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 June 30, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 000-15637
SVB FINANCIAL GROUP
(Exact name of registrant as specified in its charter)
Delaware | 91-1962278 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3003 Tasman Drive, Santa Clara, California | 95054-1191 | |
(Address of principal executive offices) | (Zip Code) |
(408) 654-7400
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At July 31, 2012, 44,410,239 shares of the registrants common stock ($0.001 par value) were outstanding.
Page |
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PART I - FINANCIAL INFORMATION | 4 | |||||
Item 1. |
4 | |||||
Interim Consolidated Balance Sheets (unaudited) as of June 30, 2012 and December 31, 2011 |
4 | |||||
5 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Notes to Interim Consolidated Financial Statements (unaudited) |
9 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
42 | ||||
Item 3. |
74 | |||||
Item 4. |
75 | |||||
PART II - OTHER INFORMATION | 76 | |||||
Item 1. |
76 | |||||
Item 1A. |
76 | |||||
Item 2. |
76 | |||||
Item 3. |
76 | |||||
Item 4. |
76 | |||||
Item 5. |
76 | |||||
Item 6. |
76 | |||||
SIGNATURES | 77 | |||||
INDEX TO EXHIBITS | 78 |
2
Glossary of Acronyms used in this Report
AICPA American Institute of Certified Public Accountants
ASC Accounting Standards Codification
ASU Accounting Standards Update
EHOP Employee Home Ownership Program of the Company
EPS Earnings per share
ESOP Employee Stock Ownership Plan of the Company
ESPP 1999 Employee Stock Purchase Plan of the Company
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
FRB Federal Reserve Bank
GAAP - Accounting principles generally accepted in the United States of America
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IPO Initial public offering
IRS Internal Revenue Service
IT Information technology
LIBOR London Interbank Offered Rate
M&A Merger and acquisition
OTTI Other than temporary impairment
SEC Securities and Exchange Commission
TDR Troubled debt restructuring
UK United Kingdom
VIE Variable interest entity
3
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) |
June 30,
2012 |
December 31, 2011 |
||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 1,411,725 | $ | 1,114,948 | ||||
Available-for-sale securities |
10,620,951 | 10,536,046 | ||||||
Non-marketable securities |
1,132,312 | 1,004,440 | ||||||
|
||||||||
Investment securities |
11,753,263 | 11,540,486 | ||||||
|
||||||||
Loans, net of unearned income |
7,789,752 | 6,970,082 | ||||||
Allowance for loan losses |
(98,166) | (89,947) | ||||||
|
||||||||
Net loans |
7,691,586 | 6,880,135 | ||||||
|
||||||||
Premises and equipment, net of accumulated depreciation and amortization |
64,773 | 56,471 | ||||||
Accrued interest receivable and other assets |
368,425 | 376,854 | ||||||
|
||||||||
Total assets |
$ | 21,289,772 | $ | 19,968,894 | ||||
|
||||||||
Liabilities and total equity |
||||||||
Liabilities: |
||||||||
Noninterest-bearing demand deposits |
$ | 12,842,250 | $ | 11,861,888 | ||||
Interest-bearing deposits |
5,226,562 | 4,847,648 | ||||||
|
||||||||
Total deposits |
18,068,812 | 16,709,536 | ||||||
|
||||||||
Short-term borrowings |
5,880 | - | ||||||
Other liabilities |
312,523 | 405,321 | ||||||
Long-term debt |
458,232 | 603,648 | ||||||
|
||||||||
Total liabilities |
18,845,447 | 17,718,505 | ||||||
|
||||||||
Commitments and contingencies (Note 11 and Note 14) |
||||||||
SVBFG stockholders equity: |
||||||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized; |
- | - | ||||||
Common stock, $0.001 par value, 150,000,000 shares authorized; |
44 | 44 | ||||||
Additional paid-in capital |
529,113 | 484,216 | ||||||
Retained earnings |
1,082,126 | 999,733 | ||||||
Accumulated other comprehensive income |
104,077 | 85,399 | ||||||
|
||||||||
Total SVBFG stockholders equity |
1,715,360 | 1,569,392 | ||||||
Noncontrolling interests |
728,965 | 680,997 | ||||||
|
||||||||
Total equity |
2,444,325 | 2,250,389 | ||||||
|
||||||||
Total liabilities and total equity |
$ | 21,289,772 | $ | 19,968,894 | ||||
|
See accompanying notes to interim consolidated financial statements (unaudited).
4
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands, except per share amounts) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Interest income: |
||||||||||||||||
Loans |
$ | 113,935 | $ | 93,466 | $ | 223,396 | $ | 183,242 | ||||||||
Available-for-sale securities: |
||||||||||||||||
Taxable |
44,072 | 44,217 | 91,447 | 85,599 | ||||||||||||
Non-taxable |
899 | 883 | 1,799 | 1,824 | ||||||||||||
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities |
912 | 1,595 | 1,950 | 3,597 | ||||||||||||
|
||||||||||||||||
Total interest income |
159,818 | 140,161 | 318,592 | 274,262 | ||||||||||||
|
||||||||||||||||
Interest expense: |
||||||||||||||||
Deposits |
1,614 | 2,559 | 3,095 | 5,664 | ||||||||||||
Borrowings |
6,270 | 7,149 | 12,626 | 17,846 | ||||||||||||
|
||||||||||||||||
Total interest expense |
7,884 | 9,708 | 15,721 | 23,510 | ||||||||||||
|
||||||||||||||||
Net interest income |
151,934 | 130,453 | 302,871 | 250,752 | ||||||||||||
Provision for (reduction of) loan losses |
7,999 | 134 | 22,528 | (2,913) | ||||||||||||
|
||||||||||||||||
Net interest income after provision for loan losses |
143,935 | 130,319 | 280,343 | 253,665 | ||||||||||||
|
||||||||||||||||
Noninterest income: |
||||||||||||||||
Gains on investment securities, net |
25,809 | 71,680 | 33,648 | 123,017 | ||||||||||||
Foreign exchange fees |
12,031 | 10,354 | 24,134 | 20,851 | ||||||||||||
Deposit service charges |
8,369 | 7,838 | 16,465 | 14,955 | ||||||||||||
Gains on derivative instruments, net |
8,713 | 13,651 | 14,689 | 14,202 | ||||||||||||
Credit card fees |
6,169 | 4,364 | 11,837 | 8,181 | ||||||||||||
Letters of credit and standby letters of credit income |
3,296 | 2,702 | 6,932 | 5,412 | ||||||||||||
Client investment fees |
3,375 | 3,107 | 6,272 | 6,768 | ||||||||||||
Other |
12,664 | 10,012 | 25,742 | 20,276 | ||||||||||||
|
||||||||||||||||
Total noninterest income |
80,426 | 123,708 | 139,719 | 213,662 | ||||||||||||
|
||||||||||||||||
Noninterest expense: |
||||||||||||||||
Compensation and benefits |
80,385 | 79,888 | 164,122 | 155,520 | ||||||||||||
Professional services |
16,514 | 13,891 | 31,121 | 26,878 | ||||||||||||
Premises and equipment |
9,419 | 6,440 | 16,983 | 12,352 | ||||||||||||
Business development and travel |
7,159 | 5,890 | 14,905 | 11,543 | ||||||||||||
Net occupancy |
5,378 | 4,546 | 11,001 | 9,196 | ||||||||||||
Correspondent bank fees |
2,840 | 2,202 | 5,528 | 4,365 | ||||||||||||
FDIC assessments |
2,731 | 2,163 | 5,229 | 5,638 | ||||||||||||
Provision for unfunded credit commitments |
1,922 | 976 | 1,664 | 76 | ||||||||||||
Other |
9,418 | 5,036 | 17,225 | 12,899 | ||||||||||||
|
||||||||||||||||
Total noninterest expense |
135,766 | 121,032 | 267,778 | 238,467 | ||||||||||||
|
||||||||||||||||
Income before income tax expense |
88,595 | 132,995 | 152,284 | 228,860 | ||||||||||||
Income tax expense |
31,517 | 43,263 | 55,273 | 66,033 | ||||||||||||
|
||||||||||||||||
Net income before noncontrolling interests |
57,078 | 89,732 | 97,011 | 162,827 | ||||||||||||
Net income attributable to noncontrolling interests |
(9,475) | (23,982) | (14,618) | (64,070) | ||||||||||||
|
||||||||||||||||
Net income available to common stockholders |
$ | 47,603 | $ | 65,750 | $ | 82,393 | $ | 98,757 | ||||||||
|
||||||||||||||||
Earnings per common sharebasic |
$ | 1.08 | $ | 1.53 | $ | 1.87 | $ | 2.31 | ||||||||
Earnings per common sharediluted |
1.06 | 1.50 | 1.85 | 2.27 |
See accompanying notes to interim consolidated financial statements (unaudited).
5
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income before noncontrolling interests |
$ | 57,078 | $ | 89,732 | $ | 97,011 | $ | 162,827 | ||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Change in cumulative translation gains: |
||||||||||||||||
Foreign currency translation (losses) gains |
(4,657) | 926 | (2,185) | 1,891 | ||||||||||||
Related tax benefit (expense) |
1,889 | (379) | 876 | (774) | ||||||||||||
Change in unrealized gains on available-for-sale securities: |
||||||||||||||||
Unrealized holding gains |
33,766 | 100,836 | 37,035 | 74,677 | ||||||||||||
Related tax expense |
(13,482) | (41,252) | (14,817) | (30,529) | ||||||||||||
Reclassification adjustment for gains included in net income |
(4,567) | (37,221) | (3,693) | (37,283) | ||||||||||||
Related tax expense |
1,819 | 15,227 | 1,462 | 15,252 | ||||||||||||
|
||||||||||||||||
Other comprehensive income, net of tax |
14,768 | 38,137 | 18,678 | 23,234 | ||||||||||||
|
||||||||||||||||
Comprehensive income |
71,846 | 127,869 | 115,689 | 186,061 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
(9,475) | (23,982) | (14,618) | (64,070) | ||||||||||||
|
||||||||||||||||
Comprehensive income attributable to SVBFG |
$ | 62,371 | $ | 103,887 | $ | 101,071 | $ | 121,991 | ||||||||
|
See accompanying notes to interim consolidated financial statements (unaudited).
6
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
Common Stock | Additional Paid-in |
Retained | Accumulated Other Comprehensive |
Total SVBFG Stockholders |
Noncontrolling | |||||||||||||||||||||||||||||
(Dollars in thousands) |
Shares | Amount | Capital | Earnings | Income | Equity | Interests | Total Equity | ||||||||||||||||||||||||||
Balance at December 31, 2010 |
42,268,201 | $ | 42 | $ | 422,334 | $ | 827,831 | $ | 24,143 | $ | 1,274,350 | $ | 473,928 | $ | 1,748,278 | |||||||||||||||||||
|
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Common stock issued under employee benefit plans, net of restricted stock cancellations |
866,984 | 1 | 26,129 | - | - | 26,130 | - | 26,130 | ||||||||||||||||||||||||||
Common stock issued upon settlement of 3.875% Convertible Notes, net of shares received from associated convertible note hedge |
1,024 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
Income tax benefit from stock options exercised, vesting of restricted stock and other |
- | - | 5,563 | - | - | 5,563 | - | 5,563 | ||||||||||||||||||||||||||
Net income |
- | - | - | 98,757 | - | 98,757 | 64,070 | 162,827 | ||||||||||||||||||||||||||
Capital calls and distributions, net |
- | - | - | - | - | - | 41,160 | 41,160 | ||||||||||||||||||||||||||
Net change in unrealized gains on available-for-sale securities, net of tax |
- | - | - | - | 22,117 | 22,117 | - | 22,117 | ||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
- | - | - | - | 1,117 | 1,117 | - | 1,117 | ||||||||||||||||||||||||||
Share-based compensation expense |
- | - | 8,859 | - | - | 8,859 | - | 8,859 | ||||||||||||||||||||||||||
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|
|
|
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|
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Balance at June 30, 2011 |
43,136,209 | $ | 43 | $ | 462,885 | $ | 926,588 | $ | 47,377 | $ | 1,436,893 | $ | 579,158 | $ | 2,016,051 | |||||||||||||||||||
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Balance at December 31, 2011 |
43,507,932 | $ | 44 | $ | 484,216 | $ | 999,733 | $ | 85,399 | $ | 1,569,392 | $ | 680,997 | $ | 2,250,389 | |||||||||||||||||||
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Common stock issued under employee benefit plans, net of restricted stock cancellations |
821,462 | - | 24,303 | - | - | 24,303 | - | 24,303 | ||||||||||||||||||||||||||
Common stock issued under ESOP |
73,560 | - | 4,345 | - | - | 4,345 | - | 4,345 | ||||||||||||||||||||||||||
Income tax benefit from stock options exercised, vesting of restricted stock and other |
- | - | 5,323 | - | - | 5,323 | - | 5,323 | ||||||||||||||||||||||||||
Net income |
- | - | - | 82,393 | - | 82,393 | 14,618 | 97,011 | ||||||||||||||||||||||||||
Capital calls and distributions, net |
- | - | - | - | - | - | 33,350 | 33,350 | ||||||||||||||||||||||||||
Net change in unrealized gains on available-for-sale securities, net of tax |
- | - | - | - | 19,987 | 19,987 | - | 19,987 | ||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
- | - | - | - | (1,309) | (1,309) | - | (1,309) | ||||||||||||||||||||||||||
Share-based compensation expense |
- | - | 10,926 | - | - | 10,926 | - | 10,926 | ||||||||||||||||||||||||||
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Balance at June 30, 2012 |
44,402,954 | $ | 44 | $ | 529,113 | $ | 1,082,126 | $ | 104,077 | $ | 1,715,360 | $ | 728,965 | $ | 2,444,325 | |||||||||||||||||||
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See accompanying notes to interim consolidated financial statements (unaudited).
7
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, | ||||||||
(Dollars in thousands) |
2012 | 2011 | ||||||
Cash flows from operating activities: |
||||||||
Net income before noncontrolling interests |
$ | 97,011 | $ | 162,827 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for (reduction of) loan losses |
22,528 | (2,913) | ||||||
Provision for unfunded credit commitments |
1,664 | 76 | ||||||
Changes in fair values of derivatives, net |
(11,024) | (13,211) | ||||||
Gains on investment securities, net |
(33,648) | (123,017) | ||||||
Depreciation and amortization |
13,594 | 13,834 | ||||||
Amortization of premiums and discounts on available-for-sale securities, net |
25,273 | 8,904 | ||||||
Tax benefit from stock exercises |
1,143 | 759 | ||||||
Amortization of share-based compensation |
10,977 | 8,949 | ||||||
Amortization of deferred loan fees |
(32,881) | (28,458) | ||||||
Deferred income tax expense |
5,876 | 2,423 | ||||||
Gain on the sale of certain assets related to our equity services management business |
(4,243) | - | ||||||
Net gain from note repurchases and termination of corresponding interest rate swaps |
- | (3,123) | ||||||
Changes in other assets and liabilities: |
||||||||
Accrued interest receivable and payable, net |
(4,444) | (8,348) | ||||||
Accounts receivable and payable, net |
22,886 | 78,593 | ||||||
Income tax payable and receivable, net |
(15,715) | 3,854 | ||||||
Prepaid FDIC assessments and amortization |
5,065 | 5,082 | ||||||
Accrued compensation |
(60,192) | (12,535) | ||||||
Foreign exchange spot contracts, net |
(43,405) | 65,536 | ||||||
Other, net |
(6,567) | 12,574 | ||||||
|
||||||||
Net cash (used for) provided by operating activities |
(6,102) | 171,806 | ||||||
|
||||||||
Cash flows from investing activities: |
||||||||
Purchases of available-for-sale securities |
(1,778,451) | (4,334,481) | ||||||
Proceeds from sales of available-for-sale securities |
325,608 | 1,414,096 | ||||||
Proceeds from maturities and pay downs of available-for-sale securities |
1,380,865 | 1,322,555 | ||||||
Purchases of nonmarketable securities (cost and equity method accounting) |
(101,506) | (28,355) | ||||||
Proceeds from sales of nonmarketable securities (cost and equity method accounting) |
23,267 | 13,888 | ||||||
Purchases of nonmarketable securities (fair value accounting) |
(63,017) | (82,574) | ||||||
Proceeds from sales and distributions of nonmarketable securities (fair value accounting) |
59,711 | 45,855 | ||||||
Net increase in loans |
(817,601) | (449,114) | ||||||
Proceeds from recoveries of charged-off loans |
6,811 | 11,056 | ||||||
Purchases of premises and equipment |
(20,016) | (12,843) | ||||||
Proceeds from the sale of certain assets related to our equity services management business |
2,870 | - | ||||||
|
||||||||
Net cash used for investing activities |
(981,459) | (2,099,917) | ||||||
|
||||||||
Cash flows from financing activities: |
||||||||
Net increase in deposits |
1,359,276 | 1,941,533 | ||||||
Increase (decrease) in short-term borrowings |
5,880 | (37,245) | ||||||
Principal payments of other long term debt |
(1,222) | - | ||||||
Capital contributions from noncontrolling interests, net of distributions |
33,350 | 41,160 | ||||||
Tax benefit from stock exercises |
4,180 | 4,804 | ||||||
Proceeds from issuance of common stock and ESPP |
24,303 | 26,130 | ||||||
Principal payments of 5.70% Senior Notes |
(141,429) | - | ||||||
Payments for repurchases of portions of 5.70% Senior Notes and 6.05% Subordinated Notes, including repurchase premiums and associated fees |
- | (346,443) | ||||||
Proceeds from termination of portions of interest rate swaps associated with 5.70% Senior Notes and 6.05% Subordinated Notes |
- | 36,959 | ||||||
Payments for settlement of 3.875% Convertible Notes |
- | (250,000) | ||||||
|
||||||||
Net cash provided by financing activities |
1,284,338 | 1,416,898 | ||||||
|
||||||||
Net increase (decrease) in cash and cash equivalents |
296,777 | (511,213) | ||||||
Cash and cash equivalents at beginning of period |
1,114,948 | 3,076,432 | ||||||
|
||||||||
Cash and cash equivalents at end of period |
$ | 1,411,725 | $ | 2,565,219 | ||||
|
||||||||
Supplemental disclosures: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 15,913 | $ | 25,625 | ||||
Income taxes |
58,992 | 53,336 | ||||||
Noncash items during the period: |
||||||||
Unrealized gains (losses) on available-for-sale securities, net of tax |
$ | 19,987 | $ | 22,117 |
See accompanying notes to interim consolidated financial statements (unaudited).
8
SVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
SVB Financial Group is a diversified financial services company, as well as a bank holding company and financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services to support our clients of all sizes and stages throughout their life cycles. In these notes to our consolidated financial statements, when we refer to SVB Financial Group, SVBFG, the Company, we, our, us or use similar words, we mean SVB Financial Group and all of its subsidiaries collectively, including Silicon Valley Bank (the Bank), unless the context requires otherwise. When we refer to SVB Financial or the Parent we are referring only to the parent company, SVB Financial Group, unless the context requires otherwise.
The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature that are, in the opinion of management, necessary to fairly present our financial position, results of operations and cash flows in accordance with GAAP. Such interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and six months ended June 30, 2012 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, 2011 (2011 Form 10-K).
The accompanying unaudited interim consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Consolidated Financial Statements and Supplementary DataNote 2Summary of Significant Accounting Policies under Part II, Item 8 of our 2011 Form 10-K.
The preparation of unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates may change as new information is obtained. Significant items that are subject to such estimates include measurements of fair value, the valuation of non-marketable securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and reserve for unfunded credit commitments, and the recognition and measurement of income tax assets and liabilities.
Principles of Consolidation and Presentation
Our consolidated financial statements include the accounts of SVB Financial Group and entities in which we have a controlling financial interest. We determine whether we have a controlling financial interest in an entity by evaluating whether the entity is a voting interest entity or a variable interest entity and whether the accounting guidance requires consolidation. All significant intercompany accounts and transactions have been eliminated.
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entitys operations. For these types of entities, the Companys determination of whether it has a controlling interest is based on ownership of the majority of the entities voting equity interest or through control of management of the entities.
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entitys operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. We determine whether we have a controlling financial interest in a VIE by considering whether our involvement with the VIE is significant and designates us as the primary beneficiary based on the following:
1. | We have the power to direct the activities of the VIE that most significantly impact the entitys economic performance; |
2. | The aggregate indirect and direct variable interests held by the Company have the obligation to absorb losses or the right to receive benefits from the entity that could be significant to the VIE; and, |
3. | Qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. |
Voting interest entities in which we have a controlling financial interest or VIEs in which we are the primary beneficiary are consolidated into our financial statements.
9
We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide. We are variable interest holders in certain partnerships for which we are the primary beneficiary. We perform on-going reassessments on the status of the entities and whether facts or circumstances have changed in relation to previously evaluated voting interest entities and our involvement in VIEs which could cause our consolidation conclusion to change.
Impact of Adopting ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS
In May 2011, the FASB issued a new accounting standard which requires new disclosures and clarifies existing guidance surrounding fair value measurement. This standard was issued concurrently with the IASBs issuance of a fair value measurement standard with the objective of a converged definition of fair value measurement and disclosure guidance. The new guidance clarified that the principal market for a financial instrument should be determined based on the market with the greatest volume and level of activity. This new guidance was effective on a prospective basis for interim and annual reporting periods beginning after December 15, 2011, and was therefore adopted effective January 1, 2012. This standard clarified how fair value is measured and increased the disclosure requirements for fair value measurements, and did not have a material impact on our financial position, results of operations or stockholders equity. See Note 13 Fair Value of Financial Instruments for further details.
Impact of Adopting ASU No. 2011-05, Presentation of Comprehensive Income
In June 2011, the FASB issued a new accounting standard, which requires presentation of the components of total comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of which option is chosen, reclassification adjustments for items that are reclassified from other comprehensive income to net income are required to be shown on the face of the financial statements. In December 2011, the FASB approved a proposed update, which indefinitely defers the requirements of ASU No. 2011-05 to present components of reclassifications of other comprehensive income on the face of the income statement. This new guidance did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance was effective on a retrospective basis for the interim and annual reporting periods beginning after December 15, 2011, and was therefore adopted effective January 1, 2012. This standard only clarified the presentation of comprehensive income and did not affect our financial position, results of operations or stockholders equity.
Recent Accounting Pronouncements
In December 2011, the FASB issued a new accounting standard (ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities), which requires new disclosures surrounding financial instruments and derivative instruments that are offset on the statement of financial position, or are eligible for offset subject to a master netting arrangement. This standard was issued concurrent with the IASBs issuance of a similar standard with the objective of converged disclosure guidance. The guidance is effective on a retrospective basis for the interim and annual reporting periods beginning after January 1, 2013. We are currently assessing the impact of this guidance, however we do not expect it to have a material impact on our financial position, results of operations or stockholders equity.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentations.
2. Stockholders Equity and EPS
EPS
Basic EPS is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options and restricted stock units outstanding under our equity incentive plans, our ESPP, and for certain prior periods, our 3.875% convertible senior notes (3.875% Convertible Notes). Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive. The following is a reconciliation of basic EPS to diluted EPS for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars and shares in thousands, except per share amounts) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Numerator: |
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Net income available to common stockholders |
$ | 47,603 | $ | 65,750 | $ | 82,393 | $ | 98,757 | ||||||||
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Denominator: |
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Weighted average common shares outstanding-basic |
44,207 | 42,924 | 43,994 | 42,704 | ||||||||||||
Weighted average effect of dilutive securities: |
||||||||||||||||
Stock options and ESPP |
385 | 654 | 426 | 678 | ||||||||||||
Restricted stock units |
120 | 101 | 153 | 100 | ||||||||||||
3.875% Convertible Notes (1) |
- | 61 | - | 77 | ||||||||||||
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Denominator for diluted calculation |
44,712 | 43,740 | 44,573 | 43,559 | ||||||||||||
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Earnings per common share: |
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Basic |
$ | 1.08 | $ | 1.53 | $ | 1.87 | $ | 2.31 | ||||||||
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Diluted |
$ | 1.06 | $ | 1.50 | $ | 1.85 | $ | 2.27 | ||||||||
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(1) | Our $250 million 3.875% Convertible Notes matured on April 15, 2011. |
10
The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation as they were deemed to be antidilutive for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Shares in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Stock options |
683 | 582 | 574 | 574 | ||||||||||||
Restricted stock units |
189 | 158 | 94 | 99 | ||||||||||||
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Total |
872 | 740 | 668 | 673 | ||||||||||||
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3. Share-Based Compensation
For the three and six months ended June 30, 2012 and 2011, we recorded share-based compensation and related tax benefits as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Share-based compensation expense |
$ | 5,828 | $ | 4,706 | $ | 10,977 | $ | 8,949 | ||||||||
Income tax benefit related to share-based compensation expense |
(1,489) | (1,243) | (2,688) | (2,276) |
Unrecognized Compensation Expense
As of June 30, 2012, unrecognized share-based compensation expense was as follows:
(Dollars in thousands) |
Unrecognized Expense |
Average Expected Recognition Period - in Years |
||||||
Stock options |
$ | 19,129 | 3.00 | |||||
Restricted stock units |
29,706 | 2.99 | ||||||
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Total unrecognized share-based compensation expense |
$ | 48,835 | ||||||
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11
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 six months ended June 30, 2012:
Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life in Years |
Aggregate Intrinsic Value of In-The- Money Options |
|||||||||||||
Outstanding at December 31, 2011 |
2,439,360 | $ | 42.64 | |||||||||||||
Granted |
387,793 | 64.02 | ||||||||||||||
Exercised |
(576,461) | 36.26 | ||||||||||||||
Forfeited |
(36,629) | 45.86 | ||||||||||||||
Expired |
(4,568) | 42.50 | ||||||||||||||
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Outstanding at June 30, 2012 |
2,209,495 | 48.00 | 4.26 | $ 26,284,468 | ||||||||||||
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Vested and expected to vest at June 30, 2012 |
2,106,562 | 47.53 | 4.17 | 25,861,593 | ||||||||||||
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Exercisable at June 30, 2012 |
1,159,056 | 43.06 | 2.93 | 18,281,444 | ||||||||||||
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The aggregate intrinsic value of outstanding options shown in the table above represents the pretax intrinsic value based on our closing stock price of $58.72 as of June 30, 2012. The total intrinsic value of options exercised during the three and six months ended June 30, 2012 was $1.8 million and $13.7 million, respectively, compared to $6.9 million and $15.8 million for the comparable 2011 periods.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the six months ended June 30, 2012:
Shares | Weighted Average Grant Date Fair Value |
|||||||
Nonvested at December 31, 2011 |
499,119 | $ | 52.72 | |||||
Granted |
309,840 | 63.89 | ||||||
Vested |
(140,550) | 51.46 | ||||||
Forfeited |
(18,574) | 54.73 | ||||||
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Nonvested at June 30, 2012 |
649,835 | 58.27 | ||||||
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4. Cash and Cash Equivalents
The following table details our cash and cash equivalents at June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Cash and due from banks (1) |
$ | 1,224,552 | $ | 852,010 | ||||
Securities purchased under agreements to resell (2) |
100,787 | 175,553 | ||||||
Other short-term investment securities |
86,386 | 87,385 | ||||||
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|
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Total cash and cash equivalents |
$ | 1,411,725 | $ | 1,114,948 | ||||
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(1) | At June 30, 2012 and December 31, 2011, $662.4 million and $100.1 million, respectively, of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $265.8 million and $371.5 million, respectively. |
(2) | At June 30, 2012 and December 31, 2011, securities purchased under agreements to resell were collateralized by U.S. treasury securities and U.S. agency securities with aggregate fair values of $102.8 million and $179.1 million, respectively. None of these securities received as collateral were sold or repledged as of June 30, 2012 and December 31, 2011. |
12
5. Investment Securities
Our investment securities portfolio consists of both an available-for-sale securities portfolio, which represents interest-earning investment securities, and a non-marketable securities portfolio, which primarily represents investments managed as part of our funds management business.
The major components of our investment securities portfolio at June 30, 2012 and December 31, 2011 are as follows:
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||
(Dollars in thousands) |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Carrying Value |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Carrying Value |
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Available-for-sale securities, at fair value: |
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U.S. treasury securities |
$ | 25,146 | $ | 453 | $ | - | $ | 25,599 | $ | 25,233 | $ | 731 | $ | - | $ | 25,964 | ||||||||||||||||
U.S. agency debentures |
2,571,796 | 68,328 | - | 2,640,124 | 2,822,158 | 52,864 | (90) | 2,874,932 | ||||||||||||||||||||||||
Residential mortgage-backed securities: |
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Agency-issued mortgage-backed securities |
1,668,523 | 45,276 | - | 1,713,799 | 1,529,466 | 34,926 | (106) | 1,564,286 | ||||||||||||||||||||||||
Agency-issued collateralized mortgage obligationsfixed rate |
3,751,327 | 54,283 | (1,399) | 3,804,211 | 3,317,285 | 56,546 | (71) | 3,373,760 | ||||||||||||||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
2,103,451 | 5,081 | (83) | 2,108,449 | 2,416,158 | 1,554 | (4,334) | 2,413,378 | ||||||||||||||||||||||||
Agency-issued commercial mortgage-backed securities |
223,200 | 4,880 | - | 228,080 | 176,646 | 2,047 | - | 178,693 | ||||||||||||||||||||||||
Municipal bonds and notes |
91,659 | 8,035 | - | 99,694 | 92,241 | 8,257 | - | 100,498 | ||||||||||||||||||||||||
Equity securities |
1,352 | 26 | (383) | 995 | 5,554 | 180 | (1,199) | 4,535 | ||||||||||||||||||||||||
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Total available-for-sale securities |
$ | 10,436,454 | $ | 186,362 | $ | (1,865) | $ | 10,620,951 | $ | 10,384,741 | $ | 157,105 | $ | (5,800) | $ | 10,536,046 | ||||||||||||||||
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Non-marketable securities: |
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Non-marketable securities (fair value accounting): |
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Venture capital and private equity fund investments (1) |
639,596 | 611,824 | ||||||||||||||||||||||||||||||
Other venture capital investments (2) |
120,111 | 124,121 | ||||||||||||||||||||||||||||||
Other investments (3) |
- | 987 | ||||||||||||||||||||||||||||||
Non-marketable securities (equity method accounting): |
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Other investments (4) |
138,993 | 68,252 | ||||||||||||||||||||||||||||||
Low income housing tax credit funds |
58,698 | 34,894 | ||||||||||||||||||||||||||||||
Non-marketable securities (cost method accounting): |
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Venture capital and private equity fund investments (5) |
153,618 | 145,007 | ||||||||||||||||||||||||||||||
Other investments |
21,296 | 19,355 | ||||||||||||||||||||||||||||||
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Total non-marketable securities |
1,132,312 | 1,004,440 | ||||||||||||||||||||||||||||||
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Total investment securities |
$ | 11,753,263 | $ | 11,540,486 | ||||||||||||||||||||||||||||
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(1) | The following table shows the amount of venture capital and private equity fund investments by the following consolidated funds and our ownership of each fund at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
SVB Strategic Investors Fund, LP |
$ | 36,694 | 12.6 | % | $ | 39,567 | 12.6 | % | ||||||||
SVB Strategic Investors Fund II, LP |
109,343 | 8.6 | 122,619 | 8.6 | ||||||||||||
SVB Strategic Investors Fund III, LP |
213,405 | 5.9 | 218,429 | 5.9 | ||||||||||||
SVB Strategic Investors Fund IV, LP |
146,477 | 5.0 | 122,076 | 5.0 | ||||||||||||
Strategic Investors Fund V, LP |
18,134 | 0.2 | 8,838 | 0.3 | ||||||||||||
SVB Capital Preferred Return Fund, LP |
50,573 | 20.0 | 42,580 | 20.0 | ||||||||||||
SVB CapitalNT Growth Partners, LP |
57,588 | 33.0 | 43,958 | 33.0 | ||||||||||||
SVB Capital Partners II, LP (i) |
863 | 5.1 | 2,390 | 5.1 | ||||||||||||
Other private equity fund (ii) |
6,519 | 58.2 | 11,367 | 58.2 | ||||||||||||
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Total venture capital and private equity fund investments |
$ | 639,596 | $ | 611,824 | ||||||||||||
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(i) | At June 30, 2012, we had a direct ownership interest of 1.3 percent and an indirect ownership interest of 3.8 percent in the fund through our ownership interest of SVB Strategic Investors Fund II, LP. |
(ii) | At June 30, 2012, we had a direct ownership interest of 41.5 percent and indirect ownership interests of 12.6 percent and 4.1 percent in the fund through our ownership interest of SVB CapitalNT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively. |
13
(2) | The following table shows the amount of other venture capital investments by the following consolidated funds and our ownership of each fund at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
Silicon Valley BancVentures, LP |
$ | 16,739 | 10.7 | % | $ | 17,878 | 10.7 | % | ||||||||
SVB Capital Partners II, LP (i) |
59,256 | 5.1 | 61,099 | 5.1 | ||||||||||||
SVB India Capital Partners I, LP |
40,668 | 14.4 | 42,832 | 14.4 | ||||||||||||
SVB Capital Shanghai Yangpu Venture Capital Fund |
3,448 | 6.8 | 2,312 | 6.8 | ||||||||||||
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Total other venture capital investments |
$ | 120,111 | $ | 124,121 | ||||||||||||
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(i) | At June 30, 2012, we had a direct ownership interest of 1.3 percent and an indirect ownership interest of 3.8 percent in the fund through our ownership of SVB Strategic Investors Fund II, LP. |
(3) | Other investments within non-marketable securities (fair value accounting) include our ownership in Partners for Growth, LP, a consolidated debt fund. At June 30, 2012, we had a majority ownership interest of slightly more than 50.0 percent in the fund. Partners for Growth, LP is managed by a third party and we do not have an ownership interest in the general partner of this fund. |
(4) | The following table shows the carrying value and our ownership percentage of each investment at June 30, 2012 and December 31, 2011: |
June 30, 2012 | December 31, 2011 | |||||||||||||||
(Dollars in thousands) |
Amount | Ownership % | Amount | Ownership % | ||||||||||||
Gold Hill Venture Lending 03, LP (i) |
$ | 6,238 | 9.3 | % | $ | 16,072 | 9.3 | % | ||||||||
Gold Hill Capital 2008, LP (ii) |
19,553 | 15.5 | 19,328 | 15.5 | ||||||||||||
Partners for Growth II, LP |
3,551 | 24.2 | 3,785 | 24.2 | ||||||||||||
China Joint Venture investment (iii) |
79,524 | 50.0 | - | - | ||||||||||||
Other investments |
30,127 | N/A | 29,067 | N/A | ||||||||||||
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Total other investments |
$ | 138,993 | $ | 68,252 | ||||||||||||
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(i) | At June 30, 2012, we had a direct ownership interest of 4.8 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Venture Lending Partners 03, LLC (GHLLC) of 4.5 percent. Our aggregate direct and indirect ownership in the fund is 9.3 percent. |
(ii) | At June 30, 2012, we had a direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent. Our aggregate direct and indirect ownership in the fund is 15.5 percent. |
(iii) | On May 3, 2012, we contributed $79.7 million to SPD Silicon Valley Bank Co., Ltd., our joint venture bank in China. |
(5) | Represents investments in 326 and 329 funds (primarily venture capital funds) at June 30, 2012 and December 31, 2011, respectively, where our ownership interest is less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating and financial policies. For the three months ended June 30, 2012, we recognized OTTI losses of $0.2 million resulting from other-than-temporary declines in value for 12 of the 326 investments. For the six months ended June 30, 2012, we recognized OTTI losses of $0.5 million resulting from other-than-temporary declines in value for 30 of the 326 investments. The OTTI losses are included in net gains on investment securities, a component of noninterest income. We concluded that any declines in value for the remaining 296 investments were temporary and as such, no OTTI was required to be recognized. At June 30, 2012, the carrying value of these venture capital and private equity fund investments (cost method accounting) was $153.6 million, and the estimated fair value was $185.3 million. |
14
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of June 30, 2012:
June 30, 2012 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
(Dollars in thousands) |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
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Residential mortgage-backed securities: |
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Agency-issued collateralized mortgage obligationsfixed rate |
$ | 425,171 | $ | (1,399) | $ | - | $ | - | $ | 425,171 | $ | (1,399) | ||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
182,847 | (74) | 43,153 | (9) | 226,000 | (83) | ||||||||||||||||||
Equity securities |
162 | (178) | 243 | (205) | 405 | (383) | ||||||||||||||||||
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Total temporarily impaired securities (1) |
$ | 608,180 | $ | (1,651) | $ | 43,396 | $ | (214) | $ | 651,576 | $ | (1,865) | ||||||||||||
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(1) | As of June 30, 2012, we identified a total of 33 investments that were in unrealized loss positions, of which five investments totaling $43.4 million with unrealized losses of $0.2 million has been in an impaired position for a period of time greater than 12 months. As of June 30, 2012, we do not intend to sell any impaired debt securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis. Based on our analysis as of June 30, 2012, we deem all impairments to be temporary, and therefore changes in value for our temporarily impaired securities as of the same date are included in other comprehensive income. Market valuations and impairment analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis. |
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of December 31, 2011:
December 31, 2011 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
(Dollars in thousands) |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
Fair Value of Investments |
Unrealized Losses |
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U.S. agency debentures |
$ | 50,994 | $ | (90) | $ | - | $ | - | $ | 50,994 | $ | (90) | ||||||||||||
Residential mortgage-backed securities: |
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Agency-issued mortgage-backed securities |
54,588 | (106) | - | - | 54,588 | (106) | ||||||||||||||||||
Agency-issued collateralized mortgage obligationsfixed rate |
50,125 | (71) | - | - | 50,125 | (71) | ||||||||||||||||||
Agency-issued collateralized mortgage obligationsvariable rate |
1,521,589 | (4,334) | - | - | 1,521,589 | (4,334) | ||||||||||||||||||
Equity securities |
3,831 | (1,199) | - | - | 3,831 | (1,199) | ||||||||||||||||||
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Total temporarily impaired securities |
$ | 1,681,127 | $ | (5,800) | $ | - | $ | - | $ | 1,681,127 | $ | (5,800) | ||||||||||||
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|
|
|
|
|
|
|
|
|
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on debt securities classified as available-for-sale as of June 30, 2012. Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 35.0 percent. The weighted average yield is computed using the amortized cost of debt securities, which are reported at fair value. For U.S. treasury securities, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure.
June 30, 2012 | ||||||||||||||||||||||||||||||||||||||||
Total | One Year or Less |
After One Year to Five Years |
After Five Years to Ten Years |
After Ten Years |
||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
Carrying Value |
Weighted- Average Yield |
||||||||||||||||||||||||||||||
U.S. treasury securities |
$ | 25,599 | 2.39 | % | $ | 25,599 | 2.39 | % | $ | - | - | % | $ | - | - | % | $ | - | - | % | ||||||||||||||||||||
U.S. agency debentures |
2,640,124 | 1.61 | 35,097 | 2.13 | 2,474,409 | 1.53 | 130,618 | 3.07 | - | - | ||||||||||||||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||||||
Agency-issued mortgage-backed securities |
1,713,799 | 2.35 | - | - | - | - | 1,583,036 | 2.27 | 130,763 | 3.28 | ||||||||||||||||||||||||||||||
Agency-issued collateralized mortgage obligations - fixed rate |
3,804,211 | 2.21 | - | - | - | - | - | - | 3,804,211 | 2.21 | ||||||||||||||||||||||||||||||
Agency-issued collateralized mortgage obligations - variable rate |
2,108,449 | 0.70 | - | - | - | - | - | - | 2,108,449 | 0.70 | ||||||||||||||||||||||||||||||
Agency-issued commercial mortgage-backed securities |
228,080 | 2.09 | - | - | - | - | - | - | 228,080 | 2.09 | ||||||||||||||||||||||||||||||
Municipal bonds and notes |
99,694 | 6.00 | 941 | 5.20 | 15,195 | 5.55 | 50,166 | 6.00 | 33,392 | 6.24 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Total |
$ | 10,619,956 | 1.82 | $ | 61,637 | 2.28 | $ | 2,489,604 | 1.55 | $ | 1,763,820 | 2.44 | $ | 6,304,895 | 1.74 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
15
The following table presents the components of gains and losses (realized and unrealized) on investment securities for the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Gross gains on investment securities: |
||||||||||||||||
Available-for-sale securities, at fair value (1) |
$ | 5,322 | $ | 37,314 | $ | 5,343 | $ | 37,377 | ||||||||
Marketable securities (fair value accounting) |
3,303 | - | 3,619 | 442 | ||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
33,288 | 37,205 | 59,398 | 82,704 | ||||||||||||
Other venture capital investments |
1,556 | 2,071 | 3,333 | 7,019 | ||||||||||||
Other investments |
- | - | 21 | 20 | ||||||||||||
Non-marketable securities (equity method accounting): |
||||||||||||||||
Other investments |
5,389 | 3,132 | 6,811 | 6,516 | ||||||||||||
Non-marketable securities (cost method accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
538 | 801 | 945 | 1,056 | ||||||||||||
Other investments |
264 | 2,256 | 306 | 2,429 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross gains on investment securities |
49,660 | 82,779 | 79,776 | 137,563 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross losses on investment securities: |
||||||||||||||||
Available-for-sale securities, at fair value (1) |
(755) | (93) | (1,650) | (94) | ||||||||||||
Marketable securities (fair value accounting) |
(754) | (3,307) | (754) | (4,115) | ||||||||||||
Non-marketable securities (fair value accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
(18,618) | (4,845) | (32,533) | (6,901) | ||||||||||||
Other venture capital investments |
(3,219) | (1,420) | (9,882) | (1,664) | ||||||||||||
Non-marketable securities (equity method accounting): |
||||||||||||||||
Other investments |
(327) | (1,110) | (703) | (1,309) | ||||||||||||
Non-marketable securities (cost method accounting): |
||||||||||||||||
Venture capital and private equity fund investments |
(177) | (293) | (540) | (432) | ||||||||||||
Other investments |
(1) | (31) | (66) | (31) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross losses on investment securities |
(23,851) | (11,099) | (46,128) | (14,546) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gains on investment securities, net |
$ | 25,809 | $ | 71,680 | $ | 33,648 | $ | 123,017 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gains attributable to noncontrolling interests, including carried interest |
$ | 14,502 | $ | 26,437 | $ | 21,840 | $ | 69,822 | ||||||||
|
|
|
|
|
|
|
|
(1) | The cost basis of available-for-sale securities sold is determined on a specific identification basis. |
16
6. Loans and Allowance for Loan Losses
We serve a variety of commercial clients in the technology, life science, venture capital/private equity and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications and electronics), software and related services, and clean technology. Because of the diverse nature of clean technology products and services, for our loan-related reporting purposes, cleantech-related loans are reported under our hardware, software, life science and other commercial loan categories, as applicable. Our life science clients are concentrated in the medical devices and biotechnology sectors. Loans made to venture capital/private equity firm clients typically enable them to fund investments prior to their receipt of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.
In addition to commercial loans, we make loans through SVB Private Bank primarily to venture capital/private equity professionals. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit. We also provide real estate secured loans to eligible employees through our EHOP.
We also provide community development loans made as part of our responsibilities under the Community Reinvestment Act. These loans are included within Construction loans below and are primarily secured by real estate.
The composition of loans, net of unearned income of $67.7 million and $60.2 million at June 30, 2012 and December 31, 2011, respectively, is presented in the following table:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Commercial loans: |
||||||||
Software |
$ | 2,752,500 | $ | 2,492,849 | ||||
Hardware |
1,086,973 | 952,303 | ||||||
Venture capital/private equity |
1,403,801 | 1,117,419 | ||||||
Life science |
917,723 | 863,737 | ||||||
Premium wine (1) |
120,043 | 130,245 | ||||||
Other |
371,195 | 342,147 | ||||||
|
|
|
|
|||||
Commercial loans |
6,652,235 | 5,898,700 | ||||||
|
|
|
|
|||||
Real estate secured loans: |
||||||||
Premium wine (1) |
373,658 | 345,988 | ||||||
Consumer loans (2) |
554,266 | 534,001 | ||||||
|
|
|
|
|||||
Real estate secured loans |
927,924 | 879,989 | ||||||
|
|
|
|
|||||
Construction loans |
33,063 | 30,256 | ||||||
Consumer loans |
176,530 | 161,137 | ||||||
|
|
|
|
|||||
Total loans, net of unearned income (3) |
$ | 7,789,752 | $ | 6,970,082 | ||||
|
|
|
|
(1) | Included in our premium wine portfolio are gross construction loans of $147.9 million and $110.8 million at June 30, 2012 and December 31, 2011, respectively. |
(2) | Consumer loans secured by real estate at June 30, 2012 and December 31, 2011 were comprised of the following: |
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Loans for personal residence |
$ | 369,780 | $ | 350,359 | ||||
Loans to eligible employees |
103,824 | 99,704 | ||||||
Home equity lines of credit |
80,662 | 83,938 | ||||||
|
|
|
|
|||||
Consumer loans secured by real estate |
$ | 554,266 | $ | 534,001 | ||||
|
|
|
|
(3) | Included within our total loan portfolio are credit card loans of $58.3 million and $49.7 million at June 30, 2012 and December 31, 2011, respectively. |
17
Credit Quality
The composition of loans, net of unearned income, broken out by portfolio segment and class of financing receivable as of June 30, 2012 and December 31, 2011, is as follows:
(Dollars in thousands) |
June 30, 2012 |
December 31, 2011 |
||||||
Commercial loans: |
||||||||
Software |
$ | 2,752,500 | $ | 2,492,849 | ||||
Hardware |
1,086,973 | 952,303 | ||||||
Venture capital/private equity |
1,403,801 | 1,117,419 | ||||||
Life science |
917,723 | 863,737 | ||||||
Premium wine |
493,701 | 476,233 | ||||||
Other |
404,258 | 372,403 | ||||||
|
|
|
|
|||||
Total commercial loans |
7,058,956 | 6,274,944 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Real estate secured loans |
554,266 | 534,001 | ||||||
Other consumer loans |
176,530 | 161,137 | ||||||
|
|
|
|
|||||
Total consumer loans |
730,796 | 695,138 | ||||||
|
|
|
|
|||||
Total loans, net of unearned income |
$ | 7,789,752 | $ | 6,970,082 | ||||
|
|
|
|
The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
30 -
59 Days Past Due |
60 -
89 Days Past Due |
Greater Than 90 Days Past Due |
Total Past Due |
Current | Loans Past Due 90 Days or More Still Accruing Interest |
||||||||||||||||||||
June 30, 2012: |
||||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||||
Software |
$ | 3,541 | $ | 66 | $ | 25 | $ | 3,632 | $ | 2,773,398 | $ | 25 | ||||||||||||||
Hardware |
32 | - | - | 32 | 1,083,630 | - | ||||||||||||||||||||
Venture capital/private equity |
75,349 | - | - | 75,349 | 1,342,366 | - | ||||||||||||||||||||
Life science |
35 | 124 | - | 159 | 926,735 | - | ||||||||||||||||||||
Premium wine |
- | - | - | - | 493,107 | - | ||||||||||||||||||||
Other |
73 | - | - | 73 | 405,037 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial loans |
79,030 | 190 | 25 | 79,245 | 7,024,273 | 25 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Consumer loans: |
||||||||||||||||||||||||||
Real estate secured loans |
- | - | - | - | 551,539 | - | ||||||||||||||||||||
Other consumer loans |
21 | 5,896 | - | 5,917 | 169,423 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer loans |
21 | 5,896 | - | 5,917 | 720,962 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans excluding impaired loans |
79,051 | 6,086 | 25 | 85,162 | 7,745,235 | 25 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Impaired loans |
16 | 1,411 | 3,724 | 5,151 | 21,920 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans |
$ | 79,067 | $ | 7,497 | $ | 3,749 | $ | 90,313 | $ | 7,767,155 | $ | 25 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2011: |
||||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||||
Software |
$ | 415 | $ | 1,006 | $ | - | $ | 1,421 | $ | 2,515,327 | $ | - | ||||||||||||||
Hardware |
1,951 | 45 | - | 1,996 | 954,690 | - | ||||||||||||||||||||
Venture capital/private equity |
45 | - | - | 45 | 1,128,475 | - | ||||||||||||||||||||
Life science |
398 | 78 | - | 476 | 871,626 | - | ||||||||||||||||||||
Premium wine |
1 | 174 | - | 175 | 475,406 | - | ||||||||||||||||||||
Other |
15 | - | - | 15 | 370,539 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial loans |
2,825 | 1,303 | - | 4,128 | 6,316,063 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Consumer loans: |
||||||||||||||||||||||||||
Real estate secured loans |
- | - | - | - | 515,534 | - | ||||||||||||||||||||
Other consumer loans |
590 | - | - | 590 | 157,389 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer loans |
590 | - | - | 590 | 672,923 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans excluding impaired loans |
3,415 | 1,303 | - | 4,718 | 6,988,986 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Impaired loans |
1,350 | 1,794 | 6,613 | 9,757 | 26,860 | - | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total gross loans |
$ | 4,765 | $ | 3,097 | $ | 6,613 | $ | 14,475 | $ | 7,015,846 | $ | - | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table summarizes our impaired loans as they relate to our allowance for loan losses, broken out by portfolio segment and class of financing receivable as of June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
Impaired loans for which there is a related allowance for loan losses |
Impaired loans for which there is no related allowance for loan losses |
Total carrying value of impaired loans |
Total unpaid principal of impaired loans |
||||||||||||
June 30, 2012: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,558 | $ | 418 | $ | 2,976 | $ | 4,749 | ||||||||
Hardware |
13,074 | 1,099 | 14,173 | 17,616 | ||||||||||||
Life Science |
- | - | - | - | ||||||||||||
Premium wine |
- | 3,123 | 3,123 | 3,325 | ||||||||||||
Other |
1,905 | 1,051 | 2,956 | 6,824 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
17,537 | 5,691 | 23,228 | 32,514 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
122 | 2,432 | 2,554 | 7,460 | ||||||||||||
Other consumer loans |
1,289 | - | 1,289 | 1,406 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
1,411 | 2,432 | 3,843 | 8,866 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 18,948 | $ | 8,123 | $ | 27,071 | $ | 41,380 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 1,142 | $ | - | $ | 1,142 | $ | 1,540 | ||||||||
Hardware |
4,754 | 429 | 5,183 | 8,843 | ||||||||||||
Life science |
- | 311 | 311 | 523 | ||||||||||||
Premium wine |
- | 3,212 | 3,212 | 3,341 | ||||||||||||
Other |
4,303 | 1,050 | 5,353 | 9,104 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
10,199 | 5,002 | 15,201 | 23,351 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
- | 18,283 | 18,283 | 22,410 | ||||||||||||
Other consumer loans |
3,133 | - | 3,133 | 3,197 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
3,133 | 18,283 | 21,416 | 25,607 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 13,332 | $ | 23,285 | $ | 36,617 | $ | 48,958 | ||||||||
|
|
|
|
|
|
|
|
The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable during the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Average impaired loans: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 1,896 | $ | 2,620 | $ | 1,716 | $ | 2,697 | ||||||||
Hardware |
21,468 | 6,662 | 16,865 | 5,594 | ||||||||||||
Life science |
88 | 1,170 | 117 | 1,834 | ||||||||||||
Premium wine |
3,527 | 1,396 | 3,455 | 2,540 | ||||||||||||
Other |
3,506 | 3,588 | 4,075 | 2,878 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
30,485 | 15,436 | 26,228 | 15,543 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
2,645 | 19,557 | 7,746 | 19,841 | ||||||||||||
Other consumer loans |
2,170 | - | 2,595 | - | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
4,815 | 19,557 | 10,341 | 19,841 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total average impaired loans |
$ | 35,300 | $ | 34,993 | $ | 36,569 | $ | 35,384 | ||||||||
|
|
|
|
|
|
|
|
19
The following tables summarize the activity relating to our allowance for loan losses for the three and six months ended June 30, 2012 and 2011, broken out by portfolio segment:
Three months ended June 30, 2012 (dollars in thousands) |
Beginning Balance March 31, 2012 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2012 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 35,425 | $ | (2,118) | $ | 1,329 | $ | 3,345 | $ | 37,981 | ||||||||||
Hardware |
30,348 | (10,413) | 329 | 2,368 | 22,632 | |||||||||||||||
Venture capital/private equity |
7,214 | - | - | 2,438 | 9,652 | |||||||||||||||
Life science |
10,292 | (122) | 92 | 1,398 | 11,660 | |||||||||||||||
Premium wine |
3,738 | (584) | 187 | 55 | 3,396 | |||||||||||||||
Other |
4,802 | (286) | 1,107 | (681) | 4,942 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
91,819 | (13,523) | 3,044 | 8,923 | 90,263 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
9,103 | (607) | 331 | (924) | 7,903 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 100,922 | $ | (14,130) | $ | 3,375 | $ | 7,999 | $ | 98,166 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six months ended June 30, 2012 (dollars in thousands) |
Beginning Balance December 31, 2011 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2012 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 38,263 | $ | (2,977) | $ | 4,088 | $ | (1,393) | $ | 37,981 | ||||||||||
Hardware |
16,810 | (14,261) | 434 | 19,649 | 22,632 | |||||||||||||||
Venture capital/private equity |
7,319 | - | - | 2,333 | 9,652 | |||||||||||||||
Life science |
10,243 | (235) | 313 | 1,339 | 11,660 | |||||||||||||||
Premium wine |
3,914 | (584) | 265 | (199) | 3,396 | |||||||||||||||
Other |
5,817 | (2,456) | 1,151 | 430 | 4,942 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
82,366 | (20,513) | 6,251 | 22,159 | 90,263 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
7,581 | (607) | 560 | 369 | 7,903 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 89,947 | $ | (21,120) | $ | 6,811 | $ | 22,528 | $ | 98,166 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three months ended June 30, 2011 (dollars in thousands) |
Beginning Balance March 31, 2011 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2011 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 30,479 | $ | (518) | $ | 2,639 | $ | (727) | $ | 31,873 | ||||||||||
Hardware |
15,840 | - | 32 | 170 | 16,042 | |||||||||||||||
Venture capital/private equity |
7,432 | - | - | 875 | 8,307 | |||||||||||||||
Life science |
8,097 | (471) | 505 | (906) | 7,225 | |||||||||||||||
Premium wine |
4,504 | (449) | 590 | (636) | 4,009 | |||||||||||||||
Other |
6,433 | (2,855) | 337 | 1,954 | 5,869 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
72,785 | (4,293) | 4,103 | 730 | 73,325 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
9,266 | - | 160 | (596) | 8,830 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 82,051 | $ | (4,293) | $ | 4,263 | $ | 134 | $ | 82,155 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six months ended June 30, 2011 (dollars in thousands) |
Beginning Balance December 31, 2010 |
Charge-offs | Recoveries | Provision for (Reduction of) |
Ending Balance June 30, 2011 |
|||||||||||||||
Commercial loans: |
||||||||||||||||||||
Software |
$ | 29,288 | $ | (1,622) | $ | 7,920 | $ | (3,713) | $ | 31,873 | ||||||||||
Hardware |
14,688 | (15) | 312 | 1,057 | 16,042 | |||||||||||||||
Venture capital/private equity |
8,241 | - | - | 66 | 8,307 | |||||||||||||||
Life science |
9,077 | (3,662) | 1,128 | 682 | 7,225 | |||||||||||||||
Premium wine |
5,492 | (449) | 730 | (1,764) | 4,009 | |||||||||||||||
Other |
5,318 | (2,867) | 407 | 3,011 | 5,869 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
72,104 | (8,615) | 10,497 | (661) | 73,325 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
10,523 | - | 559 | (2,252) | 8,830 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 82,627 | $ | (8,615) | $ | 11,056 | $ | (2,913) | $ | 82,155 | ||||||||||
|
|
|
|
|
|
|
|
|
|
20
The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of June 30, 2012 and December 31, 2011, broken out by portfolio segment:
June 30, 2012 | December 31, 2011 | |||||||||||||||||
(Dollars in thousands) |
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
||||||||||||||
Commercial loans: |
||||||||||||||||||
Software |
$ | 845 | $ | 37,136 | $ | 526 | $ | 37,737 | ||||||||||
Hardware |
4,225 | 18,407 | 1,261 | 15,549 | ||||||||||||||
Venture capital/private equity |
- | 9,652 | - | 7,319 | ||||||||||||||
Life science |
- | 11,660 | - | 10,243 | ||||||||||||||
Premium wine |
- | 3,396 | - | 3,914 | ||||||||||||||
Other |
47 | 4,895 | 1,180 | 4,637 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
5,117 | 85,146 | 2,967 | 79,399 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans |
548 | 7,355 | 740 | 6,841 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total allowance for loan losses |
$ | 5,665 | $ | 92,501 | $ | 3,707 | $ | 86,240 | ||||||||||
|
|
|
|
|
|
|
|
Credit Quality Indicators
For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of Pass, with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans, however, we consider them as demonstrating higher risk which requires more frequent review of the individual exposures; these translate to an internal rating of Performing (Criticized). A majority of our performing (criticized) loans are from our SVB Accelerator practice, serving our emerging or early stage clients. Loans risk-rated 8 and 9 are loans that are considered to be impaired and are on nonaccrual status. Loans are placed on nonaccrual status when they become 90 days past due as to principal or interest payments (unless the principal and interest are well secured and in the process of collection), or when we have determined, based upon most recent available information, that the timely collection of principal or interest is not probable. (For further description of nonaccrual loans, refer to Note 2Summary of Significant Accounting Policies under Part II, Item 8 of our 2011 Form 10-K); these loans are deemed impaired. Loans rated 10 are charged-off and are not included as part of our loan portfolio balance. We review our credit quality indicators for performance and appropriateness of risk ratings as part of our evaluation process for our allowance for loan losses. The following table summarizes the credit quality indicators, broken out by portfolio segment and class of financing receivables as of June 30, 2012 and December 31, 2011:
21
(Dollars in thousands) |
Pass | Performing (Criticized) |
Impaired | Total | ||||||||||||
June 30, 2012: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,573,437 | $ | 203,593 | $ | 2,976 | $ | 2,780,006 | ||||||||
Hardware |
951,026 | 132,636 | 14,173 | 1,097,835 | ||||||||||||
Venture capital/private equity |
1,417,715 | - | - | 1,417,715 | ||||||||||||
Life science |
820,392 | 106,502 | - | 926,894 | ||||||||||||
Premium wine |
481,162 | 11,945 | 3,123 | 496,230 | ||||||||||||
Other |
376,158 | 28,952 | 2,956 | 408,066 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
6,619,890 | 483,628 | 23,228 | 7,126,746 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
530,017 | 21,522 | 2,554 | 554,093 | ||||||||||||
Other consumer loans |
163,390 | 11,950 | 1,289 | 176,629 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
693,407 | 33,472 | 3,843 | 730,722 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross loans |
$ | 7,313,297 | $ | 517,100 | $ | 27,071 | $ | 7,857,468 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011: |
||||||||||||||||
Commercial loans: |
||||||||||||||||
Software |
$ | 2,290,497 | $ | 226,251 | $ | 1,142 | $ | 2,517,890 | ||||||||
Hardware |
839,230 | 117,456 | 5,183 | 961,869 | ||||||||||||
Venture capital/private equity |
1,120,373 | 8,147 | - | 1,128,520 | ||||||||||||
Life science |
748,129 | 123,973 | 311 | 872,413 | ||||||||||||
Premium wine |
434,309 | 41,272 | 3,212 | 478,793 | ||||||||||||
Other |
353,434 | 17,120 | 5,353 | 375,907 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans |
5,785,972 | 534,219 | 15,201 | 6,335,392 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans: |
||||||||||||||||
Real estate secured loans |
497,060 | 18,474 | 18,283 | 533,817 | ||||||||||||
Other consumer loans |
151,101 | 6,878 | 3,133 | 161,112 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans |
648,161 | 25,352 | 21,416 | 694,929 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross loans |
$ | 6,434,133 | $ | 559,571 | $ | 36,617 | $ | 7,030,321 | ||||||||
|
|
|
|
|
|
|
|
TDRs
As of June 30, 2012 we had TDRs of $25.5 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were unfunded commitments available for funding of $1.1 million to the clients associated with these TDRs as of June 30, 2012. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at June 30, 2012 and December 31, 2011:
(Dollars in thousands) |
June 30, 2012 | December 31, 2011 | ||||||
Loans modified in TDRs: |
||||||||
Commercial loans: |
||||||||
Software |
$ | 769 | $ | 1,142 | ||||
Hardware |
15,272 | 5,183 | ||||||
Premium wine |
2,135 | 1,949 | ||||||
Other |
3,491 | 4,934 | ||||||
|
|
|
|
|||||
Total commercial loans |
21,667 | 13,208 | ||||||
|
|
|
|
|||||
Consumer loans: |
||||||||
Real estate secured loans |
2,522 | 17,934 | ||||||
Other consumer loans |
1,289 | 3,133 | ||||||
|
|
|
|
|||||
Total consumer loans |
3,811 | 21,067 | ||||||
|
|
|
|
|||||
Total |
$ | 25,478 | $ | 34,275 | ||||
|
|
|
|
22
The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during the three and six months ended June 30, 2012 and 2011:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||||
Loans modified in TDRs during the period: |
||||||||||||||||||
Commercial loans: |
||||||||||||||||||
Software |
$ | - | $ | 605 | $ | 100 | $ | 605 | ||||||||||
Hardware |
12,747 | 3,321 | 13,198 | 3,321 | ||||||||||||||
Premium wine |
- | - | 275 | - | ||||||||||||||
Other |
535 | - | 2,440 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
13,282 | 3,926 | 16,013 | 3,926 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans: |
||||||||||||||||||
Real estate secured loans |
289 | - | 411 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total consumer loans |
289 | - | 411 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total loans modified in TDRs during the period (1) |
$ | 13,571 | $ | 3,926 | $ | 16,424 | $ | 3,926 | ||||||||||
|
|
|
|
|
|
|
|
(1) | During the three and six months ended June 30, 2012, we had partial charge-offs of $10.0 million and $10.9 million, respectively, on loans classified as TDRs. There were no partial charge-offs on loans classified as TDRs during the three and six months ended June 30, 2011. |
During the three months ended June 30, 2012 new TDRs totaling $10.0 million and $3.6 million were modified through forgiveness of principal and payment deferrals granted to our clients, respectively. During the six months ended June 30, 2012 new TDRs totaling $10.1 million and $6.3 million were modified through forgiveness of principal and payment deferrals granted to our clients, respectively. During the three and six months ended June 30, 2011 all new TDRs were modified through payment deferrals granted to our clients and no principal or interest was forgiven.
The related allowance for loan losses for the majority of our TDRs is determined on an individual basis by comparing the carrying value of the loan to the present value of the estimated future cash flows, discounted at the pre-modification contractual interest rate. For certain TDRs, the related allowance for loan losses is determined based on the fair value of the collateral if the loan is collateral dependent.
The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during the three and six months ended June 30, 2012 and 2011, broken out by portfolio segment and class of financing receivable:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
(Dollars in thousands) |
2012 | 2011 | 2012 | 2011 | ||||||||||||||
TDRs modified within the previous 12 months that defaulted during the period: |
||||||||||||||||||
Commercial loans: |
||||||||||||||||||
Software |
$ | - | $ | - | $ | 100 | $ | - | ||||||||||
Hardware |
452 | 3,321 | 452 | 3,321 | ||||||||||||||
Premium wine |
1,859 | - | 1,859 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans |
2,311 | 3,321 | 2,411 | 3,321 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans: |
||||||||||||||||||
Other consumer loans |
1,289 | - | 1,289 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total consumer loans |
1,289 | - | 1,289 | - | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total TDRs modified within the previous 12 months that defaulted in the period |
$ | 3,600 | $ | 3,321 | $ | 3,700 | $ | 3,321 | ||||||||||
|
|
|
|
|
|
|
|
Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as managements overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology was necessary to determine the allowance for loan losses as of June 30, 2012.
23
7. Short-Term Borrowings and Long-Term Debt
The following table represents outstanding short-term borrowings and long-term debt at June 30, 2012 and December 31, 2011:
Carrying Value | ||||||||||||||||||
(Dollars in thousands) |
Maturity |
Principal value at June 30, 2012 |
June 30,
2012 |
December 31, 2011 |
||||||||||||||
Short-term borrowings: |
||||||||||||||||||
Other short-term borrowings |
(1) | $ | 5,880 | $ | 5,880 | $ | - | |||||||||||
|
|
|
|
|||||||||||||||
Total short-term borrowings |
$ | 5,880 | $ | - | ||||||||||||||
|
|
|
|
|||||||||||||||
Long-term debt: |
||||||||||||||||||
5.375% Senior Notes |
September 15, 2020 | $ | 350,000 | $ | 347,893 | $ | 347,793 | |||||||||||
5.70% Senior Notes (2) |
June 1, 2012 | - | - | 143,969 | ||||||||||||||
6.05% Subordinated Notes (3) |
June 1, 2017 | 45,964 | 55,054 | 55,075 | ||||||||||||||
7.0% Junior Subordinated Debentures |
October 15, 2033 | 50,000 | 55,285 | 55,372 | ||||||||||||||
Other long-term debt |
(4) | - | - | 1,439 |   |