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, 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

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At October 28, 2011, 43,342,749 shares of the registrant’s common stock ($0.001 par value) were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
PART I - FINANCIAL INFORMATION      3   
Item 1.   Interim Consolidated Financial Statements (unaudited)      3   
  Interim Consolidated Balance Sheets (unaudited) as of September 30, 2011 and December 31, 2010      3   
  Interim Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2011 and 2010      4   
  Interim Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2011 and 2010      5   
  Interim Consolidated Statements of Stockholders’ Equity (unaudited) for the nine months ended September 30, 2011 and 2010      6   
  Interim Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2011 and 2010      7   
  Notes to Interim Consolidated Financial Statements (unaudited)      8   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      42   
Item 3.   Quantitative and Qualitative Disclosures about Market Risk      74   
Item 4.   Controls and Procedures      75   
PART II - OTHER INFORMATION      76   
Item 1.   Legal Proceedings      76   
Item 1A.   Risk Factors      76   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      76   
Item 3.   Defaults Upon Senior Securities      76   
Item 4.   (Removed and Reserved)      76   
Item 5.   Other Information      76   
Item 6.   Exhibits      76   
SIGNATURES      77   
INDEX TO EXHIBITS      78   

 

2


Table of Contents

PART I - FINANCIAL INFORMATION

 

ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

(Dollars in thousands, except par value and share data)

   September 30,
2011
    December 31,
2010
 

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   
  

 

 

   

 

 

 

Cash and cash equivalents

     2,041,972        3,076,432   
  

 

 

   

 

 

 

Available-for-sale securities

     9,639,386        7,917,967   

Non-marketable securities

     951,963        721,520   
  

 

 

   

 

 

 

Investment securities

     10,591,349        8,639,487   
  

 

 

   

 

 

 

Loans, net of unearned income

     6,328,588        5,521,737   

Allowance for loan losses

     (85,246     (82,627
  

 

 

   

 

 

 

Net loans

     6,243,342        5,439,110   
  

 

 

   

 

 

 

Premises and equipment, net of accumulated depreciation and amortization

     53,458        44,545   

Accrued interest receivable and other assets

     265,242        328,187   
  

 

 

   

 

 

 

Total assets

   $ 19,195,363      $ 17,527,761   
  

 

 

   

 

 

 

Liabilities and total equity

    

Liabilities:

    

Deposits:

    

Noninterest-bearing demand

   $ 11,162,776      $ 9,011,538   

Interest-bearing deposits

     4,976,446        5,325,403   
  

 

 

   

 

 

 

Total deposits

     16,139,222        14,336,941   
  

 

 

   

 

 

 

Short-term borrowings

     —          37,245   

Other liabilities

     254,256        196,037   

Long-term debt

     609,557        1,209,260   
  

 

 

   

 

 

 

Total liabilities

     17,003,035        15,779,483   
  

 

 

   

 

 

 

Commitments and contingencies (Note 11)

    

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; 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   
  

 

 

   

 

 

 

Total SVBFG stockholders’ equity

     1,536,098        1,274,350   

Noncontrolling interests

     656,230        473,928   
  

 

 

   

 

 

 

Total equity

     2,192,328        1,748,278   
  

 

 

   

 

 

 

Total liabilities and total equity

   $ 19,195,363      $ 17,527,761   
  

 

 

   

 

 

 

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

 

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

(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   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     143,324        116,758        417,586        343,022   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     1,715        3,783        7,379        11,315   

Borrowings

     6,154        6,634        24,000        18,090   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     7,869        10,417        31,379        29,405   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     135,455        106,341        386,207        313,617   

Provision for (reduction of) loan losses

     769        10,971        (2,144     29,124   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     134,686        95,370        388,351        284,493   
  

 

 

   

 

 

   

 

 

   

 

 

 

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   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     95,611        86,236        309,273        175,666   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense:

        

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   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     127,451        104,171        365,918        306,927   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     102,846        77,435        331,706        153,232   

Income tax expense

     26,770        24,996        92,803        50,397   
  

 

 

   

 

 

   

 

 

   

 

 

 

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
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 37,571      $ 37,787      $ 136,328      $ 77,464   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share—basic

   $ 0.87      $ 0.90      $ 3.18      $ 1.86   

Earnings per common share—diluted

     0.86        0.89        3.12        1.83   

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

 

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

(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   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     52,076        (12,348     75,310        41,695   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     128,152        40,091        314,213        144,530   

Comprehensive income attributable to noncontrolling interests

     (38,505     (14,652     (102,575     (25,371
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income available to common stockholders

   $ 89,647      $ 25,439      $ 211,638      $ 119,159   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

    

 

Common Stock

     Additional
Paid-in
Capital
    Retained
Earnings
     Accumulated
Other
Comprehensive
Income
    Total SVBFG
Stockholders’
Equity
    Noncontrolling
Interests
     Total
Equity
 

(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   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

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
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance at September 30, 2010

     41,964,764       $ 42       $ 410,590      $ 810,379       $ 47,600      $ 1,268,611      $ 427,685       $ 1,696,296   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance at December 31, 2010

     42,268,201       $ 42       $ 422,334      $ 827,831       $ 24,143      $ 1,274,350      $ 473,928       $ 1,748,278   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance at September 30, 2011

     43,268,880       $ 43       $ 472,443      $ 964,159       $ 99,453      $ 1,536,098      $ 656,230       $ 2,192,328   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

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

 

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

     Nine months ended
September 30,
 

(Dollars in thousands)

   2011     2010  

Cash flows from operating activities:

    

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   
  

 

 

   

 

 

 

Net cash provided by operating activities

     90,188        144,862   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

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
  

 

 

   

 

 

 

Net cash used for investing activities

     (2,445,892     (2,395,762
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,321,244        2,516,416   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 2,041,972      $ 3,778,369   
  

 

 

   

 

 

 

Supplemental disclosures:

    

Cash paid during the period for:

    

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).

 

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Table of Contents

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 Data—Note 2—“Summary 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 entity’s operations. For these types of entities, the Company’s determination of whether it has a controlling interest is based on ownership of the majority of the entities’ voting equity interest or through control of management of the entities.

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 entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. We determine whether we have a controlling financial interest in a VIE by considering whether our involvement with the VIE is significant and 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 entity’s 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.

 

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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 Company’s 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 6—“Loans 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 Board’s (“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:

 

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     Three months  ended
September 30,
     Nine months  ended
September 30,
 

(Dollars and shares in thousands, except per share amounts)

   2011      2010      2011      2010  

Numerator:

           

Net income available to common stockholders

   $ 37,571       $ 37,787       $ 136,328       $ 77,464   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator:

           

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         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted calculation

     43,791         42,513         43,641         42,401   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share:

           

Basic

   $ 0.87       $ 0.90       $ 3.18       $ 1.86   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.86       $ 0.89       $ 3.12       $ 1.83   
  

 

 

    

 

 

    

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     347         11         373         12   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 7—“Short-Term Borrowings and Long-Term Debt” and Note 8—“Derivative 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   
  

 

 

    

Total unrecognized share-based compensation expense

   $ 35,473      
  

 

 

    

 

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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         
  

 

 

         

Outstanding at September 30, 2011

     2,603,102        42.20         3.54       $ 10,788,138   
  

 

 

         

Vested and expected to vest at September 30, 2011

     2,478,035        41.84         3.42         10,504,466   
  

 

 

         

Exercisable at September 30, 2011

     1,545,346        39.72         2.17         7,085,746   
  

 

 

         

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   
  

 

 

   

Nonvested at September 30, 2011

     582,898        52.33   
  

 

 

   

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   
  

 

 

    

 

 

 

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

   $ 299,828       $ 403,707   
  

 

 

    

 

 

 

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.

 

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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
 

Available-for-sale securities, at fair value:

               

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:

               

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-marketable securities:

               

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):

               

Other investments (4)

          65,934              67,031   

Low income housing tax credit funds

          34,446              27,832   

Non-marketable securities (cost method accounting):

               

Venture capital and private equity fund investments (5)

          138,960              110,466   

Other venture capital investments

          13,364              12,120   
       

 

 

         

 

 

 

Total non-marketable securities

          951,963              721,520   
       

 

 

         

 

 

 

Total investment securities

        $ 10,591,349            $ 8,639,487   
       

 

 

         

 

 

 

 

(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 Capital—NT 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   
  

 

 

      

 

 

    

Total venture capital and private equity fund investments

   $ 578,126         $ 391,247      
  

 

 

      

 

 

    

 

  (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 Capital—NT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively.

 

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(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        —           —     
  

 

 

      

 

 

    

Total other venture capital investments

   $ 120,160         $ 111,843      
  

 

 

      

 

 

    

 

  (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   
  

 

 

      

 

 

    

Total other investments

   $ 65,934         $ 67,031      
  

 

 

      

 

 

    

 

  (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.

 

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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:

               

Agency-issued mortgage-backed securities

     51,756         (160     —           —          51,756         (160

Agency-issued collateralized mortgage obligations—variable 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
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities (1)

   $ 1,382,469       $ (2,354   $ 44,606       $ (33   $ 1,427,075       $ (2,387
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(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
 

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 obligations—fixed rate

     322         (1     —           —          322         (1

Agency-issued collateralized mortgage obligations—variable 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   
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

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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, 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.

 

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Table of Contents

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   
  

 

 

    

 

 

 

 

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Table of Contents

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


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, 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


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, 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


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, 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

 

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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 2—“Summary 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 Creditor’s 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 1—“Basis 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:

 

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Table of Contents

(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 TDR’s 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:

 

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Table of Contents

(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 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, 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