Edgar Filing: SVB FINANCIAL GROUP

Form 10-Q

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, 2009

¨	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 ¨ 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.

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 30, 2009, 33,208,760 shares of the registrant’s common stock ($0.001 par value) were outstanding.

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, 2009 and December 31, 2008	3

	Interim Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2009 and 2008	4

	Interim Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2009 and 2008	5

	Interim Consolidated Statements of Stockholders’ Equity (unaudited) for the nine months ended September 30, 2009 and 2008	6

	Interim Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2009 and 2008	7

	Notes to Interim Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	66

Item 4.	Controls and Procedures	67

PART II - OTHER INFORMATION		68

Item 1.	Legal Proceedings	68

Item 1A.	Risk Factors	68

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76

Item 3.	Defaults Upon Senior Securities	76

Item 4.	Submission of Matters to a Vote of Security Holders	76

Item 5.	Other Information	76

Item 6.	Exhibits	76

SIGNATURE		77

INDEX TO EXHIBITS		78

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, 2009			December 31, 2008 *
Assets
Cash and due from banks	$	4,062,298		$	1,958,333
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities		48,530			478,392
Investment securities		3,491,281			1,786,100
Loans, net of unearned income		4,655,817			5,506,253
Allowance for loan losses		(86,713	)		(107,396	)

Net loans		4,569,104			5,398,857

Premises and equipment, net of accumulated depreciation and amortization		30,722			30,589
Goodwill		—			4,092
Accrued interest receivable and other assets		336,668			361,917

Total assets	$	12,538,603		$	10,018,280


Liabilities and total equity
Liabilities:
Deposits:
Noninterest-bearing demand	$	6,422,937		$	4,419,965
Negotiable order of withdrawal (NOW)		39,818			58,133
Money market		1,198,611			1,213,086
Money market deposits in foreign offices		64,701			53,123
Time		333,870			379,200
Sweep		1,995,695			1,349,965

Total deposits		10,055,632			7,473,472

Short-term borrowings		52,285			62,120
Other liabilities		171,166			175,553
Long-term debt		866,748			995,423

Total liabilities		11,145,831			8,706,568

Commitments and contingencies (Note 12)

SVBFG stockholders’ equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding		—			—
Preferred stock, Series B Fixed Rate Cumulative Perpetual Preferred Stock,
$1,000 liquidation value per share, 235,000 shares authorized; 235,000 shares issued and outstanding, net of discount		223,009			221,185
Common stock, $0.001 par value, 150,000,000 shares authorized;
33,202,387 and 32,917,007 shares outstanding, respectively		33			33
Additional paid-in capital		92,367			66,201
Retained earnings		726,455			709,726
Accumulated other comprehensive income (loss)		25,513			(5,789	)

Total SVBFG stockholders’ equity		1,067,377			991,356
Noncontrolling interests		325,395			320,356

Total equity		1,392,772			1,311,712

Total liabilities and total equity	$	12,538,603		$	10,018,280

*	Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to Note 1- “Basis of Presentation” for more details.

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

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)	2009			2008 *			2009			2008 *
Interest income:
Loans	$	83,049		$	94,256		$	255,548		$	268,530
Investment securities:
Taxable		21,562			15,321			53,207			43,677
Non-taxable		1,008			1,106			3,098			3,121
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities		2,367			2,712			7,228			10,513

Total interest income		107,986			113,395			319,081			325,841

Interest expense:
Deposits		4,801			6,267			17,253			16,908
Borrowings		6,367			12,517			21,818			36,748

Total interest expense		11,168			18,784			39,071			53,656

Net interest income		96,818			94,611			280,010			272,185
Provision for loan losses		8,030			13,682			72,889			29,756

Net interest income after provision for loan losses		88,788			80,929			207,121			242,429

Noninterest income:
Foreign exchange fees		7,491			8,641			22,574			24,446
Deposit service charges		6,906			6,129			20,319			18,076
Client investment fees		5,527			13,636			17,355			41,006
Letters of credit and standby letters of credit income		3,019			3,050			8,240			9,138
Credit card fees		2,300			1,473			6,696			4,675
Corporate finance fees		—			—			—			3,640
(Losses) gains on derivative instruments, net		(1,090	)		6,472			(2,123	)		13,479
Gains (losses) on investment securities, net		3,905			(876	)		(37,890	)		(4,949	)
Other		6,249			1,913			21,830			17,194

Total noninterest income		34,307			40,438			57,001			126,705

Noninterest expense:
Compensation and benefits		45,815			49,598			141,042			153,438
Professional services		12,109			9,623			35,452			27,556
Premises and equipment		5,892			5,781			16,993			16,424
FDIC assessments		2,589			671			13,853			1,807
Net occupancy		4,198			4,135			13,346			12,825
Business development and travel		2,902			3,389			9,578			10,575
Correspondent bank fees		2,118			1,689			5,994			5,011
Impairment of goodwill		—			—			4,092			—
Loss from cash settlement of conversion premium of zero-coupon convertible subordinated notes		—			—			—			3,858
Provision for (reduction of) unfunded credit commitments		65			(990	)		(3,366	)		(355	)
Other		4,119			6,535			18,975			19,918

Total noninterest expense		79,807			80,431			255,959			251,057

Income before income tax expense		43,288			40,936			8,163			118,077
Income tax expense		16,879			16,711			21,605			51,350

Net income (loss) before noncontrolling interests		26,409			24,225			(13,442	)		66,727
Net (income) loss attributable to noncontrolling interests		(2,246	)		1,693			40,708			7,445

Net income attributable to SVBFG	$	24,163		$	25,918		$	27,266		$	74,172

Preferred stock dividend and discount accretion		(3,555	)		—			(10,636	)		—

Net income available to common stockholders	$	20,608		$	25,918		$	16,630		$	74,172


Earnings per common share—basic	$	0.62		$	0.80		$	0.50		$	2.30
Earnings per common share—diluted		0.61			0.77		$	0.50			2.17

*	Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to Note 1- “Basis of Presentation” for more details.

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

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)	2009			2008 *			2009			2008 *
Net income (loss) before noncontrolling interests	$	26,409		$	24,225		$	(13,442	)	$	66,727
Other comprehensive income (loss), net of tax:
Cumulative translation gains (losses):
Foreign currency translation gains (losses)		455			(565	)		(87	)		(1,269	)
Related tax (expense) benefit		(184	)		232			28			520
Change in unrealized gains (losses) on available-for-sale investment securities:
Unrealized holding gains (losses)		35,068			(9,666	)		52,927			(22,730	)
Related tax (expense) benefit		(14,291	)		3,973			(21,581	)		9,321
Reclassification adjustment for realized (losses) gains included in net income (loss)		(8	)		1,232			26			2,568
Related tax benefit (expense)		3			(506	)		(11	)		(1,054	)

Other comprehensive income (loss), net of tax		21,043			(5,300	)		31,302			(12,644	)

Comprehensive income		47,452			18,925			17,860			54,083
Net (income) loss attributable to noncontrolling interests		(2,246	)		1,693			40,708			7,445

Comprehensive income attributable to SVBFG	$	45,206		$	20,618		$	58,568		$	61,528

*	Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to Note 1- “Basis of Presentation” for more details.

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

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


(Dollars in thousands)	Preferred Stock			Common Stock					Additional Paid-in			Retained			Accumulated Other Comprehensive			Total SVBFG Stockholders’			Noncontrolling			Total Equity
(Dollars in thousands)	Shares	Amount		Shares		Amount			Capital			Earnings			(Loss) Income			Equity			Interests			Total Equity
Balance at December 31, 2007 *	—	$	—	32,670,557		$	33		$	13,167		$	669,459		$	(6,290	)	$	676,369		$	240,102		$	916,471

Common stock issued under employee benefit plans, net of restricted stock cancellations	—		—	1,069,803			1			29,813			—			—			29,814			—			29,814
Income tax benefit from stock options exercised, vesting of restricted stock and other	—		—	—			—			5,728			—			—			5,728			—			5,728
Net income (loss)	—		—	—			—			—			74,172			—			74,172			(7,445	)		66,727
Capital calls and (distributions), net	—		—	—			—			—			—			—			—			92,341			92,341
Net change in unrealized losses on available-for-sale investment securities, net of tax	—		—	—			—			—			—			(11,895	)		(11,895	)		—			(11,895	)
Foreign currency translation adjustments, net of tax	—		—	—			—			—			—			(749	)		(749	)		—			(749	)
Proceeds from cash exercise of call option on zero-coupon convertible subordinated notes	—		—	—			—			3,858			—			—			3,858			—			3,858
Net cost of convertible note hedge and warrant agreement related to our 3.875% convertible senior notes	—		—	—			—			(20,550	)		—			—			(20,550	)		—			(20,550	)
Income tax benefit from original issue discount related to our zero-coupon convertible subordinated notes and 3.875% convertible senior notes	—		—	—			—			12,848			—			—			12,848			—			12,848
Common stock repurchases	—		—	(1,004,628	)		(1	)		(12,322	)		(33,294	)		—			(45,617	)		—			(45,617	)
Stock-based compensation expense under SFAS 123(R)	—		—	—			—			10,786			—			—			10,786			—			10,786
Other-net	—		—	—			—			1,031			(16	)		—			1,015			—			1,015

Balance at September 30, 2008 *	—	$	—	32,735,732		$	33		$	44,359		$	710,321		$	(18,934	)	$	735,779		$	324,998		$	1,060,777

Balance at December 31, 2008 *	235,000	$	221,185	32,917,007		$	33		$	66,201		$	709,726		$	(5,789	)	$	991,356		$	320,356		$	1,311,712

Common stock issued under employee benefit plans, net of restricted stock cancellations	—		—	285,380			—			4,116			—			—			4,116			—			4,116
Income tax expense from stock options exercised, vesting of restricted stock and other	—		—	—			—			(584	)		—			—			(584	)		—			(584	)
Net income (loss)	—		—	—			—			—			27,266			—			27,266			(40,708	)		(13,442	)
Capital calls and (distributions), net	—		—	—			—			—			—			—			—			45,747			45,747
Net change in unrealized gains on available-for-sale investment securities, net of tax	—		—	—			—			—			—			31,361			31,361			—			31,361
Foreign currency translation adjustments, net of tax	—		—	—			—			—			—			(59	)		(59	)		—			(59	)
Income tax benefit from original issue discount related to our 3.875% convertible senior notes	—		—	—			—			10,739			—			—			10,739			—			10,739
Stock-based compensation expense under SFAS 123(R)	—		—	—			—			11,051			—			—			11,051			—			11,051
Preferred stock dividend and discount accretion	—		1,824	—			—			—			(10,636	)		—			(8,812	)		—			(8,812	)
Other-net	—		—	—			—			844			99			—			943			—			943

Balance at September 30, 2009	235,000	$	223,009	33,202,387		$	33		$	92,367		$	726,455		$	25,513		$	1,067,377		$	325,395		$	1,392,772

*	Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to Note 1- “Basis of Presentation” for more details.

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

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine months ended September 30,
(Dollars in thousands)	2009			2008 *
Cash flows from operating activities:
Net (loss) income before noncontrolling interests	$	(13,442	)	$	66,727
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Impairment of goodwill		4,092			—
Loss from cash settlement of conversion premium of zero-coupon convertible subordinated notes		—			3,858
Provision for loan losses		72,889			29,756
(Reduction of) provision for unfunded credit commitments		(3,366	)		(355	)
Changes in fair values of derivatives, net		6,201			(6,888	)
Losses on investment securities, net		37,890			4,949
Depreciation and amortization		25,796			21,492
Tax benefit of original issue discount		10,745			3,899
Tax (expense) benefit from stock exercises		(927	)		1,419
Amortization of share-based compensation		11,177			10,870
Amortization of deferred warrant-related loan fees		(6,125	)		(6,105	)
Deferred income tax (benefit) expense		(1,859	)		16,357
Losses on sale of and valuation adjustments to other real estate owned property		117			236
Changes in other assets and liabilities:
Accrued interest, net		(2,235	)		1,815
Accounts receivable		3,378			851
Income tax receivable, net		(21,169	)		(5,919	)
Accrued compensation		(5,742	)		(19,821	)
Foreign exchange spot contracts, net		(9,282	)		4,689
Other, net		(5,337	)		(11,842	)

Net cash provided by operating activities		102,801			115,988

Cash flows from investing activities:
Purchases of available-for-sale securities		(2,115,015	)		(302,346	)
Proceeds from sales of available-for-sale securities		195			4,432
Proceeds from maturities and pay downs of available-for-sale securities		499,493			194,158
Purchases of nonmarketable securities (cost and equity method accounting)		(33,882	)		(43,674	)
Proceeds from sales of nonmarketable securities (cost and equity method accounting)		3,363			7,422
Proceeds from nonmarketable securities (cost and equity method accounting)		—			1,498
Purchases of nonmarketable securities (investment fair value accounting)		(43,849	)		(85,997	)
Proceeds from sales of nonmarketable securities (investment fair value accounting)		11,760			22,083
Net decrease (increase) in loans		729,876			(1,156,978	)
Proceeds from recoveries of charged-off loans		16,892			5,547
Proceeds from sale of other real estate owned		693			287
Purchases of premises and equipment		(11,545	)		(5,959	)

Net cash used for investing activities		(942,019	)		(1,359,527	)

Cash flows from financing activities:
Net increase in deposits		2,582,160			821,406
Repayments of other long-term debt		(101,272	)		(901	)
(Decrease) increase in short-term borrowings		(9,835	)		335,000
Net payments for settlement of zero-coupon convertible subordinated notes		—			(149,732	)
Proceeds from the issuance of 3.875% convertible senior notes, note hedge and warrant, net of issuance costs		—			222,686
Capital contributions from noncontrolling interests, net of distributions		45,747			92,341
Tax benefit from stock exercises		337			5,882
Dividends paid on preferred stock		(7,932	)		—
Proceeds from issuance of common stock and Employee Stock Purchase Plan		4,116			29,813
Repurchases of common stock		—			(45,617	)

Net cash provided by financing activities		2,513,321			1,310,878

Net increase in cash and cash equivalents		1,674,103			67,339
Cash and cash equivalents at beginning of period		2,436,725			683,174

Cash and cash equivalents at end of period	$	4,110,828		$	750,513

Supplemental disclosures:
Cash paid during the period for:
Interest paid	$	35,852		$	46,116
Income taxes paid		35,824			31,843
Noncash items during the period:
Preferred stock dividends accrued, not yet paid	$	1,469		$	—
Unrealized gains (losses) on available-for-sale securities, net of tax		31,346			(13,409	)
Net change in fair value of interest rate swaps		(37,914	)		7,157

*	Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to Note 1- “Basis of Presentation” for more details.

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

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 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, 2009 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, 2008 (“2008 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 2008 Form 10-K, and with the accounting pronouncements adopted during the nine months ended September 30, 2009, as discussed below.

The preparation of 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, 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 interim financial statements include the accounts of SVB Financial Group and our majority-owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary. There have been no significant changes during the nine months ended September 30, 2009 to our majority-owned subsidiaries and VIEs. Refer to our Consolidated Financial Statements and Supplementary Data-Note 2-“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2008 Form 10-K.

Impact of Adopting Financial Accounting Standards Board (“FASB”) Issued Guidance Over Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (ASC 810-10-65)

In December 2007, the FASB issued new accounting standards (Accounting Standards Codification (“ASC”) 810-10-65, formerly known as Statement of Financial Accounting Standards (“SFAS”) No. 160). This standard establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. This standard also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. Our adoption of this standard on January 1, 2009 required us to reclassify our presentation of noncontrolling interests (formerly referred to as minority interests) in our financial statements and had no effect on our financial position, results of operations or stockholders’ equity.

Impact of Adopting FASB Issued Guidance Over Disclosures about Derivative Instruments and Hedging Activities (ASC 815-10-65)

In March 2008, the FASB issued new accounting standards (ASC 815-10-65, formerly known as SFAS No. 161). This standard requires companies with derivative instruments to provide enhanced disclosure of information that should enable financial statement users to better understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB issued guidance over accounting for derivative instruments and hedging activities (ASC 815, formerly known as SFAS No. 133) and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. Our adoption of this standard on January 1, 2009 required us to expand our disclosures for our derivative financial instruments. Please refer to Note 9- “Derivative Financial Instruments” for further details.

Impact of Adopting FASB Issued Guidance Over Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (ASC 470-20)

In May 2008, the FASB issued new accounting standards (ASC 470-20, formerly known as FASB Staff Position (“FSP”) Accounting Principles Board (“APB”) Opinion No. 14-1), which requires the proceeds from the issuance of convertible debt instruments to be allocated between a liability and an equity component in a manner that reflects the entity’s non-convertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. Our adoption on January 1, 2009 required historical financial statements for 2007 and 2008 to be retrospectively adjusted to conform to the new accounting treatment for both our $150 million zero-coupon convertible subordinated notes (“2003 Convertible Notes”), which matured on June 15, 2008, and our $250 million 3.875% convertible senior notes (“2008 Convertible Notes”), due April 15, 2011.

As a result of adopting the requirements of this standard, our net income available to common stockholders for the three and nine months ended September 30, 2009 decreased by $0.3 million and $0.9 million, respectively. Details of certain items revised in prior periods related to the adoption of this standard are provided below under the section “Changes to Prior Period Balances”.

Impact of Adopting FASB Issued Guidance Over Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (ASC 820-10-65)

In April 2009, the FASB issued new accounting standards (ASC 820-10-65, formerly known as FSP SFAS No. 157-4), which provides guidance to highlight and expand on factors that should be considered in estimating fair value when there has been a significant decrease in market activity for a financial asset or liability. This standard also provides guidance on identifying circumstances that may indicate that a transaction is not orderly. Our adoption of this standard on April 1, 2009 did not have a material effect on our financial position, results of operations or stockholders’ equity.

Impact of Adopting FASB Issued Guidance Over Recognition and Presentation of Other-Than-Temporary Impairments (“OTTI”) (ASC 320-10-65)

In April 2009, the FASB issued new accounting standards (ASC 320-10-65, formerly known as FSP SFAS No. 115-2 and SFAS No. 124-2), which changes the methodology for determining whether OTTI exists for debt securities. This standard requires changes to the presentation of OTTI impairment in the statements of income for those impairments involving credit losses, as well as enhanced disclosures regarding the methodology and significant inputs used to measure the amount related to credit losses. Our adoption of this standard on April 1, 2009 did not have a material effect on our financial position, results of operations or stockholders’ equity, but required us to update our significant accounting policy for available-for-sale debt securities, to include the specific requirements of this standard.

Impact of Adopting FASB Issued Guidance Over Interim Disclosures about Fair Value of Financial Instruments (ASC 825-10-65)

In April 2009, the FASB issued new accounting standards (ASC 825-10-65, formerly known as FSP SFAS No. 107-1 and APB Opinion No. 28-1), which requires interim disclosures regarding the fair values of all financial instruments within the scope of FASB issued guidance over disclosures about fair value of financial instruments (ASC 825-10-50 and ASC 825-10-55, formerly known as SFAS No. 107) as well as the methods and significant assumptions used to estimate the fair value of those financial instruments. Our adoption of this standard on April 1, 2009 required us to expand our interim disclosures of all financial instruments and had no effect on our financial position, results of operations or stockholders’ equity. Please refer to Note 14- “Fair Value of Financial Instruments” for further details.

Impact of Adopting FASB Issued Guidance Over Subsequent Events (ASC 855-10)

In May 2009, the FASB issued new accounting standards (ASC 855-10, formerly known as SFAS No. 165), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Our adoption of this standard on July 1, 2009 required us to disclose the date through which we have evaluated subsequent events and had no effect on our results of operations or stockholders’ equity this quarter.

Impact of Adopting The FASB Accounting Standards Codification ^TM and the Hierarchy of Generally Accepted Accounting Principles ^TM (ASC 105-10)

In June 2009, the FASB issued new accounting standards (ASC 105-10, formerly known as SFAS No. 168), which has become the source of authoritative GAAP recognized by the FASB. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification has superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. Our adoption of this standard on July 1, 2009 did not have any impact on our consolidated financial position and results of operations, but did have an impact on how we reference and disclose accounting literature in our interim and annual reports.

Correction of an Immaterial Error

During the second quarter of 2009, we determined that we had incorrectly recognized certain gains and losses on foreign exchange contracts in prior periods. The cumulative pre-tax effect of the error was $6.2 million, or $3.8 million after-tax and is considered to be immaterial to the prior periods. However, since the cumulative impact of correcting this error would be material to the results of the quarter ended June 30, 2009, we applied the guidance of ASC 250-10-S99-1 and S99-2 (formerly known as SAB 99 and SAB 108). This guidance requires that prior financial statements be corrected, even though such revisions were, and continue to be, immaterial to the prior period financial statements. As such, the affected prior period results have been revised as follows: For the three months ended March 31, 2009, net loss increased by $1.2 million, or $0.04 per diluted common share; for the year ended December 31, 2008, net income was reduced by $2.3 million, or $0.07 per diluted common share; and for the year ended December 31, 2007, net income was reduced by $0.2 million, or $0.01 per diluted common share. Details of the revisions are provided under the section “Changes to Prior Period Balances”.

Changes to Prior Period Balances

The table below highlights certain items revised in prior periods related to the revision of certain immaterial gains and losses on foreign exchange contracts that were incorrectly recorded in prior periods and to the adoption of ASC 470-20:


	Three months ended															Year ended
(Dollars in thousands, except per share amounts)	March 31, 2009			December 31, 2008			September 30, 2008			June 30, 2008			March 31, 2008			December 31, 2007
AS REVISED
Income Statement
Interest expense — borrowings	$	8,181		$	10,219		$	12,517		$	11,695		$	12,536		$	54,259
Other noninterest income		2,782			1,858			1,913			5,759			9,522			26,096
Income tax expense (benefit)		(2,448	)		863			16,711			16,291			18,348			84,581
Net income (loss) attributable to SVBFG		(8,235	)		114			25,918			21,014			27,240			120,329
Net income (loss) available to common stockholders		(11,771	)		(593	)		25,918			21,014			27,240			120,329
Earnings (loss) per common share — diluted		(0.36	)		(0.02	)		0.77			0.61			0.79			3.28

Fully Taxable Equivalent
Net interest income (fully taxable equivalent basis)	$	92,083		$	97,024		$	95,206		$	87,377		$	91,283		$	377,115
Net interest margin		3.97	%		5.39	%		5.70	%		5.62	%		6.27	%		7.19	%

Balance Sheet
Cash and due from banks	$	3,360,199		$	1,789,311		$	371,425		$	303,057		$	301,888		$	324,510
Total assets		10,955,015			10,018,280			8,070,315			7,310,010			6,897,163			6,692,171
Long-term debt		964,175			995,423			976,189			969,588			892,516			873,241
Additional paid-in capital		71,760			66,201			44,359			20,754			13,975			13,167
Retained earnings		697,956			709,726			710,321			684,404			663,963			669,459

ADJUSTMENTS DUE TO CORRECTION OF ERROR
Income Statement
Other noninterest income	$	(1,971	)	$	(3,239	)	$	(1,309	)	$	578		$	187		$	(415	)
Income tax expense (benefit)		(746	)		(1,248	)		(531	)		215			65			(171	)
Net income (loss) attributable to SVBFG		(1,225	)		(1,991	)		(778	)		363			122			(244	)
Net income (loss) available to common stockholders		(1,225	)		(1,991	)		(778	)		363			122			(244	)
Earnings (loss) per common share — diluted		(0.04	)		(0.06	)		(0.02	)		0.01			—			(0.01	)

Balance Sheet
Cash and due from banks	$	(2,017	)	$	(2,085	)	$	(2,085	)	$	(2,085	)	$	(2,085	)	$	(889	)
Total assets		(3,753	)		(2,528	)		(537	)		241			(122	)		(244	)
Retained earnings		(3,753	)		(2,528	)		(537	)		241			(122	)		(244	)

ADJUSTMENTS DUE TO ASC 470-20
Income Statement
Interest expense — borrowings		N/A		$	525		$	518		$	1,068		$	1,303		$	5,091
Income tax expense (benefit)		N/A			(208	)		(206	)		(424	)		(518	)		(2,026	)
Net income (loss) attributable to SVBFG		N/A			(317	)		(312	)		(644	)		(785	)		(3,065	)
Net income (loss) available to common stockholders		N/A			(317	)		(312	)		(644	)		(785	)		(3,065	)

Fully Taxable Equivalent
Net interest income (fully taxable equivalent basis)		N/A		$	(525	)	$	(518	)	$	(1,068	)	$	(1,303	)	$	(5,091	)
Net interest margin		N/A			(0.03	)%		(0.03	)%		(0.07	)%		(0.09	)%		(0.10	)%

Balance Sheet
Total assets		N/A		$	(84	)	$	(93	)	$	(102	)	$	(18	)	$	(41	)
Long-term debt		N/A			(5,217	)		(5,757	)		(6,290	)		(673	)		(2,013	)
Additional paid-in capital		N/A			20,329			20,543			20,754			13,975			13,167
Retained earnings		N/A			(15,196	)		(14,879	)		(14,566	)		(13,993	)		(13,208	)

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentations.

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of SFAS No. 140 (“SFAS No. 166”). SFAS No. 166 defines the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. SFAS No. 166 also removes the concept of a qualifying special-purpose entity for accounting purposes. SFAS No. 166 is effective for interim or annual financial periods ending after November 15, 2009. We are currently assessing the impact of SFAS No. 166 on our consolidated financial position and results of operations.

In June 2009, the FASB issued SFAS No. 167, Amendments to FIN 46(R) (“SFAS No. 167”). SFAS No. 167 replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling interest in a VIE, with an approach focused on which enterprise has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant. SFAS No. 167 is effective for interim or annual financial periods beginning after November 15, 2009. We are currently assessing the impact of SFAS No. 167 on our consolidated financial position and results of operations.

In August 2009, the FASB issued Measuring Liabilities at Fair Value (ASC 820) Accounting Standards Update (“ASU”) No. 2009-05. ASU No. 2009-05 clarifies that a quoted price for the identical liability in an active market for a level 1 liability is the best evidence of fair value for that liability. ASU No. 2009-05 is effective beginning in the fourth quarter of 2009. We are currently

assessing the impact of ASU No. 2009-05 on our consolidated financial position and results of operations and do not expect any material changes.

In September 2009, the FASB issued Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (ASC 820) ASU No. 2009-12. ASU No. 2009-12 permits an investor to estimate the fair value of an investment without further adjustment if the net asset value is calculated in accordance with the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Guide for Investment Companies. ASU No. 2009-12 is effective beginning in the fourth quarter of 2009. We are currently assessing the impact of ASU No. 2009-12 on our consolidated financial position and results of operations and do not expect any material changes.

2. Stockholders’ Equity and Earnings Per Share (“EPS”)

Common Stock

We did not repurchase any shares of our common stock for the three or nine months ended September 30, 2009. We repurchased 1.0 million shares for the nine months ended September 30, 2008 totaling $45.6 million. In July 2008 upon expiration of our earlier stock repurchase program, our Board of Directors approved a stock repurchase program authorizing us to purchase up to $150.0 million of our common stock, which expires on December 31, 2009; however, we are subject to certain stock repurchase restrictions in connection with our participation in the U.S. Treasury’s (“Treasury”) Capital Purchase Program (the “CPP”). At September 30, 2009, $150.0 million of shares remain authorized for repurchase under our current stock repurchase program. For more information regarding the CPP, please refer to our “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources” under Part II, Item 7 of our 2008 Form 10-K.

Preferred Stock

In connection with our participation in the CPP in the fourth quarter of 2008, for the nine months ended September 30, 2009, we have paid or accrued dividends of $8.8 million on our Series B Fixed Rate Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”). At December 31, 2008, accrued dividends were $0.6 million.

Earnings Per Share

Basic earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted earnings per share 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, our Employee Stock Purchase Plan, restricted stock awards and units, our 2003 Convertible Notes and related warrants, which matured in June 2008, our 2008 Convertible Notes and related warrants and note hedge, and our warrant under the CPP. Potentially dilutive common shares are excluded from the computation of dilutive earnings per share in periods in which the effect would be antidilutive. The following is a reconciliation of basic EPS to diluted EPS for the three and nine months ended September 30, 2009 and 2008, respectively:


	Three months ended September 30,					Nine months ended September 30,
(Dollars and shares in thousands, except per share amounts)	2009			2008		2009			2008
Numerator:
Net income attributable to SVBFG	$	24,163		$	25,918	$	27,266		$	74,172
Preferred stock dividend and discount accretion		(3,555	)		—		(10,636	)		—

Net income available to common stockholders	$	20,608		$	25,918	$	16,630		$	74,172

Denominator:
Weighted average common shares outstanding-basic		33,177			32,535		33,033			32,296
Weighted average effect of dilutive securities:
Stock options		495			994		215			998
Restricted stock units		—			106		—			93
2003 Convertible Notes		—			—		—			868
2008 Convertible Notes		—			143		—			—

Denominator for diluted calculation		33,672			33,778		33,248			34,255

Net income per common share:
Basic	$	0.62		$	0.80	$	0.50		$	2.30

Diluted	$	0.61		$	0.77	$	0.50		$	2.17

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, 2009 and 2008, respectively:


	Three months ended September 30,		Nine months ended September 30,
(Shares in thousands)	2009	2008	2009	2008
Stock options	1,718	827	2,485	822
Restricted stock units	90	2	499	1
Warrant associated with CPP	275	—	597	—

Total	2,083	829	3,581	823

In addition to the above, at September 30, 2009, 4.7 million shares of our 2008 Convertible Notes and associated warrants were outstanding but not included in the calculation of diluted earnings per common share because the exercise price was higher than the market price, and therefore were anti-dilutive. Concurrent with the issuance of our 2008 Convertible Notes, we entered into a convertible note hedge and warrant agreement. For information on our 2008 Convertible Notes and associated convertible note hedge and warrant agreement, see our Consolidated Financial Statements and Supplementary Data-Note 9- “Derivative Financial Instruments” and Note 12- “Short-Term Borrowings and Long-Term Debt” under Part II, Item 8 of our 2008 Form 10-K.

3. Share-Based Compensation

For the three and nine months ended September 30, 2009, we recorded share-based compensation expense of $3.4 million and $11.2 million, respectively, resulting in the recognition of $0.8 million and $2.7 million, respectively, in related tax benefits. For the three and nine months ended September 30, 2008, we recorded share-based compensation expense of $3.5 million and $10.9 million, respectively, resulting in the recognition of $1.0 million and $2.7 million, respectively, in related tax benefits.

Unrecognized Compensation Expense

At September 30, 2009, unrecognized share-based compensation expense was as follows:


(Dollars in thousands)	Unrecognized Expense		Average Expected Recognition Period - in Years
Stock options	$	8,353	1.70
Restricted stock units		10,163	1.31

Total unrecognized share-based compensation expense	$	18,516

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, 2009:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value of In-The- Money Options
Outstanding at December 31, 2008	3,130,929		$	37.25
Granted	533,561			21.70
Exercised	(77,877	)		20.69
Forfeited	(18,385	)		40.43
Expired	(30,931	)		38.51

Outstanding at September 30, 2009	3,537,297			35.24	3.44	$	35,334,682

Vested and expected to vest at September 30, 2009	3,387,019			35.37	3.33		33,349,450

Exercisable at September 30, 2009	2,491,910			35.21	2.44		23,904,431

The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $43.27 as of September 30, 2009. The total intrinsic value of options exercised during the three and nine months ended September 30, 2009 was $0.8 million and $1.0 million, respectively, compared to $13.4 million and $22.0 million for the comparable 2008 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, 2009:


	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2008	393,463		$	46.49
Granted	128,441			23.96
Vested	(97,444	)		21.56
Forfeited	(10,906	)		30.38

Nonvested at September 30, 2009	413,554			45.80

4. Federal Funds Sold, Securities Purchased under Agreements to Resell and Other Short-Term Investment Securities

The following table details the federal funds sold, securities purchased under agreements to resell and other short-term investment securities at September 30, 2009 and December 31, 2008, respectively:


(Dollars in thousands)	September 30, 2009		December 31, 2008
Federal funds sold overnight	$	—	$	250,000
Securities purchased under agreements to resell		34,599		150,910
Other short-term investment securities		13,931		77,482

Total federal funds sold, securities purchased under agreements to resell and other short-term investment securities	$	48,530	$	478,392

In addition to the above, as of September 30, 2009 and December 31, 2008, $3.7 billion and $1.1 billion, respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $160.3 million and $169.0 million, respectively.

5. Investment Securities

The major components of our investment securities portfolio at September 30, 2009 and December 31, 2008 are as follows:


	September 30, 2009									December 31, 2008
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Carrying Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Carrying Value
Marketable securities:
Available-for-sale securities, at fair value:
U.S. treasury securities	$	25,627	$	623	$	—		$	26,250	$	—	$	—	$	—		$	—
U.S. agency debentures		899,634		7,668		(20	)		907,282		109,981		3,622		—			113,603
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		474,416		17,848		(125	)		492,139		438,688		9,910		(4	)		448,594
Agency-issued collateralized mortgage obligations		1,283,563		19,179		(758	)		1,301,984		478,397		5,354		(476	)		483,275
Non-agency mortgage-backed securities		98,051		196		(5,774	)		92,473		133,561		255		(18,486	)		115,330
Commercial mortgage-backed securities		49,984		749		(124	)		50,609		54,202		—		(6,721	)		47,481
Municipal bonds and notes		101,768		6,287		—			108,055		109,405		1,384		(2,034	)		108,755
Marketable equity securities		3,946		74		(53	)		3,967		157		—		(5	)		152
Venture capital fund investments		—		—		—			—		—		1		—			1

Total available-for-sale securities	$	2,936,989	$	52,624	$	(6,854	)	$	2,982,759	$	1,324,391	$	20,526	$	(27,726	)	$	1,317,191

Marketable securities (investment company fair value accounting) (1)									643									1,703
Non-marketable securities (investment company fair value accounting):
Private equity fund investments (2)									232,294									242,645
Other private equity investments (3)									89,968									82,444
Other investments (4)									1,241									1,547
Non-marketable securities (equity method accounting):
Other investments (5)									51,975									27,000
Low income housing tax credit funds									28,052									31,510
Non-marketable securities (cost method accounting):
Private equity fund investments (6)									91,330									69,971
Other private equity investments									13,019									12,089

Total investment securities								$	3,491,281								$	1,786,100

(1)

Marketable securities (investment company fair value accounting) represent investments managed by us or our consolidated subsidiaries that were originally made within our non-marketable securities portfolio that have been converted into publicly-traded shares. The following table shows the amount of investments by the following funds and our ownership of each fund at September 30, 2009 and December 31, 2008:


	September 30, 2009				December 31, 2008
(Dollars in thousands)	Amount		Ownership %		Amount		Ownership %
Partners for Growth, LP	$	55	50.0	%	$	1,233	50.0	%
SVB India Capital Partners I, LP		588	14.4			470	14.4

Total marketable securities	$	643			$	1,703

(2)	The following table shows the amount of investments by the following consolidated funds of funds and our ownership of each fund at September 30, 2009 and December 31, 2008:


	September 30, 2009				December 31, 2008
(Dollars in thousands)	Amount		Ownership %		Amount		Ownership %
SVB Strategic Investors Fund, LP	$	52,224	12.6	%	$	65,985	12.6	%
SVB Strategic Investors Fund II, LP		82,250	8.6			94,161	8.6
SVB Strategic Investors Fund III, LP		91,845	5.9			80,780	5.9
SVB Strategic Investors Fund IV, LP		5,975	5.0			1,719	5.0

Total private equity fund investments	$	232,294			$	242,645

(3)	The following table shows the amount of investments by the following consolidated co-investment funds and our ownership of each fund at September 30, 2009 and December 31, 2008:


	September 30, 2009				December 31, 2008
(Dollars in thousands)	Amount		Ownership %		Amount		Ownership %
Silicon Valley BancVentures, LP	$	21,113	10.7	%	$	24,188	10.7	%
SVB Capital Partners II, LP (i)		41,148	5.1			38,234	5.1
SVB India Capital Partners I, LP		27,707	14.4			20,022	14.4

Total other private equity investments	$	89,968			$	82,444

(i)

At September 30, 2009, 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.

(4)

Other investments within non-marketable securities (investment company fair value accounting) include our ownership in Partners for Growth, LP, a consolidated sponsored debt fund. At September 30, 2009 and December 31, 2008 we had a majority ownership interest of approximately 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.

(5)	The following table shows the amount of investments in the following funds and our ownership of each fund at September 30, 2009 and December 31, 2008:


	September 30, 2009				December 31, 2008
(Dollars in thousands)	Amount		Ownership %		Amount		Ownership %
Gold Hill Venture Lending 03, LP (i)	$	15,628	9.3	%	$	18,234	9.3	%
Partners for Growth II, LP		11,525	24.2			8,559	24.2
Other fund investments		24,822	N/A			207	N/A

Total other investments	$	51,975			$	27,000

(i)

At September 30, 2009, we had a direct ownership interest of 4.8% in the fund. In addition, we had a 90.7% direct ownership interest in the fund’s general partner, Gold Hill Venture Lending Partners 03, LLC (“GHLLC”). GHLLC has a direct ownership interest of 5.0 % in Gold Hill Venture Lending 03, LP and its parallel funds. Our indirect interest in the fund through our investment in GHLLC is 4.5%. Our aggregate direct and indirect ownership in the fund is 9.3%.

(6)

Represents investments in 351 and 360 private equity funds at September 30, 2009 and December 31, 2008, respectively, where our ownership interest is less than 5% of the voting interests of each such fund. For the three months ended September 30, 2009, we concluded that 33 of our investments had declines in value that were determined to be other-than-temporary, and as a result, we recognized OTTI losses of $2.1 million. For the nine months ended September 30, 2009 we recognized OTTI losses of $3.7 million resulting from other-than-temporary declines in value for 74 of the 351 investments. The OTTI losses are included in net gains (losses) on investment securities, a component of noninterest income. For the remaining 277 investments at September 30,

2009, we concluded that any declines in value were temporary and as such, no OTTI was recognized. At September 30, 2009, the carrying value of these private equity fund investments (cost method accounting) was $91.3 million, and the estimated fair value was $84.2 million.

The following table summarizes our unrealized losses on our available-for-sale investment securities into categories of less than 12 months, or 12 months or longer, at September 30, 2009:


	September 30, 2009
	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	$	30,103	$	(20	)	$	—	$	—		$	30,103	$	(20	)
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		20,429		(125	)		—		—			20,429		(125	)
Agency-issued collateralized mortgage obligations (1)		173,542		(733	)		2,431		(25	)		175,973		(758	)
Non-agency mortgage-backed securities (1)		8,391		(151	)		66,222		(5,623	)		74,613		(5,774	)
Commercial mortgage-backed securities (1)		—		—			14,950		(124	)		14,950		(124	)
Marketable equity securities		3,946		(53	)		—		—			3,946		(53	)

Total temporarily impaired securities	$	236,411	$	(1,082	)	$	83,603	$	(5,772	)	$	320,014	$	(6,854	)

(1)

As of September 30, 2009, we identified a total of 44 investments that were in unrealized loss positions, of which 25 investments totaling $83.6 million with unrealized losses of $5.8 million have been in an impaired position for a period of time greater than 12 months. The time periods in which these securities were originally purchased were as follows: Agency-issued collateralized mortgage obligations between November 2002 and March 2003, non-agency mortgage-backed securities between June 2003 and July 2005, commercial mortgage-backed securities between May 2005 and July 2005. All investments with unrealized losses for a period of time greater than 12 months are considered investment grade by either Moody’s or S&P or were issued by a government sponsored enterprise. The unrealized losses are due primarily to increases in market spread relative to spreads at the time of purchase. 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, 2009, it is more likely than not that we will not be required to sell any securities prior to recovery of our adjusted cost basis. Impaired investments are recognized and presented according to FASB guidance over other-than-temporary impairments (ASC 320-10-65, formerly known as FSP SFAS No. 115-2 and 124-2). Based on the analysis under current accounting guidance we deem all impairments to be temporary and changes in value for our temporarily impaired securities as of September 30, 2009 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 investment securities portfolio into categories of less than 12 months, or 12 months or longer, as of December 31, 2008:


	December 31, 2008
	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
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	$	—	$	—		$	5,076	$	(4	)	$	5,076	$	(4	)
Agency-issued collateralized mortgage obligations		13,559		(88	)		44,327		(388	)		57,886		(476	)
Non-agency mortgage-backed securities		44,751		(4,237	)		64,386		(14,249	)		109,137		(18,486	)
Commercial mortgage-backed securities		9,491		(404	)		37,990		(6,317	)		47,481		(6,721	)
Municipal bonds and notes		39,694		(1,827	)		4,091		(207	)		43,785		(2,034	)
Marketable equity securities		152		(5	)		—		—			152		(5	)

Total temporarily impaired securities	$	107,647	$	(6,561	)	$	155,870	$	(21,165	)	$	263,517	$	(27,726	)

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, 2009. 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. Expected remaining maturities of U.S. treasury securities, U.S. agency securities and mortgage-backed securities may differ significantly from their contractual maturities because borrowers have the right to prepay obligations with or without penalties. This is most apparent in mortgage-backed securities as contractual maturities are typically 15 to 30 years, whereas expected average lives of these securities are significantly shorter and vary based upon structure.


	September 30, 2009
	Total				One Year or Less					After One Year to Five Years				After Five Years to 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	$	26,250	2.39	%	$	—	$	—	%	$	26,250	2.39	%	$	—	—	%	$	—	—	%
U.S. agency debentures		907,282	2.41			35,393		4.32			812,067	2.18			59,822	4.41			—	—
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities		492,139	4.70			—		—			2,216	6.43			137,694	4.40			352,229	4.80
Agency-issued collateralized mortgage obligations		1,301,984	3.87			—		—			—	—			80,444	4.48			1,221,540	3.83
Non-agency mortgage-backed securities		92,473	4.93			—		—			—	—			21,060	4.75			71,413	4.98
Commercial mortgage-backed securities		50,609	4.67			—		—			—	—			—	—			50,609	4.67
Municipal bonds and notes		108,055	6.08			4,778		7.34			4,183	5.68			35,252	5.80			63,842	6.17

Total	$	2,978,792	3.68		$	40,171		4.68		$	844,716	2.22		$	334,272	4.59		$	1,759,633	4.18

The cost of investment securities is determined on a specific identification basis. The following table presents the components of gains and losses on investment securities for the three and nine months ended September 30, 2009 and 2008:


	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2009			2008			2009			2008
Gross gains on investment securities:
Available-for-sale securities, at fair value	$	8		$	1		$	15		$	206
Marketable securities (investment company fair value accounting)		111			18			1,290			630
Non-marketable securities (investment company fair value accounting):
Private equity fund investments		7,101			1,723			8,370			18,538
Other private equity investments		4,531			4,694			4,724			10,134
Other investments		71			41			684			196
Non-marketable securities (equity method accounting):
Other investments		2,361			148			5,170			1,679
Non-marketable securities (cost method accounting):
Private equity fund investments		15			318			316			728
Other private equity investments		—			4			22			85

Total gross gains on investment securities		14,198			6,947			20,591			32,196


Gross losses on investment securities:
Available-for-sale securities, at fair value		—			(1,234	)		(41	)		(2,775	)
Marketable securities (investment company fair value accounting)		(16	)		(1,348	)		(409	)		(3,274	)
Non-marketable securities (investment company fair value accounting):
Private equity fund investments		(4,321	)		(3,585	)		(41,081	)		(19,334	)
Other private equity investments		(2,072	)		(393	)		(10,104	)		(2,926	)
Other investments		—			(132	)		—			(5,646	)
Non-marketable securities (equity method accounting):
Other investments		(1,690	)		(1	)		(2,973	)		(1,094	)
Non-marketable securities (cost method accounting):
Private equity fund investments		(2,105	)		(1,130	)		(3,754	)		(1,838	)
Other private equity investments		(89	)		—			(119	)		(258	)

Total gross losses on investment securities		(10,293	)		(7,823	)		(58,481	)		(37,145	)

Gains (losses) on investment securities, net	$	3,905		$	(876	)	$	(37,890	)	$	(4,949	)

Gains (losses) attributable to noncontrolling interests, including carried interest	$	4,880		$	1,220		$	(32,491	)	$	(227	)

6. Loans and Allowance for Loan Losses

The composition of loans, net of unearned income of $36.7 million and $45.4 million at September 30, 2009 and December 31, 2008, respectively, is presented in the following table:


(Dollars in thousands)	September 30, 2009		December 31, 2008
Commercial loans	$	3,714,075	$	4,515,019
Premium wine (1)		415,468		419,539
Community development loans (2)		66,526		48,293
Consumer and other (3)		459,748		523,402

Total loans, net of unearned income	$	4,655,817	$	5,506,253

(1)

Premium wine consists of loans for vineyard development as well as working capital and equipment term loans to meet the needs of our clients’ premium wineries and vineyards. At September 30, 2009 and December 31, 2008, $275.3 million and $269.6 million, respectively, of such loans were secured by real estate.

(2)	Community development loans consist of low income housing loans made as part of our responsibilities under the Community Reinvestment Act and are primarily secured by real estate.

(3)

Consumer and other loans consist of loans to targeted high-net-worth individuals. These products and services include home equity lines of credit, secured lines of credit, restricted stock purchase loans and capital call lines of credit. This category also includes loans made to eligible employees through our Employee Home Ownership Plan (“EHOP”). Loans secured by real estate at September 30, 2009, and December 31, 2008 were comprised of the following:


(Dollars in thousands)	September 30, 2009		December 31, 2008
Home equity lines of credit (i)	$	88,453	$	89,544
Loans to eligible employees (ii)		85,239		74,759
Loans for personal residence (iii)		58,355		58,700

Consumer loans secured by real estate	$	232,047	$	223,003

(i)

Represents home equity lines of credits, which may have been used to finance real estate investments.

(ii)

Represents loans made to eligible employees through our EHOP.

(iii)

Represents loans used to purchase, renovate or refinance personal residences.

The activity in the allowance for loan losses for the three and nine months ended September 30, 2009 and 2008 was as follows:


	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2009			2008			2009			2008
Allowance for loan losses, beginning balance	$	110,473		$	52,888		$	107,396		$	47,293
Provision for loan losses		8,030			13,682			72,889			29,756
Gross loan charge-offs		(46,553	)		(7,000	)		(110,464	)		(22,306	)
Loan recoveries		14,763			720			16,892			5,547

Allowance for loan losses, ending balance	$	86,713		$	60,290		$	86,713		$	60,290

Nonaccrual Loans

The aggregate investment in loans for which impairment has been determined totaled $72.2 million and $84.9 million at September 30, 2009 and December 31, 2008, respectively. There were no commitments available for funding to any clients with nonaccrual loans at September 30, 2009 and at December 31, 2008. The allocation of the allowance for loan losses related to impaired loans was $23.4 million and $25.9 million at September 30, 2009 and December 31, 2008, respectively. We did not have any accruing loans past due 90 days or more at September 30, 2009, compared to $2.3 million at December 31, 2008.

7. Goodwill

During the first quarter of 2009, we conducted an assessment of goodwill of eProsper, a data management services company in which we own a 65% interest, in accordance with ASC 350 (formerly known as SFAS No. 142, Goodwill and Other Intangible Assets), based on eProsper’s revised forecast of discounted net cash flows for that reporting unit. We concluded that we had an impairment of goodwill resulting from changes in our outlook for eProsper’s future financial performance. As a result, $4.1 million of goodwill was expensed as a noncash non tax-deductible charge to continuing operations during the first quarter of 2009. There is no remaining goodwill on our balance sheet as of September 30, 2009, compared to $4.1 million at December 31, 2008.

8. Short-Term Borrowings and Long-Term Debt

The following table represents outstanding short-term borrowings and long-term debt at September 30, 2009 and December 31, 2008:


(Dollars in thousands)	Maturity	September 30, 2009		December 31, 2008
Short-term borrowings:
Other short-term borrowings	(1)	$	52,285	$	62,120

Total short-term borrowings		$	52,285	$	62,120

Long-term debt:
FHLB advances	(2)	$	—	$	100,000
5.70% senior notes	June 1, 2012		271,715		279,370
6.05% subordinated notes	June 1, 2017		283,929		313,953
3.875% convertible senior notes (3)	April 15, 2011		246,430		244,783
7.0% junior subordinated debentures	October 15, 2033		55,968		55,914
4.99% long-term notes payable	(4)		8,443		—
8.0% long-term notes payable	(5)		263		1,403

Total long-term debt		$	866,748	$	995,423

(1)	Represents cash collateral received from counterparties for our interest rate swap agreements related to our senior and subordinated notes.

(2)	Balance as of December 31, 2008 included Federal Home Loan Bank (“FHLB”) advances of $50 million that matured in May 2009, and $50 million that was repaid in September 2009.

(3)	Balance as of December 31, 2008 reflects a retrospective adjustment resulting from our adoption of ASC 470-20 (formerly known as FSP APB No. 14-1) on January 1, 2009 (see Note 1- “Basis of Presentation”).

(4)	Represents long-term notes payable related to one of our debt fund investments beginning April 30, 2009 with the last payment due in April 2012.

(5)	Represents long-term notes payable at eProsper and was payable beginning January 1, 2008 with the last payment due in November 2009. SVBFG purchased a 65% interest in eProsper in 2006.

Interest expense related to short-term borrowings and long-term debt was $6.4 million and $21.8 million for the three and nine months ended September 30, 2009, respectively, and $12.5 million and $36.7 million for the comparable 2008 periods. Interest expense shown is net of the cash flow impact from our interest rate swap agreements related to our senior and subordinated notes and junior subordinated debentures. In December 2008, our counterparty called the swap on our junior subordinated debentures for settlement in January 2009. As a result, the swap was terminated. Additionally, interest expense for the three and nine months ended September 30, 2008 reflects retrospective adjustments resulting from our adoption of ASC 470-20 (formerly known as FSP APB No. 14-1) on January 1, 2009 (see Note 1- “Basis of Presentation”).

3.875% Convertible Senior Notes (“2008 Convertible Notes”)

In April 2008, we issued our 2008 Convertible Notes, due April 15, 2011, in the aggregate principal amount of $250 million to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The issuance costs related to the 2008 Convertible Notes were $6.8 million, and the net proceeds from the offering were $243.2 million. We used $141.9 million of the net proceeds to settle the principal value of our 2003 Convertible Notes, which matured in June 2008, and $20.6 million to purchase a call spread associated with the 2008 Convertible Notes. All remaining proceeds were used or set aside for general corporate purposes. The 2008 Convertible Notes are initially convertible, subject to certain conditions, into cash up to the principal amount of notes and, into shares of our common stock or cash or any combination thereof for any excess conversion value, at our option. Holders may convert their 2008 Convertible Notes beginning any fiscal quarter commencing after June 30, 2008, if: (i) the price of our common stock issuable upon conversion of the note reaches a specific threshold, (ii) specified corporate transactions occur, or (iii) the trading price for the note falls below certain thresholds. The notes have an initial conversion rate of 18.8525 shares of common stock per $1,000 principal amount of notes, which represents an initial effective conversion price of $53.04 per share. Upon maturity, we intend to settle the outstanding principal amount in cash, and we have the option to settle any amount exceeding the principal value of the 2008 Convertible Notes in either cash or shares of our common stock.

Concurrent with the issuance of our 2008 Convertible Notes, we entered into a convertible note hedge and warrant agreement (see Note 9- “Derivative Financial Instruments”), which effectively increased the economic conversion price of our 2008 Convertible Notes to $64.43 per share of common stock. The terms of the hedge and warrant agreement are not part of the terms of the notes and will not affect the rights of the holders of the notes.

For the three and nine months ended September 30, 2009, the effective interest rate for our 2008 Convertible Notes was 5.66 percent and 5.73 percent, respectively, and interest expense was $3.5 million and $10.5 million, respectively. For the three and nine months ended September 30, 2008, the effective interest rate for our 2008 Convertible Notes was 5.69 percent and 5.65 percent, respectively, and interest expense was $3.5 million and $6.6 million respectively. At September 30, 2009, the unamortized debt discount totaled $3.6 million, and will be amortized over the remaining contractual term of the debt.

Available Lines of Credit

We have certain facilities in place to enable us to access short-term borrowings on a secured (using fixed income securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. As of September 30, 2009, we had not borrowed against our repurchase lines or any of our uncommitted federal funds lines. We also pledge securities to the Federal Home Loan Bank of San Francisco and the discount window at the Federal Reserve Bank. The market value of collateral pledged to the Federal Home Loan Bank of San Francisco (primarily comprised of agency-issued mortgage securities) at September 30, 2009 totaled $540.9 million, all of which was unused and available to support additional borrowings. The market value of collateral pledged at the discount window of the Federal Reserve Bank at September 30, 2009 totaled $89.9 million, all of which was unused and available to support additional borrowings.

9. Derivative Financial Instruments

We primarily use derivative financial instruments to manage interest rate risk, currency exchange rate risk, equity market price risk and to assist customers with their risk management objectives. Also, as part of negotiating credit facilities and certain other services, we obtain rights to acquire stock in the form of equity warrant assets in certain client companies.

Interest Rate Risk

Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our interest rate-sensitive assets and liabilities and changes in market interest rates. To manage interest rate risk for our 5.70% senior notes and our 6.05% subordinated notes, we entered into fixed-for-floating interest rate swap agreements at the time of debt issuance based upon London Interbank Offered Rates (“LIBOR”) with matched-terms. We use the shortcut method to assess hedge effectiveness and evaluate the hedging relationships for qualification under the shortcut method requirements of ASC 815 (formerly known as SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities), for each reporting period.

For more information on our 5.70% senior notes and our 6.05% subordinated notes, see our Consolidated Financial Statements and Supplementary Data-Note 12- “Short-Term Borrowings and Long-Term Debt” under Part II, Item 8 of our 2008 Form 10-K.

Net cash benefits associated with our interest rate swaps are recorded in “Interest Expense: Borrowings”, a component of net interest income. The fair value of our interest rate swaps is calculated using a discounted cash flow method and adjusted for credit valuation associated with counterparty risk. Increases from changes in fair value are included in “Other Assets” and decreases from changes in fair value are included in “Other Liabilities”. Any differences associated with our interest rate swaps that arise as a result of hedge ineffectiveness are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.

Currency Exchange Risk

We enter into foreign exchange forward contracts to hedge against exposures of our credit facilities that are denominated in foreign currencies to our clients, primarily in Pound Sterling, Euro, and Japanese Yen. We do not designate any foreign exchange forward contracts as derivative instruments that qualify for hedge accounting. In accordance with ASC 830 (formerly known as SFAS No. 52, Foreign Currency Translation), changes in currency rates are included in other noninterest income, a component of noninterest income. We may experience ineffectiveness in the economic hedging relationship, because the credit facilities are revalued based upon changes in the currency’s spot rate on the principal value, while the forwards are revalued on a discounted cash flow basis. We record forward agreements in gain positions in “Other Assets” and loss positions in “Other Liabilities”, while net changes in fair value are recorded through net (losses) gains on derivative instruments, in noninterest income, a component of consolidated net income.

Equity Market Price Risk

We have convertible debt instruments that contain conversion options that enable the holders to convert the instruments, subject to certain conditions. Specifically, we currently have outstanding our 2008 Convertible Notes. We intend to settle any conversions in cash up to the principal amount of these notes and, in shares of our common stock or cash or any combination thereof for any excess conversion value, at our option. The conversion option represents an equity risk exposure for the excess conversion value and is an equity derivative classified in stockholders’ equity. We manage equity market price risk of our convertible debt instruments by entering into convertible note hedge and warrant agreements to increase the economic conversion price of our convertible debt

instruments and to decrease potential dilution to stockholders resulting from the conversion option. Similar to the conversion option, the hedge and warrant agreements are equity derivatives classified in stockholders’ equity.

Concurrent with the issuance of our 2008 Convertible Notes, we entered into a convertible note hedge and warrant agreement at a net cost of $20.6 million, which effectively increased the economic conversion price from $53.04 per common share to $64.43. For the nine months ended September 30, 2009 and 2008, there were no note conversions or exercises under the warrant agreement as the notes were not convertible. Concurrent with the issuance of our 2003 Convertible Notes, we entered into a convertible note hedge agreement and a warrant agreement at a net cost of $21.9 million, which effectively increased the economic conversion price from $33.63 per common share to $51.34. The 2003 Convertible Notes and associated note hedge and warrant agreement matured on June 15, 2008.

For more information on the 2003 Convertible Notes and the 2008 Convertible Notes, see our Consolidated Financial Statements and Supplementary Data-Note 12- “Short-Term Borrowings and Long-Term Debt” under Part II, Item 8 of our 2008 Form 10-K.

Other Derivative Instruments

Equity Warrant Assets

Our equity warrant assets are concentrated in private, venture-backed companies in the technology and life science industries. Our warrant agreements contain net share settlement provisions, which permit us to pay the warrant exercise price using shares issuable under the warrant (“cashless exercise”). Because we can net settle our warrant agreements, our equity warrant assets qualify as derivative instruments. We value our equity warrant assets using a modified Black-Scholes option pricing model, which incorporates assumptions about the underlying asset value, volatility, and the risk-free rate. We make valuation adjustments for estimated remaining life and marketability for warrants issued by private companies. Equity warrant assets are recorded at fair value in “Other Assets”, while changes in their fair value are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.

Other Derivatives

Our consolidated sponsored debt fund may extend credit facilities with options to convert their principal value into the borrower’s common stock. These instruments often contain a price range whereby the conversion option may be exercised. As this fund follows fair value accounting, this embedded conversion feature is integrated into the fair value of the debt instrument and does not receive separate accounting recognition. The fair value of these instruments is recorded in “Investment Securities” with changes in fair value recorded through net gains (losses) in investment securities, in noninterest income, a component of consolidated net income.

We sell forward and option contracts to clients that wish to mitigate their foreign currency exposure. We hedge the currency risk from this business by entering into opposite way contracts with correspondent banks. This hedging relationship does not qualify for hedge accounting. The contracts generally have terms of one year or less, although we may have contracts extending for up to five years. We generally have not experienced nonperformance on these contracts, have not incurred credit losses, and anticipate performance by all counterparties to such agreements. Increases from changes in fair value are included in “Other Assets” and decreases from changes in fair value are included in “Other Liabilities”. The net change in the fair value of these contracts is recorded through net (losses) gains on derivative instruments, in noninterest income, a component of consolidated net income.

Counterparty Credit Risk

We are exposed to credit risk if counterparties to our derivative contracts do not perform as expected. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral, as appropriate.

The total notional or contractual amounts, fair value, collateral and net exposure of our derivative financial instruments at September 30, 2009 and December 31, 2008, respectively, were as follows:


		September 30, 2009										December 31, 2008
(Dollars in thousands)	Balance sheet location	Notional or contractual amount		Fair value			Collateral		Net exposure (1)			Notional or contractual amount		Fair value			Collateral		Net exposure (1)
Derivatives designated as hedging instruments:
Interest Rate Risks:
Interest rate swaps	Other assets	$	500,000	$	56,228		$	52,285	$	3,943		$	550,000	$	94,142		$	62,120	$	32,022


Derivatives not designated as hedging instruments:
Currency Exchange Risks:
Foreign exchange forwards	Other assets		29,994		1,434			—		1,434			50,393		4,212			—		4,212
Foreign exchange forwards	Other liabilities		19,639		(693	)		—		(693	)		23,193		(1,092	)		—		(1,092	)

Net exposure					741			—		741					3,120			—		3,120

Other Derivative Instruments:
Equity warrant assets	Other assets		122,123		42,446			—		42,446			130,401		43,659			—		43,659

Other derivatives:
Foreign exchange forwards	Other assets		362,258		20,370			—		20,370			354,399		32,476			—		32,476
Foreign exchange forwards	Other liabilities		346,668		(19,038	)		—		(19,038	)		344,703		(31,039	)		—		(31,039	)
Foreign currency options	Other assets		7,726		429			—		429			25,848		501			—		501
Foreign currency options	Other liabilities		7,726		(429	)		—		(429	)		25,848		(501	)		—		(501	)

Net exposure					1,332			—		1,332					1,437			—		1,437

Net				$	100,747		$	52,285	$	48,462				$	142,358		$	62,120	$	80,238

(1)

Net exposure for contracts in a gain position reflects the replacement cost in the event of nonperformance by all such counterparties. The credit ratings of our institutional counterparties as of September 30, 2009 remain at “A” or higher and there were no material changes in their credit ratings during the nine months ended September 30, 2009.

A summary of our derivative activity and the related impact on our consolidated statements of income for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:


		Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	Statement of income location	2009			2008			2009			2008
Derivatives designated as hedging instruments:
Interest Rate Risks:
Net cash benefit associated with interest rate swaps	Interest expense -borrowings	$	5,741		$	3,497		$	14,874		$	7,282
Changes in fair value of interest rate swap	Net (losses) gains on derivative instruments		—			(10	)		(170	)		376

Net gains associated with interest rate risk derivatives		$	5,741		$	3,487		$	14,704		$	7,658


Derivatives not designated as hedging instruments:
Currency Exchange Risks:
(Losses) gains on foreign currency loan revaluations, net	Other noninterest income	$	(94	)	$	(4,740	)	$	1,886		$	(2,825	)
(Losses) gains on foreign exchange forward contracts, net	Net (losses) gains on derivative instruments		(128	)		4,452			(2,664	)		1,985

Net losses associated with currency risk		$	(222	)	$	(288	)	$	(778	)	$	(840	)

Other Derivative Instruments:
(Losses) gains on equity warrant assets	Net (losses) gains on derivative instruments	$	(1,322	)	$	1,445		$	(593	)	$	8,949

Gains on client foreign exchange forward contracts, net	Net (losses) gains on derivative instruments	$	360		$	561		$	1,304		$	1,767

Gains on covered call options, net	Net (losses) gains on derivative instruments	$	—		$	24		$	—		$	402

10. Other Noninterest Income and Other Noninterest Expense

A summary of other noninterest income for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:


	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2009			2008 *			2009		2008 *
Fund management fees	$	2,437		$	2,228		$	7,625	$	6,105
Service-based fee income (1)		1,700			2,073			5,645		6,329
(Losses) gains on foreign currency loans revaluation, net		(94	)		(4,740	)		1,886		(2,825	)
Other		2,206			2,352			6,674		7,585

Total other noninterest income	$	6,249		$	1,913		$	21,830	$	17,194

*	Certain amounts have been revised to reflect the correction of immaterial errors associated with previously recognized gains and losses on foreign exchange contracts. Refer to Note 1- “Basis of Presentation” for more details.

(1)	Includes income from SVB Analytics and eProsper.

A summary of other noninterest expense for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:


	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2009		2008		2009		2008
Tax credit fund amortization	$	1,165	$	1,036	$	3,458	$	3,077
Telephone		324		1,373		3,042		3,870
Postage and supplies		165		1,032		2,328		2,810
Other		2,465		3,094		10,147		10,161

Total other noninterest expense	$	4,119	$	6,535	$	18,975	$	19,918

11. Segment Reporting

We have four operating segments for management reporting purposes: Global Commercial Bank, Relationship Management, SVB Capital, and Other Business Services. Our Other Business Services group includes Sponsored Debt Funds & Strategic Investments and SVB Analytics. The results of our operating segments are based on our internal management reporting process.

Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, our internal management reporting process is highly subjective, as there is no comprehensive, authoritative guidance for management reporting. Our management reporting process measures the performance of our operating segments based on our internal operating structure and is not necessarily comparable with similar information for other financial services companies. In addition, changes in an individual client’s primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods.

An operating segment is separately reportable if it exceeds any one of several quantitative thresholds specified in ASC 280 (formerly known as SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information). With respect to our operating segments, only Global Commercial Bank, Relationship Management and SVB Capital were determined to be reportable segments as of September 30, 2009.

The summary financial results of our operating segments are presented along with a reconciliation to our consolidated interim results. The Reconciling Items column reflects the adjustments necessary to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP. Net interest income in the Reconciling Items column is primarily interest income recognized from our fixed income investment portfolio. Noninterest income in the Reconciling Items column is primarily attributable to noncontrolling interests (formerly referred to as minority interests) and gains (losses) on equity warrant assets. Noninterest expense in the Reconciling Items column primarily consists of expenses associated with corporate support functions such as information technology, finance, human resources, loan and deposit operations, and legal, as well as certain corporate wide adjustments related to compensation expenses. Additionally, average assets in the Reconciling Items column primarily consist of our fixed income investment portfolio balances.

Changes to Segment Reporting Effective January 1, 2009

Effective January 1, 2009, we changed the way we monitor performance and results of our business segments and as a result, we changed how our operating segments are presented. We have reclassified all prior period segment information to conform to the current presentation of our reportable segments. The following is a description of the services that our four operating segments provide:

•

Global Commercial Bank provides solutions to the financial needs of commercial clients through lending, deposit products, cash management services, and global banking and trade products and services. It also serves the needs of our non-U.S. clients with global banking products, including loans, deposits and global finance, in key foreign entrepreneurial markets. Previously, the operations of SVB Global were aggregated as a part of Other Business Services.

•

Relationship Management provides banking products and services to our premium wine industry clients, including vineyard development loans, as well as a range of credit services to targeted high-net-worth individuals using both long-term secured and short-term unsecured lines of credit. Previously, the operations of SVB Wine and SVB Private Client Services were aggregated as part of Other Business Services.

•

SVB Capital manages venture capital and private equity funds on behalf of SVB Financial Group and other third party limited partners. The SVB Capital family of funds is comprised of funds it manages, including funds of funds, such as our SVB Strategic Investors Funds, and co-investment funds, such as our SVB Capital Partners funds and SVB India Capital Partners fund. Previously, SVB Capital also included our sponsored debt funds, Gold Hill Venture Lending funds and Partners for Growth funds, and certain strategic investments held by SVB Financial.

•

Other Business Services includes the results of our Sponsored Debt Funds & Strategic Investments segment, which is comprised of our sponsored debt funds, Gold Hill Venture Lending funds, which provide secured debt, typically to early-stage and mid-stage clients, and Partners for Growth funds, which provide secured debt primarily to mid-stage and late-stage clients, and certain strategic investments held by SVB Financial. Previously, the operations of our sponsored debt funds and strategic investments were reported as part of the SVB Capital operating segment. Other Business Services also includes the results of SVB Analytics, which provides equity valuation and equity management services to private companies and venture capital firms.

Additionally, we made certain changes effective January 1, 2009 as follows: (i) FDIC and state bank assessments are reported in noninterest expense within Global Commercial Bank, whereas previously these were recognized in noninterest expense under the Reconciling Items column; and (ii) we report the provision for loan losses by reportable segments, whereas previously the provision for loan losses was recognized under the Reconciling Items column. We have reclassified all prior period amounts to conform to the current period’s presentation.

The following table summarizes the key operating results and financial position for each of our business segments, as well as a reconciliation used to arrive at our consolidated totals. We have reclassified all prior period amounts to conform to the current period’s presentation.


(Dollars in thousands)	Global Commercial Banking			Relationship Management			SVB Capital (1)			Other Business Services (1)			Reconciling Items			Total
Three months ended September 30, 2009
Net interest income (loss)	$	88,494		$	8,582		$	(10	)	$	(76	)	$	(172	)	$	96,818
Provision for loan losses		(3,153	)		(4,855	)		—			—			(22	)		(8,030	)
Noninterest income		25,938			333			3,014			41			4,981			34,307
Noninterest expense (2)		(31,961	)		(3,114	)		(3,355	)		(2,726	)		(38,651	)		(79,807	)

Income (loss) before income tax expense (3)	$	79,318		$	946		$	(351	)	$	(2,761	)	$	(33,864	)	$	43,288

Total average loans, net of unearned income	$	3,575,026		$	945,694		$	—		$	—		$	23,790		$	4,544,510
Total average assets		3,683,824			946,811			96,077			87,396			6,596,518			11,410,626
Total average deposits		8,757,097			146,367			—			—			6,958			8,910,422

Three months ended September 30, 2008
Net interest income (loss)	$	82,773		$	7,170		$	(19	)	$	(8	)	$	4,695		$	94,611
(Provision for) recovery of loan losses		(13,762	)		77			—			—			3			(13,682	)
Noninterest income		35,684			380			2,680			609			1,085			40,438
Noninterest expense (2)		(31,498	)		(3,719	)		(5,932	)		(3,140	)		(36,142	)		(80,431	)

Income (loss) before income tax expense (3)	$	73,197		$	3,908		$	(3,271	)	$	(2,539	)	$	(30,359	)	$	40,936

Total average loans, net of unearned income	$	3,884,283		$	933,696		$	—		$	—		$	45,727		$	4,863,706
Total average assets		3,935,523			937,287			60,368			65,761			2,548,886			7,547,825
Total average deposits		4,671,979			143,203			—			—			5,074			4,820,256

Nine months ended September 30, 2009
Net interest income (loss)	$	273,740		$	25,897		$	(13	)	$	(156	)	$	(19,458	)	$	280,010
Provision for loan losses		(60,883	)		(11,974	)		—			—			(32	)		(72,889	)
Noninterest income (loss)		78,991			944			3,015			4,399			(30,348	)		57,001
Noninterest expense (2)		(103,506	)		(10,288	)		(9,991	)		(12,685	)		(119,489	)		(255,959	)

Income (loss) before income tax expense (3)	$	188,342		$	4,579		$	(6,989	)	$	(8,442	)	$	(169,327	)	$	8,163

Total average loans, net of unearned income	$	3,819,466		$	966,939		$	—		$	—		$	25,076		$	4,811,481
Total average assets		3,915,780			968,384			91,412			79,244			5,880,352			10,935,172
Total average deposits		8,264,929			155,678			—			—			6,568			8,427,175

Nine months ended September 30, 2008
Net interest income	$	246,076		$	22,017		$	11		$	35		$	4,046		$	272,185
(Provision for) recovery of loan losses		(30,017	)		291			—			—			(30	)		(29,756	)
Noninterest income		103,296			1,218			7,756			2,047			12,388			126,705
Noninterest expense (2)		(92,348	)		(11,556	)		(14,882	)		(8,402	)		(123,869	)		(251,057	)

Income (loss) before income tax expense (3)	$	227,007		$	11,970		$	(7,115	)	$	(6,320	)	$	(107,465	)	$	118,077

Total average loans, net of unearned income	$	3,475,019		$	883,724		$	—		$	—		$	74,988		$	4,433,731
Total average assets		3,525,464			887,694			49,796			64,743			2,626,016			7,153,713
Total average deposits		4,479,278			157,778			—			—			(1,682	)		4,635,374

(1)	SVB Capital’s and Other Business Services’ components of net interest income, noninterest income, noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented.

(2)	The Global Commercial Bank segment includes direct depreciation and amortization of $0.6 million and $1.8 million for the three and nine months ended September 30, 2009, respectively, and $0.7 million and $2.0 million for the three and nine months ended September 30, 2008, respectively.

(3)	The internal reporting model used by management to assess segment performance does not calculate income tax expense by segment.

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

In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in private equity fund investments. These instruments involve, to varying degrees, elements of credit risk.

Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract.

Commitments to Extend Credit

The following table summarizes information related to our commitments to extend credit at September 30, 2009 and December 31, 2008, respectively:


(Dollars in thousands)	September 30, 2009		December 31, 2008
Commitments available for funding: (1)
Fixed interest rate commitments	$	574,563	$	689,063
Variable interest rate commitments		4,219,900		4,941,423

Total commitments available for funding	$	4,794,463	$	5,630,486

Commitments unavailable for funding (2)	$	1,043,550	$	922,170

Maximum lending limits for accounts receivable factoring arrangements (3)	$	501,318	$	476,329
Reserve for unfunded credit commitments		11,332		14,698

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

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

(3)	We extend credit under accounts receivable factoring arrangements when our clients’ sales invoices are deemed creditworthy under existing underwriting practices.

As of December 31, 2008, we guaranteed some of our customers’ credit cards that had been provided by an unaffiliated financial institution. The total amount of these guarantees at December 31, 2008 was $87.4 million. During the first quarter of 2009, we purchased this credit card portfolio and began processing these credit cards in-house. The credit card commitments as of September 30, 2009 are included in the summary above within our commitments to extend credit.

Commercial and Standby Letters of Credit

The table below summarizes our commercial and standby letters of credit at September 30, 2009. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there was a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.


(Dollars in thousands)	Expires In One Year or Less		Expires After One Year		Total Amount Outstanding		Maximum Amount of Future Payments
Financial standby letters of credit	$	563,881	$	32,782	$	596,663	$	596,663
Performance standby letters of credit		27,777		9,193		36,970		36,970
Commercial letters of credit		4,492		—		4,492		4,492

Total	$	596,150	$	41,975	$	638,125	$	638,125

At September 30, 2009 and December 31, 2008, deferred fees related to commercial and standby letters of credit were $4.1 million and $4.8 million, respectively. At September 30, 2009, collateral in the form of cash of $192.2 million and investment securities of $32.3 million were available to us to reimburse losses, if any, under financial and performance standby letters of credit.

Commitments to Invest in Private Equity Funds

We make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately held companies. Commitments to invest in these funds are generally made for a ten-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over 5 to 7 years. The actual timing of future cash requirements to fund such commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate. The following table details our total capital commitments, unfunded capital commitments, and our ownership in each fund at September 30, 2009:


Our Ownership in Limited Partnership (Dollars in thousands)	Capital Commitments		Unfunded Commitments		Our Ownership of each Fund
Silicon Valley BancVentures, LP	$	6,000	$	270	10.7	%
SVB Capital Partners II, LP (1)		1,200		486	5.1
SVB Strategic Investors Fund, LP		15,300		1,530	12.6
SVB Strategic Investors Fund II, LP		15,000		3,750	8.6
SVB Strategic Investors Fund III, LP		15,000		7,950	5.9
SVB Strategic Investors Fund IV, LP		12,239		11,505	5.0
Partners for Growth, LP		25,000		9,750	50.0
Partners for Growth II, LP		15,000		4,950	24.2
Gold Hill Venture Lending 03, LP (2)		20,000		—	9.3
SVB India Capital Partners I, LP		7,750		3,216	14.4
Other Fund Investments (3)		149,594		50,284	N/A
New Fund Commitments (4)		332,412		273,574	N/A

Total	$	614,495	$	367,265

(1)	Our ownership includes 1.3% direct ownership through SVB Capital Partners II, LLC and SVB Financial Group, and 3.8% indirect ownership through our investment in SVB Strategic Investors Fund II, LP.

(2)	Our ownership includes 4.8% direct ownership and 4.5% indirect ownership interest through GHLLC.

(3)	Represents commitments to 337 venture capital and private equity funds where our ownership interest is generally less than 5% of the voting interests of each such fund.

(4)	Represents the investment commitments made by SVB Financial on behalf of certain new managed funds of funds that we have formed or plan to form in the future, which have not been funded or called.

13. Income Taxes

At September 30, 2009, the total amount of unrecognized tax benefits was $0.3 million, the recognition of which would reduce our income tax expense by $0.3 million. Total accrued interest and penalties at September 30, 2009 were $0.1 million. We expect that our unrecognized tax benefit will change in the next 12 months, however, we do not expect the change to have a material impact on our financial position or our results of operations.

We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions and have identified our federal tax return and tax returns in California and Massachusetts as “major” tax filings. U.S. federal tax examinations through 1998 have been concluded. The U.S. federal tax return for 2006 and subsequent years remain open to examination by the Internal Revenue Service. Our California and Massachusetts tax returns for the years 2004 and 2006, respectively, and subsequent years remain open to examination.

14. Fair Value of Financial Instruments

Our marketable investment securities, non-marketable investment securities using investment company fair value accounting and derivatives are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our consolidated financial statements.

The following fair value hierarchy tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2009, in accordance with ASC 820 (formerly known as SFAS No. 157, Fair Value Measurements

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