47,558

 
137,033

Capital calls and distributions, net
 

 

 

 

 

 

 
1,903

 
1,903

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

 

 

 

 
(115,431
)
 
(115,431
)
 

 
(115,431
)
Foreign currency translation adjustments, net of tax
 

 

 

 

 
(2,893
)
 
(2,893
)
 

 
(2,893
)
Share-based compensation expense
 

 

 
12,445

 

 

 
12,445

 

 
12,445

Other, net
 

 

 
3

 
1

 

 
4

 

 
4

Balance at June 30, 2013
 
45,460,543

 
$
45

 
$
593,328

 
$
1,264,354

 
$
(9,771
)
 
$
1,847,956

 
$
824,139

 
$
2,672,095

   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)
 
 
Six months ended June 30,
(Dollars in thousands)
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income before noncontrolling interests
 
$
137,033

 
$
97,011

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
24,385

 
22,528

Provision for unfunded credit commitments
 
3,361

 
1,664

Changes in fair values of derivatives, net
 
(4,296
)
 
(11,024
)
Gains on investment securities, net
 
(67,999
)
 
(33,648
)
Depreciation and amortization
 
17,281

 
13,594

Amortization of premiums and discounts on available-for-sale securities, net
 
14,884

 
25,273

Tax (expense) benefit from stock exercises
 
(1,346
)
 
1,143

Amortization of share-based compensation
 
12,222

 
10,977

Amortization of deferred loan fees
 
(32,066
)
 
(32,881
)
Deferred income tax expense
 
321

 
5,876

Gain on the sale of certain assets related to our equity services management business
 

 
(4,243
)
Losses from the write-off of premises and equipment
 
614

 

Changes in other assets and liabilities:
 
 
 
 
Accrued interest receivable and payable, net
 
(4,312
)
 
(4,444
)
Accounts receivable and payable, net
 
4,140

 
22,886

Income tax payable and receivable, net
 
(11,591
)
 
(15,715
)
Accrued compensation
 
(39,658
)
 
(60,192
)
Foreign exchange spot contracts, net
 
20,933

 
(43,405
)
Other, net
 
(40,920
)
 
(1,502
)
Net cash provided by (used for) operating activities
 
32,986

 
(6,102
)
Cash flows from investing activities:
 
 
 
 
Purchases of available-for-sale securities
 
(220,031
)
 
(1,778,451
)
Proceeds from sales of available-for-sale securities
 
8,293

 
325,608

Proceeds from maturities and pay downs of available-for-sale securities
 
1,337,107

 
1,380,865

Purchases of nonmarketable securities (cost and equity method accounting)
 
(10,858
)
 
(101,506
)
Proceeds from sales of nonmarketable securities (cost and equity method accounting)
 
20,378

 
23,267

Purchases of nonmarketable securities (fair value accounting)
 
(65,943
)
 
(63,017
)
Proceeds from sales and distributions of nonmarketable securities (fair value accounting)
 
52,103

 
59,711

Net increase in loans
 
(671,105
)
 
(817,601
)
Proceeds from recoveries of charged-off loans
 
5,536

 
6,811

Purchases of premises and equipment
 
(14,160
)
 
(20,016
)
Proceeds from the sale of certain assets related to our equity services management business
 

 
2,870

Net cash provided by (used for) investing activities
 
441,320

 
(981,459
)
Cash flows from financing activities:
 
 
 
 
Net (decrease) increase in deposits
 
(486,378
)
 
1,359,276

(Decrease) increase in short-term borrowings
 
(160,710
)
 
5,880

Principal payments of other long term debt
 

 
(1,222
)
Capital contributions from noncontrolling interests, net of distributions
 
1,903

 
33,350

Tax benefit from stock exercises
 
2,861

 
4,180

Proceeds from issuance of common stock and ESPP
 
32,286

 
24,303

Principal payments of 5.70% Senior Notes
 

 
(141,429
)
Net cash (used for) provided by financing activities
 
(610,038
)
 
1,284,338

Net (decrease) increase in cash and cash equivalents
 
(135,732
)
 
296,777

Cash and cash equivalents at beginning of period
 
1,008,983

 
1,114,948

Cash and cash equivalents at end of period
 
$
873,251

 
$
1,411,725

Supplemental disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
15,655

 
$
15,913

Income taxes
 
64,423

 
58,992

Noncash items during the period:
 
 
 
 
Unrealized (losses) gains on available-for-sale securities, net of tax
 
$
(115,431
)
 
$
19,987


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

8

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 six months ended June 30, 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 applicable accounting guidance requires consolidation. All significant intercompany accounts and transactions have been eliminated.
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entity’s operations. For these types of entities, the Company’s determination of whether it has a controlling interest is based on ownership of the majority of the entities’ voting equity interest or through control of management of the entities.
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’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 by which we control through management rights 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 not the primary beneficiary. We perform on-going reassessments on the status of the entities and whether facts or circumstances have changed in relation to previously evaluated voting interest entities and our involvement in VIEs which could cause our consolidation conclusion to change.
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 Note 2 - "Stockholders' Equity and EPS" for further 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 and six months ended June 30, 2013 and 2012 :
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars and shares in thousands, except per share amounts)
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
48,584

 
$
47,603

 
$
89,475

 
$
82,393

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
 
45,164

 
44,207

 
44,985

 
43,994

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and ESPP
 
380

 
385

 
384

 
426

Restricted stock units
 
140

 
120

 
168

 
153

Denominator for diluted calculation
 
45,684

 
44,712

 
45,537

 
44,573

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.08

 
$
1.08

 
$
1.99

 
$
1.87

Diluted
 
$
1.06

 
$
1.06

 
$
1.96

 
$
1.85


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 and six months ended June 30, 2013 and 2012 :
 
 
Three months ended June 30,
 
Six months ended June 30,
(Shares in thousands)
 
2013
 
2012
 
2013
 
2012
Stock options
 
635

 
683

 
693

 
574

Restricted stock units
 

 
189

 

 
94

Total
 
635

 
872

 
693

 
668

Accumulated Other Comprehensive Income
The following table summarizes the items reclassified out of accumulated other comprehensive (loss) income into the Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2013 and 2012 :
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands)
 
Income Statement Location
 
2013
 
2012
 
2013
 
2012
Reclassification adjustment for gains included in net income
 
Gains on investment securities, net
 
$
(775
)
 
$
(4,567
)
 
$
(730
)
 
$
(3,693
)
Related tax expense
 
Income tax expense
 
296

 
1,819

 
278

 
1,462

Total reclassification adjustment for gains included in net income, net of tax
 
 
 
$
(479
)
 
$
(2,748
)
 
$
(452
)
 
$
(2,231
)
3.
Share-Based Compensation
For the three and six months ended June 30, 2013 and 2012 , we recorded share-based compensation and related tax benefits as follows:  
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands)
 
2013
 
2012
 
2013
 
2012
Share-based compensation expense
 
$
6,396

 
$
5,828

 
$
12,222

 
$
10,977

Income tax benefit related to share-based compensation expense
 
(1,955
)
 
(1,489
)
 
(3,558
)
 
(2,688
)
Unrecognized Compensation Expense
As of June 30, 2013 , unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Average
Expected
Recognition
  Period - in Years  
Stock options
 
$
19,262

 
2.83
Restricted stock units
 
38,270

 
2.89
Total unrecognized share-based compensation expense
 
$
57,532

 
 

11


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 six months ended June 30, 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
 
304,675

 
71.15

 
 
 
 
Exercised
 
(515,693
)
 
46.84

 
 
 
 
Forfeited
 
(29,096
)
 
54.41

 
 
 
 
Expired
 
(953
)
 
51.86

 
 
 
 
Outstanding at June 30, 2013
 
1,819,346

 
53.40

 
4.46
 
$
54,437,326

Vested and expected to vest at June 30, 2013
 
1,755,204

 
52.96

 
4.40
 
53,284,085

Exercisable at June 30, 2013
 
901,146

 
44.57

 
3.26
 
34,920,695

The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $83.32 as of June 30, 2013 . The total intrinsic value of options exercised during the three and six months ended June 30, 2013 was $7.2 million and $11.9 million , respectively, compared to $1.8 million and $13.7 million for the comparable 2012 periods.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the six months ended June 30, 2013 :
 
 
Shares    
 
Weighted
Average
    Grant Date Fair    
Value
Nonvested at December 31, 2012
 
585,543

 
$
59.42

Granted
 
320,287

 
71.16

Vested
 
(162,974
)
 
56.67

Forfeited
 
(19,111
)
 
59.48

Nonvested at June 30, 2013
 
723,745

 
65.23

4.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at June 30, 2013 and December 31, 2012 :
(Dollars in thousands)
 
June 30, 2013
 
December 31, 2012
Cash and due from banks (1)
 
$
709,881

 
$
752,056

Securities purchased under agreements to resell (2)
 
130,603

 
133,357

Other short-term investment securities
 
32,767

 
123,570

Total cash and cash equivalents
 
$
873,251

 
$
1,008,983

 
 
(1)
At June 30, 2013 and December 31, 2012 , $200 million and $72 million , respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $234 million and $283 million , respectively.
(2)
At June 30, 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 $133 million and $136 million , respectively. None of these securities received as collateral were sold or repledged as of June 30, 2013 or December 31, 2012 .

12


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. The major components of our investment securities portfolio at June 30, 2013 and December 31, 2012 are as follows:
 
 
June 30, 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
 
$
24,996

 
$
3

 
$

 
$
24,999

 
$
25,057

 
$
190

 
$

 
$
25,247

U.S. agency debentures
 
3,386,664

 
45,209

 
(28,284
)
 
3,403,589

 
3,370,455

 
77,173

 

 
3,447,628

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
1,197,489

 
20,040

 
(3,494
)
 
1,214,035

 
1,428,682

 
44,858

 
(107
)
 
1,473,433

Agency-issued collateralized mortgage obligations—fixed rate
 
3,510,618

 
15,844

 
(57,780
)
 
3,468,682

 
4,063,020

 
41,949

 
(995
)
 
4,103,974

Agency-issued collateralized mortgage obligations—variable rate
 
1,430,325

 
8,447

 

 
1,438,772

 
1,760,551

 
12,201

 
(4
)
 
1,772,748

Agency-issued commercial mortgage-backed securities
 
410,001

 
2,331

 
(11,128
)
 
401,204

 
416,487

 
6,100

 
(489
)
 
422,098

Municipal bonds and notes
 
82,054

 
4,947

 

 
87,001

 
85,790

 
7,750

 
(11
)
 
93,529

Equity securities
 
5,207

 
291

 
(439
)
 
5,059

 
2,108

 
2,739

 
(327
)
 
4,520

Total available-for-sale securities
 
$
10,047,354

 
$
97,112

 
$
(101,125
)
 
$
10,043,341

 
$
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)
 
 
 
 
 
 
 
741,522

 
 
 
 
 
 
 
665,921

Other venture capital investments (2)
 
 
 
 
 
 
 
123,493

 
 
 
 
 
 
 
127,091

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other investments (3)
 
 
 
 
 
 
 
144,149

 
 
 
 
 
 
 
139,330

Low income housing tax credit funds
 
 
 
 
 
 
 
71,382

 
 
 
 
 
 
 
70,318

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (4)
 
 
 
 
 
 
 
156,391

 
 
 
 
 
 
 
161,884

Other investments
 
 
 
 
 
 
 
18,488

 
 
 
 
 
 
 
19,721

Total non-marketable securities
 
 
 
 
 
 
 
1,255,425

 
 
 
 
 
 
 
1,184,265

Total investment securities
 
 
 
 
 
 
 
$
11,298,766

 
 
 
 
 
 
 
$
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 June 30, 2013 and December 31, 2012 (fair value accounting):
 
 
June 30, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
SVB Strategic Investors Fund, LP
 
$
32,111

 
12.6
%
 
$
32,850

 
12.6
%
SVB Strategic Investors Fund II, LP
 
93,110

 
8.6

 
91,294

 
8.6

SVB Strategic Investors Fund III, LP
 
223,568

 
5.9

 
209,696

 
5.9

SVB Strategic Investors Fund IV, LP
 
198,734

 
5.0

 
169,931

 
5.0

Strategic Investors Fund V Funds
 
69,110

 
Various

 
40,622

 
Various

Strategic Investors Fund VI Funds
 
1,321

 
0.2

 

 

SVB Capital Preferred Return Fund, LP
 
56,140

 
20.0

 
53,643

 
20.0

SVB Capital—NT Growth Partners, LP
 
60,775

 
33.0

 
60,120

 
33.0

SVB Capital Partners II, LP (i)
 
1,098

 
5.1

 
1,303

 
5.1

Other private equity fund (ii)
 
5,555

 
58.2

 
6,462

 
58.2

Total venture capital and private equity fund investments
 
$
741,522

 
 
 
$
665,921

 
 
 
 
(i)
At June 30, 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 June 30, 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 June 30, 2013 and December 31, 2012 (fair value accounting):
 
 
June 30, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Silicon Valley BancVentures, LP
 
$
39,680

 
10.7
%
 
$
43,493

 
10.7
%
SVB Capital Partners II, LP (i)
 
79,913

 
5.1

 
79,761

 
5.1

SVB Capital Shanghai Yangpu Venture Capital Fund
 
3,900

 
6.8

 
3,837

 
6.8

Total other venture capital investments
 
$
123,493

 
 
 
$
127,091

 
 
 
 
(i)
At June 30, 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 June 30, 2013 and December 31, 2012 (equity method accounting):
 
 
June 30, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Gold Hill Venture Lending 03, LP (i)
 
$
11,783

 
9.3
%
 
$
9,413

 
9.3
%
Gold Hill Capital 2008, LP (ii)
 
20,260

 
15.5

 
20,893

 
15.5

China Joint Venture investment
 
80,247

 
50.0

 
78,545

 
50.0

Other investments
 
31,859

 
Various

 
30,479

 
Various

Total other investments (equity method accounting)
 
$
144,149

 
 
 
$
139,330

 
 
 
 
(i)
At June 30, 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 .

14


(ii)
At June 30, 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 .
(4)
Represents investments in 303 and 324 funds (primarily venture capital funds) at June 30, 2013 and December 31, 2012 , respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating activities and financial policies. For the three months ended June 30, 2013 , we recognized OTTI losses of $0.3 million resulting from other-than-temporary declines in value for 12 of the 303 investments. For the six months ended June 30, 2013 , we recognized OTTI losses of $0.8 million resulting from other-than-temporary declines in value for 27 of the 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 June 30, 2013 , the carrying value of these venture capital and private equity fund investments (cost method accounting) was $156 million , and the estimated fair value was $204 million .
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months and 12 months or longer as of June 30, 2013 :
 
 
June 30, 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
 
$
937,993

 
$
(28,284
)
 
$

 
$

 
$
937,993

 
$
(28,284
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
291,410

 
(3,494
)
 

 

 
291,410

 
(3,494
)
Agency-issued collateralized mortgage obligations—fixed rate
 
2,308,447

 
(55,006
)
 
85,120

 
(2,774
)
 
2,393,567

 
(57,780
)
Agency-issued commercial mortgage-backed securities
 
188,691

 
(11,128
)
 

 

 
188,691

 
(11,128
)
Equity securities
 
1,869

 
(405
)
 
117

 
(34
)
 
1,986

 
(439
)
Total temporarily impaired securities (1)
 
$
3,728,410

 
$
(98,317
)
 
$
85,237

 
$
(2,808
)
 
$
3,813,647

 
$
(101,125
)
 
 
(1)
As of June 30, 2013 , we identified a total of 124 investments that were in unrealized loss positions, of which 4 investments totaling $85 million with unrealized losses of $2.8 million have been in an impaired position for a period of time greater than 12 months. As of June 30, 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 June 30, 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 and 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