SVB Financial Group
SVB FINANCIAL GROUP (Form: 10-Q, Received: 05/09/2014 16:49:07)
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, 2014
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, 2014 , 46,034,842 shar es 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
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,
2014
 
December 31,
2013
Assets
 
 
 
 
Cash and cash equivalents
 
$
3,862,464

 
$
1,538,779

Available-for-sale securities
 
12,843,099

 
11,986,821

Non-marketable and other securities
 
1,770,456

 
1,595,494

Investment securities
 
14,613,555

 
13,582,315

Loans, net of unearned income
 
10,833,908

 
10,906,386

Allowance for loan losses
 
(123,542
)
 
(142,886
)
Net loans
 
10,710,366

 
10,763,500

Premises and equipment, net of accumulated depreciation and amortization
 
66,123

 
67,485

Accrued interest receivable and other assets
 
458,531

 
465,110

Total assets
 
$
29,711,039

 
$
26,417,189

Liabilities and total equity
 
 
 
 
Liabilities:
 
 
 
 
Noninterest-bearing demand deposits
 
$
18,314,830

 
$
15,894,360

Interest-bearing deposits
 
7,162,075

 
6,578,619

Total deposits
 
25,476,905

 
22,472,979

Short-term borrowings
 
4,810

 
5,080

Other liabilities
 
407,573

 
404,586

Long-term debt
 
454,770

 
455,216

Total liabilities
 
26,344,058

 
23,337,861

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; 45,934,521 shares and 45,800,418 shares outstanding, respectively
 
46

 
46

Additional paid-in capital
 
642,311

 
624,256

Retained earnings
 
1,482,033

 
1,390,732

Accumulated other comprehensive loss
 
(30,390
)
 
(48,764
)
Total SVBFG stockholders’ equity
 
2,094,000

 
1,966,270

Noncontrolling interests
 
1,272,981

 
1,113,058

Total equity
 
3,366,981

 
3,079,328

Total liabilities and total equity
 
$
29,711,039

 
$
26,417,189

 
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)
 
2014
 
2013
Interest income:
 
 
 
 
Loans
 
$
148,172

 
$
123,744

Available-for-sale securities:
 
 
 
 
Taxable
 
54,420

 
45,752

Non-taxable
 
796

 
799

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities
 
1,636

 
719

Total interest income
 
205,024

 
171,014

Interest expense:
 
 
 
 
Deposits
 
2,904

 
2,051

Borrowings
 
5,792

 
5,794

Total interest expense
 
8,696

 
7,845

Net interest income
 
196,328

 
163,169

Provision for loan losses
 
494

 
5,813

Net interest income after provision for loan losses
 
195,834

 
157,356

Noninterest income:
 
 
 
 
Gains on investment securities, net
 
223,912

 
27,438

Gains on derivative instruments, net
 
24,167

 
10,292

Foreign exchange fees
 
17,196

 
14,196

Credit card fees
 
10,282

 
7,448

Deposit service charges
 
9,607

 
8,793

Lending related fees
 
6,303

 
3,974

Letters of credit and standby letters of credit income
 
4,140

 
3,435

Client investment fees
 
3,418

 
3,475

Other
 
11,200

 
(447
)
Total noninterest income
 
310,225

 
78,604

Noninterest expense:
 
 
 
 
Compensation and benefits
 
102,507

 
88,704

Professional services
 
21,189

 
17,160

Premises and equipment
 
11,582

 
10,725

Business development and travel
 
10,194

 
8,272

Net occupancy
 
7,320

 
5,767

FDIC assessments
 
4,128

 
3,382

Correspondent bank fees
 
3,203

 
3,055

Provision for unfunded credit commitments
 
1,123

 
2,014

Other
 
11,190

 
9,935

Total noninterest expense
 
172,436

 
149,014

Income before income tax expense
 
333,623

 
86,946

Income tax expense
 
58,917

 
26,401

Net income before noncontrolling interests
 
274,706

 
60,545

Net income attributable to noncontrolling interests
 
(183,405
)
 
(19,654
)
Net income available to common stockholders
 
$
91,301

 
$
40,891

Earnings per common share—basic
 
$
1.99

 
$
0.91

Earnings per common share—diluted
 
1.95

 
0.90

 

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 March 31,
(Dollars in thousands)
 
2014
 
2013
Net income before noncontrolling interests
 
$
274,706

 
$
60,545

Other comprehensive income (loss), net of tax:
 
 
 
 
Change in cumulative translation Income (loss):
 
 
 
 
Foreign currency translation income (loss)
 
1,464

 
(826
)
Related tax (expense) benefit
 
(578
)
 
297

Change in unrealized gains (losses) on available-for-sale securities:
 
 
 
 
Unrealized holding gains (losses)
 
29,329

 
(22,102
)
Related tax (expense) benefit
 
(11,805
)
 
9,666

Reclassification adjustment for (gains) losses included in net income
 
(60
)
 
45

Related tax expense (benefit)
 
24

 
(18
)
Other comprehensive income (loss), net of tax
 
18,374

 
(12,938
)
Comprehensive income
 
293,080

 
47,607

Comprehensive income attributable to noncontrolling interests
 
(183,405
)
 
(19,654
)
Comprehensive income attributable to SVBFG
 
$
109,675

 
$
27,953

 
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 (Loss)
 
Total SVBFG
Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
(Dollars in thousands)
 
Shares
 
Amount
 
 
 
 
 
 
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

Balance at December 31, 2013
 
45,800,418

 
$
46

 
$
624,256

 
$
1,390,732

 
$
(48,764
)
 
$
1,966,270

 
$
1,113,058

 
$
3,079,328

Common stock issued under employee benefit plans, net of restricted stock cancellations
 
103,341

 

 
4,254

 

 

 
4,254

 

 
4,254

Common stock issued under ESOP
 
30,762

 

 
3,890

 

 

 
3,890

 

 
3,890

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

 

 
1,996

 

 

 
1,996

 

 
1,996

Net income
 

 

 

 
91,301

 

 
91,301

 
183,405

 
274,706

Capital calls and (distributions), net
 

 

 

 

 

 

 
(23,482
)
 
(23,482
)
Net change in unrealized losses on available-for-sale securities, net of tax
 

 

 

 

 
17,488

 
17,488

 

 
17,488

Foreign currency translation adjustments, net of tax
 

 

 

 

 
886

 
886

 

 
886

Share-based compensation expense
 

 

 
7,892

 

 

 
7,892

 

 
7,892

Other, net
 

 

 
23

 

 

 
23

 

 
23

Balance at March 31, 2014
 
45,934,521

 
$
46

 
$
642,311

 
$
1,482,033

 
$
(30,390
)
 
$
2,094,000

 
$
1,272,981

 
$
3,366,981

   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)
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income before noncontrolling interests
 
$
274,706

 
$
60,545

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
494

 
5,813

Provision for unfunded credit commitments
 
1,123

 
2,014

Changes in fair values of derivatives, net
 
13,356

 
757

Gains on investment securities, net
 
(223,912
)
 
(27,438
)
Depreciation and amortization
 
9,459

 
8,479

Amortization of premiums and discounts on available-for-sale securities, net
 
7,541

 
8,348

Tax expense from stock exercises
 

 
(1,247
)
Amortization of share-based compensation
 
7,078

 
5,826

Amortization of deferred loan fees
 
(20,502
)
 
(15,040
)
Deferred income tax expense (benefit)
 
15,783

 
(19
)
Losses from the write-off of premises and equipment
 

 
363

Changes in other assets and liabilities:
 
 
 
 
Accrued interest receivable and payable, net
 
(6,604
)
 
(4,735
)
Accounts receivable and payable, net
 
(7,885
)
 
6,220

Income tax payable and receivable, net
 
25,159

 
6,236

Accrued compensation
 
(74,687
)
 
(62,375
)
Foreign exchange spot contracts, net
 
22,634

 
26,534

Other, net
 
1,821

 
(21,325
)
Net cash provided by (used for) operating activities
 
45,564

 
(1,044
)
Cash flows from investing activities:
 
 
 
 
Purchases of available-for-sale securities
 
(1,531,045
)
 
(219,987
)
Proceeds from sales of available-for-sale securities
 
2,097

 
581

Proceeds from maturities and pay downs of available-for-sale securities
 
694,243

 
653,764

Purchases of non-marketable and other securities (cost and equity method accounting)
 
(5,398
)
 
(5,112
)
Proceeds from sales and distributions of non-marketable and other securities (cost and equity method accounting)
 
19,053

 
7,942

Purchases of non-marketable and other securities (fair value accounting)
 
(45,125
)
 
(30,342
)
Proceeds from sales and distributions of non-marketable and other securities (fair value accounting)
 
92,558

 
21,748

Net increase in loans
 
66,086

 
108,971

Proceeds from recoveries of charged-off loans
 
1,312

 
1,367

Purchases of premises and equipment
 
(5,974
)
 
(6,606
)
Net cash (used for) provided by investing activities
 
(712,193
)
 
532,326

Cash flows from financing activities:
 
 
 
 
Net increase in deposits
 
3,003,926

 
133,456

Decrease in short-term borrowings
 
(270
)
 
(158,650
)
Capital contributions from noncontrolling interests, net of distributions
 
(23,482
)
 
(14,493
)
Tax benefit from stock exercises
 
1,996

 
610

Proceeds from issuance of common stock, ESPP, and ESOP
 
8,144

 
18,061

Net cash provided by (used for) financing activities
 
2,990,314

 
(21,016
)
Net increase in cash and cash equivalents
 
2,323,685

 
510,266

Cash and cash equivalents at beginning of period
 
1,538,779

 
1,008,983

Cash and cash equivalents at end of period
 
$
3,862,464

 
$
1,519,249

Supplemental disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
12,688

 
$
12,372

Income taxes
 
15,486

 
19,318

Noncash items during the period:
 
 
 
 
Changes in unrealized gains and losses on available-for-sale securities, net of tax
 
$
17,488

 
$
(12,409
)

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 months ended March 31, 2014 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, 2013 (“ 2013 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 2013 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.
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 was effective on a prospective basis for the interim and annual reporting periods beginning after December 15, 2013, and was therefore adopted in the first quarter of 2014. This standard did not have any impact on our financial position, results of operations or stockholders' equity.
In July 2013, the FASB issued a new accounting standard (ASU 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ), which requires an unrecognized tax benefit to be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward that the entity intends to use and is available for settlement at the reporting date. ASU 2013-11 was effective for and adopted by the Company in the first quarter of 2014. The adoption of ASU 2013-11 did not have a material impact on the Company’s consolidated financial position, results of operations or stockholders' equity.
In January 2014, the FASB issued a new accounting standard (ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects ), which permits entities that invest in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes to make an accounting policy election to use proportional amortization method or apply an equity or cost method. If the proportional amortization method is elected, retrospective presentation is required for prior periods. The guidance is effective on a retrospective basis for the interim and annual reporting periods beginning after December 15, 2014, with early adoption available. We are currently assessing the impact of this guidance, however, we do not expect it to have a material impact on our financial position, results of operations or stockholders' equity.
Reclassifications
Certain prior period amounts have been reclassified to conform to 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, 2014 and 2013 :
 
 
Three months ended March 31,
(Dollars and shares in thousands, except per share amounts)
 
2014
 
2013
Numerator:
 
 
 
 
Net income available to common stockholders
 
$
91,301

 
$
40,891

Denominator:
 
 
 
 
Weighted average common shares outstanding-basic
 
45,866

 
44,802

Weighted average effect of dilutive securities:
 
 
 
 
Stock options and ESPP
 
566

 
402

Restricted stock units
 
293

 
189

Denominator for diluted calculation
 
46,725

 
45,393

Earnings per common share:
 
 
 
 
Basic
 
$
1.99

 
$
0.91

Diluted
 
$
1.95

 
$
0.90


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, 2014 and 2013 :
 
 
Three months ended March 31,
(Shares in thousands)
 
2014
 
2013
Stock options
 
6

 
708

Restricted stock units
 
1

 

Total
 
7

 
708

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 months ended March 31, 2014 and 2013 :
 
 
 
 
Three months ended March 31
(Dollars in thousands)
 
Income Statement Location
 
2014
 
2013
Reclassification adjustment for (gains) losses included in net income
 
Gains on investment securities, net
 
$
(60
)
 
$
45

Related tax expense (benefit)
 
Income tax expense
 
24

 
(18
)
Total reclassification adjustment for (gains) losses included in net income, net of tax
 
 
 
$
(36
)
 
$
27

3.
Share-Based Compensation
For the three months ended March 31, 2014 and 2013 , we recorded share-based compensation and related tax benefits as follows:  
 
 
Three months ended March 31,
(Dollars in thousands)
 
2014
 
2013
Share-based compensation expense
 
$
7,078

 
$
5,826

Income tax benefit related to share-based compensation expense
 
(2,160
)
 
(1,603
)
Unrecognized Compensation Expense
As of March 31, 2014 , unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Average
Expected
Recognition
  Period - in Years  
Stock options
 
$
13,315

 
2.39
Restricted stock units
 
26,893

 
2.39
Total unrecognized share-based compensation expense
 
$
40,208

 
 

11


Share-Based Payment Award Activity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the three months ended March 31, 2014 :
 
 
Options
 
Weighted
Average
 Exercise Price 
 
Weighted
Average
Remaining
Contractual
  Life in Years  
 
Aggregate
  Intrinsic Value  
of In-The-
Money
Options
Outstanding at December 31, 2013
 
1,514,159

 
$
55.27

 
 
 
 
Granted
 
9,600

 
116.05

 
 
 
 
Exercised
 
(99,429
)
 
44.57

 
 
 
 
Forfeited
 
(5,957
)
 
66.22

 
 
 
 
Outstanding at March 31, 2014
 
1,418,373

 
56.38

 
4.20
 
$
102,687,693

Vested and expected to vest at March 31, 2014
 
1,380,441

 
56.05

 
4.16
 
100,401,661

Exercisable at March 31, 2014
 
587,639

 
44.59

 
2.96
 
49,473,911

The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $128.78 as of March 31, 2014 . The total intrinsic value of options exercised during the three months ended March 31, 2014 was $7.2 million , compared to $4.7 million for the comparable 2013 period.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the three months ended March 31, 2014 :
 
 
Shares    
 
Weighted
Average
    Grant Date Fair    
Value
Nonvested at December 31, 2013
 
682,347

 
$
65.93

Granted
 
3,610

 
116.78

Vested
 
(5,462
)
 
54.57

Forfeited
 
(5,033
)
 
65.31

Nonvested at March 31, 2014
 
675,462

 
66.30

4.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at March 31, 2014 and December 31, 2013 :
(Dollars in thousands)
 
March 31, 2014
 
December 31, 2013
Cash and due from banks (1)
 
$
3,723,034

 
$
1,349,688

Securities purchased under agreements to resell (2)
 
117,036

 
172,989

Other short-term investment securities
 
22,394

 
16,102

Total cash and cash equivalents
 
$
3,862,464

 
$
1,538,779

 
 
(1)
At March 31, 2014 and December 31, 2013 , $3 billion and $715 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 $391 million and $300 million , respectively.
(2)
At March 31, 2014 and December 31, 2013 , securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $119 million and $176 million , respectively. None of these securities received as collateral were sold or repledged as of March 31, 2014 or December 31, 2013 .

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 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 March 31, 2014 and December 31, 2013 are as follows:
 
 
March 31, 2014
 
December 31, 2013
(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
 
$
688,253

 
$

 
$
(4,734
)
 
$
683,519

 
$

 
$

 
$

 
$

U.S. agency debentures
 
4,106,269

 
39,175

 
(26,808
)
 
4,118,636

 
4,344,652

 
41,365

 
(40,785
)
 
4,345,232

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
3,003,393

 
26,130

 
(8,504
)
 
3,021,019

 
2,472,528

 
17,189

 
(16,141
)
 
2,473,576

Agency-issued collateralized mortgage obligations—fixed rate
 
3,280,209

 
23,459

 
(68,664
)
 
3,235,004

 
3,386,670

 
24,510

 
(85,422
)
 
3,325,758

Agency-issued collateralized mortgage obligations—variable rate
 
1,108,079

 
3,294

 
(55
)
 
1,111,318

 
1,183,333

 
3,363

 
(123
)
 
1,186,573

Agency-issued commercial mortgage-backed securities
 
577,086

 
399

 
(17,820
)
 
559,665

 
581,475

 
552

 
(17,423
)
 
564,604

Municipal bonds and notes
 
81,635

 
4,437

 

 
86,072

 
82,024

 
4,024

 
(21
)
 
86,027

Equity securities
 
37,489

 
328

 
(9,951
)
 
27,866

 
4,842

 
692

 
(483
)
 
5,051

Total available-for-sale securities
 
$
12,882,413

 
$
97,222

 
$
(136,536
)
 
$
12,843,099

 
$
12,055,524

 
$
91,695

 
$
(160,398
)
 
$
11,986,821

Non-marketable and other securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (1)
 
 
 
 
 
 
 
976,922

 
 
 
 
 
 
 
862,972

Other venture capital investments (2)
 
 
 
 
 
 
 
28,306

 
 
 
 
 
 
 
32,839

Other securities (fair value accounting) (3)
 
 
 
 
 
 
 
381,928

 
 
 
 
 
 
 
321,374

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other investments (4)
 
 
 
 
 
 
 
144,636

 
 
 
 
 
 
 
142,883

Low income housing tax credit funds
 
 
 
 
 
 
 
84,463

 
 
 
 
 
 
 
72,241

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (5)
 
 
 
 
 
 
 
140,374

 
 
 
 
 
 
 
148,994

Other investments
 
 
 
 
 
 
 
13,827

 
 
 
 
 
 
 
14,191

Total non-marketable and other securities
 
 
 
 
 
 
 
1,770,456

 
 
 
 
 
 
 
1,595,494

Total investment securities
 
 
 
 
 
 
 
$
14,613,555

 
 
 
 
 
 
 
$
13,582,315

 
 


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, 2014 and December 31, 2013 (fair value accounting):
 
 
March 31, 2014
 
December 31, 2013
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
SVB Strategic Investors Fund, LP
 
$
27,134

 
12.6
%
 
$
29,104

 
12.6
%
SVB Strategic Investors Fund II, LP
 
97,960

 
8.6

 
96,185

 
8.6

SVB Strategic Investors Fund III, LP
 
264,661

 
5.9

 
260,272

 
5.9

SVB Strategic Investors Fund IV, LP
 
291,989

 
5.0

 
226,729

 
5.0

Strategic Investors Fund V Funds
 
159,794

 
Various

 
118,181

 
Various

Strategic Investors Fund VI Funds
 
9,871

 
0.2

 
7,944

 
0.2

SVB Capital Preferred Return Fund, LP
 
60,159

 
20.0

 
59,028

 
20.0

SVB Capital—NT Growth Partners, LP
 
61,230

 
33.0

 
61,126

 
33.0

SVB Capital Partners II, LP (i)
 
595

 
5.1

 
708

 
5.1

Other private equity fund (ii)
 
3,529

 
58.2

 
3,695

 
58.2

Total venture capital and private equity fund investments
 
$
976,922

 
 
 
$
862,972

 
 
 
 
(i)
At March 31, 2014 , 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, 2014 , 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, 2014 and December 31, 2013 (fair value accounting):
 
 
March 31, 2014
 
December 31, 2013
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Silicon Valley BancVentures, LP
 
$
6,520

 
10.7
%
 
$
6,564

 
10.7
%
SVB Capital Partners II, LP (i)
 
17,696

 
5.1

 
22,684

 
5.1

SVB Capital Shanghai Yangpu Venture Capital Fund
 
4,090

 
6.8

 
3,591

 
6.8

Total other venture capital investments
 
$
28,306

 
 
 
$
32,839

 
 
 
 
(i)
At March 31, 2014 , 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 direct equity investments in public companies held by our consolidated funds. This amount primarily includes total unrealized gains of $351 million in two of our public portfolio companies, FireEye, Inc. ("FireEye") and Twitter, Inc. ("Twitter"), of which one portfolio company, FireEye, is currently subject to a lock-up agreement. The extent to which any unrealized gains will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which FireEye securities are subject, the actual sales of the securities and the timing of such actual sales.
(4)
The following table shows the carrying value and our ownership percentage of each investment at March 31, 2014 and December 31, 2013 (equity method accounting):

14


 
 
March 31, 2014
 
December 31, 2013
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Gold Hill Venture Lending 03, LP (i)
 
$
10,380

 
9.3
%
 
$
7,900

 
9.3
%
Gold Hill Capital 2008, LP (ii)
 
21,076

 
15.5

 
21,867

 
15.5

China Joint Venture investment
 
79,765

 
50.0

 
79,940

 
50.0

Other investments
 
33,415

 
Various

 
33,176

 
Various

Total other investments (equity method accounting)
 
$
144,636

 
 
 
$
142,883

 
 
 
 
(i)
At March 31, 2014 , 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, 2014 , 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 282 and 288 funds (primarily venture capital funds) at March 31, 2014 and December 31, 2013 , 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. The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $140 million , and $222 million , respectively, as of March 31, 2014 . The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $149 million and $215 million , respectively, as of December 31, 2013 .
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 March 31, 2014 :
 
 
March 31, 2014
 
 
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. treasury securities
 
$
683,519

 
$
(4,734
)
 
$

 
$

 
$
683,519

 
$
(4,734
)
U.S. agency debentures
 
1,570,568

 
(26,808
)
 

 

 
1,570,568

 
(26,808
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
1,599,028

 
(6,764
)
 
20,049

 
(1,740
)
 
1,619,077

 
(8,504
)
Agency-issued collateralized mortgage obligations—fixed rate
 
1,887,167

 
(63,005
)
 
139,570

 
(5,659
)
 
2,026,737

 
(68,664
)
Agency-issued collateralized mortgage obligations—variable rate
 
102,546

 
(55
)
 

 

 
102,546

 
(55
)
Agency-issued commercial mortgage-backed securities
 
369,831

 
(10,143
)
 
91,258

 
(7,677
)
 
461,089

 
(17,820
)
Equity securities
 
25,738

 
(9,951
)
 

 

 
25,738

 
(9,951
)
Total temporarily impaired securities (1)
 
$
6,238,397

 
$
(121,460
)
 
$
250,877

 
$
(15,076
)
 
$
6,489,274

 
$
(136,536
)
 
 
(1)
As of March 31, 2014 , we identified a total of 245 investments that were in unrealized loss positions, of which 11 investments totaling $251 million with unrealized losses of $15.1 million have been in an impaired position for a period of time greater than 12 months. As of March 31, 2014 , we do not intend to sell any impaired debt 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, 2014 , 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, 2013 :
 
 
December 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
 
$
1,821,045

 
$
(40,785
)
 
$

 
$

 
$
1,821,045

 
$
(40,785
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
$
1,480,870

 
$
(14,029
)
 
$
19,830

 
$
(2,112
)
 
$
1,500,700

 
$
(16,141
)
Agency-issued collateralized mortgage obligations—fixed rate
 
2,098,137

 
(79,519
)
 
134,420

 
(5,903
)
 
2,232,557

 
(85,422
)
Agency-issued collateralized mortgage obligations—variable rate
 
109,699

 
(123
)
 

 

 
109,699

 
(123
)
Agency-issued commercial mortgage-backed securities
 
464,171

 
(17,423
)
 

 

 
464,171

 
(17,423
)
Municipal bonds and notes
 
3,404

 
(21
)
 

 

 
3,404

 
(21
)
Equity securities
 
910

 
(483
)
 

 

 
910

 
(483
)
Total temporarily impaired securities
 
$
5,978,236

 
$
(152,383
)
 
$
154,250

 
$
(8,015
)
 
$
6,132,486

 
$
(160,398
)


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, 2014 . 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 and prepayments in lower rate environments.
 
 
March 31, 2014
 
 
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
 
$
683,519

 
1.90
%
 
$

 
%
 
$
99,063

 
1.50
%
 
$
584,456

 
1.96
%
 
$

 
%
U.S. agency debentures
 
4,118,636

 
1.71

 
470,663

 
1.44

 
2,300,971

 
1.55

 
1,347,002

 
2.09

 

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
3,021,019

 
2.44

 

 

 
47,706

 
2.43

 
899,214

 
2.24

 
2,074,099

 
2.52

Agency-issued collateralized mortgage obligations - fixed rate
 
3,235,004

 
1.91

 

 

 

 

 
173,604

 
2.92

 
3,061,400

 
1.85

Agency-issued collateralized mortgage obligations - variable rate
 
1,111,318

 
0.70

 

 

 

 

 

 

 
1,111,318

 
0.70

Agency-issued commercial mortgage-backed securities
 
559,665

 
2.19

 

 

 

 

 

 

 
559,665

 
2.19

Municipal bonds and notes
 
86,072

 
5.99

 
1,338

 
5.50

 
27,992

 
5.74

 
43,592

 
6.07

 
13,150

 
6.27

Total
 
$
12,815,233

 
1.90

 
$
472,001

 
1.45

 
$
2,475,732

 
1.61

 
$
3,047,868