SVB Financial Group
SVB FINANCIAL GROUP (Form: 10-Q, Received: 11/08/2013 17:10:29)
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, 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 October 31, 2013 , 45,666,482 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

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)
 
September 30,
2013
 
December 31,
2012
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,942,744

 
$
1,008,983

Available-for-sale securities
 
10,209,917

 
11,343,177

Non-marketable and other securities
 
1,425,138

 
1,184,265

Investment securities
 
11,635,055

 
12,527,442

Loans, net of unearned income
 
9,824,982

 
8,946,933

Allowance for loan losses
 
(124,734
)
 
(110,651
)
Net loans
 
9,700,248

 
8,836,282

Premises and equipment, net of accumulated depreciation and amortization
 
65,385

 
66,545

Accrued interest receivable and other assets
 
397,432

 
326,871

Total assets
 
$
23,740,864

 
$
22,766,123

Liabilities and total equity
 
 
 
 
Liabilities:
 
 
 
 
Noninterest-bearing demand deposits
 
$
14,105,728

 
$
13,875,275

Interest-bearing deposits
 
5,891,263

 
5,301,177

Total deposits
 
19,996,991

 
19,176,452

Short-term borrowings
 
5,580

 
166,110

Other liabilities
 
358,905

 
360,566

Long-term debt
 
455,744

 
457,762

Total liabilities
 
20,817,220

 
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; 45,608,370 shares and 44,627,182 shares outstanding, respectively
 
46

 
45

Additional paid-in capital
 
607,463

 
547,079

Retained earnings
 
1,331,975

 
1,174,878

Accumulated other comprehensive income
 
5,443

 
108,553

Total SVBFG stockholders’ equity
 
1,944,927

 
1,830,555

Noncontrolling interests
 
978,717

 
774,678

Total equity
 
2,923,644

 
2,605,233

Total liabilities and total equity
 
$
23,740,864

 
$
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 September 30,
 
Nine months ended September 30,
(Dollars in thousands, except per share amounts)
 
2013
 
2012
 
2013
 
2012
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
139,687

 
$
121,446

 
$
395,216

 
$
344,842

Available-for-sale securities:
 
 
 
 
 
 
 
 
Taxable
 
43,604

 
38,493

 
134,013

 
129,940

Non-taxable
 
797

 
894

 
2,403

 
2,693

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities
 
1,152

 
1,125

 
2,605

 
3,075

Total interest income
 
185,240

 
161,958

 
534,237

 
480,550

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
2,397

 
1,740

 
6,533

 
4,835

Borrowings
 
5,747

 
5,788

 
17,358

 
18,414

Total interest expense
 
8,144

 
7,528

 
23,891

 
23,249

Net interest income
 
177,096

 
154,430

 
510,346

 
457,301

Provision for loan losses
 
10,638

 
6,788

 
35,023

 
29,316

Net interest income after provision for loan losses
 
166,458

 
147,642

 
475,323

 
427,985

Noninterest income:
 
 
 
 
 
 
 
 
Gains on investment securities, net
 
187,862

 
20,228

 
255,861

 
53,876

Foreign exchange fees
 
12,887

 
12,211

 
39,113

 
36,345

Gains on derivative instruments, net
 
10,202

 
1,111

 
30,218

 
15,800

Deposit service charges
 
8,902

 
8,369

 
26,602

 
24,834

Credit card fees
 
8,188

 
6,348

 
23,245

 
18,185

Letters of credit and standby letters of credit income
 
3,790

 
3,495

 
10,879

 
10,427

Client investment fees
 
3,393

 
3,954

 
10,392

 
10,226

Other
 
22,426

 
13,423

 
38,183

 
39,165

Total noninterest income
 
257,650

 
69,139

 
434,493

 
208,858

Noninterest expense:
 
 
 
 
 
 
 
 
Compensation and benefits
 
96,869

 
79,262

 
270,315

 
243,384

Professional services
 
18,966

 
17,759

 
52,759

 
48,880

Premises and equipment
 
12,171

 
11,247

 
34,298

 
28,230

Business development and travel
 
7,378

 
6,838

 
23,433

 
21,743

Net occupancy
 
5,898

 
5,666

 
17,460

 
16,667

FDIC assessments
 
2,913

 
2,836

 
9,148

 
8,065

Correspondent bank fees
 
2,906

 
3,000

 
9,009

 
8,528

Provision for (reduction of) unfunded credit commitments
 
2,774

 
(400
)
 
6,135

 
1,264

Other
 
10,649

 
8,963

 
30,273

 
26,188

Total noninterest expense
 
160,524

 
135,171

 
452,830

 
402,949

Income before income tax expense
 
263,584

 
81,610

 
456,986

 
233,894

Income tax expense
 
47,404

 
28,470

 
103,773

 
83,743

Net income before noncontrolling interests
 
216,180

 
53,140

 
353,213

 
150,151

Net income attributable to noncontrolling interests
 
(148,559
)
 
(10,851
)
 
(196,117
)
 
(25,469
)
Net income available to common stockholders
 
$
67,621

 
$
42,289

 
$
157,096

 
$
124,682

Earnings per common share—basic
 
$
1.48

 
$
0.95

 
$
3.48

 
$
2.82

Earnings per common share—diluted
 
1.46

 
0.94

 
3.43

 
2.79

 

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

5

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)
 
2013
 
2012
 
2013
 
2012
Net income before noncontrolling interests
 
$
216,180

 
$
53,140

 
$
353,213

 
$
150,151

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Change in cumulative translation (loss) income:
 
 
 
 
 
 
 
 
Foreign currency translation (loss) income
 
(1,540
)
 
2,940

 
(6,341
)
 
755

Related tax benefit (expense)
 
631

 
(1,190
)
 
2,539

 
(314
)
Change in unrealized gains (losses) on available-for-sale securities:
 
 
 
 
 
 
 
 
Unrealized holding gains (losses)
 
27,289

 
27,596

 
(167,021
)
 
64,631

Related tax (expense) benefit
 
(11,032
)
 
(11,473
)
 
68,299

 
(26,290
)
Reclassification adjustment for (gains) losses included in net income
 
(219
)
 
101

 
(949
)
 
(3,592
)
Related tax benefit (expense)
 
85

 
(41
)
 
363

 
1,421

Other comprehensive income (loss), net of tax
 
15,214

 
17,933

 
(103,110
)
 
36,611

Comprehensive income
 
231,394

 
71,073

 
250,103

 
186,762

Comprehensive income attributable to noncontrolling interests
 
(148,559
)
 
(10,851
)
 
(196,117
)
 
(25,469
)
Comprehensive income attributable to SVBFG
 
$
82,835

 
$
60,222

 
$
53,986

 
$
161,293

 
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, 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

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
 
906,242

 
1

 
33,241

 

 

 
33,242

 

 
33,242

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
 

 

 
3,148

 

 

 
3,148

 

 
3,148

Net income
 

 

 

 
157,096

 

 
157,096

 
196,117

 
353,213

Capital calls and distributions, net
 

 

 

 

 

 

 
7,922

 
7,922

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

 

 

 

 
(99,308
)
 
(99,308
)
 

 
(99,308
)
Foreign currency translation adjustments, net of tax
 

 

 

 

 
(3,802
)
 
(3,802
)
 

 
(3,802
)
Share-based compensation expense
 

 

 
18,826

 

 

 
18,826

 

 
18,826

Other, net
 

 

 
3

 
1

 

 
4

 

 
4

Balance at September 30, 2013
 
45,608,370

 
$
46

 
$
607,463

 
$
1,331,975

 
$
5,443

 
$
1,944,927

 
$
978,717

 
$
2,923,644

   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)
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income before noncontrolling interests
 
$
353,213

 
$
150,151

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
35,023

 
29,316

Provision for unfunded credit commitments
 
6,135

 
1,264

Changes in fair values of derivatives, net
 
(16,594
)
 
(4,411
)
Gains on investment securities, net
 
(255,861
)
 
(53,876
)
Depreciation and amortization
 
26,474

 
22,651

Amortization of premiums and discounts on available-for-sale securities, net
 
21,040

 
42,511

Tax (expense) benefit from stock exercises
 
(1,353
)
 
1,245

Amortization of share-based compensation
 
18,945

 
16,594

Amortization of deferred loan fees
 
(51,941
)
 
(42,308
)
Deferred income tax expense
 
(3,488
)
 
(997
)
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
 
1,273

 
1,941

Changes in other assets and liabilities:
 
 
 
 
Accrued interest receivable and payable, net
 
(5,183
)
 
(9,084
)
Accounts receivable and payable, net
 
1,463

 
33,277

Income tax payable and receivable, net
 
(7,787
)
 
6,223

Accrued compensation
 
(7,481
)
 
(40,600
)
Foreign exchange spot contracts, net
 
12,442

 
(41,188
)
Other, net
 
(27,005
)
 
19,140

Net cash provided by operating activities
 
99,315

 
127,606

Cash flows from investing activities:
 
 
 
 
Purchases of available-for-sale securities
 
(906,495
)
 
(2,859,155
)
Proceeds from sales of available-for-sale securities
 
10,207

 
326,178

Proceeds from maturities and pay downs of available-for-sale securities
 
1,879,424

 
2,047,753

Purchases of non-marketable and other securities (cost and equity method accounting)
 
(20,019
)
 
(114,134
)
Proceeds from sales of non-marketable and other securities (cost and equity method accounting)
 
47,069

 
31,903

Purchases of non-marketable and other securities (fair value accounting)
 
(108,663
)
 
(99,062
)
Proceeds from sales and distributions of non-marketable and other securities (fair value accounting)
 
103,105

 
94,188

Net increase in loans
 
(867,075
)
 
(1,218,366
)
Proceeds from recoveries of charged-off loans
 
8,163

 
8,018

Purchases of premises and equipment
 
(22,110
)
 
(33,489
)
Proceeds from the sale of certain assets related to our equity services management business
 

 
2,870

Net cash provided by (used for) investing activities
 
123,606

 
(1,813,296
)
Cash flows from financing activities:
 
 
 
 
Net increase in deposits
 
820,539

 
1,015,530

(Decrease) increase in short-term borrowings
 
(160,530
)
 
508,170

Principal payments of other long term debt
 

 
(1,222
)
Capital contributions from noncontrolling interests, net of distributions
 
7,922

 
63,956

Tax benefit from stock exercises
 
4,501

 
5,067

Proceeds from issuance of common stock and ESPP
 
38,408

 
27,350

Principal payments of 5.70% Senior Notes
 

 
(141,429
)
Net cash provided by financing activities
 
710,840

 
1,477,422

Net increase (decrease) in cash and cash equivalents
 
933,761

 
(208,268
)
Cash and cash equivalents at beginning of period
 
1,008,983

 
1,114,948

Cash and cash equivalents at end of period
 
$
1,942,744

 
$
906,680

Supplemental disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
28,339

 
$
28,000

Income taxes
 
107,282

 
69,094

Noncash items during the period:
 
 
 
 
Unrealized (losses) gains on available-for-sale securities, net of tax
 
$
(99,308
)
 
$
36,170


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, 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 Financial Accounting Standards Board (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.
Recently Issued Accounting Pronouncements
In June 2013, the FASB issued Accounting Standards Update (ASU) 2013-08, Financial Services - Investment Companies (ASC Topic 946): Amendments to the Scope, Measurement and Disclosure Requirement. This ASU modifies the guidance in ASC 946 for determining whether an entity is an investment company, as well as the measurement and disclosure requirements for investment companies. The ASU does not change current accounting where a noninvestment company parent retains the specialized accounting applied by an investment company subsidiary in consolidation. ASU 2013-08 will be applied prospectively for all periods beginning after December 15, 2013. We do not expect this ASU to have a material effect on our results of operations or financial position.
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 nine months ended September 30, 2013 and 2012 :

10


 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars and shares in thousands, except per share amounts)
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
67,621

 
$
42,289

 
$
157,096

 
$
124,682

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
 
45,580

 
44,449

 
45,180

 
44,147

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and ESPP
 
429

 
346

 
405

 
402

Restricted stock units
 
193

 
120

 
180

 
143

Denominator for diluted calculation
 
46,202

 
44,915

 
45,765

 
44,692

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.48

 
$
0.95

 
$
3.48

 
$
2.82

Diluted
 
$
1.46

 
$
0.94

 
$
3.43

 
$
2.79

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, 2013 and 2012 :
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Shares in thousands)
 
2013
 
2012
 
2013
 
2012
Stock options
 
343

 
795

 
546

 
658

Restricted stock units
 

 
220

 
1

 

Total
 
343

 
1,015

 
547

 
658

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 nine months ended September 30, 2013 and 2012 :
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
Income Statement Location
 
2013
 
2012
 
2013
 
2012
Reclassification adjustment for (gains) losses included in net income
 
Gains on investment securities, net
 
$
(219
)
 
$
101

 
$
(949
)
 
$
(3,592
)
Related tax benefit (expense)
 
Income tax expense
 
85

 
(41
)
 
363

 
1,421

Total reclassification adjustment for gains included in net income, net of tax
 
 
 
$
(134
)
 
$
60

 
$
(586
)
 
$
(2,171
)
3.
Share-Based Compensation
For the three and nine months ended September 30, 2013 and 2012 , we recorded share-based compensation and related tax benefits as follows:  
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2013
 
2012
 
2013
 
2012
Share-based compensation expense
 
$
6,723

 
$
5,617

 
$
18,945

 
$
16,594

Income tax benefit related to share-based compensation expense
 
(2,243
)
 
(1,720
)
 
(5,801
)
 
(4,408
)




11


Unrecognized Compensation Expense
As of September 30, 2013 , unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Average
Expected
Recognition
  Period - in Years  
Stock options
 
$
17,195

 
2.67
Restricted stock units
 
34,357

 
2.72
Total unrecognized share-based compensation expense
 
$
51,552

 
 
Share-Based Payment Award Activity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the nine months ended September 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
 
311,692

 
71.54

 
 
 
 
Exercised
 
(661,216
)
 
45.97

 
 
 
 
Forfeited
 
(44,330
)
 
55.85

 
 
 
 
Expired
 
(953
)
 
51.86

 
 
 
 
Outstanding at September 30, 2013
 
1,665,606

 
54.42

 
4.33 years
 
$
53,233,391

Vested and expected to vest at September 30, 2013
 
1,610,512

 
54.02

 
4.28 years
 
52,113,576

Exercisable at September 30, 2013
 
789,760

 
44.89

 
3.15 years
 
32,761,622

The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $86.37 as of September 30, 2013 . The total intrinsic value of options exercised during the three and nine months ended September 30, 2013 was $6.5 million and $18.4 million , respectively, compared to $3.0 million and $16.7 million for the comparable 2012 periods.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the nine months ended September 30, 2013 :
 
 
Shares    
 
Weighted
Average
    Grant Date Fair    
Value
Nonvested at December 31, 2012
 
585,543

 
$
59.42

Granted
 
328,245

 
71.52

Vested
 
(166,617
)
 
56.41

Forfeited
 
(34,351
)
 
61.35

Nonvested at September 30, 2013
 
712,820

 
65.60


12


4.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at September 30, 2013 and December 31, 2012 :
(Dollars in thousands)
 
September 30, 2013
 
December 31, 2012
Cash and due from banks (1)
 
$
1,770,123

 
$
752,056

Securities purchased under agreements to resell (2)
 
168,026

 
133,357

Other short-term investment securities
 
4,595

 
123,570

Total cash and cash equivalents
 
$
1,942,744

 
$
1,008,983

 
 
(1)
At September 30, 2013 and December 31, 2012 , $1.2 billion 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 $222 million and $283 million , respectively.
(2)
At September 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 $171 million and $136 million , respectively. None of these securities received as collateral were sold or repledged as of September 30, 2013 or December 31, 2012 .

13


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 and other securities portfolio, which primarily represents investments managed as part of our funds management business. The major components of our investment securities portfolio at September 30, 2013 and December 31, 2012 are as follows:
 
 
September 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
 
$

 
$

 
$

 
$

 
$
25,057

 
$
190

 
$

 
$
25,247

U.S. agency debentures
 
3,602,585

 
46,412

 
(24,177
)
 
3,624,820

 
3,370,455

 
77,173

 

 
3,447,628

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
1,493,666

 
28,013

 
(2,981
)
 
1,518,698

 
1,428,682

 
44,858

 
(107
)
 
1,473,433

Agency-issued collateralized mortgage obligations—fixed rate
 
3,269,966

 
21,699

 
(44,188
)
 
3,247,477

 
4,063,020

 
41,949

 
(995
)
 
4,103,974

Agency-issued collateralized mortgage obligations—variable rate
 
1,286,547

 
3,452

 
(149
)
 
1,289,850

 
1,760,551

 
12,201

 
(4
)
 
1,772,748

Agency-issued commercial mortgage-backed securities
 
445,336

 
1,381

 
(10,785
)
 
435,932

 
416,487

 
6,100

 
(489
)
 
422,098

Municipal bonds and notes
 
82,039

 
4,540

 

 
86,579

 
85,790

 
7,750

 
(11
)
 
93,529

Equity securities
 
6,722

 
807

 
(968
)
 
6,561

 
2,108

 
2,739

 
(327
)
 
4,520

Total available-for-sale securities
 
$
10,186,861

 
$
106,304

 
$
(83,248
)
 
$
10,209,917

 
$
11,152,150

 
$
192,960

 
$
(1,933
)
 
$
11,343,177

Non-marketable and other securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (1)
 
 
 
 
 
 
 
773,499

 
 
 
 
 
 
 
665,921

Other venture capital investments (2)
 
 
 
 
 
 
 
55,359

 
 
 
 
 
 
 
127,091

Other securities (fair value accounting) (3)
 
 
 
 
 
 
 
219,600

 
 
 
 
 
 
 

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other investments (4)
 
 
 
 
 
 
 
142,571

 
 
 
 
 
 
 
139,330

Low income housing tax credit funds
 
 
 
 
 
 
 
70,092

 
 
 
 
 
 
 
70,318

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (5)
 
 
 
 
 
 
 
149,602

 
 
 
 
 
 
 
161,884

Other investments
 
 
 
 
 
 
 
14,415

 
 
 
 
 
 
 
19,721

Total non-marketable and other securities
 
 
 
 
 
 
 
1,425,138

 
 
 
 
 
 
 
1,184,265

Total investment securities
 
 
 
 
 
 
 
$
11,635,055

 
 
 
 
 
 
 
$
12,527,442

 
 


14


(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, 2013 and December 31, 2012 (fair value accounting):
 
 
September 30, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
SVB Strategic Investors Fund, LP
 
$
30,265

 
12.6
%
 
$
32,850

 
12.6
%
SVB Strategic Investors Fund II, LP
 
96,595

 
8.6

 
91,294

 
8.6

SVB Strategic Investors Fund III, LP
 
226,123

 
5.9

 
209,696

 
5.9

SVB Strategic Investors Fund IV, LP
 
209,368

 
5.0

 
169,931

 
5.0

Strategic Investors Fund V Funds
 
89,410

 
Various

 
40,622

 
Various

Strategic Investors Fund VI Funds
 
4,681

 
0.2

 

 

SVB Capital Preferred Return Fund, LP
 
55,721

 
20.0

 
53,643

 
20.0

SVB Capital—NT Growth Partners, LP
 
55,836

 
33.0

 
60,120

 
33.0

SVB Capital Partners II, LP (i)
 
716

 
5.1

 
1,303

 
5.1

Other private equity fund (ii)
 
4,784

 
58.2

 
6,462

 
58.2

Total venture capital and private equity fund investments
 
$
773,499

 
 
 
$
665,921

 
 
 
 
(i)
At September 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 September 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 September 30, 2013 and December 31, 2012 (fair value accounting):
 
 
September 30, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Silicon Valley BancVentures, LP
 
$
7,383

 
10.7
%
 
$
43,493

 
10.7
%
SVB Capital Partners II, LP (i)
 
43,682

 
5.1

 
79,761

 
5.1

SVB Capital Shanghai Yangpu Venture Capital Fund
 
4,294

 
6.8

 
3,837

 
6.8

Total other venture capital investments
 
$
55,359

 
 
 
$
127,091

 
 
 
 
(i)
At September 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)
Investments classified as other securities (fair value accounting) represent certain direct equity investments in public companies held by our consolidated funds.
(4)
The following table shows the carrying value and our ownership percentage of each investment at September 30, 2013 and December 31, 2012 (equity method accounting):
 
 
September 30, 2013
 
December 31, 2012
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Gold Hill Venture Lending 03, LP (i)
 
$
8,734

 
9.3
%
 
$
9,413

 
9.3
%
Gold Hill Capital 2008, LP (ii)
 
21,318

 
15.5

 
20,893

 
15.5

China Joint Venture investment
 
80,346

 
50.0

 
78,545

 
50.0

Other investments
 
32,173

 
Various

 
30,479

 
Various

Total other investments (equity method accounting)
 
$
142,571

 
 
 
$
139,330

 
 
 
 

15


(i)
At September 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 .
(ii)
At September 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 .
(5)
Represents investments in 293 and 324 funds (primarily venture capital funds) at September 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 September 30, 2013 , we recognized OTTI losses of $0.4 million resulting from other-than-temporary declines in value for 12 of the 293 investments. For the nine months ended September 30, 2013 , we recognized OTTI losses of $1.2 million resulting from other-than-temporary declines in value for 37 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 September 30, 2013 , the carrying value of these venture capital and private equity fund investments (cost method accounting) was $150 million , and the estimated fair value was $206 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 September 30, 2013 :
 
 
September 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
 
$
942,337

 
$
(24,177
)
 
$

 
$

 
$
942,337

 
$
(24,177
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
261,787

 
(2,981
)
 

 

 
261,787

 
(2,981
)
Agency-issued collateralized mortgage obligations—fixed rate
 
1,886,229

 
(42,555
)
 
79,190

 
(1,633
)
 
1,965,419

 
(44,188
)
Agency-issued collateralized mortgage obligations—variable rate
 
147,218

 
(149
)
 

 

 
147,218

 
(149
)
Agency-issued commercial mortgage-backed securities
 
232,474

 
(10,785
)
 

 

 
232,474

 
(10,785
)
Equity securities
 
2,544

 
(968
)
 

 

 
2,544

 
(968
)
Total temporarily impaired securities (1)
 
$
3,472,589

 
$
(81,615
)
 
$
79,190

 
$
(1,633
)
 
$
3,551,779

 
$
(83,248
)
 
 
(1)
As of September 30, 2013 , we identified a total of 134 investments that were in unrealized loss positions, of which 3 investments totaling $79 million with unrealized losses of $1.6 million have been in an impaired position for a period of time greater than 12 months. As of September 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 September 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.

16


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