SVB Financial Group
SVB FINANCIAL GROUP (Form: 10-Q, Received: 08/07/2015 19:04:41)
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, 2015
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, 2015 , 51,475,662 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 that may be 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
FTE - Full-Time Employee
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
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
 
(Dollars in thousands, except par value and share data)
 
June 30,
2015
 
December 31,
2014
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
2,625,550

 
$
1,796,062

Available-for-sale securities, at fair value (cost of $14,414,219 and $13,497,945, respectively)
 
14,495,759

 
13,540,655

Held-to-maturity securities, at cost (fair value of $7,730,811 and $7,415,656, respectively)
 
7,735,891

 
7,421,042

Non-marketable and other securities (1)
 
645,506

 
1,728,140

Total investment securities
 
22,877,156

 
22,689,837

Loans, net of unearned income
 
14,261,430

 
14,384,276

Allowance for loan losses
 
(192,644
)
 
(165,359
)
Net loans
 
14,068,786

 
14,218,917

Premises and equipment, net of accumulated depreciation and amortization
 
88,284

 
79,845

Accrued interest receivable and other assets (1)
 
576,342

 
555,289

Total assets
 
$
40,236,118

 
$
39,339,950

Liabilities and total equity
 
 
 
 
Liabilities:
 
 
 
 
Noninterest-bearing demand deposits
 
$
27,734,720

 
$
24,583,682

Interest-bearing deposits
 
7,892,245

 
9,759,817

Total deposits
 
35,626,965

 
34,343,499

Short-term borrowings
 
2,537

 
7,781

Other liabilities
 
614,690

 
483,493

Long-term debt
 
802,454

 
453,443

Total liabilities
 
37,046,646

 
35,288,216

Commitments and contingencies (Note 13 and Note 16)
 

 


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; 51,461,496 shares and 50,924,925 shares outstanding, respectively
 
51

 
51

Additional paid-in capital
 
1,162,508

 
1,120,350

Retained earnings (1)
 
1,824,626

 
1,649,967

Accumulated other comprehensive income
 
63,917

 
42,704

Total SVBFG stockholders’ equity
 
3,051,102

 
2,813,072

Noncontrolling interests
 
138,370

 
1,238,662

Total equity
 
3,189,472

 
4,051,734

Total liabilities and total equity
 
$
40,236,118

 
$
39,339,950

 
 
(1)
Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1— "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report.
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)
 
2015
 
2014
 
2015 (2)
 
2014
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
167,252

 
$
147,680

 
$
332,753

 
$
295,852

Investment securities:
 
 
 
 
 
 
 
 
Taxable
 
84,613

 
63,424

 
165,887

 
117,844

Non-taxable
 
741

 
794

 
1,513

 
1,590

Federal funds sold, securities purchased under agreements to resell and other short-term investment securities
 
1,320

 
1,943

 
2,589

 
3,579

Total interest income
 
253,926

 
213,841

 
502,742

 
418,865

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
1,182

 
3,068

 
3,125

 
5,972

Borrowings
 
8,973

 
5,808

 
16,921

 
11,600

Total interest expense
 
10,155

 
8,876

 
20,046

 
17,572

Net interest income
 
243,771

 
204,965

 
482,696

 
401,293

Provision for loan losses
 
26,513

 
1,947

 
32,965

 
2,441

Net interest income after provision for loan losses
 
217,258

 
203,018

 
449,731

 
398,852

Noninterest income:
 
 
 
 
 
 
 
 
Gains (losses) on investment securities, net
 
24,975

 
(57,320
)
 
58,238

 
166,592

Gains on derivative instruments, net
 
16,317

 
12,775

 
56,046

 
36,942

Foreign exchange fees
 
22,364

 
17,928

 
40,042

 
35,124

Credit card fees
 
14,215

 
10,249

 
26,305

 
20,531

Deposit service charges
 
11,301

 
9,611

 
22,037

 
19,218

Lending related fees
 
8,163

 
5,876

 
16,185

 
12,179

Letters of credit and standby letters of credit fees
 
4,772

 
2,810

 
9,974

 
6,950

Client investment fees
 
5,264

 
3,519

 
9,746

 
6,937

Other
 
18,916

 
8,762

 
11,238

 
19,962

Total noninterest income
 
126,287

 
14,210

 
249,811

 
324,435

Noninterest expense:
 
 
 
 
 
 
 
 
Compensation and benefits
 
124,915

 
99,820

 
240,685

 
202,327

Professional services
 
18,950

 
21,113

 
37,697

 
42,302

Premises and equipment
 
11,787

 
12,053

 
24,444

 
23,635

Business development and travel
 
9,764

 
9,249

 
20,876

 
19,443

Net occupancy
 
8,149

 
7,680

 
15,462

 
15,000

FDIC and state assessments
 
5,962

 
4,945

 
11,751

 
9,073

Correspondent bank fees
 
3,337

 
3,274

 
6,705

 
6,477

(Reduction of) provision for unfunded credit commitments
 
(3,061
)
 
2,185

 
(798
)
 
3,308

Other (1)
 
14,309

 
10,625

 
27,831

 
19,787

Total noninterest expense (1)
 
194,112

 
170,944

 
384,653

 
341,352

Income before income tax expense (1)
 
149,433

 
46,284

 
314,889

 
381,935

Income tax expense (1)
 
54,974

 
35,928

 
118,040

 
97,224

Net income before noncontrolling interests (1)
 
94,459

 
10,356

 
196,849

 
284,711

Net (income) loss attributable to noncontrolling interests
 
(8,316
)
 
40,597

 
(22,190
)
 
(142,808
)
Net income available to common stockholders (1)
 
$
86,143

 
$
50,953

 
$
174,659

 
$
141,903

Earnings per common share—basic (1)
 
$
1.68

 
$
1.06

 
$
3.42

 
$
3.02

Earnings per common share—diluted
 
1.66

 
1.04

 
3.37

 
2.96

 
 
 
(1)
Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1— "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report.
(2)
Amounts for the six months ended June 30, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See Note 1— "Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.

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

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands)
 
2015
 
2014
 
2015
 
2014
Net income before noncontrolling interests (1) (2)
 
$
94,459

 
$
10,356

 
$
196,849

 
$
284,711

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
Change in cumulative translation gains:
 
 
 
 
 
 
 
 
Foreign currency translation gains
 
529

 
157

 
2,690

 
1,621

Related tax expense
 
(321
)
 
(76
)
 
(1,141
)
 
(654
)
Change in unrealized gains on available-for-sale securities:
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains
 
(45,541
)
 
82,064

 
41,566

 
111,393

Related tax benefit (expense)
 
18,191

 
(33,203
)
 
(17,024
)
 
(45,008
)
Reclassification adjustment for (gains) losses included in net income
 
(141
)
 
16,480

 
(2,737
)
 
16,421

Related tax expense (benefit)
 
57

 
(6,653
)
 
1,105

 
(6,630
)
Cumulative-effect adjustment for unrealized gains on securities transferred from available-for-sale to held-to-maturity
 

 
36,653

 

 
36,653

Related tax expense
 

 
(14,756
)
 

 
(14,756
)
Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity
 
(2,604
)
 

 
(5,432
)
 

Related tax benefit
 
1,047

 

 
2,186

 

Other comprehensive (loss) income, net of tax
 
(28,783
)
 
80,666

 
21,213

 
99,040

Comprehensive income
 
65,676

 
91,022

 
218,062

 
383,751

Comprehensive (income) loss attributable to noncontrolling interests (2)
 
(8,316
)
 
40,597

 
(22,190
)
 
(142,808
)
Comprehensive income attributable to SVBFG
 
$
57,360

 
$
131,619

 
$
195,872

 
$
240,943

 
 
(1)
Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1— "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report.
(2)
Amounts for the six months ended June 30, 2015, have been revised to reflect the retrospective application of new accounting guidance adopted in the second quarter of 2015 related to our consolidated variable interest entities (ASU 2015-02). Amounts prior to January 1, 2015 have not been revised for the adoption of this guidance. See Note 1— "Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.

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 (Loss)
 
Total SVBFG
Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
(Dollars in thousands)
 
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2013 (As Reported)
 
45,800,418

 
$
46

 
$
624,256

 
$
1,390,732

 
$
(48,764
)
 
$
1,966,270

 
$
1,113,058

 
$
3,079,328

Cumulative effective of adopting ASU 2014-01 (1)
 

 

 

 
(4,635
)
 

 
(4,635
)
 

 
(4,635
)
Balance at December 31, 2013 (As Revised)
 
45,800,418

 
$
46

 
$
624,256

 
$
1,386,097

 
$
(48,764
)
 
$
1,961,635

 
$
1,113,058

 
$
3,074,693

Common stock issued under employee benefit plans, net of restricted stock cancellations
 
379,026

 

 
8,127

 

 

 
8,127

 

 
8,127

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
 

 

 
6,164

 

 

 
6,164

 

 
6,164

Net income (1)
 

 

 

 
141,903

 

 
141,903

 
142,808

 
284,711

Capital calls and distributions, net
 

 

 

 

 

 

 
6,419

 
6,419

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

 

 

 

 
76,176

 
76,176

 

 
76,176

Cumulative-effect for unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax
 

 

 

 

 
22,522

 
22,522

 

 
22,522

Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax
 

 

 

 

 
(625
)
 
(625
)
 

 
(625
)
Foreign currency translation adjustments, net of tax
 

 

 

 

 
967

 
967

 

 
967

Common stock issued in public offering
 
4,485,000

 
5

 
434,861

 

 

 
434,866

 

 
434,866

Share-based compensation expense
 

 

 
15,284

 

 

 
15,284

 
$

 
15,284

Balance at June 30, 2014 (1)
 
50,695,206

 
$
51

 
$
1,092,582

 
$
1,528,000

 
$
50,276

 
$
2,670,909

 
$
1,262,285

 
$
3,933,194

Balance at December 31, 2014 (1)
 
50,924,925

 
$
51

 
$
1,120,350

 
$
1,649,967

 
$
42,704

 
$
2,813,072

 
$
1,238,662

 
$
4,051,734

Common stock issued under employee benefit plans, net of restricted stock cancellations
 
509,146

 

 
13,582

 

 

 
13,582

 

 
13,582

Common stock issued under ESOP
 
27,425

 

 
3,512

 

 

 
3,512

 

 
3,512

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

 

 
10,157

 

 

 
10,157

 

 
10,157

Deconsolidation of noncontrolling interest
 

 

 

 

 

 

 
(1,069,437
)
 
(1,069,437
)
Net income
 

 

 

 
174,659

 

 
174,659

 
22,190

 
196,849

Capital calls and distributions, net
 

 

 

 

 

 

 
(53,045
)
 
(53,045
)
Net change in unrealized gains and losses on available-for-sale securities, net of tax
 

 

 

 

 
22,910

 
22,910

 

 
22,910

Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax
 

 

 

 

 
(3,246
)
 
(3,246
)
 

 
(3,246
)
Foreign currency translation adjustments, net of tax
 

 

 

 

 
1,549

 
1,549

 

 
1,549

Share-based compensation expense
 

 

 
14,907

 

 

 
14,907

 

 
14,907

Balance at June 30, 2015
 
51,461,496

 
$
51

 
$
1,162,508

 
$
1,824,626

 
$
63,917

 
$
3,051,102

 
$
138,370

 
$
3,189,472

 
 
(1)
Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1— "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report.

  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)
 
 
Six months ended June 30,
(Dollars in thousands)
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income before noncontrolling interests (1)
 
$
196,849

 
$
284,711

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
32,965

 
2,441

(Reduction of) provision for unfunded credit commitments
 
(798
)
 
3,308

Changes in fair values of derivatives, net
 
(33,030
)
 
14,566

Gains on investment securities, net
 
(58,238
)
 
(166,592
)
Depreciation and amortization (1)
 
19,753

 
19,181

Amortization of premiums and discounts on investment securities, net
 
9,662

 
14,419

Amortization of share-based compensation
 
15,986

 
14,765

Amortization of deferred loan fees
 
(43,194
)
 
(39,071
)
Pre-tax net gain on SVBIF sale transaction
 
(1,287
)
 

Deferred income tax benefit
 
4,283

 
5,173

Changes in other assets and liabilities:
 
 
 
 
Accrued interest receivable and payable, net
 
2,087

 
(11,326
)
Accounts receivable and payable, net
 
(4,912
)
 
(3,303
)
Income tax payable and receivable, net (1)
 
4,881

 
5,176

Accrued compensation
 
(30,579
)
 
(48,848
)
Foreign exchange spot contracts, net
 
46,517

 
119,577

Other, net
 
44,489

 
3,912

Net cash provided by operating activities
 
205,434

 
218,089

Cash flows from investing activities:
 
 
 
 
Purchases of available-for-sale securities
 
(1,711,333
)
 
(6,045,269
)
Proceeds from sales of available-for-sale securities
 
6,674

 
23,708

Proceeds from maturities and pay downs of available-for-sale securities
 
791,954

 
1,050,927

Purchases of held-to-maturity securities
 
(1,032,637
)
 
(120,426
)
Proceeds from maturities and pay downs of held-to-maturity securities
 
734,606

 
74,236

Purchases of non-marketable and other securities (cost and equity method accounting)
 
(12,875
)
 
(30,354
)
Proceeds from sales and distributions of non-marketable and other securities (cost and equity method accounting)
 
66,807

 
38,265

Purchases of non-marketable and other securities (fair value accounting)
 
(3,374
)
 
(126,907
)
Proceeds from sales and distributions of non-marketable and other securities (fair value accounting)
 
67,929

 
146,509

Net decrease (increase) in loans
 
146,753

 
(440,780
)
Proceeds from recoveries of charged-off loans
 
4,541

 
2,933

Effect of deconsolidation of noncontrolling interest
 
15,995

 

Purchases of premises and equipment
 
(24,539
)
 
(18,744
)
Net proceeds from SVBIF sale transaction (2)
 
39,284

 

Net cash used for investing activities
 
(910,215
)
 
(5,445,902
)
Cash flows from financing activities:
 
 
 
 
Net increase in deposits
 
1,203,927

 
5,879,568

Decrease in short-term borrowings
 
(5,244
)
 
(170
)
Net (distributions to) capital contributions from noncontrolling interests
 
(53,045
)
 
6,419

Tax benefit from stock exercises
 
10,157

 
6,164

Proceeds from issuance of common stock, ESPP, and ESOP
 
17,091

 
12,018

Net proceeds from public equity offering
 

 
434,866

Proceeds from issuance of 3.50% Senior Notes
 
346,431

 

Net cash provided by financing activities
 
1,519,317

 
6,338,865

Net increase in cash and cash equivalents
 
814,536

 
1,111,052

Cash and cash equivalents at beginning of period (1) (2)
 
1,811,014

 
1,538,779

Cash and cash equivalents at end of period (1)
 
$
2,625,550

 
$
2,649,831

Supplemental disclosures:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
24,848

 
$
17,535

Income taxes
 
93,439

 
75,057

Noncash items during the period:
 
 
 
 
Changes in unrealized gains and losses on available-for-sale securities, net of tax
 
$
22,910

 
$
76,176

Distributions of stock from investments
 
23,806

 
11,080

Transfers from available-for-sale securities to held-to-maturity
 

 
5,418,572

(1)
Cash flows for the six months ended June 30, 2015 were revised to reflect the adoption of ASU 2015-02 as of January 1, 2015 and cash flows for the six months ended June 30, 2014 were revised to reflect the retrospective application of our adoption of ASU 2014-01.
(2)
Cash and cash equivalents at December 31, 2014 included $15.0 million recognized in assets held-for-sale in conjunction with the SVBIF Sale Transaction. On April 13, 2015 we received net proceeds of $39.3 million consisting of the sales price of $48.6 million less $9.3 million of cash and cash equivalents held by SVBIF that were sold.
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
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, 2015 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, 2014 (“ 2014 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
Prior to April 1, 2015, the Company’s consolidated financial statements included the accounts of SVB Financial Group and entities in which we had a controlling interest.  The determination of whether we had controlling interest was based on consolidation principles prescribed by ASC Topic 810 and whether the controlling interest in an entity was a voting interest entity or a variable interest entity (“VIE”). However, during the three months ended June 30, 2015, we early adopted the provisions of ASU 2015-02, Amendments to the Consolidation Analysis (ASU 2015-02)(see "Adoption of New Accounting Standards" below), which simplifies consolidation accounting by reducing the number of consolidation models and changing various aspects of current GAAP, including certain consolidation criteria for variable interest entities. The new guidance eliminates the presumption that a general partner of a limited partnership arrangement should consolidate a limited partnership. The amendments to ASC Topic 810 in ASU 2015-02 modify the evaluation of whether limited partnerships and similar entities are VIEs or voting entities. With these changes, we determined that the majority of our investments in limited partnership arrangements are VIEs under the new guidance while these entities were typically voting interest entities under the prior guidance.
ASU 2015-02 provided a single model for evaluating VIE entities for consolidation. VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. We assess VIEs to determine if we are the primary beneficiary of a VIE.  A primary beneficiary is defined as a variable interest holder that has a controlling financial interest. A controlling financial interest requires both: (a) power to direct the activities that most significantly impact the VIE’s economic performance, and (b) obligation to absorb losses or receive benefits of a VIE that could potentially be significant to a VIE. Under this analysis, we evaluate kick-out rights and other participating rights which could provide us a controlling financial interest. The primary beneficiary of a VIE is required to consolidate the VIE.
ASU 2015-02 also changed how we evaluate fees paid to managers of our limited partnership investments. Under the new guidance, we exclude those fee arrangements that are not deemed to be variable interests from the analysis of our interests in our investments in VIEs and the determination of a primary beneficiary, if any.
Our consolidated financial statements include the accounts of SVB Financial Group and consolidated entities. We consolidate voting entities in which we have control through voting interests. We determine whether we have a controlling financial interest in a VIE by determining if we have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and whether we have significant variable interests. Generally, we have significant variable

9


interests if our commitments to a limited partnership investment represent a significant amount of the total commitments to the entity. We also evaluate the impact of related parties on our determination of variable interests in our consolidation conclusions. We consolidate VIEs in which we are the primary beneficiary based on a controlling financial interest. If we are not the primary beneficiary of a VIE, we record our pro-rata interests or our cost basis in the VIE, as appropriate, based on other accounting guidance within GAAP.
All significant intercompany accounts and transactions with consolidated entities have been eliminated. We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide.
Adoption of New Accounting Standards
In February 2015, the FASB issued a new accounting standard, ASU 2015-02, which amends the consolidation requirement for certain legal entities. As outlined above in "Principles of Consolidation and Presentation", we early adopted this guidance in the second quarter of 2015 using the modified retrospective method, which results in an effective date of adoption of January 1, 2015 and will not require the restatement of prior period results. The adoption of this guidance impacted our statement of financial position and results of operations, but had no impact on retained earnings, SVBFG stockholders' equity or net income as investments that were consolidated in previous reporting periods are now deconsolidated and no new investments were consolidated. Refer to Note 4—”Variable Interest Entities” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details regarding our assessment of the adoption of this guidance.
In May 2015, the FASB issued a new accounting standard (ASU 2015-07, Fair Value Measurement (Topic 820)), which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The standard is required to be applied retrospectively to all periods presented. The guidance will be effective for fiscal years beginning after December 15, 2015, with early adoption permitted. We early adopted this guidance in the second quarter of 2015. The adoption of this guidance impacts our fair value disclosures and has no impact on our 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 is effective for us for interim and annual reporting periods beginning after December 15, 2014. The standard is required to be applied retrospectively, with an adjustment to retained earnings in the earliest period presented. The ASU is applicable to our portfolio of low income housing tax credit ("LIHTC") partnership interests. We adopted this guidance in the first quarter of 2015.
For prior periods, pursuant to ASU 2014-01, (i) amortization expense related to our low income housing tax credits was reclassified from Other noninterest expense to Income tax expense, (ii) additional amortization, net of the associated tax benefits, was recognized in Income tax expense as a result of our adoption of the proportional amortization method and (iii) net deferred tax assets, related to our low income housing tax investments, were written-off. The cumulative effect to retained earnings as of January 1, 2015 of adopting this guidance was a reduction of $4.7 million , inclusive of a $4.6 million reduction to retained earnings as of January 1, 2014. Our previously reported net income and diluted earnings per share for the three and six months ending June 30, 2014 were not materially impacted by the adoption of ASU 2014-01.

Recent Accounting Pronouncements
In May 2014, the FASB issued a new accounting standard (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. This guidance will be effective on a retrospective basis beginning on January 1, 2018. We do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or stockholders' equity.
In August 2014, the FASB issued a new accounting standard (ASU 2014-15, Going Concern (Topic 205-40)), which requires management to evaluate for each annual and interim reporting period whether there is substantial doubt about an entity's ability to continue as a going concern. The guidance will be effective for annual and quarterly periods beginning on or after December 15, 2016, with early adoption permitted. We are currently developing processes and controls to adopt this guidance by the adoption deadline and do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or stockholders' equity.
In April 2015, the FASB issued a new accounting standard (ASU 2015-03, Interest- Imputation of Interest (Subtopic 835-30), which simplifies the presentation of debt issuance costs. The guidance will be effective for annual and quarterly periods beginning on January 1, 2016, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our financial position.

10


Reclassifications
Certain prior period amounts, including amounts related to the adoption of ASU 2014-01 and ASU 2015-02, have been reclassified to conform to current period presentations.
2.
Stockholders’ Equity and EPS
Accumulated Other Comprehensive Income
The following table summarizes the items reclassified out of accumulated other comprehensive income into the Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2015 and 2014 :
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands)
 
Income Statement Location
 
2015
 
2014
 
2015
 
2014
Reclassification adjustment for (gains) losses included in net income
 
Gains (losses) on investment securities, net
 
$
(141
)
 
$
16,480

 
$
(2,737
)
 
$
16,421

Related tax expense (benefit)
 
Income tax expense
 
57

 
(6,653
)
 
1,105

 
(6,630
)
Total reclassification adjustment for (gains) losses included in net income, net of tax
 
 
 
$
(84
)
 
$
9,827

 
$
(1,632
)
 
$
9,791


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, 2015 and 2014 :
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars and shares in thousands, except per share amounts)
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
 
Net income available to common stockholders (1)
 
$
86,143

 
$
50,953

 
$
174,659

 
$
141,903

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
 
51,268

 
48,168

 
51,139

 
47,025

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and ESPP
 
410

 
569

 
420

 
601

Restricted stock units
 
198

 
308

 
229

 
361

Denominator for diluted calculation
 
51,876

 
49,045

 
51,788

 
47,987

Earnings per common share:
 
 
 
 
 
 
 
 
Basic (1)
 
$
1.68

 
$
1.06

 
$
3.42

 
$
3.02

Diluted
 
$
1.66

 
$
1.04

 
$
3.37

 
$
2.96

 
 
(1)
Prior period amounts have been revised to reflect the retrospective application of new accounting guidance adopted in the first quarter of 2015 related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 1— "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 in this report.
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, 2015 and 2014 :

11


 
 
Three months ended June 30,
 
Six months ended June 30,
(Shares in thousands)
 
2015
 
2014
 
2015
 
2014
Stock options
 
99

 
167

 
146

 
90

Restricted stock units
 

 
2

 

 
1

Total
 
99

 
169

 
146

 
91

3. Share-Based Compensation
For the three and six months ended June 30, 2015 and 2014 , we recorded share-based compensation and related tax benefits as follows:  
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands)
 
2015
 
2014
 
2015
 
2014
Share-based compensation expense
 
$
8,215

 
$
7,687

 
$
15,986

 
$
14,765

Income tax benefit related to share-based compensation expense
 
(2,692
)
 
(2,515
)
 
(5,330
)
 
(4,675
)
Unrecognized Compensation Expense
As of June 30, 2015 , unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Average
Expected
Recognition
  Period - in Years  
Stock options
 
$
14,464

 
2.63
Restricted stock units
 
46,877

 
2.81
Total unrecognized share-based compensation expense
 
$
61,341

 
 
Share-Based Payment Award Activity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the six months ended June 30, 2015 :
 
 
Options
 
Weighted
Average
 Exercise Price 
 
Weighted Average Remaining Contractual Life in Years  
 
Aggregate
  Intrinsic Value  
of In-The-
Money
Options
Outstanding at December 31, 2014
 
1,394,888

 
$
66.03

 
 
 
 
Granted
 
122,120

 
129.30

 
 
 
 
Exercised
 
(286,282
)
 
51.34

 
 
 
 
Forfeited
 
(17,383
)
 
86.09

 
 
 
 
Expired
 
(1,520
)
 
48.76

 
 
 
 
Outstanding at June 30, 2015
 
1,211,823

 
75.61

 
4.22
 
$
82,851,473

Vested and expected to vest at June 30, 2015
 
1,168,962

 
74.62

 
4.17
 
81,084,324

Exercisable at June 30, 2015
 
678,385

 
59.89

 
3.23
 
57,044,065

The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $143.98 as of June 30, 2015 . The total intrinsic value of options exercised during the three and six months ended June 30, 2015 was $11.6 million and $21.8 million , respectively, compared to $3.5 million and $10.7 million for the comparable 2014 periods.

12


The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the six months ended June 30, 2015 :
 
 
Shares    
 
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2014
 
614,666

 
$
79.92

Granted
 
230,120

 
129.15

Vested
 
(208,257
)
 
73.94

Forfeited
 
(15,638
)
 
85.25

Nonvested at June 30, 2015
 
620,891

 
100.04

4.
Variable Interest Entities
Our involvement with VIEs includes our investments in venture capital and private equity funds, debt funds, private and public portfolio companies and our investments in qualified affordable housing projects.
The following table presents the carrying amounts and classification of significant variable interests in consolidated and unconsolidated VIEs as of June 30, 2015:
(Dollars in thousands)
 
Consolidated VIEs
 
Unconsolidated VIEs (1)
 
Maximum Exposure to Loss in Unconsolidated VIEs
June 30, 2015:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
22,203

 
$

 
$

Non-marketable and other securities (2)
 
200,695

 
340,972

 
340,972

Accrued interest receivable and other assets
 
659

 

 

Total assets
 
$
223,557

 
$
340,972

 
$
340,972

Liabilities:
 
 
 
 
 
 
Other liabilities
 
282

 

 

Accrued expenses and other liabilities (2)
 

 
63,637

 

Total liabilities
 
$
282

 
$
63,637

 
$

 
 
(1)
During the second quarter of 2015 we adopted ASU 2015-02 and certain previously consolidated VIEs are no longer included in our Consolidated Balance Sheet. We applied the accounting guidance as of the beginning of the fiscal year of adoption, January 1, 2015. Upon adoption, we deconsolidated 16 entities, which reduced our total assets and total equity (which includes total SVBFG stockholders' equity plus noncontrolling interests) by $1.1 billion and $1.2 billion , respectively, primarily as a result of the reduction of our non-marketable and other securities and noncontrolling interests, respectively. SVB Financial continues to consolidate its interest in five SVB Capital funds that meet the new consolidated criteria.
(2)
Included in our non-marketable and other securities portfolio are investments in qualified affordable housing projects of $122.5 million and related unfunded commitments of $63.6 million .
Non-marketable and other securities
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, debt funds, private and public portfolio companies and investments in qualified affordable housing projects. A majority of these investments are through third party funds held by SVB Financial in which we do not have controlling or significant variable interests. These investments represent our unconsolidated VIEs in the table above. Our non-marketable and other securities portfolio also includes investments from SVB Capital. SVB Capital is the venture capital investment arm of SVB Financial, which focuses primarily on funds management. The SVB Capital family of funds is comprised of direct venture funds that invest in companies and funds of funds that invest in other venture capital funds. We have a controlling and significant variable interest in five of these SVB Capital funds and consolidate these funds for financial reporting purposes.
All investments are generally nonredeemable and distributions are expected to be received through the liquidation of the underlying investments throughout the life of the investment fund. Investments may be sold or transferred subject to the notice

13


and approval provisions of the underlying investment agreement. Subject to applicable regulatory requirements, including the Volcker Rule, we also make commitments to invest in venture capital and private equity funds, but are not obligated to fund commitments beyond our initial investment. For additional details, see Note 13—"Off-Balance Sheet Arrangements, Guarantees, and Other Commitments" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report.
The Bank also has variable interests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. These investments are typically limited partnerships in which the general partner, other than the Bank, holds the power over significant activities of the VIE. We have not consolidated these investments in accordance with the new guidelines in ASU 2015-02. For additional information on our investments in qualified affordable housing projects see Note 6—“Investment Securities" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 of this report.
As of June 30, 2015, our exposure to loss with respect to the consolidated VIEs is limited to our net assets of $223.3 million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $341.0 million .
5.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at June 30, 2015 and December 31, 2014 :
(Dollars in thousands)
 
June 30, 2015

December 31, 2014
Cash and due from banks (1)
 
$
2,281,816

 
$
1,694,329

Securities purchased under agreements to resell (2)
 
338,612

 
95,611

Other short-term investment securities
 
5,122

 
6,122

Total cash and cash equivalents
 
$
2,625,550

 
$
1,796,062

 
 
(1)
At June 30, 2015 and December 31, 2014 , $1.4 billion and $861 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 $557 million and $440 million , respectively.
(2)
At June 30, 2015 and December 31, 2014 , securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $345 million and $98 million , respectively. None of these securities received as collateral were sold or pledged as of June 30, 2015 or December 31, 2014 .
6.
Investment Securities
Our investment securities portfolio consists of i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest-earning investment securities, and ii) a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business.
Available-for-Sale Securities
The components of our available-for-sale investment securities portfolio at June 30, 2015 and December 31, 2014 are as follows:
 
 
June 30, 2015
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
8,952,703

 
$
54,705

 
$
(5,442
)
 
$
9,001,966

U.S. agency debentures
 
3,127,635

 
31,285

 
(3,967
)
 
3,154,953

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,641,311

 
11,995

 
(10,713
)
 
1,642,593

Agency-issued collateralized mortgage obligations—variable rate
 
687,418

 
4,892

 
(2
)
 
692,308

Equity securities
 
5,152

 
165

 
(1,378
)
 
3,939

Total available-for-sale securities
 
$
14,414,219

 
$
103,042

 
$
(21,502
)
 
$
14,495,759



14


 
 
December 31, 2014
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
7,289,135

 
$
17,524

 
$
(4,386
)
 
$
7,302,273

U.S. agency debentures
 
3,540,055

 
30,478

 
(8,977
)
 
$
3,561,556

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,884,450

 
14,851

 
(14,458
)
 
1,884,843

Agency-issued collateralized mortgage obligations—variable rate
 
779,103

 
5,372

 

 
784,475

Equity securities
 
5,202

 
2,628

 
(322
)
 
7,508

Total available-for-sale securities
 
$
13,497,945

 
$
70,853

 
$
(28,143
)
 
$
13,540,655


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, 2015 :
 
 
June 30, 2015
 
 
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
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
552,547

 
$
(5,442
)
 
$

 
$

 
$
552,547

 
$
(5,442
)
U.S. agency debentures
 
511,643

 
(3,967
)
 

 

 
511,643

 
(3,967
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 

 

Agency-issued collateralized mortgage obligations—fixed rate
 
375,854

 
(1,213
)
 
404,495

 
(9,500
)
 
780,349

 
(10,713
)
Agency-issued collateralized mortgage obligations—variable rate
 
933

 
(2
)
 

 

 
933

 
(2
)
Equity securities
 
2,719

 
(1,378
)
 

 

 
2,719

 
(1,378
)
Total temporarily impaired securities: (1)
 
$
1,443,696

 
$
(12,002
)
 
$
404,495

 
$
(9,500
)
 
$
1,848,191

 
$
(21,502
)
 
 
(1)
As of June 30, 2015 , we identified a total of 94 investments that were in unrealized loss positions, of which 17 investments totaling $404.5 million with unrealized losses of $9.5 million have been in an impaired position for a period of time greater than 12 months. As of June 30, 2015 , we do not intend to sell any impaired fixed income investment 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, 2015 , we deem all impairments to be temporary, and therefore changes in value for our temporarily impaired securities as of the same date are included in other comprehensive income. Market valuations and impairment analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis.
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months and 12 months or longer as of December 31, 2014 :
 
 
December 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
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
2,297,895

 
$
(4,386
)
 
$

 
$

 
$
2,297,895

 
$
(4,386
)
U.S. agency debentures
 
249,266

 
(489
)
 
507,385

 
(8,488
)
 
756,651

 
(8,977
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
662,092

 
(3,104
)
 
453,801

 
(11,354
)
 
1,115,893

 
(14,458
)
Equity securities
 
568

 
(322
)
 

 

 
568

 
(322
)
Total temporarily impaired securities (1):
 
$
3,209,821

 
$
(8,301
)
 
$
961,186

 
$
(19,842
)
 
$
4,171,007

 
$
(28,143
)
 
 

15


(1)
As of December 31, 2014, we identified a total of 115 investments that were in unrealized loss positions, of which 33 investments totaling $961.2 million with unrealized losses of $19.8 million have been in an impaired position for a period of time greater than 12 months. As of December 31, 2014, we do not intend to sell any impaired fixed income investment 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 December 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.



16


The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income investment securities classified as available-for-sale as of June 30, 2015 . The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. For U.S. treasury securities and U.S. Agency debentures, the expected maturity is the actual contractual maturity of the notes. 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.
 
 
June 30, 2015
 
 
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
 
$
9,001,966

 
1.07
%
 
$
400,332

 
0.32
%
 
$
7,866,030

 
1.14
%
 
$
735,604

 
0.75
%
 
$

 
%
U.S. agency debentures
 
3,154,953

 
1.65

 
847,396

 
1.82

 
2,159,703

 
1.53

 
147,854

 
2.49

 

 

Residential mortgage-backed securities: