10-Q 1 sivb-9302017x10q.htm FORM 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 (Mark One)

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

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 October 31, 2017, 52,740,729 shares of the registrant’s common stock ($0.001 par value) were outstanding.

---

Table of Contents

TABLE OF CONTENTS

 

		Page
PART I - FINANCIAL INFORMATION		4
Item 1.	Interim Consolidated Financial Statements	4
	Interim Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 (Unaudited)	4
	Interim Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016 (Unaudited)	5
	Interim Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 (Unaudited)	6
	Interim Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2017 and 2016 (Unaudited)	7
	Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (Unaudited)	8
	Notes to Interim Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	93
Item 4.	Controls and Procedures	95
PART II - OTHER INFORMATION		96
Item 1.	Legal Proceedings	97
Item 1A.	Risk Factors	97
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97
Item 3.	Defaults Upon Senior Securities	97
Item 4.	Mine Safety Disclosures	97
Item 5.	Other Information	97
Item 6.	Exhibits	97
SIGNATURES		98

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)		September 30, 2017				December 31, 2016
Assets
Cash and cash equivalents		$	3,555,571			$	2,545,750
Available-for-sale securities, at fair value (cost of $12,584,564 and $12,588,783, respectively)		12,603,337				12,620,411
Held-to-maturity securities, at cost (fair value of $11,023,415 and $8,376,138, respectively)		11,055,006				8,426,998
Non-marketable and other securities		627,469				622,552
Total investment securities		24,285,812				21,669,961
Loans, net of unearned income		22,189,327				19,899,944
Allowance for loan losses		(249,010		)		(225,366		)
Net loans		21,940,317				19,674,578
Premises and equipment, net of accumulated depreciation and amortization		122,826				120,683
Accrued interest receivable and other assets		849,761				672,688
Total assets		$	50,754,287			$	44,683,660
Liabilities and total equity
Liabilities:
Noninterest-bearing demand deposits		$	36,862,021			$	31,975,457
Interest-bearing deposits		7,950,012				7,004,411
Total deposits		44,812,033				38,979,868
Short-term borrowings		4,840				512,668
Other liabilities		990,498				618,383
Long-term debt		749,618				795,704
Total liabilities		46,556,989				40,906,623
Commitments and contingencies (Note 12 and Note 15)
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; 52,723,654 shares and 52,254,074 shares outstanding, respectively		53				52
Additional paid-in capital		1,294,499				1,242,741
Retained earnings		2,749,627				2,376,331
Accumulated other comprehensive income		15,634				23,430
Total SVBFG stockholders’ equity		4,059,813				3,642,554
Noncontrolling interests		137,485				134,483
Total equity		4,197,298				3,777,037
Total liabilities and total equity		$	50,754,287			$	44,683,660

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

4

---

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands, except per share amounts)		2017				2016				2017				2016
Interest income:
Loans		$	268,445			$	214,227			$	745,983			$	617,456
Investment securities:
Taxable		109,443				83,468				294,768				261,121
Non-taxable		1,172				522				2,703				1,693
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities		6,211				2,196				16,670				5,793
Total interest income		385,271				300,413				1,060,124				886,063
Interest expense:
Deposits		2,304				1,535				6,218				3,984
Borrowings		8,993				9,717				27,243				28,161
Total interest expense		11,297				11,252				33,461				32,145
Net interest income		373,974				289,161				1,026,663				853,918
Provision for credit losses (1)		23,522				20,004				70,062				90,225
Net interest income after provision for credit losses		350,452				269,157				956,601				763,693
Noninterest income:
Gains on investment securities, net		15,238				23,178				48,838				41,764
Gains on equity warrant assets, net (2)		24,922				21,558				42,432				33,253
Foreign exchange fees		29,671				25,944				82,026				76,998
Credit card fees		20,270				18,295				56,099				49,226
Deposit service charges		14,508				13,356				43,046				39,142
Client investment fees		15,563				7,952				37,571				23,959
Lending related fees		15,404				8,168				32,874				23,783
Letters of credit and standby letters of credit fees		7,306				6,811				20,951				18,414
Other (2)		15,896				18,878				41,128				36,511
Total noninterest income		158,778				144,140				404,965				343,050
Noninterest expense:
Compensation and benefits		153,263				136,568				449,412				374,410
Professional services		32,987				23,443				86,331				67,959
Premises and equipment		18,937				16,291				53,753				47,861
Net occupancy		12,660				9,525				35,437				28,919
Business development and travel		10,329				8,504				30,913				30,077
FDIC and state assessments		8,359				7,805				26,354				21,624
Correspondent bank fees		3,162				3,104				9,770				9,469
Other		18,064				15,533				54,670				44,292
Total noninterest expense (1)		257,761				220,773				746,640				624,611
Income before income tax expense		251,469				192,524				614,926				482,132
Income tax expense (3)		97,351				76,877				220,412				195,508
Net income before noncontrolling interests		154,118				115,647				394,514				286,624
Net income loss attributable to noncontrolling interests		(5,498		)		(4,566		)		(21,218		)		(3,405		)
Net income available to common stockholders (3)		$	148,620			$	111,081			$	373,296			$	283,219
Earnings per common share—basic (3)		$	2.82			$	2.13			$	7.11			$	5.46
Earnings per common share—diluted (3)		2.79				2.12				7.01				5.42

 

(1)

Our consolidated statements of income for the three and nine months ended September 30, 2016 were modified from prior period's presentation to conform to the current period's presentation, which reflects our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. In prior periods, our provision for unfunded credit commitments were reported as a component of noninterest expense.

(2)

Our consolidated statements of income for the three and nine months ended September 30, 2016 were modified from prior period's presentation to conform to the current period's presentation, which reflects a new line item to separately disclose net gains on equity warrant assets. In prior periods, net gains on equity warrant assets were reported as a component of gains on derivative instruments, net. We removed the line item gains on derivative instruments, net and reclassified all other gains on derivative instruments, net to other noninterest income.

(3)

Included in income tax expense, net income available to common shareholders, earnings per common share-basic and earnings for common share-diluted, for the three and nine months ended September 30, 2017, are tax benefits recognized associated with the adoption of Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting in the first quarter of 2017. This guidance was adopted on a prospective basis with no change to prior period amounts.

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

5

---

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Net income before noncontrolling interests		$	154,118			$	115,647			$	394,514			$	286,624
Other comprehensive income (loss), net of tax:
Change in cumulative translation gains (losses):
Foreign currency translation gains (losses)		1,928				(119		)		4,463				(2,168		)
Related tax (expense) benefit		(787		)		50				(1,821		)		885
Change in unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses)		925				(54,204		)		(12,471		)		157,564
Related tax (expense) benefit		(429		)		21,932				5,207				(64,357		)
Reclassification adjustment for losses (gains) included in net income		101				15				(384		)		(11,567		)
Related tax (benefit) expense		(41		)		(6		)		157				4,707
Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity		(1,594		)		(1,690		)		(4,931		)		(6,507		)
Related tax benefit		641				680				1,984				2,618
Other comprehensive income (loss), net of tax		744				(33,342		)		(7,796		)		81,175
Comprehensive income		154,862				82,305				386,718				367,799
Comprehensive income attributable to noncontrolling interests		(5,498		)		(4,566		)		(21,218		)		(3,405		)
Comprehensive income attributable to SVBFG		$	149,364			$	77,739			$	365,500			$	364,394

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				Total SVBFG Stockholders’ Equity				Noncontrolling Interests				Total Equity
(Dollars in thousands)		Shares			Amount
Balance at December 31, 2015		51,610,226			$	52			$	1,189,032			$	1,993,646			$	15,404			$	3,198,134			$	135,097			$	3,333,231
Common stock issued under employee benefit plans, net of restricted stock cancellations		408,044			—				8,661				—				—				8,661				—				8,661
Common stock issued under ESOP		43,165			—				4,328				—				—				4,328				—				4,328
Income tax effect from stock options exercised, vesting of restricted stock and other (1)		—			—				(6,300		)		—				—				(6,300		)		—				(6,300		)
Net income		—			—				—				283,219				—				283,219				3,405				286,624
Capital calls and distributions, net		—			—				—				—				—				—				(8,236		)		(8,236		)
Net change in unrealized gains and losses on AFS securities, net of tax		—			—				—				—				86,347				86,347				—				86,347
Amortization of unrealized gains on securities transferred from AFS to HTM, net of tax		—			—				—				—				(3,889		)		(3,889		)		—				(3,889		)
Foreign currency translation adjustments, net of tax		—			—				—				—				(1,283		)		(1,283		)		—				(1,283		)
Share-based compensation, net		—			—				23,834				—				—				23,834				—				23,834
Balance at September 30, 2016		52,061,435			$	52			$	1,219,555			$	2,276,865			$	96,579			$	3,593,051			$	130,266			$	3,723,317
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		458,742			1				14,191				—				—				14,192				—				14,192
Common stock issued under ESOP		10,838			—				2,094				—				—				2,094				—				2,094
Income tax effect from stock options exercised, vesting of restricted stock and other (1)		—			—				—				—				—				—				—				—
Net income		—			—				—				373,296				—				373,296				21,218				394,514
Capital calls and distributions, net		—			—				—				—				—				—				(18,216		)		(18,216		)
Net change in unrealized gains and losses on AFS securities, net of tax		—			—				—				—				(7,491		)		(7,491		)		—				(7,491		)
Amortization of unrealized gains on securities transferred from AFS to HTM, net of tax		—			—				—				—				(2,947		)		(2,947		)		—				(2,947		)
Foreign currency translation adjustments, net of tax		—			—				—				—				2,642				2,642				—				2,642
Share-based compensation, net		—			—				35,473				—				—				35,473				—				35,473
Balance at September 30, 2017		52,723,654			$	53			$	1,294,499			$	2,749,627			$	15,634			$	4,059,813			$	137,485			$	4,197,298

(1)

During the first quarter of 2017 we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require that all excess tax benefits and tax deficiencies associated with share-based compensation be recognized in income tax expense or benefit in the income statement. Previously, tax effects resulting from changes in the Company's share price subsequent to grant date of share-based compensation awards were recorded through additional paid-in-capital in stockholders' equity at the time of vesting and exercise. This guidance was adopted on a prospective basis with no change to prior period amounts. 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).

7

---

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Nine months ended September 30,
(Dollars in thousands)		2017				2016
Cash flows from operating activities:
Net income before noncontrolling interests		$	394,514			$	286,624
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		70,062				90,225
Changes in fair values of equity warrant assets, net of proceeds from exercises		(29,666		)		(20,505		)
Changes in fair values of derivatives, net		8,214				(4,370		)
Gains on investment securities, net		(48,838		)		(41,764		)
Depreciation and amortization		39,265				35,114
Amortization of premiums and discounts on investment securities, net		2,609				9,622
Amortization of share-based compensation		27,739				22,342
Amortization of deferred loan fees		(81,060		)		(72,807		)
Deferred income tax benefit		2,325				(6,839		)
Gain from sale of equity valuation services business		(2,393		)		—
Excess tax benefit from exercise of stock options and vesting of restricted shares (1)		(14,399		)		—
Changes in other assets and liabilities:
Accrued interest receivable and payable, net		(26,092		)		1,169
Accounts receivable and payable, net		4,120				(12,872		)
Income tax receivable and payable, net		30,069				13,181
Accrued compensation		(11,731		)		(48,740		)
Foreign exchange spot contracts, net		86,911				1,803
Other, net		16,383				20,821
Net cash provided by operating activities		468,032				273,004
Cash flows from investing activities:
Purchases of available-for-sale securities		(2,420,741		)		—
Proceeds from sales of available-for-sale securities		7,311				2,879,409
Proceeds from maturities and pay downs of available-for-sale securities		2,434,039				1,002,523
Purchases of held-to-maturity securities		(3,812,782		)		(225,526		)
Proceeds from maturities and pay downs of held-to-maturity securities		1,283,764				1,206,367
Purchases of non-marketable and other securities		(18,713		)		(41,925		)
Proceeds from sales and distributions of non-marketable and other securities		88,809				54,420
Net increase in loans		(2,263,600		)		(2,365,640		)
Purchases of premises and equipment		(35,470		)		(37,184		)
Proceeds from sale of equity valuation services business		3,000				—
Net cash (used for) provided by investing activities		(4,734,383		)		2,472,444
Cash flows from financing activities:
Net increase (decrease) in deposits		5,832,165				(953,360		)
Net decrease in short-term borrowings		(507,828		)		(772,479		)
Principal payments of long-term debt		(46,235		)		—
(Distributions to noncontrolling interests), net of contributions from noncontrolling interests		(18,216		)		(8,236		)
Tax effect from stock exercises (1)		—				(6,300		)
Proceeds from issuance of common stock, ESPP and ESOP		16,286				12,989
Net cash provided by (used for) financing activities		5,276,172				(1,727,386		)
Net increase in cash and cash equivalents		1,009,821				1,018,062
Cash and cash equivalents at beginning of period		2,545,750				1,503,257
Cash and cash equivalents at end of period		$	3,555,571			$	2,521,319
Supplemental disclosures:
Cash paid during the period for:
Interest		$	41,324			$	39,317
Income taxes		190,706				186,474
Noncash items during the period:
Changes in unrealized gains and losses on available-for-sale securities, net of tax		$	(7,491	)		$	86,347
Distributions of stock from investments		5,360				750

(1)	During the first quarter of 2017 we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This guidance was adopted on a prospective basis with no change to prior period amounts. 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 and nine months ended September 30, 2017 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, 2016 (“2016 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 2016 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 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 or our cost basis in the VIE, as appropriate, based on other accounting guidance within GAAP.

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

---

Table of Contents

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 March 2016, the FASB issued a new accounting standard update (ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718)), which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the ASU, an entity recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement in the period when the awards vest or are settled. The guidance also permits an entity to make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. We adopted this guidance on January 1, 2017 and elected to estimate the number of awards that are expected to vest which, is consistent with the previous accounting guidance. In addition, we also elected to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using the prospective transition method.

Previously, tax effects resulting from changes in the Company's share price subsequent to grant date of share-based compensation awards were recorded through additional paid-in capital in stockholders' equity at the time of vesting and exercise. The adoption of the amended accounting guidance resulted in a $1.3 million and $14.4 million reduction of income tax expense (that previously would have been reflected as additional paid-in capital), or a benefit of $0.02 and $0.27 per diluted common share, for the three and nine months ended September 30, 2017, respectively. We expect the impact of this amendment will vary period to period depending on the volatility of the Company's stock price and the timing of vesting and/or settlement of awards.

Recent Accounting Pronouncements

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). The new standard and amendments will be effective January 1, 2018, either on a full retrospective approach or a modified retrospective approach. We plan to adopt the revenue guidance in the first quarter of 2018 using the modified retrospective transition approach applied to contracts which are not completed as of January 1, 2018. Upon adoption, we will recognize the cumulative-effect of adopting this guidance as an adjustment to opening retained earnings. We have conducted 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 contract assessments to-date, we have not identified any material changes to the timing or the amounts of our revenue recognition. We expect minor changes in the timing of recognizing fund management fees in noninterest income for a portion of our SVB Capital funds as the fees will be recognized at the time of distribution which typically occurs later in the fund life than had been previously recognized. Based on our preliminary analysis, we expect the cumulative adjustment to retained earnings associated with this change to be from $7 million to $10 million, with an immaterial impact to our net income on an ongoing basis. We continue to evaluate the effect the guidance has on our revenue and the presentation of certain costs associated with our credit card and merchant services and whether these costs are presented in noninterest expense or offset against credit card fees in noninterest income. We currently recognize payment networks costs associated with our credit card and merchant services in noninterest expense. If we determine that the adoption of the guidance results in a change in the presentation of these costs, we estimate that this will result in approximately $10 million to $15 million of annual expenses would be netted against credit card interchange fees and reported in noninterest income instead of other noninterest expense. This change would occur on a prospective basis starting January 1, 2018 and would reduce our non-GAAP core fee income within noninterest income and also reduce noninterest expense with no impact to net income. Furthermore, we continue to evaluate the disaggregation of our significant categories of revenue within the scope of this guidance and plan to expand our qualitative disclosures of our noninterest income within the Consolidated Financial Statements upon adoption in 2018.

In January 2016, the FASB issued a 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. The adoption of the new standard will result in the elimination of cost method accounting for equity investments and will impact our nonmarketable

10

---

Table of Contents

and other equity securities that are currently carried at cost. This guidance will be effective on January 1, 2018, and our equity investments measured at cost will be measured at fair value and the difference between cost and fair value at adoption date will be recorded as a cumulative-effect adjustment to opening retained earnings of the fiscal year of adoption for our cost method venture capital and private equity fund investments with readily determinable fair values. The actual adjustment to opening retained earnings will depend upon the fair value of our investments at the adoption date but based on September 30, 2017 and historical values, we expect the transition adjustment to increase capital between $110 million and $120 million on a pre-tax basis. Any subsequent changes in the fair value will be recorded as unrealized gains or losses in our consolidated statements of income. Additionally, for purposes of disclosing the fair value of loans carried at amortized cost, we are evaluating our valuation methods to determine the necessary changes to conform to an “exit price” concept as required by the standard update. Accordingly, the fair value amounts disclosed for such loans may change upon adoption.

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. We expect to recognize right-of-use assets and related lease liabilities associated predominantly with noncancelable operating leases included in the table of minimum future payments in the amount of $217 million as disclosed in Note 18 of our 2016 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 working project team in place and subject matter experts to assist with our review of key interpretive issues and assist in 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.

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. This guidance will be effective January 1, 2018 on a full retrospective approach, with early adoption permitted. Our preliminary evaluation has resulted in the expectation that this guidance will primarily impact 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. We are continuing to evaluate any further impact of this guidance to the presentation of our operating, investing and financing activities within our statements of cash flows.

Reclassifications

Certain prior period amounts, primarily related to the changes to our income statement presentation of net gains on derivative instruments and provision for unfunded credit commitments 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 nine months ended September 30, 2017 and 2016:

				Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		Income Statement Location		2017				2016				2017				2016
Reclassification adjustment for losses (gains) included in net income		Gains on investment securities, net		$	101			$	15			$	(384	)		$	(11,567	)
Related tax (benefit) expense		Income tax expense		(41		)		(6		)		157				4,707
Total reclassification adjustment for losses (gains) included in net income, net of tax				$	60			$	9			$	(227	)		$	(6,860	)

11

---

Table of Contents

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 and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,								Nine months ended September 30,
(Dollars and shares in thousands, except per share amounts)		2017				2016				2017				2016
Numerator:
Net income available to common stockholders		$	148,620			$	111,081			$	373,296			$	283,219
Denominator:
Weighted average common shares outstanding—basic		52,705				52,046				52,530				51,842
Weighted average effect of dilutive securities:
Stock options and ESPP		343				233				381				245
Restricted stock units		257				134				319				142
Weighted average common shares outstanding—diluted		53,305				52,413				53,230				52,229
Earnings per common share:
Basic		$	2.82			$	2.13			$	7.11			$	5.46
Diluted		$	2.79			$	2.12			$	7.01			$	5.42

The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation due to the antidilutive effect for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,						Nine months ended September 30,
(Shares in thousands)		2017			2016			2017			2016
Stock options		112			518			61			444
Restricted stock units		5			120			2			9
Total		117			638			63			453

3.	Share-Based Compensation

For the three and nine months ended September 30, 2017 and 2016, we recorded share-based compensation and related tax benefits as follows: 

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Share-based compensation expense		$	8,644			$	7,916			$	27,739			$	22,342
Income tax benefit related to share-based compensation expense		(3,154		)		(2,881		)		(9,518		)		(7,461		)

Unrecognized Compensation Expense

As of September 30, 2017, unrecognized share-based compensation expense was as follows:

(Dollars in thousands)		Unrecognized   Expense				Weighted Average Expected Recognition   Period - in Years
Stock options		$	10,935			2.72
Restricted stock units		56,513				2.74
Total unrecognized share-based compensation expense		$	67,448

12

---

Table of Contents

Share-Based Payment Award Activity

The table below provides stock option information related to the 2006 Equity Incentive Plan for the nine months ended September 30, 2017:

		Options			Weighted Average  Exercise Price				Weighted Average Remaining Contractual Life - in Years		Aggregate   Intrinsic Value   of In-The- Money Options
Outstanding at December 31, 2016		1,010,557			$	87.24
Granted		113,535			178.23
Exercised		(232,370	)		70.79
Forfeited		(9,491	)		111.48
Outstanding at September 30, 2017		882,231			103.02				3.80		$	74,172,891
Vested and expected to vest at September 30, 2017		857,176			101.94				3.74		72,987,562
Exercisable at September 30, 2017		533,847			83.46				2.73		55,323,524

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 $187.09 as of September 30, 2017. The total intrinsic value of options exercised during the three and nine months ended September 30, 2017 was $3.8 million and $25.8 million, compared to $1.5 million and $8.2 million for the comparable 2016 periods, respectively.

The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the nine months ended September 30, 2017:

		Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2016		670,969			$	106.64
Granted		239,847			180.05
Vested		(223,561	)		102.00
Forfeited		(38,871	)		122.77
Nonvested at September 30, 2017		648,384			134.43

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.

13

---

Table of Contents

The following table presents the carrying amounts and classification of significant variable interests in consolidated and unconsolidated VIEs as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)		Consolidated VIEs				Unconsolidated VIEs				Maximum Exposure to Loss in Unconsolidated VIEs
September 30, 2017:
Assets:
Cash and cash equivalents		$	7,555			$	—			$	—
Non-marketable and other securities (1)		190,129				323,284				323,284
Accrued interest receivable and other assets		169				—				—
Total assets		$	197,853			$	323,284			$	323,284
Liabilities:
Other liabilities (1)		445				90,974				—
Total liabilities		$	445			$	90,974			$	—
December 31, 2016:
Assets:
Cash and cash equivalents		$	11,469			$	—			$	—
Non-marketable and other securities (1)		196,140				314,810				314,810
Accrued interest receivable and other assets		294				—				—
Total assets		$	207,903			$	314,810			$	314,810
Liabilities:
Other liabilities (1)		517				58,095				—
Total liabilities		$	517			$	58,095			$	—

 

(1)	Included in our unconsolidated non-marketable and other securities portfolio at September 30, 2017 and December 31, 2016 are investments in qualified affordable housing projects of $148.0 million and $112.4 million, respectively, and related other liabilities consisting of unfunded credit commitments of $91.0 million and $58.1 million, respectively.

Non-marketable and other securities

Our non-marketable and other 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 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 12—“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.

14

---

Table of Contents

As of September 30, 2017, our exposure to loss with respect to the consolidated VIEs is limited to our net assets of $197.4 million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $323.3 million.

5.	Cash and Cash Equivalents

The following table details our cash and cash equivalents at September 30, 2017 and December 31, 2016:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Cash and due from banks (1)		$	3,490,005			$	2,476,588
Securities purchased under agreements to resell (2)		62,664				64,028
Other short-term investment securities		2,902				5,134
Total cash and cash equivalents		$	3,555,571			$	2,545,750

 

(1)	At September 30, 2017 and December 31, 2016, $1.6 billion and $1.1 billion, 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 $1.2 billion and $721 million, respectively.

(2)	At September 30, 2017 and December 31, 2016, securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $64 million and $66 million, respectively. None of these securities were sold or repledged as of September 30, 2017 and December 31, 2016.

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 September 30, 2017 and December 31, 2016 are as follows:

		September 30, 2017
(Dollars in thousands)		Amortized Cost				Unrealized Gains				Unrealized Losses				Carrying Value
Available-for-sale securities, at fair value:
U.S. Treasury securities		$	7,488,126			$	14,048			$	(3,834	)		$	7,498,340
U.S. agency debentures		1,668,403				9,759				(1,993		)		1,676,169
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		3,024,649				4,998				(16,952		)		3,012,695
Agency-issued collateralized mortgage obligations—variable rate		394,567				1,442				(129		)		395,880
Equity securities		8,819				11,893				(459		)		20,253
Total available-for-sale securities		$	12,584,564			$	42,140			$	(23,367	)		$	12,603,337

		December 31, 2016
(Dollars in thousands)		Amortized Cost				Unrealized Gains				Unrealized Losses				Carrying Value
Available-for-sale securities, at fair value:
U.S. Treasury securities		$	8,880,358			$	30,323			$	(1,190	)		$	8,909,491
U.S. agency debentures		2,065,535				14,443				(1,603		)		2,078,375
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		1,163,017				3,046				(13,398		)		1,152,665
Agency-issued collateralized mortgage obligations—variable rate		474,238				685				(640		)		474,283
Equity securities		5,635				748				(786		)		5,597
Total available-for-sale securities		$	12,588,783			$	49,245			$	(17,617	)		$	12,620,411

15

---

Table of Contents

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 September 30, 2017 and December 31, 2016:

		September 30, 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		$	2,824,370			$	(3,834	)		$	—			$	—			$	2,824,370			$	(3,834	)
U.S. agency debentures		562,392				(1,993		)		—				—				562,392				(1,993		)
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		1,505,319				(7,389		)		415,200				(9,563		)		1,920,519				(16,952		)
Agency-issued collateralized mortgage obligations—variable rate		6,651				(1		)		62,508				(128		)		69,159				(129		)
Equity securities		1,787				(459		)		—				—				1,787				(459		)
Total temporarily impaired securities (1)		$	4,900,519			$	(13,676	)		$	477,708			$	(9,691	)		$	5,378,227			$	(23,367	)

 

(1)

As of September 30, 2017, we identified a total of 202 investments that were in unrealized loss positions, of which 63 investments totaling $477.7 million with unrealized losses of $9.7 million have been in an impaired position for a period of time greater than 12 months. As of September 30, 2017, 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 September 30, 2017, 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, 2016
		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		$	879,255			$	(1,190	)		$	—			$	—			$	879,255			$	(1,190	)
U.S. agency debentures		513,198				(1,603		)		—				—				513,198				(1,603		)
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		635,566				(6,704		)		227,480				(6,694		)		863,046				(13,398		)
Agency-issued collateralized mortgage obligations—variable rate		258,325				(613		)		6,068				(27		)		264,393				(640		)
Equity securities		3,693				(786		)		—				—				3,693				(786		)
Total temporarily impaired securities (1)		$	2,290,037			$	(10,896	)		$	233,548			$	(6,721	)		$	2,523,585			$	(17,617	)

 

(1)	As of December 31, 2016, we identified a total of 174 investments that were in unrealized loss positions, of which 20 investments totaling $233.5 million with unrealized losses of $6.7 million have been in an impaired position for a period of time greater than 12 months.

16

---

Table of Contents

The following table summarizes the fixed income securities, carried at fair value, classified as available-for-sale as of September 30, 2017 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 rate environments.

		September 30, 2017
(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		$	7,498,340			$	2,592,486			$	4,905,854			$	—			$	—
U.S. agency debentures		1,676,169				314,852				1,361,317				—				—
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		3,012,695				—				—				487,285				2,525,410
Agency-issued collateralized mortgage obligations—variable rate		395,880				—				—				—				395,880
Total		$	12,583,084			$	2,907,338			$	6,267,171			$	487,285			$	2,921,290

Held-to-Maturity Securities

The components of our held-to-maturity investment securities portfolio at September 30, 2017 and December 31, 2016 are as follows:

		September 30, 2017
(Dollars in thousands)		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
Held-to-maturity securities, at cost:
U.S. agency debentures (1)		$	660,193			$	6,775			$	(1,080	)		$	665,888
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		5,164,701				15,764				(17,116		)		5,163,349
Agency-issued collateralized mortgage obligations—fixed rate		3,025,421				707				(27,268		)		2,998,860
Agency-issued collateralized mortgage obligations—variable rate		269,495				704				(37		)		270,162
Agency-issued commercial mortgage-backed securities		1,554,220				2,025				(11,697		)		1,544,548
Municipal bonds and notes		380,976				1,506				(1,874		)		380,608
Total held-to-maturity securities		$	11,055,006			$	27,481			$	(59,072	)		$	11,023,415

 

(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.

		December 31, 2016
(Dollars in thousands)		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
Held-to-maturity securities, at cost:
U.S. agency debentures (1)		$	622,445			$	7,840			$	(1,198	)		$	629,087
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		2,896,179				6,919				(24,526		)		2,878,572
Agency-issued collateralized mortgage obligations—fixed rate		3,362,598				788				(31,274		)		3,332,112
Agency-issued collateralized mortgage obligations—variable rate		312,665				176				(1,339		)		311,502
Agency-issued commercial mortgage-backed securities		1,151,363				1,237				(7,638		)		1,144,962
Municipal bonds and notes		81,748				8				(1,853		)		79,903
Total held-to-maturity securities		$	8,426,998			$	16,968			$	(67,828	)		$	8,376,138

 

(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.

17

---

Table of Contents

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 September 30, 2017 and December 31, 2016:

		September 30, 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
Held-to-maturity securities:
U.S. agency debentures		$	101,211			$	(1,080	)		$	—			$	—			$	101,211			$	(1,080	)
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		3,071,006				(16,251		)		25,004				(865		)		3,096,010				(17,116		)
Agency-issued collateralized mortgage obligations—fixed rate		2,661,682				(21,842		)		235,320				(5,426		)		2,897,002				(27,268		)
Agency-issued collateralized mortgage obligations—variable rate		—				—				10,321				(37		)		10,321				(37		)
Agency-issued commercial mortgage-backed securities		1,210,351				(10,615		)		82,151				(1,082		)		1,292,502				(11,697		)
Municipal bonds and notes		111,207				(896		)		29,606				(978		)		140,813				(1,874		)
Total temporarily impaired securities (1)		$	7,155,457			$	(50,684	)		$	382,402			$	(8,388	)		$	7,537,859			$	(59,072	)

 

(1)

As of September 30, 2017, we identified a total of 547 investments that were in unrealized loss positions, of which 84 investments totaling $382.4 million with unrealized losses of $8.4 million have been in an impaired position for a period of time greater than 12 months. As of September 30, 2017, 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, which is consistent with our classification of these securities. Based on our analysis as of September 30, 2017, we deem all impairments to be temporary. Market valuations and impairment analyses on assets in the held-to-maturity securities portfolio are reviewed and monitored on a quarterly basis.

		December 31, 2016
		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
Held-to-maturity securities:
U.S. agency debentures		$	118,721			$	(1,198	)		$	—			$	—			$	118,721			$	(1,198	)
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		1,801,861				(23,558		)		21,917				(968		)		1,823,778				(24,526		)
Agency-issued collateralized mortgage obligations—fixed rate		2,729,889				(25,723		)		228,220				(5,551		)		2,958,109				(31,274		)
Agency-issued collateralized mortgage obligations—variable rate		251,012				(1,339		)		—				—				251,012				(1,339		)
Agency-issued commercial mortgage-backed securities		999,440				(7,494		)		14,934				(144		)		1,014,374				(7,638		)
Municipal bonds and notes		42,267				(877		)		30,586				(976		)		72,853				(1,853		)
Total temporarily impaired securities (1)		$	5,943,190			$	(60,189	)		$	295,657			$	(7,639	)		$	6,238,847			$	(67,828	)

 

(1)	As of December 31, 2016, we identified a total of 462 investments that were in unrealized loss positions, of which 85 investments totaling $295.7 million with unrealized losses of $7.6 million have been in an impaired position for a period of time greater than 12 months.

18

---

Table of Contents

The following table summarizes the remaining contractual principal maturities on fixed income investment securities classified as held-to-maturity as of September 30, 2017. For 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 held-to-maturity 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.

		September 30, 2017
		Total								One Year or Less								After One Year to Five Years								After Five Years to Ten Years								After Ten Years
(Dollars in thousands)		Amortized Cost				Fair Value				Amortized Cost				Fair Value				Amortized Cost				Fair Value				Amortized Cost				Fair Value				Amortized Cost				Fair Value
U.S. agency debentures		$	660,193			$	665,888			$	—			$	—			$	102,581			$	103,398			$	557,612			$	562,490			$	—			$	—
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		5,164,701				5,163,349				738				731				255,275				255,128				61,538				61,270				4,847,150				4,846,220
Agency-issued collateralized mortgage obligations—fixed rate		3,025,421				2,998,860				—				—				—				—				437,865				431,500				2,587,556				2,567,360
Agency-issued collateralized mortgage obligations—variable rate		269,495				270,162				—				—				—				—				—				—				269,495				270,162
Agency-issued commercial mortgage-backed securities		1,554,220				1,544,548				—				—				—				—				—				—				1,554,220				1,544,548
Municipal bonds and notes		380,976				380,608				7,560				7,540				71,631				71,529				159,509				159,377				142,276				142,162
Total		$	11,055,006			$	11,023,415			$	8,298			$	8,271			$	429,487			$	430,055			$	1,216,524			$	1,214,637			$	9,400,697			$	9,370,452

19

---

Table of Contents

Non-marketable and Other Securities

The components of our non-marketable and other investment securities portfolio at September 30, 2017 and December 31, 2016 are as follows:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Non-marketable and other securities:
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)		$	128,768			$	141,649
Other venture capital investments (2)		1,897				2,040
Other securities (fair value accounting) (3)		392				753
Non-marketable securities (equity method accounting) (4):
Venture capital and private equity fund investments		87,218				82,823
Debt funds		17,889				17,020
Other investments		113,478				123,514
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (5)		102,956				114,606
Other investments		26,835				27,700
Investments in qualified affordable housing projects, net (6)		148,036				112,447
Total non-marketable and other securities		$	627,469			$	622,552

(1)	The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and our ownership percentage of each fund at September 30, 2017 and December 31, 2016 (fair value accounting):

		September 30, 2017							December 31, 2016
(Dollars in thousands)		Amount				Ownership %			Amount				Ownership %
Strategic Investors Fund, LP		$	15,624			12.6	%		$	18,459			12.6	%
Capital Preferred Return Fund, LP		55,685				20.0			57,627				20.0
Growth Partners, LP		57,459				33.0			59,718				33.0
Other private equity fund (i)		—				—			5,845				58.2
Total venture capital and private equity fund investments		$	128,768						$	141,649

 

(i)

At December 31, 2016, we had a direct ownership interest of 41.5 percent in the other private equity fund and an indirect ownership interest of 12.6 percent through our ownership interest of Growth Partners, LP and an indirect ownership interest of 4.1 percent through our ownership interest of Capital Preferred Return Fund, LP. On January 3, 2017, the other private equity fund was closed resulting in an immaterial impact on the Company's financial statements for the nine months ended September 30, 2017.

(2)	The following table shows the amounts of other venture capital investments held by the following consolidated funds and our ownership percentage at September 30, 2017 and December 31, 2016 (fair value accounting):

		September 30, 2017							December 31, 2016
(Dollars in thousands)		Amount				Ownership %			Amount				Ownership %
CP I, LP		$	1,897			10.7	%		$	2,040			10.7	%
Total other venture capital investments		$	1,897						$	2,040

(3)	Investments classified as other securities (fair value accounting) represent direct equity investments in public companies held by our consolidated funds.

20

---

Table of Contents

(4)	The following table shows the carrying value and our ownership percentage of each investment at September 30, 2017 and December 31, 2016 (equity method accounting):

		September 30, 2017							December 31, 2016
(Dollars in thousands)		Amount				Ownership %			Amount				Ownership %
Venture capital and private equity fund investments:
Strategic Investors Fund II, LP		$	6,084			8.6	%		$	7,720			8.6	%
Strategic Investors Fund III, LP		19,292				5.9			20,449				5.9
Strategic Investors Fund IV, LP		25,507				5.0			24,530				5.0
Strategic Investors Fund V funds		14,987				Various			12,029				Various
CP II, LP (i)		6,704				5.1			7,798				5.1
Other venture capital and private equity fund investments		14,644				Various			10,297				Various
Total venture capital and private equity fund investments		$	87,218						$	82,823
Debt funds:
Gold Hill Capital 2008, LP (ii)		$	15,381			15.5	%		$	13,557			15.5	%
Other debt funds		2,508				Various			3,463				Various
Total debt funds		$	17,889						$	17,020
Other investments:
SPD Silicon Valley Bank Co., Ltd.		$	75,511			50.0	%		$	75,296			50.0	%
Other investments		37,967				Various			48,218				Various
Total other investments		$	113,478						$	123,514

 

(i)	Our ownership includes direct ownership of 1.3 percent and indirect ownership interest of 3.8 percent through our investments in Strategic Investors Fund II, LP.

(ii)	Our ownership includes direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent.

(5)

Represents investments in 237 and 252 funds (primarily venture capital funds) at September 30, 2017 and December 31, 2016, respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating activities and financial policies. The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $103.0 million and $206.5 million, respectively, as of September 30, 2017. The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $114.6 million and $221.7 million, respectively, as of December 31, 2016.

(6)	The following table presents the balances of our investments in qualified affordable housing projects and related unfunded commitments included as a component of “other liabilities” on our consolidated balance sheets at September 30, 2017 and December 31, 2016:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Investments in qualified affordable housing projects, net		$	148,036			$	112,447
Other liabilities		90,974				58,095

The following table presents other information relating to our investments in qualified affordable housing projects for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Tax credits and other tax benefits recognized		$	4,539			$	3,995			$	13,199			$	12,127
Amortization expense included in provision for income taxes (i)		3,533				2,556				10,154				9,746

 

(i)	All investments are amortized using the proportional amortization method and amortization expense is included in the provision for income taxes.

21

---

Table of Contents

The following table presents the components of gains and losses (realized and unrealized) on investment securities for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Gross gains on investment securities:
Available-for-sale securities, at fair value (1)		$	38			$	84			$	1,131			$	14,238
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments		5,308				6,030				24,788				16,377
Other venture capital investments		—				4				—				17
Other securities (fair value accounting)		569				271				841				639
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments		4,542				5,679				11,245				9,351
Debt funds		4,222				295				5,388				1,259
Other investments		215				7,487				1,736				11,528
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments		4,956				6,328				14,985				14,180
Other investments		2				150				3,611				163
Total gross gains on investment securities		19,852				26,328				63,725				67,752
Gross losses on investment securities:
Available-for-sale securities, at fair value (1)		(139		)		(99		)		(747		)		(2,671		)
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments		(835		)		(2,122		)		(4,139		)		(15,958		)
Other venture capital investments		—				—				(143		)		(38		)
Other securities (fair value accounting)		(182		)		(100		)		(561		)		(507		)
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments		(223		)		(444		)		(535		)		(4,465		)
Debt funds		(1,777		)		(129		)		(2,692		)		(458		)
Other investments		(1,148		)		(205		)		(4,899		)		(1,161		)
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (2)		(259		)		(51		)		(914		)		(492		)
Other investments		(51		)		—				(257		)		(238		)
Total gross losses on investment securities		(4,614		)		(3,150		)		(14,887		)		(25,988		)
Gains on investment securities, net		$	15,238			$	23,178			$	48,838			$	41,764

 

(1)	Includes realized gains (losses) on sales of available-for-sale equity securities that are recognized in the income statement. Unrealized gains (losses) on available-for-sale fixed income and equity securities are recognized in other comprehensive income. The cost basis of available-for-sale securities sold is determined on a specific identification basis.

(2)

For the three months ended September 30, 2017 and 2016, includes OTTI losses of $0.3 million from the declines in value for 8 of the 237 investments and $0.1 million from the declines in value for 5 of the 255 investments, respectively. For the nine months ended September 30, 2017 and 2016, includes OTTI losses of $0.9 million for the declines in value for 21 of the 237 investments and $0.5 million for the declines in value for 21 of the 255 investments. We concluded that any declines in value for the remaining investments were temporary, and as such, no OTTI was required to be recognized.

7.	Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments

We serve a variety of commercial clients in the technology, life science/healthcare, private equity/venture capital and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications, data, storage, and electronics), software/internet (such as infrastructure software, applications, software services, digital content and advertising technology), and energy and resource innovation (“ERI”). Because of the diverse nature of ERI products and services, for our loan-related reporting purposes, ERI-related loans are reported under our hardware, software/internet, life science/healthcare and other commercial loan categories, as applicable. Our life science/healthcare clients primarily tend to be in the industries of biotechnology, medical devices, healthcare information technology and healthcare services. Loans made to private equity/venture capital firm clients typically enable them to fund investments prior to their receipt

22

---

Table of Contents

of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.

In addition to commercial loans, we make consumer loans through SVB Private Bank and provide real estate secured loans to eligible employees through our EHOP. Our private banking clients are primarily private equity/venture capital professionals and executive leaders in the innovation companies they support. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit.

We also provide community development loans made as part of our responsibilities under the Community Reinvestment Act. These loans are included within “Construction loans” below and are primarily secured by real estate.

The composition of loans, net of unearned income of $141 million and $125 million at September 30, 2017 and December 31, 2016, respectively, is presented in the following table:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Commercial loans:
Software/internet		$	5,793,637			$	5,627,031
Hardware		1,113,509				1,180,398
Private equity/venture capital		9,623,824				7,691,148
Life science/healthcare		1,725,728				1,853,004
Premium wine		211,716				200,156
Other		384,039				393,551
Total commercial loans		18,852,453				16,945,288
Real estate secured loans:
Premium wine (1)		712,400				678,166
Consumer loans (2)		2,206,501				1,926,968
Other		42,504				43,487
Total real estate secured loans		2,961,405				2,648,621
Construction loans		75,242				64,671
Consumer loans		300,227				241,364
Total loans, net of unearned income (3)		$	22,189,327			$	19,899,944

 

(1)	Included in our premium wine portfolio are gross construction loans of $104 million and $110 million at September 30, 2017 and December 31, 2016, respectively.

(2)	Consumer loans secured by real estate at September 30, 2017 and December 31, 2016 were comprised of the following:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Loans for personal residence		$	1,908,319			$	1,655,349
Loans to eligible employees		232,707				199,291
Home equity lines of credit		65,475				72,328
Consumer loans secured by real estate		$	2,206,501			$	1,926,968

(3)	Included within our total loan portfolio are credit card loans of $273 million and $224 million at September 30, 2017 and December 31, 2016, respectively.

23

---

Table of Contents

Credit Quality

The composition of loans, net of unearned income of $141 million and $125 million at September 30, 2017 and December 31, 2016, respectively, broken out by portfolio segment and class of financing receivable, is as follows:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Commercial loans:
Software/internet		$	5,793,637			$	5,627,031
Hardware		1,113,509				1,180,398
Private equity/venture capital		9,623,824				7,691,148
Life science/healthcare		1,725,728				1,853,004
Premium wine		924,116				878,322
Other		501,785				501,709
Total commercial loans		19,682,599				17,731,612
Consumer loans:
Real estate secured loans		2,206,501				1,926,968
Other consumer loans		300,227				241,364
Total consumer loans		2,506,728				2,168,332
Total loans, net of unearned income		$	22,189,327			$	19,899,944

24

---

Table of Contents

The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)		30 - 59   Days Past   Due				60 - 89   Days Past   Due				Greater Than 90   Days Past   Due				Total Past   Due				Current				Loans Past Due   90 Days or More Still Accruing Interest
September 30, 2017:
Commercial loans:
Software/internet		$	45,943			$	3,725			$	138			$	49,806			$	5,686,655			$	138
Hardware		273				44				626				943				1,080,341				626
Private equity/venture capital		35,628				34,369				—				69,997				9,563,613				—
Life science/healthcare		20,956				—				—				20,956				1,729,909				—
Premium wine		3,521				640				—				4,161				916,451				—
Other		7				210				—				217				512,891				—
Total commercial loans		106,328				38,988				764				146,080				19,489,860				764
Consumer loans:
Real estate secured loans		1,748				850				—				2,598				2,199,978				—
Other consumer loans		4,540				—				—				4,540				293,301				—
Total consumer loans		6,288				850				—				7,138				2,493,279				—
Total gross loans excluding impaired loans		112,616				39,838				764				153,218				21,983,139				764
Impaired loans		591				311				26,456				27,358				166,114				—
Total gross loans		$	113,207			$	40,149			$	27,220			$	180,576			$	22,149,253			$	764
December 31, 2016:
Commercial loans:
Software/internet		$	37,087			$	1,162			$	6			$	38,255			$	5,507,575			$	6
Hardware		5,591				36				27				5,654				1,118,065				27
Private equity/venture capital		689				—				—				689				7,747,222				—
Life science/healthcare		283				551				—				834				1,827,490				—
Premium wine		1,003				4				—				1,007				876,185				—
Other		34				300				—				334				504,021				—
Total commercial loans		44,687				2,053				33				46,773				17,580,558				33
Consumer loans:
Real estate secured loans		850				—				—				850				1,923,266				—
Other consumer loans		1,402				—				—				1,402				237,353				—
Total consumer loans		2,252				—				—				2,252				2,160,619				—
Total gross loans excluding impaired loans		46,939				2,053				33				49,025				19,741,177				33
Impaired loans		34,636				3,451				11,180				49,267				185,193				—
Total gross loans		$	81,575			$	5,504			$	11,213			$	98,292			$	19,926,370			$	33

25

---

Table of Contents

The following table summarizes our impaired loans as they relate to our allowance for loan losses, broken out by portfolio segment and class of financing receivable as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)		Impaired loans for   which there is a related allowance for loan losses				Impaired loans for   which there is no related allowance for loan losses				Total carrying value of impaired loans				Total unpaid principal of impaired loans
September 30, 2017:
Commercial loans:
Software/internet		$	92,584			$	22,278			$	114,862			$	130,324
Hardware		39,728				1,012				40,740				48,061
Private equity/venture capital		1,318				—				1,318				1,321
Life science/healthcare		22,762				5,573				28,335				33,481
Premium wine		4,677				—				4,677				4,702
Other		298				—				298				487
Total commercial loans		161,367				28,863				190,230				218,376
Consumer loans:
Real estate secured loans		—				1,301				1,301				1,379
Other consumer loans		1,941				—				1,941				2,036
Total consumer loans		1,941				1,301				3,242				3,415
Total		$	163,308			$	30,164			$	193,472			$	221,791
December 31, 2016:
Commercial loans:
Software/internet		$	121,658			$	1,090			$	122,748			$	129,648
Hardware		65,395				—				65,395				70,683
Private equity/venture capital		—				—				—				—
Life science/healthcare		38,361				—				38,361				41,130
Premium wine		3,187				—				3,187				3,187
Other		867				—				867				867
Total commercial loans		229,468				1,090				230,558				245,515
Consumer loans:
Real estate secured loans		1,504				—				1,504				2,779
Other consumer loans		2,398				—				2,398				2,398
Total consumer loans		3,902				—				3,902				5,177
Total		$	233,370			$	1,090			$	234,460			$	250,692

26

---

Table of Contents

The following tables summarize our average impaired loans and interest income on impaired loans, broken out by portfolio segment and class of financing receivable for the three and nine months ended September 30, 2017 and 2016:

Three months ended September 30,		Average impaired loans								Interest income on impaired loans
(Dollars in thousands)		2017				2016				2017				2016
Commercial loans:
Software/internet		$	121,290			$	61,481			$	767			$	70
Hardware		35,932				45,353				419				761
Private equity/venture capital		644				—				3				—
Life science/healthcare		25,796				55,558				21				128
Premium wine		3,625				1,291				39				19
Other		348				3,768				—				6
Total commercial loans		187,635				167,451				1,249				984
Consumer loans:
Real estate secured loans		1,306				584				24				—
Other consumer loans		1,966				1,324				—				6
Total consumer loans		3,272				1,908				24				6
Total average impaired loans		$	190,907			$	169,359			$	1,273			$	990

Nine months ended September 30,		Average impaired loans								Interest income on impaired loans
(Dollars in thousands)		2017				2016				2017				2016
Commercial loans:
Software/internet		$	122,527			$	84,005			$	1,646			$	133
Hardware		33,271				31,000				518				1,467
Private equity/venture capital		443				—				8				—
Life science/healthcare		33,590				42,857				60				128
Premium wine		3,353				1,834				115				54
Other		706				4,369				—				21
Total commercial loans		193,890				164,065				2,347				1,803
Consumer loans:
Real estate secured loans		1,385				282				24				—
Other consumer loans		1,931				715				—				17
Total consumer loans		3,316				997				24				17
Total average impaired loans		$	197,206			$	165,062			$	2,371			$	1,820

27

---

Table of Contents

The following tables summarize the activity relating to our allowance for loan losses for the three and nine months ended September 30, 2017 and 2016, broken out by portfolio segment:

Three months ended September 30, 2017		Beginning Balance June 30, 2017				Charge-offs				Recoveries				Provision for (Reduction of) Loan Losses				Foreign Currency Translation Adjustments				Ending Balance September 30, 2017
(Dollars in thousands)
Commercial loans:
Software/internet		$	92,937			$	(8,791	)		$	426			$	7,241			$	199			$	92,012
Hardware		27,800				(2,453		)		115				5,681				156				31,299
Private equity/venture capital		66,785				—				—				10,142				279				77,206
Life science/healthcare		27,730				(1,083		)		63				(1,621		)		(45		)		25,044
Premium wine		3,133				—				—				362				10				3,505
Other		4,135				—				947				(931		)		(26		)		4,125
Total commercial loans		222,520				(12,327		)		1,551				20,874				573				233,191
Total consumer loans		13,976				(11		)		277				1,535				42				15,819
Total allowance for loan losses		$	236,496			$	(12,338	)		$	1,828			$	22,409			$	615			$	249,010

Three months ended September 30, 2016		Beginning Balance June 30, 2016				Charge-offs				Recoveries				Provision for (Reduction of) Loan Losses				Foreign Currency Translation Adjustments				Ending Balance September 30, 2016
(Dollars in thousands)
Commercial loans:
Software/internet		$	104,229			$	(16,526	)		$	305			$	8,591			$	(261	)		$	96,338
Hardware		23,871				(3,058		)		1,080				11,048				(336		)		32,605
Private equity/venture capital		49,807				—				—				2,203				(67		)		51,943
Life science/healthcare		41,852				(28		)		361				(5,298		)		161				37,048
Premium wine		4,810				—				—				288				(9		)		5,089
Other		9,480				(5,004		)		207				142				(4		)		4,821
Total commercial loans		234,049				(24,616		)		1,953				16,974				(516		)		227,844
Total consumer loans		10,674				—				131				1,976				(60		)		12,721
Total allowance for loan losses		$	244,723			$	(24,616	)		$	2,084			$	18,950			$	(576	)		$	240,565

Nine months ended September 30, 2017		Beginning Balance December 31, 2016				Charge-offs				Recoveries				Provision for (Reduction of) Loan Losses				Foreign Currency Translation Adjustments				Ending Balance September 30, 2017
(Dollars in thousands)
Commercial loans:
Software/internet		$	97,388			$	(36,172	)		$	2,833			$	27,487			$	476			$	92,012
Hardware		31,166				(6,726		)		459				6,075				325				31,299
Private equity/venture capital		50,299				—				—				26,111				796				77,206
Life science/healthcare		25,446				(7,493		)		107				6,906				78				25,044
Premium wine		4,115				—				—				(567		)		(43		)		3,505
Other		4,768				(1,047		)		1,424				(1,005		)		(15		)		4,125
Total commercial loans		213,182				(51,438		)		4,823				65,007				1,617				233,191
Consumer loans		12,184				(11		)		1,332				2,266				48				15,819
Total allowance for loan losses		$	225,366			$	(51,449	)		$	6,155			$	67,273			$	1,665			$	249,010

28

---

Table of Contents

Nine months ended September 30, 2016		Beginning Balance December 31, 2015				Charge-offs				Recoveries				Provision for (Reduction of) Loan Losses				Foreign Currency Translation Adjustments				Ending Balance September 30, 2016
(Dollars in thousands)
Commercial loans:
Software/internet		$	103,045			$	(56,742	)		$	4,525			$	46,438			$	(928	)		$	96,338
Hardware		23,085				(6,559		)		1,502				15,010				(433		)		32,605
Private equity/venture capital		35,282				—				—				17,008				(347		)		51,943
Life science/healthcare		36,576				(3,029		)		1,037				3,252				(788		)		37,048
Premium wine		5,205				—				—				(138		)		22				5,089
Other		4,252				(5,034		)		880				4,573				150				4,821
Total commercial loans		207,445				(71,364		)		7,944				86,143				(2,324		)		227,844
Consumer loans		10,168				(102		)		214				2,481				(40		)		12,721
Total allowance for loan losses		$	217,613			$	(71,466	)		$	8,158			$	88,624			$	(2,364	)		$	240,565

The following table summarizes the activity relating to our allowance for unfunded credit commitments for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Beginning balance		$	47,000			$	34,889			$	45,265			$	34,415
Provision for unfunded credit commitments		1,113				1,054				2,789				1,601
Foreign currency translation adjustments		59				(19		)		118				(92		)
Ending balance (1)		$	48,172			$	35,924			$	48,172			$	35,924

(1)	See Note 12—“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 for additional disclosures related to our commitments to extend credit.

The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of September 30, 2017 and December 31, 2016, broken out by portfolio segment:

		September 30, 2017																December 31, 2016
		Individually Evaluated for   Impairment								Collectively Evaluated for   Impairment								Individually Evaluated for   Impairment								Collectively Evaluated for   Impairment
(Dollars in thousands)		Allowance for loan losses				Recorded investment in loans				Allowance for loan losses				Recorded investment in loans				Allowance for loan losses				Recorded investment in loans				Allowance for loan losses				Recorded investment in loans
Commercial loans:
Software/internet		$	26,981			$	114,862			$	65,031			$	5,678,775			$	28,245			$	122,748			$	69,143			$	5,504,283
Hardware		11,179				40,740				20,120				1,072,769				9,995				65,395				21,171				1,115,003
Private equity/venture capital		536				1,318				76,670				9,622,506				—				—				50,299				7,691,148
Life science/healthcare		9,843				28,335				15,201				1,697,393				8,709				38,361				16,737				1,814,643
Premium wine		456				4,677				3,049				919,439				520				3,187				3,595				875,135
Other		145				298				3,980				501,487				233				867				4,535				500,842
Total commercial loans		49,140				190,230				184,051				19,492,369				47,702				230,558				165,480				17,501,054
Total consumer loans		1,710				3,242				14,109				2,503,486				1,123				3,902				11,061				2,164,430
Total		$	50,850			$	193,472			$	198,160			$	21,995,855			$	48,825			$	234,460			$	176,541			$	19,665,484

29

---

Table of Contents

Credit Quality Indicators

For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of “Pass”, with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans, however, we consider them as demonstrating higher risk, which requires more frequent review of the individual exposures; these translate to an internal rating of “Performing (Criticized)”. When a significant payment delay occurs on a criticized loan, the loan is impaired. The loan is also considered for nonaccrual status if full repayment is determined to be improbable. All of our nonaccrual loans are risk-rated 8 or 9 and are classified under the nonperforming impaired category. (For further description of nonaccrual loans, refer to Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2016 Form 10-K). Loans rated 10 are charged-off and are not included as part of our loan portfolio balance. We review our credit quality indicators for performance and appropriateness of risk ratings as part of our evaluation process for our allowance for loan losses.

The following table summarizes the credit quality indicators, broken out by portfolio segment and class of financing receivables as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)		Pass				Performing (Criticized)				Performing Impaired (Criticized)				Nonperforming Impaired (Nonaccrual)				Total
September 30, 2017:
Commercial loans:
Software/internet		$	5,304,675			$	431,786			$	40,965			$	73,897			$	5,851,323
Hardware		1,015,947				65,337				21,886				18,854				1,122,024
Private equity/venture capital		9,633,609				1				308				1,010				9,634,928
Life science/healthcare		1,604,160				146,705				1,400				26,935				1,779,200
Premium wine		877,235				43,377				4,241				436				925,289
Other		493,856				19,252				—				298				513,406
Total commercial loans		18,929,482				706,458				68,800				121,430				19,826,170
Consumer loans:
Real estate secured loans		2,188,397				14,179				—				1,301				2,203,877
Other consumer loans		297,388				453				—				1,941				299,782
Total consumer loans		2,485,785				14,632				—				3,242				2,503,659
Total gross loans		$	21,415,267			$	721,090			$	68,800			$	124,672			$	22,329,829
December 31, 2016:
Commercial loans:
Software/internet		$	4,924,923			$	620,907			$	46,143			$	76,605			$	5,668,578
Hardware		985,889				137,830				58,814				6,581				1,189,114
Private equity/venture capital		7,747,317				594				—				—				7,747,911
Life science/healthcare		1,707,499				120,825				6,578				31,783				1,866,685
Premium wine		865,354				11,838				2,696				491				880,379
Other		480,845				23,510				464				403				505,222
Total commercial loans		16,711,827				915,504				114,695				115,863				17,857,889
Consumer loans:
Real estate secured loans		1,914,512				9,604				—				1,504				1,925,620
Other consumer loans		238,256				499				786				1,612				241,153
Total consumer loans		2,152,768				10,103				786				3,116				2,166,773
Total gross loans		$	18,864,595			$	925,607			$	115,481			$	118,979			$	20,024,662

30

---

Table of Contents

Troubled Debt Restructurings

As of September 30, 2017 we had 18 TDRs with a total carrying value of $87.4 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were $1.2 million of unfunded commitments available for funding to the clients associated with these TDRs as of September 30, 2017.

The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at September 30, 2017 and December 31, 2016:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Loans modified in TDRs:
Commercial loans:
Software/internet		$	63,326			$	52,646
Hardware		395				14,870
Life science/healthcare		20,015				24,176
Premium wine		3,265				3,194
Other		—				387
Total commercial loans		87,001				95,273
Consumer loans:
Other consumer loans		437				786
Total		$	87,438			$	96,059

The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Loans modified in TDRs during the period:
Commercial loans:
Software/internet		$	10,876			$	78			$	26,034			$	4,569
Hardware		396				10,329				396				10,329
Life science/healthcare		—				1,714				—				1,714
Premium wine		—				—				185				495
Total commercial loans		11,272				12,121				26,615				17,107
Consumer loans:
Other consumer loans		—				—				—				786
Total loans modified in TDRs during the period (1)		$	11,272			$	12,121			$	26,615			$	17,893

 

(1)	There were zero and $2.6 million of partial charge-offs during the three and nine months ended September 30, 2017, respectively, and $0.7 million and $3.5 million of partial charge-offs during the three and nine months ended September 30, 2016, respectively.

During the three and nine months ended September 30, 2017 all new TDRs of $11.3 million and $26.6 million, respectively, were modified through payment deferrals granted to our clients.

During the three months ended September 30, 2016, $12.0 million of new TDRs were modified through payment deferrals granted to our clients and $0.1 million were modified through partial forgiveness of principal. During the nine months ended September 30, 2016, $17.6 million of new TDRs were modified through payment deferrals granted to our clients and $0.3 million were modified through partial forgiveness of principal.

The related allowance for loan losses for the majority of our TDRs is determined on an individual basis by comparing the carrying value of the loan to the present value of the estimated future cash flows, discounted at the pre-modification contractual interest rate. For certain TDRs, the related allowance for loan losses is determined based on the fair value of the collateral if the loan is collateral dependent.

31

---

Table of Contents

The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2017 and September 30, 2016.

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
TDRs modified within the previous 12 months that defaulted during the period:
Commercial loans:
Software/internet		$	1,234			$	—			$	1,234			$	584
Premium wine		186				790				186				790
Total TDRs modified within the previous 12 months that defaulted in the period		$	1,420			$	790			$	1,420			$	1,374

Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology was necessary to determine the allowance for loan losses as of September 30, 2017.

8.	Short-Term Borrowings and Long-Term Debt

The following table represents outstanding short-term borrowings and long-term debt at September 30, 2017 and December 31, 2016:

								Carrying Value
(Dollars in thousands)		Maturity		Principal value at September 30, 2017				September 30, 2017				December 31, 2016
Short-term borrowings:
Short-term FHLB advances				$	—			$	—			$	500,000
Other short-term borrowings		(1)		4,840				4,840				12,668
Total short-term borrowings								$	4,840			$	512,668
Long-term debt:
3.50% Senior Notes		January 29, 2025		$	350,000			$	347,221			$	346,979
5.375% Senior Notes		September 15, 2020		350,000				348,035				347,586
6.05% Subordinated Notes (2)		June 1, 2017		—				—				46,646
7.0% Junior Subordinated Debentures		October 15, 2033		50,000				54,362				54,493
Total long-term debt								$	749,618			$	795,704

 

(1)	Represents cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor.

(2)	Our 6.05% Subordinated Notes were repaid on June 1, 2017 and therefore, the interest rate swap agreement related to this issuance was terminated upon repayment of the 6.05% Subordinated Notes. At December 31, 2016, included in the carrying value of our 6.05% Subordinated Notes were $0.8 million related to hedge accounting associated with the notes.

Interest expense related to short-term borrowings and long-term debt was $9.0 million and $27.2 million for the three and nine months ended September 30, 2017, respectively, and $9.7 million and $28.2 million for the three and nine months ended September 30, 2016, respectively. Interest expense is net of the hedge accounting impact from our interest rate swap agreement related to our 6.05% Subordinated Notes through June 1, 2017. The weighted average interest rate associated with our short-term borrowings was 1.06 percent as of September 30, 2017 and 0.59 percent as of December 31, 2016.

32

---

Table of Contents

Available Lines of Credit

We have certain facilities in place to enable us to access short-term borrowings on a secured (using high-quality fixed income securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. As of September 30, 2017, we did not have any borrowings outstanding against our uncommitted federal funds lines. We also pledge securities to the FHLB of San Francisco and the discount window at the Federal Reserve Bank. The fair value of collateral pledged to the FHLB of San Francisco (comprised primarily of U.S. Treasury securities) at September 30, 2017 totaled $1.9 billion, all of which was unused and available to support additional borrowings. The fair value of collateral pledged at the discount window of the Federal Reserve Bank at September 30, 2017 totaled $0.7 billion, all of which was unused and available to support additional borrowings.

9.	Derivative Financial Instruments

We primarily use derivative financial instruments to manage interest rate risk, currency exchange rate risk and to assist customers with their risk management objectives. Also, in connection with negotiating credit facilities and certain other services, we often obtain equity warrant assets giving us the right to acquire stock in private, venture-backed companies in the technology and life science/healthcare industries.

Interest Rate Risk

Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our interest rate sensitive assets and liabilities and changes in market interest rates. To manage interest rate risk for our 6.05% Subordinated Notes, we entered into a fixed-for-floating interest rate swap agreement at the time of debt issuance based upon LIBOR with matched-terms. The net cash benefit associated with our interest rate swap is recorded as a reduction in “Interest expense—Borrowings,” a component of net interest income. The fair value of our interest rate swaps is calculated using a discounted cash flow method and adjusted for credit valuation associated with counterparty risk. Changes in fair value of the interest rate swaps are reflected in either other assets (for swaps in an asset position) or other liabilities (for swaps in a liability position). On June 1, 2017, our interest rate swap was terminated upon repayment of the 6.05% Subordinated Notes.

Currency Exchange Risk

We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure risk associated with the net difference between foreign currency denominated assets and liabilities. We do not designate any foreign exchange forward contracts as derivative instruments that qualify for hedge accounting. Gains or losses from changes in currency rates on foreign currency denominated instruments are recorded in the line item “Other” as part of noninterest income, a component of consolidated net income. We may experience ineffectiveness in the economic hedging relationship, because the instruments are revalued based upon changes in the currency’s spot rate on the principal value, while the forwards are revalued on a discounted cash flow basis. We record forward agreements in gain positions in other assets and loss positions in other liabilities, while net changes in fair value are recorded in the line item “Other” as part of noninterest income, a component of consolidated net income.

Other Derivative Instruments

Also included in our derivative instruments are equity warrant assets and client forward and option contracts, and client interest rate contracts. For further description of these other derivative instruments, refer to Note 2-“Summary of Significant Accounting Policies" under Part II, Item 8 of our 2016 Form 10-K.

Counterparty Credit Risk

We are exposed to credit risk if counterparties to our derivative contracts do not perform as expected. We mitigate counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral, as appropriate. With respect to measuring counterparty credit risk for derivative instruments, we measure the fair value of a group of financial assets and financial liabilities on a net risk basis by counterparty portfolio.

33

---

Table of Contents

The total notional or contractual amounts, fair value, collateral and net exposure of our derivative financial instruments at September 30, 2017 and December 31, 2016 were as follows:

				September 30, 2017																December 31, 2016
(Dollars in thousands)		Balance Sheet Location		Notional or Contractual Amount				Fair Value				Collateral (1)				Net Exposure (2)				Notional or Contractual Amount				Fair Value				Collateral (1)				Net Exposure (2)
Derivatives designated as hedging instruments:
Interest rate risks:
Interest rate swaps		Other assets		$	—			$	—			$	—			$	—			$	45,964			$	810			$	89			$	721
Derivatives not designated as hedging instruments:
Currency exchange risks:
Foreign exchange forwards		Other assets		286,378				3,166				—				3,166				219,950				3,057				—				3,057
Foreign exchange forwards		Other liabilities		84,618				(1,244		)		—				(1,244		)		54,338				(968		)		—				(968		)
Net exposure								1,922				—				1,922								2,089				—				2,089
Other derivative instruments:
Equity warrant assets		Other assets		211,018				141,785				—				141,785				211,434				131,123				—				131,123
Other derivatives:
Client foreign exchange forwards		Other assets		1,925,726				90,691				4,840				85,851				1,251,308				54,587				12,579				42,008
Client foreign exchange forwards		Other liabilities		1,838,439				(86,627		)		—				(86,627		)		1,068,991				(43,317		)		—				(43,317		)
Client foreign currency options		Other assets		101,544				1,090				—				1,090				775,000				10,383				—				10,383
Client foreign currency options		Other liabilities		101,544				(1,090		)		—				(1,090		)		775,000				(10,383		)		—				(10,383		)
Client interest rate derivatives		Other assets		676,148				11,824				—				11,824				583,511				10,110				—				10,110
Client interest rate derivatives		Other liabilities		711,969				(11,955		)		—				(11,955		)		627,639				(9,770		)		—				(9,770		)
Net exposure								3,933				4,840				(907		)						11,610				12,579				(969		)
Net								$	147,640			$	4,840			$	142,800							$	145,632			$	12,668			$	132,964

 

(1)	Cash collateral received from our counterparties in relation to market value exposures of derivative contracts in our favor is recorded as a component of “short-term borrowings” on our consolidated balance sheets.

(2)	Net exposure for contracts in a gain position reflects the replacement cost in the event of nonperformance by all such counterparties. The credit ratings of our institutional counterparties as of September 30, 2017 remain at investment grade or higher and there were no material changes in their credit ratings during the three and nine months ended September 30, 2017.

34

---

Table of Contents

A summary of our derivative activity and the related impact on our consolidated statements of income for the three and nine months ended September 30, 2017 and 2016 is as follows:

				Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		Statement of income location		2017				2016				2017				2016
Derivatives designated as hedging instruments:
Interest rate risks:
Net cash benefit associated with interest rate swaps		Interest expense—borrowings		$	62			$	580			$	997			$	1,778
Changes in fair value of interest rate swaps		Other noninterest income		—				(3		)		(7		)		(33		)
Net gains associated with interest rate risk derivatives				$	62			$	577			$	990			$	1,745
Derivatives not designated as hedging instruments:
Currency exchange risks:
Gains (losses) on revaluations of internal foreign currency instruments, net		Other noninterest income		$	10,561			$	(1,406	)		$	29,265			$	(4,222	)
(Losses) gains on internal foreign exchange forward contracts, net		Other noninterest income		(10,550		)		1,352				(28,349		)		3,067
Net gains (losses) associated with internal currency risk				$	11			$	(54	)		$	916			$	(1,155	)
Other derivative instruments:
Gains on revaluations of client foreign currency instruments, net		Other noninterest income		$	3,760			$	3,488			$	8,889			$	7,009
Losses on client foreign exchange forward contracts, net		Other noninterest income		(3,871		)		(3,194		)		(8,350		)		(8,780		)
Net (losses) gains associated with client currency risk				$	(111	)		$	294			$	539			$	(1,771	)
Net gains on equity warrant assets		Gains on equity warrant assets, net		$	24,922			$	21,558			$	42,432			$	33,252
Net (losses) gains on other derivatives		Other noninterest income		$	(38	)		$	31			$	(524	)		$	(659	)

Balance Sheet Offsetting

Certain of our derivative and other financial instruments are subject to enforceable master netting arrangements with our counterparties. These agreements provide for the net settlement of multiple contracts with a single counterparty through a single payment, in a single currency, in the event of default on or termination of any one contract.

35

---

Table of Contents

The following table summarizes our assets subject to enforceable master netting arrangements as of September 30, 2017 and December 31, 2016:

		Gross Amounts of Recognized Assets				Gross Amounts offset in the Statement of Financial Position				Net Amounts of Assets Presented in the Statement of Financial Position				Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements								Net Amount
(Dollars in thousands)														Financial Instruments				Cash Collateral Received
September 30, 2017
Derivative Assets:
Interest rate swaps		$	—			$	—			$	—			$	—			$	—			$	—
Foreign exchange forwards		93,857				—				93,857				(21,154		)		(4,840		)		67,863
Foreign currency options		1,090				—				1,090				(331		)		—				759
Client interest rate derivatives		11,824				—				11,824				(11,808		)		—				16
Total derivative assets		106,771				—				106,771				(33,293		)		(4,840		)		68,638
Reverse repurchase, securities borrowing, and similar arrangements		62,664				—				62,664				(62,664		)		—				—
Total		$	169,435			$	—			$	169,435			$	(95,957	)		$	(4,840	)		$	68,638
December 31, 2016
Derivative Assets:
Interest rate swaps		$	810			$	—			$	810			$	(721	)		$	(89	)		$	—
Foreign exchange forwards		57,644				—				57,644				(22,738		)		(12,579		)		22,327
Foreign currency options		10,383				—				10,383				(8,806		)		—				1,577
Client interest rate derivatives		10,110				—				10,110				(10,091		)		—				19
Total derivative assets		78,947				—				78,947				(42,356		)		(12,668		)		23,923
Reverse repurchase, securities borrowing, and similar arrangements		64,028				—				64,028				(64,028		)		—				—
Total		$	142,975			$	—			$	142,975			$	(106,384	)		$	(12,668	)		$	23,923

The following table summarizes our liabilities subject to enforceable master netting arrangements as of September 30, 2017 and December 31, 2016:

		Gross Amounts of Recognized Liabilities				Gross Amounts offset in the Statement of Financial Position				Net Amounts of Liabilities Presented in the Statement of Financial Position				Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements								Net Amount
(Dollars in thousands)														Financial Instruments				Cash Collateral Pledged
September 30, 2017
Derivative Liabilities:
Foreign exchange forwards		$	87,871			$	—			$	87,871			$	(68,852	)		$	—			$	19,019
Foreign currency options		1,090				—				1,090				(759		)		—				331
Client interest rate derivatives		11,955				—				11,955				(11,936		)		—				19
Total derivative liabilities		100,916				—				100,916				(81,547		)		—				19,369
Repurchase, securities lending, and similar arrangements		—				—				—				—				—				—
Total		$	100,916			$	—			$	100,916			$	(81,547	)		$	—			$	19,369
December 31, 2016
Derivative Liabilities:
Foreign exchange forwards		$	44,285			$	—			$	44,285			$	(17,964	)		$	—			$	26,321
Foreign currency options		10,383				—				10,383				(1,585		)		—				8,798
Client interest rate derivatives		9,770				—				9,770				(9,770		)		—				—
Total derivative liabilities		64,438				—				64,438				(29,319		)		—				35,119
Repurchase, securities lending, and similar arrangements		—				—				—				—				—				—
Total		$	64,438			$	—			$	64,438			$	(29,319	)		$	—			$	35,119

36

---

Table of Contents

10.	Other Noninterest Income and Other Noninterest Expense

A summary of other noninterest income for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Fund management fees		$	5,198			$	5,231			$	15,903			$	14,149
Service-based fee income		469				2,029				3,860				6,270
Gains on revaluation of client foreign currency instruments, net (1)		3,760				3,488				8,889				7,009
Losses on client foreign exchange forward contracts, net (1)		(3,871		)		(3,194		)		(8,350		)		(8,780		)
Gains (losses) on revaluation of internal foreign currency instruments, net (2)		10,561				(1,406		)		29,265				(4,222		)
(Losses) gains on internal foreign exchange forward contracts, net (2)		(10,550		)		1,352				(28,349		)		3,067
Other (3)		10,329				11,378				19,910				19,018
Total other noninterest income		$	15,896			$	18,878			$	41,128			$	36,511

 

(1)	Represents the net revaluation of client foreign currency denominated financial instruments. We enter into client foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client foreign currency denominated financial instruments.

(2)	Represents the net revaluation of foreign currency denominated financial instruments issued and held by us, primarily loans, deposits and cash. We enter into internal foreign exchange forward contracts to economically reduce our foreign exchange exposure related to these foreign currency denominated financial instruments issued and held by us.

(3)	Includes dividends on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income.

A summary of other noninterest expense for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Lending and other client related processing costs		$	6,935			$	5,885			$	18,806			$	13,721
Telephone		2,518				2,460				7,892				7,109
Data processing services		2,244				2,137				7,254				6,353
Dues and publications		883				809				2,355				2,258
Postage and supplies		612				598				2,013				2,172
Other		4,872				3,644				16,350				12,679
Total other noninterest expense		$	18,064			$	15,533			$	54,670			$	44,292

11.	Segment Reporting

We have three reportable segments for management reporting purposes: Global Commercial Bank, SVB Private Bank and SVB Capital. The results of our operating segments are based on our internal management reporting process.

Our Global Commercial Bank and SVB Private Bank segments' primary source of revenue is from net interest income, which is primarily the difference between interest earned on loans, net of funds transfer pricing (“FTP”), and interest paid on deposits, net of FTP. Accordingly, these segments are reported using net interest income, net of FTP. FTP is an internal measurement framework designed to assess the financial impact of a financial institution’s sources and uses of funds. It is the mechanism by which a funding credit is given for deposits raised, and a funding charge is made for loans funded. FTP is calculated at an instrument level based on account characteristics.

We also evaluate performance based on provision for credit losses, noninterest income and noninterest expense, which are presented as components of segment operating profit or loss. In calculating each operating segment’s noninterest expense, we consider the direct costs incurred by the operating segment as well as certain allocated direct costs. As part of this review, we allocate certain corporate overhead costs to a corporate account. We do not allocate income taxes or the provision for

37

---

Table of Contents

unfunded credit commitments (included in provision for credit losses) to our segments. Additionally, our management reporting model is predicated on average asset balances; therefore, period-end asset balances are not presented for segment reporting purposes. Changes in an individual client’s primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods.

Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, our internal management reporting process is highly subjective, as there is no comprehensive, authoritative guidance for management reporting. Our management reporting process measures the performance of our operating segments based on our internal operating structure, which is subject to change from time to time, and is not necessarily comparable with similar information for other financial services companies.

For reporting purposes, SVB Financial Group has three operating segments for which we report our financial information:

•	Global Commercial Bank is comprised of results from the following:

◦

Our Commercial Bank products and services are provided by the Bank and its subsidiaries to commercial clients in the technology, life science/healthcare and private equity/venture capital industries. The Bank provides solutions to the financial needs of commercial clients, through credit, global treasury management, foreign exchange, global trade finance, and other services. It serves clients within the United States, as well as non-U.S. clients in key international innovation markets. In addition, the Bank and its subsidiaries offer a variety of investment services and solutions to its clients that enable them to effectively manage their assets.

◦	Our Private Equity Division provides banking products and services primarily to our private equity and venture capital clients.

◦	Our Wine practice provides banking products and services to our premium wine industry clients, including vineyard development loans.

◦	SVB Analytics previously provided equity valuation services and currently provides research for investors and companies in the global innovation economy. In September 2017, SVB Analytics sold its equity valuation services business.

◦	Debt Fund Investments is comprised of our investments in certain debt funds in which we are a strategic investor.

•

SVB Private Bank is the private banking division of the Bank, which provides a range of personal financial solutions for consumers. Our clients are primarily private equity/venture capital professionals and executive leaders of the innovation companies they support. We offer a customized suite of private banking services, including mortgages, home equity lines of credit, restricted stock purchase loans, capital call lines of credit and other secured and unsecured lending, as well as cash and wealth management services.

•

SVB Capital is the funds management business of SVBFG, which focuses primarily on venture capital investments. SVB Capital manages funds (primarily venture capital funds) on behalf of third party limited partners and, on a more limited basis, SVB Financial Group. 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. SVB Capital generates income for the Company primarily from investment returns (including carried interest allocations) and management fees.

The summary financial results of our operating segments are presented along with a reconciliation to our consolidated interim results.

38

---

Table of Contents

Our segment information for the three and nine months ended September 30, 2017 and 2016 is as follows:

(Dollars in thousands)		Global Commercial Bank (1)				SVB Private   Bank				SVB Capital (1)				Other Items (2)				Total
Three months ended September 30, 2017
Net interest income		$	337,860			$	14,600			$	15			$	21,499			$	373,974
Provision for credit losses		(20,874		)		(1,535		)		—				(1,113		)		(23,522		)
Noninterest income		97,227				460				13,913				47,178				158,778
Noninterest expense (3)		(176,964		)		(4,706		)		(4,873		)		(71,218		)		(257,761		)
Income (loss) before income tax expense (4)		$	237,249			$	8,819			$	9,055			$	(3,654	)		$	251,469
Total average loans, net of unearned income		$	18,807,616			$	2,499,507			$	—			$	277,769			$	21,584,892
Total average assets (5)		47,817,114				2,538,400				323,417				(883,565		)		49,795,366
Total average deposits		42,376,024				1,231,390				—				435,428				44,042,842
Three months ended September 30, 2016
Net interest income		$	262,484			$	13,298			$	1			$	13,378			$	289,161
Provision for credit losses		(16,974		)		(1,976		)		—				(1,054		)		(20,004		)
Noninterest income		79,226				664				30,619				33,631				144,140
Noninterest expense (3)		(159,479		)		(3,122		)		(3,924		)		(54,248		)		(220,773		)
Income (loss) before income tax expense (4)		$	165,257			$	8,864			$	26,696			$	(8,293	)		$	192,524
Total average loans, net of unearned income		$	16,357,099			$	2,074,982			$	—			$	215,113			$	18,647,194
Total average assets (5)		40,828,549				2,096,237				325,321				201,222				43,451,329
Total average deposits		36,484,125				1,115,446				—				310,183				37,909,754
Nine months ended September 30, 2017
Net interest income		$	924,789			$	42,952			$	41			$	58,881			$	1,026,663
Provision for credit losses		(65,007		)		(2,266		)		—				(2,789		)		(70,062		)
Noninterest income		260,650				1,715				45,707				96,893				404,965
Noninterest expense (3)		(525,043		)		(12,675		)		(14,537		)		(194,385		)		(746,640		)
Income (loss) before income tax expense (4)		$	595,389			$	29,726			$	31,211			$	(41,400	)		$	614,926
Total average loans, net of unearned income		$	18,125,020			$	2,371,027			$	—			$	230,420			$	20,726,467
Total average assets (5)		45,414,432				2,403,777				333,439				(586,597		)		47,565,051
Total average deposits		40,398,413				1,289,990				—				373,232				42,061,635
Nine months ended September 30, 2016
Net interest income (expense)		$	773,342			$	40,508			$	(51	)		$	40,119			$	853,918
Provision for credit losses		(86,143		)		(2,481		)		—				(1,601		)		(90,225		)
Noninterest income		231,295				2,052				44,492				65,211				343,050
Noninterest expense (3)		(462,234		)		(9,481		)		(11,521		)		(141,375		)		(624,611		)
Income (loss) before income tax expense (4)		$	456,260			$	30,598			$	32,920			$	(37,646	)		$	482,132
Total average loans, net of unearned income		$	15,769,964			$	1,978,175			$	—			$	207,358			$	17,955,497
Total average assets (5)		41,020,808				1,999,455				334,328				315,125				43,669,716
Total average deposits		37,002,027				1,120,575				—				321,388				38,443,990

 

(1)	Global Commercial Bank’s and SVB Capital’s components of net interest income, noninterest income, noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented. Noncontrolling interest is included within “Other Items”.

(2)

The “Other Items” column reflects the adjustments necessary to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP. Net interest income consists primarily of interest earned from our fixed income investment portfolio, net of FTP. Noninterest income consists primarily of gains on equity warrant assets and gains on the sale of fixed income securities. Noninterest expense consists primarily of expenses associated with corporate support functions such as finance, human resources, marketing, legal and other expenses.

(3)	The Global Commercial Bank segment includes direct depreciation and amortization of $5.9 million and $6.4 million for the three months ended September 30, 2017 and 2016, respectively, and $19.1 million and $18.3 million for the nine months ended September 30, 2017 and 2016, respectively.

39

---

Table of Contents

(4)	The internal reporting model used by management to assess segment performance does not calculate income tax expense by segment. Our effective tax rate is a reasonable approximation of the segment rates.

(5)	Total average assets equal the greater of total average assets or the sum of total average liabilities and total average stockholders’ equity for each segment to reconcile the results to the consolidated financial statements prepared in conformity with GAAP.

12.	Off-Balance Sheet Arrangements, Guarantees and Other Commitments

In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve, to varying degrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract.

Commitments to Extend Credit

The following table summarizes information related to our commitments to extend credit at September 30, 2017 and December 31, 2016:

(Dollars in thousands)		September 30, 2017				December 31, 2016
Loan commitments available for funding: (1)
Fixed interest rate commitments		$	1,462,728			$	1,475,179
Variable interest rate commitments		13,037,817				13,572,161
Total loan commitments available for funding		14,500,545				15,047,340
Commercial and standby letters of credit (2)		1,841,385				1,695,856
Total unfunded credit commitments		$	16,341,930			$	16,743,196
Commitments unavailable for funding (3)		$	2,209,680			$	1,719,524
Allowance for unfunded credit commitments (4)		48,172				45,265

 

(1)	Represents commitments which are available for funding, due to clients meeting all collateral, compliance and financial covenants required under loan commitment agreements.

(2)	See below for additional information on our commercial and standby letters of credit.

(3)	Represents commitments which are currently unavailable for funding, due to clients failing to meet all collateral, compliance and financial covenants under loan commitment agreements.

(4)	Our allowance for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit.

Commercial and Standby Letters of Credit

The table below summarizes our commercial and standby letters of credit at September 30, 2017. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.

(Dollars in thousands)		Expires In One Year or Less				Expires After One Year				Total Amount Outstanding				Maximum Amount of Future Payments
Financial standby letters of credit		$	1,666,751			$	54,244			$	1,720,995			$	1,720,995
Performance standby letters of credit		85,220				7,042				92,262				92,262
Commercial letters of credit		28,128				—				28,128				28,128
Total		$	1,780,099			$	61,286			$	1,841,385			$	1,841,385

Deferred fees related to financial and performance standby letters of credit were $10 million at both September 30, 2017 and December 31, 2016. At September 30, 2017, collateral in the form of cash of $926 million was available to us to reimburse losses, if any, under financial and performance standby letters of credit.

40

---

Table of Contents

Commitments to Invest in Venture Capital and Private Equity Funds

Subject to applicable regulatory requirements, including the Volcker Rule, we make commitments to invest in venture capital and private equity funds, which generally makes investments in privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to call most of the capital commitments over 5 to 7 years, and in certain cases, the funds may not call 100% of committed capital. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate. The following table details our total capital commitments, unfunded capital commitments, and our ownership percentage in each fund at September 30, 2017:

(Dollars in thousands)		SVBFG Capital Commitments				SVBFG Unfunded     Commitments				SVBFG Ownership   of each Fund (3)
CP I, LP		$	6,000			$	270			10.7	%
CP II, LP (1)		1,200				162				5.1
Shanghai Yangpu Venture Capital Fund (LP)		872				—				6.8
Strategic Investors Fund, LP		15,300				688				12.6
Strategic Investors Fund II, LP		15,000				1,050				8.6
Strategic Investors Fund III, LP		15,000				1,275				5.9
Strategic Investors Fund IV, LP		12,239				2,325				5.0
Strategic Investors Fund V funds		515				131				Various
Capital Preferred Return Fund, LP		12,688				—				20.0
Growth Partners, LP		24,670				1,340				33.0
Debt funds (equity method accounting)		58,493				—				Various
Other fund investments (2)		302,867				11,360				Various
Total		$	464,844			$	18,601

 

(1)	Our ownership includes direct ownership of 1.3 percent and indirect ownership interest of 3.8 percent through our investment in Strategic Investors Fund II, LP.

(2)	Represents commitments to 243 funds (primarily venture capital funds) where our ownership interest is generally less than five percent of the voting interests of each such fund.

(3)	We are subject to the Volcker Rule, which restricts or limits us from sponsoring or having ownership interests in “covered” funds including venture capital and private equity funds. See “Business - Supervision and Regulation” under Item 1 of Part I of our 2016 Form 10-K.

The following table details the amounts of remaining unfunded commitments to venture capital and private equity funds by our consolidated managed funds of funds (including our interest and the noncontrolling interests) at September 30, 2017:

(Dollars in thousands)		Unfunded Commitments
Strategic Investors Fund, LP		$	1,338
Capital Preferred Return Fund, LP		2,197
Growth Partners, LP		2,936
Total		$	6,471

13.	Income Taxes

We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions and have identified our federal tax return and California tax returns as major tax filings. Our U.S. federal tax returns for 2014 and subsequent years remain open to full examination. Our California tax returns for 2013 and subsequent years remain open to full examination.

At September 30, 2017, our unrecognized tax benefit was $6.3 million, the recognition of which would reduce our income tax expense by $3.8 million. We do not expect that our unrecognized tax benefit will materially change in the next 12 months.

We recognize interest and penalties related to income tax matters as part of income before income taxes. Interest and penalties were not material for the three and nine months ended September 30, 2017.

14.	Fair Value of Financial Instruments

Fair Value Measurements

Our available-for-sale securities, derivative instruments and certain non-marketable and other securities are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our interim consolidated financial statements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable and the significance of those inputs in the fair value measurement. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data and views of market participants. The three levels for measuring fair value are based on the reliability of inputs and are as follows:

Level 1

Fair value measurements based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. Assets utilizing Level 1 inputs include U.S. Treasury securities, exchange-traded equity securities and certain marketable securities accounted for under fair value accounting.

Level 2

Fair value measurements based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Valuations for the available-for-sale securities are provided by independent pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent brokers. We perform a monthly analysis on the values received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and ongoing review of third party pricing methodologies, review of pricing trends and monitoring of trading volumes. Additional corroboration, such as obtaining a non-binding price from a broker, may be obtained depending on the frequency of trades of the security and the level of liquidity or depth of the market. We ensure prices received from independent brokers represent a reasonable estimate of the fair value through the use of observable market inputs including comparable trades, yield curve, spreads and, when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. Below is a summary of the significant inputs used for each class of Level 2 assets and liabilities:

U.S. agency debentures: Fair value measurements of U.S. agency debentures are based on the characteristics specific to bonds held, such as issuer name, coupon rate, maturity date and any applicable issuer call option features. Valuations are based on market spreads relative to similar term benchmark market interest rates, generally U.S. Treasury securities.

Agency-issued mortgage-backed securities: Agency-issued mortgage-backed securities are pools of individual conventional mortgage loans underwritten to U.S. agency standards with similar coupon rates, tenor, and other attributes such as geographic location, loan size and origination vintage. Fair value measurements of these securities are based on observable price adjustments relative to benchmark market interest rates taking into consideration estimated loan prepayment speeds.

Agency-issued collateralized mortgage obligations: Agency-issued collateralized mortgage obligations are structured into classes or tranches with defined cash flow characteristics and are collateralized by U.S. agency-issued mortgage pass-through securities. Fair value measurements of these securities incorporate similar characteristics of mortgage pass-through securities such as coupon rate, tenor, geographic location, loan size and origination vintage, in addition to incorporating the effect of estimated prepayment speeds on the cash flow structure of the class or tranche. These measurements incorporate observable market spreads over an estimated average life after considering the inputs listed above.

Agency-issued commercial mortgage-backed securities: Fair value measurements of these securities are based on spreads to benchmark market interest rates (usually U.S. Treasury rates or rates observable in the swaps market), prepayment speeds, loan default rate assumptions and loan loss severity assumptions on underlying loans.

Municipal bonds and notes: Bonds issued by municipal governments generally have stated coupon rates, final maturity dates and are subject to being called ahead of the final maturity date at the option of the issuer. Fair value measurements

41

---

Table of Contents

of these securities are priced based on spreads to other municipal benchmark bonds with similar characteristics; or, relative to market rates on U.S. Treasury bonds of similar maturity.

Interest rate derivative assets and liabilities: Fair value measurements of interest rate derivatives are priced considering the coupon rate of the fixed leg of the contract and the variable coupon on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve and the credit worthiness of the contract counterparty.

Foreign exchange forward and option contract assets and liabilities: Fair value measurements of these assets and liabilities are priced based on spot and forward foreign currency rates and option volatility assumptions.

Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant expiration dates, the risk-free interest rate and market-observable option volatility assumptions.

Level 3

The fair value measurement is derived from valuation techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions we believe market participants would use in pricing the asset. Below is a summary of the valuation techniques used for each class of Level 3 assets:

Other venture capital investments: Fair value measurements are based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, and as it relates to the private company, the current and projected operating performance, exit strategies and financing transactions subsequent to the acquisition of the investment. The significant unobservable inputs used in the fair value measurement include the information about each portfolio company, including actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Significant changes to any one of these inputs in isolation could result in a significant change in the fair value measurement, however, we generally consider all factors available through ongoing communication with the portfolio companies and venture capital fund managers to determine whether there are changes to the portfolio company or the environment that indicate a change in the fair value measurement.

Other securities: Fair value measurements of equity securities of public companies are priced based on quoted market prices less a discount if the securities are subject to certain sales restrictions. Marketability discounts generally range from 10 percent to 20 percent depending on the duration of the sale restrictions which typically range from three to six months.

Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant expiration dates, the risk-free interest rate and market-observable option volatility assumptions. Modeled asset values are further adjusted by applying a discount of up to 20 percent for certain warrants that have lock-up restrictions or other features that indicate a discount to fair value is warranted. As a lock-up term nears, and other sale restrictions are lifted, discounts are adjusted downward to zero percent once all restrictions expire or are removed.

Equity warrant assets (private portfolio): Fair value measurements of equity warrant assets of private portfolio companies are priced based on a Black-Scholes option pricing model to estimate the asset value by using stated strike prices, option expiration dates, risk-free interest rates and option volatility assumptions. Option volatility assumptions used in the model are based on public market indices whose members operate in similar industries as companies in our private company portfolio. Option expiration dates are modified to account for estimates to actual life relative to stated expiration. Overall model asset values are further adjusted for a general lack of liquidity due to the private nature of the associated underlying company. There is a direct correlation between changes in the volatility and remaining life assumptions in isolation and the fair value measurement while there is an inverse correlation between changes in the liquidity discount assumption and the fair value measurement.

It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon valuation techniques that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, prepayment speeds, option volatilities and currency rates. Substantially all of our financial instruments use the foregoing methodologies, and are categorized as a Level 1 or Level 2 measurement in the fair value hierarchy. However, in certain cases, when market observable inputs for our valuation techniques may not be readily available, we are required to make judgments about assumptions we believe market participants would use in estimating the fair value of the financial instrument, and based on the significance of those judgments, the measurement may be determined to be a Level 3 fair value measurement.

42

---

Table of Contents

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. For inactive markets, there is little information, if any, to evaluate if individual transactions are orderly. Accordingly, we are required to estimate, based upon all available facts and circumstances, the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Accordingly, the degree of judgment exercised by management in determining fair value is greater for financial assets and liabilities categorized as Level 3.

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2017:

(Dollars in thousands)		Level 1				Level 2				Level 3				Balance at September 30, 2017
Assets:
Available-for-sale securities:
U.S. Treasury securities		$	7,498,340			$	—			$	—			$	7,498,340
U.S. agency debentures		—				1,676,169				—				1,676,169
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		—				3,012,695				—				3,012,695
Agency-issued collateralized mortgage obligations—variable rate		—				395,880				—				395,880
Equity securities		802				19,451				—				20,253
Total available-for-sale securities		7,499,142				5,104,195				—				12,603,337
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value		—				—				—				128,768
Other venture capital investments (1)		—				—				1,897				1,897
Other securities (1)		392				—				—				392
Total non-marketable and other securities (fair value accounting)		392				—				1,897				131,057
Other assets:
Foreign exchange forward and option contracts		—				94,947				—				94,947
Equity warrant assets		—				2,710				139,075				141,785
Client interest rate derivatives		—				11,824				—				11,824
Total assets		$	7,499,534			$	5,213,676			$	140,972			$	12,982,950
Liabilities:
Foreign exchange forward and option contracts		$	—			$	88,961			$	—			$	88,961
Client interest rate derivatives		—				11,955				—				11,955
Total liabilities		$	—			$	100,916			$	—			$	100,916

 

(1)	Included in Level 1 and Level 3 assets are $0.3 million and $1.7 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

43

---

Table of Contents

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2016:

(Dollars in thousands)		Level 1				Level 2				Level 3				Balance at December 31, 2016
Assets:
Available-for-sale securities:
U.S. Treasury securities		$	8,909,491			$	—			$	—			$	8,909,491
U.S. agency debentures		—				2,078,375				—				2,078,375
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		—				1,152,665				—				1,152,665
Agency-issued collateralized mortgage obligations—variable rate		—				474,283				—				474,283
Equity securities		175				5,422				—				5,597
Total available-for-sale securities		8,909,666				3,710,745				—				12,620,411
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value		—				—				—				141,649
Other venture capital investments (1)		—				—				2,040				2,040
Other securities (1)		753				—				—				753
Total non-marketable and other securities (fair value accounting)		753				—				2,040				144,442
Other assets:
Interest rate swaps		—				810				—				810
Foreign exchange forward and option contracts		—				68,027				—				68,027
Equity warrant assets		—				2,310				128,813				131,123
Client interest rate derivatives		—				10,110				—				10,110
Total assets		$	8,910,419			$	3,792,002			$	130,853			$	12,974,923
Liabilities:
Foreign exchange forward and option contracts		$	—			$	54,668			$	—			$	54,668
Client interest rate derivatives		—				9,770				—				9,770
Total liabilities		$	—			$	64,438			$	—			$	64,438

 

(1)	Included in Level 1 and Level 3 assets are $0.6 million and $1.8 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

44

---

Table of Contents

The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2017 and 2016:

(Dollars in thousands)		Beginning Balance				Total Realized and Unrealized Gains (Losses) Included in Income				Sales				Issuances				Distributions and Other Settlements				Transfers Out of Level 3				Ending Balance
Three months ended September 30, 2017
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)		$	1,897			$	—			$	—			$	—			$	—			$	—			$	1,897
Other assets:
Equity warrant assets (2)		128,952				24,354				(17,412		)		3,622				—				(441		)		139,075
Total assets		$	130,849			$	24,354			$	(17,412	)		$	3,622			$	—			$	(441	)		$	140,972
Three months ended September 30, 2016
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)		$	2,040			$	4			$	(4	)		$	—			$	—			$	—			$	2,040
Other assets:
Equity warrant assets (2)		127,811				21,092				(10,682		)		5,251				—				(252		)		143,220
Total assets		$	129,851			$	21,096			$	(10,686	)		$	5,251			$	—			$	(252	)		$	145,260
Nine months ended September 30, 2017
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)		$	2,040			$	(143	)		$	—			$	—			$	—			$	—			$	1,897
Other assets:
Equity warrant assets (2)		128,813				41,549				(40,998		)		11,071				—				(1,360		)		139,075
Total assets		$	130,853			$	41,406			$	(40,998	)		$	11,071			$	—			$	(1,360	)		$	140,972
Nine months ended September 30, 2016
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)		$	2,040			$	(21	)		$	(4	)		$	—			$	25			$	—			$	2,040
Other assets:
Equity warrant assets (2)		135,168				33,115				(34,276		)		9,842				—				(629		)		143,220
Total assets		$	137,208			$	33,094			$	(34,280	)		$	9,842			$	25			$	(629	)		$	145,260

 

(1)	Realized and unrealized gains (losses) are recorded in the line item “Gains on investment securities, net”, a component of noninterest income.

(2)	Realized and unrealized gains (losses) are recorded in the line item “Gains on equity warrant assets, net”, a component of noninterest income.

45

---

Table of Contents

The following table presents the amount of net unrealized gains and losses included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at September 30, 2017 and 2016:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Non-marketable and other securities (fair value accounting):
Other venture capital investments (1)		$	—			$	—			$	(143	)		$	—
Other assets:
Equity warrant assets (2)		17,827				15,785				23,734				23,144
Total unrealized gains, net		$	17,827			$	15,785			$	23,591			$	23,144
Unrealized losses attributable to noncontrolling interests		$	—			$	—			$	(127	)		$	—

 

(1)	Unrealized gains (losses) are recorded in the line item “Gains on investment securities, net”, a component of noninterest income.

(2)	Unrealized gains (losses) are recorded in the line item “Gains on equity warrant assets, net”, a component of noninterest income.

The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of current sales restrictions to which these securities are subject, the actual sales of securities and the timing of such actual sales.

The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at September 30, 2017 and December 31, 2016. We have not included in this table our venture capital and private equity fund investments (fair value accounting) as we use net asset value per share (as obtained from the general partners of the investments) as a practical expedient to determine fair value.

(Dollars in thousands)		Fair value				Valuation Technique		Significant Unobservable Inputs		Weighted  Average
September 30, 2017:
Other venture capital investments (fair value accounting)		$	1,897			Private company equity pricing		(1)		(1	)
Equity warrant assets (public portfolio)		21,660				Black-Scholes option pricing model		Volatility		37.5	%
								Risk-Free interest rate		1.8
								Sales restrictions discount (2)		19.9
Equity warrant assets (private portfolio)		117,415				Black-Scholes option pricing model		Volatility		36.7
								Risk-Free interest rate		1.5
								Marketability discount (3)		16.6
								Remaining life assumption (4)		45.0
December 31, 2016:
Other venture capital investments (fair value accounting)		$	2,040			Private company equity pricing		(1)		(1	)
Equity warrant assets (public portfolio)		764				Black-Scholes option pricing model		Volatility		46.6	%
								Risk-Free interest rate		2.1
								Sales restrictions discount (2)		17.7
Equity warrant assets (private portfolio)		128,049				Black-Scholes option pricing model		Volatility		36.9
								Risk-Free interest rate		1.3
								Marketability discount (3)		17.1
								Remaining life assumption (4)		45.0

 

 

(1)

In determining the fair value of our other venture capital investment portfolio, we evaluate a variety of factors related to each underlying private portfolio company including, but not limited to, actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Additionally, we have ongoing communication with the portfolio companies and venture capital fund managers, to determine whether there is a material change in fair value. We use company provided valuation reports, if available, to support our valuation assumptions. These factors are specific to each portfolio company and a weighted average or range of values of the unobservable inputs is not meaningful.

(2)	We adjust quoted market prices of public companies, which are subject to certain sales restrictions. Sales restriction discounts generally range from 10 percent to 20 percent depending on the duration of the sales restrictions, which typically range from three to six months.

46

---

Table of Contents

(3)	Our marketability discount is applied to all private company warrants to account for a general lack of liquidity due to the private nature of the associated underlying company. The quantitative measure used is based upon various option-pricing models. On a quarterly basis, a sensitivity analysis is performed on our marketability discount.

(4)

We adjust the contractual remaining term of private company warrants based on our estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At September 30, 2017, the weighted average contractual remaining term was 5.9 years, compared to our estimated remaining life of 2.7 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption.

For the three and nine months ended September 30, 2017 and 2016, we did not have any transfers between Level 2 and Level 1 or transfers between Level 3 and Level 1. All transfers from Level 3 to Level 2 for the three and nine months ended September 30, 2017 and 2016 were due to the transfer of equity warrant assets from our private portfolio to our public portfolio (see our Level 3 reconciliation above). All amounts reported as transfers represent the fair value as of the date of the change in circumstances that caused the transfer.

Financial Instruments not Carried at Fair Value

FASB guidance over financial instruments requires that we disclose estimated fair values for our financial instruments not carried at fair value. Fair value estimates, methods and assumptions, set forth below for our financial instruments, are made solely to comply with these requirements.

Fair values are based on estimates or calculations at the transaction level using present value techniques in instances where quoted market prices are not available. As broadly traded markets do not exist for many of our financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. The aggregation of the fair value calculations presented herein does not represent, and should not be construed to represent, the underlying value of the Company.

The following describes the methods and assumptions used in estimating the fair values of financial instruments for which carrying value approximates fair value and estimated fair values of financial instruments not recorded at fair value on a recurring basis and excludes financial instruments and assets and liabilities already recorded at fair value as described above.

Financial Instruments for which Carrying Value Approximates Fair Value

Certain financial instruments that are not carried at fair value on the Consolidated Balance Sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and cash equivalents; FHLB and FRB stock; accrued interest receivable; short-term borrowings; short-term time deposits; and accrued interest payable. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Held-to-Maturity Securities

Held-to-maturity securities include similar investments held in our available-for-sale securities portfolio and are valued using the same methodologies. All securities included in our held-to-maturity securities portfolio are valued using Level 2 inputs. Refer to Level 2 fair value measurements above for significant inputs used in the valuation of our held-to-maturity investment securities.

Non-Marketable Securities (Cost and Equity Method Accounting)

Non-marketable securities includes other investments (equity method accounting), venture capital and private equity fund investments (cost method accounting), and other venture capital investments (cost method accounting). Other investments (equity method accounting) includes our investment in SPD-SVB, our joint venture bank in China. At this time, the carrying value of our investment in SPD-SVB is a reasonable estimate of fair value. The fair value of the remaining other investments (equity method accounting) and the fair value of venture capital and private equity fund investments (cost method accounting) and other venture capital investments (cost method accounting) is based on financial information obtained from the fund investments' or debt fund investments' respective general partners. For private company investments, estimated fair value is based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, and financing transactions subsequent to the acquisition of the investment. For our fund investments, we utilize the net asset value per share as obtained from the general partners of the investments. We adjust the net asset value per share for differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example June 30^th, for our September 30^th consolidated

47

---

Table of Contents

financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.

Loans

The fair value of fixed and variable rate loans is estimated by discounting contractual cash flows using rates that reflect current pricing for similar loans and the projected forward yield curve. This method is not based on the exit price concept of fair value required under ASC 820, Fair Value Measurements and Disclosures.

Long-Term Deposits

The fair value of long-term time deposits is estimated by discounting the cash flows using our cost of borrowings and the projected forward yield curve over their remaining contractual term.

Long-Term Debt

The fair value of long-term debt is generally based on quoted market prices, when available, or is estimated based on calculations utilizing third-party pricing services and current market spread, price indications from reputable dealers or observable market prices of the underlying instrument(s), whichever is deemed more reliable. Also included in the estimated fair value of our 6.05% Subordinated Notes are amounts related to hedge accounting associated with the notes.

Off-Balance Sheet Financial Instruments

The fair value of net available commitments to extend credit is estimated based on the average amount we would receive or pay to execute a new agreement with identical terms and pricing, while taking into account the counterparties’ credit standing.

Letters of credit are carried at their fair value, which was equivalent to the residual premium or fee at September 30, 2017 and December 31, 2016. Commitments to extend credit and letters of credit typically result in loans with a market interest rate if funded.

The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at September 30, 2017 and December 31, 2016:

48

---

Table of Contents

						Estimated Fair Value
(Dollars in thousands)		Carrying Amount				Total				Level 1				Level 2				Level 3
September 30, 2017:
Financial assets:
Cash and cash equivalents		$	3,555,571			$	3,555,571			$	3,555,571			$	—			$	—
Held-to-maturity securities		11,055,006				11,023,415				—				11,023,415				—
Non-marketable securities (cost and equity method accounting) not measured at net asset value		122,493				127,338				—				—				127,338
Non-marketable securities (cost and equity method accounting) measured at net asset value		225,883				329,468				—				—				—
Net commercial loans		19,449,408				19,878,367				—				—				19,878,367
Net consumer loans		2,490,909				2,457,138				—				—				2,457,138
FHLB and Federal Reserve Bank stock		58,012				58,012				—				—				58,012
Accrued interest receivable		129,451				129,451				—				129,451				—
Financial liabilities:
Other short-term borrowings		4,840				4,840				4,840				—				—
Non-maturity deposits (1)		44,766,988				44,766,988				44,766,988				—				—
Time deposits		45,045				44,895				—				44,895				—
3.50% Senior Notes		347,221				350,864				—				350,864				—
5.375% Senior Notes		348,035				383,439				—				383,439				—
7.0% Junior Subordinated Debentures		54,362				54,977				—				54,977				—
Accrued interest payable		4,150				4,150				—				4,150				—
Off-balance sheet financial assets:
Commitments to extend credit		—				20,751				—				—				20,751
December 31, 2016:
Financial assets:
Cash and cash equivalents		$	2,545,750			$	2,545,750			$	2,545,750			$	—			$	—
Held-to-maturity securities		8,426,998				8,376,138				—				8,376,138				—
Non-marketable securities (cost and equity method accounting) not measured at net asset value		120,037				127,343				—				—				127,343
Non-marketable securities (cost and equity method accounting) measured at net asset value		245,626				353,870				—				—				—
Net commercial loans		17,518,430				17,811,356				—				—				17,811,356
Net consumer loans		2,156,148				2,199,501				—				—				2,199,501
FHLB and Federal Reserve Bank stock		57,592				57,592				—				—				57,592
Accrued interest receivable		111,222				111,222				—				111,222				—
Financial liabilities:
Short-term FHLB advances		500,000				500,000				500,000				—				—
Other short-term borrowings		12,668				12,668				12,668				—				—
Non-maturity deposits (1)		38,923,750				38,923,750				38,923,750				—				—
Time deposits		56,118				55,949				—				55,949				—
3.50% Senior Notes		346,979				337,600				—				337,600				—
5.375% Senior Notes		347,586				378,777				—				378,777				—
6.05% Subordinated Notes (2)		46,646				47,489				—				47,489				—
7.0% Junior Subordinated Debentures		54,493				53,140				—				53,140				—
Accrued interest payable		12,013				12,013				—				12,013				—
Off-balance sheet financial assets:
Commitments to extend credit		—				22,074				—				—				22,074

 

(1)	Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits.

49

---

Table of Contents

(2)	At December 31, 2016, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $0.8 million related to hedge accounting associated with the notes.

Investments in Entities that Calculate Net Asset Value Per Share

FASB guidance over certain fund investments requires that we disclose the fair value of funds, significant investment strategies of the investees, redemption features of the investees, restrictions on the ability to sell investments, estimate of the period of time over which the underlying assets are expected to be liquidated by the investee, and unfunded commitments related to the investments.

Our investments in debt funds and venture capital and private equity fund investments generally cannot be redeemed. Alternatively, we expect distributions, if any, to be received primarily through IPO and M&A activity of the underlying assets of the fund. Subject to applicable requirements under the Volcker Rule, we do not have any plans to sell any of these fund investments. If we decide to sell these investments in the future, the investee fund’s management must approve of the buyer before the sale of the investments can be completed. The fair values of the fund investments have been estimated using the net asset value per share of the investments, adjusted for any differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example June 30^th, for our September 30^th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.

The following table is a summary of the estimated fair values of these investments and remaining unfunded commitments for each major category of these investments as of September 30, 2017:

(Dollars in thousands)		Carrying Amount				Fair Value				Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)		$	128,768			$	128,768			$	6,471
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)		87,218				87,218				4,943
Debt funds (2)		17,889				17,889				—
Other investments (2)		17,820				17,820				886
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments (2)		102,956				206,541				10,474
Total		$	354,651			$	458,236			$	22,774

 

(1)

Venture capital and private equity fund investments within non-marketable securities (fair value accounting) include investments made by our managed funds of funds and one of our direct venture funds. These investments represent investments in venture capital and private equity funds that invest primarily in U.S. and global technology and life science/healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $95.7 million and $4.9 million, respectively, attributable to noncontrolling interests. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of terms of the funds.

(2)

Venture capital and private equity fund investments, debt funds, and other fund investments within non-marketable securities (equity and cost method accounting) include funds that invest in or lend money to primarily U.S. and global technology and life science/healthcare companies. It is estimated that we will receive distributions from the funds over the next 5 to 8 years, depending on the age of the funds and any potential extensions of the terms of the funds.

15.	Legal Matters

Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against us and/or our affiliates, and we may from time to time be involved in other legal or regulatory proceedings. In accordance with applicable accounting guidance, we establish accruals for all such matters, including expected settlements, when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.

50

---

Table of Contents

To the extent we believe any potential loss relating to such matters may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we aim to disclose information relating to such potential loss. We also aim to disclose information relating to any material potential loss that is probable but not reasonably estimable. In such cases, where reasonably practicable, we aim to provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.

Based upon information available to us, our review of lawsuits and claims filed or pending against us to date and consultation with our outside legal counsel, we have not recognized a material accrual liability for any such matters, nor do we currently expect that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.

16.	Related Parties

We have no material related party transactions requiring disclosure. In the ordinary course of business, the Bank may extend credit to related parties, including executive officers, directors, principal shareholders and their related interests. Additionally, we provide real estate secured loans to eligible employees through our EHOP. For additional details, see Note 16—“Employee Compensation and Benefit Plans" under Part II, Item 8 of our 2016 Form 10-K.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including in particular “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part I, Item 2 of this report, contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, management has in the past and might in the future make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements are statements that are not historical facts. Broadly speaking, forward-looking statements include, but are not limited to, the following:

•	Financial projections, including with respect to our net interest income, noninterest income, earnings per share, noninterest expenses (including professional services, compliance, compensation and other costs), cash flows, balance sheet positions, capital expenditures, liquidity and capitalization or other financial items;

•	Descriptions of our strategic initiatives, plans or objectives for future operations, including pending sales or acquisitions;

•	Forecasts of private equity/venture capital funding and investment levels;

•	Forecasts of future interest rates, economic performance, and income from investments;

•	Forecasts of expected levels of provisions for loan losses, nonperforming loans, loan growth and client funds; and

•	Descriptions of assumptions underlying or relating to any of the foregoing.

You can identify these and other forward-looking statements by the use of words such as “becoming,” “may,” “will,” “should,” "could," "would," “predict,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “assume,” “seek,” “expect,” “plan,” “intend,” the negative of such words, or comparable terminology. Forward-looking statements are neither historical facts nor assurances of future performance. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may prove to be incorrect. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-looking statements. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among others:

•	Market and economic conditions, including the interest rate environment, and the associated impact on us;

•	The credit profile and credit quality of our loan portfolio and volatility of our levels of nonperforming assets and charge-offs;

•	The adequacy of our allowance for loan losses and the need to make provisions for loan losses for any period;

•	The borrowing needs of our clients;

•	The sufficiency of our capital and liquidity positions;

•	The levels of loans, deposits and client investment fund balances;

51

---

Table of Contents

•	The performance of our portfolio investments; the general condition of the public and private equity and mergers and acquisitions markets and their impact on our investments, including equity warrant assets, venture capital and private equity funds and direct equity investments;

•	Our overall investment plans and strategies; the realization, timing, valuation and performance of our equity or other investments;

•	The levels of public offerings, mergers and acquisitions and venture capital investment activity of our clients that may impact the borrowing needs of our clients;

•	The occurrence of fraudulent activity, including breaches of our information security or cyber security-related incidents;

•	Business disruptions and interruptions due to natural disasters and other external events;

•	The impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties;

•	Expansion of our business internationally, and the impact of international market and economic events on us;

•	The impact of governmental policy, legal requirements and regulations, including the Dodd-Frank Act, Federal Reserve and other regulatory requirements;

•	The impact of lawsuits and claims, as well as, legal or regulatory proceedings;

•	The impact of changes in accounting standards and tax laws (including any tax reform, such as the proposed Tax Cuts and Jobs Act);

•	The levels of equity capital available to our client or portfolio companies;

•	The effectiveness of our risk management framework and quantitative models;

•	The sale of impaired assets;

•	Our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives; and

•	Other factors as discussed in “Risk Factors” under Part I, Item 1A in our 2016 Form 10-K.

We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this filing are made only as of the date of this filing. We assume no obligation and do not intend to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q, except as required by law.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and accompanying notes as presented in Part I, Item 1 of this report and in conjunction with our 2016 Form 10-K.

Reclassifications

Certain prior period amounts, primarily related to the changes to our income statement presentation of gains on derivative instruments, net and provision for unfunded credit commitments have been reclassified to conform to current period presentations.

Management’s Overview of Third Quarter 2017 Performance

Overall, we had an outstanding third quarter in 2017, which was marked by higher net interest and core fee income, increased warrant gains, strong total client funds growth, healthy loan growth and stable credit quality. Additionally, we saw higher noninterest expense, primarily from increased compensation and benefits expenses as well as professional services expenses reflective of increased expenses to support our increasing regulatory, risk and compliance initiatives to support our domestic and global expansion as well as investments made in projects, systems and technology to support our revenue growth and related initiatives and other operating costs. Our core business continued to perform well as a result of our ongoing focus on innovation companies and their investors and continued efforts to secure client relationships. We saw continued success in working with private equity/venture capital firms and technology clients as well as clients in our private banking division.

A summary of our performance for the three months ended September 30, 2017 (compared to the three months ended September 30, 2016, where applicable) is as follows:

52

---

Table of Contents

BALANCE SHEET		EARNINGS
Assets.  $49.8 billion in average total assets (up 14.6%). $50.8 billion in period-end total assets (up 17.3%). Loans.  $21.6 billion in average total loan balances, net of unearned income (up 15.8%). $22.2 billion in period-end total loan balances, net of unearned income (up 16.1%). Total Client Funds (on-balance sheet deposits and off-balance sheet client investment funds).  $97.3 billion in average total client fund balances (up 20.1%). $99.0 billion in period-end total client fund balances (up 21.5%). Fixed Income Investments.  $23.1 billion in average fixed income investment securities (up 11.5%). $23.7 billion in period-end fixed income investment securities (up 15.6%).		EPS.  Earnings per diluted share of $2.79 (up 31.6%). Net Income.  Consolidated net income available to common stockholders of $148.6 million (up 33.8%). - Net interest income of $374.0 million (up 29.3%). - Net interest margin of 3.10% (up 35 bps). - Noninterest income of $158.8 million (up 10.2%), with non-GAAP core fee income+ of $102.7 million (up 27.6%). - Noninterest expense of $257.8 million (up 16.8%). ROE.  Return on average equity (annualized) (“ROE”) performance of 14.59%. Operating Efficiency Ratio.  Operating efficiency ratio of 48.38%.
CAPITAL		CREDIT QUALITY
Capital. Continued strong capital levels, with all capital ratios considered “well-capitalized” under banking regulations. SVBFG and SVB capital ratios, respectively, were: - CET 1 risk-based capital ratio of 12.96% and 12.41%. - Tier 1 risk-based capital ratio of 13.32% and 12.41%. - Total risk-based capital ratio of 14.29% and 13.40%. - Tier 1 leverage ratio of 8.34% and 7.59%.		Credit Quality.  Continued disciplined underwriting. - Allowance for loan losses of 1.12% as a percentage of period-end total gross loans. - Provision for loan losses of 0.40% as a percentage of period-end total gross loans (annualized). - Net loan charge-offs of 0.19% as a percentage of average total gross loans (annualized).

⁺ Consists of fee income for deposit services, letters of credit, credit cards, client investments, foreign exchange and lending-related activities. This is a non-GAAP financial metric. (See the non-GAAP reconciliation under “Results of Operations—Noninterest Income”)

53

---

Table of Contents

A summary of our performance for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,												Nine months ended September 30,
(Dollars in thousands, except per share data, employees and ratios)		2017				2016				% Change				2017				2016				% Change
Diluted earnings per common share		$	2.79			$	2.12			31.6		%		$	7.01			$	5.42			29.3		%
Net income available to common stockholders		148,620				111,081				33.8				373,296				283,219				31.8
Net interest income		373,974				289,161				29.3				1,026,663				853,918				20.2
Net interest margin		3.10		%		2.75		%		35		bps		2.99		%		2.72		%		27		bps
Provision for credit losses		$	23,522			$	20,004			17.6		%		$	70,062			$	90,225			(22.3	)	%
Noninterest income		158,778				144,140				10.2				404,965				343,050				18.0
Noninterest expense		257,761				220,773				16.8				746,640				624,611				19.5
Non-GAAP core fee income (1)		102,722				80,526				27.6				272,567				231,522				17.7
Non-GAAP noninterest income, net of noncontrolling interests (1)		153,164				139,461				9.8				383,256				339,423				12.9
Non-GAAP noninterest expense, net of noncontrolling interests(2)		257,636				220,656				16.8				746,123				624,327				19.5
Balance Sheet:
Average available-for-sale securities		$	12,674,610			$	12,743,715			(0.5	)	%		$	12,539,773			$	13,608,722			(7.9	)	%
Average held-to-maturity securities		10,467,470				8,003,825				30.8				9,405,525				8,347,190				12.7
Average loans, net of unearned income		21,584,892				18,647,194				15.8				20,726,467				17,955,497				15.4
Average noninterest-bearing demand deposits		36,578,779				30,522,314				19.8				34,653,264				30,694,119				12.9
Average interest-bearing deposits		7,464,063				7,387,440				1.0				7,408,371				7,749,871				(4.4	)
Average total deposits		44,042,842				37,909,754				16.2				42,061,635				38,443,990				9.4
Earnings Ratios:
Return on average assets (annualized) (3)		1.18		%		1.02		%		15.7		%		1.05		%		0.87		%		20.7		%
Return on average SVBFG stockholders’ equity (annualized) (4)		14.59				12.32				18.4				12.85				10.95				17.4
Asset Quality Ratios:
Allowance for loan losses as a % of total period-end gross loans		1.12		%		1.25		%		(13	)	bps		1.12		%		1.25		%		(13	)	bps
Allowance for loan losses for performing loans as a % of total gross performing loans		0.92				1.03				(11	)			0.92				1.03				(11	)
Gross loan charge-offs as a % of average total gross loans (annualized)		0.23				0.52				(29	)			0.33				0.53				(20	)
Net loan charge-offs as a % of average total gross loans (annualized)		0.19				0.48				(29	)			0.29				0.47				(18	)
Capital Ratios:
CET 1 risk-based capital ratio		12.96		%		12.75		%		21		bps		12.96		%		12.75		%		21		bps
Tier 1 risk-based capital ratio		13.32				13.21				11				13.32				13.21				11
Total risk-based capital ratio		14.29				14.22				7				14.29				14.22				7
Tier 1 leverage ratio		8.34				8.35				(1	)			8.34				8.35				(1	)
Tangible common equity to tangible assets (5)		8.00				8.30				(30	)			8.00				8.30				(30	)
Tangible common equity to risk-weighted assets (5)		13.01				13.11				(10	)			13.01				13.11				(10	)
Bank CET 1 risk-based capital ratio		12.41				12.77				(36	)			12.41				12.77				(36	)
Bank tier 1 risk-based capital ratio		12.41				12.77				(36	)			12.41				12.77				(36	)
Bank total risk-based capital ratio		13.40				13.83				(43	)			13.40				13.83				(43	)
Bank tier 1 leverage ratio		7.59				7.74				(15	)			7.59				7.74				(15	)
Bank tangible common equity to tangible assets (5)		7.47				7.98				(51	)			7.47				7.98				(51	)
Bank tangible common equity to risk-weighted assets (5)		12.44				13.14				(70	)			12.44				13.14				(70	)
Other Ratios:
GAAP operating efficiency ratio (6)		48.38		%		50.95		%		(5.0	)	%		52.15		%		52.18		%		(0.1	)	%
Non-GAAP operating efficiency ratio (2)		48.82				51.45				(5.1	)			52.87				52.28				1.1
Book value per common share (7)		$	77.00			$	69.02			11.6				$	77.00			$	69.02			11.6
Other Statistics:
Average full-time equivalent employees		2,434				2,255				7.9		%		2,384				2,199				8.4		%
Period-end full-time equivalent employees		2,433				2,280				6.7				2,433				2,280				6.7

 

(1)	See “Results of Operations–Noninterest Income” for a description and reconciliation of non-GAAP core fee income and noninterest income.

54

---

Table of Contents

(2)	See “Results of Operations–Noninterest Expense” for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio.

(3)	Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average assets.

(4)	Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average SVBFG stockholders’ equity.

(5)	See “Capital Resources–Capital Ratios” for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.

(6)	The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income.

(7)	Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares at period-end.

For more information with respect to our capital ratios, please refer to “Capital Ratios” under “Consolidated Financial Condition-Capital Ratios” below.

Critical Accounting Policies and Estimates

The accompanying management’s discussion and analysis of results of operations and financial condition is based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. Management evaluates estimates and assumptions on an ongoing basis. Management bases its estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.

There have been no significant changes during the nine months ended September 30, 2017 to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of our 2016 Form 10-K.

Results of Operations

Net Interest Income and Margin (Fully Taxable Equivalent Basis)

Net interest income is defined as the difference between interest earned on loans, fixed income investment portfolio (available-for-sale and held-to-maturity securities), short-term investment securities and interest paid on funding sources. Net interest income is our principal source of revenue. Net interest margin is defined as the amount of annualized net interest income, on a fully taxable equivalent basis, expressed as a percentage of average interest-earning assets. Net interest income and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the federal statutory tax rate of 35 percent.

Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable Equivalent Basis)

Net interest income is affected by changes in the amount and composition of interest-earning assets and interest-bearing liabilities, referred to as “volume change.” Net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as “rate change.” The following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities. The table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the periods indicated. For this table, changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate.

55

---

Table of Contents

		2017 Compared to 2016												2017 Compared to 2016
		Three months ended September 30, increase (decrease) due to change in												Nine months ended September 30, increase (decrease) due to change in
(Dollars in thousands)		Volume				Rate				Total				Volume				Rate				Total
Interest income:
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell, trade receivables purchased and other short-term investment securities		$	1,678			$	2,337			$	4,015			$	5,788			$	5,089			$	10,877
Fixed income investment portfolio (taxable)		15,325				10,650				25,975				6,655				26,992				33,647
Fixed income investment portfolio (non-taxable)		1,342				(342		)		1,000				2,620				(1,067		)		1,553
Loans, net of unearned income		37,814				16,404				54,218				98,851				29,676				128,527
Increase in interest income, net		56,159				29,049				85,208				113,914				60,690				174,604
Interest expense:
Interest bearing checking and savings accounts		25				1				26				63				(2		)		61
Money market deposits		65				698				763				(219		)		2,466				2,247
Money market deposits in foreign offices		(1		)		2				1				10				(1		)		9
Time deposits		—				5				5				(8		)		6				(2		)
Sweep deposits in foreign offices		(23		)		(3		)		(26		)		(75		)		(6		)		(81		)
Total increase (decrease) in deposits expense		66				703				769				(229		)		2,463				2,234
Short-term borrowings		(1,558		)		1,059				(499		)		(1,851		)		1,081				(770		)
3.50% Senior Notes		5				(2		)		3				4				4				8
5.375% Senior Notes		12				(5		)		7				15				9				24
Junior Subordinated Debentures		1				—				1				(9		)		10				1
6.05% Subordinated Notes		(236		)		—				(236		)		(405		)		224				(181		)
Total (decrease) increase in borrowings expense		(1,776		)		1,052				(724		)		(2,246		)		1,328				(918		)
(Decrease) increase in interest expense, net		(1,710		)		1,755				45				(2,475		)		3,791				1,316
Increase in net interest income		$	57,869			$	27,294			$	85,163			$	116,389			$	56,899			$	173,288

Net Interest Income (Fully Taxable Equivalent Basis)

Three months ended September 30, 2017 and 2016

Net interest income increased by $85.2 million to $374.6 million for the three months ended September 30, 2017, compared to $289.4 million for the comparable 2016 period. Overall, our net interest income increased primarily from interest earned on loans, reflective of higher average loan balances driven by strong loan growth from our private equity/venture capital and SVB Private Bank loan portfolios and rate increases subsequent to September 30, 2016. In addition, we saw an increase in interest earned on our fixed income investment securities portfolio reflective of higher average fixed income investment securities balances driven by higher average deposit balances as well as an increase in yield from rate increases.

The main factors affecting interest income for the three months ended September 30, 2017, compared to the comparable 2016 period are discussed below:

•	Interest income for the three months ended September 30, 2017 increased by $85.2 million due primarily to:

◦

A $54.2 million increase in interest income on loans to $268.4 million for the three months ended September 30, 2017, compared to $214.2 million for the comparable 2016 period. The increase was reflective of an increase in average loan balances of $2.9 billion and an increase in the overall loan yield of 36 basis points to 4.93 percent from 4.57 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased 37 basis points to 4.30 percent from 3.93 percent, reflective primarily of the benefit of interest rate increases. Loan fee yields were flat at 61 basis points for both the three months ended September 30, 2017 and 2016.

◦

A $27.0 million increase in interest income on fixed income investment securities to $111.2 million for the three months ended September 30, 2017, compared to $84.3 million for the comparable 2016 period. The increase was reflective of an increase in average fixed income investments of $2.4 billion due to growth in average deposit balances and an increase in our fixed income investment securities yield of 29 basis points to 1.91 percent from 1.62 percent resulting primarily from higher reinvestment yields on maturing fixed income investments as well as higher yields on new purchases due to interest rate increases.

56

---

Table of Contents

◦	A $4.0 million increase in interest income from our interest earning cash and short-term investment securities. The increase was due primarily to an increase of $0.9 billion in average interest-earning cash balances as a result of a $6.1 billion increase in average deposit balances and from the impact of the recent increases in the Federal Funds target rate.

The main factors affecting interest income and interest expense for the nine months ended September 30, 2017, compared to the comparable 2016 period are discussed below:

•	Interest income for the nine months ended September 30, 2017 increased by $174.6 million due primarily to:

◦

A $128.5 million increase in interest income on loans to $746.0 million for the nine months ended September 30, 2017, compared to $617.5 million for the comparable 2016 period. The increase was reflective of an increase in average loan balances of $2.8 billion and an increase in the overall loan yield of 22 basis points to 4.81 percent from 4.59 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased to 4.18 percent from 3.99 percent, reflective of the benefit of interest rate increases, partially offset by the strong growth of our lower yielding private equity/venture capital and Private Bank loan portfolios. Our private equity/venture capital loan portfolio represented 43.1 percent and 38.8 percent of our total gross loan portfolio at September 30, 2017 and 2016, respectively. Our Private Bank loan portfolio represented 11.2 percent and 10.8 percent of our total gross loan portfolio at September 30, 2017 and 2016, respectively.

Loan fee yields increased two basis points to 60 basis points from 58 basis points in the comparable 2016 period. The increase in loan fee yields was primarily a result of higher income from loan prepayments.

◦

A $35.2 million increase in interest income on fixed income investment securities to $298.9 million for the nine months ended September 30, 2017, compared to $263.7 million for the comparable 2016 period. The increase was primarily reflective of an increase in our fixed income investment securities yield of 21 basis points to 1.82 percent from 1.61 percent resulting primarily from higher reinvestment yields on maturing fixed income investments as well as higher yields on new purchases due to interest rate increases.

◦	A $10.9 million increase in interest income from our interest earning cash and short-term investment securities. The increase was due primarily to an increase of $1.1 billion in average interest-earning cash balances as a result of a $3.6 billion increase in average deposit balances. We also saw a benefit from the impact of the recent increases in the Federal Funds target rate.

•	Interest expense for the nine months ended September 30, 2017 increased by $1.3 million primarily due to:

◦	An increase in deposits interest expense of $2.2 million, due primarily to an increase in interest paid on our interest-bearing money market deposits as a result of market rate adjustments.

Net Interest Margin (Fully Taxable Equivalent Basis)

Three months ended September 30, 2017 and 2016

•	Our net interest margin increased by 35 basis points to 3.10 percent for the three months ended September 30, 2017, compared to 2.75 percent for the comparable 2016 period. The higher margin during the third quarter of 2017 was reflective primarily of the increases in the Federal Funds target rate since the third quarter of 2016.

Nine months ended September 30, 2017 and 2016

•

Our net interest margin increased by 27 basis points to 2.99 percent for the nine months ended September 30, 2017, compared to 2.72 percent for the comparable 2016 period. Our net interest margin increased primarily as a result of the impact of rising interest rates and a higher level of loans as a percentage of our interest-earning assets portfolio during the nine months ended September 30, 2017. Average loans represented 45 percent of year-to-date interest earning assets compared to 43 percent for the comparable 2016 period.

57

---

Table of Contents

Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis)

The average yield earned on interest-earning assets is the amount of annualized fully taxable equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is the amount of annualized interest expense expressed as a percentage of average funding sources. The following tables set forth average assets, liabilities, noncontrolling interests and SVBFG stockholders’ equity, interest income, interest expense, annualized yields and rates, and the composition of our annualized net interest margin for the three and nine months ended September 30, 2017 and 2016:

58

---

Table of Contents

Average Balances, Rates and Yields for the Three Months Ended September 30, 2017 and 2016

		Three months ended September 30,
		2017											2016
(Dollars in thousands)		Average Balance				Interest Income/ Expense				Yield/ Rate			Average Balance				Interest Income/ Expense				Yield/ Rate
Interest-earning assets:
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)		$	3,291,908			$	6,211			0.75	%		$	2,404,006			$	2,196			0.36	%
Investment securities: (2)
Available-for-sale securities:
Taxable		12,674,610				52,825				1.65			12,743,715				44,741				1.40
Held-to-maturity securities:
Taxable		10,249,131				56,618				2.19			7,947,983				38,727				1.94
Non-taxable (3)		218,339				1,803				3.28			55,842				803				5.72
Total loans, net of unearned income (4) (5)		21,584,892				268,445				4.93			18,647,194				214,227				4.57
Total interest-earning assets		48,018,880				385,902				3.19			41,798,740				300,694				2.86
Cash and due from banks		371,373											317,044
Allowance for loan losses		(246,210		)									(247,657		)
Other assets (6)		1,651,323											1,583,202
Total assets		$	49,795,366										$	43,451,329
Funding sources:
Interest-bearing liabilities:
Interest bearing checking and savings accounts		$	442,518			$	86			0.08	%		$	308,345			$	60			0.08	%
Money market deposits		5,774,281				2,079				0.14			5,592,603				1,316				0.09
Money market deposits in foreign offices		187,183				21				0.04			199,539				20				0.04
Time deposits		51,406				17				0.13			50,351				12				0.09
Sweep deposits in foreign offices		1,008,675				101				0.04			1,236,602				127				0.04
Total interest-bearing deposits		7,464,063				2,304				0.12			7,387,440				1,535				0.08
Short-term borrowings		48,614				164				1.34			513,446				663				0.51
3.50% Senior Notes		347,168				3,144				3.59			346,848				3,141				3.60
5.375% Senior Notes		347,934				4,854				5.53			347,345				4,847				5.55
Junior Subordinated Debentures		54,391				831				6.06			54,566				830				6.05
6.05% Subordinated Notes		—				—				—			47,421				236				1.98
Total interest-bearing liabilities		8,262,170				11,297				0.54			8,697,066				11,252				0.51
Portion of noninterest-bearing funding sources		39,756,710											33,101,674
Total funding sources		48,018,880				11,297				0.09			41,798,740				11,252				0.11
Noninterest-bearing funding sources:
Demand deposits		36,578,779											30,522,314
Other liabilities		773,586											517,066
SVBFG stockholders’ equity		4,041,218											3,586,196
Noncontrolling interests		139,613											128,687
Portion used to fund interest-earning assets		(39,756,710		)									(33,101,674		)
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity		$	49,795,366										$	43,451,329
Net interest income and margin						$	374,605			3.10	%						$	289,442			2.75	%
Total deposits		$	44,042,842										$	37,909,754
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis						(631		)									(281		)
Net interest income, as reported						$	373,974										$	289,161

 

(1)	Includes average interest-earning deposits in other financial institutions of $1.3 billion and $0.8 billion for the three months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, balances also include $1.9 billion and $1.6 billion, respectively, deposited at the FRB, earning interest at the Federal Funds target rate.

(2)	Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income.

(3)	Interest income on non-taxable investment securities are presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 35.0 percent for all periods presented.

(4)	Nonaccrual loans are reflected in the average balances of loans.

(5)	Interest income includes loan fees of $33.4 million and $28.4 million for the three months ended September 30, 2017 and 2016, respectively.

(6)	Average investment securities of $692 million and $804 million for the three months ended September 30, 2017 and 2016, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable and other securities.

59

---

Table of Contents

Average Balances, Rates and Yields for the Nine Months Ended September 30, 2017 and 2016

		Nine months ended September 30,
		2017											2016
(Dollars in thousands)		Average Balance				Interest Income/ Expense				Yield/ Rate			Average Balance				Interest Income/ Expense				Yield/ Rate
Interest-earning assets:
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)		$	3,235,628			$	16,670			0.69	%		$	2,111,619			$	5,793			0.37	%
Investment securities: (2)
Available-for-sale securities:
Taxable		12,539,773				146,803				1.57			13,608,722				140,932				1.38
Held-to-maturity securities:
Taxable		9,242,953				147,965				2.14			8,287,043				120,189				1.94
Non-taxable (3)		162,572				4,158				3.42			60,147				2,605				5.79
Total loans, net of unearned income (4) (5)		20,726,467				745,983				4.81			17,955,497				617,456				4.59
Total interest-earning assets		45,907,393				1,061,579				3.09			42,023,028				886,975				2.82
Cash and due from banks		361,041											326,144
Allowance for loan losses		(243,594		)									(237,613		)
Other assets (6)		1,540,211											1,558,157
Total assets		$	47,565,051										$	43,669,716
Funding sources:
Interest-bearing liabilities:
Interest bearing checking and savings accounts		$	420,680			$	242			0.08	%		$	310,505			$	181			0.08	%
Money market deposits		5,664,082				5,544				0.13			5,887,627				3,297				0.07
Money market deposits in foreign offices		183,040				59				0.04			153,593				50				0.04
Time deposits		50,855				49				0.13			59,069				51				0.12
Sweep deposits in foreign offices		1,089,714				324				0.04			1,339,077				405				0.04
Total interest-bearing deposits		7,408,371				6,218				0.11			7,749,871				3,984				0.07
Short-term borrowings		39,523				295				1.00			287,735				1,065				0.49
3.5% Senior Notes		347,088				9,429				3.63			346,771				9,421				3.63
5.375% Senior Notes		347,786				14,558				5.60			347,205				14,534				5.59
Junior Subordinated Debentures		54,434				2,494				6.13			54,610				2,493				6.10
6.05% Subordinated Notes		25,641				467				2.44			47,859				648				1.81
Total interest-bearing liabilities		8,222,843				33,461				0.54			8,834,051				32,145				0.49
Portion of noninterest-bearing funding sources		37,684,550											33,188,977
Total funding sources		45,907,393				33,461				0.10			42,023,028				32,145				0.10
Noninterest-bearing funding sources:
Demand deposits		34,653,264											30,694,119
Other liabilities		668,417											556,568
SVBFG stockholders’ equity		3,883,876											3,453,904
Noncontrolling interests		136,651											131,074
Portion used to fund interest-earning assets		(37,684,550		)									(33,188,977		)
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity		$	47,565,051										$	43,669,716
Net interest income and margin						$	1,028,118			2.99	%						$	854,830			2.72	%
Total deposits		$	42,061,635										$	38,443,990
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis						(1,455		)									(912		)
Net interest income, as reported						$	1,026,663										$	853,918

 

(1)	Includes average interest-earning deposits in other financial institutions of $1.0 billion and $0.7 billion for the nine months ended September 30, 2017 and 2016, respectively. The balance also includes $2.1 billion and $1.4 billion deposited at the FRB, earning interest at the Federal Funds target rate for the nine months ended September 30, 2017 and 2016, respectively.

(2)	Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income.

(3)	Interest income on non-taxable available-for-sale securities is presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 35.0 percent for all periods presented.

(4)	Nonaccrual loans are reflected in the average balances of loans.

(5)	Interest income includes loan fees of $93.5 million and $78.1 million for the nine months ended September 30, 2017 and 2016, respectively.

(6)	Average investment securities of $674 million and $803 million for the nine months ended September 30, 2017 and 2016, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable securities.

60

---

Table of Contents

Provision for Credit Losses

The provision for credit losses is the combination of both the provision for loan losses and the provision for unfunded credit commitments. Our provision for loan losses is a function of our reserve methodology, which is used to determine an appropriate allowance for loan losses for the period. Our reserve methodology is based on our evaluation of the existing allowance for loan losses in relation to total gross loans using historical and other objective information, and on our qualitative assessment of the inherent and identified credit risk of the loan portfolio. Our provision for unfunded credit commitments is determined using a methodology that is similar to the methodology used for calculating the allowance for loan losses, adjusted for factors specific to binding commitments, including the probability of funding and exposure at funding. Our provision for credit losses equals our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date.

The following table summarizes our allowance for loan losses and the allowance for unfunded credit commitments for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands, except ratios)		2017				2016				2017				2016
Allowance for loan losses, beginning balance		$	236,496			$	244,723			$	225,366			$	217,613
Provision for loan losses (1)		22,409				18,950				67,273				88,624
Gross loan charge-offs		(12,338		)		(24,616		)		(51,449		)		(71,466		)
Loan recoveries		1,828				2,084				6,155				8,158
Foreign currency translation adjustments		615				(576		)		1,665				(2,364		)
Allowance for loan losses, ending balance		$	249,010			$	240,565			$	249,010			$	240,565
Allowance for unfunded credit commitments, beginning balance		$	47,000			$	34,889			$	45,265			$	34,415
Provision for unfunded credit commitments (1)		1,113				1,054				2,789				1,601
Foreign currency translation adjustments		59				(19		)		118				(92		)
Allowance for unfunded credit commitments, ending balance (2)		$	48,172			$	35,924			$	48,172			$	35,924
Ratios and other information:
Provision for loan losses as a percentage of period-end total gross loans (annualized)		0.40		%		0.39		%		0.40		%		0.62		%
Gross loan charge-offs as a percentage of average total gross loans (annualized)		0.23				0.52				0.33				0.53
Net loan charge-offs as a percentage of average total gross loans (annualized)		0.19				0.48				0.29				0.47
Allowance for loan losses as a percentage of period-end total gross loans		1.12				1.25				1.12				1.25
Provision for credit losses (1)		$	23,522			$	20,004			$	70,062			$	90,225
Period-end total gross loans		22,329,829				19,228,928				22,329,829				19,228,928
Average total gross loans		21,712,866				18,762,144				20,850,468				18,067,893

(1)	Our consolidated statements of income were modified from prior periods’ presentation to conform to the current period presentation, which reflect our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses.”

(2)	The “allowance for unfunded credit commitments” is included as a component of “other liabilities.”

Three months ended September 30, 2017 and 2016

Our provision for credit losses was $23.5 million for the three months ended September 30, 2017, consisting of a provision for loan losses of $22.4 million and a provision for unfunded credit commitments of $1.1 million. Our provision for credit losses was $20.0 million for the three months ended September 30, 2016, consisting of a provision for loan losses of $19.0 million and a provision for unfunded credit commitments of $1.0 million.

The provision for loan losses of $22.4 million for the three months ended September 30, 2017 primarily reflects $13.8 million in net new specific reserves for nonaccrual loans and a $10.9 million increase in reserves for period-end loan growth,

61

---

Table of Contents

offset by a benefit from overall improved credit quality of our loan portfolio and the continued shift in our loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.

The provision for loan losses of $19.0 million for the three months ended September 30, 2016, was reflective primarily of $8.0 million increase in reserves for performing loans, $5.5 million for charge-offs that did not previously have a specific reserve, $4.0 million net reserves for nonaccrual loans and $2.8 million for loan growth. The net increase in reserves for nonaccrual loans included a $5.5 million partial reserve release for one of our non-performing sponsored buyout loans due to credit improvement.

Gross loan charge-offs were $12.3 million for three months ended September 30, 2017, of which $6.3 million was not specifically previously reserved for. Gross loan charge-offs were primarily from four clients consisting of $8.7 million from two clients in our software/internet loan portfolio, of which $5.9 million was a late-stage client loan, and two early-stage client loan charge-offs of $3.5 million from our hardware and life science/healthcare portfolios.

Gross loan charge-offs of $24.6 million for the three months ended September 30, 2016 included $14.2 million from two late-stage clients, all of which, previously, had been fully reserved. Remaining charge-offs were primarily from early-stage clients in our software/internet and hardware loan portfolios.

Nine months ended September 30, 2017 and 2016

Our provision for credit losses was $70.1 million for the nine months ended September 30, 2017, consisting of a provision for loan losses of $67.3 million and a provision for unfunded credit commitments of $2.8 million. Our provision for credit losses was $90.2 million for the third quarter of 2016, consisting of a provision for loan losses of $88.6 million and a provision for unfunded credit commitments of $1.6 million.

The provision for loan losses of $67.3 million for the nine months ended September 30, 2017 was reflective primarily of $51.9 million in net new specific reserves for nonaccrual loans and $20.9 million from period-end loan growth, partially offset by a benefit from overall improved credit quality of our loan portfolio and the continued shift in our loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.

The provision for loan losses of $88.6 million for the nine months ended September 30, 2016 was reflective of $33.0 million for charge-offs that did not previously have a specific reserve and $23.0 million from period-end loan growth, with the remaining provision due primarily to reserves for new nonaccrual loans.

The provision for unfunded credit commitments of $2.8 million for nine months ended September 30, 2017 was driven primarily by qualitative allocations based on our loan portfolio being comprised of larger loans. Our provision for unfunded credit commitments was $1.6 million for nine months ended September 30, 2016.

Gross loan charge-offs of $51.4 million for the nine months ended September 30, 2017 included $27.8 million from our early-stage loan portfolio and $13.0 million from two Corporate Finance client loans. These charge-offs were primarily from our software/internet loan portfolio. Gross loan charge-offs of $71.5 million for the nine months ended September 30, 2016 included $35.4 million from our early-stage portfolio and $27.6 million from four late-stage client loans. These charge-offs were primarily from our software/internet loan portfolio.

See “Consolidated Financial Condition—Credit Quality and Allowance for Loan Losses” below and Note 7—“Loans and Allowance for Loan Losses and Allowance for Unfunded Credit Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for further details on our allowance for loan losses.

Noninterest Income

For the three and nine months ended September 30, 2017, noninterest income was $158.8 million and $405.0 million, respectively, compared to $144.1 million and $343.1 million for the comparable 2016 periods. For the three and nine months ended September 30, 2017, non-GAAP noninterest income, net of noncontrolling interests was $153.2 million and $383.3 million, respectively, compared to $139.5 million and $339.4 million for the comparable 2016 periods. For the three and nine months ended September 30, 2017, non-GAAP core fee income was $102.7 million and $272.6 million, respectively, compared to $80.5 million and $231.5 million for the comparable 2016 periods. (See reconciliations of non-GAAP measures used below under “Use of Non-GAAP Financial Measures”.)

Use of Non-GAAP Financial Measures

To supplement our unaudited interim consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP noninterest income, non-GAAP net gains on investment securities). These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable

62

---

Table of Contents

measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding items that represent income attributable to investors other than us and our subsidiaries and other certain non-recurring items. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.

Included in net income is income and expense attributable to noncontrolling interests. We recognize, as part of our investment funds management business through SVB Capital, the entire income or loss from funds consolidated in accordance with ASC Topic 810 as discussed in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report. We are required under GAAP to consolidate 100% of the results of these entities, even though we may own less than 100% of such entities. The relevant amounts attributable to investors other than us are reflected under “Net Income Attributable to Noncontrolling Interests” on our statements of income. Where applicable, the tables below for noninterest income and net gains on investment securities exclude noncontrolling interests.

Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. Core fee income includes foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees.

The following table provides a reconciliation of GAAP noninterest income to non-GAAP noninterest income, net of noncontrolling interests, for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
GAAP noninterest income		$	158,778			$	144,140			10.2	%		$	404,965			$	343,050			18.0	%
Less: income attributable to noncontrolling interests, including carried interest allocation		5,614				4,679				20.0			21,709				3,627				NM
Non-GAAP noninterest income, net of noncontrolling interests		$	153,164			$	139,461			9.8			$	383,256			$	339,423			12.9

 

NM—Not meaningful

The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
GAAP noninterest income		$	158,778			$	144,140			10.2	%		$	404,965			$	343,050			18.0	%
Less: gains on investment securities, net		15,238				23,178				(34.3	)		48,838				41,764				16.9
Less: gains on equity warrant assets, net		24,922				21,558				15.6			42,432				33,253				27.6
Less: other noninterest income		15,896				18,878				(15.8	)		41,128				36,511				12.6
Non-GAAP core fee income (1)		$	102,722			$	80,526			27.6			$	272,567			$	231,522			17.7

(1)	Non-GAAP core fee income represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control and includes foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit fees.

Gains on Investment Securities, Net

Net gains and losses on investment securities include gains and losses from our non-marketable and other securities, as well as gains and losses from sales of our available-for-sale securities portfolio, when applicable.

Our available-for-sale securities portfolio represents primarily interest-earning fixed income investment securities and is managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives. Sales of equity securities held as a result of our exercised warrants, result in net gains or losses on investment securities. These sales are conducted pursuant to the guidelines of our investment policy related to the

63

---

Table of Contents

management of our liquidity position and interest rate risk. Though infrequent, sales of investment securities in our available-for-sale securities portfolio may result in net gains or losses and are also conducted pursuant to the guidelines of our investment policy.

Our non-marketable and other 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. We experience variability in the performance of our non-marketable and other securities from quarter to quarter, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains and losses from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains or losses from non-marketable and other securities for any single period are typically driven by valuation changes, and are therefore subject to potential increases or decreases in future periods. Such variability may lead to volatility in the gains or losses from investment securities. As such, our results for a particular period are not necessarily indicative of our expected performance in a future period.

The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (i.e. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes.

Three months ended September 30, 2017 and 2016

For the three months ended September 30, 2017, we had net gains on investment securities of $15.2 million, compared to $23.2 million for the comparable 2016 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $9.7 million for the three months ended September 30, 2017, compared to $18.4 million for the comparable 2016 period.

Non-GAAP net gains on investment securities, net of noncontrolling interests, of $9.7 million for the three months ended September 30, 2017 were driven by the following:

•	Gains of $3.7 million from our strategic and other investments, comprised primarily of realized gains from distributions from our strategic venture capital fund investments reflective of M&A activity,

•	Gains of $3.1 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the investments held by the funds driven by IPO and M&A activity, and

•	Gains of $2.4 million from our debt funds portfolio, related primarily to net unrealized valuation increases in the investments held by the funds driven by IPO activity during the third quarter of 2017.

Nine months ended September 30, 2017 and 2016

For the nine months ended September 30, 2017, we had net gains on investment securities of $48.8 million, compared to $41.8 million for the comparable 2016 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $27.4 million for the nine months ended September 30, 2017, compared to net gains of $38.1 million for the comparable 2016 period.

Non-GAAP net gains, net of noncontrolling interests, of $27.4 million for the nine months ended September 30, 2017 were driven by the following:

•	Gains of $14.2 million from our strategic and other investments, attributable primarily to distribution gains from our strategic venture capital funds investments and $3.4 million related to the partial sale of shares of one of our direct equity investments,

•	Gains of $9.4 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in the investments held by the funds driven by IPO, M&A and private equity-backed financing activity, and

•	Gains of $2.7 million from our debt funds portfolio, related primarily to net unrealized valuation increases in the investments held by the funds driven by IPO activity during the nine months ended September 30, 2017.

The following table provides a reconciliation of GAAP total gains (losses) on investment securities, net, to non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three and nine months ended September 30, 2017 and 2016:

64

---

Table of Contents

(Dollars in thousands)		Managed Funds of Funds				Managed Direct Venture Funds				Debt Funds				Available- For-Sale Securities				Strategic and Other Investments				Total
Three months ended September 30, 2017
Total gains (losses) on investment securities, net		$	8,446			$	729			$	2,445			$	(101	)		$	3,719			$	15,238
Less: income attributable to noncontrolling interests, including carried interest allocation		5,335				161				—				—				—				5,496
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests		$	3,111			$	568			$	2,445			$	(101	)		$	3,719			$	9,742
Three months ended September 30, 2016
Total gains (losses) on investment securities, net		$	8,931			$	390			$	166			$	(15	)		$	13,706			$	23,178
Less: income attributable to noncontrolling interests, including carried interest allocation		4,615				130				—				—				—				4,745
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests		$	4,316			$	260			$	166			$	(15	)		$	13,706			$	18,433
Nine months ended September 30, 2017
Total gains on investment securities, net		$	30,624			$	894			$	2,696			$	384			$	14,240			$	48,838
Less: income attributable to noncontrolling interests, including carried interest allocation		21,245				178				—				—				—				21,423
Non-GAAP net gains on investment securities, net of noncontrolling interests		$	9,379			$	716			$	2,696			$	384			$	14,240			$	27,415
Nine months ended September 30, 2016
Total gains (losses) on investment securities, net		$	5,830			$	(411	)		$	801			$	11,567			$	23,977			$	41,764
Less: income (losses) attributable to noncontrolling interests, including carried interest allocation		3,668				(17		)		—				—				—				3,651
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests		$	2,162			$	(394	)		$	801			$	11,567			$	23,977			$	38,113

Gains on Equity Warrant Assets, Net

A summary of gains on equity warrant assets, net, for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Equity warrant assets (1)
Gains on exercises, net		$	7,449			$	5,931			25.6	%		$	22,482			$	13,808			62.8	%
Cancellations and expirations		(757		)		(1,161		)		(34.8	)		(3,614		)		(2,544		)		42.1
Changes in fair value, net		18,230				16,788				8.6			23,564				21,989				7.2
Gains on equity warrant assets, net		$	24,922			$	21,558			15.6			$	42,432			$	33,253			27.6

 

(1)

At September 30, 2017, we held warrants in 1,842 companies, compared to 1,719 companies at September 30, 2016. The total fair value of our warrant portfolio was $142 million at September 30, 2017 and $145 million at September 30, 2016. Warrants in 16 companies each had fair values greater than $1.0 million and collectively represented $51.7 million, or 36.5 percent, of the fair value of the total warrant portfolio at September 30, 2017.

Three months ended September 30, 2017 and 2016

Net gains on equity warrant assets were $24.9 million for the three months ended September 30, 2017, compared to net gains of $21.6 million for the comparable 2016 period. Net gains on equity warrant assets for the three months ended September 30, 2017 consisted of:

65

---

Table of Contents

•	Net gains of $18.2 million from changes in warrant valuations for the three months ended September 30, 2017, compared to net gains of $16.8 million for the comparable 2016 period, driven by an increase of $15.9 million in the valuation of one company in our portfolio associated with its IPO during the third quarter of 2017, and

•	Net gains of $7.4 million from the exercise of equity warrant assets during the three months ended September 30, 2017, compared to net gains of $5.9 million for the comparable 2016 period, reflective of increased M&A activity in the third quarter of 2017.

Nine months ended September 30, 2017 and 2016

Net gains on equity warrant assets were $42.4 million for the nine months ended September 30, 2017, compared to net gains of $33.3 million for the comparable 2016 period. Net gains on equity warrant assets for the nine months ended September 30, 2017 consisted of:

•	Net gains of $22.5 million from the exercise of equity warrant assets for the nine months ended September 30, 2017, compared to net gains of $13.8 million for the comparable 2016 period, reflective primarily of increased M&A and IPO activity during the nine months ended September 30, 2017, and

•

Net gains of $23.6 million from changes in warrant valuations for the nine months ended September 30, 2017, compared to net gains of $22.0 million for the comparable 2016 period, driven primarily by an increase in the valuation of one company in our portfolio associated with its IPO during the third quarter of 2017 as mentioned above as well as increases in valuation in our private company warrant portfolio reflective of M&A exit activity during the nine months ended September 30, 2017.

Non-GAAP Core Fee Income

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Non-GAAP core fee income (1):
Foreign exchange fees		$	29,671			$	25,944			14.4	%		$	82,026			$	76,998			6.5	%
Credit card fees		20,270				18,295				10.8			56,099				49,226				14.0
Deposit service charges		14,508				13,356				8.6			43,046				39,142				10.0
Client investment fees		15,563				7,952				95.7			37,571				23,959				56.8
Lending related fees		15,404				8,168				88.6			32,874				23,783				38.2
Letters of credit and standby letters of credit fees		7,306				6,811				7.3			20,951				18,414				13.8
Total non-GAAP core fee income (1)		$	102,722			$	80,526			27.6			$	272,567			$	231,522			17.7

(1)	This non-GAAP measure represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. See “Use of Non-GAAP Measures” above.

Foreign Exchange Fees

Foreign exchange fees were $29.7 million and $82.0 million for the three and nine months ended September 30, 2017, compared to $25.9 million and $77.0 million for the comparable 2016 periods. The increases in foreign exchange fees were driven by our continued investments in people, expertise and focused client engagement, largely from our focus on our foreign exchange business as a key area targeted for growth, resulting in increased client count and higher trade volumes from existing clients across all of our client portfolios.

66

---

Table of Contents

Credit Card Fees

Credit card fees were $20.3 million and $56.1 million for the three and nine months ended September 30, 2017, compared to $18.3 million and $49.2 million for the comparable 2016 periods. The increases were primarily due to higher interchange fee income driven by an increase in transaction volume reflective of higher spend by our commercial clients and our focus on our credit card business as a key area targeted for growth. The increases in interchange fee income were partially offset by increases in rebate/rewards expense for the three and nine months ended September 30, 2017.

Deposit Service Charges

Deposit service charges were $14.5 million and $43.0 million for the three and nine months ended September 30, 2017, compared to $13.4 million and $39.1 million for the comparable 2016 periods. The increases were reflective of higher deposit client counts, as well as an increase in transaction volumes, during the three and nine months ended September 30, 2017.

Lending Related Fees

Lending related fees were $15.4 million and $32.9 million for the three and nine months ended September 30, 2017, compared to $8.2 million and $23.8 million for the comparable 2016 periods. The increases were due primarily to an adjustment of $4.5 million related to fees earned in prior periods from unused lines of credit with the remaining increase attributable primarily to higher loan syndication fee income for the three and nine months ended September 30, 2017.

Client Investment Fees

Client investment fees were $15.6 million and $37.6 million for the three and nine months ended September 30, 2017, compared to $8.0 million and $24.0 million for the comparable 2016 periods. The increases were attributable primarily to increases in average client investment fund balances driven by our clients’ increased utilization of off-balance sheet products managed by SVB Asset Management and third-party sweep money market funds, as well as from improved spreads on our client investment funds due to increases in general market rates and the reintroduction of fees that had been previously waived due to the low rate environment.

The following table summarizes average client investment funds for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in millions)		2017				2016				% Change			2017				2016				% Change
Client directed investment assets (1)		$	6,985			$	6,846			2.0	%		$	6,190			$	7,137			(13.3	)%
Client investment assets under management (2)		26,123				20,692				26.2			24,531				21,215				15.6
Sweep money market funds		20,165				15,567				29.5			18,783				14,468				29.8
Total average client investment funds (3)		$	53,273			$	43,105			23.6			$	49,504			$	42,820			15.6

 

(1)	Comprised of mutual funds and Repurchase Agreement Program assets.

(2)	These funds represent investments in third party money market mutual funds and fixed-income securities managed by SVB Asset Management.

(3)	Client investment funds are maintained at third party financial institutions and are not recorded on our balance sheet.

The following table summarizes period-end client investment funds at September 30, 2017 and December 31, 2016:

(Dollars in millions)		September 30, 2017				December 31, 2016				% Change
Client directed investment assets (1)		$	6,860			$	5,510			24.5	%
Client investment assets under management (2)		26,718				23,115				15.6
Sweep money market funds		20,664				17,173				20.3
Total period-end client investment funds (3)		$	54,242			$	45,798			18.4

 

(1)	Comprised of mutual funds and Repurchase Agreement Program assets.

(2)	These funds represent investments in third party money market mutual funds and fixed-income securities managed by SVB Asset Management.

(3)	Client investment funds are maintained at third party financial institutions and are not recorded on our balance sheet.

67

---

Table of Contents

Other Noninterest Income

A summary of other noninterest income for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Fund management fees		$	5,198			$	5,231			(0.6	)%		$	15,903			$	14,149			12.4	%
Service-based fee income		469				2,029				(76.9	)		3,860				6,270				(38.4	)
Gains on revaluation of client foreign currency instruments, net (1)		3,760				3,488				7.8			8,889				7,009				26.8
Losses on client foreign exchange forward contracts, net (1)		(3,871		)		(3,194		)		21.2			(8,350		)		(8,780		)		(4.9	)
Gains (losses) on revaluation of internal foreign currency instruments, net (2)		10,561				(1,406		)		NM			29,265				(4,222		)		NM
(Losses) gains on internal foreign exchange contracts, net (2)		(10,550		)		1,352				NM			(28,349		)		3,067				NM
Other (3)		10,329				11,378				(9.2	)		19,910				19,018				4.7
Total other noninterest income		$	15,896			$	18,878			(15.8	)		$	41,128			$	36,511			12.6

  

NM—Not meaningful

(1)	Represents the net revaluation of client foreign currency denominated financial instruments. We enter into client foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client foreign currency denominated financial instruments.

(2)	Represents the net revaluation of foreign currency denominated financial instruments issued and held by us, primarily loans, deposits and cash. We enter into internal foreign exchange forward contracts to economically reduce our foreign exchange exposure related to these foreign currency denominated financial instruments issued and held by us.

(3)	Includes dividends on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income.

Three months ended September 30, 2017 and 2016

Total other noninterest income was $15.9 million for the three months ended September 30, 2017, compared to $18.9 million for the comparable 2016 period. The decrease of $3.0 million in other noninterest income was due to the following:

•	Service-based fee income of $0.5 million compared to $2.0 million for the comparable 2016 period. The $1.5 million decrease was primarily due to the sale of our equity valuation services business during the third quarter of 2017, and

•	Other noninterest income of $10.3 million compared to $11.4 million for the comparable 2016 period. The $1.1 million decrease was primarily attributable to higher carried interest income earned from one of our unconsolidated fund investments during the third quarter of 2016 as compared to the third quarter of 2017.

Nine months ended September 30, 2017 and 2016

Total other noninterest income was $41.1 million for the nine months ended September 30, 2017, compared $36.5 million for the comparable 2016 period. The increase of $4.6 million in other noninterest income was due to the following:

•	Fund management fees of $15.9 million compared to fees of $14.1 million for the comparable 2016 period. The increase was due primarily to the addition of new managed funds at SVB Capital,

•	Service-based fee income of $3.9 million compared to $6.3 million for the comparable 2016 period. The $2.4 million decrease was primarily due to the sale of our equity valuation services business during the third quarter of 2017,

•

Net gains of $0.5 million on client foreign exchange forward contracts and the revaluation of client foreign currency denominated cash for the nine months ended September 30, 2017, compared to net losses of $1.8 million for the comparable 2016 period. The net losses for the nine months ended September 30, 2016 was primarily due to a reclassification of $2.8 million in unrealized gains on forward contracts to foreign exchange fee income reflecting fees earned on forward contracts executed on behalf of our clients that were previously recorded in gains on derivative instruments, and

68

---

Table of Contents

•

Net gains of $0.9 million on internal foreign exchange forward contracts and the revaluation of internal foreign currency denominated cash for the nine months ended September 30, 2017, compared to net losses of $1.2 million for the comparable 2016 period. The net losses of $1.2 million for the nine months ended September 30, 2016 were primarily due to the strengthening of the U.S. dollar against various foreign currencies during the nine months ended September 30, 2016.

Noninterest Expense

A summary of noninterest expense for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Compensation and benefits		$	153,263			$	136,568			12.2	%		$	449,412			$	374,410			20.0	%
Professional services		32,987				23,443				40.7			86,331				67,959				27.0
Premises and equipment		18,937				16,291				16.2			53,753				47,861				12.3
Business development and travel		10,329				8,504				21.5			30,913				30,077				2.8
Net occupancy		12,660				9,525				32.9			35,437				28,919				22.5
FDIC and state assessments		8,359				7,805				7.1			26,354				21,624				21.9
Correspondent bank fees		3,162				3,104				1.9			9,770				9,469				3.2
Other		18,064				15,533				16.3			54,670				44,292				23.4
Total noninterest expense (1)		$	257,761			$	220,773			16.8			$	746,640			$	624,611			19.5

 

(1)	Our consolidated statements of income were modified from prior periods' presentation to the current period presentation, which reflects our provision for loan losses and provision for unfunded credit commitments together as our “provision for credit losses”. In prior periods, our provision for unfunded credit commitments were reported separately as a component of noninterest expense.

Included in noninterest expense is expense attributable to noncontrolling interests. See below for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both of which exclude noncontrolling interests.

Non-GAAP Noninterest Expense

We use and report non-GAAP noninterest expense, non-GAAP taxable equivalent revenue and non-GAAP operating efficiency ratio, which excludes noncontrolling interests. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by: (i) excluding certain items that represent expenses attributable to investors other than us and our subsidiaries, or certain items that do not occur every reporting period; or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.

69

---

Table of Contents

The table below provides a summary of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both net of noncontrolling interests for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands, except ratios)		2017				2016				% Change			2017				2016				% Change
GAAP noninterest expense		$	257,761			$	220,773			16.8	%		$	746,640			$	624,611			19.5	%
Less: amounts attributable to noncontrolling interests		125				117				6.8			517				284				82.0
Non-GAAP noninterest expense, net of noncontrolling interests		$	257,636			$	220,656			16.8			$	746,123			$	624,327			19.5
GAAP net interest income		$	373,974			$	289,161			29.3			$	1,026,663			$	853,918			20.2
Adjustments for taxable equivalent basis		631				281				124.6			1,455				912				59.5
Non-GAAP taxable equivalent net interest income		$	374,605			$	289,442			29.4			$	1,028,118			$	854,830			20.3
Less: income attributable to noncontrolling interests		9				4				125.0			26				62				(58.1	)
Non-GAAP taxable equivalent net interest income, net of noncontrolling interests		$	374,596			$	289,438			29.4			$	1,028,092			$	854,768			20.3
GAAP noninterest income		$	158,778			$	144,140			10.2			$	404,965			$	343,050			18.0
Less: income attributable to noncontrolling interests		5,614				4,679				20.0			21,709				3,627				NM
Non-GAAP noninterest income, net of noncontrolling interests		$	153,164			$	139,461			9.8			$	383,256			$	339,423			12.9
GAAP total revenue		$	532,752			$	433,301			23.0			$	1,431,628			$	1,196,968			19.6
Non-GAAP taxable equivalent revenue, net of noncontrolling interests		$	527,760			$	428,899			23.0			$	1,411,348			$	1,194,191			18.2
GAAP operating efficiency ratio		48.38		%		50.95		%		(5.0	)		52.15		%		52.18		%		(0.1	)
Non-GAAP operating efficiency ratio (1)		48.82				51.45				(5.1	)		52.87				52.28				1.1

 

 

NM—Not meaningful

(1)	The non-GAAP operating efficiency ratio is calculated by dividing non-GAAP noninterest expense, net of noncontrolling interests, by non-GAAP taxable-equivalent revenue, net of noncontrolling interests.

Compensation and Benefits Expense

The following table provides a summary of our compensation and benefits expense for the three and nine months ended September 30, 2017 and 2016:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands, except employees)		2017				2016				% Change			2017				2016				% Change
Compensation and benefits:
Salaries and wages		$	72,799			$	62,636			16.2	%		$	207,687			$	182,375			13.9	%
Incentive compensation & ESOP		37,668				38,255				(1.5	)		108,310				87,162				24.3
Other employee incentives and benefits (1)		42,796				35,677				20.0			133,415				104,873				27.2
Total compensation and benefits		$	153,263			$	136,568			12.2			$	449,412			$	374,410			20.0
Period-end full-time equivalent employees		2,433				2,280				6.7			2,433				2,280				6.7
Average full-time equivalent employees		2,434				2,255				7.9			2,384				2,199				8.4

 

70

---

Table of Contents

(1)	Other employee incentives and benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee-related expenses.

Compensation and benefits expense was $153.3 million for the three months ended September 30, 2017, compared to $136.6 million for the comparable 2016 period. The key changes in factors affecting compensation and benefits expense were as follows:

•	An increase of $10.2 million in salaries and wages, reflective primarily of an increase in the number of average FTE by 179 to 2,434 FTEs for the third quarter of 2017 compared to the same period in 2016, and annual pay raises. The increase in headcount was primarily to support our growth initiatives.

•

An increase of $7.1 million in total other employee incentives and benefits, related to various expenses, particularly personnel contracting expenses, to support our growth both domestically and globally, and employer payroll taxes reflective of our increased headcount since the third quarter of 2016. The increase in other employee incentives and benefits also includes an increase of $2.7 million in warrant incentive plan expenses reflective of our quarterly equity warrant portfolio performance as well as an increase of $0.7 million in share-based compensation expense, primarily due to our accruals based on our performance expectations for our outstanding performance-based restricted stock awards compared to our estimate for the third quarter of 2016, reflective of the increase in our stock price relative to our peers.

Compensation and benefits expense was $449.4 million for the nine months ended September 30, 2017, compared to $374.4 million for the comparable 2016 period. The key changes in factors affecting compensation and benefits expense were as follows:

•

An increase of $28.5 million in total other employee incentives and benefits, related to various expenses, particularly personnel contracting expenses, to support our growth both domestically and globally, as well as group health and life insurance and employer payroll taxes reflective of our increased headcount since the nine months ended September 30, 2016. The increase in other employee incentives and benefits also includes an increase of $5.4 million in warrant incentive plan expenses reflective of our year-to-date equity warrant portfolio performance as well as an increase of $5.4 million in share-based compensation expense, primarily due to our accruals based on our performance expectations for our outstanding performance-based restricted stock awards as compared to our estimate for the nine months ended September 30, 2016, reflective of the increase in our stock price relative to our peers.

•	An increase of $25.3 million in salaries and wages, reflective primarily of an increase in the number of average FTE by 185 to 2,384 FTEs during the nine months ended September 30, 2017 compared to the same period in 2016, and annual pay raises.

•	An increase of $21.1 million in expenses related to incentive compensation plans and ESOP. Our incentive compensation expense was higher during the nine months ended September 30, 2017 primarily due to higher expected full year performance for 2017 related to the trend of our improving ROE relative to our peers, which is one of our key plan performance metrics.

Our variable compensation plans consist primarily of our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, 401(k) and ESOP Plan, Retention Program and Warrant Incentive Plan (see descriptions in our 2016 Form 10-K). Total costs incurred under these plans were $45.9 million and $133.3 million for the three and nine months ended September 30, 2017, compared to $43.7 million and $105.9 million for the comparable 2016 periods. These amounts are included in total compensation and benefits expense discussed above.

Professional Services

Professional services expense was $33.0 million and $86.3 million for the three and nine months ended September 30, 2017, compared to $23.4 million and $68.0 million for the comparable 2016 periods. The increases were primarily related to enhancements in our regulatory, risk and compliance infrastructure to support our momentum as we continue to grow both domestically and globally as well as investments made in projects, systems and technology to support our revenue growth and related initiatives and other operating costs.

Premises and Equipment

Premises and equipment was $18.9 million and $53.8 million for the three and nine months ended September 30, 2017, compared to $16.3 million and $47.9 million for the comparable 2016 periods. The increases related to investments to projects, systems and technology to support our revenue growth and related initiatives as well as other operating costs.

71

---

Table of Contents

Net Occupancy

Net occupancy expense was $12.7 million and $35.4 million for the three and nine months ended September 30, 2017, compared to $9.5 million and $28.9 million for the comparable 2016 periods. The increases were primarily due to lease renewals at higher costs, reflective of market conditions, and the expansion of certain offices to support our growth.

FDIC and State Assessments

FDIC and state assessments expense was $8.4 million and $26.4 million for the three and nine months ended September 30, 2017, compared to $7.8 million and $21.6 million for the comparable 2016 periods. The increases were due primarily to the increases in our average assets.

Other Noninterest Expense

A summary of other noninterest expense for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Lending and other client related processing costs		$	6,935			$	5,885			17.8	%		$	18,806			$	13,721			37.1	%
Telephone		2,518				2,460				2.4			7,892				7,109				11.0
Data processing services		2,244				2,137				5.0			7,254				6,353				14.2
Dues and publications		883				809				9.1			2,355				2,258				4.3
Postage and supplies		612				598				2.3			2,013				2,172				(7.3	)
Other		4,872				3,644				33.7			16,350				12,679				29.0
Total other noninterest expense		$	18,064			$	15,533			16.3			$	54,670			$	44,292			23.4

 

Net Income Attributable to Noncontrolling Interests

Included in net income is income and expense attributable to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net income attributable to noncontrolling interests” on our statements of income.

In the table below, noninterest income consists primarily of net investment gains and losses from our consolidated funds. Noninterest expense is primarily related to management fees paid by our managed funds to SVB Financial’s subsidiaries as the funds’ general partners. A summary of net income attributable to noncontrolling interests for the three and nine months ended September 30, 2017 and 2016 is as follows:

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Net interest income (1)		$	(9	)		$	(4	)		125.0	%		$	(26	)		$	(62	)		(58.1	)%
Noninterest income (1)		(4,341		)		(3,721		)		16.7			(19,059		)		(1,144		)		NM
Noninterest expense (1)		125				117				6.8			517				284				82.0
Carried interest allocation (2)		(1,273		)		(958		)		32.9			(2,650		)		(2,483		)		6.7
Net income attributable to noncontrolling interests		$	(5,498	)		$	(4,566	)		20.4			$	(21,218	)		$	(3,405	)		NM

 

NM—Not meaningful

(1)	Represents noncontrolling interests’ share in net interest income, noninterest income or loss and noninterest expense.

72

---

Table of Contents

(2)	Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.

Three months ended September 30, 2017 and 2016

Net income attributable to noncontrolling interests was $5.5 million for the three months ended September 30, 2017, compared to $4.6 million for the comparable 2016 period. Net income attributable to noncontrolling interests of $5.5 million for the three months ended September 30, 2017 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio due to net unrealized valuation increases of investments held by the funds driven primarily by IPO and M&A activity. See “Results of Operations—Noninterest Income—Gains on Investment Securities, Net”.

Nine months ended September 30, 2017 and 2016

Net income attributable to noncontrolling interests was $21.2 million for the nine months ended September 30, 2017, compared to $3.4 million for the comparable 2016 period. Net income attributable to noncontrolling interests of $21.2 million for the nine months ended September 30, 2017 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio due to net unrealized valuation increases of investments held by the funds driven by IPO, M&A and private equity-backed financing activity. See “Results of Operations—Noninterest Income—Gains on Investment Securities, Net”.

Income Taxes

Our effective income tax expense rate was 39.6 percent and 37.1 percent for the three and nine months ended September 30, 2017, respectively, compared to 40.9 percent and 40.8 percent for the three and nine months ended September 30, 2016, respectively. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests.

The reductions in the effective tax rate for the three and nine months ended September 30, 2017 resulted from the recognition of a tax benefit of $1.3 million and $14.4 million, respectively, due to the adoption and implementation of Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the first quarter of 2017. The new guidance requires tax impacts from employee share-based transactions to be recognized in the provision for income taxes rather than additional paid-in-capital in stockholders' equity required under the previous guidance. Additionally, our effective income tax expense rate for the nine months ended September 30, 2017 included the recognition of a tax benefit of $4.7 million reflective of the return of tax funds related to a prior years' tax return.

Additionally, in early November 2017, draft tax reform legislation entitled the Tax Cuts and Jobs Act (the “TCJ Act”) was introduced.  If enacted, the TCJ Act would make significant changes to the U.S. Internal Revenue Code of 1986, including corporate taxation provisions.  Such changes under the TCJ Act or any other similar tax reform could have a material impact on our results of operations or financial condition.

Excluding the impact of the tax benefit items discussed above and any tax reform, we expect the annual effective tax rate for 2017 to be comparable to the full-year 2016 effective tax rate.

Operating Segment Results

We have three segments for which we report our financial information: Global Commercial Bank, SVB Private Bank and SVB Capital.

We report segment information based on the “management” approach, which designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 11—“Segment Reporting” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.

73

---

Table of Contents

The following is our reportable segment information for the three and nine months ended September 30, 2017 and 2016:

Global Commercial Bank

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Net interest income		$	337,860			$	262,484			28.7	%		$	924,789			$	773,342			19.6	%
Provision for credit losses		(20,874		)		(16,974		)		23.0			(65,007		)		(86,143		)		(24.5	)
Noninterest income		97,227				79,226				22.7			260,650				231,295				12.7
Noninterest expense		(176,964		)		(159,479		)		11.0			(525,043		)		(462,234		)		13.6
Income before income tax expense		$	237,249			$	165,257			43.6			$	595,389			$	456,260			30.5
Total average loans, net of unearned income		$	18,807,616			$	16,357,099			15.0			$	18,125,020			$	15,769,964			14.9
Total average assets		47,817,114				40,828,549				17.1			45,414,432				41,020,808				10.7
Total average deposits		42,376,024				36,484,125				16.1			40,398,413				37,002,027				9.2

 

Three months ended September 30, 2017 and 2016

Income before income tax expense from our Global Commercial Bank (“GCB”) increased to $237.2 million for the three months ended September 30, 2017, compared to $165.3 million for the comparable 2016 period, which reflected the continued acquisition of new clients and growth of our core commercial business. The key components of GCB's performance for the three months ended September 30, 2017 compared to the comparable 2016 period are discussed below.

Net interest income from GCB increased by $75.4 million for the three months ended September 30, 2017, due primarily to an increase in loan interest income resulting mainly from higher average loan balances, as well as from an increase in loan yields as a result of rate increases.

GCB had a provision for credit losses of $20.9 million for the three months ended September 30, 2017, compared to $17.0 million for the comparable 2016 period. The provision of $20.9 million for the three months ended September 30, 2017 primarily reflected $13.8 million in net new specific reserves for nonaccrual loans and a $10.9 million increase in reserves for period-end loan growth, partially offset by a benefit from overall improved credit quality of our loan portfolio and the continued shift in our loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.

The provision of $17.0 million for the three months ended September 30, 2016 primarily reflected $8.0 million of reserves for performing loans, $5.5 million in charge-offs that did not previously have a specific reserve, $3.0 million net reserves for nonaccrual loans and $2.8 million for loan growth.

Noninterest income increased by $18.0 million for the three months ended September 30, 2017, related primarily to an increase across our non-GAAP core fee income (higher foreign exchange fees, client investment fees and credit card fees). This increase was due primarily to the continued growth of our client base and work with larger global companies reflective of investments in our platform, capabilities and global reach.

Noninterest expense increased by $17.5 million for the three months ended September 30, 2017, due primarily to increased professional services expense and compensation and benefits expense. Professional services expenses were higher due to enhancements in our risk and compliance infrastructure to support our momentum as we continue to grow both domestically and globally as well as investments made in projects, systems and technology to support our revenue growth and related initiatives and other operating costs. Compensation and benefits expense increased as a result of increased salaries and wages and other employee benefits. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased by 111 to 1,881 FTEs for the three months ended September 30, 2017, compared to 1,770 FTEs for the comparable 2016 period. The increase in total other employee benefits was related to various expenses, particularly personnel contracting expenses, to support our growth both domestically and globally, and employer payroll taxes reflective of our increased headcount since the third quarter 2016.

Nine months ended September 30, 2017 and 2016

Net interest income from our GCB increased by $151.4 million for the nine months ended September 30, 2017, due primarily to an increase in loan interest income resulting mainly from higher average loan balances as well as from an increase in loan yields as a result of rate increases.

74

---

Table of Contents

GCB had a provision for credit losses of $65.0 million for the nine months ended September 30, 2017, compared to a provision of $86.1 million for the comparable 2016 period. The provision of $65.0 million for the nine months ended September 30, 2017 was reflective primarily of $51.9 million in net new specific reserves for nonaccrual loans and $20.9 million from period-end loan growth, partially offset by a benefit from overall improved credit quality of our loan portfolio and the continued shift in our loan portfolio to private equity/venture capital loans, which tend to be of higher credit quality.

The provision of $86.1 million for the nine months ended September 30, 2016 was reflective of $33.0 million in charge-offs that did not previously have a specific reserve and $23.0 million from period-end loan growth, with the remaining provision due primarily to reserves for new nonaccrual loans.

Noninterest income increased by $29.4 million for the nine months ended September 30, 2017, related primarily to an increase across our non-GAAP core fee income (higher foreign exchange fees, credit card fees and client investment fees). This increase was due primarily to the continued growth of our client base and work with larger global companies reflective of investments in our platform, capabilities and global reach.

Noninterest expense increased by $62.8 million for the nine months ended September 30, 2017, due primarily to increased expenses for compensation and benefits and professional services. Compensation and benefits expense increased as a result of higher incentive compensation expenses, increased salaries and wages and higher other employee benefits. The increase in incentive compensation expenses was due to the expectation of our performance to exceed budget for 2017. The increase in our salaries and wages expenses was due primarily to an increase in the average number of FTEs at GCB, which increased by 124 to 1,857 FTEs for the nine months ended September 30, 2017, compared to 1,733 FTEs for the comparable 2016 period. The increase in total other employee incentives and benefits was related to various expenses, particularly personnel contracting expenses, to support our growth both domestically and globally as well as group health and life insurance and employer payroll taxes reflective of our increased headcount since the nine months ended September 30, 2016. Professional services expenses were higher due to enhancements in our risk and compliance infrastructure to support our momentum as we continue to grow both domestically and globally as well as investments made in projects, systems and technology to support our revenue growth and related initiatives and other operating costs.

SVB Private Bank

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Net interest income		$	14,600			$	13,298			9.8	%		$	42,952			$	40,508			6.0	%
Provision for credit losses		(1,535		)		(1,976		)		(22.3	)		(2,266		)		(2,481		)		(8.7	)
Noninterest income		460				664				(30.7	)		1,715				2,052				(16.4	)
Noninterest expense		(4,706		)		(3,122		)		50.7			(12,675		)		(9,481		)		33.7
Income before income tax expense		$	8,819			$	8,864			(0.5	)		$	29,726			$	30,598			(2.8	)
Total average loans, net of unearned income		$	2,499,507			$	2,074,982			20.5			$	2,371,027			$	1,978,175			19.9
Total average assets		2,538,400				2,096,237				21.1			2,403,777				1,999,455				20.2
Total average deposits		1,231,390				1,115,446				10.4			1,289,990				1,120,575				15.1

 

Three months ended September 30, 2017 and 2016

Net interest income from our SVB Private Bank increased by $1.3 million for the three months ended September 30, 2017, due primarily to higher interest income due to loan growth, partially offset by a higher funding charge for loans funded as loan growth exceeded deposit growth.

Noninterest expense increased by $1.6 million for the three months ended September 30, 2017, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of increased salaries and wages, reflective primarily of annual pay raises, and higher incentive compensation expenses due to the expectation of our performance to exceed budget for 2017.

Nine months ended September 30, 2017 and 2016

Net interest income from our SVB Private Bank increased by $2.4 million for the nine months ended September 30, 2017, due primarily to higher interest income due to loan growth, partially offset by a higher funding charge for loans funded as loan growth exceeded deposit growth.

75

---

Table of Contents

SVB Private Bank had a provision for credit losses of $2.3 million for the nine months ended September 30, 2017, compared to $2.5 million for the comparable 2016 period. The provisions for both the nine months ended September 30, 2017 and 2016 were due primarily to reserves for period-end loan growth.

Noninterest expense increased by $3.2 million for the nine months ended September 30, 2017, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of increased salaries and wages, reflective primarily of annual pay raises, and higher incentive compensation expenses due to the expectation of our performance to exceed budget for 2017.

SVB Capital

		Three months ended September 30,											Nine months ended September 30,
(Dollars in thousands)		2017				2016				% Change			2017				2016				% Change
Net interest income (expense)		$	15			$	1			NM			$	41			$	(51	)		(180.4	)%
Noninterest income		13,913				30,619				(54.6	)		45,707				44,492				2.7
Noninterest expense		(4,873		)		(3,924		)		24.2			(14,537		)		(11,521		)		26.2
Income before income tax expense		$	9,055			$	26,696			(66.1	)		$	31,211			$	32,920			(5.2	)
Total average assets		$	323,417			$	325,321			(0.6	)		$	333,439			$	334,328			(0.3	)

 

 

 

NM—Not meaningful

SVB Capital’s components of noninterest income primarily include net gains and losses on non-marketable and other securities, carried interest and fund management fees. All components of income before income tax expense and average assets discussed below are net of noncontrolling interests.

We experience variability in the performance of SVB Capital from quarter to quarter due to a number of factors, including changes in the values of our funds’ underlying investments, changes in the amount of distributions and general economic and market conditions. Such variability may lead to volatility in the gains and losses from investment securities and cause our results to differ from period to period.

Three months ended September 30, 2017 and 2016

SVB Capital had noninterest income of $13.9 million for the three months ended September 30, 2017, compared to $30.6 million for the comparable 2016 period. The decrease in noninterest income was due primarily to lower net gains on investment securities compared to the comparable 2016 period. SVB Capital’s components of noninterest income primarily include the following:

•

Net gains on investment securities of $8.2 million for the three months ended September 30, 2017, compared to net gains of $18.2 million for the comparable 2016 period. The gains on investment securities of $8.2 million for the three months ended September 30, 2017 were primarily related to gains from distributions from our strategic venture capital fund investments and net unrealized valuation increases in the investments held by the funds driven by IPO and M&A activity during the third quarter of 2017. Investment security gains in the three months ended September 30, 2016 included $7.2 million from valuation increases for one of our equity method fund investments,

•	In 2016, we recognized $6.7 million in carried interest related to the equity method fund that drove the $7.2 million of investment gains, and

•	Fund management fees remained flat at $5.2 million for the three months ended September 30, 2017 and 2016.

Nine months ended September 30, 2017 and 2016

SVB Capital had noninterest income of $45.7 million for the nine months ended September 30, 2017, compared to $44.5 million for the comparable 2016 period. The increase in noninterest income was due primarily to higher net gains on investment securities compared to the comparable 2016 period. SVB Capital’s components of noninterest income primarily include the following:

•	Net gains on investment securities of $28.2 million for the nine months ended September 30, 2017, compared to net gains of $23.0 million for the comparable 2016 period. The net gains on investment securities of $28.2 million for the nine months ended September 30, 2017 were related to gains from distributions from our strategic venture capital

76

---

Table of Contents

fund investments and net unrealized valuation increases in the investments held by the funds driven by IPO and M&A activity during the nine months ended September 30, 2017, and

•	Fund management fees of $15.9 million compared to $14.1 million for the comparable 2016 period. The increase was due primarily to the addition of new managed funds at SVB Capital.

Consolidated Financial Condition

Our total assets, and total liabilities and stockholders' equity, were $50.8 billion at September 30, 2017 compared to $44.7 billion at December 31, 2016, an increase of $6.1 billion, or 13.6 percent. Refer below to a summary of the individual components driving the changes in total assets, total liabilities and stockholders' equity.

Cash and Cash Equivalents

Cash and cash equivalents totaled $3.6 billion at September 30, 2017, an increase of $1.1 billion, or 39.7 percent, compared to $2.5 billion at December 31, 2016. The increase in period-end cash balances was primarily due to growth in our deposit balances during the nine months ended September 30, 2017.

As of September 30, 2017 and December 31, 2016, $1.6 billion and $1.1 billion, 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 $1.2 billion and $721 million, respectively.

Investment Securities

Investment securities totaled $24.3 billion at September 30, 2017, an increase of $2.6 billion, or 12.1 percent, compared to $21.7 billion at December 31, 2016. Our investment securities portfolio consists of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent primarily interest earning fixed income investment securities; and (ii) a non-marketable and other securities portfolio, which represents primarily investments managed as part of our funds management business.

77

---

Table of Contents

Available-for-Sale Securities

Period-end available-for-sale securities were $12.6 billion at September 30, 2017 compared to $12.6 billion at December 31, 2016, a decrease of $17.1 million, or 0.1 percent. The $17.1 million decrease in period-end AFS securities balances from the fourth quarter of 2016 to the third quarter of 2017 was due primarily to $2.4 billion in portfolio paydowns and maturities offset by purchases of $2.4 billion of agency backed mortgage securities and U.S. Treasury securities.

Securities classified as available-for-sale are carried at fair value with changes in fair value recorded as unrealized gains or losses in a separate component of stockholders' equity.

The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as available-for-sale as of September 30, 2017. 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 remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.

		September 30, 2017
		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		$	7,498,340			1.46	%		$	2,592,486			1.19	%		$	4,905,854			1.60	%		$	—			—	%		$	—			—	%
U.S. agency debentures		1,676,169				1.71			314,852				1.45			1,361,317				1.77			—				—			—				—
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate		3,012,695				2.40			—				—			—				—			487,285				1.98			2,525,410				2.48
Agency-issued collateralized mortgage obligations—variable rate		395,880				0.71			—				—			—				—			—				—			395,880				0.71
Total		$	12,583,084			1.69			$	2,907,338			1.22			$	6,267,171			1.64			$	487,285			1.98			$	2,921,290			2.24

Held-to-Maturity Securities

Period-end held-to-maturity securities were $11.1 billion at September 30, 2017 compared to $8.4 billion at December 31, 2016, an increase of $2.7 billion, or 31.2 percent. The $2.7 billion increase in period-end HTM security balances from the fourth quarter of 2016 to the third quarter of 2017 was due to new purchases of $3.9 billion primarily in agency backed mortgage securities, partially offset by $1.2 billion in portfolio paydowns and maturities.

Securities classified as held-to-maturity are accounted for at cost with no adjustments for changes in fair value. For securities previously re-designated as held-to-maturity from available-for-sale, the net unrealized gains at the date of transfer will continue to be reported as a separate component of shareholders' equity and amortized over the life of the securities in a manner consistent with the amortization of a premium or discount.

The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income investment securities classified as held-to-maturity as of September 30, 2017. Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 35 percent. The weighted average yield is computed using the amortized cost of fixed income investment securities. For U.S. agency

78

---

Table of Contents

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 held-to-maturity 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. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.

		September 30, 2017
		Total							One Year or Less							After One Year to Five Years							After Five Years to Ten Years							After Ten Years
(Dollars in thousands)		Amortized Cost				Weighted- Average Yield			Amortized Cost				Weighted- Average Yield			Amortized Cost				Weighted- Average Yield			Amortized Cost				Weighted- Average Yield			Amortized Cost				Weighted- Average Yield
U.S. agency debentures		$	660,193			2.37	%		$	—			—	%		$	102,581			2.73	%		$	557,612			2.30	%		$	—			—	%
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		5,164,701				2.47			738				7.52			255,275				2.20			61,538				2.06			4,847,150				2.49
Agency-issued collateralized mortgage obligations—fixed rate		3,025,421				1.78			—				—			—				—			437,865				1.48			2,587,556				1.83
Agency-issued collateralized mortgage obligations—variable rate		269,495				0.74			—				—			—				—			—				—			269,495				0.74
Agency-issued commercial mortgage-backed securities		1,554,220				2.39			—				—			—				—			—				—			1,554,220				2.39
Municipal bonds and notes		380,976				2.24			7,560				4.04			71,631				3.06			159,509				3.24			142,276				0.59
Total		$	11,055,006			2.21			$	8,298			4.35			$	429,487			2.47			$	1,216,524			2.12			$	9,400,697			2.21

Portfolio duration is a standard measure used to approximate changes in the market value of fixed income instruments due to a change in market interest rates. The measure is an estimate based on the level of current market interest rates, expectations for changes in the path of forward rates and the effect of forward rates on mortgage prepayment speed assumptions. As such, portfolio duration will fluctuate with changes in market interest rates. Changes in portfolio duration are also impacted by changes in the mix of longer versus shorter term-to-maturity securities. Our estimated fixed income investment securities portfolio duration was 2.7 years and 2.5 years at September 30, 2017 and December 31, 2016, respectively.

79

---

Table of Contents

Non-Marketable and Other Securities

Our non-marketable and other 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. Included in our non-marketable and other securities carried under fair value accounting are amounts that are attributable to noncontrolling interests. We are required under GAAP to consolidate 100% of these investments that we are deemed to control, even though we may own less than 100% of such entities. See below for a summary of the carrying value (as reported) of non-marketable and other securities compared to the amounts attributable to SVBFG.

Period-end non-marketable and other securities were $627.5 million at September 30, 2017 compared to $622.6 million at December 31, 2016, an increase of $4.9 million, or 0.8 percent. Non-marketable and other securities, net of noncontrolling interests were $506.1 million at September 30, 2017, compared to $500.1 million at December 31, 2016. The following table summarizes the carrying value (as reported) of non-marketable and other securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at September 30, 2017 and December 31, 2016:

		September 30, 2017								December 31, 2016
(Dollars in thousands)		Carrying value (as reported)				Amount attributable to SVBFG				Carrying value (as reported)				Amount attributable to SVBFG
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)		$	128,768			$	33,092			$	141,649			$	40,464
Other venture capital investments (2)		1,897				203				2,040				218
Other securities (fair value accounting) (3)		392				114				753				138
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments		87,218				63,465				82,823				64,030
Debt funds		17,889				17,889				17,020				17,020
Other investments (4)		113,478				113,478				123,514				123,514
Non-marketable securities (cost method accounting):
Venture capital and private equity fund investments		102,956				102,956				114,606				114,606
Other investments		26,835				26,835				27,700				27,700
Investments in qualified affordable housing projects, net		148,036				148,036				112,447				112,447
Total non-marketable and other securities		$	627,469			$	506,068			$	622,552			$	500,137

(1)	The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and amounts attributable to SVBFG for each fund at September 30, 2017 and December 31, 2016:

		September 30, 2017								December 31, 2016
(Dollars in thousands)		Carrying value (as reported)				Amount attributable to SVBFG				Carrying value (as reported)				Amount attributable to SVBFG
Strategic Investors Fund, LP		$	15,624			$	1,963			$	18,459			$	2,319
Capital Preferred Return Fund, LP		55,685				12,001				57,627				12,420
Growth Partners, LP		57,459				19,128				59,718				19,880
Other private equity fund (i)		—				—				5,845				5,845
Total venture capital and private equity fund investments		$	128,768			$	33,092			$	141,649			$	40,464

(i)	On January 3, 2017, the other private equity fund was closed resulting in an immaterial impact on the Company's financial statements.

80

---

Table of Contents

(2)	The following table shows the amounts of other venture capital investments held by the following consolidated funds and amounts attributable to SVBFG for each fund at September 30, 2017 and December 31, 2016:

		September 30, 2017								December 31, 2016
(Dollars in thousands)		Carrying value (as reported)				Amount attributable to SVBFG				Carrying value (as reported)				Amount attributable to SVBFG
CP I, LP		$	1,897			$	203			$	2,040			$	218
Total other venture capital investments		$	1,897			$	203			$	2,040			$	218

(3)	Investments classified as other securities (fair value accounting) represent direct equity investments in public companies held by our consolidated funds.

(4)	The following table shows the amounts of our other investments (equity method accounting) at September 30, 2017 and December 31, 2016:

		September 30, 2017								December 31, 2016
(Dollars in thousands)		Carrying value (as reported)				Amount attributable to SVBFG				Carrying value (as reported)				Amount attributable to SVBFG
Other investments:
SPD Silicon Valley Bank Co., Ltd.		$	75,511			$	75,511			$	75,296			$	75,296
Other investments		37,967				37,967				48,218				48,218
Total other investments		$	113,478			$	113,478			$	123,514			$	123,514

Volcker Rule

On June 6, 2017, we received notice that the Board of Governors of the Federal Reserve System approved the Company’s application for an extension of the permitted conformance period for the Company’s investments in “illiquid” covered funds. The approval extends the deadline by which the Company must sell, divest, restructure or otherwise conform such investments to the provisions of the Volcker Rule until the earlier of (i) July 21, 2022, or (ii) the date by which each fund matures by its terms or is otherwise conformed to the Volcker Rule.

As implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker Rule prohibits, subject to certain exceptions, a banking entity, such as the Company, from sponsoring or investing in covered funds, defined to include many venture capital and private equity funds.  As noted above, the Company currently maintains certain investments deemed to be prohibited investments in “illiquid” covered funds, which are now covered under the approved extension. As of September 30, 2017, such prohibited investments had an estimated aggregate carrying value of approximately $147 million (and an aggregate fair value of approximately $249 million). (For more information about the Volcker Rule, see “Business—Supervision and Regulation” under Item 1 of Part 1 of our 2016 Form 10-K.)

Loans

Loans, net of unearned income increased by $2.3 billion to $22.2 billion at September 30, 2017, compared to $19.9 billion at December 31, 2016. Unearned income was $141 million at September 30, 2017 and $125 million at December 31, 2016. Total gross loans were $22.3 billion at September 30, 2017, an increase of $2.3 billion, compared to $20.0 billion at December 31, 2016. Period-end loans increased compared to December 31, 2016, driven primarily by loan growth in our private equity/venture capital portfolio. The breakdown of total gross loans and total loans as a percentage of total gross loans by category is as follows:

81

---

Table of Contents

		September 30, 2017							December 31, 2016
(Dollars in thousands)		Amount				Percentage			Amount				Percentage
Commercial loans:
Software/internet		$	5,851,323			26.2	%		$	5,668,578			28.3	%
Hardware		1,122,024				5.0			1,189,114				5.9
Private equity/venture capital		9,634,928				43.1			7,747,911				38.7
Life science/healthcare		1,779,200				8.0			1,866,685				9.3
Premium wine		211,822				1.0			201,634				1.0
Other		395,091				1.8			396,458				2.0
Total commercial loans		18,994,388				85.1			17,070,380				85.2
Real estate secured loans:
Premium wine		713,467				3.2			678,745				3.5
Consumer		2,203,877				9.9			1,925,620				9.6
Other		42,671				0.2			43,807				0.2
Total real estate secured loans		2,960,015				13.3			2,648,172				13.3
Construction loans		75,644				0.3			64,957				0.3
Consumer loans		299,782				1.3			241,153				1.2
Total gross loans		$	22,329,829			100.0			$	20,024,662			100.0

Loan Concentration

The following table provides a summary of loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of September 30, 2017:

		September 30, 2017
(Dollars in thousands)		Less than Five Million				Five to Ten Million				Ten to Twenty Million				Twenty to Thirty Million				Thirty Million or More				Total
Commercial loans:
Software/internet		$	1,484,316			$	859,890			$	1,485,139			$	1,144,494			$	877,484			$	5,851,323
Hardware		240,941				185,029				215,278				272,862				207,914				1,122,024
Private equity/venture capital		656,327				766,075				1,563,788				971,708				5,677,030				9,634,928
Life science/healthcare		330,412				456,618				500,453				325,108				166,609				1,779,200
Premium wine		73,551				42,149				39,630				48,492				8,000				211,822
Other		150,103				8,000				50,885				69,521				116,582				395,091
Commercial loans		2,935,650				2,317,761				3,855,173				2,832,185				7,053,619				18,994,388
Real estate secured loans:
Premium wine		165,085				191,436				222,088				95,440				39,418				713,467
Consumer		1,886,402				234,167				83,308				—				—				2,203,877
Other		7,826				—				14,312				20,533				—				42,671
Real estate secured loans		2,059,313				425,603				319,708				115,973				39,418				2,960,015
Construction loans		6,587				46,164				—				22,893				—				75,644
Consumer loans		131,676				49,404				32,097				51,755				34,850				299,782
Total gross loans		$	5,133,226			$	2,838,932			$	4,206,978			$	3,022,806			$	7,127,887			$	22,329,829

At September 30, 2017, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $10.2 billion, or 45.5 percent of our portfolio. These loans represented 257 clients, and of these loans, $71.6 million were on nonaccrual status as of both September 30, 2017 and December 31, 2016.

82

---

Table of Contents

The following table provides a summary of loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of December 31, 2016:

		December 31, 2016
(Dollars in thousands)		Less than Five Million				Five to Ten Million				Ten to Twenty Million				Twenty to Thirty Million				Thirty Million or More				Total
Commercial loans:
Software/internet		$	1,317,707			$	779,986			$	1,657,760			$	1,021,486			$	891,639			$	5,668,578
Hardware		252,339				160,534				223,781				244,988				307,472				1,189,114
Private equity/venture capital		635,838				668,998				1,182,427				888,916				4,371,732				7,747,911
Life science/healthcare		328,942				372,171				457,833				420,580				287,159				1,866,685
Premium wine		76,400				25,209				76,609				15,902				7,514				201,634
Other		124,650				40,950				61,228				26,320				143,310				396,458
Commercial loans		2,735,876				2,047,848				3,659,638				2,618,192				6,008,826				17,070,380
Real estate secured loans:
Premium wine		151,759				172,975				229,750				101,387				22,874				678,745
Consumer loans		1,664,432				196,345				64,843				—				—				1,925,620
Other		8,014				—				14,660				21,133				—				43,807
Real estate secured loans		1,824,205				369,320				309,253				122,520				22,874				2,648,172
Construction loans		23,976				6,685				14,016				20,280				—				64,957
Consumer loans		99,119				29,092				9,473				29,089				74,380				241,153
Total gross loans		$	4,683,176			$	2,452,945			$	3,992,380			$	2,790,081			$	6,106,080			$	20,024,662

At December 31, 2016, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $8.9 billion, or 44.4 percent of our portfolio. These loans represented 233 clients, and of these loans, $79.7 million were on nonaccrual status as of December 31, 2016.

The credit profile of our loan portfolio clients varies based on the nature of the lending we do for different market segments. Our three main market segments include (i) technology (software/internet and hardware) and life science/healthcare, (ii) private equity/venture capital, and (iii) SVB Private Bank.

(i) Technology and Life Science/Healthcare

Our technology and life science/healthcare loan portfolios include loans to clients at all stages of their life cycles and represent the largest segments of our loan portfolio. The primary underwriting method for our technology and life science/healthcare portfolios are classified as investor dependent, balance sheet dependent, or cash flow dependent.

Investor dependent loans represent a relatively small percentage of our overall portfolio at 11 percent of total gross loans at both September 30, 2017 and December 31, 2016. These loans are made to companies in both our Accelerator (early-stage) and Growth practices. Investor dependent loans typically have modest or negative cash flows and no established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or others, or in some cases, a successful sale to a third party or an IPO. Venture capital firms may provide financing selectively, at reduced amounts, or on less favorable terms, which may have an adverse effect on our borrowers' ability to repay their loans to us. When repayment is dependent upon the next round of venture investment and there is an indication that further investment is unlikely or will not occur, it is often likely that the company would need to be sold to repay debt in full. If reasonable efforts have not yielded a likely buyer willing to repay all debt at the close of the sale or on commercially viable terms, the account will most likely be deemed to be impaired.

Balance sheet dependent loans, which includes asset-based loans, represented 10 percent of total gross loans at September 30, 2017 compared to 13 percent at December 31, 2016. Balance sheet dependent loans are structured to require constant current asset coverage (i.e. cash, cash equivalents, accounts receivable and, to a much lesser extent, inventory) in an amount that exceeds the outstanding debt. These loans are generally made to companies in our Growth and Corporate Finance practices. Our asset-based lending, which includes working capital lines and accounts receivable financing, both represented three percent of total gross loans as of September 30, 2017 and five percent and two percent of total gross loans at December 31, 2016, respectively. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.

Cash flow dependent loans, which include sponsored buyout lending, represent our largest source of repayment within our technology and life science/healthcare loan portfolios at approximately 19 percent of total gross loans at September 30, 2017, compared to 22 percent of total gross loans at December 31, 2016. Cash flow dependent loans require the borrower

83

---

Table of Contents

to maintain cash flow from operations that is sufficient to service all debt. Borrowers must demonstrate normalized cash flow in excess of all fixed charges associated with operating the business. Sponsored buyout loans represented 10 percent of total gross loans at September 30, 2017, compared to 11 percent of total gross loans at December 31, 2016. These loans are typically used to assist a select group of experienced private equity sponsors with the acquisition of businesses, are larger in size, and repayment is generally dependent upon the cash flows of the acquired company. The acquired companies are typically established, later-stage businesses of scale and characterized by reasonable levels of leverage and loan structures that include meaningful financial covenants. The sponsor's equity contribution is often 50 percent or more of the acquisition price.

(ii) Private Equity/Venture Capital

We also provide financial services to clients in the private equity/venture capital community. At September 30, 2017, our lending to private equity/venture capital firms and funds represented 43 percent of total gross loans, compared to 39 percent of total gross loans at December 31, 2016. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds' remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are often secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.

(iii) SVB Private Bank

Our SVB Private Bank clients are primarily private equity/venture capital professionals and executive leaders of the innovation companies they support. Our lending to SVB Private Bank clients represented 11 percent of total gross loans at both September 30, 2017 and December 31, 2016. Many of these clients have mortgages, which represented 85 percent of this portfolio at September 30, 2017; the balance of this portfolio consisted of home equity lines of credit, restricted stock purchase loans, capital call lines of credit, and other secured and unsecured lending.

State Concentrations

Approximately 31 percent and 11 percent of our outstanding total gross loan balances at both September 30, 2017 and December 31, 2016 were to borrowers based in California and New York. Other than California and New York, there are no states with gross loan balances greater than 10 percent. In October 2017, wildfires impacted regions of Northern California where some of our premium wine clients are located. As of September 30, 2017, our total loans outstanding for our wine portfolio was $925 million (4% of total loan portfolio) with loans outstanding to clients in the impacted regions of approximately $700 million. We do not currently believe there will be a material effect on the credit quality of our wine portfolio in the near term; however, we will continue to monitor this segment of our portfolio closely.

See generally “Risk Factors–Credit Risks” set forth under Item 1A, Part I in our 2016 Form 10-K.

Credit Quality Indicators

As of September 30, 2017 and December 31, 2016, our total criticized loans and impaired loans represented four percent and six percent of our total gross loans, respectively. Criticized and impaired loans to early-stage clients represented 17 percent of our total criticized and impaired loan balances at both September 30, 2017 and December 31, 2016. Loans to early-stage clients represent a relatively small percentage of our overall portfolio at six percent of total gross loans at September 30, 2017. It is common for an early-stage client’s remaining liquidity to fall temporarily below the threshold for a pass-rated credit during its capital-raising period for a new round of funding. Based on our experience, for most early-stage clients, this situation typically lasts one to two quarters and generally resolves itself with a subsequent round of venture funding, though there are exceptions, from time to time. As a result, we expect that each of our early-stage clients will reside in our criticized portfolio during a portion of their life cycle.

Credit Quality and Allowance for Loan Losses

Nonperforming assets consist of loans on nonaccrual status, loans past due 90 days or more still accruing interest, and Other Real Estate Owned (“OREO”) and other foreclosed assets. We measure all loans placed on nonaccrual status for impairment based on the fair value of the underlying collateral or the net present value of the expected cash flows. The table below sets forth certain data and ratios between nonperforming loans, nonperforming assets and the allowance for loan losses:

84

---

Table of Contents

(Dollars in thousands)		September 30, 2017				December 31, 2016
Gross nonaccrual, past due, and restructured loans:
Nonaccrual loans		$	124,672			$	118,979
Loans past due 90 days or more still accruing interest		764				33
Total nonperforming loans		125,436				119,012
OREO and other foreclosed assets		—				—
Total nonperforming assets		$	125,436			$	119,012
Performing TDRs		$	22,946			$	33,732
Nonperforming loans as a percentage of total gross loans		0.56		%		0.59		%
Nonperforming assets as a percentage of total assets		0.25				0.27
Allowance for loan losses		$	249,010			$	225,366
As a percentage of total gross loans		1.12		%		1.13		%
As a percentage of total gross nonperforming loans		198.52				189.36
Allowance for loan losses for nonaccrual loans		$	43,824			$	37,277
As a percentage of total gross loans		0.20		%		0.19		%
As a percentage of total gross nonperforming loans		34.94				31.32
Allowance for loan losses for total gross performing loans		$	205,186			$	188,089
As a percentage of total gross loans		0.92		%		0.94		%
As a percentage of total gross performing loans		0.92				0.94
Total gross loans		$	22,329,829			$	20,024,662
Total gross performing loans		22,204,393				19,905,650
Allowance for unfunded credit commitments (1)		48,172				45,265
As a percentage of total unfunded credit commitments		0.29		%		0.27		%
Total unfunded credit commitments (2)		$	16,341,930			$	16,743,196

 

 

(1)	The “allowance for unfunded credit commitments” is included as a component of other liabilities and any provision is included in the “provision for credit losses” in the statement of income. See “Provision for credit losses” for a discussion of the changes to the allowance.

(2)	Includes unfunded loan commitments and letters of credit.

Our allowance for loan losses as a percentage of total gross loans decreased one basis point to 1.12 percent at September 30, 2017, compared to 1.13 percent at December 31, 2016. The decrease of one basis point was reflective primarily of the decrease in our allowance for performing loans as a percentage of total gross loans which decreased by two basis points to 0.92 percent, partially offset by an increase of one basis point in the allowance for nonaccrual loans as a percentage of total gross loans at September 30, 2017.

Our allowance for loan losses for nonaccrual loans was $43.8 million at September 30, 2017, compared to $37.3 million at December 31, 2016. The $6.5 million increase in the allowance for nonaccrual loans included $48.0 million of new nonaccrual loan reserves, partially offset by $41.4 million of charge-offs and reserve releases. New nonaccrual loan reserves of $48.0 million were mostly attributable to our software/internet loan portfolio.

The following table presents a summary of changes in nonaccrual loans for the three and nine months ended September 30, 2017 and 2016: 

85

---

Table of Contents

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Balance, beginning of period		$	120,172			$	124,319			$	118,979			$	123,392
Additions		29,650				15,940				85,990				73,680
Paydowns		(14,183		)		(14,941		)		(43,995		)		(58,376		)
Charge-offs		(10,967		)		(19,102		)		(36,299		)		(31,348		)
Other reductions		—				—				(3		)		(1,132		)
Balance, end of period		$	124,672			$	106,216			$	124,672			$	106,216

Our nonaccrual loans as of September 30, 2017 included $98.0 million from seven clients (software/internet clients represent $61.3 million, two life science/healthcare clients represent $25.0 million and one hardware client represents $11.7 million). Two of these loans are sponsored buyout loans that were added to our nonaccrual portfolio in 2015, another is a Corporate Finance client that was added during 2016 and four are new nonaccrual loans added during 2017 spread across our Accelerator and Growth practices. The total credit exposure for these seven largest nonaccrual loans is $99.0 million, for which we have specifically reserved $30.4 million.

Average nonaccrual loans for the three and nine months ended September 30, 2017 were $119.5 million and $124.6 million, respectively, compared to $111.8 million and $113.1 million for the comparable 2016 periods. The $7.7 million increase in average nonaccrual loans for the three months ended September 30, 2017 compared to September 30, 2016 was primarily from our software/internet and hardware loan portfolios, partially offset by a decrease in our life sciences loan portfolio. If the nonaccrual loans had not been impaired, $1.8 million and $5.6 million in interest income would have been recorded for the three and nine months ended September 30, 2017, respectively, compared to $1.1 million and $3.8 million for the comparable 2016 periods.

Accrued Interest Receivable and Other Assets

A summary of accrued interest receivable and other assets at September 30, 2017 and December 31, 2016 is as follows:

(Dollars in thousands)		September 30, 2017				December 31, 2016				% Change
Derivative assets, gross (1)		$	248,556			$	210,070			18.3	%
Foreign exchange spot contract assets, gross		147,304				53,058				177.6
Accrued interest receivable		129,451				111,222				16.4
FHLB and Federal Reserve Bank stock		58,012				57,592				0.7
Accounts receivable		78,242				62,569				25.0
Net deferred tax assets		75,043				71,840				4.5
Other assets		113,153				106,337				6.4
Total accrued interest receivable and other assets		$	849,761			$	672,688			26.3

 

(1)	See “Derivatives” section below.

Foreign Exchange Spot Contract Assets

86

---

Table of Contents

Foreign exchange spot contract assets represent unsettled client trades at the end of the period. The increase of $94.2 million was due primarily to an overall increase in activity at period-end as compared to December 31, 2016.

Derivatives

Derivative instruments are recorded as a component of other assets and other liabilities on the balance sheet. The following table provides a summary of derivative assets and liabilities, net at September 30, 2017 and December 31, 2016:

(Dollars in thousands)		September 30, 2017				December 31, 2016				% Change
Assets:
Equity warrant assets		$	141,785			$	131,123			8.1	%
Foreign exchange forward and option contracts		94,947				68,027				39.6
Interest rate swaps		—				810				(100.0	)
Client interest rate derivatives		11,824				10,110				17.0
Total derivative assets		$	248,556			$	210,070			18.3
Liabilities:
Foreign exchange forward and option contracts		$	(88,961	)		$	(54,668	)		62.7
Client interest rate derivatives		(11,955		)		(9,770		)		22.4
Total derivative liabilities		$	(100,916	)		$	(64,438	)		56.6

Equity Warrant Assets

In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. At September 30, 2017, we held warrants in 1,842 companies, compared to 1,739 companies at December 31, 2016. Warrants in 16 companies each had values greater than $1.0 million and collectively represented $51.7 million, or 36.5 percent, of the fair value of the total warrant portfolio at September 30, 2017. The change in fair value of equity warrant assets is recorded in gains on equity warrant assets, net, in noninterest income, a component of consolidated net income. The following table provides a summary of transactions and valuation changes for equity warrant assets for the three and nine months ended September 30, 2017 and 2016: 

		Three months ended September 30,								Nine months ended September 30,
(Dollars in thousands)		2017				2016				2017				2016
Balance, beginning of period		$	131,750			$	129,800			$	131,123			$	137,105
New equity warrant assets		3,622				5,251				11,114				9,857
Non-cash changes in fair value, net		18,230				16,788				23,564				21,989
Exercised equity warrant assets		(11,060		)		(5,338		)		(20,402		)		(21,066		)
Terminated equity warrant assets		(757		)		(1,161		)		(3,614		)		(2,545		)
Balance, end of period		$	141,785			$	145,340			$	141,785			$	145,340

Foreign Exchange Forward and Foreign Currency Option Contracts

We enter into foreign exchange forward contracts and foreign currency option contracts with clients involved in foreign activities, either as the purchaser or seller, depending upon the clients’ needs. For each forward or option contract entered into with our clients, we enter into an opposite way forward or option contract with a correspondent bank, which mitigates the risk of fluctuations in currency rates. We also enter into forward contracts with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments. Net gains and losses on the revaluation of foreign currency denominated instruments are recorded in the line item “Other” as part of noninterest income, a component of consolidated net income. We have not experienced nonperformance by any of our counterparties and therefore have not incurred any related losses. Further, we anticipate performance by all counterparties. Our net exposure for foreign exchange forward and foreign currency option contracts at September 30, 2017 was $1.1 million and our net exposure at December 31, 2016 was $0.8 million. For additional information on our foreign exchange forward contracts and foreign currency option contracts, see Note 9—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Client Interest Rate Derivatives

87

---

Table of Contents

We sell interest rate contracts to clients who wish to mitigate their interest rate exposure. We economically reduce the interest rate risk from this business by entering into opposite way contracts with correspondent banks. Our net exposure for client interest rate derivative contracts was zero at September 30, 2017 and our net exposure at December 31, 2016 was $0.3 million. For additional information on our client interest rate derivatives, see Note 9—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Deposits

Deposits were $44.8 billion at September 30, 2017, an increase of $5.8 billion, or 15.0 percent, compared to $39.0 billion at December 31, 2016. The increase in deposits was driven primarily by funds coming from both new and existing clients in our Technology Early-Stage, Private Equity Services, and our Life Sciences portfolios during the nine months ended September 30, 2017 due to healthy venture capital funding and robust secondary public offering market activities.

At September 30, 2017, the aggregate balance of time deposit accounts individually equal to or greater than $100,000 totaled $38.6 million, compared to $48.3 million at December 31, 2016. At September 30, 2017, $38.6 million of the time deposit accounts individually equal to or greater than $100,000 were scheduled to mature within one year. No material portion of our deposits has been obtained from a single depositor and the loss of any one depositor would not materially affect our business. Approximately 13 percent and 12 percent of our total deposits at September 30, 2017 and December 31, 2016, respectively, were from our clients in Asia.

Short-Term Borrowings

We had $4.8 million in short-term borrowings at September 30, 2017, compared to $512.7 million at December 31, 2016. The decrease was due to the repayment, on January 6, 2017, of our short-term FHLB advances utilized and outstanding at December 31, 2016.

Long-Term Debt

Our long-term debt was $749.6 million at September 30, 2017 and $795.7 million at December 31, 2016.

As of September 30, 2017, long-term debt included our 3.50% Senior Notes, 5.375% Senior Notes, and 7.0% Junior Subordinated Debentures. For more information on our long-term debt, see Note 8—“Short-Term Borrowings and Long-Term Debt” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Our 6.05% Subordinated Notes, issued by the Bank, were repaid on June 1, 2017. The interest rate swap agreement relating to this issuance was terminated upon repayment of the notes.

Other Liabilities

A summary of other liabilities at September 30, 2017 and December 31, 2016 is as follows:

(Dollars in thousands)		September 30, 2017				December 31, 2016				% Change
Foreign exchange spot contract liabilities, gross		$	249,175			$	68,018			NM
Accrued compensation		124,111				135,842				(8.6	)
Allowance for unfunded credit commitments		48,172				45,265				6.4
Derivative liabilities, gross (1)		100,916				64,438				56.6
Other		468,124				304,820				53.6
Total other liabilities		$	990,498			$	618,383			60.2

 

NM—Not meaningful

(1)	See “Derivatives” section above.

Foreign Exchange Spot Contract Liabilities

Foreign exchange spot contract liabilities represent unsettled client trades at the end of the period. The increase of $181.2 million was due primarily to increased client trade activity at period-end as compared to December 31, 2016.

88

---

Table of Contents

Other

Other includes various accrued liability amounts for other operational transactions. The increase of $163.3 million was reflective primarily of a $145.3 million increase in unsettled investment securities purchases at September 30, 2017 as compared to December 31, 2016.

Noncontrolling Interests

Noncontrolling interests totaled $137.5 million and $134.5 million at September 30, 2017 and December 31, 2016, respectively. The $3.0 million increase was due primarily to income attributable to noncontrolling interests of $21.2 million, partially offset by net distributions of $18.2 million to limited partners from various managed funds of funds for the nine months ended September 30, 2017.

Fair Value Measurements

The following table summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:

		September 30, 2017								December 31, 2016
(Dollars in thousands)		Total Balance				Level 3				Total Balance				Level 3
Assets carried at fair value		$	12,982,950			$	140,972			$	12,974,923			$	130,853
As a percentage of total assets		25.6		%		0.3		%		29.0		%		0.3		%
Liabilities carried at fair value		$	100,916			$	—			$	64,438			$	—
As a percentage of total liabilities		0.2		%		—		%		0.2		%		—		%
As a percentage of assets carried at fair value						1.1		%						1.0		%

Financial assets valued using Level 3 measurements consist of our non-marketable investment securities in shares of private company stock and equity warrant assets (rights to shares of private and public company capital stock). The valuation methodologies of our non-marketable securities carried under fair value accounting and equity warrant assets involve a significant degree of management judgment. Refer to Note 14—“Fair Value of Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for a summary of the valuation techniques and significant inputs used for each class of Level 3 assets.

The inherent uncertainty in the process of valuing securities for which a ready market does not exist may cause our estimated values of these securities to differ significantly from the values that would have been derived had a ready market for the securities existed, and those differences could be material. The timing and amount of changes in fair value, if any, of these financial instruments depend upon factors beyond our control, including the performance of the underlying companies, fluctuations in the market prices of the preferred or common stock of the underlying companies, general volatility and interest rate market factors, and legal and contractual restrictions. The timing and amount of actual net proceeds, if any, from the disposition of these financial instruments depend upon factors beyond our control, including investor demand for IPOs, levels of M&A activity, legal and contractual restrictions on our ability to sell, and the perceived and actual performance of portfolio companies. All of these factors are difficult to predict and there can be no assurances that we will realize the full value of these securities, which could result in significant losses. See “Risk Factors” set forth in our 2016 Form 10-K.

During the three and nine months ended September 30, 2017, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $24.4 million and $41.4 million, primarily due to realized and unrealized net gains on equity warrant assets due primarily to M&A and IPO activity. During the three and nine months ended September 30, 2016, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $21.1 million and $33.1 million, primarily due to valuation increases from our public and private company warrant portfolios and net gains realized on exercised warrant assets due to IPO and M&A activity.

89

---

Table of Contents

Capital Resources

We maintain an adequate capital base to support anticipated asset growth, operating needs and credit and other business risks, and to provide for SVB Financial and the Bank to be in compliance with all regulatory capital guidelines. Our primary sources of new capital include retained earnings and proceeds from the sale and issuance of our capital stock or other securities. In consultation with the Finance Committee of our Board of Directors, management engages in regular capital planning processes in an effort to optimize the use of capital available to us and to appropriately plan for our future capital needs. The capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments. In addition, we conduct capital stress tests as part of our annual capital planning process. The capital stress tests allow us to assess the impact of adverse changes in the economy and interest rates on our capital adequacy position.

SVBFG Stockholders’ Equity

SVBFG stockholders’ equity totaled $4.1 billion at September 30, 2017, an increase of $417.3 million, or 11.5 percent, compared to $3.6 billion at December 31, 2016. This increase was due primarily to net income of $373.3 million for the nine months ended September 30, 2017 and an increase in additional paid-in capital of $51.8 million attributable primarily to amortization of share-based compensation expense and common stock issued under employee benefit plans.

Funds generated through retained earnings are a significant source of capital and liquidity and are expected to continue to be so in the future.

Capital Ratios

Both SVB Financial and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies.

Regulatory capital ratios for SVB Financial and the Bank exceeded minimum federal regulatory guidelines for a well-capitalized depository institution as of September 30, 2017 and December 31, 2016. Capital ratios for SVB Financial and the Bank, compared to the minimum regulatory ratios applicable to bank holding companies and banks to be considered “well capitalized” and “adequately capitalized”, are set forth below:

								Minimum Ratios under Applicable Regulatory Capital Adequacy Requirements
		September 30, 2017			December 31, 2016			“Well Capitalized”			“Adequately  Capitalized”
SVB Financial:
CET 1 risk-based capital ratio		12.96	%		12.80	%		6.5	%		4.5	%
Tier 1 risk-based capital ratio		13.32			13.26			8.0			6.0
Total risk-based capital ratio		14.29			14.21			10.0			8.0
Tier 1 leverage ratio		8.34			8.34			N/A			4.0
Tangible common equity to tangible assets ratio (1)		8.00			8.15			N/A			N/A
Tangible common equity to risk-weighted assets ratio (1)		13.01			12.89			N/A			N/A
Bank:
CET 1 risk-based capital ratio		12.41	%		12.65	%		6.5	%		4.5	%
Tier 1 risk-based capital ratio		12.41			12.65			8.0			6.0
Total risk-based capital ratio		13.40			13.66			10.0			8.0
Tier 1 leverage ratio		7.59			7.67			5.0			4.0
Tangible common equity to tangible assets ratio (1)		7.47			7.77			N/A			N/A
Tangible common equity to risk-weighted assets ratio (1)		12.44			12.75			N/A			N/A

 

 

(1)	See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.

Capital ratios (CET 1, tier 1, total risk-based capital and tier 1 leverage) for SVB Financial increased as of September 30, 2017, compared to the same ratios as of December 31, 2016. The changes were driven by an increase in capital during the nine months ended September 30, 2017, primarily from net income. An increase in additional paid-in capital from share-based compensation expense during the nine months ended September 30, 2017 also resulted in a benefit to the capital ratios. The

90

---

Table of Contents

increases in capital were partially offset by an increase in risk-weighted assets due to period-end loan growth and higher investment and cash balances driven by increases in deposits.

Capital ratios (CET 1, tier 1, total risk-based capital and tier 1 leverage) for the Bank decreased as of September 30, 2017, compared to the same ratios as of December 31, 2016. The decrease in the Bank's capital ratios reflected $60.0 million of cash dividends paid by the Bank to our bank holding company, SVB Financial, during the nine months ended September 30, 2017. All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations.

The tangible common equity to tangible assets ratio and the tangible common equity to risk-weighted assets ratios are not required by GAAP or applicable bank regulatory requirements. However, we believe these ratios provide meaningful supplemental information regarding our capital levels. Our management uses, and believes that investors benefit from referring to, these ratios in evaluating the adequacy of the Company’s capital levels; however, these financial measures should be considered in addition to, not as a substitute for or preferable to, comparable financial measures prepared in accordance with GAAP. These ratios are calculated by dividing total SVBFG stockholders' equity, by total period-end assets and risk-weighted assets, after reducing both amounts by acquired intangibles, if any. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies.

The following table provides a reconciliation of non-GAAP financial measures with financial measures defined by GAAP for SVB Financial and the Bank for the periods ended September 30, 2017 and December 31, 2016:

		SVB Financial								Bank
Non-GAAP tangible common equity and tangible assets    (Dollars in thousands, except ratios)		September 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016
GAAP SVBFG stockholders’ equity		$	4,059,813			$	3,642,554			$	3,728,890			$	3,423,427
Tangible common equity		$	4,059,813			$	3,642,554			$	3,728,890			$	3,423,427
GAAP total assets		$	50,754,287			$	44,683,660			$	49,937,343			$	44,059,340
Tangible assets		$	50,754,287			$	44,683,660			$	49,937,343			$	44,059,340
Risk-weighted assets		$	31,208,081			$	28,248,750			$	29,970,913			$	26,856,850
Tangible common equity to tangible assets		8.00		%		8.15		%		7.47		%		7.77		%
Tangible common equity to risk-weighted assets		13.01				12.89				12.44				12.75

The tangible common equity to tangible assets ratio decreased for SVB Financial and the Bank due to the proportionally higher increase in our assets compared to the increases in common equity during the nine months ended September 30, 2017. Increased capital was reflective primarily of net income for the nine months ended September 30, 2017. Total assets increased primarily as a result of loan growth and higher investment and cash balances driven by increases in deposits. The tangible common equity to risk-weighted assets ratio increased for SVB Financial and decreased for the Bank. The increase for SVB Financial was a result of the proportionally higher increase in net income compared to the changes in risk-weighted assets during the nine months ended September 30, 2017. The growth in period-end risk-weighted assets was primarily due to period-end loan growth and higher investment and cash balances driven by increases in deposits. The decrease for the Bank was a result of $60.0 million in cash dividends paid by the Bank to our bank holding company, SVB Financial, during the nine months ended September 30, 2017. See “SVBFG Stockholders’ Equity” above for further details on changes to the individual components of our equity balance.

Off-Balance Sheet Arrangements

In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve, to varying degrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract. For details of our commitments to extend credit, and commercial and standby letters of credit, please refer to Note 12—“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.

Commitments to Invest in Venture Capital and Private Equity Funds

Subject to applicable regulatory requirements, including the Volcker Rule, we make investments. We make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital

91

---

Table of Contents

commitments over 5 to 7 years; however in certain cases, the funds may not call 100% of committed capital over the life of the fund. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate.

For further details on our commitments to invest in venture capital and private equity funds, refer to Note 12—“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.

Liquidity

The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations, including, as necessary, paying creditors, meeting depositors’ needs, accommodating loan demand and growth, funding investments, repurchasing securities and other operating or capital needs, without incurring undue cost or risk, or causing a disruption to normal operating conditions.

We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Our Asset/Liability Committee (“ALCO”), which is a management committee, provides oversight to the liquidity management process and recommends policy guidelines for the approval of the Finance Committee of our Board of Directors, and courses of action to address our actual and projected liquidity needs. Additionally, we routinely conduct liquidity stress testing as part of our liquidity management practices.

Our deposit base is, and historically has been, our primary source of liquidity. Our deposit levels and cost of deposits may fluctuate from time to time due to a variety of factors, including market conditions, prevailing interest rates, changes in client deposit behaviors, availability of insurance protection, and our offering of deposit products. We may also offer more investment alternatives for our off-balance sheet products which may impact deposit levels. At September 30, 2017, our period-end total deposit balances were $44.8 billion, compared to $39.0 billion at December 31, 2016.

Our liquidity requirements can also be met through the use of our portfolio of liquid assets. Our definition of liquid assets includes cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, short-term investment securities maturing within one year, available-for-sale securities eligible and available for financing or pledging purposes with a maturity in excess of one year and anticipated near-term cash flows from investments.

We have certain facilities in place to enable us to access short-term borrowings on a secured (using high-quality fixed income securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. We also pledge securities to the FHLB of San Francisco and the discount window at the Federal Reserve Bank. The fair value of collateral pledged to the FHLB of San Francisco (comprised primarily of U.S. Treasury securities) at September 30, 2017 totaled $1.9 billion, all of which was unused and available to support additional borrowings. The fair value of collateral pledged at the discount window of the Federal Reserve Bank at September 30, 2017 totaled $0.7 billion, all of which was unused and available to support additional borrowings.

On a stand-alone basis, SVB Financial’s primary liquidity channels include cash flow from investments and interest in financial assets (including equity warrants) held by SVB Financial or its operating subsidiaries other than the Bank; to the extent declared, dividends from the Bank; and to the extent needed, capital market transactions offering debt and equity instruments in the public and private markets. Consistent with recent prior quarters, the Bank has paid a quarterly dividend to SVB Financial. For the three and nine months ended September 30, 2017, the dividend amount paid was $20 million and $60 million, respectively.

The ability of the Bank to pay dividends is subject to certain regulations described in “Business—Supervision and Regulation—Restriction on Dividends” under Part I, Item 1 of our 2016 Form 10-K.

Consolidated Summary of Cash Flows

Below is a summary of our average cash position and statement of cash flows for the nine months ended September 30, 2017 and 2016. For further details, see our “Interim Consolidated Statements of Cash Flows (Unaudited)” under Part I, Item 1 of this report.

92

---

Table of Contents

		Nine months ended September 30,
(Dollars in thousands)		2017				2016
Average cash and cash equivalents		$	3,596,669			$	2,437,763
Percentage of total average assets		7.6		%		5.6		%
Net cash provided by operating activities		$	468,032			$	273,004
Net cash (used for) provided by investing activities		(4,734,383		)		2,472,444
Net cash provided by (used for) financing activities		5,276,172				(1,727,386		)
Net increase in cash and cash equivalents		$	1,009,821			$	1,018,062

Average cash and cash equivalents increased by $1.2 billion, or 47.5 percent, to $3.6 billion for the nine months ended September 30, 2017, compared to $2.4 billion for the comparable 2016 period.

Cash provided by operating activities was $468.0 million for the nine months ended September 30, 2017, reflective primarily of net income before noncontrolling interests of $394.5 million.

Cash used for investing activities of $4.7 billion for the nine months ended September 30, 2017 was driven by $6.2 billion in purchases of fixed income investment securities, partially offset by $3.7 billion of proceeds from maturities and principal paydowns from our fixed income investment securities portfolio. Additionally, $2.3 billion in cash outflows were used to fund loan growth during the nine months ended September 30, 2017.

Cash provided by financing activities was $5.3 billion for the nine months ended September 30, 2017, reflective primarily of a net increase of $5.8 billion in deposits, partially offset by $507.8 million of payments on our overnight short-term borrowings and $46.2 million for the repayment of our 6.05% Subordinated Notes upon maturity.

Cash and cash equivalents were $3.6 billion and $2.5 billion, respectively, at September 30, 2017 and September 30, 2016.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management

Market risk is defined as the risk of adverse fluctuations in the market value of financial instruments due to changes in market interest rates. Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of the benchmark LIBOR/SWAP yield curve. Additionally, changes in interest rates can influence the rate of principal prepayments on mortgage securities, which affects the rate of amortization of purchase premiums and discounts. Other market risks include foreign currency exchange risk, equity price risk, including the effect of competition on product pricing. While all of these risks are important considerations, all are inherently difficult to predict, and it is equally difficult to assess the impact of each on the overall simulation results. Consequently, simulations used to analyze sensitivity of net interest income to interest rate risk will differ from actual results due to differences in the timing, frequency, and magnitude of changes in market rates, the impact of competition, fluctuating business conditions, and the impact of strategies taken by management to mitigate these risks.

Interest rate risk is managed by our ALCO. ALCO reviews the sensitivity of the market valuation on earning assets and funding liabilities and 12-month forward looking net interest income from changes in interest rates, structural changes in investment and funding portfolios, loan and deposit activity and current market conditions. Adherence with relevant metrics included in our Interest Rate Risk Policy, which is approved by the Finance Committee of our Board of Directors, is monitored on an ongoing basis.

Management of interest rate risk is carried out primarily through strategies involving our fixed income securities portfolio, available funding channels and capital market activities. In addition, our policies permit the use of off-balance sheet derivatives to assist in managing interest rate risk.

We utilize a simulation model to perform sensitivity analysis on the economic value of our equity and our net interest income under a variety of interest rate scenarios, balance sheet forecasts and business strategies. The simulation model provides a dynamic assessment of interest rate sensitivity embedded within our balance sheet which measures the potential variability in economic value and net interest income relating solely to changes in market interest rates over time. We review our interest rate risk position and sensitivity to market rates on a quarterly basis at a minimum.    

93

---

Table of Contents

Model Simulation and Sensitivity Analysis

A specific application of our simulation model involves measurement of the impact of changes in market interest rates on our economic value of equity (“EVE”). EVE is defined as the market value of assets, less the market value of liabilities, adjusted for any off-balance sheet items, if any. Another application of the simulation model measures the impact of changes in market interest rates on our net interest income (“NII”) assuming a static balance sheet as of the period-end reporting date. Meaning, the size and composition of earning assets and funding liabilities are held constant over the simulation horizon. Simulated cash flows during the scenario horizon are assumed to be replaced as they occur, which restores the balance sheet to its original size and composition. More specifically, with respect to earning assets, loan maturities, principal maturities, paydowns and calls on investments are added back as replacement balances as they occur during the simulation horizon. Yield and spread assumptions on cash and investment balances reflect current market rates. Yield and spread assumptions on loans reflect recent market impacts on product pricing. Similarly, we make certain deposit decay rate assumptions on demand deposits and interest bearing deposits, which are replenished to hold the level and mix of funding liabilities constant. Changes in market interest rates that affect us are principally short-term interest rates and include the following benchmark indexes: (i) National and SVB Prime rates, (ii) 1-month and 3-month LIBOR, and (iii) the Federal Funds target rate. Changes in these short-term rates impact interest earned on our variable rate loans, variable rate investment securities and balances held as cash and cash equivalents. Additionally, simulated changes in deposit pricing relative to changes in market rates, commonly referred to as deposit beta, generally follow overall changes in short-term interest rates, although actual changes may lag in terms of timing and magnitude. Overall, the assumed weighted deposit beta on interest bearing deposits is approximately 35.0 percent, which means deposit repricing is assumed to be approximately 35.0 percent of a given change in short-term interest rates. This repricing is reflected as a change in interest expense on interest bearing deposit balances.

For the three months ended September 30, 2017, our results include two key modeling assumption changes relating to our non-maturity deposits and prepayments on outstanding commercial loans. The impact was seen primarily in our EVE sensitivity profile and, to a lesser degree, on our NII sensitivity.

For non-maturity deposits, the assumed deposit decay rate is greater in current modeled results compared to assumptions used in prior periods. The impact of the change in assumptions in all rate simulations resulted in greater market value sensitivity of deposits and greater EVE sensitivity overall. Prepayment rate assumptions on commercial loans are also greater in current modeled results compared to assumptions used in prior periods. The impact of the change in assumptions resulted in lower market value sensitivity on commercial loans but the impact on overall EVE sensitivity was minimal in comparison to the overall changes in EVE sensitivity.

The following table presents our EVE and NII sensitivity exposure related to an instantaneous and sustained parallel shift in market interest rates of 100 and 200 basis points at September 30, 2017 and at December 31, 2016 (as revised based on the assumptions noted above):

Change in interest rates (basis points) (Dollars in thousands)		Estimated				Estimated Increase/(Decrease) in EVE							Estimated				Estimated Increase/(Decrease) in NII
		EVE				Amount				Percent			NII				Amount				Percent
September 30, 2017:
200		$	8,223,716			$	999,900			13.8	%		$	1,889,933			$	426,799			29.2	%
100		7,767,694				543,878				7.5			1,677,489				214,355				14.7
—		7,223,816				—				—			1,463,134				—				—
-100		6,448,044				(775,772		)		(10.7	)		1,248,346				(214,788		)		(14.7	)
-200		5,444,025				(1,779,791		)		(24.6	)		1,190,846				(272,288		)		(18.6	)
December 31, 2016 (As revised):
200		$	7,601,404			$	1,129,823			17.5	%		$	1,543,247			$	365,734			31.1	%
100		7,073,407				601,826				9.3			1,360,356				182,843				15.5
—		6,471,581				—				—			1,177,513				—				—
-100		5,765,799				(705,782		)		(10.9	)		1,075,353				(102,160		)		(8.7	)
-200		4,860,540				(1,611,041		)		(24.9	)		1,039,903				(137,610		)		(11.7	)

Economic Value of Equity

The estimated EVE in the preceding table is based on a combination of valuation methodologies including a discounted cash flow analysis and a multi-path lattice based valuation. Both methodologies use publicly available market interest rates to

94

---

Table of Contents

determine discounting factors on projected cash flows. The model simulations and calculations are highly assumption-dependent and will change regularly as the composition of earning assets and funding liabilities change (including the impact of changes in the value of interest rate derivatives, if any), as interest rate environments evolve, and as we change our assumptions in response to relevant market conditions, competition or business circumstances. These calculations do not reflect forecast changes in our balance sheet or changes we may make to reduce our EVE exposure as a part of our overall interest rate risk management strategy.

As with any method of measuring interest rate risk, certain limitations are inherent in the method of analysis presented in the preceding table. We are exposed to yield curve risk, prepayment risk, basis risk, and yield spread compression, which cannot be fully modeled and expressed using the above methodology. Accordingly, the results in the preceding table should not be relied upon as a precise indicator of actual results in the event of changing market interest rates. Additionally, the resulting EVE and NII estimates are not intended to represent, and should not be construed to represent our estimate of the underlying value of equity or forecast of NII.

Our base case EVE as of September 30, 2017 increased from December 31, 2016 by $0.8 billion primarily due to balance sheet mix changes as well as the assumption model changes discussed above. As of September 30, 2017, period-end loans, net of unearned income increased $2.3 billion as compared to December 31, 2016. Comparing the same periods, period-end total fixed income investment securities increased $2.6 billion and period-end cash and cash equivalents increased by $1.0 billion driven primarily by an increase in deposits balances of $5.8 billion.

Higher short-term LIBOR rates as of September 30, 2017, with marginally lower long-term rates, contributed to a flattening of the yield curve compared to December 31, 2016. Changes in nominal rates and a change in the shape of the yield curve resulted in the market value of deposits decreasing proportionally higher than assets. However, as noted above, non-maturity deposit modeling assumption changes were the primary driver of a higher base case EVE as of September 30, 2017. Compared to December 31, 2016, proportional growth in loans, investments, and deposits did not significantly impact EVE sensitivity measures in the +100 bps and +200 bps rate shock scenarios as of September 30, 2017. The change in EVE sensitivity can be attributed primarily to the non-maturity assumptions changes as described above.

12-Month Net Interest Income Simulation

Our simulated 12-month base case NII at September 30, 2017 increased from December 31, 2016 by $286 million, primarily due to the impact of the loan prepayment assumptions changes described above, higher rates on LIBOR and Prime rate based loans, higher period-end loan growth as noted above, and a higher level of earning assets at September 30, 2017.

NII sensitivity as of September 30, 2017 in the +100 and -100 bps rate shock scenarios is nearly symmetrical at +14.7% and -14.7%, respectively. This profile is as expected, given the composition of floating rate loans in our balance sheet. NII sensitivity in the +200 and -200 bps interest rate shock scenarios still shows asymmetry, with less sensitivity in the -200 bps rate shock scenario due to floors on loans.

The simulation model used in the above analysis incorporates embedded floors on loans in our interest rate scenarios, which prevent model benchmark rates from moving below zero percent in the down rate scenarios. The embedded floors are also a factor in the up rate scenarios to the extent a simulated increase in rates is needed before floored rates are cleared. In addition, we assume different deposit balance decay rates for each interest rate scenario based on a historical deposit study of our clients. These assumptions may change in future periods based on changes in client behavior and at management's discretion. Actual changes in our deposit pricing strategies may differ from our current model assumptions and may have an impact on our actual sensitivity overall.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, among other things, processes, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of our most recently completed fiscal quarter, pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the Chief

95

---

Table of Contents

Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

96

---

Table of Contents

PART II–OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to Note 15—“Legal Matters” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

ITEM 1A. RISK FACTORS

There are no material changes to the risk factors set forth in our 2016 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number

Exhibit Description

Incorporated by Reference

Filed  Herewith

Form

File No.

Exhibit

Filing Date

31.1

Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer

X

31.2

Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer

X

32.1

Section 1350 Certifications

X

101.INS

XBRL Instance Document

X

101.SCH

XBRL Taxonomy Extension Schema Document

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

X

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

X

97

---

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		SVB Financial Group
Date: November 8, 2017		/s/ DANIEL BECK
		Daniel Beck
		Chief Financial Officer
		(Principal Financial Officer)
		SVB Financial Group
Date: November 8, 2017		/s/ KAMRAN HUSAIN
		Kamran Husain
		Chief Accounting Officer
		(Principal Accounting Officer)

98