SVB Financial Group
SVB FINANCIAL GROUP (Form: 10-Q, Received: 05/08/2018 16:27:21)
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, 2018
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer         x              Accelerated filer         ¨     
Non-accelerated filer         ¨      (Do not check if a smaller reporting company)
Smaller reporting company          ¨          Emerging growth company         ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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, 2018 , 52,973,918 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

AFS— Available-for-Sale
APIC— Additional Paid-in Capital
ASC— Accounting Standards Codification
ASU— Accounting Standards Update
CET— Common Equity Tier
EHOP— Employee Home Ownership Program of the Company
EPS— Earnings Per Share
ERI— Energy and Resource Innovation
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
HTM— Held-to-Maturity
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
SPD-SVB— SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China)
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 (UNAUDITED)
 
(Dollars in thousands, except par value and share data)

March 31,
2018

December 31,
2017
Assets




Cash and cash equivalents

$
2,619,384


$
2,923,075

Available-for-sale securities, at fair value (cost of $10,189,071 and $11,131,008, respectively)

10,080,384


11,120,664

Held-to-maturity securities, at cost (fair value of $14,229,439 and $12,548,280, respectively)

14,548,856


12,663,455

Non-marketable and other equity securities

824,936


651,053

Total investment securities

25,454,176


24,435,172

Loans, net of unearned income

24,587,944


23,106,316

Allowance for loan losses

(274,294
)

(255,024
)
Net loans

24,313,650


22,851,292

Premises and equipment, net of accumulated depreciation and amortization

127,054


128,682

Accrued interest receivable and other assets

986,523


876,246

Total assets

$
53,500,787


$
51,214,467

Liabilities and total equity




Liabilities:




Noninterest-bearing demand deposits

$
37,515,355


$
36,655,497

Interest-bearing deposits

8,421,177


7,598,578

Total deposits

45,936,532


44,254,075

Short-term borrowings

1,102,140


1,033,730

Other liabilities

1,206,660


911,755

Long-term debt

695,731


695,492

Total liabilities

48,941,063


46,895,052

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; 52,922,219 shares and 52,835,188 shares outstanding, respectively

53


53

Additional paid-in capital

1,326,998


1,314,377

Retained earnings

3,160,081


2,866,837

Accumulated other comprehensive loss

(71,686
)

(1,472
)
Total SVBFG stockholders’ equity

4,415,446


4,179,795

Noncontrolling interests

144,278


139,620

Total equity

4,559,724


4,319,415

Total liabilities and total equity

$
53,500,787


$
51,214,467


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)

2018

2017
Interest income:




Loans

$
297,073


$
227,341

Investment securities:




Taxable

124,477


89,803

Non-taxable

5,092


646

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

5,756


3,136

Total interest income

432,398


320,926

Interest expense:




Deposits

4,097


1,717

Borrowings

8,438


9,216

Total interest expense

12,535


10,933

Net interest income

419,863


309,993

Provision for credit losses

27,972


30,734

Net interest income after provision for credit losses

391,891


279,259

Noninterest income:




Gains on investment securities, net

9,058


15,970

Gains on equity warrant assets, net

19,191


6,690

Foreign exchange fees

33,827


26,247

Credit card fees

21,692


17,730

Deposit service charges

17,699


13,975

Client investment fees

22,875


9,026

Lending related fees

10,735


8,961

Letters of credit and standby letters of credit fees

8,182


6,639

Other

12,259


12,421

Total noninterest income

155,518


117,659

Noninterest expense:




Compensation and benefits

165,806


147,176

Professional services

28,725


25,419

Premises and equipment

18,545


15,858

Net occupancy

13,616


11,651

Business development and travel

11,191


9,195

FDIC and state assessments

9,430


8,682

Correspondent bank fees

3,410


3,445

Other

14,694


16,207

Total noninterest expense

265,417


237,633

Income before income tax expense

281,992


159,285

Income tax expense

73,966


51,405

Net income before noncontrolling interests

208,026


107,880

Net income attributable to noncontrolling interests

(13,065
)

(6,397
)
Net income available to common stockholders

$
194,961


$
101,483

Earnings per common share—basic

$
3.69


$
1.94

Earnings per common share—diluted

3.63


1.91

 


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)

2018

2017
Net income before noncontrolling interests

$
208,026


$
107,880

Other comprehensive loss, net of tax:

 
 
 
Change in foreign currency cumulative translation gains and losses:

 
 
 
Foreign currency translation gains

3,106


957

Related tax expense

(856
)

(390
)
Change in unrealized gains and losses on available-for-sale securities:

 
 
 
Unrealized holding losses

(58,027
)

(7,757
)
Related tax benefit

15,926


3,136

Reclassification adjustment for gains included in net income



(608
)
Related tax expense



248

Reclassification of unrealized gains on equity securities to retained earnings for ASU 2016-01 (1)
 
(40,316
)
 

Related tax expense (1)
 
11,145

 

Amortization of unrealized holding gains on securities transferred from available-for-sale to held-to-maturity

(1,206
)

(1,771
)
Related tax benefit

333


713

Reclassification of stranded tax effect to retained earnings for ASU 2018-02 (1)
 
(319
)
 

Other comprehensive loss, net of tax

(70,214
)

(5,472
)
Comprehensive income

137,812


102,408

Comprehensive income attributable to noncontrolling interests

(13,065
)

(6,397
)
Comprehensive income attributable to SVBFG

$
124,747


$
96,011

 
(1)
See "Adoption of New Accounting Standards" in 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).

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, 2016

52,254,074

 
$
52

 
$
1,242,741

 
$
2,376,331

 
$
23,430


$
3,642,554


$
134,483


$
3,777,037

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

162,797

 

 
6,743

 

 


6,743




6,743

Common stock issued under ESOP

10,838

 

 
2,094

 

 


2,094




2,094

Net income


 

 

 
101,483

 


101,483


6,397


107,880

Capital calls and distributions, net


 

 

 

 




(1,755
)

(1,755
)
Net change in unrealized gains and losses on AFS securities, net of tax


 

 

 

 
(4,981
)

(4,981
)



(4,981
)
Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax


 

 

 

 
(1,058
)

(1,058
)



(1,058
)
Foreign currency translation adjustments, net of tax


 

 

 

 
567


567




567

Share-based compensation, net


 

 
16,929

 

 


16,929




16,929

Balance at March 31, 2017

52,427,709


$
52


$
1,268,507


$
2,477,814


$
17,958


$
3,764,331


$
139,125


$
3,903,456

Balance at December 31, 2017

52,835,188

 
$
53

 
$
1,314,377

 
$
2,866,837

 
$
(1,472
)
 
$
4,179,795

 
$
139,620

 
$
4,319,415

Cumulative adjustment for ASU 2014-09, net of tax (1)
 

 

 

 
(5,802
)
 

 
(5,802
)
 

 
(5,802
)
Cumulative adjustment for ASU 2016-01, net of tax (1)
 

 

 

 
103,766

 
(29,171
)
 
74,595

 

 
74,595

Reclassification of stranded tax effect for ASU 2018-02 (1)
 

 

 

 
319

 
(319
)
 

 

 

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

77,359

 

 
(479
)
 

 


(479
)



(479
)
Common stock issued under ESOP

9,672

 

 
2,577

 

 


2,577




2,577

Net income


 

 

 
194,961

 


194,961


13,065


208,026

Capital calls and distributions, net


 

 

 

 




(8,407
)

(8,407
)
Net change in unrealized gains and losses on AFS securities, net of tax


 

 

 

 
(42,101
)

(42,101
)



(42,101
)
Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax


 

 

 

 
(873
)

(873
)



(873
)
Foreign currency translation adjustments, net of tax


 

 

 

 
2,250


2,250




2,250

Share-based compensation, net


 

 
10,523

 

 


10,523




10,523

Balance at March 31, 2018

52,922,219


$
53


$
1,326,998


$
3,160,081


$
(71,686
)

$
4,415,446


$
144,278


$
4,559,724

 
(1)
See "Adoption of New Accounting Standards" in 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).

7

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 

Three months ended March 31,
(Dollars in thousands)

2018

2017
Cash flows from operating activities:




Net income before noncontrolling interests

$
208,026


$
107,880

Adjustments to reconcile net income to net cash provided by operating activities:




Provision for credit losses

27,972


30,734

Changes in fair values of equity warrant assets, net of proceeds from exercises

(17,508
)
 
(1,545
)
Changes in fair values of derivatives, net

3,928


3,887

Gains on investment securities, net (1)

(9,058
)
 
(8,942
)
Distributions of earnings from non-marketable and other equity securities (1)
 
11,385

 
12,159

Depreciation and amortization

14,377


12,391

Amortization of premiums and discounts on investment securities, net

(1,125
)

400

Amortization of share-based compensation

10,523


9,203

Amortization of deferred loan fees

(29,133
)

(23,650
)
Deferred income tax benefit

(8,834
)

(15,386
)
Excess tax benefit from exercise of stock options and vesting of restricted shares
 
(2,543
)
 
(6,063
)
Other gains
 

 
(3,981
)
Changes in other assets and liabilities:




Accrued interest receivable and payable, net

(18,365
)

(6,750
)
Accounts receivable and payable, net

(7,277
)

(1,976
)
Income tax receivable and payable, net

69,869


65,524

Accrued compensation

(106,356
)

(89,653
)
Foreign exchange spot contracts, net

134,638


30,995

Other, net

67,885


(3,290
)
Net cash provided by operating activities

348,404


111,937

Cash flows from investing activities:




Purchases of available-for-sale securities



(595,543
)
Proceeds from sales of available-for-sale securities



2,078

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

911,839


824,551

Purchases of held-to-maturity securities

(2,295,985
)

(589,855
)
Proceeds from maturities and pay downs of held-to-maturity securities

470,232


416,206

Purchases of non-marketable and other securities

(20,401
)

(545
)
Proceeds from sales and distributions of capital of non-marketable and other securities (1)

9,377


11,744

Net increase in loans

(1,463,998
)

(519,454
)
Purchases of premises and equipment

(7,717
)

(10,599
)
Net cash used for investing activities

(2,396,653
)

(461,417
)
Cash flows from financing activities:




Net increase in deposits

1,682,457


2,099,832

Net increase (decrease) in short-term borrowings

68,410


(507,505
)
(Distributions to noncontrolling interests), net of contributions from noncontrolling interests

(8,407
)

(1,755
)
Proceeds from issuance of common stock, ESPP and ESOP

2,098


8,837

Net cash provided by financing activities

1,744,558


1,599,409

Net (decrease) increase in cash and cash equivalents

(303,691
)

1,249,929

Cash and cash equivalents at beginning of period

2,923,075


2,545,750

Cash and cash equivalents at end of period

$
2,619,384


$
3,795,679

Supplemental disclosures:




Cash paid during the period for:




Interest

$
20,411


$
17,956

Income taxes

9,385


3,304

Noncash items during the period:




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

$
(42,101
)

$
(4,981
)
Distributions of stock from investments

2,282


357

 
(1)
During the first quarter of 2018 we adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance was adopted on a retrospective basis and impacted the presentation between investing and operating activities related to distributions and net gains from our nonmarketable and other securities portfolio. 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).

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 a 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 (not including subsidiaries).
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, 2018 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, 2017 (“ 2017 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 2017 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 and other equity securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and allowance 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 consolidated entities. We consolidate voting entities in which we have control through voting interests or entities through which we have a controlling financial interest in a variable interest entity (“VIE”). We determine whether we have a controlling financial interest in a VIE by determining if we have: (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses, or (c) the right to receive the expected returns of the entity. Generally, we have significant variable 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 based on our ownership percentage.
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 also 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.
We also evaluate fees paid to managers of our limited partnership investments. 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. Fee arrangements based on terms that are customary and commensurate with the services provided are deemed not to be variable interests and are, therefore, excluded.

9


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 May 2014, the FASB issued a new accounting standard update (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. The guidance requires that revenue from contracts with customers be recognized when transfer of control over goods or services is passed to customers in the amount of consideration expected to be received. Subsequent Accounting Standard Updates have been issued clarifying the original pronouncement (ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20).
On January 1, 2018, we adopted the new accounting standard ASU 2014-09, Revenue from Contracts with Customers and all the related amendments ("new revenue standard", "ASC 606" or "ASU 2014-09") using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We elected to apply the practical expedient which allows us to expense costs related to obtaining contracts as incurred because the amortization period would have been one year or less. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
We completed a comprehensive scoping exercise to determine the revenue streams that are within the scope of this guidance. The scope of this guidance explicitly excludes net interest income, including interest income earned from our loan and fixed income securities portfolios, as well as certain other noninterest income earned from our lending-, investment- and derivative-related activities. Based on our completed assessment, we did not identify any material changes to the timing or the amounts of our revenue recognition, however, we identified a change in the timing of recognizing fund management fees in other noninterest income for a portion of our SVB Capital funds. Fund management fees for these certain SVB Capital funds will now be recognized at the time of distribution which typically occurs later in the life of the fund than had been previously recognized. The cumulative adjustment to retained earnings associated with this change was $5.8 million , net of tax, with an immaterial impact to our net income on an ongoing basis.
The timing of revenue recognition may differ from the timing of cash settlements or invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, and unearned revenue when revenue is recognized subsequent to receipt of consideration. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. During the three months ended March 31, 2018, changes in our contract assets, contract liabilities and receivables were not material. Additionally, revenues recognized during the three months ended March 31, 2018 that were included in the corresponding contract liability balance at the beginning of the period were not material.
The cumulative effect of the changes to our consolidated balance sheets at January 1, 2018, for the adoption of the new revenue standard were as follows:

(Dollars in thousands)
 
Balance at December 31, 2017
 
Adjustments Due to Adoption of ASC 606
 
Balance at
January 1, 2018
Accrued interest receivable and other assets:
 
 
 
 
 
 
Accounts receivable
 
$
55,946

 
$
(34,340
)
 
$
21,606

Other liabilities:
 
 
 
 
 
 
Deferred revenue
 
27,057

 
(26,321
)
 
736

Current taxes payable
 
4,675

 
(2,217
)
 
2,458

Stockholders' Equity:
 
 
 
 
 
 
Retained earnings
 
2,866,837

 
(5,802
)
 
2,861,035


10


In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated balance sheets and statements of income at and for the three months ended March 31, 2018, were as follows:
 
 
March 31, 2018
(Dollars in thousands)
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Accrued interest receivable and other assets:
 
 
 
 
 
 
Accounts receivable
 
$
47,978

 
$
85,077

 
$
(37,099
)
Other liabilities:
 
 
 
 
 
 
Deferred fees
 
734

 
28,685

 
(27,951
)
Current taxes payable
 
67,001

 
65,023

 
1,978

Stockholders' Equity:
 
 
 
 
 
 
Retained earnings
 
3,160,081

 
3,166,514

 
(6,433
)
 
 
Three months ended March 31, 2018
(Dollars in thousands)
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Other noninterest income:
 
 
 
 
 
 
Fund management fees
 
$
5,736

 
$
6,606

 
$
(870
)
Income tax expense
 
73,966

 
74,205

 
(239
)
 
 
 
 
 
 
 
Net Income available to common stockholders
 
194,961

 
195,592

 
(631
)
Diluted earnings per share
 
3.63

 
3.64

 
(0.01
)
In February 2018, the FASB issued a new accounting standard update (ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU "2018-02")) to address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from H.R.1, known as the Tax Cuts and Jobs Act (the "TCJ Act"). ASU 2018-02 changed current accounting whereby an entity may elect to reclassify the stranded tax effect from AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJ Act (or portion thereof) is recorded. ASU 2018-02 is effective for periods beginning after December 15, 2018 and early adoption is permitted. We have elected to early adopt ASU 2018-02 and reclassified approximately $0.3 million from accumulated other comprehensive income to retained earnings within our consolidated statements of stockholders' equity for the three months ended March 31, 2018.
On January 1, 2018, we adopted the new accounting standard update ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. We adopted this guidance using the modified retrospective method and our equity investments carried at cost with readily determinable fair values were re-measured at fair value and the difference between cost and fair value was recorded as a cumulative-effect adjustment to opening retained earnings as of January 1, 2018. The adjustment to opening retained earnings for these investments was $74.6 million , net of tax, with subsequent changes in the fair value of these equity securities recorded as unrealized gains or losses in our consolidated statements of income. Additionally, in accordance with this guidance, net unrealized gains of $29.2 million , net of tax, included in accumulated other comprehensive income on January 1, 2018, related to our previously reported available-for-sale equity securities, were reclassified as an adjustment to retained earnings. Subsequent changes in the fair value of these equity securities were recorded as unrealized gains or losses in our consolidated statements of income. Furthermore, for purposes of disclosing the fair value of loans carried at amortized cost, our valuation methodology was updated to conform to an “exit price” concept as required by the standard update, resulting in an immaterial change in the fair value.
In August 2016, the FASB issued a new accounting standard update (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments), which clarifies the guidance on eight specific cash flow issues. We adopted the new accounting standard, specifically as it relates to distributions from our equity method investments, on January 1, 2018. We elected to adopt the nature of distribution approach and applied the guidance retrospectively. The new guidance had an immaterial impact on the presentation between investing and operating activities within our statements of cash flows related to distributions and net gains from our nonmarketable and other securities portfolio.

11


In November 2016, the FASB issued a new accounting standard update (ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash), which requires that a statement of cash flows explains the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.  Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.  Previous to the update, there had been some diversity in practice.  Given that we had already classified restricted cash such as cash reserves at the Federal Reserve as part of cash and cash equivalents on the cash flow statement, the update had no impact on how we were already reporting and presenting our statement of cash flows.
Recent Accounting Pronouncements
In February 2016, the FASB issued a new accounting standard update (ASU 2016-02, Leases (Topic 842)), which will require for all operating leases the recognition of a right-of-use asset and a corresponding lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance will be effective on January 1, 2019, on a modified retrospective basis, with early adoption permitted. We plan to adopt the lease accounting guidance in the first quarter of 2019 and are currently evaluating the impact this guidance will have on our consolidated financial statements by reviewing our existing lease contracts and service contracts that may include embedded leases. While we are continuing to assess potential impacts of the standard, we currently expect to recognize right-of-use assets and related lease liabilities associated predominantly with noncancelable operating leases, as included in the table of minimum future payments, in the amount of $226 million as disclosed in Note 19 of our 2017 Form 10-K.
In June 2016, the FASB issued a new accounting standard update (ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments), which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance will be effective January 1, 2020, on a modified retrospective approach, with early adoption permitted, but not before January 1, 2019. We currently have a project team in place and subject matter experts to assist with our review of key interpretive issues and the assessment of our existing credit loss forecasting models and processes against the new guidance to determine what modifications may be required. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
Reclassifications
Certain prior period amounts, primarily related to the adoption of new accounting guidance, 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 months ended March 31, 2018 and 2017 :
 
 
 
 
Three months ended March 31,
(Dollars in thousands)
 
Income Statement Location
 
2018

2017
Reclassification adjustment for gains included in net income
 
Gains on investment securities, net
 
$

 
$
(608
)
Related tax expense
 
Income tax expense
 

 
248

Total reclassification adjustment for gains included in net income, net of tax
 
 
 
$

 
$
(360
)

12


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 issuable for stock options and restricted stock units outstanding under our 2006 Equity Incentive Plan 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, 2018 and 2017 :
 
 
Three months ended March 31,
(Dollars and shares in thousands, except per share amounts)
 
2018
 
2017
Numerator:
 
 
 
 
Net income available to common stockholders
 
$
194,961

 
$
101,483

Denominator:
 
 
 
 
Weighted average common shares outstanding—basic
 
52,883

 
52,344

Weighted average effect of dilutive securities:
 
 
 
 
Stock options and ESPP
 
420

 
440

Restricted stock units
 
382

 
395

Weighted average common shares outstanding—diluted
 
53,685

 
53,179

Earnings per common share:
 
 
 
 
Basic
 
$
3.69

 
$
1.94

Diluted
 
3.63

 
1.91


The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation due to the antidilutive effect for the three months ended March 31, 2018 and 2017 :
 
 
Three months ended March 31,
(Shares in thousands)
 
2018
 
2017
Stock options
 
4

 

Restricted stock units
 

 
21

Total
 
4

 
21

3.
Share-Based Compensation
For the three months ended March 31, 2018 and 2017 , we recorded share-based compensation and related tax benefits as follows:  
 
 
Three months ended March 31,
(Dollars in thousands)
 
2018
 
2017
Share-based compensation expense
 
$
10,523

 
$
9,203

Income tax benefit related to share-based compensation expense
 
(2,317
)
 
(3,015
)
Unrecognized Compensation Expense
As of March 31, 2018 , unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Weighted Average Expected
Recognition Period 
- in Years  
Stock options
 
$
8,290

 
2.48
Restricted stock units
 
46,036

 
2.48
Total unrecognized share-based compensation expense
 
$
54,326

 
 

13


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, 2018 :
 
 
Options
 
Weighted
Average
 Exercise Price 
 
Weighted Average Remaining Contractual Life - in Years  
 
Aggregate
  Intrinsic Value  
of In-The-
Money
Options
Outstanding at December 31, 2017
 
808,049

 
$
105.68

 
 
 
 
Granted
 
471

 
260.72

 
 
 
 
Exercised
 
(51,271
)
 
68.05

 
 
 
 
Forfeited
 
(1,926
)
 
130.69

 
 
 
 
Outstanding at March 31, 2018
 
755,323

 
108.26

 
3.61
 
$
99,521,692

Vested and expected to vest at March 31, 2018
 
738,585

 
107.43

 
3.57
 
97,934,520

Exercisable at March 31, 2018
 
416,281

 
87.28

 
2.50
 
63,585,697

The aggregate intrinsic value of outstanding options shown in the table above represents the pre-tax intrinsic value based on our closing stock price of $240.01 as of March 31, 2018 . The total intrinsic value of options exercised during the three months ended March 31, 2018 was $9.4 million , compared to $16.5 million for the comparable 2017 period.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the three months ended March 31, 2018 :
 
 
Shares    
 
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017
 
637,667

 
$
135.86

Granted
 
10,699

 
237.94

Vested
 
(42,171
)
 
126.23

Forfeited
 
(13,332
)
 
132.87

Nonvested at March 31, 2018
 
592,863

 
138.46

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.

14


The following table presents the carrying amounts and classification of significant variable interests in consolidated and unconsolidated VIEs as of March 31, 2018 and December 31, 2017 :
(Dollars in thousands)
 
Consolidated VIEs
 
Unconsolidated VIEs
 
Maximum Exposure to Loss in Unconsolidated VIEs
March 31, 2018:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
5,040

 
$

 
$

Non-marketable and other equity securities (1)
 
200,246

 
501,810

 
501,810

Accrued interest receivable and other assets
 
466

 

 

Total assets
 
$
205,752

 
$
501,810

 
$
501,810

Liabilities:
 
 
 
 
 
 
Other liabilities (1)
 
717

 
137,783

 

Total liabilities
 
$
717

 
$
137,783

 
$

December 31, 2017:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,674

 
$

 
$

Non-marketable and other equity securities (1)
 
190,562

 
346,097

 
346,097

Accrued interest receivable and other assets
 
365

 

 

Total assets
 
$
197,601

 
$
346,097

 
$
346,097

Liabilities:
 
 
 
 
 
 
Other liabilities (1)
 
990

 
100,891

 

Total liabilities
 
$
990

 
$
100,891

 
$

 
 
(1)
Included in our unconsolidated non-marketable and other equity securities portfolio at March 31, 2018 and December 31, 2017 are investments in qualified affordable housing projects of $225.8 million and $174.2 million , respectively, and related other liabilities consisting of unfunded credit commitments of $137.8 million and $100.9 million , respectively.

Non-marketable and other equity securities
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), 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 equity securities portfolio also includes investments from SVB Capital. SVB Capital is the funds management business of SVB Financial Group, which focuses primarily on venture capital investments. 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 four 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 only be sold or transferred subject to the notice 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. 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, in connection with fulfilling its responsibilities under the Community Reinvestment Act (“CRA”), 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; therefore, these investments are not consolidated. For additional information on our investments in qualified affordable housing projects see Note 6—“Investment Securities" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report .

15


As of March 31, 2018 , our exposure to loss with respect to the consolidated VIEs is limited to our net assets of $205.0 million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $501.8 million .
5.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at March 31, 2018 and December 31, 2017 :
(Dollars in thousands)
 
March 31, 2018

December 31, 2017
Cash and due from banks (1)
 
$
2,241,287

 
$
2,672,290

Securities purchased under agreements to resell (2)
 
375,180

 
247,876

Other short-term investment securities
 
2,917

 
2,909

Total cash and cash equivalents
 
$
2,619,384

 
$
2,923,075

 
 
(1)
At March 31, 2018 and December 31, 2017 , $378.2 million and $624.0 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 both $1.1 billion at March 31, 2018 and December 31, 2017 .
(2)
At March 31, 2018 and December 31, 2017 , securities purchased und er agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $382.7 million an d $252.8 million , respectively. None of these securities were sold or repledged as of March 31, 2018 and December 31, 2017 .
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 equity securities portfolio, which primarily represents investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised.
Available-for-Sale Securities
The components of our available-for-sale investment securities portfolio at March 31, 2018 and December 31, 2017 are as follows:
 
 
March 31, 2018
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
6,066,397

 
$

 
$
(49,520
)
 
$
6,016,877

U.S. agency debentures
 
1,569,943

 
321

 
(8,430
)
 
1,561,834

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
2,198,479

 
97

 
(52,403
)
 
2,146,173

Agency-issued collateralized mortgage obligations—variable rate
 
354,252

 
1,375

 
(127
)
 
355,500

Total available-for-sale securities
 
$
10,189,071

 
$
1,793

 
$
(110,480
)
 
$
10,080,384


 
 
December 31, 2017
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
6,865,068

 
$
1,113

 
$
(25,679
)
 
$
6,840,502

U.S. agency debentures
 
1,569,195

 
3,569

 
(5,636
)
 
1,567,128

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
2,292,311

 
258

 
(25,534
)
 
2,267,035

Agency-issued collateralized mortgage obligations—variable rate
 
372,481

 
1,375

 
(126
)
 
373,730

Equity securities
 
31,953

 
40,525

 
(209
)
 
72,269

Total available-for-sale securities
 
$
11,131,008

 
$
46,840

 
$
(57,184
)
 
$
11,120,664


16


The following table summarizes sale activity of available-for-sale securities during the three months ended March 31, 2018 and 2017 as recorded in the line item “Gains on investment securities, net”, a component of noninterest income:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2018

2017
Sales proceeds
 
$

 
$
2,078

Net realized gains and losses:
 
 
 
 
Gross realized gains
 

 
675

Gross realized losses
 

 
(67
)
Net realized gains and losses
 
$

 
$
608

The following tables summarize our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of March 31, 2018 and December 31, 2017 :
 
 
March 31, 2018
 
 
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
 
$
5,319,620

 
$
(45,520
)
 
$
697,257

 
$
(4,000
)
 
$
6,016,877

 
$
(49,520
)
U.S. agency debentures
 
1,079,618

 
(4,168
)
 
335,109

 
(4,262
)
 
1,414,727

 
(8,430
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
2,118,967

 
(52,403
)
 

 

 
2,118,967

 
(52,403
)
Agency-issued collateralized mortgage obligations—variable rate
 
21,511

 
(7
)
 
50,004

 
(120
)
 
71,515

 
(127
)
Total temporarily impaired securities (1)
 
$
8,539,716

 
$
(102,098
)
 
$
1,082,370

 
$
(8,382
)
 
$
9,622,086

 
$
(110,480
)
 
 
(1)
As of March 31, 2018 , we identified a total of 281 investments that were in unrealized loss positions, of which 52 investments totaling $1.1 billion with unrealized losses of $8.4 million have been in an impaired position for a period of time greater than 12 months. As of March 31, 2018 , we do not intend to sell any of our impaired 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, 2018 , 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.
 
 
December 31, 2017
 
 
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
 
$
5,968,914

 
$
(23,397
)
 
$
323,966

 
$
(2,282
)
 
$
6,292,880

 
$
(25,679
)
U.S. agency debentures
 
736,541

 
(2,289
)
 
336,196

 
(3,347
)
 
1,072,737

 
(5,636
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
2,193,277

 
(25,534
)
 

 

 
2,193,277

 
(25,534
)
Agency-issued collateralized mortgage obligations—variable rate
 
13,843

 
(3
)
 
53,186

 
(123
)
 
67,029

 
(126
)
Equity securities
 
624

 
(209
)
 

 

 
624

 
(209
)
Total temporarily impaired securities (1)
 
$
8,913,199

 
$
(51,432
)
 
$
713,348

 
$
(5,752
)
 
$
9,626,547

 
$
(57,184
)
 
 

17


(1)
As of December 31, 2017 , we identified a total of 268 investments that were in unrealized loss positions, of which 46 investments totaling $713.3 million with unrealized losses of $5.8 million have been in an impaired position for a period of time greater than 12 months.
The following table summarizes the fixed income securities, carried at fair value, classified as available-for-sale as of March 31, 2018 by the remaining contractual principal maturities. 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 interest rate environments.
 
 
March 31, 2018
(Dollars in thousands)
 
Total
 
One Year
or Less
 
After One
Year to
Five Years
 
After Five
Years to
Ten Years
 
After
Ten Years
U.S. Treasury securities
 
$
6,016,877

 
$
2,213,143

 
$
3,803,734

 
$

 
$

U.S. agency debentures
 
1,561,834

 
506,280

 
1,055,554

 

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations fixed rate
 
2,146,173

 

 

 
66,459

 
2,079,714

Agency-issued collateralized mortgage obligations variable rate
 
355,500

 

 

 

 
355,500

Total
 
$
10,080,384

 
$
2,719,423

 
$
4,859,288

 
$
66,459

 
$
2,435,214

Held-to-Maturity Securities

The components of our held-to-maturity investment securities portfolio at March 31, 2018 and December 31, 2017 are as follows:
 
 
March 31, 2018
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Held-to-maturity securities, at cost:
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
714,008

 
$
466

 
$
(6,900
)
 
$
707,574

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
8,043,443

 
6,683

 
(160,250
)
 
7,889,876

Agency-issued collateralized mortgage obligations—fixed rate
 
2,665,485

 
24

 
(81,612
)
 
2,583,897

Agency-issued collateralized mortgage obligations—variable rate
 
243,749

 
718

 
(29
)
 
244,438

Agency-issued commercial mortgage-backed securities
 
1,833,961

 

 
(52,121
)
 
1,781,840

Municipal bonds and notes
 
1,048,210

 
691

 
(27,087
)
 
1,021,814

Total held-to-maturity securities
 
$
14,548,856

 
$
8,582

 
$
(327,999
)
 
$
14,229,439

 
 
(1)
Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.

18


 
 
December 31, 2017
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Held-to-maturity securities, at cost:
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
659,979

 
$
3,167

 
$
(1,601
)
 
$
661,545

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
6,304,969

 
4,854

 
(43,528
)
 
6,266,295

Agency-issued collateralized mortgage obligations—fixed rate
 
2,829,979

 
23

 
(54,372
)
 
2,775,630

Agency-issued collateralized mortgage obligations—variable rate
 
255,782

 
733

 
(34
)
 
256,481

Agency-issued commercial mortgage-backed securities
 
1,868,985

 
694

 
(25,563
)
 
1,844,116

Municipal bonds and notes
 
743,761

 
3,452

 
(3,000
)
 
744,213

Total held-to-maturity securities
 
$
12,663,455

 
$
12,923

 
$
(128,098
)
 
$
12,548,280

 
 
(1)
Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.

The following tables summarize our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of March 31, 2018 and December 31, 2017 :
 
 
March 31, 2018
 
 
Less than 12 months
 
12 months or longer
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses