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, 2011
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
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At October 28, 2011, 43,342,749 shares of the registrants common stock ($0.001 par value) were outstanding.
2
PART I - FINANCIAL INFORMATION
ITEM 1. | INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except par value and share data) |
September 30, 2011 |
December 31, 2010 |
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Assets |
||||||||
Cash and due from banks |
$ | 1,742,144 | $ | 2,672,725 | ||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
299,828 | 403,707 | ||||||
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Cash and cash equivalents |
2,041,972 | 3,076,432 | ||||||
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Available-for-sale securities |
9,639,386 | 7,917,967 | ||||||
Non-marketable securities |
951,963 | 721,520 | ||||||
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Investment securities |
10,591,349 | 8,639,487 | ||||||
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Loans, net of unearned income |
6,328,588 | 5,521,737 | ||||||
Allowance for loan losses |
(85,246 | ) | (82,627 | ) | ||||
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Net loans |
6,243,342 | 5,439,110 | ||||||
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Premises and equipment, net of accumulated depreciation and amortization |
53,458 | 44,545 | ||||||
Accrued interest receivable and other assets |
265,242 | 328,187 | ||||||
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Total assets |
$ | 19,195,363 | $ | 17,527,761 | ||||
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Liabilities and total equity |
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Liabilities: |
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Deposits: |
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Noninterest-bearing demand |
$ | 11,162,776 | $ | 9,011,538 | ||||
Interest-bearing deposits |
4,976,446 | 5,325,403 | ||||||
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Total deposits |
16,139,222 | 14,336,941 | ||||||
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Short-term borrowings |
| 37,245 | ||||||
Other liabilities |
254,256 | 196,037 | ||||||
Long-term debt |
609,557 | 1,209,260 | ||||||
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Total liabilities |
17,003,035 | 15,779,483 | ||||||
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Commitments and contingencies (Note 11) |
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SVBFG stockholders equity: |
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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; 43,268,880 shares and 42,268,201 shares outstanding, respectively |
43 | 42 | ||||||
Additional paid-in capital |
472,443 | 422,334 | ||||||
Retained earnings |
964,159 | 827,831 | ||||||
Accumulated other comprehensive income |
99,453 | 24,143 | ||||||
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Total SVBFG stockholders equity |
1,536,098 | 1,274,350 | ||||||
Noncontrolling interests |
656,230 | 473,928 | ||||||
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Total equity |
2,192,328 | 1,748,278 | ||||||
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Total liabilities and total equity |
$ | 19,195,363 | $ | 17,527,761 | ||||
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|
See accompanying notes to interim consolidated financial statements (unaudited).
3
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended September 30, |
Nine months ended September 30, |
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(Dollars in thousands, except per share amounts) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Interest income: |
||||||||||||||||
Loans |
$ | 101,693 | $ | 80,716 | $ | 284,935 | $ | 230,216 | ||||||||
Available-for-sale securities: |
||||||||||||||||
Taxable |
39,357 | 32,375 | 124,956 | 101,493 | ||||||||||||
Non-taxable |
899 | 948 | 2,723 | 2,869 | ||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
1,375 | 2,719 | 4,972 | 8,444 | ||||||||||||
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Total interest income |
143,324 | 116,758 | 417,586 | 343,022 | ||||||||||||
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Interest expense: |
||||||||||||||||
Deposits |
1,715 | 3,783 | 7,379 | 11,315 | ||||||||||||
Borrowings |
6,154 | 6,634 | 24,000 | 18,090 | ||||||||||||
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Total interest expense |
7,869 | 10,417 | 31,379 | 29,405 | ||||||||||||
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Net interest income |
135,455 | 106,341 | 386,207 | 313,617 | ||||||||||||
Provision for (reduction of) loan losses |
769 | 10,971 | (2,144 | ) | 29,124 | |||||||||||
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|
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Net interest income after provision for loan losses |
134,686 | 95,370 | 388,351 | 284,493 | ||||||||||||
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Noninterest income: |
||||||||||||||||
Gains on investment securities, net |
52,262 | 46,611 | 175,279 | 67,420 | ||||||||||||
Foreign exchange fees |
11,546 | 9,091 | 32,397 | 26,207 | ||||||||||||
Gains on derivative instruments, net |
9,951 | 1,257 | 24,153 | 4,565 | ||||||||||||
Deposit service charges |
8,259 | 7,324 | 23,214 | 22,283 | ||||||||||||
Credit card fees |
4,506 | 3,139 | 12,687 | 8,853 | ||||||||||||
Client investment fees |
2,939 | 4,681 | 9,707 | 13,562 | ||||||||||||
Letters of credit and standby letters of credit income |
3,040 | 2,752 | 8,452 | 7,869 | ||||||||||||
Other |
3,108 | 11,381 | 23,384 | 24,907 | ||||||||||||
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Total noninterest income |
95,611 | 86,236 | 309,273 | 175,666 | ||||||||||||
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Noninterest expense: |
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Compensation and benefits |
77,009 | 62,170 | 232,529 | 181,993 | ||||||||||||
Professional services |
16,122 | 12,618 | 43,000 | 37,358 | ||||||||||||
Premises and equipment |
7,220 | 5,548 | 19,572 | 16,651 | ||||||||||||
Business development and travel |
5,886 | 5,153 | 17,429 | 14,542 | ||||||||||||
Net occupancy |
4,967 | 5,131 | 14,163 | 14,468 | ||||||||||||
FDIC assessments |
2,302 | 2,637 | 7,940 | 13,273 | ||||||||||||
Correspondent bank fees |
2,336 | 2,228 | 6,701 | 6,132 | ||||||||||||
Provision for unfunded credit commitments |
2,055 | 1,692 | 2,131 | 2,561 | ||||||||||||
Other |
9,554 | 6,994 | 22,453 | 19,949 | ||||||||||||
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Total noninterest expense |
127,451 | 104,171 | 365,918 | 306,927 | ||||||||||||
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Income before income tax expense |
102,846 | 77,435 | 331,706 | 153,232 | ||||||||||||
Income tax expense |
26,770 | 24,996 | 92,803 | 50,397 | ||||||||||||
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Net income before noncontrolling interests |
76,076 | 52,439 | 238,903 | 102,835 | ||||||||||||
Net income attributable to noncontrolling interests |
(38,505 | ) | (14,652 | ) | (102,575 | ) | (25,371 | ) | ||||||||
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Net income available to common stockholders |
$ | 37,571 | $ | 37,787 | $ | 136,328 | $ | 77,464 | ||||||||
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Earnings per common sharebasic |
$ | 0.87 | $ | 0.90 | $ | 3.18 | $ | 1.86 | ||||||||
Earnings per common sharediluted |
0.86 | 0.89 | 3.12 | 1.83 |
See accompanying notes to interim consolidated financial statements (unaudited).
4
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended September 30, |
Nine months ended September 30, |
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(Dollars in thousands) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Net income before noncontrolling interests |
$ | 76,076 | $ | 52,439 | $ | 238,903 | $ | 102,835 | ||||||||
Other comprehensive income, net of tax: |
||||||||||||||||
Change in cumulative translation gains: |
||||||||||||||||
Foreign currency translation (losses) gains |
(5,573 | ) | 2,113 | (3,682 | ) | 1,961 | ||||||||||
Related tax benefit (expense) |
2,280 | (862 | ) | 1,506 | (800 | ) | ||||||||||
Change in unrealized gains on available-for-sale securities: |
||||||||||||||||
Unrealized holding gains |
93,701 | 634 | 168,378 | 92,923 | ||||||||||||
Related tax expense |
(38,329 | ) | (259 | ) | (68,858 | ) | (37,901 | ) | ||||||||
Reclassification adjustment for gains included in net income |
(5 | ) | (23,605 | ) | (37,288 | ) | (24,473 | ) | ||||||||
Related tax benefit |
2 | 9,631 | 15,254 | 9,985 | ||||||||||||
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Other comprehensive income, net of tax |
52,076 | (12,348 | ) | 75,310 | 41,695 | |||||||||||
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Comprehensive income |
128,152 | 40,091 | 314,213 | 144,530 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
(38,505 | ) | (14,652 | ) | (102,575 | ) | (25,371 | ) | ||||||||
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Comprehensive income available to common stockholders |
$ | 89,647 | $ | 25,439 | $ | 211,638 | $ | 119,159 | ||||||||
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See accompanying notes to interim consolidated financial statements (unaudited).
5
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 |
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(Dollars in thousands) |
Shares | Amount | ||||||||||||||||||||||||||||||
Balance at December 31, 2009 |
41,338,389 | $ | 41 | $ | 389,490 | $ | 732,907 | $ | 5,905 | $ | 1,128,343 | $ | 345,767 | $ | 1,474,110 | |||||||||||||||||
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Common stock issued under employee benefit plans, net of restricted stock cancellations |
626,375 | 1 | 15,209 | | | 15,210 | | 15,210 | ||||||||||||||||||||||||
Income tax benefit from stock options exercised, vesting of restricted stock and other |
| | 2,891 | | | 2,891 | | 2,891 | ||||||||||||||||||||||||
Net income |
| | | 77,464 | | 77,464 | 25,371 | 102,835 | ||||||||||||||||||||||||
Capital calls and distributions, net |
| | | | | | 56,547 | 56,547 | ||||||||||||||||||||||||
Net change in unrealized gains on available-for-sale investment securities, net of tax |
| | | | 40,534 | 40,534 | | 40,534 | ||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
| | | | 1,161 | 1,161 | | 1,161 | ||||||||||||||||||||||||
Stock-based compensation expense |
| | 9,865 | | | 9,865 | | 9,865 | ||||||||||||||||||||||||
Repurchase of warrant under Capital Purchase Program |
| | (6,820 | ) | | | (6,820 | ) | | (6,820 | ) | |||||||||||||||||||||
Other-net |
| | (45 | ) | 8 | | (37 | ) | | (37 | ) | |||||||||||||||||||||
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Balance at September 30, 2010 |
41,964,764 | $ | 42 | $ | 410,590 | $ | 810,379 | $ | 47,600 | $ | 1,268,611 | $ | 427,685 | $ | 1,696,296 | |||||||||||||||||
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Balance at December 31, 2010 |
42,268,201 | $ | 42 | $ | 422,334 | $ | 827,831 | $ | 24,143 | $ | 1,274,350 | $ | 473,928 | $ | 1,748,278 | |||||||||||||||||
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Common stock issued under employee benefit plans, net of restricted stock cancellations |
999,655 | 1 | 30,271 | | | 30,272 | | 30,272 | ||||||||||||||||||||||||
Common stock issued upon settlement of 3.875% Convertible Notes, net of shares received from associated convertible note hedge |
1,024 | | | | | | | | ||||||||||||||||||||||||
Income tax benefit from stock options exercised, vesting of restricted stock and other |
| | 6,548 | | | 6,548 | | 6,548 | ||||||||||||||||||||||||
Net income |
| | | 136,328 | | 136,328 | 102,575 | 238,903 | ||||||||||||||||||||||||
Capital calls and distributions, net |
| | | | | | 79,727 | 79,727 | ||||||||||||||||||||||||
Net change in unrealized gains on available-for-sale investment securities, net of tax |
| | | | 77,486 | 77,486 | | 77,486 | ||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
| | | | (2,176 | ) | (2,176 | ) | | (2,176 | ) | |||||||||||||||||||||
Stock-based compensation expense |
| | 13,290 | | | 13,290 | | 13,290 | ||||||||||||||||||||||||
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Balance at September 30, 2011 |
43,268,880 | $ | 43 | $ | 472,443 | $ | 964,159 | $ | 99,453 | $ | 1,536,098 | $ | 656,230 | $ | 2,192,328 | |||||||||||||||||
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See accompanying notes to interim consolidated financial statements (unaudited).
6
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30, |
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(Dollars in thousands) |
2011 | 2010 | ||||||
Cash flows from operating activities: |
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Net income before noncontrolling interests |
$ | 238,903 | $ | 102,835 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Net gain from note repurchases and termination of corresponding interest rate swaps |
(3,123 | ) | | |||||
(Reduction of) provision for loan losses |
(2,144 | ) | 29,124 | |||||
Provision for unfunded credit commitments |
2,131 | 2,561 | ||||||
Changes in fair values of derivatives, net |
(20,334 | ) | 1,556 | |||||
Gains on investment securities, net |
(175,279 | ) | (67,420 | ) | ||||
Depreciation and amortization |
19,999 | 17,554 | ||||||
Amortization of premiums on available-for-sale securities, net |
18,170 | 15,593 | ||||||
Tax benefit (expense) from stock exercises |
854 | (306 | ) | |||||
Amortization of share-based compensation |
13,501 | 9,904 | ||||||
Amortization of deferred loan fees |
(43,806 | ) | (36,652 | ) | ||||
Deferred income tax expense |
3,135 | 1,794 | ||||||
Losses on sale of and valuation adjustments to other real estate owned property |
| 24 | ||||||
Changes in other assets and liabilities: |
||||||||
Accrued interest receivable and payable, net |
(13,919 | ) | 5,817 | |||||
Accounts receivable |
(2,724 | ) | (10,768 | ) | ||||
Income tax receivable, net |
8,174 | 23,933 | ||||||
Prepaid FDIC assessments and amortization |
6,468 | 7,704 | ||||||
Accrued compensation |
9,968 | 22,567 | ||||||
Foreign exchange spot contracts, net |
10,587 | 4,849 | ||||||
Other, net |
19,627 | 14,193 | ||||||
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Net cash provided by operating activities |
90,188 | 144,862 | ||||||
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Cash flows from investing activities: |
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Purchases of available-for-sale securities |
(5,034,425 | ) | (4,167,462 | ) | ||||
Proceeds from sales of available-for-sale securities |
1,414,794 | 653,122 | ||||||
Proceeds from maturities and pay downs of available-for-sale securities |
2,048,439 | 1,526,562 | ||||||
Purchases of nonmarketable securities (cost and equity method accounting) |
(43,260 | ) | (36,847 | ) | ||||
Proceeds from sales of nonmarketable securities (cost and equity method accounting) |
21,524 | 12,185 | ||||||
Purchases of nonmarketable securities (investment fair value accounting) |
(127,362 | ) | (78,667 | ) | ||||
Proceeds from sales and distributions of nonmarketable securities (investment fair value accounting) |
66,541 | 25,866 | ||||||
Net increase in loans |
(792,169 | ) | (322,723 | ) | ||||
Proceeds from recoveries of charged-off loans |
21,626 | 13,397 | ||||||
Proceeds from sale of other real estate owned |
| 196 | ||||||
Payment for acquisition of intangibles, net of cash acquired |
| (360 | ) | |||||
Purchases of premises and equipment |
(21,600 | ) | (21,031 | ) | ||||
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Net cash used for investing activities |
(2,445,892 | ) | (2,395,762 | ) | ||||
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Cash flows from financing activities: |
||||||||
Net increase in deposits |
1,802,281 | 2,083,008 | ||||||
(Decrease) increase in short-term borrowings |
(37,245 | ) | 20,980 | |||||
Payments for repurchases of 5.70% Senior Notes and 6.05% Subordinated Notes, including repurchase premiums and associated fees |
(346,443 | ) | | |||||
Proceeds from termination of portions of interest rate swaps associated with 5.70% Senior Notes and 6.05% Subordinated Notes |
36,959 | | ||||||
Payments for settlement of 3.875% Convertible Notes |
(250,000 | ) | | |||||
Proceeds from issuance of 5.375% Senior Notes, net of discount and issuance cost |
| 344,294 | ||||||
Capital contributions from noncontrolling interests, net of distributions |
79,727 | 56,547 | ||||||
Tax benefit from stock exercises |
5,694 | 3,197 | ||||||
Proceeds from issuance of common stock and Employee Stock Purchase Plan |
30,271 | 15,210 | ||||||
Repurchase of warrant under Capital Purchase Program |
| (6,820 | ) | |||||
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Net cash provided by financing activities |
1,321,244 | 2,516,416 | ||||||
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Net (decrease) increase in cash and cash equivalents |
(1,034,460 | ) | 265,516 | |||||
Cash and cash equivalents at beginning of period |
3,076,432 | 3,512,853 | ||||||
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Cash and cash equivalents at end of period |
$ | 2,041,972 | $ | 3,778,369 | ||||
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Supplemental disclosures: |
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Cash paid during the period for: |
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Interest |
$ | 37,776 | $ | 22,903 | ||||
Income taxes |
74,313 | 21,360 | ||||||
Noncash items during the period: |
||||||||
Unrealized gains on available-for-sale securities, net of tax |
$ | 77,486 | $ | 40,534 | ||||
Net change in fair value of interest rate swaps |
(1,753 | ) | 20,362 |
See accompanying notes to interim consolidated financial statements (unaudited).
7
SVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
SVB Financial Group (SVB Financial or the Parent) is a diversified financial services company, as well as a bank holding company and financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services to support our clients through all stages of their life cycles. In these notes to our unaudited interim consolidated financial statements, when we use or refer to SVB Financial Group, SVBFG, the Company, we, our, us or other 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 use or refer to SVB Financial or the Parent we are referring only to the parent company, SVB Financial Group, unless the context requires otherwise.
The accompanying 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 accounting principles generally accepted in the United States of America (GAAP). Such interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (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, 2011 are not necessarily indicative of results to be expected for any future periods. These interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010 (2010 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 DataNote 2Summary of Significant Accounting Policies under Part II, Item 8 of our 2010 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 the valuation of non-marketable securities, the allowance for loan losses, the valuation of equity warrant assets, the recognition and measurement of income tax assets and liabilities, the adequacy of the reserve for unfunded credit commitments, and share-based compensation.
Principles of Consolidation and Presentation
Our consolidated financial statements include the accounts of SVB Financial Group and entities in which we have a controlling financial interest. We determine whether we have a controlling financial interest in an entity by evaluating whether the entity is a voting interest entity or a variable interest entity. All significant intercompany accounts and transactions have been eliminated.
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entitys operations. For these types of entities, the Companys determination of whether it has a controlling interest is based on ownership of the majority of the entities voting equity interest or through control of management of the entities.
Variable interest entities (VIEs) are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entitys operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. We determine whether we have a controlling financial interest in a VIE by considering whether our involvement with the VIE is significant and designates us as the primary beneficiary based on the following:
1. | We have the power to direct the activities of the VIE that most significantly impact the entitys economic performance; and |
2. | The aggregate indirect and direct variable interests held by the Company have the obligation to absorb losses or the right to receive benefits from the entity that could be significant to the VIE. |
Voting interest entities in which the Company has a controlling financial interest or VIEs in which the Company is the primary beneficiary are consolidated into our financial statements.
8
We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide. We are variable interest holders in certain partnerships for which we are the primary beneficiary. We perform on-going reassessments of whether facts or circumstances have changed in relation to previously evaluated voting interest entities and our involvement in VIEs which could cause the Companys consolidation conclusion to change.
Impact of Adopting ASU No. 2011-02
In April 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard (ASU No. 2011-02), which requires new disclosures and provides additional guidance to creditors for determining whether a modification or restructuring of a receivable is a troubled debt restructuring (TDR). The new guidance requires creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in more modifications and restructurings being considered TDRs. The new disclosures and guidance are effective for interim and annual reporting periods beginning on or after June 15, 2011 and was therefore adopted on July 1, 2011, with retrospective disclosures required for all TDR activities that have occurred from the beginning of the annual period of adoption. This standard clarified how TDRs are determined and increased the disclosure requirements for TDRs, however it did not have a material impact on our financial position, results of operations or stockholders equity. See Note 6Loans and Allowance for Loan Losses for further details.
Recent Accounting Pronouncements
In May 2011, the FASB issued a new accounting standard (ASU No. 2011-04), which requires new disclosures and clarifies existing guidance surrounding fair value measurement. This standard was issued concurrent with the International Accounting Standards Boards (IASB) issuance of a fair value measurement standard with the objective of a converged definition of fair value measurement and disclosure guidance. The new guidance clarifies that the principal market for a financial instrument should be determined based on the market with the greatest volume and level of activity. This new guidance is effective on a prospective basis for interim and annual reporting periods beginning after December 15, 2011. This standard clarifies how fair value is measured and increases the disclosure requirements for fair value measurements. We are currently assessing the impact of this guidance, however we do not expect it to have a material impact on our financial position, results of operations or stockholders equity.
In June 2011, the FASB issued a new accounting standard (ASU No. 2011-05), which requires presentation of the components of total comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of which option is chosen, reclassification adjustments for items that are reclassified from other comprehensive income (OCI) to net income are required to be shown on the face of the financial statements. This new guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance is effective on a retrospective basis for the interim and annual reporting periods beginning after December 15, 2011. We have assessed the new guidance and determined that it only clarifies the presentation of comprehensive income and it will not affect our financial position, results of operations or stockholders equity.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentations.
2. Stockholders Equity and Earnings Per Share (EPS)
Earnings Per Share
Basic EPS is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options and restricted stock units outstanding under our equity incentive plans, our Employee Stock Purchase Plan (ESPP), and for certain periods, our 3.875% convertible senior notes (3.875% Convertible Notes) and the associated convertible note hedge and warrant agreement. Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be anti-dilutive. The following is a reconciliation of basic EPS to diluted EPS for the three and nine months ended September 30, 2011 and 2010, respectively:
9
Three months
ended September 30, |
Nine months
ended September 30, |
|||||||||||||||
(Dollars and shares in thousands, except per share amounts) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Numerator: |
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Net income available to common stockholders |
$ | 37,571 | $ | 37,787 | $ | 136,328 | $ | 77,464 | ||||||||
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Denominator: |
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Weighted average common shares outstanding-basic |
43,233 | 41,930 | 42,882 | 41,679 | ||||||||||||
Weighted average effect of dilutive securities: |
||||||||||||||||
Stock options and ESPP |
452 | 511 | 610 | 652 | ||||||||||||
Restricted stock units |
106 | 72 | 122 | 70 | ||||||||||||
3.875% Convertible Notes |
| | 27 | | ||||||||||||
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Denominator for diluted calculation |
43,791 | 42,513 | 43,641 | 42,401 | ||||||||||||
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Earnings per common share: |
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Basic |
$ | 0.87 | $ | 0.90 | $ | 3.18 | $ | 1.86 | ||||||||
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Diluted |
$ | 0.86 | $ | 0.89 | $ | 3.12 | $ | 1.83 | ||||||||
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The following table summarizes the common shares excluded from the diluted EPS calculation as they were deemed to be anti-dilutive for the three and nine months ended September 30, 2011 and 2010, respectively:
Three months
ended September 30, |
Nine months
ended September 30, |
|||||||||||||||
(Shares in thousands) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Stock options |
337 | 6 | 239 | 8 | ||||||||||||
Restricted stock units |
10 | 5 | 134 | 4 | ||||||||||||
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Total |
347 | 11 | 373 | 12 | ||||||||||||
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Concurrent with the issuance of our 3.875% Convertible Notes, we entered into a convertible note hedge and warrant agreement. The warrants expired ratably over 60 business days beginning on July 15, 2011. The common shares under these warrants were excluded from the diluted EPS calculation for all periods presented as they were deemed to be anti-dilutive based on the conversion price of $64.43 per common share. For more information on our 3.875% Convertible Notes and the associated convertible note hedge and warrant agreement, see Note 7Short-Term Borrowings and Long-Term Debt and Note 8Derivative Financial Instruments.
Our $250 million 3.875% Convertible Notes matured on April 15, 2011. All of the notes were converted prior to maturity and we made an aggregate $260.4 million conversion settlement payment. We paid $250.0 million in cash (representing total principal) and $10.4 million through the issuance of 187,760 shares of our common stock (representing total conversion premium value). In addition, in connection with the conversion settlement, we received 186,736 shares of our common stock, valued at $10.3 million, from the associated convertible note hedge. Accordingly, there was no significant net impact on our total stockholders equity with respect to settling the conversion premium value.
3. Share-Based Compensation
For the three and nine months ended September 30, 2011 and 2010, we recorded share-based compensation and related tax benefits as follows:
Three months
ended September 30, |
Nine months
ended September 30, |
|||||||||||||||
(Dollars in thousands) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Share-based compensation expense |
$ | 4,552 | $ | 3,609 | $ | 13,501 | $ | 9,904 | ||||||||
Income tax benefit related to share-based compensation expense |
(1,256 | ) | (925 | ) | (3,532 | ) | (2,370 | ) |
Unrecognized Compensation Expense
At September 30, 2011, unrecognized share-based compensation expense was as follows:
(Dollars in thousands) |
Unrecognized Expense |
Average Expected Recognition Period - in Years |
||||||
Stock options |
$ | 14,436 | 2.85 | |||||
Restricted stock units |
21,037 | 2.80 | ||||||
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Total unrecognized share-based compensation expense |
$ | 35,473 | ||||||
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10
Share-Based Payment Award Activity
The table below provides stock option information related to the 1997 Equity Incentive Plan and the 2006 Equity Incentive Plan for the nine months ended September 30, 2011:
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life in Years |
Aggregate Intrinsic Value of In-The- Money Options |
|||||||||||||
Outstanding at December 31, 2010 |
3,112,253 | $ | 37.88 | |||||||||||||
Granted |
373,493 | 59.71 | ||||||||||||||
Exercised |
(837,448 | ) | 33.93 | |||||||||||||
Forfeited |
(43,770 | ) | 42.56 | |||||||||||||
Expired |
(1,426 | ) | 35.53 | |||||||||||||
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Outstanding at September 30, 2011 |
2,603,102 | 42.20 | 3.54 | $ | 10,788,138 | |||||||||||
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Vested and expected to vest at September 30, 2011 |
2,478,035 | 41.84 | 3.42 | 10,504,466 | ||||||||||||
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Exercisable at September 30, 2011 |
1,545,346 | 39.72 | 2.17 | 7,085,746 | ||||||||||||
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The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $37.00 as of September 30, 2011. The total intrinsic value of options exercised during the three and nine months ended September 30, 2011 was $3.2 million and $19.0 million, respectively, compared to $1.3 million and $8.5 million for the comparable 2010 periods.
The table below provides information for restricted stock units under the 1997 Equity Incentive Plan and the 2006 Equity Incentive Plan for the nine months ended September 30, 2011:
Shares | Weighted Average Grant Date Fair Value |
|||||||
Nonvested at December 31, 2010 |
395,950 | $ | 43.49 | |||||
Granted |
320,160 | 59.97 | ||||||
Vested |
(116,749 | ) | 43.83 | |||||
Forfeited |
(16,463 | ) | 48.54 | |||||
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Nonvested at September 30, 2011 |
582,898 | 52.33 | ||||||
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4. Federal Funds Sold, Securities Purchased under Agreements to Resell and Other Short-Term Investment Securities
The following table details the securities purchased under agreements to resell and other short-term investment securities at September 30, 2011 and December 31, 2010:
(Dollars in thousands) |
September 30, 2011 |
December 31, 2010 |
||||||
Securities purchased under agreements to resell |
$ | 191,655 | $ | 60,345 | ||||
Short-term agency discount notes |
| 330,370 | ||||||
Other short-term investment securities |
108,173 | 12,992 | ||||||
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Total federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
$ | 299,828 | $ | 403,707 | ||||
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In addition, as of September 30, 2011 and December 31, 2010, $992.5 million and $2.2 billion, respectively, of our cash and due from banks was deposited with the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $461.3 million and $246.3 million, respectively.
11
5. Investment Securities
Our investment securities portfolio consists of both an available-for-sale securities portfolio, which represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business.
The major components of our investment securities portfolio at September 30, 2011 and December 31, 2010 are as follows:
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
(Dollars in thousands) |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Carrying Value |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Carrying Value |
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Available-for-sale securities, at fair value: |
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U.S. treasury securities |
$ | 25,277 | $ | 853 | $ | | $ | 26,130 | $ | 25,408 | $ | 1,002 | $ | | $ | 26,410 | ||||||||||||||||
U.S. agency debentures |
2,896,079 | 49,460 | (2 | ) | 2,945,537 | 2,844,973 | 7,077 | (16,957 | ) | 2,835,093 | ||||||||||||||||||||||
Residential mortgage-backed securities: |
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Agency-issued mortgage-backed securities |
1,461,806 | 42,205 | (160 | ) | 1,503,851 | 1,234,120 | 15,487 | (1,097 | ) | 1,248,510 | ||||||||||||||||||||||
Agency-issued collateralized mortgage obligations-fixed rate |
2,332,140 | 70,092 | | 2,402,232 | 806,032 | 24,435 | (1 | ) | 830,466 | |||||||||||||||||||||||
Agency-issued collateralized mortgage obligations-variable rate |
2,558,348 | 2,905 | (2,092 | ) | 2,559,161 | 2,870,570 | 10,394 | (1,439 | ) | 2,879,525 | ||||||||||||||||||||||
Agency-issued commercial mortgage-backed securities |
101,553 | 1,628 | | 103,181 | | | | | ||||||||||||||||||||||||
Municipal bonds and notes |
92,258 | 6,523 | (5 | ) | 98,776 | 96,381 | 2,164 | (965 | ) | 97,580 | ||||||||||||||||||||||
Equity securities |
633 | 13 | (128 | ) | 518 | 358 | 34 | (9 | ) | 383 | ||||||||||||||||||||||
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Total available-for-sale securities |
$ | 9,468,094 | $ | 173,679 | $ | (2,387 | ) | $ | 9,639,386 | $ | 7,877,842 | $ | 60,593 | $ | (20,468 | ) | $ | 7,917,967 | ||||||||||||||
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Non-marketable securities: |
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Non-marketable securities (investment company fair value accounting): |
||||||||||||||||||||||||||||||||
Venture capital and private equity fund investments (1) |
578,126 | 391,247 | ||||||||||||||||||||||||||||||
Other venture capital investments (2) |
120,160 | 111,843 | ||||||||||||||||||||||||||||||
Other investments (3) |
973 | 981 | ||||||||||||||||||||||||||||||
Non-marketable securities (equity method accounting): |
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Other investments (4) |
65,934 | 67,031 | ||||||||||||||||||||||||||||||
Low income housing tax credit funds |
34,446 | 27,832 | ||||||||||||||||||||||||||||||
Non-marketable securities (cost method accounting): |
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Venture capital and private equity fund investments (5) |
138,960 | 110,466 | ||||||||||||||||||||||||||||||
Other venture capital investments |
13,364 | 12,120 | ||||||||||||||||||||||||||||||
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|
|
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Total non-marketable securities |
951,963 | 721,520 | ||||||||||||||||||||||||||||||
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Total investment securities |
$ | 10,591,349 | $ | 8,639,487 | ||||||||||||||||||||||||||||
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(1) | The following table shows the amount of venture capital and private equity fund investments by the following consolidated funds and our ownership of each fund at September 30, 2011 and December 31, 2010: |
September 30, 2011 | December 31, 2010 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
SVB Strategic Investors Fund, LP |
$ | 44,205 | 12.6 | % | $ | 44,722 | 12.6 | % | ||||||||
SVB Strategic Investors Fund II, LP |
122,264 | 8.6 | 94,694 | 8.6 | ||||||||||||
SVB Strategic Investors Fund III, LP |
205,505 | 5.9 | 146,613 | 5.9 | ||||||||||||
SVB Strategic Investors Fund IV, LP |
104,114 | 5.0 | 40,639 | 5.0 | ||||||||||||
Strategic Investors Fund V, LP |
1,965 | 0.3 | | | ||||||||||||
SVB Capital Preferred Return Fund, LP |
41,432 | 20.0 | 23,071 | 20.0 | ||||||||||||
SVB CapitalNT Growth Partners, LP |
44,837 | 33.0 | 28,624 | 33.0 | ||||||||||||
SVB Capital Partners II, LP (i) |
2,324 | 5.1 | 4,506 | 5.1 | ||||||||||||
Other private equity fund (ii) |
11,480 | 58.2 | 8,378 | 60.6 | ||||||||||||
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Total venture capital and private equity fund investments |
$ | 578,126 | $ | 391,247 | ||||||||||||
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(i) | At September 30, 2011, we had a direct ownership interest of 1.3% and an indirect ownership interest of 3.8% in the fund through our ownership interest of SVB Strategic Investors Fund II, LP. |
(ii) | At September 30, 2011, we had a direct ownership interest of 41.5% and indirect ownership interests of 12.6% and 4.1% in the fund through our ownership interests of SVB CapitalNT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively. |
12
(2) | The following table shows the amount of other venture capital investments by the following consolidated funds and our ownership of each fund at September 30, 2011 and December 31, 2010: |
September 30, 2011 | December 31, 2010 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
Silicon Valley BancVentures, LP |
$ | 16,606 | 10.7 | % | $ | 21,371 | 10.7 | % | ||||||||
SVB Capital Partners II, LP (i) |
60,129 | 5.1 | 51,545 | 5.1 | ||||||||||||
SVB India Capital Partners I, LP |
41,927 | 14.4 | 38,927 | 14.4 | ||||||||||||
SVB Capital Shanghai Yangpu Venture Capital Fund |
1,498 | 6.8 | | | ||||||||||||
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Total other venture capital investments |
$ | 120,160 | $ | 111,843 | ||||||||||||
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(i) | At September 30, 2011, we had a direct ownership interest of 1.3% and an indirect ownership interest of 3.8% in the fund through our ownership of SVB Strategic Investors Fund II, LP. |
(3) | Other investments within non-marketable securities (investment company fair value accounting) include our ownership in Partners for Growth, LP, a consolidated debt fund. At both September 30, 2011 and December 31, 2010, we had a majority ownership interest of slightly more than 50.0% in the fund. Partners for Growth, LP is managed by a third party and we do not have an ownership interest in the general partner of this fund. |
(4) | The following table shows the carrying value and our ownership percentage of each investment at September 30, 2011 and December 31, 2010: |
September 30, 2011 | December 31, 2010 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
Gold Hill Venture Lending 03, LP (i) |
$ | 16,781 | 9.3 | % | $ | 17,826 | 9.3 | % | ||||||||
Gold Hill Capital 2008, LP (ii) |
16,414 | 15.5 | 12,101 | 15.5 | ||||||||||||
Partners for Growth II, LP |
3,564 | 24.2 | 10,465 | 24.2 | ||||||||||||
Other investments |
29,175 | N/A | 26,639 | N/A | ||||||||||||
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Total other investments |
$ | 65,934 | $ | 67,031 | ||||||||||||
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(i) | At September 30, 2011, we had a direct ownership interest of 4.8% in the fund and an indirect interest in the fund through our investment in Gold Hill Venture Lending Partners 03, LLC (GHLLC) of 4.5%. Our aggregate direct and indirect ownership in the fund is 9.3%. |
(ii) | At September 30, 2011, we had a direct ownership interest of 11.5% in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0%. Our aggregate direct and indirect ownership in the fund is 15.5%. |
(5) | Represents investments in 329 and 343 funds (primarily venture capital funds) at September 30, 2011 and December 31, 2010, respectively, where our ownership interest is 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 and financial policies. For the three months ended September 30, 2011, we recognized other-than-temporary impairment (OTTI) losses of $0.3 million resulting from other-than-temporary declines in value for 21 of the 329 investments. For the nine months ended September 30, 2011, we recognized OTTI losses of $0.8 million resulting from other-than-temporary declines in value for 39 of the 329 investments. The OTTI losses are included in net gains on investment securities, a component of noninterest income. For the remaining 290 investments at September 30, 2011, we concluded that declines in value, if any, were temporary and as such, no OTTI was required to be recognized. At September 30, 2011, the carrying value of these venture capital and private equity fund investments (cost method accounting) was $139.0 million, and the estimated fair value was $155.8 million. |
13
The following table summarizes 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, 2011:
September 30, 2011 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
(Dollars in thousands) |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
||||||||||||||||||
U.S. agency debentures |
$ | 25,000 | $ | (2 | ) | $ | | $ | | $ | 25,000 | $ | (2 | ) | ||||||||||
Residential mortgage-backed securities: |
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Agency-issued mortgage-backed securities |
51,756 | (160 | ) | | | 51,756 | (160 | ) | ||||||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
1,304,198 | (2,059 | ) | 44,606 | (33 | ) | 1,348,804 | (2,092 | ) | |||||||||||||||
Municipal bonds and notes |
1,195 | (5 | ) | | | 1,195 | (5 | ) | ||||||||||||||||
Equity securities |
320 | (128 | ) | | | 320 | (128 | ) | ||||||||||||||||
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Total temporarily impaired securities (1) |
$ | 1,382,469 | $ | (2,354 | ) | $ | 44,606 | $ | (33 | ) | $ | 1,427,075 | $ | (2,387 | ) | |||||||||
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(1) | As of September 30, 2011, we identified a total of 85 investments that were in unrealized loss positions, of which one investment totaling $44.6 million with unrealized losses of $33 thousand has been in an impaired position for a period of time greater than 12 months. Based on the underlying credit quality of the investments, we do not intend to sell any of our securities prior to recovery of our adjusted cost basis and as of September 30, 2011, it is more likely than not that we will not be required to sell any of our debt securities prior to recovery of our adjusted cost basis. Based on our analysis as of September 30, 2011, we deem all impairments to be temporary and 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 investment securities portfolio are reviewed and monitored on a quarterly basis. |
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of December 31, 2010:
December 31, 2010 | ||||||||||||||||||||||||
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 |
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U.S. agency debentures |
$ | 1,731,639 | $ | (16,957 | ) | $ | | $ | | $ | 1,731,639 | $ | (16,957 | ) | ||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||
Agency-issued mortgage-backed securities |
32,595 | (1,097 | ) | | | 32,595 | (1,097 | ) | ||||||||||||||||
Agency-issued collateralized mortgage obligationsfixed rate |
322 | (1 | ) | | | 322 | (1 | ) | ||||||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
506,104 | (1,439 | ) | | | 506,104 | (1,439 | ) | ||||||||||||||||
Municipal bonds and notes |
25,699 | (893 | ) | 3,451 | (72 | ) | 29,150 | (965 | ) | |||||||||||||||
Equity securities |
148 | (9 | ) | | | 148 | (9 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired securities |
$ | 2,296,507 | $ | (20,396 | ) | $ | 3,451 | $ | (72 | ) | $ | 2,299,958 | $ | (20,468 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on debt securities classified as available-for-sale as of September 30, 2011. Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent. The weighted average yield is computed using the amortized cost of debt securities, which are reported at fair value. For U.S. treasury securities, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for most 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.
September 30, 2011 | ||||||||||||||||||||||||||||||||||||||||
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 |
$ | 26,130 | 2.39 | % | $ | | | % | $ | 26,130 | 2.39 | % | $ | | | % | $ | | | % | ||||||||||||||||||||
U.S. agency debentures |
2,945,537 | 1.55 | 63,421 | 2.51 | 2,804,770 | 1.49 | 77,346 | 3.28 | | | ||||||||||||||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||||||
Agency-issued mortgage-backed securities |
1,503,851 | 2.66 | | | | | 1,369,093 | 2.57 | 134,758 | 3.58 | ||||||||||||||||||||||||||||||
Agency-issued collateralized mortgage obligations-fixed rate |
2,402,232 | 2.72 | | | | | | | 2,402,232 | 2.72 | ||||||||||||||||||||||||||||||
Agency-issued collateralized mortgage obligations-variable rate |
2,559,161 | 0.70 | | | | | | | 2,559,161 | 0.70 | ||||||||||||||||||||||||||||||
Agency-issued commercial mortgage-backed securities |
103,181 | 2.22 | | | | | | | 103,181 | 2.22 | ||||||||||||||||||||||||||||||
Municipal bonds and notes |
98,776 | 6.00 | 564 | 5.38 | 12,091 | 5.48 | 44,864 | 5.97 | 41,257 | 6.20 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Total |
$ | 9,638,868 | 1.84 | $ | 63,985 | 2.54 | $ | 2,842,991 | 1.52 | $ | 1,491,303 | 2.71 | $ | 5,240,589 | 1.77 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
14
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, 2011 and 2010:
Three months
ended September 30, |
Nine months
ended September 30, |
|||||||||||||||
(Dollars in thousands) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Gross gains on investment securities: |
||||||||||||||||
Available-for-sale securities, at fair value (1) |
$ | 5 | $ | 23,605 | $ | 37,382 | $ | 26,737 | ||||||||
Marketable securities (investment company fair value accounting) |
470 | 8,109 | 912 | 8,160 | ||||||||||||
Non-marketable securities (investment company fair value accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
34,640 | 19,014 | 117,344 | 47,659 | ||||||||||||
Other venture capital investments |
22,058 | 2,321 | 29,077 | 7,258 | ||||||||||||
Other investments |
| 9 | 20 | 36 | ||||||||||||
Non-marketable securities (equity method accounting): |
||||||||||||||||
Other investments |
2,192 | 2,663 | 8,708 | 4,804 | ||||||||||||
Non-marketable securities (cost method accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
735 | 222 | 1,791 | 780 | ||||||||||||
Other venture capital investments |
8 | | 2,437 | | ||||||||||||
Other investments |
| 242 | | 344 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross gains on investment securities |
60,108 | 56,185 | 197,671 | 95,778 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross losses on investment securities: |
||||||||||||||||
Available-for-sale securities, at fair value (1) |
| | (94 | ) | (2,264 | ) | ||||||||||
Marketable securities (investment company fair value accounting) |
(1,691 | ) | | (5,806 | ) | (57 | ) | |||||||||
Non-marketable securities (investment company fair value accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
(2,373 | ) | (6,171 | ) | (9,274 | ) | (15,291 | ) | ||||||||
Other venture capital investments |
(3,351 | ) | (2,877 | ) | (5,015 | ) | (8,589 | ) | ||||||||
Other investments |
(16 | ) | | (16 | ) | (79 | ) | |||||||||
Non-marketable securities (equity method accounting): |
||||||||||||||||
Other investments |
(50 | ) | (1 | ) | (1,359 | ) | (614 | ) | ||||||||
Non-marketable securities (cost method accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
(365 | ) | (516 | ) | (797 | ) | (1,455 | ) | ||||||||
Other venture capital investments |
| (9 | ) | (31 | ) | (9 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross losses on investment securities |
(7,846 | ) | (9,574 | ) | (22,392 | ) | (28,358 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gains on investment securities, net |
$ | 52,262 | $ | 46,611 | $ | 175,279 | $ | 67,420 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gains attributable to noncontrolling interests, including carried interest |
$ | 42,961 | $ | 16,817 | $ | 112,783 | $ | 33,159 | ||||||||
|
|
|
|
|
|
|
|
(1) | The cost basis of available-for-sale securities sold is determined on a specific identification basis. |
15
6. Loans and Allowance for Loan Losses
We serve a variety of commercial clients in the technology, life science, venture capital/private equity and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications and electronics), software and related services, and clean technology. Our life science clients are concentrated in the medical devices and biotechnology sectors. Loans made to venture capital/private equity firm clients typically enable them to fund investments prior to their receipt 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 loans to targeted high-net-worth individuals through SVB Private Bank. 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 secured real estate loans to eligible employees through our Employee Home Ownership Program (EHOP).
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 $53.6 million and $45.5 million at September 30, 2011 and December 31, 2010, respectively, is presented in the following table:
(Dollars in thousands) |
September 30, 2011 | December 31, 2010 | ||||||
Commercial loans: |
||||||||
Software |
$ | 2,272,443 | $ | 1,820,385 | ||||
Hardware |
577,443 | 561,610 | ||||||
Clean technology |
270,582 | 159,502 | ||||||
Venture capital/private equity |
1,079,215 | 1,036,077 | ||||||
Life science |
686,722 | 568,739 | ||||||
Premium wine (1) |
130,983 | 144,972 | ||||||
Other |
251,412 | 303,492 | ||||||
|
|
|
|
|||||
Commercial loans (2) |
5,268,800 | 4,594,777 | ||||||
|
|
|
|
|||||
Real estate secured loans: |
||||||||
Premium wine (1) |
344,714 | 312,255 | ||||||
Consumer loans (3) |
497,480 | 361,704 | ||||||
|
|
|
|
|||||
Real estate secured loans |
842,194 | 673,959 | ||||||
|
|
|
|
|||||
Construction loans |
35,529 | 60,178 | ||||||
Consumer loans |
182,065 | 192,823 | ||||||
|
|
|
|
|||||
Total loans, net of unearned income |
$ | 6,328,588 | $ | 5,521,737 | ||||
|
|
|
|
(1) | Included in our premium wine portfolio are gross construction loans of $113.7 million and $119.0 million at September 30, 2011 and December 31, 2010, respectively. |
(2) | Included within our commercial loans portfolio are business credit card loans to commercial clients. At September 30, 2011 and December 31, 2010, our business credit card loans portfolio totaled $47.4 million and $32.5 million, respectively. |
(3) | Consumer loans secured by real estate at September 30, 2011 and December 31, 2010 were comprised of the following: |
(Dollars in thousands) |
September 30, 2011 | December 31, 2010 | ||||||
Loans for personal residence |
$ | 326,111 | $ | 189,039 | ||||
Loans to eligible employees |
93,966 | 88,510 | ||||||
Home equity lines of credit |
77,403 | 84,155 | ||||||
|
|
|
|
|||||
Consumer loans secured by real estate |
$ | 497,480 | $ | 361,704 | ||||
|
|
|
|
16
The activity in the allowance for loan losses for the three and nine months ended September 30, 2011 and 2010 was as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Allowance for loan losses, beginning balance |
$ | 82,155 | $ | 71,789 | $ | 82,627 | $ | 72,450 | ||||||||
Provision for (reduction of) loan losses |
769 | 10,971 | (2,144 | ) | 29,124 | |||||||||||
Gross loan charge-offs |
(8,248 | ) | (12,289 | ) | (16,863 | ) | (40,602 | ) | ||||||||
Loan recoveries |
10,570 | 3,898 | 21,626 | 13,397 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Allowance for loan losses, ending balance |
$ | 85,246 | $ | 74,369 | $ | 85,246 | $ | 74,369 | ||||||||
|
|
|
|
|
|
|
|
Credit Quality
The composition of loans, net of unearned income, broken out by portfolio segment (which we have identified as our commercial and consumer loan categories) and class of financing receivable (which we have identified as our client industry segments of software, hardware, etc.) as of September 30, 2011 and December 31, 2010, is as follows:
(Dollars in thousands) |
September 30, 2011 | December 31, 2010 | ||||||
Commercial loans: |
||||||||
Software |
$ | 2,299,022 | $ | 1,820,680 | ||||
Hardware |
735,044 | 641,052 | ||||||
Venture capital/private equity |
1,079,255 | 1,036,201 | ||||||
Life science |
708,798 | 575,944 | ||||||
Premium wine |
475,697 | 457,227 | ||||||
Other |
351,227 | 436,106 | ||||||
|
|
|
|
|||||
Total commercial loans |
5,649,043 | 4,967,210 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Real estate secured loans |
497,480 | 361,704 | ||||||
Other consumer loans |
182,065 | 192,823 | ||||||
|
|
|
|
|||||
Total consumer loans |
679,545 | 554,527 | ||||||
|
|
|
|
|||||
Total loans, net of unearned income |
$ | 6,328,588 | $ | 5,521,737 | ||||
|
|
|
|
17
The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of September 30, 2011 and December 31, 2010:
(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, 2011: |
||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||
Software |
$ | 496 | $ | 38 | $ | | $ | 534 | $ | 2,319,994 | $ | | ||||||||||||
Hardware |
7,793 | 5 | | 7,798 | 729,541 | | ||||||||||||||||||
Venture capital/private equity |
500 | | | 500 | 1,090,052 | | ||||||||||||||||||
Life science |
125 | 213 | | 338 | 715,246 | | ||||||||||||||||||
Premium wine |
21 | | | 21 | 472,123 | | ||||||||||||||||||
Other |
| 48 | | 48 | 348,262 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans |
8,935 | 304 | | 9,239 | 5,675,218 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Consumer loans: |
||||||||||||||||||||||||
Real estate secured loans |
1,745 | | | 1,745 | 476,840 | | ||||||||||||||||||
Other consumer loans |
9,768 | | | 9,768 | 168,919 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer loans |
11,513 | | | 11,513 | 645,759 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total gross loans excluding impaired loans |
20,448 | 304 | | 20,752 | 6,320,977 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Impaired loans |
| | 2,783 | 2,783 | 37,723 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total gross loans |
$ | 20,448 | $ | 304 | $ | 2,783 | $ | 23,535 | $ | 6,358,700 | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2010: |
||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||
Software |
$ | 674 | $ | 239 | $ | 17 | $ | 930 | $ | 1,834,897 | $ | 17 | ||||||||||||
Hardware |
89 | 819 | 27 | 935 | 642,786 | 27 | ||||||||||||||||||
Venture capital/private equity |
| | | | 1,046,696 | | ||||||||||||||||||
Life science |
157 | | | 157 | 578,208 | | ||||||||||||||||||
Premium wine |
| | | | 451,006 | | ||||||||||||||||||
Other |
| | | | 438,345 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans |
920 | 1,058 | 44 | 2,022 | 4,991,938 | 44 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Consumer loans: |
||||||||||||||||||||||||
Real estate secured loans |
| | | | 341,048 | | ||||||||||||||||||
Other consumer loans |
| | | | 192,771 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer loans |
| | | | 533,819 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total gross loans excluding impaired loans |
920 | 1,058 | 44 | 2,022 | 5,525,757 | 44 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Impaired loans |
323 | 913 | 7,805 | 9,041 | 30,385 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total gross loans |
$ | 1,243 | $ | 1,971 | $ | 7,849 | $ | 11,063 | $ | 5,556,142 | $ | 44 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
18
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, 2011 and December 31, 2010:
(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, 2011: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,322 | $ | 237 | $ | 2,559 | $ | 3,585 | ||||||||
Hardware |
5,398 | | 5,398 | 8,579 | ||||||||||||
Life science |
633 | | 633 | 825 | ||||||||||||
Premium wine |
1,993 | 1,264 | 3,257 | 3,350 | ||||||||||||
Other |
5,435 | 1,158 | 6,593 | 9,828 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
15,781 | 2,659 | 18,440 | 26,167 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
18,382 | 362 | 18,744 | 22,535 | ||||||||||||
Other consumer loans |
3,322 | | 3,322 | 3,322 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
21,704 | 362 | 22,066 | 25,857 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 37,485 | $ | 3,021 | $ | 40,506 | $ | 52,024 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2010: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,958 | $ | 334 | $ | 3,292 | $ | 5,237 | ||||||||
Hardware |
3,517 | 307 | 3,824 | 3,931 | ||||||||||||
Life science |
2,050 | 1,362 | 3,412 | 4,433 | ||||||||||||
Premium wine |
2,995 | 3,167 | 6,162 | 7,129 | ||||||||||||
Other |
1,158 | 1,019 | 2,177 | 2,790 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
12,678 | 6,189 | 18,867 | 23,520 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
20,559 | | 20,559 | 23,430 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
20,559 | | 20,559 | 23,430 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 33,237 | $ | 6,189 | $ | 39,426 | $ | 46,950 | ||||||||
|
|
|
|
|
|
|
|
The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable during the three and nine months ended September 30, 2011 and 2010, respectively:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Average impaired loans: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,562 | $ | 5,583 | $ | 2,652 | $ | 6,521 | ||||||||
Hardware |
7,071 | 10,801 | 6,086 | 11,592 | ||||||||||||
Life science |
827 | 4,745 | 1,498 | 6,648 | ||||||||||||
Premium wine |
1,954 | 1,190 | 2,345 | 485 | ||||||||||||
Other |
7,604 | 2,212 | 4,453 | 2,312 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
20,018 | 24,531 | 17,034 | 27,558 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
18,746 | 20,978 | 19,476 | 21,219 | ||||||||||||
Other consumer loans |
1,107 | 14 | 369 | 157 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
19,853 | 20,992 | 19,845 | 21,376 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total average impaired loans |
$ | 39,871 | $ | 45,523 | $ | 36,879 | $ | 48,934 | ||||||||
|
|
|
|
|
|
|
|
19
The following tables summarize the activity relating to our allowance for loan losses for the three and nine months ended September 30, 2011, broken out by portfolio segment:
Three months ended September 30, 2011 (dollars in thousands) |
Beginning Balance June 30, 2011 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance September 30, 2011 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 31,873 | $ | (3,125 | ) | $ | 2,718 | $ | 4,899 | $ | 36,365 | |||||||||
Hardware |
16,042 | (4,813 | ) | 44 | 2,304 | 13,577 | ||||||||||||||
Venture capital/private equity |
8,307 | | | (497 | ) | 7,810 | ||||||||||||||
Life science |
7,225 | (310 | ) | 3,359 | (2,110 | ) | 8,164 | |||||||||||||
Premium wine |
4,009 | | 360 | (354 | ) | 4,015 | ||||||||||||||
Other |
5,869 | | 64 | (359 | ) | 5,574 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
73,325 | (8,248 | ) | 6,545 | 3,883 | 75,505 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
8,830 | | 4,025 | (3,114 | ) | 9,741 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 82,155 | $ | (8,248 | ) | $ | 10,570 | $ | 769 | $ | 85,246 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Nine months ended September 30, 2011 (dollars in thousands) |
Beginning Balance December 31, 2010 |
Charge-offs | Recoveries | (Reduction of) Provision for |
Ending Balance September 30, 2011 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 29,288 | $ | (4,747 | ) | $ | 10,638 | $ | 1,186 | $ | 36,365 | |||||||||
Hardware |
14,688 | (4,828 | ) | 356 | 3,361 | 13,577 | ||||||||||||||
Venture capital/private equity |
8,241 | | | (431 | ) | 7,810 | ||||||||||||||
Life science |
9,077 | (3,972 | ) | 4,487 | (1,428 | ) | 8,164 | |||||||||||||
Premium wine |
5,492 | (449 | ) | 1,090 | (2,118 | ) | 4,015 | |||||||||||||
Other |
5,318 | (2,867 | ) | 471 | 2,652 | 5,574 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
72,104 | (16,863 | ) | 17,042 | 3,222 | 75,505 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
10,523 | | 4,584 | (5,366 | ) | 9,741 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 82,627 | $ | (16,863 | ) | $ | 21,626 | $ | (2,144 | ) | $ | 85,246 | ||||||||
|
|
|
|
|
|
|
|
|
|
The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of September 30, 2011 and December 31, 2010, broken out by portfolio segment:
September 30, 2011 | December 31, 2010 | |||||||||||||||
(Dollars in thousands) |
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 595 | $ | 35,770 | $ | 986 | $ | 28,302 | ||||||||
Hardware |
1,750 | 11,827 | 1,348 | 13,340 | ||||||||||||
Venture capital/private equity |
| 7,810 | | 8,241 | ||||||||||||
Life science |
52 | 8,112 | 346 | 8,731 | ||||||||||||
Premium wine |
3 | 4,012 | 438 | 5,054 | ||||||||||||
Other |
1,011 | 4,563 | 122 | 5,196 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
3,411 | 72,094 | 3,240 | 68,864 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans |
2,568 | 7,173 | 3,696 | 6,827 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total allowance for loan losses |
$ | 5,979 | $ | 79,267 | $ | 6,936 | $ | 75,691 | ||||||||
|
|
|
|
|
|
|
|
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 loans that are performing loans, however, we consider them as demonstrating higher risk which requires more frequent review of the individual exposures. These loans translate to an internal rating
20
of Performing (Criticized). A majority of our performing (criticized) loans are from our SVB Accelerator practice, serving our emerging or early stage clients. Loans risk-rated 8 and 9 are loans that are considered to be impaired and are on nonaccrual status. Loans are placed on nonaccrual status when they become 90 days past due as to principal or interest payments (unless the principal and interest are well secured and in the process of collection), or when we have determined, based upon most recent available information, that the timely collection of principal or interest is not probable; these loans are deemed Impaired. For further description of nonaccrual loans, refer to Note 2Summary of Significant Accounting Policies under Part II, Item 8 of our 2010 Form 10-K. Loans risk-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 ongoing 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, 2011 and December 31, 2010:
(Dollars in thousands) |
Pass | Performing (Criticized) |
Impaired | Total | ||||||||||||
September 30, 2011: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,139,282 | $ | 181,246 | $ | 2,559 | $ | 2,323,087 | ||||||||
Hardware |
677,590 | 59,749 | 5,398 | 742,737 | ||||||||||||
Venture capital/private equity |
1,084,298 | 6,254 | | 1,090,552 | ||||||||||||
Life science |
609,348 | 106,236 | 633 | 716,217 | ||||||||||||
Premium wine |
432,698 | 39,446 | 3,257 | 475,401 | ||||||||||||
Other |
335,031 | 13,279 | 6,593 | 354,903 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
5,278,247 | 406,210 | 18,440 | 5,702,897 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
471,426 | 7,159 | 18,744 | 497,329 | ||||||||||||
Other consumer loans |
170,172 | 8,515 | 3,322 | 182,009 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
641,598 | 15,674 | 22,066 | 679,338 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross loans |
$ | 5,919,845 | $ | 421,884 | $ | 40,506 | $ | 6,382,235 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2010: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 1,717,309 | $ | 118,518 | $ | 3,292 | $ | 1,839,119 | ||||||||
Hardware |
575,401 | 68,320 | 3,824 | 647,545 | ||||||||||||
Venture capital/private equity |
1,031,373 | 15,323 | | 1,046,696 | ||||||||||||
Life science |
520,596 | 57,769 | 3,412 | 581,777 | ||||||||||||
Premium wine |
400,519 | 50,487 | 6,162 | 457,168 | ||||||||||||
Other |
415,381 | 22,964 | 2,177 | 440,522 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
4,660,579 | 333,381 | 18,867 | 5,012,827 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
337,087 | 3,961 | 20,559 | 361,607 | ||||||||||||
Other consumer loans |
181,561 | 11,210 | | 192,771 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
518,648 | 15,171 | 20,559 | 554,378 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross loans |
$ | 5,179,227 | $ | 348,552 | $ | 39,426 | $ | 5,567,205 | ||||||||
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
During the third quarter of 2011 we adopted ASU No. 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring (ASU 2011-02), which updated guidance for determining whether a loan is designated as a troubled debt restructuring (TDR) (see Note 1Basis of Presentation). As a result of adopting this new guidance, at September 30, 2011 we identified loans totaling $5.3 million that are now considered TDRs under the new guidance and are classified as impaired. The allowance for loan losses related to these loans was $1.3 million as calculated under Accounting Standards Codification (ASC) 310.
As of September 30, 2011 we had TDRs of $34.3 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. Substantially all of these TDRs were included as part of our impaired loan balances. In order for these loan balances to return to accrual status, the borrower must demonstrate a sustained period of timely payments and the ultimate collectability of all amounts contractually due may not be in doubt. There were unfunded commitments available for funding of $0.6 million to the clients associated with these TDRs as of September 30, 2011. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables as of September 30, 2011:
21
(Dollars in thousands) |
September 30, 2011 | |||
Loans modified in TDRs: |
||||
Commercial loans: |
||||
Software (1) |
$ | 2,322 | ||
Hardware |
3,880 | |||
Premium wine |
1,993 | |||
Other |
4,384 | |||
|
|
|||
Total commercial loans |
12,579 | |||
|
|
|||
Consumer loans: |
||||
Real estate secured loans |
18,382 | |||
Other consumer loans |
3,322 | |||
|
|
|||
Total consumer loans |
21,704 | |||
|
|
|||
Total |
$ | 34,283 | ||
|
|
During the three and nine months ended September 30, 2011 all new TDRs were modified through payment deferrals granted to our clients, however no principal or interest was forgiven. 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, 2011.
(Dollars in thousands) |
Three months
ended September 30, 2011 |
Nine months
ended September 30, 2011 |
||||||
Loans modified in TDRs during the period: |
||||||||
Commercial loans: |
||||||||
Software (1) |
$ | 381 | $ | 941 | ||||
Hardware |
801 | 2,674 | ||||||
Premium wine |
| 1,993 | ||||||
Other |
2,247 | 2,247 | ||||||
|
|
|
|
|||||
Total commercial loans |
3,429 | 7,855 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Other consumer loans |
| 3,322 | ||||||
|
|
|
|
|||||
Total consumer loans |
| 3,322 | ||||||
|
|
|
|
|||||
Total loans modified in TDRs during the period |
$ | 3,429 | $ | 11,177 | ||||
|
|
|
|
(1) | During the three and nine months ended September 30, 2011, we had partial charge-offs of $0.6 million on loans classified as TDRs. |
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.
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, 2011, broken out by portfolio segment and class of financing receivable:
22
(Dollars in thousands) |
Three months ended September 30, 2011 |
Nine months ended September 30, 2011 |
||||||
TDRs modified within the previous 12 months that defaulted during the period: |
||||||||
Commercial loans: |
||||||||
Software |
$ | 64 | $ | 64 | ||||
Hardware |
1,206 | 3,079 | ||||||
Premium wine |
1,993 | 1,993 | ||||||
|
|
|
|
|||||
Total commercial loans |
3,263 | 5,136 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Other consumer loans |
3,322 | 3,322 | ||||||
|
|
|
|
|||||
Total consumer loans |
3,322 | 3,322 | ||||||
|
|
|
|
|||||
Total TDRs modified within the previous 12 months that defaulted in the period |
$ | 6,585 | $ | 8,458 | ||||
|
|
|
|
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 managements 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, 2011.
7. Short-Term Borrowings and Long-Term Debt
The following table represents outstanding short-term borrowings and long-term debt at September 30, 2011 and December 31, 2010:
Carrying Value | ||||||||||||||
(Dollars in thousands) |
Maturity |
Principal value | September 30, 2011 |
December 31, 2010 |
||||||||||
Short-term borrowings: |
||||||||||||||
Other short-term borrowings |
(1) | $ | | $ | | $ | 37,245 | |||||||
|
|
|
|
|||||||||||
Total short-term borrowings |
$ | | $ | 37,245 | ||||||||||
|
|
|
|
|||||||||||
Long-term debt: |
||||||||||||||
5.375% Senior Notes |
September 15, 2020 | 350,000 | $ | 347,744 | $ | 347,601 | ||||||||
5.70% Senior Notes (2) |
June 1, 2012 | 141,429 | 145,632 | 265,613 | ||||||||||
6.05% Subordinated Notes (3) |
June 1, 2017 | 45,964 | 55,302 | 285,937 | ||||||||||
3.875% Convertible Notes |
April 15, 2011 | | | 249,304 | ||||||||||
7.0% Junior Subordinated Debentures |
October 15, 2033 | 50,000 | 55,416 | 55,548 | ||||||||||
4.99% long-term notes payable |
(4) | 5,463 | 5,463 | 5,257 | ||||||||||
|
|
|
|
|||||||||||
Total long-term debt |
$ | 609,557 | $ | 1,209,260 | ||||||||||
|
|
|
|
(1) | At December 31, 2010, represented cash collateral received from counterparties for our interest rate swap agreements related to our 5.70% Senior Notes and 6.05% Subordinated Notes. Due to the repurchase of $312.6 million of these notes and termination of associated portions of interest rate swaps (see discussion below) in May 2011, the notional value of our swaps fell below the $10 million threshold specified in the agreement, and therefore, the full collateral was returned to the counterparties. |
(2) | At September 30, 2011 and December 31, 2010, included in the carrying value of our 5.70% Senior Notes are |