SVB FINANCIAL GROUP
192
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number: 000-15637 SVB FINANCIAL GROUP (Exact name of registrant as specified in its charter) Delaware 91-1962278 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3003 Tasman Drive, Santa Clara, California 95054-1191 (Address of principal executive offices) (Zip Code) (408) 654-7400 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registered Common stock, par value $0.001 per share SIVB The Nasdaq Stock Market LLC Depositary shares, each representing a 1/40th ownership interest in a share of 5.250% Fixed- Rate Non-Cumulative Perpetual Preferred Stock, Series A SIVBP The Nasdaq Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x 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 every Interactive Data File required to be submitted 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 such files). Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer ☐ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x The aggregate market value of the voting and non-voting common equity securities held by non-affiliates of the registrant as of June 30, 2020, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing price of its common stock on such date, on the NASDAQ Global Select Market was $10,704,636,319. At January 31, 2021, 51,949,900 shares of the registrant’s common stock ($0.001 par value) were outstanding. Documents Incorporated by Reference Parts of Form 10-K Into Which Incorporated Definitive proxy statement for the Company's 2021 Annual Meeting of Stockholders to be filed within 120 days of the end of the fiscal year ended December 31, 2020 Part III Table of Contents
Transcript of SVB FINANCIAL GROUP
UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549
FORM10-K
☒ ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
ForthefiscalyearendedDecember31,2020OR
☐ TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
Forthetransitionperiodfromto.CommissionFileNumber:000-15637
SVBFINANCIALGROUP(Exactnameofregistrantasspecifiedinitscharter)
Delaware 91-1962278
(Stateorotherjurisdictionofincorporationororganization) (I.R.S.EmployerIdentificationNo.)
3003TasmanDrive,SantaClara,California95054-1191(Addressofprincipalexecutiveoffices)(ZipCode)
(408)654-7400(Registrant’stelephonenumber,includingareacode)
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Titleofeachclass TradingSymbol Nameofeachexchangeonwhichregistered
Commonstock,parvalue$0.001pershare SIVB TheNasdaqStockMarketLLC
Depositaryshares,eachrepresentinga1/40thownershipinterestinashareof5.250%Fixed-RateNon-CumulativePerpetualPreferred
Stock,SeriesA
SIVBP TheNasdaqStockMarketLLC
SecuritiesregisteredpursuanttoSection12(g)oftheAct:None
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesxNo¨
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.Yes̈ Nox
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesxNo¨
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).YesxNo¨
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,smallerreportingcompanyoran emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerginggrowthcompany”inRule12b-2oftheExchangeAct.
Largeacceleratedfiler x Acceleratedfiler ☐Non-acceleratedfiler ¨ Smallerreportingcompany ☐
Emerginggrowthcompany ☐
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.☐Indicateby checkmarkwhether the registranthas fileda reportonandattestation to itsmanagement'sassessmentof theeffectivenessof itsinternalcontroloverfinancialreportingunderSection404(b)oftheSarbanes-OxleyAct(15U.S.C.7262(b))bytheregisteredpublicaccountingfirmthatpreparedorissueditsauditreport.Yes☒No¨Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes☐Nox
Theaggregatemarketvalueofthevotingandnon-votingcommonequitysecuritiesheldbynon-affiliatesoftheregistrantasofJune30,2020,thelastbusinessdayoftheregistrant'smostrecentlycompletedsecondfiscalquarter,basedupontheclosingpriceofitscommonstockonsuchdate,ontheNASDAQGlobalSelectMarketwas$10,704,636,319.
AtJanuary31,2021,51,949,900sharesoftheregistrant’scommonstock($0.001parvalue)wereoutstanding.
DocumentsIncorporatedbyReference PartsofForm10-KIntoWhichIncorporated
DefinitiveproxystatementfortheCompany's2021AnnualMeetingofStockholderstobefiledwithin120daysoftheendofthefiscalyearendedDecember31,2020
PartIII
TableofContents
TABLEOFCONTENTS
Page
PARTI. Item1. Business 6
Item1A. RiskFactors 17
Item1B. UnresolvedStaffComments 36
Item2. Properties 36
Item3. LegalProceedings 36
Item4. MineSafetyDisclosures 36
PARTII. Item5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 37
Item6. SelectedConsolidatedFinancialData 39
Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 40
Item7A. QuantitativeandQualitativeDisclosuresaboutMarketRisk 95
Item8. ConsolidatedFinancialStatementsandSupplementaryData 98
ConsolidatedBalanceSheets 101
ConsolidatedStatementsofIncome 102
ConsolidatedStatementsofComprehensiveIncome 103
ConsolidatedStatementsofStockholders’Equity 104
ConsolidatedStatementsofCashFlows 105
NotestotheConsolidatedFinancialStatements 106
Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 186
Item9A. ControlsandProcedures 186
Item9B. OtherInformation 186
PARTIII. Item10. Directors,ExecutiveOfficersandCorporateGovernance 187
Item11. ExecutiveCompensation 187
Item12. SecurityOwnershipofCertainBeneficialOwnersandManagement,andRelatedStockholderMatters 187
Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 187
Item14. PrincipalAccountingFeesandServices 187
PARTIV. Item15. Exhibits,FinancialStatementSchedules 188
Item16. Form10-KSummary 189
SIGNATURES 191
TableofContents
2
GlossaryofFrequently-usedAcronymsinthisReport
ACL—AllowanceforCreditLosses
AFS—Available-for-Sale
AICPA—AmericanInstituteofCertifiedPublicAccountants
ASC—AccountingStandardsCodification
ASU—AccountingStandardsUpdate
CECL—CurrentExpectedCreditLosses
CET1—CommonEquityTier1
DFPI—CaliforniaDepartmentofFinancialProtectionandInnovation
EHOP—EmployeeHomeOwnershipProgramoftheCompany
EPS—EarningsPerShare
ERI—EnergyandResourceInnovation
ESOP—EmployeeStockOwnershipPlanoftheCompany
ESPP—1999EmployeeStockPurchasePlanoftheCompany
FASB—FinancialAccountingStandardsBoard
FDIC—FederalDepositInsuranceCorporation
FHLB—FederalHomeLoanBank
FINRA—FinancialIndustryRegulatoryAuthority
FRB—FederalReserveBank
FTE—Full-TimeEmployee
FTP—FundsTransferPricing
GAAP—AccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica
HTM—Held-to-Maturity
IFRS—InternationalFinancialReportingStandards
IPO—InitialPublicOffering
IRS—InternalRevenueService
IT—InformationTechnology
LIBOR—LondonInterbankOfferedRate
M&A—MergersandAcquisitions
OTTI—OtherThanTemporaryImpairment
PPP—PaycheckProtectionProgram
SEC—SecuritiesandExchangeCommission
SPD-SVB—SPDSiliconValleyBankCo.Ltd.(theBank'sjointventurebankinChina)
TDR—TroubledDebtRestructuring
U.K.—UnitedKingdom
VIE—VariableInterestEntity
TableofContents
3
Forward-LookingStatements
ThisAnnualReportonForm10-K,includinginparticular“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”underPartII,Item7ofthisreport,containsforward-lookingstatementswithinthemeaningofthesafeharborprovisionsofthePrivateSecuritiesLitigationReformActof1995. Inaddition,managementhas inthepastandmayinthefuturemakeforward-lookingstatementstoanalysts,investors,representativesofthemediaandothers.Forward-lookingstatementsarestatementsthatarenothistoricalfactsandrepresentonlyourbeliefsregardingfutureevents.Broadlyspeaking,forward-lookingstatementsinclude,butarenotlimitedto,thefollowing:
• Financialprojections,includingwithrespecttoournetinterestincome,noninterestincome,earningspershare,noninterestexpenses (includingprofessional services, compliance, compensationandothercosts), cash flows,balance sheet positions, capital expenditures, deposit growth, liquidity and capitalization or other financialitems;
• Descriptions of our strategic initiatives, plans or objectives for future operations, including pending sales oracquisitions, including the announced planned acquisition of Boston Private Financial Holdings, Inc. ("BostonPrivate");
• Forecastsofprivateequityandventurecapitalfundingandinvestmentlevels;• Forecastsoffutureinterestrates,economicperformance,andincomefrominvestments;• Forecastsofexpectedlevelsofprovisionsforloanlosses,loangrowth,loanmix,loanyieldsandclientfunds;• Theoutlookonourclients'performance;• ThepotentialeffectsoftheCOVID-19pandemic;and• Descriptionsofassumptionsunderlyingorrelatingtoanyoftheforegoing.
You can identify this and other forward-looking statements by the use ofwords such as “becoming,” “may,” “will,”“should,”“could,”“would,”“predict,”“potential,”“continue,”“anticipate,”“believe,”“estimate,”“assume,”“seek,”“expect,”“plan,” “intend,” and the negative of such words or comparable terminology. Forward-looking statements are neitherhistoricalfactsnorassurancesoffutureperformance.
Althoughwebelievethattheexpectationsreflectedinourforward-lookingstatementsarereasonable,wehavebasedtheseexpectationsonour currentbeliefsaswell asourassumptions, and suchexpectationsmaynotprove tobecorrect.Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes incircumstances thataredifficult topredictandmanyofwhichareoutsideourcontrol.Ouractual resultsofoperationsandfinancial performance could differ significantly from those expressed in or implied by ourmanagement’s forward-lookingstatements. Important factors that could cause our actual results and financial condition to differ from the expectationsstatedintheforward-lookingstatementsinclude,amongothers:
• Market andeconomic conditions (including the general conditionof the capital andequitymarkets, and IPO,
M&Aandfinancingactivitylevels)andtheassociatedimpactonus(includingeffectsonclientdemandforourcommercial and investment banking and other financial services, as well as on the valuations of ourinvestments);
• TheCOVID-19pandemicanditseffectsontheeconomicandbusinessenvironmentsinwhichweoperate;• The impact of changes in the U.S. presidential administration and the U.S. Congress on the economic
environment,capitalmarketsandregulatorylandscape,includingmonetary,taxandothertradepolicies;• Changesinthevolumeandcreditqualityofourloansaswellasvolatilityofourlevelsofnonperformingassets
andcharge-offs;• Theimpactofchangesin interestratesormarket levelsorfactorsaffectingoraffectedbythem,especiallyon
ourloanandinvestmentportfolios;• Theadequacyofourallowanceforcreditlossesandtheneedtomakeprovisionsforcreditlossesforanyperiod;• Thesufficiencyofourcapitalandliquidityprovisions;• Changesinthelevelsofourloans,depositsandclientinvestmentfundbalances;• Changes in the performance or equity valuations of funds or companies in which we have invested or hold
derivativeinstrumentsorequitywarrantassets;• Variationsfromourexpectationsastofactorsimpactingourcoststructure• Changes inourassessmentof thecreditworthinessor liquidityofourclientsorunanticipatedeffectsofcredit
concentrationriskswhichcreateorexacerbatedeteriorationofsuchcreditworthinessorliquidity;• Variations from our expectations as to factors impacting the timing and level of employee share-based
transactions;• Theoccurrenceof fraudulentactivity, includingbreachesofour information securityor cyber security-related
incidents;
TableofContents
4
• Businessdisruptionsandinterruptionsduetonaturaldisastersandotherexternalevents;• Theimpactonourreputationandbusinessfromourinteractionswithbusinesspartners,counterparties,service
providersandotherthirdparties;• Theexpansionofourbusinessinternationally,andtheimpactofinternationalmarketandeconomiceventson
us;• Theeffectivenessofourriskmanagementframeworkandquantitativemodels;• Theimpactofgovernmentalpolicy,legalrequirementsandregulationsincludingregulationspromulgatedbythe
BoardofGovernorsoftheFederalReserveSystem(the"FederalReserve"),andotherregulatoryrequirements;• Ourabilitytomaintainorincreaseourmarketshare,includingthroughsuccessfullyimplementingourbusiness
strategyandundertakingnewbusinessinitiatives,includingthroughtheintegrationofBostonPrivate;• An inability to complete the acquisition of Boston Private, or changes in the current anticipated timeframe,
termsormannerofsuchacquisition;• Theoccurrenceofanyeventchangeorothercircumstancethatcouldgiverisetotherightofoneorbothparties
toterminatethemergeragreementbetweenusandBostonPrivate;• Greater thanexpectedcostsorotherdifficulties relatedto the integrationofourbusinessandthatofBoston
Private;• Variationsfromourexpectationsastotheamountandtimingofbusinessopportunities,growthprospectsand
costsavingsassociatedwithcompletingtheacquisitionofBostonPrivate;• TheinabilitytoretainexistingBostonPrivateclientsandemployeesfollowingtheclosingoftheBostonPrivate
acquisition;• Unfavorableresolutionoflegalproceedingsorclaims,aswellaslegalorregulatoryproceedingsorgovernmental
actions;• Variationsfromourexpectationsastofactorsimpactingourestimateofourfull-yeareffectivetaxrate;• Changesinapplicableaccountingstandardsandtaxlaws;• Regulatoryorlegalchangesortheirimpactonus;and• Otherfactorsasdiscussedin“RiskFactors”underPartI,Item1Aofthisreport.
TheoperatingandeconomicenvironmenthascontinuedtobeimpactedbytheCOVID-19pandemic,whichhascreatedmajoreconomicandfinancialdisruptionsthathaveadverselyaffected,andmaycontinuetoadverselyaffect,certainofourbusiness,operations,financialperformanceandprospects.EvenaftertheCOVID-19pandemicsubsides,itispossiblethattheU.S.andothermajoreconomieswillexperienceorcontinuetoexperienceaprolongedrecession,whichcouldmateriallyandadverselyaffectourbusiness,operations,financialperformanceandprospects.StatementsabouttheeffectsoftheCOVID-19pandemiconourbusiness,operations,financialperformanceandprospectsmayconstituteforward-lookingstatementsandaresubjecttotheriskthattheactualimpactsmaydiffer,possiblymaterially,fromwhatisreflectedinthoseforward-lookingstatementsduetofactorsandfuturedevelopmentsthatareuncertain,unpredictableandinmanycasesbeyondourcontrol,includingthescopeanddurationofthepandemic,actionstakenbygovernmentalauthorities inresponsetothepandemic,andthedirectandindirectimpactofthepandemiconourcustomers,thirdpartiesandus.
Accordingly, you are cautioned not to place undue reliance on forward-looking statements. We urge investors toconsiderallofthesefactors,amongothers,carefully inevaluatingtheforward-lookingstatementscontainedinthisAnnualReportonForm10-K.Allsubsequentwrittenororalforward-lookingstatementsattributabletousorpersonsactingonourbehalfareexpresslyqualified in theirentiretyby thesecautionarystatements.The forward-lookingstatements included inthis filing aremadeonly asof thedateof this filing.Weassumenoobligationanddonot intend to reviseorupdateanyforward-lookingstatementscontainedinthisAnnualReportonForm10-K,exceptasrequiredbylaw.
TableofContents
5
PARTI.
ITEM1. BUSINESS
General
SVBFinancialGroup("SVBFinancial")isadiversifiedfinancialservicescompany,aswellasabankholdingcompanyanda financialholdingcompany. SVBFinancialwas incorporated in the stateofDelaware inMarch1999.Throughourvarioussubsidiariesanddivisions,weofferadiversesetofbankingandfinancialproductsandservicestoclientsacrosstheUnitedStates,aswellasinkeyinternationalinnovationmarkets.Formorethan35years,wehavebeendedicatedtohelpingsupportentrepreneurs and clients of all sizes and stages throughout their life cycles, primarily in the technology, life science/healthcare,privateequity/venturecapitalandpremiumwineindustries.
Weoffer commercial andprivatebankingproducts and services throughourprincipal subsidiary, SiliconValleyBank(the“Bank”),whichisaCaliforniastate-charteredbankfoundedin1983andamemberoftheFederalReserveSystem.TheBank and its subsidiaries also offer asset management, private wealth management and other investment services. Inaddition, through SVB Financial's other subsidiaries and divisions, we offer investment banking services and non-bankingproductsandservices,suchas fundsmanagementandM&Aadvisoryservices.Wefocusoncultivatingstrongrelationshipswithfirmswithintheprivateequityandventurecapitalcommunityworldwide,manyofwhicharealsoourclientsandmayinvestinourcorporateclients.
AsofDecember31,2020,onaconsolidatedbasis,wehadtotalassetsof$115.5billion,totalinvestmentsecuritiesof$49.3billion,totalloans,amortizedcost,of$45.2billion,totaldepositsof$102.0billionandtotalSVBFinancialstockholders'equityof$8.2billion.
HeadquarteredinSantaClara,CA,weoperateinkeyinnovationmarketsintheUnitedStatesandaroundtheworld.Ourcorporateofficeislocatedat3003TasmanDrive,SantaClara,California95054,andourtelephonenumberis(408)654-7400.
Whenwereferto“SVBFinancialGroup,”"SVBFG,"the“Company,”“we,”“our,”“us”orusesimilarwords,wemeanSVB Financial Group and all of its subsidiaries collectively, including the Bank. When we refer to “SVB Financial” or the“Parent”wearereferringonlytoourparentcompanyentity,SVBFinancialGroup(notincludingsubsidiaries).
BusinessOverview
Forreportingpurposes,SVBFinancialGrouphasfouroperatingsegmentsforwhichwereportfinancialinformationinthisreport:GlobalCommercialBank,SVBPrivateBank,SVBCapitalandSVBLeerink.
GlobalCommercialBank
OurGlobal Commercial Bank segment is comprisedof results primarily fromour Commercial Bank, ourGlobal FundBanking(formerlyPrivateEquity)Division,SVBWineandourDebtFundInvestments,eachasfurtherdescribedbelow.
Commercial Bank. Our Commercial Bank products and services are provided by the Bank and its subsidiaries tocommercial clients primarily in the technology and life science/healthcare industries. The Bank provides solutions to thefinancial needs of commercial clients through credit, treasury management, foreign exchange, trade finance and otherfinancial products and services. We broadly serve clients within the U.S., as well as non-U.S. clients in key internationalinnovationmarkets.
TheBankoffers commercial clientsa full rangeof credit solutions including traditional term loans,equipment loans,asset-based loans, revolving linesofcredit,warehouse facilities, recurring revenue facilities,mezzanine lending,acquisitionfinancefacilities,corporateworkingcapitalfacilities,andcreditcardprograms.Theseloansmaybesecuredbyclients'assetsorfuturecashflowsormaybeunsecured.
The Bank's treasury management products and services include a wide range of deposits and receivable services,paymentsandcashmanagementsolutionsaccessible throughourexpandingonlineandmobilebankingplatforms.Depositproductsincludebusinessandanalysischeckingaccounts,moneymarketaccounts,multi-currencyaccounts,in-countrybankaccounts and sweep accounts. In connectionwith deposit services, the Bank provides receivables services, which includemerchant services, remote capture, lockbox, and fraud control services. Payment and cash management products andservices include wire transfer and automated clearing house payment services to enable clients to transfer funds morequickly,aswellasbusinessbillpay,businesscreditanddebitcards,accountanalysisanddisbursementservices.
The Bank's foreign exchange and trade finance products and services help to facilitate clients' global finance andbusinessneeds.Theseproductsandservicesincludeforeignexchangeservicesthathelpcommercialclientstomanagetheirforeign currencyneeds and risks through thepurchase and saleof currencies in the spotmarket aswell aswith currency
TableofContents
6
swaps andhedges. TheBank alsooffers letters of credit, including export, import and standby letters of credit, to enableclientstoshipandreceivegoodsglobally.
TheBankanditssubsidiariesalsoofferavarietyofinvestmentservicesandsolutionstoitsclientsthatenablethemtomore effectively manage their assets. For example, through its registered investment advisory subsidiary, SVB AssetManagement,theBankoffersdiscretionaryinvestmentadvisoryservicesbasedonitsclients' investmentpolicies,strategiesandobjectives.TheBankalsooffersinvestmentsolutionsthroughourrepurchaseagreementprogram.
GlobalFundBanking(formerlyPrivateEquity)Division.OurGlobalFundBankingDivisionprovidesbankingproductsandservicesprimarilytoourglobalprivateequityandventurecapitalclients.
SVBWine.SVBWineprovidesbankingproductsandservicestoourpremiumwineindustryclients,includingvineyarddevelopmentloans.
Debt Fund Investments. Debt Fund Investments is comprised of our investments in debt funds in which we are astrategicinvestor:(i)fundsmanagedbyGoldHillCapital,whichprovidesecureddebttoprivatecompaniesofallstages,and(ii)fundsmanagedbyPartnersforGrowthLLC,whichprovidesecureddebtprimarilytomid-stageandlate-stagecompanies.
SVBPrivateBank
SVBPrivateBank is theprivatebankingandwealthmanagementdivisionof theBankandprovidesabroadarrayofpersonal financial solutions for its clients,whichareprimarilyexecutive leadersandsenior investmentprofessionals in theinnovation economy. SVB Private Bank,which includes SVBWealth Advisory, a registered investment advisor and broker-dealer subsidiary of the Bank, offers a customized approach to privatewealthmanagement and private banking services,includingmortgages,homeequitylinesofcredit,restrictedstockpurchaseloans,capitalcalllinesofcreditandothersecuredandunsecuredlendingproducts.Wealsohelpourprivatebankingclientsmeettheircashmanagementneedsbyprovidingdeposit accountproductsand services, including checking,moneymarket, certificatesofdeposit accounts,onlinebanking,credit cards and other personalized banking services. SVB Private Bank also includes SVBWealth Advisory, an investmentadvisorysubsidiaryoftheBank,whichprovidesprivatewealthmanagementservicestoindividualclients.
On January 4, 2021, SVBFG, entered into anAgreement andPlanofMerger (the “MergerAgreement”)withBostonPrivateFinancialHoldings,Inc.,aMassachusettscorporation(“BostonPrivate”).TheMergerAgreementprovidesthat,uponthe terms and subject to the conditions set forth therein, Boston Private will merge with and into SVBFG, with SVBFGcontinuing as the surviving entity in the transaction. Following the transaction, Boston Private’swholly owned subsidiary,Boston Private Bank & Trust Company, will merge with and into the Bank (the “BankMerger”), with Silicon Valley Bankcontinuingas thesurvivingentity in theBankMerger.BostonPrivateprovidesa full spectrumofwealth, trust,andprivatebanking services dedicated to helping clients simplify and strengthen their financial positions. The transaction has beenunanimously approved by both companies' Boards of Directors and is expected to close in mid-2021, subject to thesatisfaction of customary closing conditions, including receipt of customary regulatory approvals and approval by theshareholdersofBostonPrivate.As the transactionwasnotsigned,anddidnotclose,asofDecember31,2020, results forBostonPrivatearenotincludedinthisreport.
SVBCapital
SVB Capital is the venture capital investment arm of SVB Financial Group, which focuses primarily on fundsmanagement.SVBCapitalmanagesover$6.8billionoffundsonbehalfofthirdpartylimitedpartnerinvestorsand,onamorelimited basis, SVB Financial Group. The SVB Capital family of funds is comprised of direct venture funds that invest incompaniesandfundsoffundsthatinvestinotherventurecapitalfunds,andmorerecently(asaresultofanacquisitionfromWestRiverGroup inDecember2020),debt funds thatprovide lendingandother financingsolutions.SVBCapitalgeneratesincomefortheCompanyprimarilythroughinvestmentreturns(includingcarriedinterest)andmanagementfees.SeeNote2—“SummaryofSignificantAccountingPolicies”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreportforadditionaldetails.
SVBLeerink
SVB Leerink is an investment bank specializing in equity and convertible capitalmarkets,M&A, equity research andsalesandtradingforgrowth-andinnovation-mindedhealthcareandlifesciencecompaniesandoperatesasawholly-ownedsubsidiaryof SVBFinancial. SVB Leerinkprovides investmentbanking services across all subsectorsof healthcare includingbiotechnology,pharmaceuticals,medicaldevices,diagnosticandlifesciencetools,healthcareservicesanddigitalhealth.SVBLeerinkfocusesontwoprimarylinesofbusiness:(i)investmentbankingfocusedonprovidingcompanieswithcapital-raising
TableofContents
7
services,financialadviceonmergersandacquisitions,salesandtradingservicesandequityresearch,and(ii)sponsorshipofprivateinvestmentfunds.
Formoreinformationaboutourfouroperatingsegments,includingfinancialinformationandresultsofoperations,see“Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations-OperatingSegmentResults”underPart II, Item7of this report, andNote24—“SegmentReporting”of the “Notes to theConsolidated Financial Statements”underPartII,Item8ofthisreport.
RevenueSources
Ourtotalrevenueiscomprisedofnetinterestincomeandnoninterestincome.Netinterestincomeonafullytaxableequivalent basis and noninterest income for the year ended December 31, 2020 were $2.17 billion and $1.84 billion,respectively.
Netinterestincomeaccountsforthemajorportionofourearnings.Itiscomprisedprimarilyofincomegeneratedfrominterest rate spreaddifferencesbetween the interest rates receivedon interest-earning assets, such as loans extended toclients and securities held in our fixed income securities portfolio, and the interest rates paid by us on interest-bearingliabilities,suchasdepositsandborrowings.Ourdepositsarelargelyobtainedfromcommercialclientswithinourtechnology,lifescience/healthcareandprivateequity/venturecapital industrysectors.Wealsoobtaindepositsfromthepremiumwineindustry commercial clients and fromour SVBPrivateBank clients.Other thanour PrivateBank clients,wedonot obtaindepositsfromretailorconsumerbankingsources.
Noninterest income is primarily income generated from our fee-based services and gains on our investments andderivativesecurities.Weofferawiderangeoffee-basedfinancialservicestoourclients,includingglobalcommercialbanking,privatebankingandotherbusinessservices.Wegenerallyrefertorevenuesgeneratedbysuchfee-basedservicesasour"corefeeincome,"(anon-GAAPmeasure)whichiscomprisedofourclientinvestmentfees,foreignexchangefees,creditcardfees,depositservicecharges,lendingrelatedfeesandlettersofcreditandstandbylettersofcreditfees.Inaddition,throughSVBLeerink,weoffer investmentbankingandM&Aadvisoryservices.Wegenerallyrefertoourcorefee incomeplusrevenuesgenerated by these investment banking andM&A advisory services as “core fee income plus SVB Leerink revenue.”Webelieveourabilitytointegrateandcross-sellourdiversefinancialservicestoourclientsisastrengthofourbusinessmodel.Additionally,weholdavailable-for-sale,held-to-maturity,non-marketableandmarketable investment securities.Subject toapplicable regulatory requirements, we manage and invest in private equity/venture capital funds that invest directly inprivately-held companies, as well as funds that invest in other private equity/venture capital funds. Gains on theseinvestmentsarereportedinourconsolidatedstatementsofincomeandincludenoncontrollinginterests.Wealsorecognizegainsfromwarrantstoacquirestockinclientcompanies,whichweobtaininconnectionwithnegotiatingcreditfacilitiesandcertain other services. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-NoninterestIncome-GainsonInvestmentSecurities,Net”and"GainsonEquityWarrantAssets,Net"underPartII,Item7ofthisreport.
WederivesubstantiallyallofourrevenuefromU.S.clients.Wederivedlessthan10percentofourtotalrevenuesfromforeignclientsforeachof2020,2019and2018.
ClientIndustries
Weprovideproductsandservicestoservetheneedsofourclientsineachoftheindustriesdescribedbelow.Weserveourcommercialcompanyclientsthroughouttheirlifecycles,beginningwiththe"emerging"or"early-stage"andprogressingthroughlaterstagesastheirneedsmatureandexpand,primarilyinthetechnologyandlifescience/healthcareindustries.Wealso serveother targetedclient industries ---privateequityandventure capital firms,premiumwineandprivatebanking/wealthmanagement.
TechnologyandLifeScience/Healthcare
Weserveavarietyofclientsinthetechnologyandlifescience/healthcareindustries.Ourtechnologyclientstendtobein the industries of frontier tech and hardware (such as semiconductors, communications, data, storage and electronics);enterpriseandconsumersoftware/internet (suchas infrastructuresoftware,applications,softwareservices,digitalcontentandadvertisingtechnology),fintechandenergyandresourceinnovation("ERI").Ourlifescience/healthcareclientsprimarilytendtobeintheindustriesofbiotechnology,medicaldevices,healthcareinformationtechnologyandhealthcareservices.Akeycomponentofourtechnologyandlifescience/healthcarebusinessstrategyistodeveloprelationshipswithclientsatanearlystageandofferthembankingservicesthatwillcontinuetomeettheirneedsastheymatureandexpand.Weservetheseclientsprimarilythroughthreepractices:
• OurSVBAcceleratorpracticefocusesonservingour“emerging”or“early-stage”clients.Theseclientsaregenerallyprivately-heldcompaniesinthestart-uporearlystagesoftheirlifecyclesandfundedbyfriendsandfamily,“seed”
TableofContents
8
or“angel” investorsorhavegonethroughan initial roundofventurecapital financing.Theyaretypicallyengagedprimarilyinresearchanddevelopmentactivitiesandmayhavebroughtonlyafewproductsorservicestomarket,ifany.SVBAcceleratorclientstendtohaveannualrevenuesbelow$5million,andmanyarepre-revenuecompanies.
• OurSVBGrowthpracticeservesour“mid-stage”and“later-stage”clients.Theseclientsaregenerallyprivately-heldcompanies in the intermediateor later stagesof their life cycles, andareoftendependenton venture capital forfunding.However,someoftheseclientsareinthemoreadvancedstagesoftheirlifecyclesandmaybepublicly-heldor poised to become publicly-held.Our SVBGrowth clients generally have amore established product or serviceoffering in the market and may be in a period of expansion. SVB Growth clients tend to have annual revenuesbetween$5millionand$75million.
• Our SVB Corporate Finance practice primarily serves our large corporate clients, which are more mature andestablishedcompanies.Theseclientsaregenerallypublicly-heldorlargeprivately-heldcompaniesandhaveamoresophisticatedproductorserviceofferinginthemarket.SVBCorporateFinanceclientstendtohaveannualrevenuesover$75million.
In addition, our Sponsored Finance group provides debt financing in support of private equity sponsored companyacquisitions,primarilytechnologyandlifescience/healthcarecompanies.
GlobalFundBanking(formerlyPrivateEquity/VentureCapital)
Weserveclientsintheprivateequity/venturecapitalcommunity,manyofwhomareinvestorsintheportfoliocompanyclientstowhomweprovidebankingservices. Inparticular,weprovidecreditfacilitiestoourprivateequity/venturecapitalclients, including capital call lines of credit, the repayment of which is dependent on the payment of capital calls ormanagementfeesbytheunderlyinglimitedpartnerinvestorsinthefundsmanagedbythefirms.
Sinceourfounding,wehavecultivatedstrongrelationshipswithintheventurecapitalcommunity,whichhasovertimeexpanded to relationships within the private equity community. We believe our network helps to facilitate deal flowopportunitiesbetweentheseprivateequity/venturecapitalfirmsandthecompanieswithinthemarketsweserve.
PremiumWine
WeareoneoftheleadingprovidersoffinancialservicestopremiumwineproducersacrossthewesternUnitedStates,primarilyinCalifornia’sNapaValley,SonomaCountyandCentralCoastregions,aswellasthePacificNorthwest.Wefocusonvineyardsandwineriesthatproducegrapesandpremiumwines.
PrivateBank/WealthManagement
We provide private banking and wealthmanagement services to consumer clients, including private equity/venturecapital professionals and executive leaders of the innovation companies they support. We offer private banking, cashmanagementandwealthmanagementservicestomeettheirpersonalbankingandfinancialneeds.
Competition
The banking and financial services industry is highly competitive and continues to evolve as a result of changes inregulation, technology, product delivery systems and the general market and economic climate. Our competitors includeotherbanks,debtfunds,specialtyanddiversifiedfinancialservices intermediariesandother“Fintech”disruptorsthatofferlending,leasing,payments,investment,foreigncurrencyexchange,advisoryandotherfinancialproductsandservicestoourtargetclientbase.Forexample,wecompetewithalternative lenders, suchas“marketplace” lenders,peer-to-peer lendersandothernon-traditionallendersthathaveemergedinrecentyears.Wealsocompetewithnon-financialserviceproviders,particularlypaymentfacilitatorsandprocessors,aswellasothernonbankingtechnologyprovidersinthepaymentsindustrywhichmayofferspecializedservicestoourclientbase.Inaddition,wecompetewithhedgefundsandprivateequityfunds,aswell as investment banks. The principal competitive factors in ourmarkets include product offerings, service, pricing andtransactionsizeandstructure.Givenourestablishedmarketpositionwithintheclientsegmentsthatweserve,ourcontinuedeffortstodevelopproductsandservices,andourabilitytointegrateandcross-sellourdiversefinancialservicestoextendthelengthofourrelationshipswithourclients,webelievewecompetefavorablyinthemarketsinourcorebusinessareas.
HumanCapital
SVBFinancialGroup’ssuccessisdependentonourabilitytoretain,attractandmotivatequalifiedemployees.Werelyonourpersonnel,whichincludesasubstantialnumberofemployeeswhohavetechnicalorotherexpertiseand/orastrongnetwork of relationships with individuals and institutions in the markets we serve. Competition for skilled and qualified
TableofContents
9
personnel in financial services, technologyand innovation is significant in themarkets inwhichweoperate.Aspartofourefforttoretain,attractandmotivateemployees,westrivetooffercompetitivecompensationandbenefits,promotediversity,equity and inclusion, support the safety andwell-being of our employees, encourageour employees to give back to theircommunitiesandleadwithourcorporatevalues.Throughtheseefforts,westrivetofosteraworkplaceandenvironmentthatempowerouremployeestobesuccessful.
AsofDecember31,2020,weemployed4,461full-timeequivalentemployees.Approximately81%ofouremployeesareintheUnitedstatesandapproximately19%arein international locations, includingtheUnitedKingdom,Ireland,Germany,Israel,China,HongKong,Canada,IndiaandDenmark.
Specificallyduring2020,muchofourhumancapitalmanagementfocuswasinresponsetotheCOVID-19pandemic.Asdescribed further under “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Management’sOverviewof2020FinancialPerformance–RecentDevelopments–COVID-19”,wefocusedonthesafety,well-beingandstabilityofourpeople.Wemaintainedourworkforcewithouttheneedforanyfurloughsor layoffs.Ourprimaryfocuswastoprovidesupportforouremployees,includingexpandedmedicalandothersupporttothosedirectlyimpactedbyCOVID-19,mentalhealthandwellnesssupport,andotherwork-from-homesupportsuchasutilitystipendsandtechnologyandequipment.
CompensationandBenefits.Inordertoretainandattracttalent,weprovideemployeeswithcompetitivecompensationandbenefits packages.Our compensation and benefits programprovides both short-term and long-term awards, incentivizingperformanceandaligningemployeeandshareholderinterests.Employeecompensationpackagesincludeacompetitivebasesalary and, subject to Company and individual performance, may include an annual incentive cash bonus. Employees atcertainlevelsareeligibletoreceiveequityawardstiedtothevalueoftheCompany’sstock.Otheremployeebenefitsincludehealthinsurance(medical,dentalandvision),parentalbondingleave,a401(k)planwithmatchingemployeecontributions,anemployeestockpurchaseplan,anemployeehomeownershipplanthatoffersmortgagesonprimaryhomes,paidtimeoff,lifeinsurance,disabilityinsuranceandlearningopportunities.
Diversity,EquityandInclusion(“DEI”).Webelievethatadvancingdiversity,equityandinclusionproducesbetterresultsforourclientsandiscrucialtoattractingandretainingskilledpersonnel.Weembracepathwaystoincreasediversityandachievegender parity in our senior leadership. Our approach to promoting a diverse and inclusive workplace includes employeeawarenessprogramsandresourcegroups,internalDEI-focused“townhall”meetings,trainingandeducationalopportunities,fair pay analysis, leadership development, hiring outreach programs and strategic partnerships to advance diversityobjectives.WepublishedourfirstDEIreportin2020,acopyofwhichisavailableonourCompanywebsite.
SafetyandWell-Being. Thesafetyandwell-beingofouremployees isofparamount importance.Wehavedevelopedandmaintaincompanyproceduresandpracticestoensurethesafetyofouremployeesinthedifferentmarketsweoperate.Weare also committed to maintaining a work environment that is free of harassment or discriminatory practices. We haveprocesses andescalation channels for employees to reportharassment, discriminationorother concerns. In addition,weregularlyseekfeedbackfromemployeesthroughengagementsurveystohelpevaluatewhetheremployeesaresatisfiedandengagedintheirjobpositions,aswellasunderstandandarealignedwithourbusinessobjectivesandvalues.
Community.Wearecommittedtogivingbacktothecommunitiesinwhichouremployeesliveandworkandbelievetheseefforts help us retain and attract talent.Wematch certain employee charitable donations to eligible non-profits.We alsoencourage employee volunteering.Our non-profit charitable SVB Foundation also contributes to community organizationsandothercauses.WehavepublishedourCorporateResponsibilityReportfor2020onourwebsite,whichprovidesadditionalinformationaboutourcommunityinitiatives.
CompanyValues.OurCompanyvaluesguideouractionsandempowerouremployeestobesuccessful.Ourcorevaluesare:start with empathy for others; speak and act with integrity; embrace diverse perspectives; take responsibility; and keeplearning and improving. We believe that our values are key to attracting, retaining, and inspiring our employees andcontributetothesuccessofbothourbusinessandtheinnovationeconomymoregenerally.
SupervisionandRegulation
Our bank and bank holding company operations are subject to extensive regulation by federal and state regulatoryagencies. This regulation is intended primarily for the stability of the U.S. banking system as well as the protection ofdepositorsandtheDepositInsuranceFund(the“DIF”).Thisregulationisnotintendedforthebenefitofoursecurityholders.
Asabankholdingcompanythathaselectedfinancialholdingcompany(“FHC”)status,SVBFinancialissubjecttoprimaryregulation,supervision,andexaminationbytheFederalReserveundertheBankHoldingCompanyActof1956,asamended(the“BHCAct”).TheBank,asaCaliforniastate-charteredbankandamemberoftheFederalReserveSystem, issubjecttoprimary supervision and examination by the Federal Reserve aswell as theDFPI. In addition, the Bankmust complywith
TableofContents
10
certainrequirementsoftheFDICas,totheextentprovidedbylaw,theBank’sdepositsareinsuredbytheFDIC.OurconsumerbankingactivitiesalsoaresubjecttoregulationandsupervisionbytheConsumerFinancialProtectionBureau(the“CFPB”).
SVB Financial and certain of its non-bank subsidiaries are also subject to regulation by the SEC and FINRA aswell ascertainother federal and state regulatory agencies. In addition,we are subject to regulationby certain foreign regulatoryagenciesininternationaljurisdictionswhereweconduct,ormayinthefuturewishtoconduct,business,includingtheUnitedKingdom,Israel,HongKong,China,GermanyandCanada.(See“InternationalRegulation”below.)
Thefollowingdiscussionofstatutesandregulationsisasummaryanddoesnotpurporttobecomplete.Thisdiscussionisqualified in its entirety by reference to the statutes and regulations referred to in this discussion. Regulators, the U.S.Congress, state legislatures and international consultative and standard-setting bodies continue to enact rules, laws andpoliciestoregulatethefinancialservicesindustryandpubliccompaniesinanefforttoprotectconsumersandinvestors,andmayhavedifferinginterpretationsintheimplementationofsuchrules.ThechangeofcontrolintheU.S.CongressandintheU.S.presidentialadministration,aswellasrelatedchangesinkeypersonnelatregulatoryagencies,couldresultinchangesinregulationsapplicabletousandhowtheyareinterpreted.Asaresult,theprecisenatureoftheselawsandregulationsandthe effect of such policies on the Company’s business cannot be predicted and, in some cases,may have amaterial andadverseeffectonourbusiness,financialcondition,and/orresultsofoperations.Formoreinformation,see“RiskFactors-LegalandRegulatoryRisks”underPartI,ItemIAofthisreport.
RegulationandSupervisionofSVBFinancialandSiliconValleyBank
Asafinancialholdingcompany,SVBFinancialgenerallymayengageincertainotherwiseprohibitednon-bankingactivitiesandactivitiesthattheFederalReservehasdeterminedtobe“financialinnature”orincidentalorcomplementarytoactivitiesthatarefinancialinnature,includingcertainsecurities,merchantbankingandinsuranceactivities.
InordertoretainFHCstatus,afinancialholdingcompanyandallofitsdepositoryinstitutionsubsidiariesmustbewell-capitalized and well-managed, as determined under relevant banking regulations. Otherwise, SVB Financial could facematerialrestrictionsonitsactivitiesanditsabilitytoenterintocertaintransactions.Inaddition,iftheBankhasnotreceivedat least a satisfactory ratingon itsmost recent examinationunder theCommunityReinvestmentAct of 1977 (“CRA”),wewouldnotbeabletocommenceanynewfinancialactivitiesoracquireacompanythatengagesinsuchactivities.Inthatcase,wewouldstillbeallowedtoengageinactivitiescloselyrelatedtobankingandmakeinvestments intheordinarycourseofconductingbankingactivities.TheBankcontinuestobeinsatisfactorycompliancewiththeCRA.
Pursuant to applicable California and federal law, state-chartered commercial banks are permitted to engage in anyactivity permissible for national banks, which includes the many so-called “closely related to banking” or “non-banking”activitiescommonlyconductedbynationalbanks.Inaddition,theBankmayconduct,throughasubsidiary,certain“financial”activities that would be impermissible for the Bank itself to the same extent as a national bankmay, provided the Bankremains“well-capitalized,”“well-managed”andinsatisfactorycompliancewiththeCRA.
Bankholdingcompaniesandinsuredbanksaresubjecttopotentialenforcementactionsofvaryinglevelsofseveritybyfederalandstateregulatorsandlawenforcementauthoritiesforunsafeorunsoundpracticesinconductingtheirbusinessorforviolationsoflaw,regulationorconditionimposedinwritingbyanyapplicableagencyortermofawrittenagreementwiththatagency.
EnhancedPrudentialStandards
InOctober2019,thefederalbankingagenciesissuedrulesthattailortheapplicationofenhancedprudentialstandardstolargebankholdingcompaniesandthecapitalandliquidityrulestolargebankholdingcompaniesanddepositoryinstitutions(the“TailoringRules”)toimplementamendmentstotheDodd-FrankWallStreetReformandConsumerProtectionAct(the“Dodd-FrankAct”)undertheEconomicGrowth,RegulatoryRelief,andConsumerProtectionAct(the“EGRRCPA”).UndertheEGRRCPA,thethresholdabovewhichtheFederalReserveisrequiredtoapplyenhancedprudentialstandardstobankholdingcompanies increased from $50 billion in average total consolidated assets to $250 billion. The Federal Reservemay alsoimpose enhancedprudential standards on bank holding companieswith between $100billion and $250billion in averagetotalconsolidatedassets.
UndertheTailoringRules,bankingorganizationsaregroupedintofourcategoriesbasedontheirU.S.G-SIBstatus,sizeandfourotherrisk-basedindicators.ThemoststringentstandardsapplytoU.S.G-SIBs,whichrepresentCategoryI,andtheleaststringentstandardsapplytoCategoryIVorganizations,whichhavebetween$100billionand$250billioninaveragetotalconsolidatedassetsandlessthan$75billion inall fourotherrisk-basedindicators.SVBFinancial,asabankingorganizationwithlessthan$100billioninaveragetotalconsolidatedassets,currently isnotsubjecttomostoftheenhancedprudentialstandards,butwillbesubjecttoheightenedrequirementswhenwesurpass$100billioninaveragetotalconsolidatedassetsoverfourconsecutivefinancialquarters,whichweexpecttooccurin2021.CategoryIVfirmsare,amongotherthings,subjectto(1)certainliquidityriskmanagementandriskcommitteerequirements,includingliquiditybufferandliquiditystresstesting
TableofContents
11
requirements;(2)requirementstodevelopandmaintainacapitalplanonanannualbasis;and(3)supervisorycapitalstresstestingonabiennialbasis.Severalofthestandardsaresummarizedbelow:
• RiskManagement.Bankholdingcompanieswith$50billionormoreinaveragetotalconsolidatedassets, includingSVBFinancial,aresubjecttoriskcommitteeandriskmanagementrequirements.Inaddition,bankholdingcompanieswith $100 billion ormore in average total consolidated assets are subject to liquidity riskmanagement, liquiditybufferandliquiditystresstestingrequirements.
• ComprehensiveCapitalAnalysisandReview(“CCAR”).Bankholdingcompanieswith$100billionormoreinaveragetotalconsolidatedassetsarerequiredtosubmitanannualcapitalplantotheFederalReserve.InJanuary2021,theFederalReservefinalizedchangestothecapitalplanrule,whichwill,amongotherthings,providefirmssubjecttoCategoryIVstandardsadditionalflexibilitytodeveloptheircapitalplans.ForfirmssubjecttoCCAR,failuretosubmita satisfactory plan can result in restrictions on capital distributions, including dividends and common stockrepurchases.TheCCARprocess is intendedtohelpensurethatBHCshaverobust,forward-lookingcapitalplanningprocesses that account for each company’s unique risks and that permit continued operations during times ofeconomicandfinancialstress.
• StressTesting.Bankholdingcompanieswith$100billionormoreinaveragetotalconsolidatedassetsaresubjecttosupervisorystresstestsconductedbytheFederalReserveeveryotheryearand,exceptforCategoryIVfirms,arealsosubjecttocompany-runstresstestingrequirements(commonlyreferredtoasDodd-FrankStressTestsor“DFAST”)todeterminewhether the firmshavesufficientcapitalonaconsolidatedbasisnecessarytoabsorb losses inbaselineand severely adverse economic conditions. Becausewe expect to be a Category IV firm,we do not expect to besubject toDFAST.Under the Tailoring Rules, bank holding companieswith less than $100 billion in average totalconsolidatedassetsarenotsubjecttocompany-runorsupervisorystresstestingrequirements.
• ResolutionPlanning.ExceptforCategoryIVfirms,bankholdingcompanieswith$100billionormoreinaveragetotalconsolidated assets are required to submit to the Federal Reserve and the FDIC a plan for rapid and orderlyresolutionintheeventofmaterialfinancialdistressorfailure.Bankholdingcompanieswithlessthan$100billioninaveragetotalconsolidatedassetsarenotrequiredtosubmitresolutionplans.BecauseweexpecttobeaCategoryIVfirm,wedonotexpecttoberequiredtosubmitaresolutionplan.Separately,theFDICrequiresinsureddepositoryinstitutions (“IDIs”) with average total consolidated assets of $50 billion ormore, such as the Bank, to submit aresolutionplanwithrespecttothebank.InApril2019,theFDICreleasedanadvancenoticeofproposedrulemakingabout potential changes to its IDI resolution planning requirements, and the next round of IDI resolution plansubmissionswill not be required until the rulemaking processwas complete. In January 2021, the FDIC lifted themoratorium on resolution plans required for IDIs with $100 billion ormore in assets. The FDIC plans to providefurtherdetailssurroundingitsmodifiedapproach,includingeffortstostreamlinecontentrequirementsforIDIplansubmissions,aswellasoutlinethetimingforsubmissions,inearly2021.
• LiquidityCoverageRatio. Bankingorganizations inCategories I-III and certainCategory IV institutionswith greaterthan $50 billion inweighted short-termwholesale funding (“WSTWF”) are subject to the liquidity coverage ratio(“LCR”) requirements and must maintain high-quality liquid assets in accordance with specific quantitativerequirements. Given that we have less than $50 billion in WSTWF, we do not expect to be subject to an LCRrequirement.
RegulatoryCapital
U.S.bankingorganizationsaresubjecttoacomprehensivecapitalframework(the“CapitalRules”),issuedbythefederalbanking agencies, which implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.“Basel III” refers to the internationally agreed regulatory capital framework adopted by the Basel Committee on BankingSupervision(the“BaselCommittee”).
TheCapitalRulesestablishminimumrisk-weightedcapitalratiosforCommonEquityTier1(“CET1”)capital,Tier1capitalandtotalcapitalaswellasaminimumleverageratio.CET1 isdefinedascommonstock,plusrelatedsurplus,andretainedearningsplusminorityinterestintheformofcommonstock,subjecttoalimit,lessthemajorityoftheregulatorydeductionsandadjustments.Formostbankingorganizations,themostcommonformofTier1capital(otherthanCET1)isnoncumulativeperpetualpreferredstockandthemostcommonformofTier2capitalissubordinateddebtandaportionoftheallowanceforloanandleaselosses,ineachcase,subjecttocertainrequirements.TotalcapitalconsistsofTier1capitalandTier2capital.
UndertheCapitalRules,theminimumcapitalratiosapplicabletoSVBFinancialandtheBankareasfollows:4.5%CET1capital,6.0%Tier1capital,8.0%Totalcapitaland4.0%Tier1leverage.Inaddition,bankingorganizationsmustmeeta2.5%CET1 risk-based capital conservation buffer requirement in order to avoid constraints on capital distributions, such asdividends and equity repurchases, and certain bonus compensation for executive officers. The severity of the constraintswoulddependontheamountoftheshortfallandthebankingorganization’s“eligibleretainedincome”(thatis,four-quartertrailingnetincome,netofdistributionsandtaxeffectsnotreflectedinnetincome).InMarch2020,forBHCswith$100billion
TableofContents
12
ormoreinassets,theFederalReserveapprovedafinalrulereplacingthestatic2.5%componentofthecapitalconservationbuffer with a firm-specific stress capital buffer (“SCB”) requirement, reflecting stressed losses in the supervisory severelyadversescenariooftheFederalReserve’sCCARstresstestsandincludingfourquartersofplannedcommonstockdividends,subjecttoaminimum2.5%floor.Duringayear inwhichaCategoryIVfirmdoesnotundergoasupervisorystresstest,thefirmwillreceiveanupdatedSCBthatreflectsthefirm’supdatedplannedcommonstockdividends.ACategoryIVfirmmayalso elect to participate in the supervisory stress test in a year in which the firm would not normally be subject to thesupervisorystresstesttoreceiveanupdatedSCB.
TheregulatorycapitalratiosofSVBFinancialandtheBankcurrentlyexceedtheselevels,asshowninthefollowingchart:
December31,2020 SVBFinancial Bank RequiredRatio(1)
CET1risk-basedcapital 11.04% 10.70% 7.0%
Tier1risk-basedcapital 11.89% 10.70% 8.5
Totalrisk-basedcapital 12.64% 11.49% 10.5
Tier1leverage 7.45% 6.43% 4.0
(1) Percentages represent theminimumcapital ratiosplus,asapplicable, the2.5%CET1capital conservationbufferunder theCapitalRules.
The regulatory capital ratios of SVB Financial and the Bank also exceed the “well-capitalized” requirements underrelevantregulations.RefertoNote23—“RegulatoryMatters”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreportformoreinformation.
InJuly2019,thefederalbankingagencies issuedfinal rules intendedtosimplifycompliancewithcapital rules fornon-advanced approaches banking organizations (the “Capital Simplification Rules”), such as SVB Financial and the Bank. TheCapitalSimplificationRulestookeffectforSVBFinancialasofJanuary1,2020andsimplifythecapitaltreatmentofmortgageservicing assets, certain deferred tax assets, investments in unconsolidated financial institutions andminority interests forbankingorganizations.
InDecember2017,theBaselCommitteepublishedstandardsthatitdescribedasthefinalizationoftheBaselIIIpost-crisisregulatoryreforms.Amongotherthings,thesestandardsrevisetheBaselCommittee’sstandardizedapproachforcreditrisk(including recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellablecommitments,” and establish a new standardized approach for operational risk capital. Under the current Capital Rules,operationalriskcapitalrequirementsdonotapplytonon-advancedapproachesbankingorganizations,suchasSVBFinancialand the Bank. The federal banking agencies have not yet implemented these revised standards, and their impact on SVBFinancialandtheBankwilldependonthemannerinwhichtheyareimplemented.
In lightoftheeconomicdisruptionsandoperationalchallengesrelatedtotheCOVID-19pandemic, in2020thefederalbankingagenciesadoptedarulethatprovidesrelieftobankingorganizationswithrespecttotheimpactofCECLonregulatorycapital(the“2020CECLTransitionRule”).Underthe2020CECLTransitionRule,bankingorganizationsthatadoptCECLduringthe2020calendaryear,suchasSVBFinancialandtheBank,maydelaytheestimated impactofCECLonregulatorycapitaluntilJanuary2022,followedbyathree-yearperiodtophaseouttheaggregatecapitalbenefitprovidedduringtheinitialtwo-year delay. The rule prescribes amethodology for estimating the impact of differences in credit loss allowances reflectedunderCECLversusunderthe incurred lossmethodologyduringthefive-yeartransitionperiod.Wehaveelectedtousethefive-yeartransitionoptionunderthe2020CECLTransitionRule.
CapitalPlanning
Banking organizations must have appropriate capital planning processes, with proper oversight from the Board ofDirectors. The Federal Reserve expects bank holding companies, such as SVB Financial, to conduct and documentcomprehensive capital adequacyanalysesprior to thedeclarationof anydividends (on common stock, preferred stock,orotherTier1capitalinstruments),capitalredemptionsorcapitalrepurchases.Moreover,thefederalbankingagenciesviewtheadequacyandeffectivenessofabank’sinterestrateriskmanagementprocessandthelevelofitsinterestrateexposuresascritical factors in the evaluation of the bank’s capital adequacy. A bankwithmaterial weaknesses in its interest rate riskmanagementprocessorhigh levelsof interest rateexposure relative to its capitalwill bedirectedby the relevant federalbankingagenciestotakecorrectiveactions.
The Capital Simplification Rules eliminate the standalone prior approval requirement for any repurchase of commonstock.Incertaincircumstances,repurchasesofcommonstockmaybesubjecttoapriorapprovalornoticerequirementunderotherregulationsorpoliciesoftheFederalReserve.AnyredemptionorrepurchaseofpreferredstockorsubordinateddebtremainssubjecttothepriorapprovaloftheFederalReserve.Onceweexceed$100billioninaveragetotalconsolidatedassetsandaresubjecttotheSCBandCCARframework,wewillberequiredtosubmitanannualcapitalplantotheFederalReserve.
TableofContents
13
Ifwearerequiredtoresubmitacapitalplan,wemustreceivepriorapprovalfromtheFederalReserveforanydividend,stockrepurchaseorothercapitaldistribution,otherthanacapitaldistributiononanewlyissuedcapitalinstrument.
On June 25, 2020, the Federal Reserve announced that all BHCs participating in CCAR were required to update andresubmit theircapitalplans in lightof theeconomicuncertaintysurroundingtheCOVID-19pandemic,andsuchBHCswerealso generally required to suspend share repurchases and limit dividend payments.On September 30, 2020, the Federal
Reserveextendedthesemeasuresforthefourthquarterof2020.TheFederalReserveannouncedonDecember18,2020thatit would extend the distribution limitations to the first quarter of 2021, subject to adjustment, requiring that dividendpayments and share repurchases be limited to an amount not in excess of average net income over the four precedingquarters,providedthatdividendpaymentsremainlimitedtotheamountpaidinthesecondquarterof2020.
ProprietaryTradingandRelationshipswithCertainFunds
TheVolckerRule,setoutinsection13oftheBHCAct,restricts,amongotherthings,bankholdingcompaniesandtheiraffiliates fromengaging inproprietary tradingand fromsponsoring, investing in,orhavingcertainother relationshipswithcertainprivatelyofferedfunds,includingcertainhedgefundsandprivateequityfunds(“coveredfunds”).OnJune6,2017,wereceivednoticethattheFederalReserveapprovedourapplicationforanextensionofthepermittedconformanceperiodforourinvestmentsincertain“illiquid”coveredfunds("RestrictedVolckerInvestments").TheapprovalextendsthedeadlinebywhichtheCompanymustsell,divest,restructureorotherwiseconformsuchRestrictedVolckerInvestmentstotheprovisionsof theVolckerRuleuntil theearlierof July21, 2022or thedatebywhicheach fundmaturesby its termsor isotherwiseconformed to theVolckerRule.AsofDecember31,2020,weestimate that theaggregatecarryingvalueand fair valueofventurecapitalandprivateequityfund investmentsdeemedtobeRestrictedVolcker Investmentswasapproximately$230million.TheseinvestmentsarecomprisedofinterestsattributablesolelytotheCompanyinourconsolidatedmanagedfundsandcertainofournon-marketablesecurities.WeexpecttheseRestrictedVolcker InvestmentswillcomplywiththeVolckerRule, subject to theamended rulesandamendmentsdiscussedbelow,before July21,2022 (or, if theydonot comply,bedisposedofpriortoJuly21,2022).
InOctober2019,theVolckerRuleimplementingagencies,includingtheFederalReserve(the“Agencies”),finalizedrulesamending the regulations implementing the Volcker Rule (the "2019 Volcker Amendments"). These amendments tailorcompliance requirements based on the size of a firm’s trading assets and liabilities and eliminate or adjust certainrequirements to clarify permitted andprohibited activities. The 2019VolckerAmendmentswent into effect on January 1,2020,andbecamemandatoryonJanuary1,2021.Additionally,onJune25,2020,theAgenciesapprovedfurtheramendments(the“2020VolckerAmendments”)effectiveOctober1,2020,whichprovide for, amongother things, theadoptionofnewexclusions from thedefinitionof “covered fund” for venture capital funds and credit funds thatmeet certain criteria.Webelieve that a substantial portionof our RestrictedVolcker Investmentswill qualify for these newexclusions, orwill havecommencedorcompletedaliquidationordissolutionprocess,andthus,wouldnotberequiredtobedisposedoforotherwiseconformed under the Volcker Rule requirements. We continue to assess the extent of the impact of the 2019 VolckerAmendmentsandthe2020VolckerAmendments,onourfundinvestmentsandotherareasofourbusiness.
PromptCorrectiveAction
State and federal banking agencies possess broad powers to take corrective and other supervisory action against aninsuredbankanditsholdingcompany.Forexample,anIDIisplacedintooneoffivecategoriesbasedonthelevelofitscapitalratios:well-capitalized,adequatelycapitalized,undercapitalized,significantlyundercapitalizedandcriticallyundercapitalized.At each successive lower capital category, an IDI is subject tomore restrictions and prohibitions, including restrictions ongrowth,restrictionsoninterestratespaidondeposits,restrictionsorprohibitionsonpaymentofdividendsandrestrictionsonthe acceptanceof brokereddeposits. Basedupon its capital levels, a bank that is classified aswell-capitalized, adequatelycapitalizedorundercapitalizedmaybetreatedasthoughitwereinthenextlowercapitalcategoryiftheappropriatefederalbanking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or practicewarrantssuchtreatment.
RestrictionsonDividends
DividendsfromtheBankconstituteoneoftheprimarysourcesofcashforSVBFinancial.TheBankissubjecttovariousfederalandstate statutoryand regulatory restrictionson itsability topaydividends, includingapplicableprovisionsof theCalifornia Financial Code and the federal prompt corrective action regulations. For example, the Bank may not, withoutapprovaloftheFederalReserve,declareorpayadividendtoSVBFinancialifthetotalofalldividendsdeclaredinacalendaryear exceeds the total of (a) the Bank’s net income for that year and (b) its retained net income for the preceding twocalendaryears,lessanyrequiredtransferstoadditionalpaid-incapitalortoafundfortheretirementofpreferredstock.Inaddition, thebankingagencieshave theauthority toprohibit theBank frompayingdividends,dependingupon theBank’sfinancialcondition,ifsuchpaymentisdeemedtoconstituteanunsafeorunsoundpractice.
TableofContents
14
ItistheFederalReserve’spolicythatbankholdingcompaniesshouldgenerallypaydividendsoncommonstockonlyoutof income available over the past year and only if prospective earnings retention is consistent with the organization’sexpectedfutureneedsandfinancialcondition.ItisalsotheFederalReserve’spolicythatbankholdingcompaniesshouldnotmaintain dividend levels that undermine their ability to be a source of strength to their banking subsidiaries. Under thepromptcorrectiveactionregulations,theFederalReservemayprohibitabankholdingcompanyfrompayinganydividendsiftheholdingcompany’sbanksubsidiaryisclassifiedas“undercapitalized.”
TransactionswithAffiliates
TransactionsbetweentheBankanditsoperatingsubsidiaries(suchasSVBAssetManagementorSVBWealthAdvisory),on the one hand, and the Bank’s affiliates (such as SVB Financial, SVB Leerink or an entity affiliatedwith our SVB Capitalbusiness), on theother, are subject to statutory and regulatory restrictionsdesigned to limit the risks to theBank and itssubsidiaries, including Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W. Theserestrictions include quantitative and qualitative limits on the amounts and types of transactions with affiliates, includingextensionsof credit to affiliates, investments in the stockor securitiesof affiliates, purchasesof assets fromaffiliates andcertainothertransactionswithaffiliates.Inaddition,credittransactionswithaffiliatesmustbecollateralized,andtransactionswithaffiliatesmustbeonmarkettermsorbetterfortheBank.
PremiumsforDepositInsurance
The FDIC insures our customer deposits through the DIF up to prescribed limits for each depositor. The FDIC hasestablishedareserveratioof2%asalong-termgoal,whichgoesbeyondthestatutorilymandatedminimumof1.35%,andmayincreaseassessmentratesinthefutureaccordingly.
ConsumerRegulations
TheBank is subject tomany federal consumerprotectionstatutesand regulations, suchas theCRA, theEqualCreditOpportunityAct(RegulationB),theElectronicFundTransferAct(RegulationE),theTruthinLendingAct(RegulationZ),theNationalFloodInsuranceAct,theFairCreditReportingAct(asamendedbytheFairandAccurateCreditTransactionAct)andvarious federal and state privacy protection laws. The Bank and SVB Financial are also subject to federal and state lawsprohibitingunfair,deceptive,abusive,corruptor fraudulentbusinesspractices,untrueormisleadingadvertisingandunfaircompetition.Asadepositoryinstitutionwithmorethan$10billionintotalassets,theBankissubjecttoexaminationbytheCFPB. The CFPB’s mandate is to promulgate consumer regulations and ensure that consumer financial practices at largebanks,suchastheBank,complywithfederalconsumerfinancialprotectionrequirements.TheCFPBhasbroadenforcementauthority,includinginvestigations,civilactions,ceaseanddesistproceedingsandtheabilitytorefercriminalfindingstotheDepartment of Justice. Penalties for violating these laws could include civil monetary penalties, remediation for affectedconsumersandreimbursementsandorderstohaltexpansionorexistingactivities.
State and federal banking agencies and other such enforcement authorities have increased efforts to aggressivelyenforceconsumerprotectionlaws,implementregulationsandtakeactionagainstnon-compliantparties.
PrivacyandCybersecurity
Data privacy and data protection are areas of increasing legislative focus. For example, the California ConsumerProtectionActof2018(the“CCPA”),whichbecameeffectiveonJanuary1,2020,appliestofor-profitbusinessesthatconductbusinessinCaliforniaandmeetcertainrevenueordatacollectionthresholds.TheCCPAgivesconsumerstherighttorequestdisclosureofinformationcollectedaboutthem,andwhetherthatinformationhasbeensoldorsharedwithothers,therighttorequestdeletionofpersonalinformation(subjecttocertainexceptions),therighttooptoutofthesaleoftheconsumer’spersonal information, and the right not to be discriminated against for exercising these rights. The CCPA contains severalexemptions, including an exemption applicable to information that is collected, processed, sold or disclosed pursuant tofederal law.Suchrequirementswillbe furtherexpandedunder theCaliforniaPrivacyRightsAct (“CPRA”)once itgoes intoeffectonJanuary1,2023.Similarlawshavebeenandmaybeadoptedbyotherstateswherewedobusiness,andthefederalgovernmentmay also pass data privacy or data protection legislation. In addition, in the European Union, privacy law isgovernedbytheGeneralDataProtectionRegulation(the“GDPR”).TheGDPRestablishedenhancedcomplianceobligationsandincreasedpenaltiesfornon-compliancecomparedtothepriorlawgoverningdataprivacyintheEuropeanUnion.
In 2016, the federal banking agencies issued an advance notice of proposed rulemaking on enhanced cyber riskmanagement standards thatare intended to increase theoperational resilienceof largeand interconnectedentitiesundertheirsupervisionandhelpreducethepotential impactofacyber incidentonthefinancialsystem.Theproposedstandardsfocusonfiveareas:(1)cyberriskgovernance;(2)cyberriskmanagement;(3)internaldependencymanagement;(4)externaldependencymanagement;and(5) incidentresponse,cyberresilienceandsituationalawareness.AsofDecember2020,thefederalbankingagencieshavenotissuedfurtherguidanceonthisissue.
In December 2020, the federal banking agencies released a notice of proposed rulemaking regarding notificationrequirements forbankingorganizationsandbankserviceproviders relatedtosignificantcybersecurity incidents.Under the
TableofContents
15
proposal,amongotherrequirements,abankingorganizationwouldberequiredtonotifyitsprimarybankingregulatorwithin36hoursofa“computer-securityincident”thatitbelievescouldimpactitsabilitytocarryoutbankingoperationsordeliverservicestoamaterialportionofitscustomerbase,resultinamateriallossofrevenue,profit,orfranchisevalue,orimpactthestabilityoftheU.S.financialsector.
Anti-MoneyLaundering,SanctionsandAnti-CorruptionRegulations
U.S. anti-money laundering laws and regulations, including the U.S. Bank Secrecy Act (“BSA”) and the Uniting andStrengtheningAmericabyProvidingAppropriateToolsRequiredtoInterceptandObstructTerrorismActof2001(“PATRIOTAct”)andtheircorrespondingregulations,requireIDIs,broker-dealers,andcertainotherfinancialinstitutionstohavepolicies,procedures and controls todetect, prevent and reportmoney laundering and terrorist financing. ThePATRIOTAct and itsregulationsalsoprovideforinformationsharing,subjecttocertainconditions,betweenfederallawenforcementagenciesandfinancial institutions, as well as among financial institutions, for counter-terrorism purposes. Additionally, federal bankingregulators are required,when reviewing bank holding company acquisition and bankmerger applications, to consider theeffectivenessoftheanti-moneylaunderingactivitiesoftheapplicants.
InJanuary2021,theAnti-MoneyLaunderingActof2020(“AMLA”),whichamendstheBSA,wasenacted.TheAMLAisintendedtocomprehensivelyreformandmodernizeU.S.anti-moneylaunderinglaws.Amongotherthings,theAMLAcodifiesarisk-basedapproachtoanti-moneylaunderingcomplianceforfinancialinstitutions;requiresthedevelopmentofstandardsbytheU.S.Departmentof theTreasury forevaluatingtechnologyand internalprocesses forBSAcompliance;andexpandsenforcement-andinvestigation-relatedauthority,includingasignificantexpansionintheavailablesanctionsforcertainBSAviolations.ManyofthestatutoryprovisionsintheAMLAwillrequireadditionalrulemakings,reportsandothermeasures,andtheimpactoftheAMLAwilldependon,amongotherthings,rulemakingandimplementationguidance.
In addition, we must comply with economic sanctions administered by the U.S. Treasury's Office of Foreign AssetsControlandtargetedagainstdesignatedforeigncountries,nationalsandothers.Wearealsosubjecttoanti-corruptionlawsandregulationsintheUnitedStatesandinternationally,includingtheU.S.ForeignCorruptPracticesActandtheU.K.BriberyAct,whichimposestrictprohibitionsonpaymentsandhiringpracticeswithregardtogovernmentofficialsandemployees.
Material deficiencies in compliancewith anti-money laundering and anti-corruption rules and sanctions regimes canresult inpublicenforcementactionsbythebankregulatoryagenciesandothergovernmentagencies, includingcivilmoneypenaltiesandsupervisoryrestrictionsongrowthandexpansion.
RegulationofCertainSubsidiariesandRegulatoryAffiliates
SVBLeerinkLLC,asubsidiaryofSVBLeerink,andSVBWealthAdvisory,Inc.,asubsidiaryoftheBank,areeachregisteredas broker-dealerswith the SEC and aremembers of FINRA, and are subject to regulation by both agencies. They are alsomembers of the Securities Investor Protection Corporation. SVB Asset Management, SVB Wealth Advisory and fundsmanagemententitiesassociatedwithSVBLeerinkCapitalLLC,asubsidiaryofSVBLeerink,areregisteredwiththeSECundertheInvestmentAdvisersActof1940,asamended,andaresubjecttoitscorrespondingregulations.
SVBLeerinkLLCandSVBWealthAdvisorymustcomplywiththefinancialresponsibilityrulesgoverningbroker-dealers,including Rule 15c3-1 under the Securities ExchangeAct of 1934, as amended (the “ExchangeAct”),which is designed tomeasurethegeneralfinancialconditionandliquidityofabroker-dealerandseektoensureitsfinancialstabilityinlightofitsactivities. It is requiredtomaintainminimumnetcapital levels,whichcould limit theability forcapital tobewithdrawnorrequireacapitalinfusiontosupportgrowthinthebusinessorneworongoingactivities.
In June 2019, the SEC adopted a rule that requires broker-dealers to act in the best interest of their customers andissuedan interpretation clarifying the its viewsof theexisting fiduciarydutyowedby investment advisers to their clients.Additionally,theSECadoptedarulethatrequiresbroker-dealersand investmentadviserstoprovideastandardized,short-form disclosure highlighting services offered, applicable standards of conduct, fees and costs, the differences betweenbrokerage and advisory services, and any conflicts of interest. Several states have also proposed uniform fiduciary dutystandardsforbroker-dealersandadvisers.
Further,theCompanyhasoversightresponsibilitieswithrespecttotheregulatorycomplianceofcertainunconsolidatedsubsidiariesandaffiliates, suchasVouch Inc.andBolsterNetworks, Inc., that theCompanymaybedeemed tocontrol forpurposesoftheBHCAct.
SecuritiesRegistrationandListing
SVB Financial’s common stock, 5.250% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A (“Series APreferredStock”),anddepositaryshares,eachrepresentinga1/40thinterestinashareofSeriesAPreferredStock(“SeriesADepositaryShares”),aswellasSeriesBNon-CumulativePerpetualPreferredStock(“SeriesBPreferredStock”),anddepositaryshares, each representing a 1/100th interest in a share of Series B Preferred Stock (“Series B Depositary Shares”), areregisteredundertheSecuritiesActof1933,asamended.SVBFinancial’scommonstockandSeriesADepositarySharesare
TableofContents
16
alsolistedontheNasdaqGlobalSelectMarket.Assuch,SVBFinancialissubjecttotheSEC’sinformation,proxysolicitation,insider trading, corporate governance, and other public company requirements and restrictions as well as Nasdaq’sMarketplaceRulesandotherrequirements.
Asapubliccompany,SVBFinancialisalsosubjecttotheaccountingoversightandcorporategovernancerequirementsoftheSarbanes-OxleyActof2002(the“Sarbanes-OxleyAct”),including,amongotherthings,requiredexecutivecertificationof financial presentations, increased requirements for board audit committees and their members, and enhancedrequirementsrelatingtodisclosurecontrolsandproceduresandinternalcontrolsoverfinancialreporting.
InternationalRegulation
Our international-based subsidiaries and offices and global activities, including our banking branches in the UnitedKingdom,Germany,CanadaandtheCaymanIslandsaswellasourjointventurebankinChina,aresubjecttotherespectivelaws and regulations of those countries and the regions in which they operate. This includes laws and regulationspromulgatedby,butnot limited to, theFinancialConductAuthorityand thePrudentialRegulationAuthority in theUnitedKingdom, the Office of the Superintendent of Financial Institutions in Canada, the German Federal Financial SupervisoryAuthority(BaFin),theChinaBankingandInsuranceRegulatoryCommission,theCaymanIslandsMonetaryAuthorityandtheHongKongMonetaryAuthority.PursuanttoUKregulatoryrequirements,SiliconValleyBankwillneedtorestructureitsUKbranchintoafull-servicebanksubsidiarywhenthebranchreaches£100millionofinsuredsmallbusinessdeposits,whichwecurrentlyexpectwillbesometimein2022.
Totheextentweareabletocommenceoperationsinanyotherinternationalmarket,wewillalsobecomesubjecttotheregulatoryregimesofthosejurisdictions.Injurisdictionswherewedonotcurrentlyhavecertainlicensesorotherregulatoryauthorizations,ouractivitiesmaybe limited.Moreover,promulgationbystandard-settingbodiesthatarechargedwiththedevelopmentof international regulatory frameworks, such as theBasel Committee, can affect theBank and SVB Financialgloballyasnationalregulatorsimplementtheframeworksinlocaljurisdictions.
AvailableInformation
WemakeavailablefreeofchargethroughourInternetwebsite,http://www.svb.com,ourannualreportonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-K,andamendmentstothosereportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheExchangeAct,assoonasreasonablypracticableaftersuchmaterialiselectronicallyfiledwithorfurnishedtotheSEC.Thecontentsofourwebsitearenotincorporatedhereinbyreferenceandthewebsiteaddressprovidedisintendedtobeaninactivetextualreferenceonly.
ITEM1A. RISKFACTORS
Ourbusinessfacesmaterialrisks,includingcredit,marketandliquidity,operational,legalandregulatoryandstrategicandreputationalrisks.Thefactorsdescribedbelowarenotintendedtoserveasacomprehensivelistingoftherisksweface.Additionalrisksanduncertaintiesthatwehavenotidentifiedasmaterial,orofwhichwecurrentlyarenotaware,mayalsoimpairourbusinessoperations.Ifanyoftheeventsorcircumstancesdescribedinthefollowingfactorsoccurs,ourbusiness,financialconditionand/orresultsofoperationscouldbemateriallyandadverselyaffected.
SummaryofRiskFactors
CreditRisks
• Becauseofthecreditprofileofourloanportfolio,ourlevelsofnonperformingassetsandcharge-offscanbevolatile,
andwemayneedtomakematerialprovisionsforcreditlossesinanyperiod.
• Our allowance for credit losses is determined based upon both objective and subjective factors, andmay not be
adequatetoabsorbanyactualcreditlosses.
• Theborrowingneedsofourclientshavebeenandmaycontinuetobeunpredictable,especiallyduringachallenging
economicenvironment.Wemaynotbeabletomeetourunfundedcreditcommitments,oradequatelyreservefor
losses,whichcouldhaveamaterialadverseeffect.
MarketandLiquidityRisks
• Ourinterestratespreadhasandmaycontinuetodeclineinthefuture.Anymaterialreductioninourinterestrate
spreadcouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsorfinancialcondition.
• Liquidityriskcouldimpairourabilitytofundoperationsandjeopardizeourfinancialcondition.
TableofContents
17
• Our equity warrant assets, venture capital and private equity fund investments and direct equity investment
portfoliogainsdependupontheperformanceofourportfolio investmentsandthegeneralconditionofthepublic
andprivateequityandM&Amarketswhichareuncertainandmayvarymateriallybyperiod.
• Changesinthemarketforpublicequityofferings,M&Aoraslowdowninprivateequityorventurecapitalinvestment
levelsmayaffect theneedsofourclients for investmentbankingorM&Aadvisory servicesand lendingproducts,
whichcouldadverselyaffectourbusiness,resultsofoperationsorfinancialcondition.
OperationalRisks
• Ourbusiness,financialcondition,liquidity,capitalandresultsofoperationshavebeen,andwilllikelycontinuetobe,
adverselyaffectedbytheCOVID-19pandemic.
• Theoccurrenceoffraudulentactivity,breachesofourinformationsecurityorcybersecurity-relatedincidentscould
haveamaterialadverseeffectonourbusiness,financialconditionorresultsofoperations.
• We face risks associatedwith the abilityof our information technology systemsandourpeople andprocesses to
supportouroperationsandfuturegrowtheffectively.
• Businessdisruptionsduetonaturaldisastersandotherexternaleventsbeyondourcontrolhaveinthepastadversely
affectedourbusiness,financialconditionorresultsofoperationsandmaydosointhefuture.
• Weface risks fromaprolongedwork-from-homearrangement,aswell as fromoureventual implementationofabroaderplantoreturntotheofficeorincreasevirtualworkingarrangements.
• Wefacerisksfromourinteractionswithbusinesspartners,serviceprovidersandotherthirdparties.
• Thesoundnessofotherfinancialinstitutionscouldadverselyaffectus.
• Wedependontheaccuracyandcompletenessofinformationaboutcustomersandcounterparties.
• Wefacerisksassociatedwithourcurrentinternationaloperationsandongoinginternationalexpansion.
• Ourholdingcompany,SVBFinancial,reliesonequitywarrantassetsincome,investmentdistributionsanddividends
fromitssubsidiariesformostofitscashrevenues.
• Climatechangehasthepotentialtodisruptourbusinessandadverselyimpacttheoperationsandcreditworthiness
ofourclients.
LegalandRegulatoryRisks
• Weare subject to extensive regulation that could limit or restrict our activities, impose financial requirementsor
limitations on the conduct of our business, or result in higher costs to us, and the stringency of the regulatory
frameworkapplicabletousmayincreaseif,andas,ourbalancesheetcontinuestogrow.
• We expect to exceed $100 billion of average total consolidated assets (over four quarters) during 2021.Wewill
therefore be subject tomore stringent regulations, including certain enhancedprudential standards applicable to
largebankholdingcompanies.
• Wefacea riskofnoncomplianceandenforcementactionwith theBankSecrecyAct,otheranti-money laundering
andanti-briberystatutesandregulations,andU.S.economicandtradesanctions.
• Ifwewere toviolate,or fail tocomplywith, international, federalor state lawsor regulationsgoverning financial
institutions,wecouldbesubjecttodisciplinaryactionorlitigationthatcouldhaveamaterialadverseeffectonour
business,financialcondition,resultsofoperationsorreputation.
• Lawsandregulationsregardingthehandlingofpersonaldataandinformationmayimpedeourservicesorresultin
increasedcosts,legalclaimsorfinesagainstus.
• Adverse results from litigationorgovernmentalor regulatory investigationscan impactourbusinesspracticesand
operatingresults.
• Afailuretoidentifyandaddresspotentialconflictsofinterestcouldadverselyaffectourbusinesses.
• Anti-takeoverprovisionsandfederallawsmaypreventamergeroracquisitionthatmaybeattractivetostockholders
and/orhaveanadverseeffectonourstockprice.
Strategic,ReputationalandotherRisks
• Concentration of risk increases the potential for significant losses, while the establishment of limits to mitigate
concentrationriskincreasesthepotentialforlowerrevenuesandslowergrowth.
TableofContents
18
• Decreasesintheamountofequitycapitalavailabletoourportfoliocompaniescouldadverselyaffectus.
• Wefacecompetitivepressuresthatcouldadverselyaffectourbusiness,financialresults,orgrowth.
• Ourabilitytomaintainorincreaseourmarketsharedependsonourabilitytoattractandmaintain,aswellasmeet
theneedsof,existingandfutureclients.
• Wefacerisksinconnectionwithourstrategicundertakingsandnewbusinessinitiatives.
• Anydamagetoourreputationandrelationshipscouldhaveamaterialadverseeffectonourbusiness.
• Anineffectiveriskmanagementframeworkcouldhaveamaterialadverseeffectonourstrategicplanningandour
abilitytomitigaterisksand/orlossesandcouldhaveadverseregulatoryconsequences.
• Wedonotcurrentlypaydividendsonsharesofourcommonstockandmaynotdosointhefuture.
RisksRelatedtoOurPendingAcquisitionofBostonPrivate
• WecannotensurethattheproposedBostonPrivateacquisitionwillbecompleted.
• WemayfailtorealizegrowthprospectsandbenefitsanticipatedasaresultoftheBostonPrivateacquisition.
CreditRisks
Becauseofthecreditprofileofourloanportfolio,ourlevelsofnonperformingassetsandcharge-offscanbevolatile.Wemayneedtomakematerialprovisionsforcreditlossesinanyperiod,whichcouldreducenetincome,increasenetlossesorotherwiseadverselyaffectourfinancialconditioninthatperiod.
Our loanportfoliohasacreditprofiledifferentfromthatofmostotherbankingcompanies.Thecreditprofilesofourclientsvaryacrossourloanportfolio,basedonthenatureofourlendingtodifferentmarketsegments.
Investordependentloans.Manyofourloans,particularlyinourportfoliosforearly-stageandmid-stageprivatelyheldcompanies,aremadetocompanieswithmodestornegativecashflowsand/ornoestablishedrecordofprofitableoperations,primarilywithinthetechnologyand lifescienceandhealthcare industries.Consequently,repaymentofthese loans isoftendependent upon receipt by our borrowers of additional financing from venture capitalists or others, or in some cases, asuccessfulsaletoathirdparty,publicofferingorotherformofliquidityor“exit”event.TheeffectsoftheCOVID-19pandemichavecausedcertainclientvaluationstodrop,reducedtherateof financingorother“exit”events,whichhashadandmaycontinue to have an adverse effect on certain of our clients and their ability to repay their loans to us. Although thesechallenges have been somewhat offset by relief programs and decreased cash utilization,many of these companiesmayexperiencedifficultiessustainingtheirbusinessesovertime.Therecanbenoassurancethatthesecompanieswillbeabletocontinuetoobtainfundingatcurrentvaluationlevels,ifatallandvaluationsmaydropinameaningfulmanner,whichmayimpact the financialhealthofourclientcompanies.Forexample, continuedvolatility in financialmarketsmaymake initialpublicofferings lessattractiveto investorsseekingan“exit”event. Insuchcase, investorsmayprovidefinancing inamoreselectivemanner,at lower levelsand/oron less favorable terms, ifatall,anyofwhichmayhaveanadverseeffectonourborrowers’abilitytorepaytheirloanstous.
Largerloans;syndicatedloans.Inaddition,asignificantportionofourloanportfolioiscomprisedoflargerloans,whichcouldincreasetheimpactonusofanysingleborrowerdefault.AsofDecember31,2020,loansequaltoorgreaterthan$20milliontoanysingleclient(individuallyorintheaggregate)totaled$26.7billion,or59.0percentofourportfolio.Theselargerloanshaverepresentedanincreasingportionofourtotalloanportfolioovertime.Theyincludecapitalcalllinesofcredittoourprivateequityandventurecapitalclients,aswellasotherloansmadetoourlater-stageandlargercorporateclients,andmay be made to companies with greater levels of debt relative to their equity, balance sheet liquidity or cash flow.Additionally, we have continued our efforts to grow our loan portfolio by agenting or arranging larger syndicated creditfacilitiesandparticipating in larger syndicatesagentedbyother financial institutionsaswellasmakingsponsor-ledbuyoutloans,which are leveragedbuyout or recapitalization financings typically sponsoredby our private equity clients. In thosearrangementswherewedonotactastheleadsyndicateagent,ourcontrolordecision-makingabilityoverthecreditfacilityistypicallylimitedtoourparticipationinterest.
Loansdependentonthirdparties.Further,therepaymentoffinancingarrangementsweenterintowithourclientsmaybe dependent on the financial condition or ability of third parties to meet their payment obligations to our clients. Forexample,weenterintoformula-basedfinancingarrangementsthataresecuredbyourclients’accountsreceivablefromthirdpartieswithwhomtheydobusiness.Wemakeloanssecuredbylettersofcredit issuedbythirdpartybanksandenterintoletters of credit discounting arrangements, the repayment of whichmay be dependent on reimbursement by third partybanks.Weextendrecurringrevenue-basedlinesofcredit,whererepaymentmaybedependentonborrowers’revenuesfromthird parties.We also extend project financing to solar and other renewable energy providers,where repaymentmay bedependent on factors related to renewable energy generation, construction and access to take-out sources of financing,includingtaxcreditequity.Further,inourloanportfolioofprivateequityandventurecapitalfirmclients,manyofourclients
TableofContents
19
have lines of credit, the repayment of which is dependent on the payment of capital calls or management fees by theunderlying limitedpartner investors in the fundsmanagedby these firms.Thesecapitalcall linesofcreditareasignificantportionofourloanportfolio.(Capitalcalllinesofcreditrepresentmorethanhalfofourloanportfolioasoftheendof2020,andmayinfutureperiodsincrease).Thesethirdpartiesmaynotbeabletomeettheirfinancialobligationstoourclientsortous,which,ultimately,couldhaveanadverseimpactonus.
Technology, life science and healthcare industries. In addition, because of the intense competition and rapidtechnological change that characterize the technology, life science and healthcare industry sectors in which most of ourborrowers reside, as well as periodic volatility in the market prices for securities of companies in these industries, aborrower’sfinancialpositioncandeterioraterapidly.Collateralformanyofourloansoftenincludesintellectualpropertyandotherintangibleassets,whicharedifficulttovalueandmaynotbereadilysalableinthecaseofdefault.Asaresult,evenifaloanissecured,wemaynotbeabletofullyrecovertheamountsowedtous,ifatall.
Wineriesandvineyards.Inaddition,welendtopremiumwineriesandvineyardsthroughSVBWine.Repaymentofloansmadetotheseclientsmaybedependentonoverallwinedemandandsales,orothersourcesoffinancingor incomewhichmaybeadverselyaffectedbyachallengingeconomicenvironment,aswellasthevalueofunderlyingrealestateandnon-realestate collateral, overall grape supply and income from tourismwhichmaybeadversely affectedby climate change,poorweather, heavy rains, flooding, droughts, fires, wildfires, earthquakes or other natural or catastrophic conditions. OurpremiumwineindustryclientshavebeenandmaycontinuetobeimpactedbythelossofrestaurantandwinerysalesasaresultoftheCOVID-19pandemicaswellastheimpactsoftheCaliforniawildfiresin2020.
Loans to individuals. We also lend to individual investors, executives, entrepreneurs or other influencers in theinnovationeconomy,primarilythroughSVBPrivateBank,adivisionoftheBank.Ourlendingtoindividualswillsubstantiallyincrease upon completion of our acquisition of Boston Private. These individual clientsmay face difficultiesmeeting theirfinancialcommitments,especiallyinachallengingeconomicenvironment,andmaybeunabletorepaytheirloans,andthesedifficultiesmaybemoreacuteifaccompaniedbyadeclineinrealestatevalues.Incertaininstances,wemayalsorelaxloancovenantsandconditionsorextendloantermstoindividualborrowerswhoareexperiencingfinancialdifficulties.Whilesuchdeterminationsarebasedonanassessmentofvariousfactors,includingaccesstoadditionalcapitalinthenearterm,therecan be no assurance that such continued support will result in any individual borrower meeting his or her financialcommitments.
Based on the credit profile of our overall loan portfolio, our level of nonperforming loans, loan charge-offs andallowance for credit losses can be volatile and can vary materially from period to period. Increases in our level ofnonperformingloans, loancharge-offsorchanges ineconomicforecastsmayrequireusto increaseourprovisionforcreditlossesinanyperiod,whichcouldreduceournetincomeorcausenetlossesinthatperiod.Forinstance,duringthefirsthalfof2020,wesignificantlyincreasedourallowanceforcreditlossesinresponsetotheCOVID-19pandemicanditseffectonourborrowers.ThecontinuedeffectsofCOVID-19orotherunforeseeneventsorfutureeconomicdownturnsorrecessionsmaycause our clients to be unable to pay their loans as they come due or decrease the value of collateral, such as accountsreceivable,whichcouldcauseustomateriallyincreaseourallowanceforcreditlossesorincurcreditlossesinexcessoftheallowanceinfutureperiods.Additionally,suchincreasesinourlevelofnonperformingloans,loancharge-offsorchangesineconomic forecastsmayalsohaveanadverseeffectonourcapital ratios,credit ratingsandmarketperceptionsofus.See“Loans” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - ConsolidatedFinancialCondition”underPartII,Item7ofthisreport.
Ourallowanceforcreditlossesisdeterminedbaseduponbothobjectiveandsubjectivefactors,andmaynotbeadequatetoabsorbcreditlosses.
Asalender,wefacetheriskthatourborrowerclientswillfailtorepaytheirloanswhendue.Ifborrowerdefaultscauselargeaggregatelosses,itcouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsorfinancialcondition.Wereserveforsuchlossesbyestablishinganallowanceforcreditlosses,theincreaseofwhichresultsinachargetoourearningsasaprovisionforcreditlosses.Althoughwehaveestablishedanevaluationprocessdesignedtodeterminetheadequacyofourallowanceforcreditlossesthatuseshistoricalandotherobjectiveinformationreflectiveoftheclassificationofloans,theestablishment of credit losses are also dependent on macroeconomic forecasts as well as the subjective experience andjudgmentofourmanagement.Actual lossesaredifficulttoforecast,especially ifsuch lossesstemfromfactorsbeyondourhistoricalexperience,ashasoccurredduring theCOVID-19pandemic,orareotherwise inconsistentwithourcreditqualityassessments.Therecanbenoassurancethatourallowanceforcreditlosseswillbesufficienttoabsorbfuturecreditlossesorpreventamaterialadverseeffectonourbusiness,financialconditionorresultsofoperations.
ASU2016-13,Financial Instruments-CreditLosses(Topic326):MeasurementofCreditLossesonFinancial Instruments("ASU2016-13"or"CECL"),becameeffectiveJanuary1,2020andamendedtheincurredlossimpairmentmethodologywithamethodology that reflects expected credit losses and requires consideration of a broader range of reasonable andsupportableinformationtoinformcreditlossestimates.Thestandardremovedtheprevious“probable”thresholdinGAAPforrecognizingcreditlossesandinsteadrequirescompaniestoreflecttheirestimateofcreditlossesoverthelifeofthefinancial
TableofContents
20
assets.Ourabilitytoaccuratelyforecastestimatedcreditlossesdependsonwhetherourcreditlossmodelandrelatedinputscorrespondtoactuallossrates.
Banking regulators, as part of their supervisory function, periodically review our methodology, models and theunderlyingassumptions,estimatesandassessmentswemakeindeterminingtheadequacyofourallowanceforcreditlosses.These regulatorsmay conclude that changes are necessary,which could impact our overall credit portfolio. Such changescouldresultin,amongotherthings,modificationstoourmethodologyormodels,reclassificationordowngradesofourloans,increases inourallowanceforcredit lossesorothercreditcosts, impositionofnewormorestringentconcentration limits,restrictionsinourlendingactivitiesand/orrecognitionoffurtherlosses.
The borrowing needs of our clients have been and may continue to be unpredictable, especially during a challengingeconomicenvironment.Wemaynotbeabletomeetourunfundedcreditcommitments,oradequatelyreserveforlossesassociatedwithourunfundedcreditcommitments,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsorreputation.
Acommitment toextendcredit isa formalagreement to lend funds toa clientas longas theconditionsestablishedundertheagreementhavebeensatisfied.Theactualborrowingneedsofourclientsunderthesecreditcommitmentshavehistoricallybeenlowerthanthecontractualamountofthecommitments.Asaresult,wetypicallyhaveasubstantialamountof total unfunded credit commitments reflected off our balance sheet, and a significant portion of these commitmentsultimately expire without being drawn upon. See Note 21-“Off-Balance Sheet Arrangements, Guarantees and OtherCommitments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for additionaldetails.However,theactualborrowingneedsofourclientsmayexceedourexpectedfundingrequirements.Forexample,ourclientcompaniesmaybemoredependentonourcreditcommitmentsinachallengingeconomicenvironmentduetothelackofavailablecreditelsewhere, the increasingcostsofcredit throughotherchannels,or the limitedavailabilityof financingsfromprivateequityorventurecapitalfirms,suchasoccurredattheonsetoftheCOVID-19pandemic,whencertainclientsincreasedutilizationofcreditlinestosecureliquidity.Inaddition,limitedpartnerinvestorsofourprivateequityandventurecapitalfundclientsmayfailtomeettheirunderlyinginvestmentcommitmentsduetoliquidityorotherfinancingdifficulties,whichmayimpactourclients’borrowingneeds.Anyfailuretomeetourunfundedcreditcommitmentsinaccordancewiththeactual borrowing needs of our clientsmay have amaterial adverse effect on our business, financial condition, results ofoperationsorreputation.
Further,althoughwehaveestablishedareserveforlossesassociatedwithourunfundedcreditcommitments,thelevelofthereserveisdeterminedbyamethodologythatissimilartothatusedtoestablishourallowanceforcreditlossesinourfunded loan portfolio and that has also been amended by CECL. The reserve is susceptible to significant changes and isprimarilybasedoncreditcommitmentslesstheamountsthathavebeenfunded,theamountoftheunfundedportionthatweexpecttobeutilizedinthefuture,creditqualityoftheloancreditcommitments,andmanagement’sestimatesandjudgment.Therecanbenoassurancethatourallowanceforunfundedcreditcommitmentswillbeadequatetoprovideforactuallossesassociatedwithourunfunded credit commitments.An increase in theallowance forunfunded credit commitments in anyperiodmayresultinachargetoourearnings,whichcouldreduceournetincomeorincreasenetlossesinthatperiod.
MarketandLiquidityRisks
Ourinterestratespreadhasdeclined,andmaycontinuetodeclineinthefuture.Anymaterialreductioninourinterestratespreadcouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsorfinancialcondition.
A significant portion of our net income comes from our interest rate spread, which is the difference between theinterestratespaidbyuson interest-bearing liabilities,suchasdepositsand internalborrowings,andthe interestratesandfees we receive on our interest-earning assets, such as loans extended to our clients, securities held in our investmentportfolioandexcesscashheldtomanageshort-termliquidity.Ourinterestratespreadcanbeaffectedbythemixofloans,investmentsecurities,depositsandotherliabilitiesonourbalancesheet,aswellasavarietyofexternalfactorsbeyondourcontrolthataffectinterestratelevels,suchascompetition,inflation,recession,globaleconomicdisruptions,unemploymentandthe fiscalandmonetarypoliciesofvariousgovernmentalbodies.Forexample,changes inkeyvariablemarket interestrates,suchastheFederalFunds,NationalPrime(“Prime”),LIBORorTreasuryrates,generallyimpactourinterestratespread.Whilechangesininterestratesdonotgenerallyproduceequivalentchangesintherevenuesearnedfromourinterest-earningassetsand theexpensesassociatedwithour interest-bearing liabilities, increases inmarket interest ratesareneverthelesslikely to causeour interest rate spread to increase.Conversely, if interest ratesdecline,our interest rate spreadwill likelydecline.Inthefirstquarterof2020,theFederalReserveloweredthetargetFederalFundsratetobetweenzeroand0.25%,whichcontributedtothedeclineofourinterestratespread,andalsoledtoadecreaseintheratesandyieldsonU.S.Treasurysecurities.Ifinterestratesdonotrise,oriftheFederalReservelowersthetargetFederalFundsratetobelow0%,theselowratescouldcontinuetoconstrainourinterestratespreadandmayadverselyaffectourbusinessforecasts.Ontheotherhand,increasesininterestratesmayresultinachangeinthemixofnon-interestandinterest-bearingaccounts,andthelevelofoff-balancesheetmarket-basedinvestmentpreferredbyourclients,whichmayalsoimpactourinterestratespread.
TableofContents
21
ChangesinthemethodofdeterminingLIBORorotherreferencerates,oruncertaintyrelatedtosuchpotentialchanges,mayadverselyaffectthevalueofreferencerate-linkeddebtsecuritiesthatweholdorissue,whichcouldfurtherimpactourinterest ratespread. In2017, theU.K.FinancialConductAuthorityannouncedthat itwouldno longerpersuadeorcompelsubmissionofbankratesusedforcalculationofLIBORafter2021.In2020,theadministratorofLIBORannouncedthatitwillextendpublicationof themostcommonlyusedU.S.DollarLIBORsettings to June30,2023andwill ceasepublishingotherLIBOR settings on December 31, 2021. The federal banking agencies have issued guidance strongly encouraging bankingorganizationstoceaseusingtheU.S.DollarLIBORasareferencerateinnewcontractsassoonaspracticableandinanyeventbyDecember31,2021.Atthistime,itisnotpossibletopredictwhatrateorratesmaybecomebroadlyacceptedalternativestoLIBOR,orwhattheeffectofanysuchchanges inviewsoralternativesmaybeonthemarkets forLIBOR-linkedfinancialinstruments.
Regulators, industry groups and certain committees (for example, the Alternative Reference Rates Committee) havepublished recommended fallback language for LIBOR-linked financial instruments, identified recommendedalternatives forcertainLIBORrates (e.g., theSecuredOvernightFinancingRateas the recommendedalternative toU.S.DollarLIBOR),andproposed implementationsof the recommendedalternatives in floating rate instruments.At this time, it isnotpossible topredict whether these recommendations and proposals will be broadly accepted in their current form,whether theywillcontinuetoevolve,andwhattheultimateeffectof their implementationmaybeonthemarkets for floating-rate financialinstruments.
Liquidityriskcouldimpairourabilitytofundoperationsandjeopardizeourfinancialcondition.
Liquidityisessentialtoourbusiness,bothattheSVBFinancialandtheBanklevel.Werequiresufficientliquiditytomeetourexpected financialobligations, aswell asunexpected requirements stemming fromclientactivityandmarket changes,suchastheunexpectedcashoutflowsthatoccurredattheonsetoftheCOVID-19pandemicwhencertainclients increasedutilizationoftheircreditlines.PrimaryliquidityresourcesforSVBFinancialinclude:cashflowfrominvestmentsandinterestinfinancialassetsheldbyoperatingsubsidiariesotherthantheBank;totheextentdeclared,dividendsfromtheBank;andasneeded, periodic capitalmarket transactions offering debt and equity instruments in the public and privatemarkets. Theprimary source of liquidity for the Bank is client deposits. When needed, our liquidity is supplemented by wholesaleborrowing capacity in the form of short- and long-term borrowings secured by our portfolio of high-quality investmentsecurities, long-termcapitalmarketdebtissuancesandunsecuredovernightfundingchannelsavailabletousintheFederalFunds market. An inability to maintain or raise funds through these sources could have a substantial negative effect,individuallyorcollectively,onSVBFinancialandtheBank’s liquidity.Ouraccesstofundingsourcesinamountsadequatetofinance our activities, or on terms attractive to us, could be impaired by factors that affect us specifically or the financialservices industry in general. For example, factors that coulddetrimentally impact our access to liquidity sources include adecreaseinthelevelofourbusinessactivityduetoamarketdownturnoradverseregulatoryactionagainstus,adownturninassetmarketssuchthatthecollateralweholdcannotberealizedor is liquidatedatpricesnotsufficienttorecoverthefullamountofoursecuredobligations,areductioninourcreditrating,anydamagetoourreputationoranyotherdecreaseindepositor or investor confidence in our creditworthiness and business. Our access to liquidity could also be impaired byfactorsthatarenotspecifictous,suchas lawsandregulationsthat limittheamountof intercompanydividendsthatbanksubsidiaries may pay, severe volatility or disruption of the financial markets or negative views and expectations aboutprospects for the financial services industryasawhole.Anysucheventor failure tomanageour liquidityeffectivelycouldaffectourcompetitiveposition,increaseourborrowingcostsandtheinterestrateswepayondeposits,limitouraccesstothecapitalmarketsandhaveamaterialadverseeffectonourfinancialcondition.
Ourequitywarrantassets,venturecapitalandprivateequityfundinvestmentsanddirectequityinvestmentportfoliogainsdependupontheperformanceofourportfolioinvestmentsandthegeneralconditionofthepublicandprivateequityandM&Amarkets,whichhaveseensignificantvolatilityinthepastyear,areuncertainandmayvarymateriallybyperiod.
Inconnectionwithnegotiatedcreditfacilitiesandcertainotherservices,weoftenobtainequitywarrantassetsgivingusthe right to acquire stock in private, venture-backed companies primarily in the technology, life science and healthcareindustriessubjecttoapplicableregulatorylimits.WehavealsomadeinvestmentsthroughSVBFinancial,SVBLeerinkandourSVBCapitalfamilyoffundsinventurecapitalfundsanddirectinvestmentsincompanies,manyofwhicharerequiredtobecarriedatfairvalueorareimpactedbychangesinfairvalue.Thefairvaluesofthesewarrantsandinvestmentsarereflectedinourfinancialstatementsandareadjustedonaquarterlybasis.Fairvaluechangesarerecordedasunrealizedgainsorlossesthrough consolidated net income. However, the timing and amount of changes in fair value, if any, of these financialinstruments dependson factors beyondour control, including theperceived and actual performanceof the companies orfundsinwhichweinvest,fluctuationsinthemarketpricesofthepreferredorcommonstockoftheportfoliocompanies,thetimingofourreceiptofrelevantfinancial informationfromthesecompanies,marketvolatilityandinterestratefactorsandlegalandcontractualrestrictions.ThevalueoftheseassetswereimpactedbythenegativeeffectsoftheearlierstagesoftheCOVID-19pandemic.Thoughvaluationsandfinancialmarketshavereboundedsincethen,prolongednegativeeffectsoftheCOVID-19pandemicmayhaveafurtherimpact(potentiallyinasignificantmanner).Moreover,thetimingandamountofour
TableofContents
22
realizationof actualnetproceeds, if any, fromourdispositionof these financial instrumentsalsooftendependon factorsbeyondour control. In addition to thosementionedabove, such factors include the level of public offerings, andM&Aorotherexitactivity,legalandcontractualrestrictionsonourabilitytosellourequitypositions(includingtheexpirationofany“lock-up” agreements) and the timing of any actual dispositions. Because of the inherent variability of these financialinstrumentsandthemarketsinwhichtheyareboughtandsold,theirfairmarketvaluemightincreaseordecreasemateriallyfromperiodtoperiod,andthenetproceedsultimatelyrealizedupondispositionmightbemateriallydifferentthanthethen-currentrecordedfairmarketvalue.
Inaddition,dependingonthefairvalueofthesewarrantsanddirectequity investments,ameaningfulportionoftheaggregatefairvalueofourtotalwarrantanddirectequityinvestmentportfoliosmay,fromtimetotime,beconcentratedinalimited number ofwarrants and direct equity investments. Valuation changes in one ormore of thesewarrants or directequity investments may have a material impact on the valuation of our total investment portfolio. Moreover, becausevaluations of private companies are inherently uncertain,may fluctuate over short periods of time andmay be based onestimates,ourdeterminationsoffairvalueforprivatecompaniesmaydiffermateriallyfromthevaluesthatwouldhavebeenused if a ready market for these securities existed. Therefore, fair value determinations may materially understate oroverstatethevaluethatweultimatelyrealizeuponthesaleofoneormoreinvestments.Wecannotpredictfuturerealizedorunrealized gains or losses, and any such gains or losses are likely to vary materially from period to period. See Note15-”DerivativeFinancial Instruments”of the“Notes to theConsolidatedFinancial Statements”underPart II, Item8of thisreportforadditionaldetails.
Changes in themarket for public equity offerings,M&Aor a slowdown in private equity or venture capital investmentlevelsmayaffecttheneedsofourclients for investmentbankingorM&Aadvisoryservicesand lendingproducts,whichcouldinturnadverselyaffectourbusiness,resultsofoperationsorfinancialcondition.
Whileanactivemarketforpublicequityofferings,financings,andM&Aactivitygenerallyhaspositive implicationsforourbusiness,onenegativeconsequenceisthatourclientsmaypayofforreducetheirloanswithusiftheycompleteapublicequityoffering,areacquiredbyormergewithanotherentityorotherwisereceiveasignificantequityinvestment.
Bycontrast,a lowdemandforpublicequityorM&Atransactionsoraninabilitytocompletesuchtransactionsduetoeventsaffectingmarketconditionsgenerally,couldresult in fewertransactionsoverallandthereforedecreaserevenuesofSVB Leerink, our investment banking business, as such revenues stem primarily from underwriting and advisory feesassociatedwithcapitalmarketsandM&Atransactions.Althoughtherewasstrongcapitalmarketsactivityinthehealthcareandlifesciencessectorinthesecondhalfof2020,adeclineinthisactivityinthefuturecouldleadtodecreasedrevenuesofSVBLeerink.
Aslowdowninoverallprivateequityorventurecapitalinvestmentlevelsmayreducetheneedforourclientstoborrowfromourcapitalcalllinesofcredit,whicharetypicallyutilizedbyourprivateequityandventurecapitalfundclientstomakeinvestments prior to receipt of capital called from their respective limited partners. Any significant reduction in theoutstandingamountsofourloansorunderourlinesofcreditcouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsorfinancialcondition.
OperationalRisks
Our business, financial condition, liquidity, capital and results of operations have been, andwill likely continue to be,adverselyaffectedbytheCOVID-19pandemic.
TheCOVID-19pandemichascreatedsignificanteconomicandfinancialdisruptionsthathaveadverselyaffected,andarelikelytocontinuetoadverselyaffect,ourbusiness, financialcondition, liquidity,capitalandresultsofoperations.Althoughfinancialmarketshavereboundedfromthesignificantdeclinesthatoccurredearlier inthepandemic,andglobaleconomicconditionsshowedsignsofimprovementinthesecondhalfof2020,theCOVID-19pandemicmaycontinuetocontributeto,amongotherthings (i) increasedunemploymentanddecreasedconsumerconfidenceandbusinessgenerally, leadingtoanincreased risk of delinquencies, defaults and foreclosures; (ii) sudden and significant declines, and significant increases involatility, in financialmarkets; (iii) ratings downgrades, credit deterioration and defaults inmany industries; (iv) increasedutilizationofcreditlinesasclientsseektobolsterliquidity;(v)significantreductionsinthetargetedfederalfundsrate;and(vi)heightened cybersecurity, information security andoperational risks as a resultofwork-from-homearrangements and thecurrent environment, including increased fraudulent activity. In addition,we also face an increased risk of client disputes,litigationandgovernmentalandregulatoryscrutinyasaresultoftheeffectsofCOVID-19onmarketandeconomicconditions,actionsthatgovernmentalauthoritiestake inresponsetothoseconditions,andour implementationofandparticipation inspecial financial reliefprograms,suchastheU.S.SmallBusinessAdministration’sPaycheckProtectionProgram("PPP")andU.K. Coronavirus Business Interruption Loan Scheme ("CBILS"). Moreover, we have focused resources and management
TableofContents
23
attentiontowardsmanagingtheimpactsoftheCOVID-19pandemic,andwehaveandlikelywillhavetocontinuetoprioritizemanagingtheseimpactsovercertaingrowthinitiativesandotherinvestmentsinthenearterm.
Early-stage companies and certain industries (including the premium wine industry) where the Company has creditexposure,haveexperienced,andareexpectedtocontinuetoexperience,significantoperationalandfinancialchallengesasaresultofCOVID-19.TheeffectsofCOVID-19mayalsocauseourclientstobeunabletopaytheirloansastheycomedueordecreasethevalueofcollateral,suchasaccountsreceivable,whichweexpectwouldcausesignificantincreasesinourcreditlosses.
We remain unable to predict the full extent towhich the COVID-19 pandemicwill continue to negatively affect ourbusiness,financialcondition,liquidity,capitalandresultsofoperations.TheextentofanycontinuedorfutureadverseeffectsoftheCOVID-19pandemicwilldependonfuturedevelopments,whicharehighlyuncertainandoutsideourcontrol,includingthe scope and duration of the pandemic, the direct and indirect impact of the pandemic on our employees, clients,counterparties and service providers, aswell as othermarket participants, actions taken by governmental authorities andotherthirdpartiesinresponsetothepandemic,thescopeanddurationoffuturephasesoroutbreaks,orseasonalorotherresurgences,ofthedisease,andtheeffectivenessandimplementationofvaccinationefforts.
Theoccurrenceoffraudulentactivity,breachesofourinformationsecurityorcybersecurity-relatedincidentscouldhaveamaterialadverseeffectonourbusiness,financialconditionorresultsofoperations.
As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that couldbe committedagainstus,our clientsorour third-partypartners,whichmay result in financiallosses or increased costs to us or our clients, disclosure or misuse of our information or our client information,misappropriationofassets,privacybreachesagainstouremployeesorclients, litigationordamagetoourreputation.Suchfraudulent activitymay takemany forms, including credit fraud, check fraud, electronic fraud,wire fraud, phishing, socialengineering, businessemail compromise, ransomware,malfeasanceandotherdishonest acts. For example, inourCurrentReport on Form 8-K filed on February 26, 2021, we disclosed that we became aware of a potentially fraudulent loantransaction, with possible credit exposure to us of up to $70 million, net of tax. Information security breaches andcybersecurity-related incidentsmay include fraudulent or unauthorized access to systemsusedby us, our clients or third-party partners, denial or degradation of service attacks,malware or other cyber-attacks. Sources of attacks vary andmayinclude hackers, employees, vendors, business partners, organized crime, terrorists, foreign governments, corporateespionageandactivists.Breachesmayalsobearesultofhumanerrorsormistakesunintentionallycausedbyus. Inrecentperiods,therecontinuestobeariseinelectronicfraudulentactivity,securitybreachesandcyber-attackswithinthefinancialservices industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts.During the COVID-19 pandemic, we continued to experience heightened fraud and cybersecurity risks, as well as otherinformation security risks, particularly as a result of work-from-home arrangements, which may be more susceptible toinadvertenthumanerrorsgiventhechangeinoperatingenvironment.
Consistentwith industrytrends,weremainat risk forattemptedelectronic fraudulentactivity,aswellasattemptsatsecurity breaches and cybersecurity-related incidents. Cybersecurity risks may increase in the future as we increase ourmobile,digitalandinternet-basedproductofferingsandexpandourinternaluseofinternet-basedproductsandapplications,which we expect to remain elevated as long as the COVID-19 pandemic continues. Moreover, in recent periods, largecorporations (including financial institutions and retail companies), as well as U.S. governmental agencies, have sufferedsignificant data breaches or malware attacks, in some cases exposing not only confidential and proprietary corporateinformation, but also sensitive financial and other personal information of their customers and employees and subjectingthemtopotential fraudulentactivity.Someofourclientsmayhavebeenaffectedby thesebreaches,which increase theirrisksof identitytheft,creditcardfraudandotherfraudulentactivitythatcould involvetheiraccountswithus,whichcouldsubject us to potential liability. Additionally, state-sponsored or terrorist-sponsored efforts to hack or disable informationtechnologysystemsincreasesrisks,sincethemotivationmaybeforgeopoliticalasmuchasforfinancialgain.
Informationpertainingtousandourclientsismaintained,andtransactionsareexecuted,onournetworksandsystems,aswellasthoseofourclientsandcertainofourthird-partypartners,suchasouronlinebankingorreportingsystems.Thesecuremaintenanceandtransmissionofconfidentialinformation,aswellasexecutionoftransactionsoverthesesystems,areessentialtoprotectusandourclientsagainstfraudandsecuritybreachesandtomaintainourclients’confidence.Breachesofinformationsecurityalsomayoccur,andininfrequentcaseshaveoccurred,throughintentionalorunintentionalactsbythosehavingaccesstooursystemsorourclients’orcounterparties’confidentialinformation,includingemployeesandthird-partycontractors. Inaddition,SVBprovidescardtransactionprocessingservicestosomemerchantcustomersunderagreementswe havewith thosemerchants and/orwith the payment networks. Under these agreements, wemay be responsible forcertainlossesandpenaltiesifoneofourmerchantcustomerssuffersadatasecuritybreach.Furthermore,SVB’scardholdersusetheirdebitandcreditcardstomakepurchasesfromthirdpartiesorthroughthird-partyprocessingservices.Assuch,SVBissubjecttoriskfromdatabreachesofsuchthirdparty’sinformationsystemsoritspaymentprocessors,forreasonsincluding
TableofContents
24
unauthorized card use. Such a data security breach could compromise SVB’s account information, cause losses on cardaccountsandincreaselitigationcosts.SVBmaysufferlossesassociatedwithreimbursingourcustomersforsuchfraudulenttransactionsoncustomers’cardaccounts,aswellasforothercostsrelatedtodatasecuritybreaches,suchasreplacingcardsassociatedwithcompromisedcardaccounts.
Wealsooffer certain services that allownon-accountholders toprocess payments through SVB’s systems, aswell asfinancialanalyticsservices.Inthecourseofprovidingthoseservices,wemayobtainsensitivedataaboutcustomerswhodonototherwiseholdaccountswithus,includinginformationregardingaccountsheldatotherinstitutions,aswellasprofitandlossandotherproprietaryfinancialorotherinformationregardingourcustomersorthenon-accountholderstheyservice.Intheeventofadatabreach,thissensitiveinformationmaybeexposedandcouldsubjectustoclaimsfordamages.
In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, ongoingwork-from-home arrangements for our employees, vulnerabilities in third-party technologies and services (including cloudcomputing and storage, computing hardware, browsers and operating systems) or other developments could result in acompromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and toprotectdataaboutus,our clientsandunderlying transactions,aswellas the technologyusedbyourclients toaccessoursystems.Theforms,methodsandsophisticationoffraud,securitybreaches,cyber-attacksandothersimilarcriminalactivitycontinuetoevolve,andasweevolveandgrowourbusiness,especiallyinnewbusinesslinesorgeographicareas,wemaybeunable to foresee future risks. Although we have developed, and continue to invest in, systems and processes that aredesignedtodetectandpreventsecuritybreachesandcyber-attacksandperiodicallytestoursecurityandeffectivenessofourcyber incident response plans, our risk mitigation strategies and internal controls, including risk assessment policies andprocedures, testing, backup and redundancy systems, incident response plans, training and authentication or encryptiontools, may not be effective against defending against fraud, security breaches or cyber-attacks, and any insurance wemaintain may not be sufficient to compensate us for all losses that may occur. Our inability to anticipate, or failure toadequatelymitigate, fraudulentactivities,breachesofsecurityorcyber-attackscouldresult in: financial lossestousorourclients;ourlossofbusinessand/orclients;lossorexposureofourconfidentialdataorinformation;damagetoourreputation;the incurrenceof additional expenses; lossof personnel; disruption toourbusiness; forcemajeure claimsbyusor criticalsuppliers; our inability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or ourexposuretocivillitigationandpossiblefinancialliability.
Wefacerisksassociatedwiththeabilityofourinformationtechnologysystemsandourpeopleandprocessestosupportouroperationsandfuturegrowtheffectively.
Our information technologysystems,peopleand internalbusinessprocessesarecritical toouroperationsand futuregrowth,andwerecriticaltoourcontinuedoperationsduringtheCOVID-19pandemicasweimplementedwork-from-homearrangements. Our systems may be subject to service outages from time to time due to various reasons, includinginfrastructurefailures, interruptionsduetosystemupgradesormalwareremoval,employeeerrorormalfeasance,orotherforcemajeure-relatedreasons(suchaspotentialblackoutsorbrownoutsinCalifornia),whichcouldcausebusinessdisruption.Additionally, our systems and processes need to be sufficiently scalable to operate effectively, andwe need to have theappropriate talent and organizational structures to support our business. Many of our systems and processes areinterdependentandinterconnected,meaningthataserviceoutageoroperationalinefficiencywithrespecttoonesystemorprocess could negatively impact other systems or processes. As a result, we continue to invest in technology and moreautomated solutions in order to optimize the efficiency of our core operational and administrative infrastructure. In theabsence of having effective automated solutions, wemay rely onmanual processes whichmay bemore prone to error.Moreover,asweevolve,wemayfurtherinstallor implementnewsystemsandprocessesorotherwisereplace,upgradeormake other modifications to our existing systems and processes. These changes could be costly and require significantinvestment in the training of our employees and other third-party partners, as well as impose substantial demands onmanagement time. If we do not implement new initiatives or utilize new technologies effectively or in accordance withregulatoryrequirements,orifourpeople(includingoutsourcedbusinesspartners)arenotappropriatelytrainedordevelopedor do not perform their functions properly or have the appropriate resources to do so, we could experience businessinterruptionsorothersystemfailureswhich,amongotherthings,couldresultininefficiencies,revenuelosses,lossofclients,employeedissatisfaction,exposuretofraudulentactivities,regulatoryenforcementactionsordamagetoourreputation,eachofwhichcouldhaveamaterialadverseeffectonourbusiness.
Businessdisruptionsandinterruptionsduetonaturaldisastersandotherexternaleventsbeyondourcontrolhaveinthepastadverselyaffectedourbusiness,financialconditionorresultsofoperationsandmaydosointhefuture.
TableofContents
25
Ouroperationscanbesubjecttonaturaldisastersandotherexternaleventsbeyondourcontrol,suchastheeffectsofearthquakes, fires, floods, severe weather, public health issues such as the recent outbreak of the coronavirus or otherpandemicdiseases,powerfailures,telecommunicationloss,majoraccidents,terroristattacks,actsofwar,political,economicandsocialunrest,andothernaturalandman-madeevents,someofwhichmaybeintensifiedbytheeffectsofclimatechangeandchangingweatherpatterns.Forexample,ourcorporateheadquartersandsomeofourcriticalbusinessofficesarelocatedinCalifornia,whichhasrecentlyexperiencedmajorwildfiresandblackoutsandislocatedovermajorearthquakefaultlines.We also maintain critical business facilities in Texas, which has recently experienced severe weather conditions, majorblackoutsandwaterservicedisruptions.Furthermore,climatechange,theincreasingfrequencyorseverityofweatherevents,anearthquakeorotherdisastercouldcauseseveredestruction,disruptionorinterruptiontoouroperationsorpropertyandsignificantly impact our employees and could damage, destroy or otherwise reduce the value of collateral, which couldmaterially increase our credit losses.More recently, the COVID-19 pandemic has had direct effects on our operations,includingby limitingemployee travel and increasing telecommutingarrangements.Wemayexperiencenegativeeffectsofprolongedwork-from-homearrangements,suchasincreasedrisksofsystemsaccessorconnectivityissues,cybersecurityorinformationsecuritybreaches,andchallengesouremployeesmayfaceinmaintainingabalancebetweenworkandhomelife,whichmayleadtoreducedproductivityand/orsignificantdisruptionsinourbusinessoperations.
Weandotherfinancialinstitutionsgenerallymustresumeoperationspromptlyfollowinganyinterruption.Ifweweretosufferadisruptionor interruptionandwerenotabletoresumenormaloperationswithinaperiodconsistentwithindustrystandards, our business, financial condition or results of operations could be adversely affected in amaterialmanner. Inaddition, depending on the nature and duration of the disruption or interruption,wemight become vulnerable to fraud,additionalexpenseorotherlosses,ortoalossofbusinessandclients.Althoughwehaveimplementedabusinesscontinuitymanagementprogramthatwecontinue toenhanceonanongoingbasis, therecanbenoassurance that theprogramwilladequatelymitigatetherisksofsuchbusinessdisruptionsandinterruptions.
Additionally,naturaldisastersandexternalevents,includingbutnotlimitedtothosethathaveoccurredandmayoccurinandaroundCalifornia,haveaffected,andcouldinthefutureaffect,thebusinessandoperationsofourclients,whichcouldimpairtheirabilitytorepaytheirloansorfeeswhendue,impairthevalueofcollateralsecuringtheirloans,causeourclientsto reduce their depositswithus, or otherwise adversely affect their business dealingswithus, anyofwhich couldhave amaterial adverse effect on our business, financial condition or results of operations. A significant portion of our clientborrowers, includingourpremiumwineryandvineyardclients,ourSVBPrivateBankmortgageclientsandothercorporateclients, are located in or have offices in California,which has historically experienced severe natural disasters resulting indisruptionstobusinessesanddamagetoproperty,includingwildfiresandearthquakes.Ifthereisamajorearthquake,flood,fire, drought or other natural or catastrophic disaster in California or elsewhere in themarkets inwhichwe operate, ourborrowersmayexperienceuninsuredproperty lossesorsustaineddisruptiontobusinessor lossthatmaymaterially impairtheirabilitytomeetthetermsoftheirloanobligations.
Wefacerisksfromaprolongedwork-from-homearrangement,aswellasfromoureventualimplementationofabroaderplantoreturntotheofficeorincreasevirtualworkingarrangements.
Since the first quarter of 2020,we havemoved to awork-from-home plan, restricted business travel, postponed ormovedtoonlineSVB-hostedevents,andenabledremoteaccesstooursystems.Althoughourwork-from-homeplanhasbeeneffectivethusfar,wemayexperiencenegativeeffectsofaprolongedwork-from-homearrangement,suchasincreasingrisksof systems access or connectivity issues, cybersecurity or information security breaches, reduced team collaboration, orimbalances between work and home life, which may lead to reduced productivity and/or significant disruptions in ourbusinessoperations.
Moreover,wearedevelopingaplanforemployeestoeventuallyreturntoworkinouroffices,themannerandtimingofwhicharestilltobefinalized.Ourreturntoofficeplanwillbesubjecttoavarietyofcomplexconsiderationsincluding,amongothers, international, federal, state and local government laws, regulations and guidance, health organization guidance,healthandsafetyimplications(includingtheavailabilityofvaccinationsandpotentialhealthtestingrequirements),employeeneeds,andthepracticalrequirementsofpotentialofficereconfigurationsoraphasedreturn.Wemayalsoexpandourworkmodel to increase virtual or remote working arrangements, and if implemented ineffectively, may also result in reducedproductivityand/orsignificantdisruptionsinourbusinessoperations.
We face reputationandbusiness risksdue toour interactionswithbusinesspartners, serviceproviders andother thirdparties.
Asafinancialserviceinstitutionwithdomesticandinternationaloperations,werelyonthirdparties,bothintheUnitedStatesandinternationallyincountriessuchasCanada,theUnitedKingdom,Ireland,Germany,Denmark,HongKong,China,IsraelandIndia,toprovideservicestousandourclientsorotherwiseactaspartnersinourbusinessactivitiesinavarietyofways, including through the provision of key components of our business infrastructure.We expect these third parties to
TableofContents
26
performservicesforus,fulfilltheirobligationstous,accuratelyinformusofrelevantinformation,andconducttheiractivitiesinamannerthatreflectspositivelyonourbrandandbusiness.Althoughwemanageexposuretosuchthird-partyriskthroughavarietyofmeans,includingtheperformanceofduediligenceandongoingmonitoringofvendorperformance,therecanbenoassurancetheseeffortswillbeeffective.Anyfailureofourbusinesspartners,serviceprovidersorotherthirdpartiestomeet their commitments to us or to perform in accordancewith our expectations could result in operational disruptions,increasedexpenditures,regulatoryactionsinwhichwemaybeheldresponsiblefortheactionsofthirdparties,damagetoourreputation and the loss of clients,which in turn could harmour business andoperations, strategic growth objectives andfinancialperformance.BecauseoftheCOVID-19pandemic,manyofourcounterpartiesandthird-partyserviceprovidershavebeen,andmay furtherbe,affectedby“stay-at-home”orders,marketvolatilityandother factors that increasetheir riskofbusiness disruption or that may otherwise affect their ability to perform under the terms of any agreements with us orprovideessentialservices.
Ourthird-partypartnersmayalsorelyontheirownbusinesspartnersandserviceproviders intheordinarycourseoftheirbusiness.Althoughweseektodiversifyourexposuretothird-partypartnersinordertoincreaseourresiliency,weareneverthelessexposedtotheriskthatadisruptionorotherinformationtechnologyeventatacommonserviceprovidertoourvendors could impede their ability to provide products or services to us, which in turn could harm our business andoperations,strategicgrowthobjectivesandfinancialperformance.
Thesoundnessofotherfinancialinstitutionscouldadverselyaffectus.
Financial services institutions are interrelatedbecauseof trading, clearing, counterparty andother relationships.Weroutinely execute transactions with counterparties in the financial services industry, including brokers and dealers,commercial banks, investment banks, payment processors and other institutional clients, which may result in paymentobligations tousor toour clientsdue toproductswehavearranged.Manyof these transactionsexposeus to credit andmarket risk thatmay cause our counterparty or client to default. In particular, the interconnectivity ofmultiple financialservices institutions with central agents, exchanges and clearing houses, and the increased centrality of these entities,increasestheriskthatanoperationalfailureatoneinstitutionorentitymaycauseanindustry-wideoperationalfailurethatcould materially impact our ability to conduct business. Any losses arising from such occurrences could materially andadverselyaffectourbusiness,resultsofoperationsorfinancialcondition.
Wedependontheaccuracyandcompletenessofinformationaboutcustomersandcounterparties.
Indecidingwhethertoextendcreditorenterintoothertransactionswithcustomersandcounterparties,wemayrelyon information furnished to us by or onbehalf of customers and counterparties, including financial statements andotherinformation relating to their business or financial condition. We also may rely on representations of customers andcounterpartiesastotheaccuracyandcompletenessofthatinformationand,withrespecttofinancialstatements,onreportsorothercertificationsoftheirauditorsoraccountants.Forexample,underouraccountsreceivablefinancingarrangements,werelyon information, suchas invoices, contractsandothersupportingdocumentation,providedbyourclientsand theiraccountdebtorstodeterminetheamountofcredit toextend.Similarly, indecidingwhethertoextendcredit,wemayrelyupon our customers’ representations that their financial statements conform to GAAP (or other applicable accountingstandardsinforeignmarkets)andpresentfairly,inallmaterialrespects,thefinancialcondition,resultsofoperationsandcashflows of the customer. If we rely on materially misleading, false, inaccurate or fraudulent information in evaluating thecreditworthinessorotherriskprofilesofourclientsorcounterparties,wecouldbesubjecttocreditlosses,regulatoryaction,reputationalharmorexperienceotheradverseeffectsonourbusiness,resultsofoperationsorfinancialcondition.
Wefacerisksassociatedwithourcurrentinternationaloperationsandongoinginternationalexpansion.
One important component of our strategy is to expand internationally. We currently have international offices inCanada,theUnitedKingdom,Israel,Germany,Denmark,India,HongKongandChina,includingajoint-venturebankinChina.Wehaveexpandedandplantocontinuetoexpandouroperationsandbusinessactivitiesinsomeofourcurrentinternationalmarkets.Forexample,wehaveexpandedourpresenceinIndia,wherewecurrentlyconductcertaintechnologyandfinanceoperations.Wealsoplantoexpandourbusinessbeyondourcurrentmarketsovertime.Oureffortstoexpandourbusinessinternationallycarrycertainrisks,includingrisksarisingfromtheuncertaintyregardingourabilitytogeneraterevenuesfromforeignoperations; risksassociatedwith leveraginganddoingbusinesswith localbusinesspartnersthrough jointventures,strategicarrangementsorotherpartnerships;andothergeneraloperationalrisks.Inaddition,therearecertainrisksinherentindoingbusinessonaninternationalbasis,including,amongothers,legal,regulatoryandtaxrequirementsandrestrictions;uncertaintiesregardingliability,tariffsandothertradebarriers,suchasrecenttradetensionsbetweentheUnitedStatesandChina; uncertainties regarding international public health issues like the COVID-19 pandemic; difficulties in staffing andmanaging foreignoperations; the incremental requirementofmanagement’sattentionand resources;differing technologystandardsorcustomerrequirements;datasecurityortransferrisks;culturaldifferences;politicalandeconomicriskssuchasuncertaintycreatedbythewithdrawaloftheUnitedKingdomfromtheEuropeanUnion;andfinancialrisks,includingcurrency
TableofContents
27
andpaymentriskssuchasfluctuationinthevalueofforeigncurrencies,suchastheeuro.Theseriskscouldhinderourability,or the ability of our local partners, to service our clients effectively, and adversely affect the success of our internationaloperations,which, in turn, could have amaterial adverse effect on our overall business, results of operations or financialcondition.Inaddition,wefacerisksthatouremployeesandaffiliatesmayfailtocomplywithapplicablelawsandregulationsgoverning our international operations, including the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, GDPR, anti-corruptionlaws,privacylaws,anti-moneylaunderinglaws,economicandtradesanctionsrequirementsandotherapplicablelaws and regulations. Failure to complywith such laws and regulations could, among other things, result in enforcementactionsandfinesagainstus,aswellaslimitationsontheconductofourbusiness,anyofwhichcouldhaveamaterialadverseeffectonourbusinessandresultsofoperations.
Our holding company, SVB Financial, relies on equity warrant assets income, investment distributions, periodic capitalmarkettransactionsanddividendsfromitssubsidiariesformostofitscashrevenues.
SVBFinancialisaholdingcompanyandisaseparateanddistinctlegalentityfromitssubsidiaries.Itreceivesmostofitscash revenues from a few primary funding sources: income from equity warrant assets and investment securities, fromperiodic capitalmarkets transactions offering debt and equity instruments in the public and privatemarkets, and, to theextentdeclared,cashdividendspaidbysubsidiaries,primarilytheBank.Thesesourcesgeneratecashwhich isusedbySVBFinancial topayoperatingandborrowing costs and, to theextentauthorizedordeclared, funddividends toholdersof itscapitalstockandstockrepurchaseprograms.Anyincomederivedfromthosefinancialinstrumentsissubjecttoavarietyoffactorsasdiscussedinthe“CreditRisks”portionofthis“RiskFactors”section.Moreover,variousfederalandstatelawsandregulationslimittheamountofdividendsthattheBankandcertainofournonbanksubsidiariesmaypaytoSVBFinancial.Inaddition, SVB Financial’s right to participate in a distribution of assets upon a liquidation or reorganization of any of itssubsidiariesissubjecttothepriorclaimsofthesubsidiary’screditors.
Climatechangehasthepotentialtodisruptourbusinessandadverselyimpacttheoperationsandcreditworthinessofourclients.
Climate changehas caused severeweatherpatterns andevents that coulddisruptoperations atoneormoreofourlocations,whichmaydisruptourabilitytoprovidefinancialproductsandservicestoourclients.Climatechangecouldalsohaveanegativeeffectonthefinancialstatusandcreditworthinessofourclients,suchasthoseinthewineindustry,whichmaydecrease revenues andbusiness activities from those clients, increase the credit risk associatedwith loans andothercreditexposurestosuchclients,anddecreasethevalueofourwarrantsanddirectequityinvestmentsinsuchclients,ifany.
LegalandRegulatoryRisks
We are subject to extensive regulation that could limit or restrict our activities, impose financial requirements orlimitationsontheconductofourbusiness,orresultinhighercoststous,andthestringencyoftheregulatoryframeworkapplicabletousmayincreaseif,andas,ourbalancesheetcontinuestogrow.
SVB Financial, including the Bank, is extensively regulated under federal and state laws and regulations governingfinancial institutions, includingthoseimposedbytheFDIC,theFederalReserve,theCFPB,theSEC,andtheDFPI,aswellasvariousregulatoryauthoritiesthatgovernourglobalactivities.Federalandstatelawsandregulationsgovern,restrict,limitorotherwiseaffecttheactivitiesinwhichwemayengageandmayaffectourabilitytoexpandourbusinessovertime,resultinanincreaseinourcompliancecosts,includinghigherFDICinsurancepremiums,andmayaffectourabilitytoattractandretainqualified executive officers and employees (especially when compared to competitors not subject to similar restrictions).Further, the stringency of the regulatory framework that applies to us may increase as our asset size and internationalbusinessgrows.
Achangeinapplicablestatutes,regulationsorregulatorypolicies,includingthepossibilityoflegislativeregulatoryandpolicychangesbythenewCongressandBiden-HarrisAdministration,couldhaveamaterialadverseeffectonourbusiness,includinglimitingorimposingconditionsonthetypesoffinancialservicesandproductswemayofferorincreasingtheabilityof nonbanks to offer competing financial services and products. Increased regulatory requirements (and the associatedcompliancecosts),whetherduetothegrowthofourbusiness,theadoptionofnewlawsandregulations,changesinexistinglaws and regulations, ormore expansive or aggressive enforcement of existing laws and regulations,mayhave amaterialadverseeffectonourbusiness,financialconditionorresultsofoperations.Inaddition,personnelattheU.S.bankingagenciesthatregulateusmaysoonchangegiventhechangeinpresidentialadministration.Newpersonnelmaytakenewordifferentpositions than their predecessors and that could result in additional regulatory requirements or requirements to changecertainpractices.
Weexpecttoexceed$100billionofaveragetotalconsolidatedassets(overfourquarters)during2021.Wewillthereforebesubjecttomorestringentregulations,includingcertainenhancedprudentialstandardsapplicabletolargebankholdingcompanies.
TableofContents
28
Certain enhanced prudential standards and related requirements will apply to us when we exceed $100 billion inaverage total consolidatedassets calculatedover four consecutive financial quarters,whichweexpect tohappen in2021.Category IV institutionsunder theTailoringRules (whichweexpect tobe) are subject to additional requirements, suchascertainenhancedprudentialstandardsandmonitoringandreportingcertainrisk-basedindicators.UndertheTailoringRules,CategoryIVfirmsare,amongotherthings,subjectto(1)supervisorycapitalstresstestingonabiennialbasis,(2)requirementsto develop andmaintain a capital plan on an annual basis and (3) certain liquidity riskmanagement and risk committeerequirements, including liquidity buffer and liquidity stress testing requirements. When we become subject to enhancedprudentialstandards,wewillfacemorestringentrequirementsorlimitationsonourbusiness,aswellasincreasedcompliancecosts,and,dependingonourlevelsofcapitalandliquidity,stresstestresultsandotherfactors,wemaybelimitedinthetypesof activities we may conduct and be limited as to how we utilize our capital, including with respect to common stockrepurchases. Further,wemay be subject to heightened expectations,which could result in additional regulatory scrutiny,higherpenalties,andmoresevereconsequencesifweareunabletomeetthoseexpectations.See“Business-SupervisionandRegulation-Enhanced Prudential Standards,” under this Part I, Item 1, for a more detailed description of the variousrequirementsthatmaybecomeapplicabletous.
WefaceariskofnoncomplianceandenforcementactionwiththeBankSecrecyAct,otheranti-moneylaunderingandanti-briberystatutesandregulations,andU.S.economicandtradesanctions.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, the Anti-Money Laundering Act of 2020, and other laws andregulations require financial institutions to, amongotherduties, instituteandmaintainaneffectiveanti-money launderingprogram and file suspicious activity and currency transaction reports as appropriate. The federal Financial CrimesEnforcementNetworkisauthorizedtoimposesignificantcivilmoneypenaltiesforviolationsofthoserequirementsandhasengaged in coordinated enforcement effortswith state and federal banking regulators, aswell as theU.S. Department ofJusticeandIRS.WealsomustcomplywithU.S.economicandtradesanctionsadministeredbytheU.S.TreasuryDepartment’sOfficeofForeignAssetsControlandtheU.S.ForeignCorruptPracticesAct,andwe,likeotherfinancialinstitutions,aresubjectto increased scrutiny for compliancewith these requirements.Wemaintain policies, procedures and systems designed todetect and deter prohibited financing activities. However, if these controls were deemed deficient or fail to preventwrongdoing,wecouldbesubjecttoliability,includingcivilfinesandregulatoryactions,whichmayincluderestrictionsonourabilitytopaydividendsandthenecessitytoobtainregulatoryapprovalstoproceedwithcertainaspectsofourbusinessplan.Inaddition,anyfailuretoeffectivelymaintainandimplementadequateprogramstocombatmoneylaunderingandterroristfinancingcouldhaveseriousreputationalconsequencesforus.Anyoftheseresultscouldmateriallyandadverselyaffectourbusiness,financialconditionorresultsofoperations.
If we were to violate, or fail to comply with, international, federal or state laws or regulations governing financialinstitutions,wecouldbesubjecttodisciplinaryactionthatcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsorreputation.
International,federalandstatebankingregulatorspossessbroadpowerstotakesupervisoryorenforcementactionwithrespect to financial institutions.Other regulatorybodies, including the SEC, FINRAand state securities regulators, regulateinvestmentadvisersandbroker-dealers, includingour subsidiaries, SVBAssetManagement, SVBWealthAdvisory,andSVBLeerink,aswellastheregisteredinvestmentadviserswewillacquireuponclosingtheBostonPrivateacquisition.Theselawsandregulationsarehighlycomplex,andifweweretoviolate,evenifunintentionallyorinadvertently,regulatoryauthoritiescouldtakevariousactionsagainstus,suchasimposingrestrictionsonhowweconductourbusiness,imposinghighercapitaland liquidity requirements, requiringus tomaintainhigher insurance levels, revokingnecessary licensesor authorizations,imposing censures, significant civil money penalties or fines, issuing cease and desist or other supervisory orders, andsuspendingorexpellingusoranyofouremployeesfromcertainbusinesses.Forexample,wecouldfacematerialrestrictionsonouractivitiesandourabilitytoenterintocertaintransactionsifSVBFinancialandtheBankceasetomaintaintheirstatusaswell-capitalizedorwell-managedasdefinedunderrelevantregulations.Theseenforcementactionscouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandreputation.
Laws and regulations regarding the handling of personal data and information may impede our services or result inincreasedcosts,legalclaimsorfinesagainstus.
Wearesubjecttoanevolvingbodyoffederal,stateandnon-U.S.laws,regulations,guidelinesandprinciplesregardingdata privacy and security, including the protection of personal information. Legal requirements relating to the collection,storage,handling,use,disclosure, transferandsecurityofpersonaldatacontinuetoevolve,andregulatoryscrutiny in thisareaisincreasingaroundtheworld.Significantuncertaintyexistsasprivacyanddataprotectionlawsmaybeinterpretedandapplieddifferentlyfromcountrytocountryandmaycreateinconsistentorconflictingrequirements.Forexample,theGDPRextendsthescopeoftheEuropeanUniondataprotectionlawtoallcompaniesprocessingdataofEUresidents,regardlessoflocation,while theCaliforniaConsumerPrivacyAct ("CCPA")establishednew requirements regardinghandlingofpersonaldata to entities serving or employing California residents, and such requirements will be expanded under the California
TableofContents
29
Privacy Rights Act ("CPRA") once it goes into effect on January 1, 2023. The GDPR, CCPA and CPRA have heightened ourprivacycomplianceobligationsandhaverequiredustoevaluateourcurrentoperations,informationtechnologysystemsanddatahandlingpracticesandimplementchangeswherenecessarytocomply,withassociatedcosts.Ourfailuretocomplywithanysuchlaws,orthefailureofourcurrentoperations,informationtechnologysystemsanddatahandlingpracticestopreventbreachesinvolvingpersonaldata,mayresultinsignificantliabilitiesand/orreputationalharm.See“Business-SupervisionandRegulation-Privacy and Cybersecurity,” under this Part I, Item 1, for amore detailed description of the various consumerprivacylawsthatareapplicabletous.
Adverse results from litigation or governmental or regulatory investigations can impact our business practices andoperatingresults.
We are currently involved in certain legal proceedings, andmay from time to time be involved in governmental orregulatoryinvestigationsandinquiriesrelatingtomattersthatariseinconnectionwiththeconductofourbusiness.Whilewehavenotrecognizedamaterialaccrualliabilityforanylawsuitsandclaimsfiledorpendingagainstustodate,theoutcomeoflitigationandotherlegalandregulatorymattersisinherentlyuncertainanditispossiblethattheactualresultsofoneormoreof suchmattersmay be substantially higher than the amounts reserved, or that judgmentsmay be rendered, or fines orpenaltiesassessed inmatters forwhichwehaveno reserves. Further, adverseoutcomes in lawsuitsor investigationsmayresultinsignificantmonetarydamages,admissionsofguiltorinjunctivereliefthatmayadverselyaffectouroperatingresultsor financial condition as well as our ability to conduct our businesses as they are presently being conducted. Any suchresolution of a criminal matter involving us or our employees could lead to increased exposure to civil litigation andoverlappinggovernmentinvestigations,couldadverselyaffectourreputation,couldresult inpenaltiesor limitationsonourabilitytoconductouractivitiesgenerallyorincertaincircumstancesandcouldhaveothernegativeeffects.Thesemattersalsoincluderespondingtogovernmentalinquiriesregardingourcustomers.Inrecentyearsacrossthefinancialservicesindustry,anumberofinvestigationsofcustomershave,basedonthecircumstances,ledtoinvestigationsoftheparticularbankanditspolicies.
Moreover,evenifweprevailinsuchactions,litigationandinvestigationscancausereputationalharmandbecostlyandtime-consuming,andoftenriskdivertingtheattentionofourmanagementandkeypersonnelfromourbusinessoperations,whichcouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.
Afailuretoappropriatelyidentifyandaddresspotentialconflictsofinterestcouldadverselyaffectourbusinesses.
Duetothebroadscopeofourbusinesses,weregularlyaddresspotentialconflictsofinterest,includingsituationswhereour services toaparticular clientorourown investmentsorother interests conflict,orareperceived to conflict,with theinterestsofthatclientoranotherclient,aswellassituationswhereoneormoreofourbusinesseshaveaccesstomaterialnon-public informationthatmaynotbesharedwithourotherbusinessesandsituationswherewemaybeacreditorofanentity withwhichwe also have an advisory or other relationship. For example, SVB Leerink provides investment bankingservicestoclients inthehealthcareandlifesciences industry,someofwhichmayalsobeclientsorpotentialclientsoftheBank.Inaddition,weinvestinandpartnerwithentitiesintheinnovationeconomy,someofwhichmaybeclientsorpotentialclientsoftheBank.ThesetypesofpotentialconflictsareexpectedtoincreasewithouracquisitionofBostonPrivateandtherelatedexpansioninourprivatebankbusiness.
Wehaveproceduresandcontrolsdesignedtoidentifyandaddresstheseconflictsofinterest,includingthosedesignedtopreventtheimpropersharingof informationamongourbusinesses.However,appropriately identifyinganddealingwithconflictsofinterestiscomplexanddifficult,andourreputationcouldbedamagedandthewillingnessofclientstoenterintotransactionswithusmaybeaffectedifwefail,orappeartofail,toidentify,discloseanddealappropriatelywithconflictsofinterest.Inaddition,potentialorperceivedconflictscouldgiverisetolitigationorregulatoryenforcementactions.
Anti-takeover provisions and federal laws, particularly those applicable to financial institutions,may limit the ability ofanotherparty toacquireus,whichcouldpreventamergeroracquisition thatmaybeattractive to stockholdersand/orhaveamaterialadverseeffectonourstockprice.
Asabankholdingcompany,wearesubjecttocertainlawsthatcoulddelayorpreventathirdpartyfromacquiringus.TheBankHoldingCompanyActof1956,asamended,andtheChangeinBankControlActof1978,asamended,togetherwithfederal and state regulations, require that, depending on the particular circumstances, either the Federal Reserve mustapprove or, after receiving notice,must not object to any person or entity acquiring “control” (as determined under theFederalReserve’sstandards)ofabankholdingcompany,suchasSVBFinancial,orastatememberbank,suchastheBank.Inaddition, DFPI approval may be required in connection with the acquisition of control of the Bank. Moreover, certainprovisionsofourcertificateofincorporationandby-lawsandcertainotheractionswemaytakeorhavetakencoulddelayorprevent a third party from acquiring us. Any of these laws, regulations and other provisions may prevent a merger oracquisitionthatwouldbeattractivetostockholdersandcouldlimitthepriceinvestorswouldbewillingtopayinthefutureforourcommonstock.
TableofContents
30
Strategic,ReputationalandOtherRisks
Concentrationofriskincreasesthepotentialforsignificantlosses,whiletheestablishmentoflimitstomitigateconcentrationriskincreasesthepotentialforlowerrevenuesandslowergrowth.
Our focus on certain markets or segments, including those by client industry, life-cycle stage, size and geography,increasesthepotentialforsignificantlossesduetoconcentrationofrisk.Itmayalsoresultinlowerrevenuesorslowergrowthifwechoosetolimitgrowthincertainmarketsorsegmentstomitigateconcentrationrisk.Whiletheremayexistagreatdealofdiversitywithineachindustry,ourclientsareconcentratedwithinthefollowinggeneralindustries:technology,lifescienceandhealthcare,privateequityandventurecapital andpremiumwine.Clientsofourprivatebankingdivisionareprimarilyprofessionalsintheseindustries,thoughthiswillchangeuponclosingoftheacquisitionofBostonPrivate.Inparticular,ourtechnologyclientsgenerallytendtobeintheindustriesofhardware(suchassemiconductors,communications,datastorageand electronics), software/internet (such as infrastructure software, applications, software services, digital content andadvertisingtechnology),andenergyandresourceinnovation.Ourlifescienceandhealthcareclientsareconcentratedintheindustriesofbiotechnology,medicaldevices,healthcareinformationtechnologyandhealthcareservices.Manyofourclientcompaniesarealsoconcentratedbycertainstageswithintheir lifecycles,suchasearly-stage,mid-stageor later-stageandmanyofthesecompaniesareventurecapital-backed.Inaddition,growthprospectsandourgeographicfocusonkeydomesticand international innovationmarkets,aswellaspremiumwinemarkets,may leadtoan increase inourconcentrationrisk.Our loan concentrations are derived from our borrowers engaging in similar activities as well as certain types of loansextendedtoadiversegroupofborrowersthatcouldcausethoseborrowerstobesimilarly impactedbyeconomicorotherconditions.Anyadverseeffectonanyofourareasofconcentrationcouldhaveamaterialimpactonourbusiness,resultsofoperationsand financialcondition,evenwheneconomicandmarketconditionsaregenerally favorable toourcompetitorsthatarenotexposedtosimilarconcentrationrisk.
Decreasesintheamountofequitycapitalavailabletoourportfoliocompaniescouldadverselyaffectourbusiness,growthandprofitability.
Our core strategy is focused on providing banking and financial products and services to companies, investors,entrepreneursandinfluencersintheinnovationeconomy,includinginparticulartoearly-stageandmid-stagecompaniesthatreceive financial support fromsophisticated investors, includingventurecapitalorprivateequity firms,“angels,”corporateinvestors, crowd-funding and other evolving sources of capital.We derive ameaningful share of our deposits from thesecompaniesandprovide themwith loansaswell asotherbankingproductsand services. In somecases,our lending creditdecisionisbasedonouranalysisofthelikelihoodthatourclientwillreceiveadditionalroundsofequitycapitalfrominvestorsorotherfundingsources.Amongthefactorsthathaveaffectedandcouldinthefutureaffecttheamountofcapitalavailableto our portfolio companies are: the receptivity of the capital markets; the prevalence of public equity offerings orM&Aactivity(primarilyamongcompanieswithinthetechnologyandlifescienceandhealthcareindustrysectors);theavailabilityandreturnonalternativeinvestments;economicconditionsinthetechnology,lifescienceandhealthcareandprivateequity/venturecapitalindustries;andoverallgeneraleconomicconditions.Reducedcapitalmarketsvaluationscouldalsoreducetheamount of capital available to our client companies, including companies within our technology and life science andhealthcareindustrysectors.Iftheamountofcapitalavailabletosuchcompaniesdecreases,itislikelythatthenumberofournewclientsandinvestorfinancialsupporttoourexistingclientscoulddecrease,whichcouldhaveanadverseeffectonourbusiness,profitabilityandgrowthprospects.
Wefacecompetitivepressuresthatcouldadverselyaffectourbusiness,resultsofoperations,financialconditionorgrowth.
Wecompetewithotherbanksaswellas specialtyanddiversified financial servicescompaniesand investment,debt,venture capital and private equity funds, some ofwhich are larger thanwe are andwhichmay offer a broader range oflending,leasing,payments,foreigncurrencyexchange,andotherfinancialproductsandadvisoryservicestoourclientbase.Wealso competewithother alternative andmore specialized lenders, suchasonline “marketplace” lenders, peer-to-peerlendersandothernon-traditionallendersthathaveemergedinrecentyears.
Moreover, we compete with fintech and non-financial services companies, many of which offer bank or bank-likeproducts,specializedservicesinvolvingtheeliminationofbanksasintermediaries(knownas“disintermediation”)and/ortheunbundlingofbankingproductsandservicesintopointsolutions.Theactivityoffintechsandsupportoffintechsbyventurecapitalfirmshasincreasedsignificantlyinrecentyearsandareexpectedtocontinuetoincrease.Forexample,anumberoffintechshaveappliedfor,andinsomecasesreceived,bankorindustrialloanchartersorhavepartneredwithexistingbankstoallow them toofferdepositproducts to their customers. Therehasalsobeen significant fintechactivity in theareasofcreditcards,payments,foreignexchangeandlending.Regulatorychanges,suchastheDecember2020revisionstotheFDIC’srulesonbrokereddeposits,mayalsomakeiteasierforfintechstopartnerwithbanksandofferdepositproducts.Inaddition,some traditional technology companies are beginning to provide financial services directly to their customers and are
TableofContents
31
expectedtocontinuetoexplorenewwaystodoso.Manyofthesecompanieshavefewerregulatoryconstraintsthanwedo,and some have lower cost structures. Some of these companies also have greater resources to invest in technologicalimprovementsthanwecurrentlyhaveandmaybeabletobetterrecruittechnologytalent.
Our competitorsmay focus theirmarketingeffortson industry sectors thatwe serve; forexample, theymay seek toincrease their lending and other financial relationships with technology companies or special industries such as wineries.Whennewcompetitorsseektoenteroneofourmarkets,orwhenexistingmarketparticipantsseektoincreasetheirmarketshare, theysometimesundercutthepricingand/orcredit termsprevalent inthatmarket,whichcouldadverselyaffectourmarketshareorabilitytoexploitnewmarketopportunities.Wemayhavetoagreetoacceptlessattractivecredit,pricingandotherinvestmenttermsifweacttomeetthesecompetitivechallenges,whichcouldadverselyaffectourbusiness,resultsofoperations, financial condition and future growth. Similarly, competitive pressures andmarket disruption could adverselyaffectouraccesstocapitalandattractiveinvestmentopportunitiesforourfundsbusiness.
Ourabilitytomaintainor increaseourmarketsharedependsonourabilitytoattractandmaintain,aswellasmeettheneedsof,existingandfutureclients.
Our success depends, in part, upon our ability tomaintain or increase ourmarket share. In particular,much of oursuccessdependsonourabilitytoattractearly-stageorstart-upcompaniesasclientsandtoretainthosecompaniesasclientsastheygrowandmaturesuccessfullythroughthevariousstagesoftheirlifecycles.Asaresult,weadaptourproductsandservicestoevolvingindustrystandardsaswellasintroducenewproductsandservicesbeyondindustrystandardsinordertoserveourclients,whoareinnovatorsthemselves.Afailuretoachievemarketacceptanceforanynewproductsorservicesweintroduce, a failure to introduce products or services that themarket demands, or the costs associatedwith developing,introducing and providing newproducts and services could have an adverse effect on our business, results of operations,growthprospectsandfinancialcondition.
Wefacerisksinconnectionwithourstrategicundertakingsandnewbusinessinitiatives.
We are engaged, and may in the future engage, in strategic activities domestically or internationally (includingacquisitionssuchasthependingacquisitionofBostonPrivateandtherecentlycompletedacquisitionofWestRiverGroup's("WRG")debtfundbusiness),jointventures,partnerships,investmentsorotherbusinessgrowthinitiativesorundertakings.Therecanbenoassurancethatwewillsuccessfully identifyappropriateopportunities,thatwewillbeabletonegotiateorfinancesuchactivitiesorthatsuchactivities,ifundertaken,willbesuccessful.
Wearefocusedonourlong-termgrowthandhaveundertakenvariousstrategicactivitiesandbusinessinitiatives,manyofwhichinvolveactivitiesthatarenewtousor,insomecases,areexperimentalinnature.Forexample,weareexpandingourglobalpresenceandmayengageinactivitiesinjurisdictionswherewehavelimitedexperiencefromabusiness,legaland/or regulatoryperspective.With theacquisitionofSVBLeerink,wehavealsoexpanded intonew linesofbusiness,namely,investmentbankingandM&Aadvisoryservices. In January2021,weannouncedourpendingacquisitionofBostonPrivate,whichwillsignificantlyexpandourwealthmanagementandprivatebankingbusinessandintroducenewlinesoflendingandnew deposit products, new types of customers and a number of bank branches. We are also expanding our paymentsprocessing capabilities to better serve our clients, including innovating new electronic payment processing solutions,developingnewpaymentstechnologies,andsupportingneworevolvingdisruptivepaymentssystems,and,withthependingacquisitionofBostonPrivate,expecttoexpandourprivatebankandwealthmanagementservices.Wemayalsoserveclientsthatdealwithneworevolving industriesorbusinessactivities, suchasdigital currenciesandcannabis.Givenourevolvinggeographicandproductdiversification,andourinnovativeproductsolutions,theseinitiativesmaysubjectusto,amongotherrisks, increasedbusiness,reputationalandoperationalrisk,aswellasmorecomplex legal,regulatoryandcompliancecostsandrisks.
Ourabilitytoexecutestrategicactivitiesandnewbusinessinitiativessuccessfully(suchastheacquisitionofSVBLeerinkandthependingacquisitionofBostonPrivate)willdependonavarietyoffactors.Thesefactorslikelywillvarybasedonthenatureoftheactivitybutmayincludeoursuccessinintegratinganacquiredcompanyoranewinternallydevelopedgrowthinitiativeintoourbusiness,operations,services,products,personnelandsystems,operatingeffectivelywithanypartnerwithwhomweelect todobusiness,meetingapplicable regulatory requirementsandobtainingapplicable regulatory licensesorother approvals, hiring or retaining key employees, achieving anticipated synergies, meetingmanagement’s expectations,realizingtheanticipatedbenefitsoftheactivities,andoverallgeneralmarketconditions.Ourabilitytoaddressthesematterssuccessfully cannot be assured. In addition, our strategic efforts may divert resources or management’s attention fromongoing business operations and may subject us to additional regulatory scrutiny and potential liability. If we do notsuccessfullyexecuteastrategicundertaking,itcouldadverselyaffectourbusiness,financialcondition,resultsofoperations,reputationorgrowthprospects.Inaddition,ifweweretoconcludethatthevalueofanacquiredbusinesshaddecreasedandthattherelatedgoodwillhadbeenimpaired,thatconclusionwouldresultinanimpairmentofgoodwillchargetous,whichwouldadverselyaffectourresultsofoperations.
TableofContents
32
Inaddition,inordertofinancefuturestrategicundertakings,wemightrequireadditionalfinancing,whichmightnotbeavailableon terms favorable tous,oratall. Ifobtained,equity financingcouldbedilutiveand the incurrenceofdebtandcontingentliabilitiescouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsorfinancialcondition.
Ourbusinessreputationandrelationshipsareimportantandanydamagetothemcouldhaveamaterialadverseeffectonourbusiness.
Ourreputation isvery important insustainingourbusinessandwerelyonourrelationshipswithourcurrent, formerandpotentialclientsandstockholders,theventurecapitalandprivateequitycommunities,andotheractorsintheindustriesthatweserve.Anydamagetoourreputation,whetherarisingfromregulatory,supervisoryorenforcementactions,mattersaffecting our financial reporting or compliancewith SEC and exchange listing requirements, negative publicity, theway inwhichweconductourbusiness(includingwithrespecttotheadministrationofPPPorouractionsrelatedtoenvironmental,socialandgovernancematters)orotherwise,couldstrainourexistingrelationshipsandmakeitdifficultforustodevelopnewrelationships. Additionally, negative publicity regarding the industries that we focus on serving (for example, technology,private equity or venture capital)may also damage our reputation. Any such damage to our reputation and relationshipscouldinturnleadtoamaterialadverseeffectonourbusiness.
Whereas negative public opinion once was primarily driven by adverse news coverage in traditional media, theincreaseduseofsocialmediaplatformsfacilitatestherapiddisseminationofinformationormisinformation,whichmagnifiesthepotentialharmtoourreputation. Inaddition,thebehaviorofouremployees, includingwithrespecttoouremployees’use of socialmedia, subjects us to potential negative publicity if such behavior does not alignwith our high standards ofintegrityorfailstocomplywithregulationsoracceptedpractices.
Anineffectiveriskmanagementframeworkcouldhaveamaterialadverseeffectonourstrategicplanningandourabilitytomitigaterisksand/orlossesandcouldhaveadverseregulatoryconsequences.
We have implemented a riskmanagement framework to identify andmanage our risk exposure. This framework iscomprisedofvariousprocesses,systemsandstrategies,andisdesignedtomanagethetypesofrisktowhichwearesubject,including, among others, credit, market, liquidity, operational, capital, compliance, strategic and reputational risks. Ourframework also includes financial, analytical, forecasting or other modeling methodologies, which involve managementassumptionsandjudgment.Inaddition,ourBoardofDirectors,inconsultationwithmanagement,hasadoptedariskappetitestatement,whichsets forthcertain thresholdsand limits togovernouroverall riskprofile.However, there isnoassurancethatourriskmanagementframework,includingtheriskmetricsunderourriskappetitestatement,willbeeffectiveunderallcircumstancesorthatitwilladequatelyidentify,manageormitigateanyriskorlosstous.Ifourriskmanagementframeworkisnoteffective,wecouldsufferunexpectedlossesandbecomesubjecttoregulatoryconsequences,asaresultofwhichourbusiness,financialcondition,resultsofoperationsorprospectscouldbemateriallyadverselyaffected.
Wedonotcurrentlypaydividendsonsharesofourcommonstockandmaynotdosointhefuture.
HoldersofsharesofourcapitalstockareonlyentitledtoreceivesuchdividendsasourBoardofDirectorsmaydeclareoutoffundslegallyavailableforsuchpayments.Wedonotcurrentlypaydividendsonourcommonstockandhavenocurrentplanstodoso.Furthermore,thetermsofouroutstandingpreferredstockprohibitusfromdeclaringorpayinganydividendson any junior series of our capital stock, includingour common stock, or from repurchasing, redeemingor acquiring suchjunior stock, unless we have declared and paid full dividends on our outstanding preferred stock for the most recentlycompleteddividendperiod.Wearealsosubjecttostatutoryandregulatorylimitationsonourabilitytopaydividendsonourcapitalstock. Ifweareunabletosatisfythecapitalrequirementsapplicabletousforanyreason,wemaybelimitedinourabilitytodeclareandpaydividendsonourcapitalstock.
RisksRelatingtoOurPendingAcquisitionofBostonPrivate
WecannotensurethattheproposedBostonPrivateacquisitionwillbecompleted.
We cannot ensure that the proposedBoston Private acquisitionwill be completed. There are a number of risks anduncertaintiesrelatingtotheBostonPrivateacquisition.Forexample,theBostonPrivateacquisitionmaynotbecompleted,ormaynotbe completed in the timeframe,on the termsor in themanner currently anticipated, as a result of anumberoffactors,including,amongotherthings,thefailureofoneormoreoftheconditionstoclosing.TherecanbenoassurancethattheconditionstoclosingoftheBostonPrivateacquisitionwillbesatisfiedorwaivedorthatothereventswillnotintervenetodelayorresultinthefailuretoclosetheBostonPrivateacquisition.TheBostonPrivatemergeragreementmaybeterminatedbythepartiestheretoundercertaincircumstances.Anydelayinclosingorafailuretoclosecouldhaveanegativeimpactonourbusinessandthetradingpriceofoursecurities.
TableofContents
33
Inaddition,tocompletetheBostonPrivateacquisition,weneedtoobtainapprovalsorconsentsfrom,andmakefilingswith, certain applicable governmental authorities, which include the Federal Reserve, the DFPI and the MassachusettsCommissionerofBanks.WhilewebelievethatwewillreceiveallrequiredapprovalsfortheBostonPrivateacquisition,therecanbenoassuranceastothereceiptortimingofreceiptoftheseapprovals.Thereceiptofsuchapprovalsmaybeconditionalupon actions that we are not obligated to take under the Boston Private merger agreement, which could result in thetermination of the Boston Private merger agreement by us, or, if such approvals are received, their terms could have adetrimental impact on us following the completion of the Boston Private acquisition. A substantial delay in obtaining anyrequiredauthorizations,approvalsorconsents,ortheimpositionofunfavorableterms,conditionsorrestrictionscontainedinsuchauthorizations,approvalsorconsents,couldpreventthecompletionoftheBostonPrivateacquisitionorhaveanadverseeffect on the anticipated benefits of the Boston Private acquisition, thereby adversely impacting our business, financialconditionorresultsofoperations.
WemayfailtorealizethegrowthprospectsandotherbenefitsanticipatedasaresultoftheBostonPrivateacquisition.
The success of the Boston Private acquisitionwill depend, in part, on our ability to realize the anticipated businessopportunitiesandgrowthprospectsfromtheBostonPrivateacquisition.Wemayneverrealizethesebusinessopportunitiesandgrowthprospects.TheBostonPrivateacquisitionandrelatedintegrationwillrequiresignificanteffortsandexpenditures.Ourmanagementmight have its attention divertedwhile trying to integrate operations and corporate and administrativeinfrastructuresand thecostof integrationmayexceedourexpectations.Wecurrentlyexpect to incurapproximately$200millionofrestructuringcostsinconnectionwiththetransactionandtotakeanadditionalwrite-downonBostonPrivate’sloanportfolioatclosing.Wemayalsoberequiredtomakeunanticipatedcapitalexpendituresorinvestmentsinordertomaintain,improveorsustaintheacquiredoperationsortakewrite-offsorimpairmentchargesandmaybesubjecttounanticipatedorunknown liabilities relating to theBostonPrivateacquisition. Inaddition, thesuccessof theBostonPrivateacquisitionwilldependinpartonourabilitytoretainBostonPrivate’semployeesandclients.Ifweareunable,foranyreason,toretainkeyemployeesorclients,wemaynotrealizetheanticipatedbenefitsofthetransaction.
If any of these factors limit our ability to complete the Boston Private acquisition and integration of operationssuccessfully or on a timely basis, our expectations of future results of operations following the Boston Private acquisitionmight not be met. In addition, it is possible that the integration process could result in the loss of key employees, thedisruptionofongoingbusinesses,taxcostsorinefficiencies,orinconsistenciesinstandards,controls,informationtechnologysystems,proceduresandpolicies,anyofwhichcouldadverselyaffectourability toachieve theanticipatedbenefitsof theBostonPrivateacquisitionandcouldharmourfinancialperformance.
GeneralRiskFactors
Ifwefailtoretainkeyemployeesorrecruitnewemployees,orifweareunabletoeffectivelymanagethegrowthofouremployeebase,ourgrowthandresultsofoperationscouldbeadverselyaffected.
Werelyonkeypersonnel, includingasubstantialnumberofemployeeswhohavetechnicalexpertise in theirsubjectmatterareaandastrongnetworkofrelationshipswithindividualsandinstitutionsinthemarketsweserve.Inaddition,asweexpand into internationalmarkets,wewillneed tohire localpersonnelwithin thosemarkets.Further,competition forkeypersonnelissubstantialandmayincrease,particularlyifnewcompetitorsseektoenteroneofourmarketsorexistingmarketparticipantsseektoincreasetheirmarketshare.Ifweweretohavelesssuccessinrecruitingandretainingtheseemployeesthanourcompetitors,forreasonsincludingdomesticorforeignregulatoryrestrictionsoncompensationpractices,inabilitytoeffectively address issues related to human capital management, or the availability of more attractive opportunitieselsewhere,ourgrowthandresultsofoperationscouldbeadverselyaffected. Inaddition,wehaveexperiencedmeaningfulgrowth in our employeebase in recent years. Thenumber of our full-time equivalent employees increased from3,564 atDecember31,2019to4,461atDecember31,2020,andisexpectedtocontinuetoincreasethroughourorganicgrowth,aswellasthroughpotentialacquisitions,suchasourpendingacquisitionofBostonPrivateFinancialHoldings,Inc.Ifthisgrowthplacesstrainonouroperations,corporatecultureorhumancapitalmanagementpractices,orifweareunabletoadequatelyintegrate new employees or tomaintain employee satisfaction, our growth and results of operations could be adverselyimpacted.
Moreover, equity awards are an important component of our compensation program, especially for our executiveofficersandothermembersofseniormanagement.Theextentofsharesavailableforgrant inconnectionwithsuchequityawardspursuanttoourincentivecompensationplansisgenerallysubjecttostockholderapproval.Ifwedonothavesufficientsharestogranttoexistingornewemployees,therecouldbeanadverseeffectonourrecruitingandretentionefforts,whichcouldimpactourgrowthandresultsofoperations.
Ifwe fail tomaintainaneffective systemof internal controlover financial reporting,wemaynotbeable toaccuratelyreportourfinancialresults.Asaresult,currentandpotentialholdersofoursecuritiescouldloseconfidenceinourfinancialreporting,whichwouldharmourbusinessandthetradingpriceofoursecurities.
TableofContents
34
Maintaining and adaptingour internal controls over financial reporting, as requiredby Section404of the Sarbanes-OxleyActandrelatedrulesandregulationsof theSEC,canbecostlyandrequiresignificantmanagementattention.Aswecontinuetogroworacquireadditionalbusinesses,our internalcontrolsmaybecomemorecomplexandrequireadditionalresources to ensure they remain effective amidst dynamic regulatory and other guidance. Failure to maintain effectivecontrolsorimplementrequiredneworimprovedcontrolsordifficultiesencounteredintheprocessmayharmouroperatingresults or cause us to fail tomeet our reporting obligations. Ifwe or our independent registered accounting firm identifymaterialweaknessesinourinternalcontrolsoverfinancialreportingorifweareotherwiserequiredtorestateourfinancialstatements, we could be required to implement costly and time-consuming remedial measures and could lose investorconfidence in the accuracy and completeness of our financial reports.Wemay also face regulatory enforcement or otheractions, includingthepotentialdelistingofourcommonstockfromtheNASDAQStockMarket.Thiscouldhaveanadverseeffectonourbusiness, financial conditionor resultsofoperations,aswellas the tradingpriceofoursecurities,andcouldpotentiallysubjectustolitigation.
Changesinaccountingstandardscouldmateriallyimpactourfinancialstatements.
Fromtimetotime,theFASBortheSECmaychangethefinancialaccountingandreportingstandardsthatgovernthepreparationofourfinancialstatements.Also,ourglobalinitiatives,aswellascontinuingtrendstowardstheconvergenceofinternationalaccountingstandards,suchasrulesthatmaybeadoptedundertheInternationalFinancialReportingStandards(“IFRS”),mayresult inourCompanybeingsubjecttoneworchangingaccountingandreportingstandards. Inaddition,thebodies that interpret the accounting standards (such as banking regulators or external auditors) may change theirinterpretationsorpositionsonhowthesestandards shouldbeapplied.Thesechangesmaybebeyondourcontrol, canbehardtopredictandcanmateriallyimpacthowwerecordandreportourfinancialconditionorresultsofoperations.Insomecases,wecouldberequiredtoapplyaneworrevisedstandardretrospectively,orapplyanexistingstandarddifferently,alsoretrospectively,ineachcaseresultinginourrevisingorrestatingpriorperiodfinancialstatements.
Wecouldbeadverselyaffectedbychangesintaxlawsandregulationsortheirinterpretations.
Wearesubjecttothe incometax lawsoftheUnitedStates, itsconstituentstatesandmunicipalitiesandthoseoftheforeign jurisdictions in which we have business operations. These tax laws are complex andmay be subject to differentinterpretations.Wemustmake judgments and interpretations about the applicationof these inherently complex tax lawswhen determining our provision for income taxes, our deferred tax assets and liabilities, and our valuation allowance.Changes to the tax laws, includingasa resultof thechanges in theU.S.presidentialadministrationandtheU.S.Congress,administrativerulingsorcourtdecisionscouldincreaseourprovisionforincometaxesandreduceournetincome.
Werelyonquantitativemodelstomeasurerisksandtoestimatecertainfinancialvalues.
Quantitativemodelsmaybeused tohelpmanagecertainaspectsofourbusinessand toassistwith certainbusinessdecisions,includingestimatingcreditlosses,measuringthefairvalueoffinancialinstrumentswhenreliablemarketpricesareunavailable, estimating the effects of changing interest rates and other market measures on our financial condition andresults of operations, and managing risk. However, all models have certain limitations. For example, our measurementmethodologiesrelyonmanyassumptions,historicalanalysesandcorrelations.Theseassumptionsmaynotcaptureor fullyincorporateconditionsleadingtolosses,particularlyintimesofmarketdistress,andthehistoricalcorrelationsonwhichwerelymaynolongerberelevant.Additionally,asbusinessesandmarketsevolve,ourmeasurementsmaynotaccuratelyreflectthe changing environment. Further, even if the underlying assumptions andhistorical correlations used in ourmodels areadequate,ourmodelsmaybedeficientduetoerrorsincomputercode,baddata,misuseofdata,ortheuseofamodelforapurposeoutsidethescopeofthemodel’sdesign.Althoughweemploystrategiestomanageandgoverntherisksassociatedwithouruseofmodels,theymaynotbeeffectiveorfullyreliable.Asaresult,ourmodelsmaynotcaptureorfullyexpresstherisksweface,suggestthatwehavesufficientcapitalizationwhenwedonot,leadustomisjudgethebusinessandeconomicenvironment inwhichwe operate and ultimately cause planning failures or the reporting of incorrect information to ourregulators.Anysuchoccurrenceortheperceptionofsuchoccurrencebyourregulators,investorsorclientscouldinturnhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsorreputation.
Thepriceofourcapitalstockmaybevolatileormaydecline.
Thetradingpriceofourcapitalstockmayfluctuateorbeadverselyaffectedasaresultofanumberoffactors,manyofwhich are outside our control, including trading volumes that affect themarket prices of the shares ofmany companies.Factorsthatcouldaffectthetradingpriceofourcapitalstockinclude:
• actualoranticipatedquarterlyfluctuationsinouroperatingresultsandfinancialcondition;
• changes in revenue or earnings estimates or publication of research reports and recommendations by financial
analysts;
• failuretomeetanalysts’revenueorearningsestimates;
TableofContents
35
• speculationinthepressorinvestmentcommunity;
• strategicactionsbyusorourcompetitors;
• actionsbyinstitutionalstockholders;
• fluctuationsinthestockpriceandoperatingresultsofourcompetitors;
• generalmarket conditions and, inparticular, developments related tomarket conditions for the financial services
industry;
• actualoranticipatedchangesininterestrates;
• marketperceptionsabouttheinnovationeconomy,includinglevelsoffundingor“exit”activitiesofcompaniesinthe
industriesweserve;
• proposedoradoptedregulatorychangesordevelopments;
• anticipatedorpendinginvestigations,proceedingsorlitigationthatinvolveoraffectus;and
• domesticandinternationaleconomicfactorsunrelatedtoourperformance.
The trading price of the shares of our common stock and depositary shares representing fractional interests in ourpreferredstockandthevalueofourothersecuritieswill furtherdependonmanyfactors,whichmaychangefromtimetotime,including,withoutlimitation,ourfinancialcondition,performance,creditworthinessandprospects,andfuturesalesofourequityorequity-relatedsecurities. Insomecases, themarketshaveproduceddownwardpressureontradingpricesofcapital stock and credit availability for certain issuers without regard to those issuers’ underlying financial strength. Asignificantdecline in the tradingpriceofour capital stock could result in substantial losses for individual stockholdersandcouldleadtocostlyanddisruptivesecuritieslitigation,aswellasthelossofkeyemployees.
Ourcapitalstockissubordinatetoourexistingandfutureindebtedness.
Ourcapitalstock,includingourcommonstockanddepositarysharesrepresentingfractionalinterestsinourpreferredstock,ranksjuniortoallofSVBFinancial’sexistingandfutureindebtednessandothernon-equityclaimswithrespecttoassetsavailabletosatisfyclaimsagainstus,includingclaimsintheeventofourliquidation.Wemayincuradditionalindebtednessinthefutureto increaseourcapital resourcesor ifourtotalcapital ratioorthetotalcapital ratiooftheBankfallsbelowtherequiredminimums.Furthermore,ourcommonstockissubordinatetoouroutstandingpreferredstock.
ITEM1B. UNRESOLVEDSTAFFCOMMENTS
None.
ITEM2. PROPERTIES
Our corporate headquarters facility consists of two buildings and is located at 3003 Tasman Drive, Santa Clara,California.Wecurrentlyoccupy157,177 square feetat such location.The leasewill expireonSeptember30,2024,unlessterminatedearlierorextended.
We currentlyoperate30 regionaloffices in theUnited States aswell asofficesoutside theUnited States.All ofourofficepropertiesareoccupiedunderleasesorlicenseagreements,whichexpireatvariousdatesthrough2031,andinmostinstancesincludeoptionstoreneworextendatmarketratesandterms.
OurGlobalCommercialBankoperationsareprincipally conductedoutofour corporateheadquarters in SantaClara,California and our office in Tempe, Arizona, and our lending teams operate out of the various regional and internationaloffices.SVBPrivateBankandSVBCapitalprincipallyoperateoutofourMenloPark,Californiaoffices.SVBLeerinkprincipallyoperatesoutofourBoston,MassachusettsandNewYork,NewYorkoffices.
Webelievethatourpropertiesareingoodconditionandsuitablefortheconductofourbusiness.
ITEM3. LEGALPROCEEDINGS
The information set forth underNote 27—“LegalMatters” of the “Notes to the Consolidated Financial Statements”underPartII,Item8ofthisreportisincorporatedhereinbyreference.
ITEM4. MINESAFETYDISCLOSURES
Notapplicable.
TableofContents
36
PARTII.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASESOFEQUITYSECURITIES
MarketInformation
OurcommonstockistradedontheNASDAQGlobalSelectMarketunderthesymbol"SIVB".
Holders
AsofJanuary31,2021,therewere576registeredholdersofourcommonstock.Webelievetherewereapproximately148,967 beneficial holders of common stock whose shares were held in the name of brokerage firms or other financialinstitutions.We are not provided with the number or identities of all of these stockholders, but we have estimated thenumberofsuchstockholdersfromthenumberofstockholderdocumentsrequestedbythesebrokeragefirmsfordistributiontotheircustomers.
Dividends
SVBFinancialdoesnotcurrentlypaycashdividendsonourcommonstock.Wehavenotpaidanycashdividendssince1992.
OurBoardofDirectorsevaluateswhethertopaycashdividends,takingintoconsiderationsuchfactorsasitconsidersrelevant, including our current and projected financial performance, our projected sources and uses of capital, generaleconomic conditions, considerations relating to our current and potential stockholder base, applicable regulatoryrequirements,andrelevanttax laws.Ourability topaycashdividends isalso limitedbygenerallyapplicablecorporateandbankinglawsandregulations.See“Business-SupervisionandRegulation-RestrictionsonDividends”underPartI,Item1ofthisreport.
SecuritiesAuthorizedforIssuanceunderEquityCompensationPlans
The information required by this Item regarding equity compensation plans is incorporated by reference to theinformationsetforthinPartIII,Item12ofthisreport.
RepurchasesofEquitySecuritiesbytheIssuerandAffiliatedPurchasers
The$350millionstockrepurchaseprogramauthorizedbytheCompany'sBoardofDirectorsandannouncedonOctober24,2019,expiredonOctober29,2020.DuringthethreemonthsendedDecember31,2020,wedidnotrepurchaseanysharesofourcommonstockunderthestockrepurchaseprogram.
PerformanceGraph
Thefollowinginformationisnotdeemedtobe“solicitingmaterial”or“filed”withtheSECorsubjecttotheliabilitiesofSection 18 of the Exchange Act, and the report shall not be deemed to be incorporated by reference into any prior orsubsequentfilingbytheCompanyundertheSecuritiesActortheExchangeAct.
The following graph compares, for the period fromDecember 31, 2015 throughDecember 31, 2020, the cumulativetotalstockholderreturnonthecommonstockoftheCompanywith(i)thecumulativetotalreturnoftheStandardandPoor's500(“S&P500”)Index,(ii)thecumulativetotalreturnoftheNASDAQCompositeindex,and(iii)thecumulativetotalreturnoftheNASDAQBank Index.Thegraphassumesan initial investmentof$100andreinvestmentofdividends.Thegraph isnotindicativeoffuturestockpriceperformance.
TableofContents
37
Comparisonof5YearCumulativeTotalReturn*
SVBFinancialGroup S&P500 NASDAQComposite NASDAQBank
2015 2016 2017 2018 2019 2020$50
$100
$150
$200
$250
$300
$350
*$100investedon12/31/15instockorindex,includingreinvestmentofdividends.FiscalyearendedDecember31st.Copyright©2021 Standard&Poor's,adivisionofS&PGlobal.Allrightsreserved.
December31,
2015 2016 2017 2018 2019 2020
SVBFinancialGroup $ 100.00 $ 144.37 $ 196.61 $ 159.73 $ 211.14 $ 326.18
S&P500 100.00 111.96 136.40 130.42 171.49 203.04
NASDAQComposite 100.00 108.87 141.13 137.12 187.44 271.64
NASDAQBank 100.00 137.14 145.21 120.76 150.06 138.59
TableofContents
38
ITEM6. SELECTEDCONSOLIDATEDFINANCIALDATA
The following selected consolidated financial data should be read in conjunction with our consolidated financialstatements and supplementary data as presentedunder Part II, Item8of this report. Information as of and for the yearsendedDecember31,2020,2019and2018 isderived fromaudited financialstatementspresentedseparatelyherein,whileinformation as of and for the years endedDecember 31, 2017 and2016 is derived fromaudited financial statements notpresentedseparatelywithin.
YearendedDecember31,(Dollarsinthousands,exceptpershareamountsandratios) 2020 2019 2018 2017 2016Incomestatementsummary:Netinterestincome $ 2,156,284 $ 2,096,601 $ 1,893,988 $ 1,420,369 $ 1,150,523Provisionforcreditlosses (219,510) (106,416) (87,870) (92,304) (106,679)Noninterestincome 1,840,148 1,221,479 744,984 557,231 456,552Noninterestexpense (2,035,041) (1,601,262) (1,188,193) (1,010,655) (859,797)Incomebeforeincometaxexpense 1,741,881 1,610,402 1,362,909 874,641 640,599Incometaxexpense (447,587) (425,685) (351,561) (355,463) (250,333)Netincomebeforenoncontrollinginterests 1,294,294 1,184,717 1,011,348 519,178 390,266Netincomeattributabletononcontrollinginterests (85,926) (47,861) (37,508) (28,672) (7,581)Preferredstockdividends (17,151) — — — —Netincomeavailabletocommonstockholders $ 1,191,217 $ 1,136,856 $ 973,840 $ 490,506 $ 382,685Commonsharesummary:Earningspercommonshare—basic $ 23.05 $ 21.90 $ 18.35 $ 9.33 $ 7.37Earningspercommonshare—diluted 22.87 21.73 18.11 9.20 7.31Bookvaluepercommonshare 151.86 118.67 97.29 79.11 69.71Weightedaveragesharesoutstanding—basic 51,685 51,915 53,078 52,588 51,915Weightedaveragesharesoutstanding—diluted 52,084 52,311 53,772 53,306 52,349Year-endbalancesheetsummary:Available-for-salesecurities $ 30,912,438 $ 14,014,919 $ 7,790,043 $ 11,120,664 $ 12,620,411Held-to-maturitysecurities 16,592,153 13,842,946 15,487,442 12,663,455 8,426,998Loans,amortizedcost 45,181,488 33,164,636 28,338,280 23,106,316 19,899,944
Totalassets 115,511,007 71,004,903 56,927,979 51,214,467 44,683,660Deposits 101,981,807 61,757,807 49,328,900 44,254,075 38,979,868Short-termborrowings 20,553 17,430 631,412 1,033,730 512,668Long-termdebt 843,628 347,987 696,465 695,492 795,704SVBFGstockholders'equity 8,219,700 6,470,307 5,116,209 4,179,795 3,642,554Averagebalancesheetsummary:Available-for-salesecurities $ 18,652,580 $ 9,597,712 $ 9,789,211 $ 12,424,137 $ 13,331,315Held-to-maturitysecurities 13,113,300 14,672,342 14,997,846 9,984,610 8,192,183Loans,amortizedcost 37,265,976 29,916,207 25,630,520 21,159,394 18,283,591Totalassets 85,791,659 63,211,630 55,229,060 48,380,272 43,987,451Deposits 75,015,430 55,056,950 48,075,344 42,745,148 38,759,059Short-termborrowings 401,159 144,545 643,886 48,505 220,251Long-termdebt 632,266 685,445 695,938 766,943 796,302SVBFGcommonstockholders'equity 7,079,356 5,674,531 4,734,417 3,961,405 3,509,526Capitalratios:SVBFGCET1risk-basedcapitalratio 11.04% 12.58% 13.41% 12.78% 12.80%SVBFGtotalrisk-basedcapitalratio 12.64 14.23 14.45 13.96 14.21SVBFGtier1risk-basedcapitalratio 11.89 13.43 13.58 12.97 13.26SVBFGtier1leverageratio 7.45 9.06 9.06 8.34 8.34SVBFGtangiblecommonequitytotangibleassets(1) 6.66 8.39 8.99 8.16 8.15SVBFGtangiblecommonequitytorisk-weightedassets(1) 11.87 12.76 13.28 12.77 12.89BankCET1risk-basedcapitalratio 10.70 11.12 12.41 12.06 12.65Banktotalrisk-basedcapitalratio 11.49 11.96 13.32 13.04 13.66Banktier1risk-basedcapitalratio 10.70 11.12 12.41 12.06 12.65Banktier1leverageratio 6.43 7.30 8.10 7.56 7.67Banktangiblecommonequitytotangibleassets(1) 6.24 7.24 8.13 7.47 7.77Banktangiblecommonequitytorisk-weightedassets(1) 11.58 11.31 12.28 11.98 12.75AverageSVBFGstockholders'equitytoaverageassets 8.25 8.98 8.57 8.19 7.98Selectedfinancialresults:Returnonaverageassets 1.39% 1.80% 1.76% 1.01% 0.87%ReturnonaverageSVBFGcommonstockholders'equity 16.83 20.03 20.57 12.38 10.90Netinterestmargin 2.67 3.51 3.57 3.05 2.72Grossloancharge-offstoaveragetotalloans 0.28 0.31 0.26 0.31 0.53Netloancharge-offstoaveragetotalloans 0.20 0.24 0.22 0.27 0.46Nonperformingassetsasapercentageoftotalassets 0.09 0.15 0.17 0.23 0.27Allowanceforcreditlossesforloansasapercentageoftotalloans 0.99 0.91 0.99 1.10 1.13
(1) See“Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations-CapitalResources-CapitalRatios”underPartII,Item7ofthisreportforareconciliationofnon-GAAPtangiblecommonequitytotangibleassetsandtangiblecommonequitytorisk-weightedassets.
TableofContents
39
ITEM7. MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Thefollowingdiscussionandanalysisofourfinancialconditionandresultsofoperationsshouldbereadinconjunctionwith "Selected Consolidated Financial Data" under Part II, Item 6 and our audited consolidated financial statements andsupplementarydataaspresentedunderPartII,Item8ofthisreport.Certainpriorperiodamountshavebeenreclassifiedtoconformtocurrentperiodpresentations.Foracomparisonof2019resultsto2018resultsandother2018 informationnotincludedherein,refer“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”underPartII,Item7ofour2019Form10-KfiledwiththeSEConFebruary28,2020.
The following discussion and analysis of our financial condition and results of operations contains forward-lookingstatements. These statements are based on current expectations and assumptions, which are subject to risks anduncertainties.Seeourcautionarylanguageatthebeginningofthisreportunder“Forward-LookingStatements”.Actualresultscoulddiffermateriallybecauseofvariousfactors,includingbutnotlimitedtothosediscussedin“RiskFactors,”underPartI,Item1Aofthisreport.
OurfiscalyearendsDecember31stand,unlessotherwisenoted,referencestoyearsorfiscalyearsareforfiscalyearsendedDecember31st.
OverviewofCompanyOperations
SVB Financial is a diversified financial services company, aswell as a bank holding company and a financial holdingcompany. SVB Financial was incorporated in the state of Delaware inMarch 1999. Through our various subsidiaries anddivisions,weofferavarietyofbankingandfinancialproductsandservices.Formorethan35years,wehavebeendedicatedto helping innovative companies and their investors succeed, especially in the technology, life science/healthcare, privateequity/venture capital and premiumwine industries.We provide our clients of all sizes and stages with a diverse set ofproductsandservicestosupportthemthroughallstagesoftheirlifecycles,andkeyinnovationmarketsaroundtheworld.
Weoffercommercialandprivatebankingproductsandservicesthroughourprincipalsubsidiary,theBank,whichisaCalifornia-statecharteredbankfoundedin1983andamemberoftheFederalReserveSystem.Throughitssubsidiaries,theBank also offers assetmanagement, privatewealthmanagement and other investment services. In addition, through SVBFinancial'sothersubsidiariesanddivisions,wealsoofferinvestmentbankingservicesandnon-bankingproductsandservices,suchasfundsmanagement,M&Aadvisoryservicesandventurecapitalandprivateequityinvestment.
Management’sOverviewof2020FinancialPerformance
Overall,ourperformancein2020reflectedtheresilienceofourmarketsandourabilitytoexecuteeffectively.Inspiteofanearzeromarketrateenvironmentformostof2020,theCOVID-19pandemicandadoptionofCECL,wehadarecordyearwith strong profitability and unprecedented balance sheet growth fueled by continued strong client fundraising and exitactivity. Additionally, we had investment banking revenue which exceeded our expectations, stable credit and outsizedwarrantandinvestmentgains.During2020,wemanagedthroughtheCOVID-19pandemicbyutilizingourbusinesscontinuityplanstomaintainclientservicewhilemostofouremployeesandpartnersworkedfromhome.Wesupportedandengagedwithclientsvirtually,includingthehostingofremoteeventsdesignedtofacilitateourresponsetothebusinessneedsofourclientswithin the innovation ecosystem.We also successfully administered client support initiatives, such as thosewhichallowedtemporarypaymentdeferralsandotherreliefprovidedthroughthePPP.Weprovidedemployeesextendedbenefits,aswellaspracticalsupportforworkingfromhome.Additionally,wecommittedfinancialsupportforlocal,regionalandglobalactivities focusedonhealth security, food security and shelter, and small businessowner reliefduring thisunprecedentedtime.
Our core business continued to perform well as a result of our ongoing focus on innovation companies and theirinvestors and continued efforts to secure client relationships.We saw continued success in working with private equity/venture capital firms and life science/healthcare clients aswell as clients in our private banking division. Additionally, onJanuary4,2021,weannouncedouracquisitionofBostonPrivateFinancialHoldings,whichweexpecttocloseinmid-2021,subjecttothesatisfactionofcustomaryclosingconditions.Webelievethisacquisitionwillsignificantlyaccelerateandscalethe growth of our private bank and wealth management strategy, advance our expertise, products and technology; andprovidetheopportunitytodeepenourclientrelationships.
RecentDevelopments-COVID-19
The current global health crisis created by the COVID-19 pandemic has resulted in unprecedented challenges andvolatilityineconomic,marketandbusinessconditions.Ithascausedsignificanteconomicandfinancialdisruptionsthathaveadverselyaffected,andarelikelytocontinuetoadverselyaffect,ourbusiness,financialconditionandresultsofoperations.Wecannotpredictat this time thescopeanddurationof thepandemic,asCOVID-19hasnotyetbeencontainedand thenumberofcasesremainselevatedandmaycontinuetoincreaseinmanylocations,includingintheUnitedStatesandother
TableofContents
40
internationallocationsinwhichweoperate.Moreover,theimpactofCOVID-19oneconomic,marketandbusinessconditionsislikelytobeexacerbatedifuncontainedforaprolongedperiodoftime,andevenifitiscontained,theremaybeaseasonalor other resurgence of the pandemic as we have seen domestically and internationally. While there have been varyinggovernmental and other responses to slow or control the spread of COVID-19 and to mitigate the adverse impact ofCOVID-19,suchasstayathomeorders,restrictionsonbusinessactivities,economicreliefforindividualsandbusinesses,andmonetary policymeasures, such responses havemet varying degrees of success, and it remains uncertainwhether theseactionswillbesuccessfulasthepandemiccontinues.
TheglobalspreadofCOVID-19acceleratedinMarch2020atwhichtimeitwasdeclaredapandemicbytheWorldHealthOrganization.Sincethen,wehavebeenfocusedonourbusinessandhumanresponsetothecrisis---managingandoperatingour business as seamlessly as possible, and supporting our clients, employees and communities as weweather the crisistogether.
Duringthisvolatiletime,weremainfocusedonourcapitalandliquidity.Weare“well-capitalized,”remainingaboveallapplicableregulatorycapitalrequirements.Wehavea liquidandhigh-qualitybalancesheet,withapproximatelyhalfofourassetsasofDecember31,2020heldincashandmarketablesecurities,primarilyagency-backedmortgagesecuritiesandU.S.Treasuries.Wealsohaveaccesstootherfundingsources,asnecessary.Moreover,wepausedourstockrepurchaseprogram,andtheprogramexpiredonOctober29,2020.Inaddition,wehavealsoelectedtouseaphase-intransitionalapproachfortheestimatedimpactofCECLonourregulatorycapital,aspermittedbythe2020CECLTransitionRule.
TheuncertaintiesofthedurationandseverityoftheeffectofCOVID-19oneconomic,marketandbusinessconditionshavemade itmore difficult to forecast our operating results and themacroeconomic conditions towhich our business issubject. Some notable negative effects emerged late in the first quarter and continued through the fourth quarter, asdiscussed in this Management Discussion and Analysis section, but any longer-term effects or trends remain subject tosignificantuncertainty.Moreover,weare subject toheightenedbusiness,operational (including fraud),market, credit andother risks related to theCOVID-19pandemic,whichmayhave an adverseeffect onourbusiness, financial condition andresultsofoperations.(See“RiskFactors”underPartII,Item1Aofthisreport)
Wecontinuetoserveourclientsduringthisdifficulttime,whilemanagingourcreditrisk.Duringthefourthquarter,wecontinuedtoprovidespecialdebtreliefassistancetosupportcertainclientswhoareexperiencingfinancialhardshipsrelatedto theCOVID-19pandemic, includingoffering certain venture-backedcompanies,PrivateBank,Wineandother clients theopportunity to temporarily defer their scheduled loan principal payments. We continue to engage with our clients tounderstandclientneeds,andwemayimplementadditionalassistanceorotherrelieftosupportclientsacrossvarioussectorsandlifestages.Additionally,wecontinuetoparticipateasalenderinthePPPandtheseconddrawloanprogramundertheCARESActandtheU.K.CoronavirusBusinessInterruptionLoanScheme("CBILS")andCoronavirusLargeBusinessInterruptionLoan Scheme ("CLBILS"), and may participate in other government relief programs in the U.S. or internationally. Thesegovernmentprogramsarecomplexandourparticipationinanyoftheseprogramsmayleadtogovernmental,regulatoryandotherscrutiny, litigation,negativepublicityandreputationdamageforusandourcustomerswhoparticipate.Forexample,likemanyotherparticipatingbanksintheUnitedStates,wehavebeennamedinvariouslawsuitsregardingtherighttoagentfeesunderthePPP.Overall,thesereliefmeasures,whetherourownprogramsorourparticipationingovernmentprograms,arenewprogramsforusandwemaynotbesuccessfulinimplementingoradministeringtheprogramsasintended.Further,theextenttowhichtheseprogramsaresuccessfulinassistingourclientsisuncertain.Thesereliefprogramsaretemporaryinnature,suchasthePPP,andourloanpaymentdeferralprograms,whichexpiredduringthesecondhalfoftheyear(certainofour programs ended in the third quarter with the remaining ending by year end). Our clients may experience financialdifficulties without the continued support from these programs. If these relief measures are not effective, or if they areeffectiveforonlya limitedperiodandourclientsexperiencedelayedfinancialhardship,theremaybeanadverseeffectonourrevenueandresultsofoperations,includingincreasedprovisionsinourallowanceforcreditlosses,higherratesofdefaultandincreasedcreditlossesinfutureperiods.
Wearealsoprioritizingthesafetyandwell-beingofouremployees.InMarch2020,weactivatedourbusinesscontinuityandpandemicplansglobally,movingtoawork-from-homeplan,prohibitingallbusinesstravel,postponingormovingonlineallSVB-hostedevents,andenablingremoteaccesstooursystems.Wehaveimplementedvariousprogramstoprovidework,life and health-related support for our employees, ranging from expanded time-off, counseling and medical benefits foremployees directly impacted by COVID-19, to providing reimbursements and practical support forworking fromhome. Inaddition,wearealsodevelopingaplanforemployeestoeventuallyreturntoworkinouroffices,whichwillbesubjecttoavarietyofcomplexconsiderations.Whilemuchofourworkforcecontinuestoworkfromhomethroughthecrisis(currentlyexpecteduntilJuly2021,subjecttofurtherextensionsorotherchanges)andperhapstosomeextentbeyondthecrisis,intheeventthatweallowanincreaseinremoteworkingpracticesevenafterthepandemicsubsides,wewillneedtocontinuetoprovidesupporttoouremployeestoworkeffectively inaremoteenvironment,taking intoconsiderationneedsrelatingtotechnology,physicalworkingconditions,work/lifebalance,andcontinuedteamcollaboration.
TableofContents
41
Moreover,consistentwithourtraditionofsupportingandgivingbacktoourcommunities,wehavealsocommitted$5.5milliontolocal,regionalandglobalCOVID-19reliefactivitiesinvariousU.S.andinternationallocationswherewehaveoffices.This includes corporate contributions to global, national and regional charities, direct community-based giving, and a 3:1match for employees’ donations to relevant causes. Additionally,we have donated approximately $20million in PPP feesreceivedfromtheSBA,netofourcostsincurred,tocharitablereliefefforts.
Althoughtheeffectsofthepandemicremainuncertain,fortheyearending2021,wecurrentlyexpectgrowthinaverageon-balancesheetdepositsandaverageloansandstablecorefees.Whilecreditmetricshavebeenstabletodate,wecontinueto monitor our portfolio vigilantly, in light of continued economic uncertainty, fading government stimulus and expiringdeferralprograms.Additionally,volatileequitymarkets, IPOandM&Aactivitymayimpact investmentbankingandmarket-sensitiverevenues.Evenafterthepandemicsubsides,itispossiblethattheU.S.andothermajoreconomieswillcontinuetoexperienceaprolongedrecession,whichweexpectwouldmateriallyandadverselyaffectourbusiness, financialcondition,liquidity,capitalandresultsofoperations.
Resultsforthefiscalyearended,andasof,December31,2020(comparedtothefiscalyearended,andasof,December31,2019,whereapplicable):
BALANCESHEET EARNINGS
Assets. $85.8 billion in average total assets (up 35.7%).$115.5billioninperiod-endtotalassets(up62.7%).
Loans. $37.3 billion in average total loan balances,amortized cost (up 24.6%). $45.2 billion in period-endtotalloanbalances,amortizedcost(up36.2%).
TotalClientFunds.(on-balancesheetdepositsandoff-balance sheet client investment funds).$192.8 billion inaverage total client fund balances (up 31.5%). $243.0billioninperiod-endtotalclientfundbalances(up51.0%).
AFS/HTMFixedIncomeInvestments.$31.8billioninaverage fixed income investment securities (up 30.9%).$47.5 billion in period-end fixed income investmentsecurities(up70.5%).
EPS.Earningsperdilutedshareof$22.87(up5.2%).
Net Income. Consolidated net income available tocommonstockholdersof$1.19billion(up4.8%).
-Netinterestincomeof$2.16billion(up2.8%).-Netinterestmarginof2.67%(down84bps).- Noninterest income of $1.84 billion (up 50.6%),non-GAAP core fee income+ of $603.2 million(down6.0%)andnon-GAAPSVBLeerinkrevenue++
of$480.6million(up91.1%).-Noninterestexpenseof$2.04billion(up27.1%).
ROE. Returnonaverageequity (“ROE”)performanceof16.83%(down16.0%).
OperatingEfficiencyRatio.Operatingefficiencyratioof50.92%withanon-GAAPcoreoperatingefficiencyratioof55.90%+++.
CAPITAL CREDITQUALITY
Capital++++. Continued strong capital, with all capitalratios considered "well-capitalized" under bankingregulations. SVBFG and SVB capital ratios, respectively,were:
-CET1risk-basedcapitalratioof11.04%and10.70%.-Tier1risk-basedcapitalratioof11.89%and10.70%.- Total risk-based capital ratio of 12.64%and 11.49%.-Tier1leverageratioof7.45%and6.43%.
Credit Quality. Stable credit in an evolving creditenvironment.
- Allowance for credit losses of 0.99% as apercentageofperiod-endtotalloans.
- Allowance for unfunded credit commitments of0.38% as a percentage of total unfunded creditcommitments.
- Provision for loans of 0.42% as a percentage oftotalloans.
- Net loan charge-offs of 0.20% as a percentage ofaveragetotalloans.
+ Consistsoffeeincomefromclientinvestments,foreignexchange,creditcards,depositservices,lendingrelatedactivitiesandlettersofcreditandstandbylettersofcredit.Thisisanon-GAAPfinancialmeasure.(Seethenon-GAAPreconciliationunder“ResultsofOperations—NoninterestIncome”).
++ Consists of investment banking revenue and commissions. This is a non-GAAP financialmeasure. (See the non-GAAP reconciliation under “Results ofOperations—NoninterestIncome”).
+++ThisratioexcludescertainfinanciallineitemswhereperformanceistypicallysubjecttomarketorotherconditionsbeyondourcontrolandexcludesSVBLeerink revenueandexpenses aswell asothernon-recurringexpenses. It is calculatedbydividingnoninterest expenseafter adjusting fornoninterestexpenseattributabletoSVBLeerinkandothernon-recurringexpensesbytotalrevenueafteradjustingfornoninterestincomeattributabletoSVBLeerink,netgainsorlossesoninvestmentsecuritiesandequitywarrantassets,investmentbankingrevenueandcommissions.Additionally,noninterestexpenseandtotalrevenueareadjustedfor incomeor lossesandexpensesattributabletononcontrolling interestsandadjustmentstonet interest incomeforataxableequivalentbasis.Thisisanon-GAAPfinancialmeasure.(Seethenon-GAAPreconciliationunder"ResultsofOperations-NoninterestExpense").
++++InMarch2020,thefederalbankingagenciesprovidedtransitionalrelieftobankingorganizationswithrespecttotheimpactofCECLonregulatorycapital.Underthe2020CECLTransitionRule,bankingorganizationsmaydelaytheestimatedimpactofCECLonregulatorycapital fortwoyears, followedbyathree-yearperiodtophaseouttheaggregatecapitalbenefitprovidedduringtheinitialtwo-yeardelay.Wehaveelectedtousethisfive-yeartransitionoption.Foradditionaldetails,see"CapitalResources"within"ConsolidatedFinancialCondition"underPart1,Item2ofthisreport.
TableofContents
42
Asummaryofourperformancein2020comparedto2019isasfollows:
YearendedDecember31,
(Dollarsinthousands,exceptpershareamounts,employeesandratios) 2020 2019 %Change
IncomeStatement:
Dilutedearningspershare $ 22.87 $ 21.73 5.2 %
Netincomeavailabletocommonstockholders 1,191,217 1,136,856 4.8
Netinterestincome 2,156,284 2,096,601 2.8
Netinterestmargin 2.67% 3.51% (84) bps
Provisionforcreditlosses $ 219,510 $ 106,416 106.3 %
Noninterestincome 1,840,148 1,221,479 50.6
Noninterestexpense 2,035,041 1,601,262 27.1
Non-GAAPcorefeeincome(1) 603,198 641,838 (6.0)
Non-GAAPcorefeeincome,plusSVBLeerinkRevenue(1) 1,083,823 893,361 21.3
Non-GAAPSVBLeerinkrevenue(1) 480,625 251,523 91.1
Non-GAAPnoninterestincome,netofnoncontrollinginterests(1) 1,753,773 1,172,855 49.5
Non-GAAPnoninterestexpense,netofnoncontrollinginterests(2) 2,034,566 1,600,427 27.1
BalanceSheet:
Averageavailable-for-sale-securities $ 18,652,580 $ 9,597,712 94.3 %
Averageheld-to-maturitysecurities 13,113,300 14,672,342 (10.6)
Averageloans,amortizedcost 37,265,976 29,916,207 24.6
Averagenoninterest-bearingdemanddeposits 50,192,642 38,783,470 29.4
Averageinterest-bearingdeposits 24,822,788 16,273,480 52.5
Averagetotaldeposits 75,015,430 55,056,950 36.3
EarningsRatios:
Returnonaverageassets(3) 1.39% 1.80% (22.8) %
ReturnonaverageSVBFGcommonstockholders’equity(4) 16.83 20.03 (16.0)
AssetQualityRatios:
Allowanceforcreditlossesforloansasapercentageoftotalperiod-endtotalloans(5) 0.99% 0.91% 8 bps
Allowanceforcreditlossesforperformingloansasapercentageoftotalperformingloans(5) 0.87 0.78 9
Grossloancharge-offsasapercentageofaveragetotalloans(5) 0.28 0.31 (3)
Netloancharge-offsasapercentageofaveragetotalloans(5) 0.20 0.24 (4)
CapitalRatios:
SVBFGCET1risk-basedcapitalratio 11.04% 12.58% (154) bps
SVBFGtotalrisk-basedcapitalratio 12.64 14.23 (159)
SVBFGtier1risk-basedcapitalratio 11.89 13.43 (154)
SVBFGtier1leverageratio 7.45 9.06 (161)
SVBFGtangiblecommonequitytotangibleassets(6) 6.66 8.39 (173)
SVBFGtangiblecommonequitytorisk-weightedassets(66) 11.87 12.76 (89)
BankCET1risk-basedcapitalratio 10.70 11.12 (42)
Banktotalrisk-basedcapitalratio 11.49 11.96 (47)
Banktier1risk-basedcapitalratio 10.70 11.12 (42)
Banktier1leverageratio 6.43 7.30 (87)
Banktangiblecommonequitytotangibleassets(6) 6.24 7.24 (100)
Banktangiblecommonequitytorisk-weightedassets(6) 11.58 11.31 27
OtherRatios:
GAAPoperatingefficiencyratio(7) 50.92% 48.26% 5.5 %
Non-GAAPcoreoperatingefficiencyratio(2) 55.90 48.06 16.3
Totalcostsofdeposits(8) 0.08 0.32 (75.0)
Bookvaluepercommonshare(9) $ 151.86 $ 118.67 28.0
Tangiblebookvaluepercommonshare(10) 147.92 115.05 28.6
OtherStatistics:
Averagefull-timeequivalentemployees 4,040 3,362 20.2 %
Period-endfull-timeequivalentemployees 4,461 3,564 25.2
TableofContents
43
(1) See“ResultsofOperations–NoninterestIncome”foradescriptionandreconciliationofnon-GAAPcorefeeincome,non-GAAPcorefeeincomeplusSVBLeerinkrevenueandnon-GAAPSVBLeerinkrevenue.
(2) See“ResultsofOperations–NoninterestExpense”foradescriptionandreconciliationofnon-GAAPnoninterestexpenseandnon-GAAPcoreoperatingefficiencyratio.
(3) Ratiorepresentsconsolidatednetincomeavailabletocommonstockholdersdividedbyaverageassets.(4) RatiorepresentsconsolidatednetincomeavailabletocommonstockholdersdividedbyaverageSVBFGcommonstockholders’equity.(5) FortheyearendedDecember31,2020,theratiosarecalculatedusingtheamortizedcostbasisfortotalloansasaresultoftheadoptionofCECL.Prior
periodratioswerecalculatedusingtotalgrossloansinaccordancewithpreviousmethodology.(6) See“CapitalResources–CapitalRatios” forareconciliationofnon-GAAPtangiblecommonequitytotangibleassetsandtangiblecommonequityto
risk-weightedassets.(7) Theoperatingefficiencyratioiscalculatedbydividingtotalnoninterestexpensebytotalnetinterestincomeplusnoninterestincome.(8) Ratiorepresentstotalcostofdepositsandiscalculatedbydividinginterestexpensefromdepositsbyaveragetotaldeposits.(9) BookvaluepercommonshareiscalculatedbydividingtotalSVBFGcommonstockholders’equitybytotaloutstandingcommonsharesatperiod-end.(10) Tangiblebookvaluepercommonshareiscalculatedbydividingtangiblecommonequitybytotaloutstandingcommonsharesatperiod-end.Tangible
commonequityisanon-GAAPmeasuredefinedunderthesection“CapitalResources-CapitalRatios.”
CriticalAccountingPoliciesandEstimates
Ouraccountingpoliciesarefundamentaltounderstandingourfinancialconditionandresultsofoperations.Wehaveidentified one policy as being critical because it requires us to make particularly difficult, subjective and/or complexjudgmentsaboutmatters thatare inherentlyuncertain,andbecause it is likely thatmateriallydifferentamountswouldbereported under different conditions or using different assumptions. We evaluate our estimates and assumptions on anongoing basis andwe base these estimates on historical experiences and various other factors and assumptions that arebelievedtobereasonableunderthecircumstances.Actualresultsmaydiffermateriallyfromtheseestimatesunderdifferentassumptionsorconditions.
Thiscriticalaccountingpolicyaddressestheadequacyoftheallowanceforcreditlossesforloansandunfundedcreditcommitments.Ourseniormanagementhasdiscussedandreviewedthedevelopment,selection,applicationanddisclosureofthiscriticalaccountingpolicywiththeAuditCommitteeofourBoardofDirectors.
We disclose our method and approach for this accounting policy in Note 2—“Summary of Significant AccountingPolicies”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
AllowanceforCreditLosses
Weconsiderthisaccountingpolicytobecriticalasestimationofexpectedcreditlossesinvolvesmaterialmanagementestimatesandissusceptibletosignificantchangesinthenear-term.Determiningtheallowanceforcreditlossesforloansandunfundedcreditcommitmentsrequiresustomakeforecaststhatarehighlyuncertainandrequireahighdegreeofjudgment.A committee comprisedof seniormanagementevaluates theadequacyof theallowance for credit losses for loans,whichincludesreviewof loanportfoliosegmentation,quantitativemodels, internalandexternaldata inputs,economic forecasts,creditriskratingsandqualitativeadjustments.
ExpectedCreditLossesEstimateforLoansandUnfundedCreditCommitments
Themethodologyforestimatingtheamountofexpectedcreditlosses("ECL")reportedintheallowanceforcreditlossesis the sum of two main components: (1) ECL assessed on a collective basis for pools of loans and unfunded creditcommitments that share similar risk characteristics and (2) ECL assessed for individual loans and unfunded creditcommitmentsthatdonotsharesimilarriskcharacteristicswithotherloans.EstimatingtheamountofECLinvolvessignificantjudgmenton variousmatters including the assessmentof risk characteristics, assignmentof risk ratings, development andweightingofmacroeconomicforecasts,andincorporationofhistoricallossexperience.
WederiveanestimatedECLusingthreepredictivemetrics:(1)probabilityofdefault("PD"),(2)lossgivendefault("LGD")and(3)exposureatdefault("EAD"),overtheestimatedlifeoftheexposure.PDandLGDassumptionsaredevelopedbasedonquantitativemodelsandinherentriskofcredit loss,bothofwhichinvolvesignificantjudgment.Oneofthemostsignificantareas of judgment involved in estimating the allowance for credit losses relates to themacroeconomic forecasts used toestimate credit losses. The selection of variables used in our econometric models varies by loan portfolio, but typicallyincludesrealgrossdomesticproduct("GDP")growthandunemploymentrates.Changesinmanagement’sassumptionsandforecasts could significantly affect its estimate of expected credit losses across various risk-based segments. For example,macroeconomic conditions and forecasts related to the duration and severity of the economic downturn caused by theCOVID-19 pandemic have been rapidly changing and remain highly uncertain. Alternative forecasts considered could havesignificantimpactontheECL.
Totheextenttheremainingcontractuallivesofloansintheportfolioextendbeyondthisthree-yearperiod,wereverttohistoricalaveragesusinganautoregressivemethodofmeanreversionthatwillcontinuetograduallytrendtowardsthemeanhistorical loss over the remaining contractual lives of loans, adjusted for prepayments. Themacroeconomic scenarios arereviewedonaquarterlybasis.
TableofContents
44
Wealso apply certain qualitative factor adjustments to the results obtained through our quantitative ECLmodels toconsider model imprecision, emerging risk assessments, trends and other subjective factors that may not be adequatelyrepresented in the quantitative ECL models. These adjustments to historical loss information are for asset specific riskcharacteristics, and also reflect our assessment of the extent that current conditions and reasonable and supportableforecasts differ from conditions that existedduring theperiodoverwhichhistorical informationwas evaluated.Given thecurrentprocessesandriskmonitoringbytheBank,managementbelievesthecombinationofthequantitativemodelresultsandthequalitativefactoradjustmentrepresentsareasonableandappropriateestimateofECL.
AllowanceforLoanLossesandAllowanceforUnfundedCreditCommitments
Forourmethodandapproachforourcriticalaccountingpolicyrelatedtotheallowanceforloanlossesandallowanceforunfundedcreditcommitments,whichweresupersededbyrecentlyadoptedaccountingstandardsin2020,pleaserefertoNote2—“SummaryofSignificantAccountingPolicies”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
AdoptionofNewAccountingStandards
FinancialInstruments-CreditLosses
InJune2016,theFASBissuedanewAccountingStandardUpdate(ASU2016-13,Financial Instruments-CreditLosses(Topic 326): Measurement of Credit Losses on Financial Instruments), which amends the incurred loss impairmentmethodologyincurrentGAAPwithamethodologythatreflectsacurrentexpectedcreditlossmeasurementtoestimatetheallowanceforcreditlossesoverthecontractuallifeofthefinancialassets(includingloans,unfundedcreditcommitmentsandHTMsecurities)andrequiresconsiderationofabroader rangeof reasonableandsupportable information to informcreditlossestimates.WhiletheCECLmodeldoesnotapplytoavailable-for-saledebtsecurities,ASU2016-13doesrequireentitiestorecordanallowanceforcredit losseswhenrecognizingcredit lossesforavailable-for-salesecurities,ratherthanreducetheamortizedcostofthesecuritiesbydirectwrite-offs,whichallowsforreversalofcreditimpairmentsinfutureperiodsbasedonimprovements in credit. We adopted the guidance on January 1, 2020, using a modified retrospective approach. WerecognizedthecumulativeeffectofinitiallyapplyingCECLasanadjustmenttotheopeningbalanceofretainedearnings,netoftax.Thecomparativeinformationhasnotbeenrestatedandcontinuestobereportedundertheaccountingstandardsineffectforthoseperiods.
Wecompletedacomprehensiveimplementationprocessthatincludedlossforecastingmodeldevelopment,evaluationoftechnicalaccountingtopics,updatestoourallowanceforcredit lossaccountingpolicies,reportingprocessesandrelatedinternal controls, overall operational readiness for our adoption of CECL as well as parallel runs for CECL alongside ourpreviousallowanceprocess.WeprovidedquarterlyupdatestoseniormanagementandtotheAuditandCreditCommitteesoftheBoardofDirectorsthroughouttheimplementationprocess.Foradditionaldetailsregardingourallowanceforcreditlossesmethodology,seeNote9—“LoansandAllowanceforCreditLosses:LoansandUnfundedCreditCommitments”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
Basedonourloan,unfundedcreditcommitmentandHTMsecurityportfolioscompositionatDecember31,2019,andthethencurrenteconomicenvironment,thecumulativeeffectofthechangestoourconsolidatedbalancesheetsatJanuary1,2020,fortheadoptionofCECLwereasfollows:
(Dollarsinthousands)Balanceat
December31,2019
AdjustmentsDuetoAdoptionof
ASC326Balanceat
January1,2020
Assets:
Allowanceforcreditlosses:loans $ 304,924 $ 25,464 $ 330,388
Allowanceforcreditlosses:held-to-maturitysecurities — 174 174
Deferredtaxassets 28,433 13,415 41,848
Liabilities:
Allowanceforcreditlosses:unfundedcreditcommitments 67,656 22,826 90,482
Stockholders'equity:
Retainedearnings,netoftax 4,575,601 (35,049) 4,540,552
RecentAccountingPronouncements
InMarch2020,theFASBissuedanewAccountingStandardUpdate(ASUNo.2020-04,ReferenceRateReform(Topic848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting). This ASU provides temporary optionalexpedientsandexceptionstoGAAPguidanceoncontractmodificationsandhedgeaccountingtoeasethefinancialreporting
TableofContents
45
burdensoftheexpectedmarkettransitionfromLIBORandotherinterbankofferedratestoalternativereferencerates,suchasSOFR.Forinstance,entitiescan(1)electnottoapplycertainmodificationaccountingrequirementstocontractsaffectedbyreferenceratereform,ifcertaincriteriaaremet,anentitythatmakesthiselectionwouldnothavetoremeasurethecontractsat themodificationdateor reassessapreviousaccountingdetermination; (2)electvariousoptionalexpedients thatwouldallow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certaincriteriaaremet;and(3)makeaone-timeelectiontoselland/orreclassifyheld-to-maturitydebtsecuritiesthatreferenceaninterestrateaffectedbyreferenceratereform.ThisguidancebecameeffectiveonMarch12,2020andanentitymayelecttoprospectivelyapplyeachcategoryofexemptionindependently,eitherintheinterimperiodthatincludesMarch12,2020,orin a subsequent period through December 31, 2022. The effective guidance did not have an impact on our consolidatedfinancialpositionorresultsofoperationsnortothedisclosuresinthenotestoourconsolidatedfinancialstatementsfortheyearendedDecember31,2020.WehaveimplementedaprocesstoassessthepopulationofcontractsthatwillbeimpactedbythisASUandtoevaluateexpedientswewilluseandwhenwemightapplythem.Wearecurrentlyevaluatingtheimpactthisguidancewillhaveonourfinancialposition,resultsofoperations,cashflowsanddisclosures.
InDecember2019,theFASBissuedAccountingStandardsUpdateNo.2019-12, IncomeTaxes(Topic740):SimplifyingtheAccountingforIncomeTaxeswhichispartoftheFASB’sinitiativetoreducecostandcomplexityrelatedtoaccountingforincome taxes. The ASU eliminates certain exceptions to the general principles of ASC 740, Income Taxes, and simplifiesincometaxaccountinginseveralareas.Theamendmentsareeffectiveforfiscalyears(andinterimperiodswithinthosefiscalyears)beginningafterDecember15,2020,withearlyadoptionpermitted.TheASUallowsentitiestoadoptthisprovisiononaretrospective basis for all periods presented or amodified retrospective basis through a cumulative-effect adjustment toretainedearningsasofthebeginningoftheperiodofadoption.WedonotanticipateamaterialimpactfromthisASUonourfinancialposition,resultsofoperations,cashflowsanddisclosures.
ResultsofOperations
NetInterestIncomeandMargin(FullyTaxableEquivalentBasis)
Netinterestincomeisdefinedasthedifferencebetween:(i)interestearnedonloans,fixedincomeinvestmentsinouravailable-for-sale and held-to-maturity securities portfolios and short-term investment securities and (ii) interest paid onfundingsources.Netinterestmarginisdefinedasnetinterestincome,onafullytaxableequivalentbasis,asapercentageofaverageinterest-earningassets.Netinterestincomeandnetinterestmarginarepresentedonafullytaxableequivalentbasisto consistently reflect income from taxable loans and securities and tax-exempt securitiesbasedon theapplicable federalstatutorytaxrate.
AnalysisofNetInterestIncomeChangesDuetoVolumeandRate(FullyTaxableEquivalentBasis)
Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearingliabilities,referredtoas“volumechange.”Netinterestincomeisalsoaffectedbychangesinyieldsearnedoninterest-earningassets and ratespaidon interest-bearing liabilities, referred toas “rate change.” The following table sets forth changes ininterestincomeforeachmajorcategoryofinterest-earningassetsandinterestexpenseforeachmajorcategoryofinterest-bearingliabilities.Thetablealsoreflectstheamountofsimultaneouschangesattributabletobothvolumeandratechangesfortheyearsindicated.Forthistable,changesthatarenotsolelyduetoeithervolumeorrateareallocatedinproportiontothepercentagechangesinaveragevolumeandaveragerate.
TableofContents
46
2020comparedto2019 2019comparedto2018
Changedueto Changedueto
(Dollarsinthousands) Volume Rate Total Volume Rate Total
Interestincome:
FederalReservedeposits,federalfundssold,securitiespurchasedunderagreementstoresellandothershort-terminvestmentsecurities $ 13,175 $ (84,073) $ (70,898) $ 50,581 $ 10,651 $ 61,232
Fixedincomeinvestmentportfolio(taxable) 99,431 (33,290) 66,141 (22,833) 50,079 27,246
Fixedincomeinvestmentportfolio(non-taxable) 24,433 (4,049) 20,384 12,596 488 13,084
Loans,amortizedcost 299,786 (378,930) (79,144) 229,091 11,594 240,685
Increase(decrease)ininterestincome,net 436,825 (500,342) (63,517) 269,435 72,812 342,247
Interestexpense:
Interest-bearingcheckingandsavingsaccounts 5,589 749 6,338 (72) 33 (39)
Moneymarketdeposits 14,381 (120,121) (105,740) 79,243 45,945 125,188
Moneymarketdepositsinforeignoffices 149 83 232 (11) (1) (12)
Timedeposits 1,256 (644) 612 560 600 1,160
Sweepdepositsinforeignoffices (629) (18,266) (18,895) 10,137 11,932 22,069
Totalincrease(decrease)indepositsexpense 20,746 (138,199) (117,453) 89,857 58,509 148,366
Short-termborrowings 2,119 (2,399) (280) (12,408) 1,421 (10,987)
3.50%SeniorNotes 13 — 13 12 — 12
3.125%SeniorNotes 9,184 — 9,184 — — —
5.375%SeniorNotes (18,945) — (18,945) (505) — (505)
Total(decrease)increaseinborrowingsexpense (7,629) (2,399) (10,028) (12,901) 1,421 (11,480)
Increase(decrease)ininterestexpense,net 13,117 (140,598) (127,481) 76,956 59,930 136,886
Increase(decrease)innetinterestincome $ 423,708 $(359,744) $ 63,964 $ 192,479 $ 12,882 $ 205,361
NetInterestIncome(FullyTaxableEquivalentBasis)
Net interest income increasedby$64.0million to$2.2billion in2020,compared to$2.1billion in2019.Overall, theincrease in our net interest incomewas due primarily to an increase in interest earned fromgrowth in our average fixedincomesecuritiesandloanbalancesaswellasdecreasesininterestpaidondepositsduetomarketinterestratedecreases.These increaseswerepartiallyoffsetby lower interestearnedoncashandcashequivalents, fixed income investmentsandloansreflectiveofthethree25basispointFederalFundsratedecreasesinthelatterhalfof2019aswellastheaggregate150basispointdecreaseinMarch2020aswellaslowerLIBORrates.
Themainfactorsaffectinginterestincomeandinterestexpensefor2020,comparedto2019,arediscussedbelow:
• Interestincomefor2020decreasedby$63.5millionprimarilydueto:
◦ A$79.1milliondecrease in interest incomefromloansto$1.5billion in2020,comparedto$1.6billion in2019.Thisdecreasewasreflectiveofadecreaseintheoverallyieldonourloanportfolioof127basispointsto4.08percent from5.35percentpartiallyoffsetbyan increase inaverage loanbalancesof$7.3billion.Gross loanyields,excluding loan interest recoveriesand loan fees,decreasedby122basispoints to3.57percent from 4.79 percent, reflective primarily of the impact of the decreases in Federal Funds rates asdiscussedabove,partiallyoffsetbyanincreasereflectiveoftheimpactofthereclassificationofunrealizedgains on interest rate swap cash flow hedges that were terminated in the first quarter of 2020 andprotectionfromeffectiveloanfloors,and
◦ A $70.9 million decrease in interest income from our interest earning cash and short-term investmentsecurities to $25.5 million, compared to $96.4 million in 2019. The decrease was due primarily to thedecreaseinFederalFundsinterestratesasdiscussedabove,partiallyoffsetbygrowthinaveragebalancesof$6.3billion.
Thesedecreaseswereoffsetbythefollowing:
◦ An$86.5millionincreaseininterestincomefromourfixedincomeinvestmentsecuritiesto$712.3millionin2020,comparedto$625.8millionin2019.Theincreasewasdueprimarilytotheincreaseof$7.5billioninaverage fixed income investment securities, partially offset by declines in yields earned on these
TableofContents
47
investments reflective of the lower interest ratemarket environment, net of an acceleration of discountaccretion due to an increase in expected prepayments for fixed rate commercial mortgaged-backedsecuritiesinourheld-to-maturityportfolio.
• Interestexpensefor2020decreasedto$85.3million,comparedto$212.8millionfor2019,primarilydueto:
◦ A$117.5milliondecreaseininterestexpenseondepositsdueprimarilytoadecreaseininterestpaidonourinterest-bearingmoneymarketandon-balancesheetsweepdepositsreflectiveofthedecreasesinmarketrates. These decreases were partially offset by interest expense from $8.5 billion of growth in averagebalancesforourinterest-bearingmoneymarketsdeposits.
◦ A $10.0 million decrease in interest expense on borrowings due primarily to the extinguishment of our5.375%SeniorNotes,partiallyoffsetby interestexpense forour3.125%SeniorNotes issuedtowards theendofthesecondquarterof2020.
NetInterestMargin(FullyTaxableEquivalentBasis)
Ournetinterestmargindecreasedby84basispointsto2.67percentin2020,comparedto3.51percentin2019.
Thedecreaseinournetinterestmarginin2020wasreflectiveprimarilyofthedecreasesintheFederalFundsandlowerLIBOR ratesasdiscussedabove,aswell asa shift in themixof thegrowth inour interest-earningassets to lower-yieldingshort-term investment securities portfolio relative to the growth in our loan portfolio driven by growth in our averagedeposits,partiallyoffsetbygainsfromourinterestrateswapcashflowhedgeswhichwereterminatedinthefirstquarterof2020 and protection from effective loan floors. For the year ended December 31, 2020, our loan portfolio comprised 46percentofouraverageinterest-earningassets,adecreasefrom50percentfortheyearendedDecember31,2019.
AverageBalances,YieldsandRatesPaid(FullyTaxableEquivalentBasis)
Theaverageyieldearnedoninterest-earningassetsistheamountoffullytaxableequivalentinterestincomeexpressedas a percentage of average interest-earning assets. The average rate paid on funding sources is the amount of interestexpense expressed as a percentage of average funding sources. The following tables set forth average assets, liabilities,noncontrolling interests,preferredstockandSVBFGcommonstockholders’equity, interest income, interestexpense,yieldsandratesandthecompositionofournetinterestmarginin2020,2019and2018:
TableofContents
48
AverageBalances,YieldsandRatesPaidfortheYearsEndedDecember31,2020,2019and2018
YearendedDecember31,
2020 2019 2018
(Dollarsinthousands)AverageBalance
InterestIncome/Expense
Yield/Rate
AverageBalance
InterestIncome/Expense
Yield/Rate
AverageBalance
InterestIncome/Expense
Yield/Rate
Interest-earningassets:
FederalReservedeposits,federalfundssold,securitiespurchasedunderagreementstoresellandothershort-terminvestmentsecurities(1) $12,251,754 $ 25,542 0.21% $ 5,932,146 $ 96,440 1.63% $ 2,820,883 $ 35,208 1.25%
InvestmentSecurities:(2)
Available-for-salesecurities:
Taxable 18,652,580 336,732 1.81 9,597,712 217,650 2.27 9,789,211 185,120 1.89
Held-to-maturitysecurities:
Taxable 10,728,035 298,260 2.78 13,041,160 351,201 2.69 13,727,745 356,485 2.60
Non-taxable(3) 2,385,265 77,285 3.24 1,631,182 56,901 3.49 1,270,101 43,817 3.45
Totalloans,amortizedcost(4)(5) 37,265,976 1,520,021 4.08 29,916,207 1,599,165 5.35 25,630,520 1,358,480 5.30
Totalinterest-earningassets 81,283,610 2,257,840 2.77 60,118,407 2,321,357 3.86 53,238,460 1,979,110 3.71
Cashandduefrombanks 1,021,483 592,196 480,900
Allowanceforcreditlosses:loans (508,786) (306,800) (282,489)
Otherassets(6) 3,995,352 2,807,827 1,792,189
Totalassets $85,791,659 $63,211,630 $55,229,060
Fundingsources:
Interest-bearingliabilities:
Interest-bearingcheckingandsavingsaccounts $ 2,873,714 $ 6,762 0.24% $ 498,606 $ 424 0.09% $ 583,295 $ 463 0.08%
Moneymarketdeposits 19,741,042 47,161 0.24 13,721,076 152,901 1.11 6,609,873 27,713 0.42
Moneymarketdepositsinforeignoffices 330,512 296 0.09 164,693 64 0.04 192,128 76 0.04
Timedeposits 335,724 1,883 0.56 111,806 1,271 1.14 62,570 111 0.18
Sweepdepositsinforeignoffices 1,541,796 4,117 0.27 1,777,299 23,012 1.29 994,360 943 0.09
Totalinterest-bearingdeposits 24,822,788 60,219 0.24 16,273,480 177,672 1.09 8,442,226 29,306 0.35
Short-termborrowings 401,159 3,312 0.83 144,545 3,592 2.49 643,886 14,579 2.26
3.125%SeniorNotes 284,113 9,184 3.23 — — — — — —
3.50%SeniorNotes 348,153 12,611 3.62 347,799 12,598 3.62 347,458 12,586 3.62
5.375%SeniorNotes — — — 337,646 18,945 5.61 348,480 19,450 5.58
Totalinterest-bearingliabilities 25,856,213 85,326 0.33 17,103,470 212,807 1.24 9,782,050 75,921 0.78
Portionofnoninterest-bearingfundingsources 55,427,397 43,014,937 43,456,410
Totalfundingsources 81,283,610 85,326 0.10 60,118,407 212,807 0.35 53,238,460 75,921 0.14
Noninterest-bearingfundingsources:
Demanddeposits 50,192,642 38,783,470 39,633,118
Otherliabilities 2,168,299 1,483,737 937,199
Preferredstock 340,146 17,751 —
SVBFGcommonstockholders’equity 7,079,356 5,674,531 4,734,417
Noncontrollinginterests 155,003 148,671 142,276
Portionusedtofundinterest-earningassets (55,427,397) (43,014,937) (43,456,410)
Totalliabilitiesandtotalequity $85,791,659 $63,211,630 $55,229,060
Netinterestincomeandmargin $2,172,514 2.67% $2,108,550 3.51% $1,903,189 3.57%
Totaldeposits $75,015,430 $55,056,950 $48,075,344
Reconciliationtoreportednetinterestincome:
Adjustmentsfortaxableequivalentbasis (16,230) (11,949) (9,201)
Netinterestincome,asreported $2,156,284 $2,096,601 $1,893,988
(1) Includesaverage interest-earningdeposits inother financial institutionsof$1.1billion,$0.9billionand$0.8billion in2020,2019and2018, respectively.For2020,2019and2018,balancesalsoinclude$9.9billion,$4.1billionand$1.6billion,respectively,depositedattheFRB,earninginterestattheFederalFundstargetrate.
(2) Yieldsoninterest-earninginvestmentsecuritiesdonotgiveeffecttochangesinfairvaluethatarereflectedinothercomprehensiveincome.(3) Interestincomeonnon-taxableinvestmentsecuritiesispresentedonafullytaxableequivalentbasisusingthefederalstatutoryincometaxrateof21.0percent
forallperiodspresented.(4) Nonaccrualloansarereflectedintheaveragebalancesofloans.(5) Interestincomeincludesloanfeesof$190.9million,$167.6millionand$136.6millionin2020,2019and2018,respectively.
TableofContents
49
(6) Average investmentsecuritiesof$2.0billion,$1.1billion,and$0.8billion in2020,2019and2018, respectively,wereclassifiedasotherassetsas theywerenoninterest-earningassets.Theseinvestmentsprimarilyconsistedofnon-marketableandotherequitysecurities.
ProvisionforCreditLosses
The following table summarizes our allowance for credit losses for loans, unfunded credit commitments and HTMsecuritiesfor2020,2019and2018,respectively:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Allowanceforcreditlossesforloans,beginningbalance $ 304,924 $ 280,903 $ 255,024
DayoneimpactofadoptingASC326 25,464 — —
Provisionforloans 189,226 94,183 84,292
Grossloancharge-offs (102,904) (92,603) (67,917)
Loanrecoveries 29,018 21,038 11,636
Foreigncurrencytranslationadjustments 2,037 1,403 (2,132)
Allowanceforcreditlossesforloans,endingbalance $ 447,765 $ 304,924 $ 280,903
Allowanceforcreditlossesforunfundedcreditcommitments,beginningbalance 67,656 55,183 51,770
DayoneimpactofadoptingASC326 22,826 — —
Provisionforunfundedcreditcommitments 30,066 12,233 3,578
Foreigncurrencytranslationadjustments 248 240 (165)
Allowanceforcreditlossesforunfundedcreditcommitments,endingbalance(1) $ 120,796 $ 67,656 $ 55,183
AllowanceforcreditlossesforHTMsecurities,beginningbalance — — —
DayoneimpactofadoptingASC326 174 — —
ProvisionforHTMsecurities 218 — —AllowanceforcreditlossesforHTMsecurities,endingbalance(2) $ 392 $ — $ —
Ratiosandotherinformation:
Provisionforloansasapercentageofperiod-endtotalloans(3) 0.42% 0.28% 0.30%
Grossloancharge-offsasapercentageofaveragetotalloans 0.28 0.31 0.26
Netloancharge-offsasapercentageofaveragetotalloans 0.20 0.24 0.22
Allowanceforcreditlossesforloansasapercentageofperiod-endtotalloans(3) 0.99 0.91 0.99
Provisionforcreditlosses $ 219,510 $ 106,416 $ 87,870
Period-endtotalloans(3) 45,181,488 33,327,704 28,511,312
Averagetotalloans(3) 37,265,976 30,077,343 25,790,949
Allowanceforcreditlossesfornonaccrualloans 54,029 44,859 37,941
Nonaccrualloans 104,244 102,669 94,142
(1) The“allowanceforcreditlossesforunfundedcreditcommitments”isincludedasacomponentof“Otherliabilities.”(2) The"allowanceforcreditlossesforHTMsecurities"isincludedasacomponentof"HTMsecurities"andpresentednetin
ourconsolidatedfinancialstatements.(3) FortheyearendedDecember31,2020,loanamountsaredisclosed,andratiosarecalculated,usingtheamortizedcost
basisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosed,andratiosarecalculated,usingthegrossbasisinaccordancewithpreviousmethodology.
Theprovision for credit losses is the combinationof (i) theprovision for loans, (ii) theprovision forunfundedcreditcommitments and (iii) the provision for HTM securities for the year ending December 31, 2020. For the years endingDecember31,2019and2018,theprovisionforcreditlossesisthecombinationofboththeprovisionforloanlossesandtheprovision for unfunded credit commitments. For amore detailed discussion of credit quality and the allowance for creditlosses, see “Critical Accounting Policies and Estimates” above, “Consolidated Financial Condition-Credit Quality and theAllowanceforCreditLossesforLoansandforUnfundedCreditCommitments”belowandNote9—“LoansandAllowancefor
TableofContents
50
CreditLosses:LoansandUnfundedCreditCommitments”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreportforfurtherdetailsonourallowanceforcreditlosses.
ProvisionforLoans
Wehadaprovisionforloansof$189.2millionin2020,comparedtoaprovisionof$94.2millionin2019.Theprovisionforloansof$189.2millionin2020wasdrivenprimarilyby$56.6millioninadditionalreservesforourperformingloansbasedon our forecast models of the current economic environment under the CECL methodology adopted January 1, 2020,includingtheimpactoftheCOVID-19pandemic,aswellaschangesinloancompositionwithinourportfoliosegments,$59.8millioninnetnewnonaccrualloans,$49.2millionforcharge-offsnotspecificallyreservedforatDecember31,2019and$54.6millioninadditionalreservesforperiod-endloangrowth,partiallyoffsetby$29.0millionofrecoveries.
Theprovision for loan losses of $94.2million in 2019, under theprevious incurred lossmethodology,was reflectiveprimarilyof$38.7millionfromperiod-end loangrowth,$56.3million innetnewspecificreservesfornonaccrual loansand$43.2millionfromcharge-offsnotspecificallyreservedfor,partiallyoffsetbyadecreaseof$23.0millionforourperformingloansand$21.0millionofrecoveries.
ProvisionforUnfundedCreditCommitments
We recorded a provision for unfunded credit commitments of $30.1 million in 2020, compared to a provision of$12.2millionin2019.Ourprovisionforunfundedcreditcommitmentsin2020wasdrivenprimarilybytheforecastmodelsofthe current economic environment under the CECL methodology adopted January 1, 2020, including the impact of theCOVID-19pandemic,aswellasgrowthinunfundedcreditcommitments.
Werecordedaprovisionforunfundedcreditcommitmentsof$12.2millionin2019.Ourprovisionforunfundedcreditcommitmentsin2019wasdrivenprimarilybygrowthinunfundedcreditcommitmentsof$5.3billion.
ProvisionforHTMSecurities
Werecordedaprovision forHTMsecuritiesof$0.2million in2020under theCECLmethodologyadopted January1,2020,comparedtoaprovisionofzerounderthepreviousincurredlossmethodology.OurprovisionforHTMsecuritieswasdriven primarily by the forecast models of the current economic environment, including the impact of the COVID-19pandemic.OurHTMportfolioasofDecember31,2020wasentirelymadeupofAa2orbetterratedbonds,allconsideredhighquality.
NoninterestIncome
FortheyearendedDecember31,2020,noninterestincomewas$1.84billion,comparedto$1.22billionforcomparable2019period.FortheyearendedDecember31,2020,non-GAAPnoninterestincome,netofnoncontrollinginterestswas$1.75billion,comparedto$1.17billionforthecomparable2019period.FortheyearendedDecember31,2020,non-GAAPcorefeeincomewas$603.2million,comparedto$641.8millionforthecomparable2019period.FortheyearendedDecember31,2020,non-GAAPSVBLeerinkrevenuewas$480.6million,comparedto$251.5millionforthecomparable2019period.(Seereconciliationsofnon-GAAPmeasuresusedbelowunder"UseofNon-GAAPFinancialMeasures".)
UseofNon-GAAPFinancialMeasures
TosupplementourauditedconsolidatedfinancialstatementspresentedinaccordancewithGAAP,weusecertainnon-GAAPmeasuresof financialperformance (including,butnot limited to,non-GAAPcore fee income,non-GAAPSVBLeerinkrevenue,non-GAAPcore fee incomeplus SVBLeerink revenue,non-GAAPnoninterest incomeandnon-GAAPnetgainsoninvestmentsecurities).Thesesupplementalperformancemeasuresmayvaryfrom,andmaynotbecomparableto,similarlytitled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or analternative for, GAAP.Generally, a non-GAAP financialmeasure is a numericalmeasure of a company’s performance thateither excludesor includes amounts that arenot normally excludedor included in themost directly comparablemeasurecalculatedandpresentedinaccordancewithGAAP.Anon-GAAPfinancialmeasuremayalsobeafinancialmetricthatisnotrequiredbyGAAPorotherapplicablerequirement.
Webelievethesenon-GAAPfinancialmeasures,whentakentogetherwiththecorrespondingGAAPfinancialmeasures,provide meaningful supplemental information regarding our performance by excluding items that represent incomeattributabletoinvestorsotherthanusandoursubsidiariesandcertainothernon-recurringitems.Ourmanagementuses,andbelievesthat investorsbenefit fromreferringto, thesenon-GAAPfinancialmeasures inassessingouroperatingresultsandwhenplanning,forecastingandanalyzingfutureperiods.However,thesenon-GAAPfinancialmeasuresshouldbeconsideredinadditionto,andnotasasubstitutefororpreferableto,financialmeasurespreparedinaccordancewithGAAP.
TableofContents
51
Includedinnoninterestincomeisincomeandexpenseattributabletononcontrollinginterests.Werecognize,aspartofour investment funds management business through SVB Capital, the entire income or loss from funds consolidated inaccordancewithASCTopic810asdiscussed inNote2—“SummaryofSignificantAccountingPolicies”of the“Notes to theConsolidatedFinancialStatements”underPartII,Item8ofthisreport.WearerequiredunderGAAPtoconsolidate100%oftheresultsoftheseentities,eventhoughwemayownlessthan100%ofsuchentities.Therelevantamountsattributabletoinvestors other than us are reflected under “Net Income Attributable to Noncontrolling Interests” on our statements ofincome. Where applicable, the tables below for noninterest income and net gains on investment securities excludenoncontrollinginterests.
Core fee income is a non-GAAP financialmeasure,which represents GAAP noninterest income, but excludes (i) SVBLeerink revenue, (ii) certain line items where performance is typically subject to market or other conditions beyond ourcontrol,primarilyournetgains(losses)oninvestmentsecuritiesandequitywarrantassets,and(iii)othernoninterestincome.Corefeeincomerepresentsclient investmentfees,foreignexchangefees,creditcardfees,depositservicecharges, lendingrelatedfeesandlettersofcreditandstandbylettersofcreditfees.
SVBLeerinkrevenue isanon-GAAPfinancialmeasure,whichrepresentsnoninterest incomebutexcludes (i)Core feeincome,and(ii)certainlineitemswhereperformanceistypicallysubjecttomarketorotherconditionsbeyondourcontrol,primarilyournetgains(losses)oninvestmentsecuritiesandequitywarrantassets,andothernoninterestincome.SVBLeerinkrevenuerepresentsinvestmentbankingrevenueandcommissions.
Core fee incomeplus SVB Leerink revenue is a non-GAAPmeasure,which representsGAAP noninterest income, butexcludescertainlineitemswhereperformanceistypicallysubjecttomarketorotherconditionsbeyondourcontrol,primarilyournetgains(losses)oninvestmentsecuritiesandequitywarrantassets,andothernoninterestincome.CorefeeincomeplusSVBLeerinkrevenuerepresentscorefeeincomeplusinvestmentbankingrevenueandcommissions.
The following table provides a reconciliation of GAAP noninterest income to non-GAAP noninterest income, net ofnoncontrollinginterestsfor2020,2019and2018,respectively:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
GAAPnoninterestincome $ 1,840,148 $ 1,221,479 50.6% $ 744,984 64.0%
Less:incomeattributabletononcontrollinginterests,includingcarriedinterestallocation 86,375 48,624 77.6 38,000 28.0
Non-GAAPnoninterestincome,netofnoncontrollinginterests $ 1,753,773 $ 1,172,855 49.5 $ 706,984 65.9
ThefollowingtableprovidesareconciliationofGAAPnoninterestincometonon-GAAPcorefeeincomefor2020,2019and2018,respectively:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
GAAPnoninterestincome $ 1,840,148 $ 1,221,479 50.6% $ 744,984 64.0%
Less:gainsoninvestmentsecurities,net 420,752 134,670 NM 88,094 52.9
Less:gainsonequitywarrantassets,net 237,428 138,078 72.0 89,142 54.9
Less:othernoninterestincome 98,145 55,370 77.3 51,858 6.8
Non-GAAPcorefeeincomeplusSVBLeerinkrevenue(1) $ 1,083,823 $ 893,361 21.3 $ 515,890 73.2
Investmentbankingrevenue 413,985 195,177 112.1 — —
Commissions 66,640 56,346 18.3 — —Non-GAAPSVBLeerinkrevenue(2) $ 480,625 $ 251,523 91.1 $ — —
Non-GAAPcorefeeincome(3) $ 603,198 $ 641,838 (6.0) $ 515,890 24.4
NM—Notmeaningful(1) Non-GAAP core fee incomeplus SVB Leerink revenue represents noninterest income, but excludes certain line items
whereperformanceistypicallysubjecttomarketorotherconditionsbeyondourcontrolandothernoninterestincome.Core fee incomeplus SVB Leerink revenue is non-GAAP core fee income (as defined in footnote (3) below)with theadditionofinvestmentbankingrevenueandcommissions.
TableofContents
52
(2) Non-GAAP SVB Leerink revenue represents investment banking revenue and commissions, but excludes certain lineitemswhereperformance istypicallysubjecttomarketorotherconditionsbeyondourcontrolandothernoninterestincome.
(3) Non-GAAP core fee income represents noninterest income, but excludes (i) certain line itemswhere performance istypicallysubjecttomarketorotherconditionsbeyondourcontrol,(ii)ourinvestmentbankingrevenueandcommissionsand(iii)othernoninterestincome.Non-GAAPcorefeeincomerepresentsclientinvestmentfees,foreignexchangefees,creditcardfees,depositservicecharges,lendingrelatedfeesandlettersofcreditandstandbylettersofcreditfees.
GainsonInvestmentSecurities,Net
Netgainsoninvestmentsecuritiesincludegainsandlossesfromournon-marketableandotherequitysecurities,whichincludepublicequitysecuritiesheldasaresultofexercisedequitywarrantassets,aswellasgainsandlossesfromsalesofourAFSdebtsecuritiesportfolio,whenapplicable.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital andprivateequityfunds,includingajointventurebankinChina,debtfunds,thenewlyacquiredmanagedcreditplatform,privateandpublicportfoliocompaniesandqualifiedaffordablehousingprojects.Weexperiencevariabilityintheperformanceofournon-marketableandotherequitysecuritiesfromperiodtoperiod,whichresultsinnetgainsorlossesoninvestmentsecurities(bothrealizedandunrealized).Thisvariabilityisduetoanumberoffactors,includingunrealizedchangesinthevaluesofourinvestments,changes intheamountofrealizedgainsand lossesfromdistributions,changes in liquidityeventsandgeneraleconomicandmarketconditions.Unrealizedgainsor lossesfromnon-marketableandotherequitysecuritiesforanysingleperiod are typically driven by valuation changes, and are therefore subject to potential increases or decreases in futureperiods. Such variabilitymay lead to volatility in the gains or losses from investment securities. As such, our results for aparticularperiodarenotnecessarilyindicativeofourexpectedperformanceinafutureperiod.
The extent towhich any unrealized gains or losseswill become realized is subject to a variety of factors, including,amongotherthings,theexpirationofcertainsalesrestrictionstowhichtheseequitysecuritiesmaybesubjectto(e.g.lock-upagreements), changes inprevailingmarketprices,market conditions, theactual salesordistributionsof securities and thetiming of such actual sales or distributions,which, to the extent such securities aremanaged by ourmanaged funds, aresubjecttoourfunds'separatediscretionarysales/distributionsandgovernanceprocesses.
OurAFS securitiesportfolio is a fixed income investmentportfolio that ismanagedwith theobjectiveof earning anappropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well asaddressing our asset/liability management objectives. Though infrequent, sales of debt securities in our AFS securitiesportfoliomayresult innetgainsorlossesandareconductedpursuanttotheguidelinesofourinvestmentpolicyrelatedtothemanagementofourliquiditypositionandinterestraterisk.
In2020,wehadnetgainsoninvestmentsecuritiesof$420.8million,comparedto$134.7millionin2019.Non-GAAPnetgainsoninvestmentsecurities,netofnoncontrollinginterestswere$334.3millionin2020,comparedto$86.2millionin2019,respectively.Netgainsoninvestmentsecurities,netofnoncontrollinginterestsof$334.3millionin2020weredrivenbythefollowing:
• Gains of $89.9million from our managed funds of funds portfolio andmanaged direct venture funds, relatedprimarilytonetunrealizedvaluationincreasesininvestmentsheldbythefundsintheportfolio,
• Gains of $66.0 million from our strategic and other investments portfolio, primarily driven by net unrealizedvaluationincreasesinbothprivateandpubliccompanyinvestmentsheldinourstrategicventurecapitalfunds,
• Gains of $94.8 million from gains from our public equity securities, primarily driven by $72.0 million fromunrealizedgainsforthe2.4millioncommonsharesheldasofDecember31,2020inBigCommerceHoldings, Inc("BigCommerce")and$14.7millionrealizedgainsforthesaleofBigCommerceequityshares,
• Gainsof$61.2millionfromourAFSdebtsecuritiesportfolio,resultingfromthesaleof$2.6billionofU.S.Treasurysecuritiesduringthequarter,and
• Gainsof $16.0million fromcarried interestonourmanaged credit funds, acquired fromWRGwhich closedonDecember23,2020.PerformancefeesearnedfromthearrangementexistingpriortotheacquisitionofthedebtfundbusinessfromWRGwerepreviouslyrecordedinothernoninterestincomeandexchangedforcarriedinterestaspartoftheacquisition.Asaresult,werecordedunrealizedgainsof$16.0millionnetofnoncontrollinginterestrelated to carried interest on the managed credit funds. These gains were primarily driven by the IPO ofBigCommerce.
Netgainsoninvestmentsecurities,netofnoncontrollinginterestsof$86.2millionin2019weredrivenbythefollowing:
TableofContents
53
• Gainsof $37.9million fromourmanaged fundsof fundsportfolio, relatedprimarily tonetunrealized valuationincreasesinbothprivateandpubliccompanyinvestmentsheldbythefundsintheportfolio,
• Gains of $33.1 million from our strategic and other investments portfolio, primarily driven by net unrealizedvaluationincreasesinbothprivateandpubliccompanyinvestmentsheldinourstrategicventurecapitalfunds,and
• Gains of $7.9 million from our managed direct venture funds, related primarily to net unrealized valuationincreasesininvestmentsheldbythefundsintheportfolio.
ThefollowingtableprovidesareconciliationofGAAPtotalgains(losses)oninvestmentsecurities,net,tonon-GAAPnetgains(losses)oninvestmentsecurities,netofnoncontrollinginterests,for2020,2019and2018:
(Dollarsinthousands)
ManagedFundsofFunds
ManagedDirectVentureFunds
ManagedCreditFunds
PublicEquity
Securities
SalesofAFSDebtSecurities
DebtFunds
StrategicandOtherInvestments
SVBLeerink Total
YearendedDecember31,2020
GAAPgains(losses)oninvestmentsecurities,net $116,104 $56,195 $19,127 $94,758 $61,165 $ (403) $ 66,017 $ 7,789 $420,752
Less:gainsattributabletononcontrollinginterests,includingcarriedinterestallocation 54,837 27,584 3,150 — — — — 898 86,469
Non-GAAPnetgains(losses)oninvestmentsecurities,netofnoncontrollinginterests $61,267 $28,611 $15,977 $94,758 $61,165 $ (403) $ 66,017 $ 6,891 $334,283
YearendedDecember31,2019
GAAPgains(losses)oninvestmentsecurities,net $74,939 $17,982 $ — $ 5,421 $ (3,905) $ 1,647 $ 33,101 $ 5,485 $134,670
Less:gainsattributabletononcontrollinginterests,includingcarriedinterestallocation 37,087 10,089 — — — — — 1,325 48,501
Non-GAAPnetgains(losses)oninvestmentsecurities,netofnoncontrollinginterests $37,852 $ 7,893 $ — $ 5,421 $ (3,905) $ 1,647 $ 33,101 $ 4,160 $86,169
YearendedDecember31,2018
GAAPgains(losses)oninvestmentsecurities,net $62,019 $11,502 $ — $(25,158) $ (740) $ 541 $ 39,930 $ — $88,094
Less:gainsattributabletononcontrollinginterests,includingcarriedinterestallocation 32,938 5,245 — — — — — — 38,183
Non-GAAPnetgains(losses)oninvestmentsecurities,netofnoncontrollinginterests $29,081 $ 6,257 $ — $(25,158) $ (740) $ 541 $ 39,930 $ — $49,911
GainsonEquityWarrantAssets,Net
Gainsonequitywarrant assets, net,were$237.4million in2020, compared to$138.1million in2019.Net gainsonequitywarrantassetsof$237.4millionin2020wereprimarilyduetothefollowing:
• Net gains of $179.6 million from the exercises of equity warrant assets in 2020 driven by robust IPO, specialpurposeacquisitioncompany("SPAC")andM&Aactivityduring2020, including$10.8millionfromourexercisedwarrantpositioninBigCommerce,and
• Netgainsof$59.7millionfromchangesinwarrantvaluationsin2020drivenbyvaluationincreasesinourprivatecompanywarrantportfolio.
Gainsonequitywarrantassets,net,of$138.1millionin2019wereprimarilyduetothefollowing:
• Netgainsof$107.2million fromtheexercisesofequitywarrantassets in2019,drivenby increased IPOactivityduring2019,and
• Netgainsof$34.4millionfromchangesinwarrantvaluationsin2019,drivenbyvaluationincreasesinourprivatecompanywarrantportfolio.
TableofContents
54
Asummaryofgainsonequitywarrantassets,net,for2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Equitywarrantassets(1):
Gainsonexercises,net $ 179,648 $ 107,168 67.6% $ 58,186 84.2%
Terminations (1,948) (3,502) (44.4) (5,964) (41.3)
Changesinfairvalue,net 59,728 34,412 73.6 36,920 (6.8)
Totalgainsonequitywarrantassets,net $ 237,428 $ 138,078 72.0 $ 89,142 54.9
(1) AtDecember31,2020,weheldwarrantsin2,602companies,comparedto2,268companiesatDecember31,2019.Thetotalvalueofourwarrantportfoliowas$203.4millionatDecember31,2020and$165.5millionatDecember31,2019.Warrantsin25companieseachhadfairvaluesgreaterthan$1.0millionandcollectivelyrepresented$75.9million,or37.3percent,ofthefairvalueofthetotalwarrantportfolioatDecember31,2020.
InvestmentinRoot,Inc.
As of December 31, 2020, we held investments in Root, Inc. (“Root”) of approximately 14.0million common stocksharesdirectlyheldbytwoofourSVBCapitalfunds(inwhichSVBFGholdscertaincarriedinterests),ofwhichweestimatedtobeentitledtoapproximately$24.8millionbeforetaxesintheformofcarriedinterestsubjecttothefund'sperformanceandassuming the fund exceeds certain performance targets. Carried interest may be subject to change to the extent fundperformancelevelsfluctuate.
InvestmentinBigCommerce
AsofDecember31,2020,weheldaninvestmentinBigCommerceofapproximately2.4millioncommonsharespursuanttoourexerciseofcertainwarrantsanddebtconversionand1.4millionsharesheldthroughourSVBCapitalFunds(inwhichSVBFGholdscertaincarriedinterests),ofwhichweestimatetobeentitledtoapproximately$11.5millionbeforetaxesintheform of carried interest subject to the fund's performance and assuming the fund exceeds certain performance targets.Carriedinterestmaybesubjecttochangetotheextentfundperformancelevelsfluctuate.
Gains (or losses) related to our equity securities in public companies such as Root and BigCommerce are based onvaluationchangesorthesaleofanysecurities,andaresubjecttosuchcompanies'stockprice,whicharesubjecttomarketconditionsandvariousotherfactors.Additionally,thepublicequityinvestmentexpectedgainsandlosses,andtheextenttowhichsuchgains(orlosses)willbecomerealizedissubjecttoavarietyoffactors,includingamongotherfactors,changesinprevailingmarketpricesandthe timingofanysalesof securities,whicharesubject tooursecuritiessalesandgovernanceprocessaswellascertainsalesrestrictions(e.g.lock-upagreements).ThelockupagreementforcommonstocksharesheldinRootisscheduledtoexpireduringApril2021andthelockupagreementforcommonsharesheldinBigCommerceexpiredinFebruary2021.
As of the date of this filing, we have sold all of our common shares of BigCommerce subsequent to the lock-upexpirationresulting inpre-taxgainson investmentsecuritiesofapproximately$43.0milliontoberecordedduringthefirstquarter of 2021.Additionally, all BigCommerce sharesheld throughour SVBCapital Fundsweredistributed to the limitedpartnerssubsequenttothelock-upexpiration.ThedistributiontofundinvestorsdidnotresultinarealizedgainorlosstoSVBFinancialGroupandtherewasnodistributionofcarried interest totheGeneralPartner.WedonotanticipatethepriceofBigCommerce common shares upon distribution will have a material impact on the amount of expected carried interestpreviouslydisclosedabove.Carriedinterestmaybesubjecttochangetotheextentfundperformancelevelsfluctuate.
TableofContents
55
Non-GAAPCoreFeeIncomeandNon-GAAPSVBLeerinkRevenue
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Non-GAAPcorefeeincome(1):
Clientinvestmentfees $ 132,200 $ 182,068 (27.4)% $ 130,360 39.7%
Foreignexchangefees 178,733 159,262 12.2 138,812 14.7
Creditcardfees 97,737 118,719 (17.7) 94,072 26.2
Depositservicecharges 90,336 89,200 1.3 76,097 17.2
Lendingrelatedfees 57,533 49,920 15.3 41,949 19.0
Lettersofcreditandstandbylettersofcreditfees 46,659 42,669 9.4 34,600 23.3
Totalnon-GAAPcorefeeincome(1) $ 603,198 $ 641,838 (6.0) $ 515,890 24.4
Investmentbankingrevenue 413,985 195,177 112.1 — —
Commissions 66,640 56,346 18.3 — —Totalnon-GAAPSVBLeerinkrevenue(2) $ 480,625 $ 251,523 91.1 $ — —
Totalnon-GAAPcorefeeincomeplusSVBLeerinkrevenue(3) $ 1,083,823 $ 893,361 21.3 $ 515,890 73.2
(1) Non-GAAP core fee income represents noninterest income, but excludes (i) certain line itemswhere performance istypicallysubjecttomarketorotherconditionsbeyondourcontrol,(ii)ourinvestmentbankingrevenueandcommissionsand(iii)othernoninterestincome.See“UseofNon-GAAPMeasures”above.
(2) Non-GAAPSVBLeerinkrevenuerepresentsnoninterestincome,butexcludes(i)certainlineitemswhereperformanceistypically subject to market or other conditions beyond our control, (ii) non-GAAP core fee income, and (iii) othernoninterestincome.See“UseofNon-GAAPMeasures”above.
(3) Non-GAAPcorefeeincomeplusSVBLeerinkrevenuerepresentsnoninterestincome,butexcludes(i)certainlineitemswhere performance is typically subject tomarket or other conditions beyond our control, and (ii) other noninterestincome.See“UseofNon-GAAPMeasures”above.
ClientInvestmentFees
Weofferavarietyofinvestmentproductsonwhichweearnfees.Theseproductsincludemoneymarketmutualfunds,overnight repurchase agreements and sweep money market funds available through the Bank, client-directed accountsofferedthroughourbroker-dealer,SVBWealthAdvisory,andfixedincomemanagementservicesofferedthroughSVBAssetManagement,ourinvestmentadvisorysubsidiary.
Client investment fees were $132.2 million in 2020, compared to $182.1 million in 2019. The decrease in clientinvestmentfeesisreflectiveofareductioninfeemarginresultingfromlowershort-termmarketrates.
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Clientinvestmentfeesbytype:
Sweepmoneymarketfees $ 74,176 $ 104,236 (28.8)% $ 75,654 37.8%
Assetmanagementfees 42,768 28,665 49.2 23,882 20.0
Repurchaseagreementfees 15,256 49,167 (69.0) 30,824 59.5
Totalclientinvestmentfees $ 132,200 $ 182,068 (27.4) $ 130,360 39.7
TableofContents
56
Thefollowingtablesummarizesaverageclientinvestmentfundsfor2020,2019and2018:
YearendedDecember31,
(Dollarsinmillions) 2020 2019%Change2020/2019 2018
%Change2019/2018
Sweepmoneymarketfunds $ 50,828 $ 40,667 25.0% $ 32,232 26.2%
Clientinvestmentassetsundermanagement(1) 56,473 41,887 34.8 34,754 20.5
Repurchaseagreements 10,079 9,079 11.0 8,086 12.3
Totalaverageclientinvestmentfunds(2) $ 117,380 $ 91,633 28.1 $ 75,072 22.1
(1) Thesefundsrepresentinvestmentsinthird-partymoneymarketmutualfundsandfixed-incomesecuritiesmanagedbySVBAssetManagement.
(2) Clientinvestmentfundsaremaintainedatthird-partyfinancialinstitutionsandarenotrecordedonourbalancesheet.
Thefollowingtablesummarizesperiod-endclientinvestmentfundsatDecember31,2020,2019and2018:
December31,
(Dollarsinmillions) 2020 2019%Change2020/2019 2018
%Change2019/2018
Sweepmoneymarketfunds $ 59,844 $ 43,226 38.4% $ 38,348 12.7%
Clientinvestmentassetsundermanagement(1) 70,671 46,904 50.7 39,214 19.6
Repurchaseagreements 10,538 9,062 16.3 8,422 7.6
Totalperiod-endclientinvestmentfunds(2) $ 141,053 $ 99,192 42.2 $ 85,984 15.4
(1) Thesefundsrepresentinvestmentsinthird-partymoneymarketmutualfundsandfixed-incomesecuritiesmanagedbySVBAssetManagement.
(2) Clientinvestmentfundsaremaintainedatthird-partyfinancialinstitutionsandarenotrecordedonourbalancesheet.
ForeignExchangeFees
Foreign exchange fees were $178.7 million in 2020, compared to $159.3 million in 2019. The increase in foreignexchangefeeswasprimarilyduetoincreasedforeigncurrencyriskhedgingaswellasprivateequityactivity.Theincreaseisdueprimarilytotheoverallincreaseinthenumberofclientsexecutingspotcontractsresultinginhighertradevolumesfromthepreviousyearreflectiveofourglobalexpansioninitiativeandincreasedclientengagementefforts.Foreignexchangefeeshavebeen,andmayfurtherbe,impactedbyeffectsoftheCOVID-19pandemic.
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Foreignexchangefeesbyinstrumenttype:
Spotcontractcommissions $ 157,852 $ 145,915 8.2% $ 127,459 14.5%
Forwardcontractcommissions 19,849 13,068 51.9 10,940 19.5
Optionpremiumfees 1,032 279 NM 413 (32.4)
Totalforeignexchangefees $ 178,733 $ 159,262 12.2 $ 138,812 14.7
NM—Notmeaningful
CreditCardFees
Credit card feeswere$97.7million in2020, compared to$118.7million in2019.Thedecreasewasprimarilydue tolower transaction volumes starting in March of 2020 reflective of the COVID-19 pandemic interrupting normal businessactivityandreducedclientspending.Asummaryofcreditcardfeesbyinstrumenttypefor2020,2019and2018isasfollows:
TableofContents
57
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Creditcardfeesbyinstrumenttype:
Cardinterchangefees,net $ 75,562 $ 93,553 (19.2)% $ 74,381 25.8%
Merchantservicefees 17,732 18,355 (3.4) 14,420 27.3
Cardservicefees 4,443 6,811 (34.8) 5,271 29.2
Totalcreditcardfees $ 97,737 $ 118,719 (17.7) $ 94,072 26.2
DepositServiceCharges
Depositservicechargeswere$90.3millionin2020,comparedto$89.2millionin2019.Theincreasewasattributabletohigherdeposit client counts aswell ashigher volumesofour transaction-based feeproducts.However, client activitywasimpactedbyaslowermacro-economicenvironmentresultingfromtheCOVID-19pandemic
LendingRelatedFees
Lendingrelatedfeeswere$57.5millionin2020,comparedto$49.9millionin2019.Theincreasewasprimarilyduetoincreasesinfeesearnedfromunusedlinesofcreditduetostrongclientliquidity.Asummaryoflendingrelatedfeesbytypefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Lendingrelatedfeesbyinstrumenttype:
Unusedcommitmentfees $ 42,399 $ 34,829 21.7% $ 32,452 7.3%
Other 15,134 15,091 0.3 9,497 58.9
Totallendingrelatedfees $ 57,533 $ 49,920 15.3 $ 41,949 19.0
LettersofCreditandStandbyLettersofCreditFees
Lettersofcreditandstandbylettersofcreditfeeswere$46.7millionin2020,comparedto$42.7millionin2019.Theincreasewasprimarilydrivenbyincreasesindeferredfeeincomereflectiveoflargerletterofcreditissuances.
InvestmentBankingRevenue
Investmentbankingrevenue,attributabletotheacquisitionofSVBLeerinkinJanuary2019,was$414.0millionin2020,compared to $195.2 million in 2019. The increase was due to exceptional levels of funding activity in the life science/healthcare secondarymarkets and by the increase in public equity underwriting fees. A summary of investment bankingrevenuebytypefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Investmentbankingrevenue:
Underwritingfees $ 352,951 $ 153,306 130.2% $ — —%
Advisoryfees 40,006 37,846 5.7 — —
Privateplacementsandother 21,028 4,025 NM — —
Totalinvestmentbankingrevenue $ 413,985 $ 195,177 112.1 $ — —
NM—Notmeaningful
Commissions
Commissions were $66.6 million in 2020, compared to $56.3 million in 2019. Commissions include commissionsreceivedfromclientsfortheexecutionofagency-basedbrokeragetransactions in listedandover-the-counterequities.Theincreasewasdrivenbyclienttradingactivity,consistentwithmarketvolumes.
TableofContents
58
OtherNoninterestIncome
Totalothernoninterestincomewas$98.1millionin2020,comparedtoincomeof$55.4millionin2019.Theincreasewasprimarilydrivenbythe$30.0millionrecognizedgainupontheexerciseandconversionofourconvertibledebtoptionforBigCommerceduringthethirdquarterof2020.
Asummaryofothernoninterestincomefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Othernoninterestincomebyinstrumenttype:
Fundmanagementfees $ 38,960 $ 32,522 19.8% $ 23,016 41.3%
Net(losses)gainsonrevaluationofforeigncurrencyinstruments,netofforeignexchangeforwardcontracts(1) (926) 345 NM 666 (48.2)
Gainsfromconversionofconvertibledebtoptions 30,018 — — — —
Lossesonextinguishmentofdebt — (8,960) (100.0) — —
Otherservicerevenue(2) 30,093 31,463 (4.4) 28,176 11.7
Totalothernoninterestincome $ 98,145 $ 55,370 77.3 $ 51,858 6.8
(1) Representsthenetrevaluationofclientandinternalforeigncurrencydenominatedfinancialinstruments.Weenterintoforeignexchangeforwardcontractstoeconomicallyreduceourforeignexchangeexposurerelatedtoclientandinternalforeigncurrencydenominatedfinancialinstruments.
(2) Includes dividends on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest,valuationfeeincomeandotherfeeincome.
NoninterestExpense
Asummaryofnoninterestexpensefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Compensationandbenefits $ 1,318,457 $ 989,734 33.2% $ 726,980 36.1%
Professionalservices 247,084 205,479 20.2 158,835 29.4
Premisesandequipment 127,125 96,770 31.4 77,918 24.2
Netoccupancy 100,889 69,279 45.6 54,753 26.5
Businessdevelopmentandtravel 23,724 68,912 (65.6) 48,180 43.0
FDICandstateassessments 27,587 18,509 49.0 34,276 (46.0)
Other 190,175 152,579 24.6 87,251 74.9
Totalnoninterestexpense $ 2,035,041 $ 1,601,262 27.1 $ 1,188,193 34.8
Included in noninterest expense is expense attributable to noncontrolling interests. See below for a description andreconciliation of non-GAAP noninterest expense and non-GAAP core operating efficiency ratio, both of which excludenoncontrollinginterests.
Non-GAAPNoninterestExpense
We use and report non-GAAP noninterest expense, non-GAAP taxable equivalent revenue and non-GAAP coreoperatingefficiencyratio,whichexcludesnoncontrollinginterests,SVBLeerinkandothernon-recurringexpenses.Webelievethese non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, providemeaningful supplemental information regarding our performance by: (i) excluding certain items that represent expensesattributabletoinvestorsotherthanusandoursubsidiaries,orcertainitemsthatdonotoccureveryreportingperiod;or(ii)providing additional information used by management that is not otherwise required by GAAP or other applicablerequirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financialmeasures in assessing our operating results andwhen planning, forecasting and analyzing future periods.However, these
TableofContents
59
non-GAAPfinancialmeasuresshouldbeconsideredinadditionto,notasasubstitutefororpreferableto,financialmeasurespreparedinaccordancewithGAAP.
Thetablebelowprovidesasummaryofnon-GAAPnoninterestexpenseandnon-GAAPcoreoperatingefficiencyratio,bothnetofnoncontrollinginterests:
YearendedDecember31,
Non-GAAPcoreoperatingefficiencyratio(Dollarsinthousands,exceptratios) 2020 2019
%Change2020/2019 2018
%Change2019/2018
GAAPnoninterestexpense $2,035,041 $1,601,262 27.1% $1,188,193 34.8%
Less:expenseattributabletononcontrollinginterests 475 835 (43.1) 522 60.0
Non-GAAPnoninterestexpense,netofnoncontrollinginterests 2,034,566 1,600,427 27.1 1,187,671 34.8
Less:expenseattributabletoSVBLeerink 378,970 252,677 50.0 — —
Less:realestateexpenses 29,317 — — — —
Less:charitabledonationofnetPPPloanoriginationfees 20,000 — — — —
Non-GAAPnoninterestexpense,netofnoncontrollinginterests,SVBLeerinkandothernon-recurringexpenses $1,606,279 $1,347,750 19.2 $1,187,671 13.5
GAAPnetinterestincome $2,156,284 $2,096,601 2.8 $1,893,988 10.7
Adjustmentsfortaxableequivalentbasis 16,230 11,949 35.8 9,201 29.9
Non-GAAPtaxableequivalentnetinterestincome 2,172,514 2,108,550 3.0 1,903,189 10.8
Less:incomeattributabletononcontrollinginterests 26 72 (63.9) 30 140.0
Non-GAAPtaxableequivalentnetinterestincome,netofnoncontrollinginterests 2,172,488 2,108,478 3.0 1,903,159 10.8
Less:netinterestincomeattributabletoSVBLeerink 578 1,252 (53.8) — —
Non-GAAPtaxableequivalentnetinterestincome,netofnoncontrollinginterestsandSVBLeerink $2,171,910 $2,107,226 3.1 $1,903,159 10.7
GAAPnoninterestincome $1,840,148 $1,221,479 50.6 $ 744,984 64.0
Less:incomeattributabletononcontrollinginterests,includingcarriedinterestallocation 86,375 48,624 77.6 38,000 28.0
Non-GAAPnoninterestincome,netofnoncontrollinginterests 1,753,773 1,172,855 49.5 706,984 65.9
Less:non-GAAPnetgainsoninvestmentsecurities,netofnoncontrollinginterests 334,283 86,169 NM 49,911 72.6
Less:netgainsonequitywarrantassets 237,428 138,078 72.0 89,142 54.9
Less:investmentbankingrevenue 413,985 195,177 112.1 — —
Less:commissions 66,640 56,346 18.3 — —
Non-GAAPnoninterestincome,netofnoncontrollinginterestsandnetofnetgainsoninvestmentsecurities,netgainsonequitywarrantassets,investmentbankingrevenueandcommissions $ 701,437 $ 697,085 0.6 $ 567,931 22.7
GAAPtotalrevenue $3,996,432 $3,318,080 20.4 $2,638,972 25.7
Non-GAAPtaxableequivalentrevenue,netofnoncontrollinginterestsandSVBLeerink,netgainsoninvestmentsecurities,netgainsonequitywarrantassets,investmentbankingrevenueandcommissions $2,873,347 $2,804,311 2.5 $2,471,090 13.5
GAAPoperatingefficiencyratio 50.92% 48.26% 5.5 45.02% 7.2
Non-GAAPcoreoperatingefficiencyratio(1) 55.90 48.06 16.3 48.06 —
TableofContents
60
NM—Notmeaningful(1) The non-GAAP core operating efficiency ratio is calculated by dividing noninterest expense after adjusting for
noninterestexpenseattributabletoSVBLeerinkandothernon-recurringexpensesbytotalrevenueafteradjustingfornetinterestincomeattributabletoSVBLeerink,netgainsorlossesoninvestmentsecuritiesandequitywarrantassets,investment banking revenue and commissions. Additionally, noninterest expense and total revenue are adjusted forincomeor losses and expenses attributable to noncontrolling interests and adjustments to net interest income for ataxableequivalentbasis.
CompensationandBenefitsExpense
Thefollowingtableprovidesasummaryofourcompensationandbenefitsexpense:
YearendedDecember31,
(Dollarsinthousands,exceptemployees) 2020 2019%Change2020/2019 2018
%Change2019/2018
Compensationandbenefits:
Salariesandwages $ 516,221 $ 436,500 18.3% 324,971 34.3
Incentivecompensationplans 463,831 288,073 61.0 200,871 43.4
Otheremployeeincentivesandbenefits(1) 338,405 265,161 27.6 201,138 31.8
Totalcompensationandbenefits $ 1,318,457 $ 989,734 33.2 $ 726,980 36.1
Period-endfull-timeequivalentemployees 4,461 3,564 25.2 2,900 22.9
Averagefull-timeequivalentemployees 4,040 3,362 20.2 2,685 25.2
(1) Otheremployee incentivesandbenefits includesemployerpayroll taxes,grouphealthand life insurance,share-basedcompensation,401(k),ESOP,warrantincentiveandretentionplans,agencyfeesandotheremployee-relatedexpenses.
Compensation and benefits expense was $1.3 billion in 2020, compared to $989.7million in 2019. The key factorsdrivingtheincreaseincompensationandbenefitsexpensein2020wereasfollows:
• An increaseof$79.7million in salariesandwagesexpense, reflectiveprimarilyofan increase in thenumberofaverageFTEsby678to4,040in2020,comparedto3,362in2019,drivenbystronghiringforin-sourcing,productdevelopmentandrevenuegrowth,aswellasannualpayraises.
• Anincreaseof$175.8millioninincentivecompensationplansexpenseattributableprimarilytoanincreaseinSVBLeerinkincentivecompensationexpenseasaresultofastrong2020full-yearfinancialperformance.
• An increase of $73.2 million in other employee incentives and benefits expense attributable primarily to anincreaseinwarrantincentiveplanexpenseduetohighergainsonequitywarrantassetsfromexercisesin2020ascompared to 2019 and an increase in deferred compensation expense primarily driven by the appreciation inmarketvaluationsintheunderlyinginvestmentsecuritiesintheplanin2020.
Our variable compensation plans primarily consist of our Incentive Compensation Plan, Direct Drive IncentiveCompensation Plan, Retention Program,Warrant Incentive Plan, Deferred Compensation Plan, 401(k) and ESOP Plan, SVBLeerink Incentive Compensation Plan and SVB Leerink Retention Award. Total costs incurred under these plans were$546.5millionin2020,comparedto$347.3millionin2019.Theseamountsareincludedintotalcompensationandbenefitsexpensediscussedabove.
ProfessionalServices
Professionalservicesexpensewas$247.1millionin2020,comparedto$205.5millionin2019.Theincreasein2020wasprimarily related to costs to support the PPP during the year 2020 aswell as continued investment in our infrastructure,initiatives,andoperatingprojectstosupportourpresencebothdomesticallyandglobally.
PremisesandEquipment
Premises and equipment expensewas $127.1million in 2020, compared to $96.8million in 2019. The increasewasrelatedtoinvestmentsinprojects,systemsandtechnologytosupportourrevenuegrowthandrelatedinitiativesaswellasotheroperatingcosts.
TableofContents
61
NetOccupancy
Netoccupancyexpensewas$100.9millionin2020,comparedto$69.3millionin2019.Theincreasewasdueprimarilytoimpairmentandaccelerateddepreciationofrightofuseassetsandotherfixedassetsof$29.3millionrelatedtovacatingleasedofficespaceinseverallocationsduring2020.
BusinessDevelopmentandTravel
Businessdevelopmentandtravelexpensewas$23.7millionin2020,comparedto$68.9millionin2019.ThedecreasewasprimarilyduetotheimpactofCOVID-19ontheglobaleconomyandourrestrictionsplacedondomesticandinternationaltravelbeginningMarch2020.
FDICandStateAssessments
FDICandstateassessmentsexpensewas$27.6million in2020,comparedto$18.5million in2019.The increasewasdueprimarilytotheincreaseinouraverageassets.
OtherNoninterestExpense
Asummaryofothernoninterestexpensefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Lendingandotherclientrelatedprocessingcosts $ 29,783 $ 28,491 4.5% $ 24,237 17.6%
Correspondentbankfees 15,065 14,503 3.9 13,713 5.8
Investmentbankingactivities 20,591 13,733 49.9 — —
Tradeorderexecutioncosts 11,144 10,813 3.1 — —
Dataprocessingservices 14,910 12,536 18.9 10,811 16.0
Telephone 8,591 9,861 (12.9) 9,404 4.9
Duesandpublications 4,251 4,603 (7.6) 4,605 —
Postageandsupplies 2,545 3,198 (20.4) 2,799 14.3
Other 83,295 54,841 51.9 21,682 152.9
Totalothernoninterestexpense $ 190,175 $ 152,579 24.6 $ 87,251 74.9
Othernoninterestexpensewas$190.2millionin2020,comparedto$152.6millionin2019.Theincreasewasprimarilydue to the donation of $20.0million from net PPP fees received from the SBA and a $6.9million increase in investmentbankingexpensesduetostronginvestmentbankingactivity.
OperatingEfficiencyRatio
TheGAAPoperatingefficiencyratioincreasedprimarilydueto$49.3millionofnon-recurringexpensesrelatedtorealestateandcharitabledonationsaswell ashigherSVBLeerinkexpensesasapercentageof SVBLeerink revenue.Thenon-GAAPcoreoperatingefficiencyratioincreaseddueprimarilytotheoverallincreaseinexpensesrelatedtoourcorebusinessasapercentageofrevenuedrivenprimarilybyincreasedcompensationandbenefitsexpense.
NetIncomeAttributabletoNoncontrollingInterests
Includedinnetincomeisincomeandexpenseattributabletononcontrollinginterests.Therelevantamountsallocatedto investors inourconsolidatedsubsidiaries,other thanus,are reflectedunder“net incomeattributable tononcontrollinginterests”onourconsolidatedstatementsofincome.
Inthetablebelow,noninterestincomeconsistsprimarilyofinvestmentgainsandlossesfromourconsolidatedfunds.NoninterestexpenseisprimarilyrelatedtomanagementfeespaidbyourmanagedfundstoSVBFinancial'ssubsidiariesasthemanagedfunds’generalpartners.Asummaryofnetincomeattributabletononcontrollinginterestsfor2020,2019and2018isasfollows:
TableofContents
62
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Netinterestincome(1) $ (26) $ (72) (63.9)% $ (30) 140.0%
Noninterestincome(1) (29,441) (20,290) 45.1 (22,342) (9.2)
Noninterestexpense(1) 475 835 (43.1) 522 60.0
Carriedinterestallocation(2) (56,934) (28,334) 100.9 (15,658) 81.0
Netincomeattributabletononcontrollinginterests $ (85,926) $ (47,861) 79.5 $ (37,508) 27.6
(1) Representsnoncontrollinginterests’shareinnetinterestincome,noninterestincomeandnoninterestexpense.(2) Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain
consolidatedfunds.
Netincomeattributabletononcontrollinginterestswas$85.9millionin2020,comparedto$47.9millionin2019.Netincomeattributabletononcontrollinginterestsof$85.9millionfor2020wasprimarilyaresultofthefollowing:
• Netgainsoninvestmentsecurities(includingcarriedinterestallocation)attributabletononcontrollinginterestsof$86.4million($29.4millionexcludingcarriedinterestallocation)primarilyfromourmanagedfundsoffundsandourmanageddirectventurefundsportfolios,relatedprimarilytonetunrealizedvaluationincreasesinbothprivateandpubliccompanyinvestmentsheldbythefundsintheportfolios,and
• Noninterestexpenseof$0.5million,primarilyrelatedtomanagementfeespaidbythenoncontrollingintereststooursubsidiariesthatserveasthegeneralpartner.
Netincomeattributabletononcontrollinginterestswas$47.9millionin2019.Netincomeattributabletononcontrollinginterestsof$47.9millionfor2019wasprimarilyaresultofthefollowing:
• Netgainsoninvestmentsecurities(includingcarriedinterestallocation)attributabletononcontrollinginterestsof$48.5million($20.2millionexcludingcarriedinterestallocation)primarilyfromourmanagedfundsoffundsandourmanageddirectventurefundsportfolios,relatedprimarilytonetunrealizedvaluationincreasesinbothprivateandpubliccompanyinvestmentsheldbythefundsintheportfolios,and
• Noninterestexpenseof$0.8million,primarilyrelatedtomanagementfeespaidbythenoncontrollingintereststooursubsidiariesthatserveasthegeneralpartner.
IncomeTaxes
Oureffectiveincometaxexpenseratewas27.0percentin2020,comparedto27.2percentin2019.Oureffectivetaxrate is calculated by dividing income tax expense by the sum of income before income tax expense and the net incomeattributabletononcontrollinginterests.Thecomponentsofoureffectivetaxratesfor2020and2019arediscussedinNote18—“IncomeTaxes”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
The decrease in our effective tax rate for 2020 was primarily due to an increase in the net tax benefits from ourinvestmentsinqualifiedaffordablehousingprojectsascomparedto2019.
OperatingSegmentResults
Wehave foursegments forwhichwereportour financial information:GlobalCommercialBank (“GCB”),SVBPrivateBank,SVBCapitalandSVBLeerink.
We report segment information based on the “management” approach. Themanagement approach designates theinternal reporting used by management for making decisions and assessing performance as the source of our reportingsegments.RefertoNote24—“SegmentReporting”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreportforadditionaldetails.
Thefollowingisourreportablesegmentinformationfor2020,2019and2018:
TableofContents
63
GlobalCommercialBank
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Netinterestincome $ 2,025,240 $ 1,850,391 9.4% $ 1,623,488 14.0%
Provisionforcreditlosses (165,987) (91,814) 80.8 (80,953) 13.4
Noninterestincome 605,733 637,922 (5.0) 520,302 22.6
Noninterestexpense (1,019,995) (874,854) 16.6 (793,159) 10.3
Incomebeforeincometaxexpense $ 1,444,991 $ 1,521,645 (5.0) $ 1,269,678 19.8
Totalaverageloans,amortizedcost $ 31,218,037 $ 26,031,284 19.9 $ 22,354,305 16.4
Totalaverageassets 75,034,226 56,043,321 33.9 48,854,416 14.7
Totalaveragedeposits 72,127,148 53,053,665 36.0 46,039,570 15.2
IncomebeforeincometaxexpensefromourGCBdecreasedto$1.4billionin2020,comparedto$1.5billionin2019.ThekeycomponentsofGCB'sperformancearediscussedbelow.
NetinterestincomefromGCBincreasedby$174.8millionin2020,dueprimarilytoanincreaseinloaninterestincomeresultingmainlyfromhigheraverageloanbalances,partiallyoffsetbyadecreaseinloanyieldsasaresultofratedecreases.Inaddition, strongdeposit growthprovided a higher earnings credit and a low rate environment produced a lower earningschargeforfundedloanscreatingabenefitofahighernetFTPearningscredit.
GCBhadaprovisionforcreditlossesof$166.0millionfortheyearendedDecember31,2020,comparedtoaprovisionof$91.8millionforthecomparable2019period.The$74.2millionincreaseisprimarilyduetothe$59.2millioninadditionalreserves for our performing loans based on our forecast models of the current economic environment under the CECLmethodology adopted January 1, 2020, including the impact of the COVID-19 pandemic, as well as changes in loancomposition within our portfolio segments. The provision of $166.0 million also consisted of $30.7 million in additionalreserves for period-end loan growth, $49.2million for charge-offs not specifically reserved for atDecember 31, 2019 and$59.8millioninnetnewnonaccrualloans,partiallyoffsetby$29.0millionofrecoveries.
Theprovision for loan losses of $94.2million in 2019, under theprevious incurred lossmethodology,was reflectiveprimarilyof$38.7millionfromperiod-end loangrowth,$56.3million innetnewspecificreservesfornonaccrual loansand$43.2millionfromcharge-offsnotspecificallyreservedfor,partiallyoffsetbyadecreaseof$23.0millionforourperformingloansand$21.0millionofrecoveries.
Noninterestincomedecreasedby$32.2millionin2020,relatedprimarilytoanoveralldecreaseinourcorefees(lowerclient investment fees and credit card fees offset by increases in foreign exchange fees and lending related fees). Thedecreasesweredueprimarilytotheimpactofthefederalratecutsonyieldratesaffectingclientinvestmentfeesaswellasadecrease intransactionalvolumeoncreditcardsduetoCOVID.The increase inforeignexchangefeeswasdueprimarilytoincreasedtradevolumesreflectiveofourglobalexpansioninitiativeandincreasedclientengagementefforts.
Noninterestexpense increasedby$145.1million in2020,dueprimarily to increasedexpenses forcompensationandbenefitsandprofessionalservices,partiallyoffsetbyadecreaseinbusinessdevelopmentandtravelexpense.Compensationandbenefitsexpenses increasedasaresultofhighersalariesandwages.The increase inGCBsalariesandwagesexpenseswas due primarily to an increase in the average number of FTEs at GCB, which increased by 524 to 2,874 FTEs in 2020,compared to2,350FTEs in2019.Professional servicesexpenses increaseddue tohigherexpensesprimarily related toourcontinuedeffort towards investments inour infrastructure, initiativesandoperatingprojects tosupportourpresencebothdomesticallyandglobally.BusinessdevelopmentandtravelexpensedecreasedprimarilyduetotheimpactofCOVID-19ontheglobaleconomyandourrestrictionsplacedondomesticandinternationaltravelbeginningMarch2020.
TableofContents
64
SVBPrivateBank
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Netinterestincome $ 77,490 $ 51,022 51.9% $ 64,902 (21.4)%
Provisionforcreditlosses (21,329) (2,369) NM (3,339) (29.1)
Noninterestincome 3,536 3,366 5.1 2,281 47.6
Noninterestexpense (46,099) (40,151) 14.8 (25,064) 60.2
Incomebeforeincometaxexpense $ 13,598 $ 11,868 14.6 $ 38,780 (69.4)
Totalaverageloans,amortizedcost $ 4,195,804 $ 3,341,188 25.6 $ 2,850,271 17.2
Totalaverageassets 4,229,818 3,371,052 25.5 2,871,743 17.4
Totalaveragedeposits 2,171,556 1,524,232 42.5 1,502,308 1.5
NM—Notmeaningful
IncomebeforeincometaxexpensefromSVBPrivateBankincreasedto$13.6millionin2020,comparedto$11.9millionin2019.ThekeydriversofSVBPrivateBank'sperformancearediscussedbelow:
Netinterestincomeincreasedby$26.5millionin2020,dueprimarilytoanincreaseinaverageloans,partiallyoffsetbydecreasesinloanyieldsasaresultofoverallmarketratedecreases.
Theprovisionforcreditlossesincreasedby$19.0milliondueprimarilytoa$22.8millionincreaseduetoloangrowthpartially offset by a $3.4million decrease in reserves for our performing loans reflective primarily of improved economicscenariosinourforecastmodelsaswellasaqualitativeadjustmentreflectiveofstrongcreditperformance.
Noninterestexpense increased$5.9millionto$46.1million in2020duetoan$6.9million increase incompensationandbenefits,partiallyoffsetbya$1.1milliondecreaseinbusinessdevelopmentandtravelexpense.Incentivecompensationexpenseincreasedasaresultofastrongperformanceduring2020.TheincreaseinsalariesandwageswasduetoanincreaseintheaveragenumberofFTEsatSVBPrivateBank,whichincreasedto139FTEsatyearendDecember31,2020,from123for2019.
SVBCapital
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Netinterestincome $ 30 $ 38 (21.1)% $ 23 65.2%
Noninterestincome 225,954 122,394 84.6 101,181 21.0
Noninterestexpense (50,589) (30,798) 64.3 (22,792) 35.1
Incomebeforeincometaxexpense $ 175,395 $ 91,634 91.4 $ 78,412 16.9
Totalaverageassets $ 437,132 $ 405,152 7.9 $ 380,543 6.5
SVBCapital’s componentsofnoninterest incomeprimarily includenetgainsand lossesonnon-marketableandotherequitysecurities,carriedinterestandfundmanagementfees.Allcomponentsofincomebeforeincometaxexpensediscussedbelowarenetofnoncontrollinginterests.
WeexperiencevariabilityintheperformanceofSVBCapitalfromperiodtoperiodduetoanumberoffactors,includingchangesinthevaluesofourfunds’underlyinginvestments,changesintheamountofdistributionsandgeneraleconomicandmarket conditions. Such variabilitymay lead to volatility in the gains and losses from investment securities and causeourresultstodifferfromperiodtoperiod.
IncomebeforeincometaxexpensefromSVBCapitalwas$175.4millionin2020,comparedto$91.6millionin2019.ThekeydriversofSVBCapital'sperformancearediscussedbelow.
Noninterest income was $226.0 million in 2020, compared to $122.4 million in 2019. SVB Capital’s components ofnoninterestincomeprimarilyincludedthefollowing:
TableofContents
65
• Netgainson investmentsecuritiesof$170.3million,primarilydrivenbyunrealizednetvaluation increasesfromprivate company investments held in our managed funds of funds portfolio as well as in our managed directventurefundportfolio,
• Fundmanagementfeesof$35.7million,includedinothernoninterestincome,and
• Gains on equity warrant assets of $10.8 million reflective of net valuation increases in equity warrant assetsassociatedwithourjointventurebankinChina,includedinothernoninterestincome.
Noninterestexpenseincreased$19.8millionto$50.6millionin2020duetoan$8.8millionincreaseincompensationand benefits as a result of higher incentive compensation expense and higher salaries andwages expenses aswell as anincreaseinothernoninterestexpense.Incentivecompensationexpenseincreasedasaresultofastrongperformanceduring2020. The increase in salaries and wages was due to an increase in the average number of FTEs at SVB Capital, whichincreased to47FTEsat yearendDecember31,2020, from39 for2019.Othernoninterestexpense increased$9.5millionprimarilyduetoreferralexpensesassociatedwiththe$10.8millioningainsonequitywarrantassetsassociatedwithourjointventurebankinChina.
SVBLeerink
YearendedDecember31,
(Dollarsinthousands) 2020 2019%Change2020/2019 2018
%Change2019/2018
Netinterestincome $ 578 $ 1,252 (53.8)% $ — —%
Noninterestincome 495,976 264,516 87.5 — —
Noninterestexpense (378,970) (252,678) 50.0 — —
Incomebeforeincometaxexpense $ 117,584 $ 13,090 NM $ — —
Totalaverageassets $ 556,778 $ 397,650 40.0 $ — —
NM—Notmeaningful
SVBLeerink’scomponentsofnoninterest incomeprimarily include investmentbankingrevenue,commissionsandnetgainsandlossesonnon-marketableandotherequitysecurities,carriedinterestandfundmanagementfees.Allcomponentsofincomebeforeincometaxexpensediscussedbelowarenetofnoncontrollinginterests.
Noninterest income increased$231.5million to$496.0million in2020,primarilydue toa$218.8million increase ininvestment banking revenues compared to 2019. The $218.8million increase in investment banking revenueswas due torecordhigh levelsof fundingactivity in the life science/healthcare secondarymarketsandby the increase inpublicequityunderwritingfees.
Noninterestexpense increased$126.3millionto$379.0million in2020,primarilyduetoa$131.6million increase incompensationandbenefitexpenseduetoanincreasein incentiveplanexpenseasaresultofastrongperformanceduring2020,partiallyoffsetbya$7.7milliondecreaseinbusinesstravelexpenseduetotheimpactoftravelrestrictionsputinplaceinresponsetotheCOVID-19pandemictowardstheendofthefirstquarterof2020.
ConsolidatedFinancialCondition
Ourtotalassets,andtotalliabilitiesandstockholders'equitywere$115.5billionatDecember31,2020and$71.0billionat December 31, 2019. Refer below to a summary of the individual components driving the changes in total assets, totalliabilitiesandstockholders'equity.
CashandCashEquivalents
Cashandcashequivalents totaled$17.7billionatDecember31,2020,an increaseof$10.9billion,or160.6percent,comparedto$6.8billionatDecember31,2019.Theincreasewasdrivenbythesignificantgrowthindepositsof$40.2billiondrivenprimarilybyincreasesduringthesecondhalfof2020.AsofDecember31,2020,$13.7billionofourcashandduefrombankswasdepositedattheFRBandwasearning interestattheFederalFundstargetrate,and interest-earningdeposits inother financial institutionswere $3.0 billion. As of December 31, 2019, $3.7 billion, of our cash and due from bankswasdepositedattheFRBandwasearninginterestattheFederalFundstargetrateandinterest-earningdepositsinotherfinancialinstitutionswere$2.1billion.
TableofContents
66
InvestmentSecurities
Investment securities totaled $49.3 billion at December 31, 2020, an increase of $20.2 billion, or 69.6 percent,comparedto$29.1billionatDecember31,2019.Ourinvestmentsecuritiesportfolioconsistsprimarilyof:(i)anAFSsecuritiesportfolioandaHTMsecuritiesportfolio,bothofwhichconsistofinterest-earningfixedincomeinvestmentsecurities;and(ii)anon-marketableandotherequitysecuritiesportfolio,whichrepresentsprimarilyinvestmentsmanagedaspartofourfundsmanagementbusiness,investmentsinqualifiedaffordablehousingprojects,aswellaspublicequitysecuritiesheldasaresultofexercisedequitywarrantassets.Themajorcomponentsofthechangeareexplainedbelow.
ThefollowingtablepresentsaprofileofourinvestmentsecuritiesportfolioatDecember31,2020,2019and2018:
December31,
(Dollarsinthousands) 2020 2019 2018
Available-for-salesecurities,atfairvalue:
U.S.Treasurysecurities $ 4,469,728 $ 6,894,010 $ 4,738,258
U.S.agencydebentures 237,307 99,547 1,084,117
Foreigngovernmentdebtsecurities 24,492 9,038 5,812
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 13,503,681 4,148,791 —
Agency-issuedcollateralizedmortgageobligations—fixedrate 8,106,564 1,538,343 1,880,218
Agency-issuedcollateralizedmortgageobligations—variablerate — — 81,638
Agency-issuedcommercialmortgage-backedsecurities 4,570,666 1,325,190 —
Totalavailable-for-salesecurities 30,912,438 14,014,919 7,790,043
Held-to-maturitysecurities,atamortizedcost:
U.S.agencydebentures 402,265 518,728 640,990
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 7,739,763 6,992,009 8,103,638
Agency-issuedcollateralizedmortgageobligations—fixedrate 1,735,451 1,608,032 2,183,204
Agency-issuedcollateralizedmortgageobligations—variablerate 136,913 178,611 214,483
Agency-issuedcommercialmortgage-backedsecurities 2,942,959 2,759,615 2,769,706
Municipalbondsandnotes(1) 3,634,802 1,785,951 1,575,421
Totalheld-to-maturitysecurities 16,592,153 13,842,946 15,487,442
Non-marketableandotherequitysecurities:
Non-marketablesecurities(fairvalueaccounting):
Consolidatedventurecapitalandprivateequityfundinvestments 88,937 87,180 118,333
Unconsolidatedventurecapitalandprivateequityfundinvestments 184,886 178,217 201,098
Otherinvestmentswithoutareadilydeterminablefairvalue 60,975 55,255 25,668
Otherequitysecuritiesinpubliccompanies(fairvalueaccounting) 280,804 59,200 20,398
Non-marketablesecurities(equitymethodaccounting):
Venturecapitalandprivateequityfundinvestments 362,192 215,367 129,485
Debtfunds 5,444 7,271 5,826
Otherinvestments 202,809 152,863 121,721
Investmentsinqualifiedaffordablehousingprojects,net 616,188 458,476 318,575
Totalnon-marketableandotherequitysecurities 1,802,235 1,213,829 941,104
Totalinvestmentsecurities $ 49,306,826 $ 29,071,694 $ 24,218,589
(1) Amortizedcostnetofallowanceforcreditlossesof$392thousandforDecember31,2020andzeroforbothDecember31,2019and2018.
TableofContents
67
Available-for-SaleSecurities
Period-endAFS securitieswere$30.9billionatDecember31, 2020, compared to$14.0billionatDecember31, 2019. The increaseof$16.9billion in2020wasprimarilyduetopurchasesofnewinvestmentsof$23.2billionanda$0.6billionincreaseinourAFSportfolioreflectiveofthe150basispointdecreaseinFederalFundsinterestrates,partiallyoffsetby$4.2billioninpaydownsandscheduledmaturities,andsalesof$2.7billionofU.S.Treasurysecurities.Securitiesclassifiedasavailable-for-salearecarriedatfairvaluewithchangesinfairvaluerecordedasunrealizedgainsorlossesinaseparatecomponentofstockholders'equity.
Thefollowingtablesummarizestheremainingcontractualprincipalmaturitiesandfullytaxableequivalentyieldsonfixedincomesecurities,carriedatfairvalue,classifiedasAFSasofDecember31,2020.Theweightedaverageyieldiscomputedusingtheamortizedcostoffixedincomeinvestmentsecurities,whicharereportedatfairvalue.ForU.S.Treasurysecurities,U.S.agencydebenturesandforeigngovernmentdebtsecurities,theexpectedmaturity istheactualcontractualmaturityofthenotes.ExpectedremainingmaturitiesforcertainU.S.agencydebenturesmayoccurearlierthantheircontractualmaturitiesbecausethenoteissuershavetherighttocalloutstandingamountsaheadoftheircontractualmaturity.Expectedmaturitiesformortgage-backedsecuritiesmaydiffersignificantlyfromtheircontractualmaturitiesbecausemortgageborrowershavetherighttoprepayoutstandingloanobligationswithorwithoutpenalties.Mortgage-backedsecuritiesclassifiedasAFStypicallyhaveoriginalcontractualmaturitiesfrom10to30yearswhereasexpectedaveragelivesofthesesecuritiestendtobesignificantlyshorterandvarybaseduponstructureandprepaymentsinlowerinterestrateenvironments.Theweightedaverageyieldonmortgage-backedsecuritiesisbasedonprepaymentassumptionsatthepurchasedate.Actualyieldsearnedmaydiffersignificantlybaseduponactualprepayments.
December31,2020
TotalOneYearorLess
AfterOneYeartoFiveYears
AfterFiveYearstoTenYears
AfterTenYears
(Dollarsinthousands)CarryingValue
WeightedAverageYield
CarryingValue
WeightedAverageYield
CarryingValue
WeightedAverageYield
CarryingValue
WeightedAverageYield
CarryingValue
WeightedAverageYield
U.S.Treasurysecurities $ 4,469,728 1.86% $ 10,092 0.10% $3,532,784 1.85% $ 926,852 1.89% $ — —%U.S.agencydebentures 237,307 1.56 — — — — 237,307 1.56 — —Foreigngovernmentdebtsecurities 24,492 (0.70) 24,492 (0.70) — — — — — —Residentialmortgage-backedsecurities:
Agency-issuedmortgagebackedsecurities 13,503,681 1.58 — — — — — — 13,503,681 1.58
Agency-issuedcollateralizedmortgageobligations-fixedrate 8,106,564 1.25 — — — — — — 8,106,564 1.25
Agency-issuedcommercialmortgage-backedsecurities 4,570,666 1.70 — — — — 1,502,572 1.77 3,068,094 1.66Total $30,912,438 1.55 $ 34,584 (0.47) $ 3,532,784 1.85 $ 2,666,731 1.79 $24,678,339 1.48
TableofContents
68
Held-to-MaturitySecurities
Period-endHTMsecuritieswere$16.6billionatDecember31,2020,anincreaseof$2.8billion,or19.9percent,comparedto$13.8billionatDecember31,2019.Theincreasewasduetonewpurchasesof$6.8billion,partiallyoffsetbypaydownsandscheduledmaturitiesof$4.0billion.
SecuritiesclassifiedasHTMareaccountedforatcostwithnoadjustmentsforchangesinfairvalue.Forsecuritiesre-designatedasHTMfromAFS,theunrealizedgainsatthedateoftransferwillcontinuetobereportedasaseparatecomponentofshareholders'equityandarebeingamortizedoverthe lifeofthesecurities inamannerconsistentwiththeamortizationofapremiumordiscount.
ThefollowingtablesummarizestheremainingcontractualprincipalmaturitiesandfullytaxableequivalentyieldsonfixedincomeinvestmentsecuritiesclassifiedasHTMasofDecember31,2020.Interestincomeoncertainmunicipalbondsandnotes(non-taxableinvestments)arepresentedonafullytaxableequivalentbasisusingthefederalstatutorytaxrateof21.0percent.Theweightedaverageyieldiscomputedusingtheamortizedcostoffixedincomeinvestmentsecurities.ForU.S.agencydebentures,theexpectedmaturityistheactualcontractualmaturityofthenotes.Expectedmaturitiesformortgage-backedsecuritiesmaydiffersignificantlyfromtheircontractualmaturitiesbecausemortgageborrowershavetherighttoprepayoutstandingloanobligationswithorwithoutpenalties.Mortgage-backedsecuritiesclassifiedasHTMtypicallyhaveoriginalcontractualmaturitiesfrom10to30yearswhereasexpectedaveragelivesofthesesecuritiestendtobesignificantlyshorterandvarybaseduponstructureandprepaymentsinlowerinterestrateenvironments.Theweightedaverageyieldonmortgage-backedsecuritiesisbasedonprepaymentassumptionsatthepurchasedate.Actualyieldsearnedmaydiffersignificantlybaseduponactualprepayments.
December31,2020
TotalOneYearorLess
AfterOneYeartoFiveYears
AfterFiveYearstoTenYears
AfterTenYears
(Dollarsinthousands)Amortized
Cost
WeightedAverageYield
AmortizedCost
WeightedAverageYield
AmortizedCost
WeightedAverageYield
AmortizedCost
WeightedAverageYield
AmortizedCost
WeightedAverageYield
U.S.agencydebentures $ 402,265 2.65% $ 4,675 3.22% $ 148,478 2.59% $ 249,112 2.67% $ — —%Residentialmortgage-backedsecurities:Agency-issuedmortgage-backedsecurities 7,739,763 2.19 4,762 2.05 20,389 1.94 540,731 2.47 7,173,881 2.17Agency-issuedcollateralizedmortgageobligations-fixedrate 1,735,451 1.48 — — 5,952 1.76 494,532 1.62 1,234,967 1.42
Agency-issuedcollateralizedmortgageobligations-variablerate 136,913 0.74 — — — — — — 136,913 0.74
Agency-issuedcommercialmortgage-backedsecurities 2,942,959 2.48 — — — — 102,359 3.56 2,840,600 2.44
Municipalbondsandnotes-taxexempt 3,635,194 2.43 46,292 2.56 144,347 2.61 669,281 2.32 2,775,274 2.48Total $16,592,545 2.35 $ 55,729 2.57 $ 319,166 2.54 $ 2,056,015 2.70 $14,161,635 2.33
Portfoliodurationisastandardmeasureusedtoapproximatechangesinthemarketvalueoffixedincomeinstrumentsduetoachangeinmarketinterestrates.Themeasure isanestimatebasedon the levelof currentmarket interest rates,expectations for changes in thepathof forward ratesand theeffectof forward ratesonmortgageprepaymentspeedassumptions.Assuch,portfoliodurationwillfluctuatewithchangesinmarketinterestrates.Changesinportfoliodurationarealsoimpactedby changes in themix of longer versus shorter term-to-maturity securities. AtDecember 31, 2020, our estimated fixed income securities portfolioweighted-averagedurationwas3.7years,comparedto3.9atDecember31,2019.
TableofContents
69
Non-MarketableandOtherEquitySecurities
Non-marketableandotherequitysecuritieswere$1.8billionatDecember31,2020,anincreaseof$0.6billion,or48.5percent,comparedto$1.2billionatDecember31,2019.Includedinournon-marketableandotherequitysecuritiescarriedunder fair valueaccountingareamounts thatareattributable tononcontrolling interests.Weare requiredunderGAAP toconsolidate certain SVB Capital funds, even thoughwemay own less than 100 percent of such entities. See below for asummary of the carrying value (as reported) of non-marketable and other equity securities compared to the amountsattributabletoSVBFG.
Theincreaseinnon-marketableandotherequitysecuritiesof$0.6billion in2020wasprimarilyattributabletoequitysecurities from exercised warrants, valuation increases in our other public equity securities, new investments within ourqualified housing projects portfolio and valuation increases and additional investment in our venture capital and privateequityfundsinvestments.
The following table summarizes the carrying value (as reported) of non-marketable and other equity securitiescompared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownershippercentage)atDecember31,2020,2019and2018:
December31,
2020 2019 2018
(Dollarsinthousands)Carryingvalue(asreported)
AmountattributabletoSVBFG
Carryingvalue(asreported)
AmountattributabletoSVBFG
Carryingvalue(asreported)
AmountattributabletoSVBFG
Non-marketableandotherequitysecurities:
Non-marketablesecurities(fairvalueaccounting):
Consolidatedventurecapitalandprivateequityfundinvestments(1) $ 88,937 $ 22,783 $ 87,180 $ 22,482 $ 118,333 $ 30,235
Unconsolidatedventurecapitalandprivateequityfundinvestments(2) 184,886 184,886 178,217 178,217 201,098 201,098
Otherinvestmentswithoutareadilydeterminablefairvalue(3) 60,975 60,975 55,255 55,255 25,668 25,668
Otherequitysecuritiesinpubliccompanies(fairvalueaccounting)(4) 280,804 280,804 59,200 59,056 20,398 20,098
Non-marketablesecurities(equitymethodaccounting)(5):
Venturecapitalandprivateequityfundinvestments 362,192 214,904 215,367 131,403 129,485 82,921
Debtfunds 5,444 5,444 7,271 7,271 5,826 5,826
Otherinvestments 202,809 202,809 152,863 152,863 121,721 121,721
Investmentsinqualifiedaffordablehousingprojects,net 616,188 616,188 458,476 458,476 318,575 318,575
Totalnon-marketableandotherequitysecurities $ 1,802,235 $1,588,793 $ 1,213,829 $1,065,023 $ 941,104 $ 806,142
(1) The following table shows theamountsof venture capital andprivateequity fund investmentsheldby the followingconsolidatedfundsandamountsattributabletoSVBFGforeachfundatDecember31,2020,2019and2018:
TableofContents
70
December31,
2020 2019 2018
(Dollarsinthousands)Carryingvalue(asreported)
AmountattributabletoSVBFG
Carryingvalue(asreported)
AmountattributabletoSVBFG
Carryingvalue(asreported)
AmountattributabletoSVBFG
StrategicInvestorsFund,LP $ 4,850 $ 609 $ 5,729 $ 720 $ 12,452 $ 1,564
CapitalPreferredReturnFund,LP 49,574 10,684 45,341 9,772 53,957 11,629
GrowthPartners,LP 34,513 11,490 35,976 11,976 50,845 16,927
CPI,LP — — 134 14 1,079 115
Totalconsolidatedventurecapitalandprivateequityfundinvestments $ 88,937 $ 22,783 $ 87,180 $ 22,482 $ 118,333 $ 30,235
(2) The carryingvalues represented investments in162and205 funds (primarily venture capital funds) atDecember31,2020andDecember31,2019,respectively,whereourownershipinterestistypicallylessthan5%ofthevotinginterestsof each such fund and in which we do not have the ability to exercise significant influence over the partnershipsoperatingactivitiesandfinancialpolicies.Ourunconsolidatedventurecapitalandprivateequityfundinvestmentsatfairvaluebasedonthefundinvestments'netassetvaluespershareasobtainedfromthegeneralpartnersofthefunds.Foreachfundinvestment,weadjustthenetassetvaluepersharefordifferencesbetweenourmeasurementdateandthedate of the fund investment’s net asset value by using the most recently available financial information from theinvestee general partner, for example September 30th, for our December 31st consolidated financial statements,adjusted for any contributions paid, distributions received from the investment and significant fund transactions ormarketeventsduringthereportingperiod.
(3) Investments classified as "Other investments without a readily determinable fair value" include direct equityinvestmentsinprivatecompanies.Thecarryingvalueisbasedonthepriceatwhichtheinvestmentwasacquiredplusorminuschangesresultingfromobservablepricechangesinorderlytransactionsforidenticalorsimilarinvestments.Weconsiderarangeoffactorswhenadjustingthefairvalueofthese investments, including,butnot limitedto,thetermandnatureoftheinvestment,localmarketconditions,valuesforcomparablesecurities,currentandprojectedoperatingperformance,exitstrategies,financingtransactionssubsequenttotheacquisitionoftheinvestmentandadiscountforcertaininvestmentsthathavelock-uprestrictionsorotherfeaturesthatindicateadiscounttofairvalueiswarranted.ForfurtherdetailsonthecarryingvalueoftheseinvestmentsrefertoNote8—“InvestmentSecurities"ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
(4) Investmentsclassifiedasotherequitysecurities(fairvalueaccounting)representsharesheldinpubliccompaniesasaresult of exercising public equity warrant assets and direct equity investments in public companies held by ourconsolidated funds. Changes in the fair value recognized through net income. This amount includes total unrealizedgainsof$72.0millioninBigCommercewhichwassubjecttoalock-upagreementasofDecember31,2020.Thelock-upexpiredinFebruary2021atwhichtimewesoldallofourcommonsharesasdiscussedabove.
TableofContents
71
(5) ThefollowingtableshowsthecarryingvalueandourownershippercentageofeachinvestmentatDecember31,2020,2019and2018(equitymethodaccounting):
December31,2020 December31,2019 December31,2018
(Dollarsinthousands)Carryingvalue(asreported)
Amountattributableto
SVBFGCarryingvalue(asreported)
Amountattributableto
SVBFGCarryingvalue(asreported)
Amountattributableto
SVBFG
Venturecapitalandprivateequityfundinvestments:
StrategicInvestorsFundII,LP $ 3,705 $ 3,435 $ 3,612 $ 3,387 $ 4,670 $ 4,366
StrategicInvestorsFundIII,LP 16,110 13,005 15,668 12,701 17,396 14,059
StrategicInvestorsFundIV,LP 25,169 21,145 27,064 22,780 28,974 24,388
StrategicInvestorsFundVfunds 67,052 35,202 46,830 24,586 28,189 14,799
CPII,LP(i) 7,887 4,766 5,907 3,567 7,122 4,308
Otherventurecapitalandprivateequityfundinvestments 242,269 137,351 116,286 64,382 43,134 21,001
Totalventurecapitalandprivateequityfundinvestments $ 362,192 $ 214,904 $ 215,367 $ 131,403 $ 129,485 $ 82,921Debtfunds:
GoldHillCapital2008,LP(ii) $ 3,941 $ 3,941 $ 5,525 $ 5,525 $ 3,901 $ 3,901Otherdebtfunds 1,503 1,503 1,746 1,746 1,925 1,925
Totaldebtfunds $ 5,444 $ 5,444 $ 7,271 $ 7,271 $ 5,826 $ 5,826Otherinvestments:
SPDSiliconValleyBankCo.,Ltd. $ 115,232 $ 115,232 $ 74,190 $ 74,190 $ 76,412 $ 76,412Otherinvestments 87,577 87,577 78,673 78,673 45,309 45,309
Totalotherinvestments $ 202,809 $ 202,809 $ 152,863 $ 152,863 $ 121,721 $ 121,721
(i) Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percentthroughourinvestmentsinStrategicInvestorsFundII,LP.
(ii) Ourownership includesdirectownership interestof11.5percent inthefundandan indirect interest inthefundthroughourinvestmentinGoldHillCapital2008,LLCof4.0percent.
VolckerRule
On June 6, 2017, we received notice that the Board of Governors of the Federal Reserve approved the Company’sapplicationforanextensionofthepermittedconformanceperiodfortheCompany’sinvestmentsin“illiquid”coveredfunds.The approval extends the deadline by which the Company must sell, divest, restructure or otherwise conform suchinvestments to the provisions of theVolcker Rule until the earlier of (i) July 21, 2022 or (ii) the date bywhich each fundmaturesbyitstermsorisotherwiseconformedtotheVolckerRule.
AsimplementedundertheDodd-FrankAct,theVolckerRuleprohibits,subjecttocertainexceptions,abankingentity,suchas theCompany, fromsponsoringor investing in covered funds,defined to includemanyventure capital andprivateequityfunds.Asnotedabove,theCompanycurrentlymaintainscertaininvestmentsdeemedtobeprohibitedcoveredfundinvestments. As ofDecember 31, 2020, under current regulations,we estimate that the aggregate carrying value and fairvalueofventurecapitalandprivateequityfundinvestmentsdeemedtobeprohibitedcoveredfundinterests,andthereforesubjecttotheVolckerRule’srestrictions,wasapproximately$230million.Wearecurrentlyassessingtheextentoftheimpactof amendments to the Volcker Rule which provide for certain exclusions from the Volcker Rule restrictions. (For moreinformation, see "Business - SupervisionandRegulatory -ProprietaryTradingandRelationshipswithCertainFunds"underPartI,ItemIofthisreport.)
Loans
Thefollowingtabledetailsthecompositionoftheloanportfolio,amortizedcostbasis,asofthefivemostrecentyear-ends:
TableofContents
72
December31,
(Dollarsinthousands) 2020 2019 2018 2017 2016
Globalfundbanking $ 25,543,198 $ 17,696,794 $ 14,125,945 $ 9,836,939 $ 7,739,568
Investordependent:
Earlystage 1,485,866 1,624,221 1,670,644 1,409,871 1,258,394
Midstage 1,564,870 1,047,398 1,353,332 1,275,654 1,100,933
Laterstage 1,921,082 1,663,576 1,382,286 1,125,453 786,819
Totalinvestordependent(1) 4,971,818 4,335,195 4,406,262 3,810,978 3,146,146
Cashflowdependent:
Sponsorledbuyout 1,989,173 2,185,497 2,290,957 2,156,508 2,362,679
Other 2,945,360 2,238,741 1,787,141 1,793,539 1,537,129
Totalcashflowdependent(1) 4,934,533 4,424,238 4,078,098 3,950,047 3,899,808
Privatebank(2)(6) 4,901,056 3,492,269 3,070,675 2,668,435 2,211,254
Balancesheetdependent(1) 2,191,023 1,286,153 1,373,685 1,489,002 1,858,557
Premiumwine(2)(6) 1,052,643 1,062,264 959,792 872,932 879,164
Other(2)(6) 27,687 867,723 323,823 477,983 165,447
SBAloans 1,559,530 — — — —
Totalloans(3)(4)(5) $ 45,181,488 $ 33,164,636 $ 28,338,280 $ 23,106,316 $ 19,899,944
(1) Due to the diverse nature of energy and resource innovation products and services, for our loan-related reportingpurposes, ERI-related loans are reported under the Investor Dependent, Cash Flow Dependent and Balance SheetDependentrisk-basedsegmentsabove.
(2) AsofDecember31,2020,asaresultofenhancedportfoliocharacteristicdefinitionsforourrisk-basedsegments,loansintheamountof$426.6millionand$52.5millionthatwouldhavebeenreportedinOtherunderhistoricaldefinitions,arenowbeingreportedinourPrivateBankandPremiumWinerisk-basedsegments,respectively.
(3) Total loansatamortizedcost isnetofunearned incomeof$226million,$163million,$173million,$148millionand$125millionin2020,2019,2018,2017and2016,respectively.
(4) Includedwithinourtotal loanportfolioarecreditcard loansof$400million,$395million,$335million,$270million,and$224millionatDecember31, 2020, 2019, 2018, 2017and2016, respectively, andprimarily represent corporatecreditcards.
(5) Includedinourtotalloanportfolioareconstructionloansof$118million,$183million,$196million,$169millionand$175million atDecember 31, 2020, 2019, 2018, 2017 and2016, respectively. Construction loans consist of qualifiedaffordable housing project loansmade to fulfill our responsibilities under the Community Reinvestment Act and areprimarilysecuredbyrealestate.
(6) Ofourtotalloans,thetablebelowincludesthosesecuredbyrealestateatamortizedcostatDecember31,2020,2019,2018,2017and2016andwerecomprisedofthefollowing:
December31,
(Dollarsinthousands) 2020 2019 2018 2017 2016
Realestatesecuredloans:
Privatebank:
Loansforpersonalresidence $ 3,392,237 $ 2,829,880 $ 2,251,292 $ 1,995,840 $ 1,655,349
Loanstoeligibleemployees 481,098 401,396 290,194 243,118 199,291
Homeequitylinesofcredit 42,449 55,461 71,485 61,548 72,328
Other 142,895 38,880 40,435 42,068 43,487Totalprivatebankloanssecuredbyrealestate $ 4,058,679 $ 3,325,617 $ 2,653,406 $ 2,342,574 $ 1,970,455
Premiumwine 824,008 820,730 710,397 669,053 678,166
Other 56,882 — — — —
Totalrealestatesecuredloans $ 4,939,569 $ 4,146,347 $ 3,363,803 $ 3,011,627 $ 2,648,621
TableofContents
73
Loans,amortizedcostbasis,increasedfromDecember31,2019toDecember31,2020withthelargestincreasesdrivenprimarilybyourGlobalFundBanking,SBAandPrivateBankrisk-basedsegments.The increase in risk-basedsegmentswasprimarilydrivenbyparticipationinthePaycheckProtectionProgramandincreasedcreditlineutilizationaswellasnewclientacquisition.
LoanConcentration
Loanconcentrationsmayexistwhenthereareborrowersengagedinsimilaractivitiesortypesofloansextendedtoadiverse groupofborrowers that could cause thoseborrowersorportfolios tobe similarly impactedbyeconomicorotherconditions. A substantial percentage of our loans are commercial in nature. The breakdown of total loans and loans as apercentageoftotalloansbyrisk-basedsegmentisasfollows:
December31,
2020 2019
(Dollarsinthousands) Amount Percentage Amount Percentage
Globalfundbanking $ 25,543,198 56.5% $ 17,712,797 53.1%
Investordependent:
Earlystage 1,485,866 3.3 1,653,425 5.0
Midstage 1,564,870 3.5 1,066,783 3.2
Laterstage 1,921,082 4.2 1,698,676 5.1
Totalinvestordependent 4,971,818 11.0 4,418,884 13.3
Cashflowdependent:
Sponsorledbuyout 1,989,173 4.4 2,203,020 6.6
Other 2,945,360 6.5 2,252,847 6.8
Totalcashflowdependent 4,934,533 10.9 4,455,867 13.4
Privatebank 4,901,056 10.9 3,489,219 10.4
Balancesheetdependent 2,191,023 4.8 1,297,304 3.9
Premiumwine 1,052,643 2.3 1,063,512 3.2
Other 27,687 0.1 890,121 2.7
SBAloans 1,559,530 3.5 — —
Totalloans(1) $ 45,181,488 100.0 $ 33,327,704 100.0
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasis.
TableofContents
74
Thefollowingtableprovidesasummaryoftotalloansbysizeandrisk-basedsegment.Thebreakoutbelowisbasedontotalclientbalances(individuallyorintheaggregate)asofDecember31,2020toanysingleclient:
December31,2020
(Dollarsinthousands)LessthanFiveMillion
FivetoTenMillion
TentoTwentyMillion
TwentytoThirtyMillion
ThirtyMillionorMore Total
Globalfundbanking $ 1,052,067 $ 1,360,621 $ 2,636,556 $ 2,777,270 $17,722,678 $25,549,192Investordependent:Earlystage 1,896,260 221,258 100,553 27,781 — 2,245,852Midstage 814,426 492,856 277,754 95,011 133,321 1,813,368Laterstage 281,953 596,965 692,923 269,587 174,159 2,015,587
Totalinvestordependent 2,992,639 1,311,079 1,071,230 392,379 307,480 6,074,807Cashflowdependent:Sponsorledbuyout 17,821 66,823 546,416 653,706 714,085 1,998,851Other 401,266 228,336 535,974 649,766 1,486,180 3,301,522
Totalcashflowdependent 419,087 295,159 1,082,390 1,303,472 2,200,265 5,300,373Privatebank 3,505,413 597,344 319,019 94,935 385,270 4,901,981Balancesheetdependent 230,787 332,523 461,204 289,502 926,121 2,240,137Premiumwine 241,806 272,506 300,292 120,740 144,924 1,080,268Other — 18,673 16,057 — — 34,730Totalloans(1)(2) $ 8,441,799 $ 4,187,905 $ 5,886,748 $ 4,978,298 $21,686,738 $45,181,488
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasis.
(2) Includedintotalloansatamortizedcostisapproximately$1.6billioninPPPloans.ThePPPloansconsistofloansfromallrisk-basedsegments.
AtDecember31,2020,loansequaltoorgreaterthan$20milliontoanysingleclient(individuallyorintheaggregate)totaled$26.7billion,or59.0percentofourtotalloanportfolio.Theseloansrepresented544clients,andoftheseloans,$65.0millionwereonnonaccrualstatusasofDecember31,2020.
Thefollowingtableprovidesasummaryofloansbysizeandrisk-basedsegment.Thebreakoutbelowisbasedontotalclientbalances(individuallyorintheaggregate)asofDecember31,2019:
December31,2019
(Dollarsinthousands)LessthanFiveMillion
FivetoTenMillion
TentoTwentyMillion
TwentytoThirtyMillion
ThirtyMillionorMore Total
Globalfundbanking $ 1,016,051 $ 1,082,201 $ 2,559,384 $ 2,029,547 $11,025,614 $17,712,797InvestordependentEarlystage 1,090,852 260,685 191,661 76,542 33,685 1,653,425Midstage 544,167 316,617 156,418 49,581 — 1,066,783Laterstage 167,500 348,832 648,382 304,373 229,589 1,698,676
Totalinvestordependent 1,802,519 926,134 996,461 430,496 263,274 4,418,884CashflowdependentSponsorledbuyout 16,034 97,458 550,753 723,737 815,038 2,203,020Other 206,209 86,929 465,304 463,073 1,031,332 2,252,847
Totalcashflowdependent 222,243 184,387 1,016,057 1,186,810 1,846,370 4,455,867Privatebank 2,791,587 359,429 191,979 49,996 96,228 3,489,219Balancesheetdependent 256,247 269,744 404,356 78,197 288,760 1,297,304Premiumwine 243,094 267,389 261,951 148,469 142,609 1,063,512Other 526,850 40,511 106,247 112,764 103,749 890,121Totalloans(1) $ 6,858,591 $ 3,129,795 $ 5,536,435 $ 4,036,279 $13,766,604 $33,327,704
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasis.
AtDecember31,2019,loansequaltoorgreaterthan$20milliontoanysingleclient(individuallyorintheaggregate)totaled$17.8billion,or53.4percentofourtotalloanportfolio.Theseloansrepresented397clients,andoftheseloans,$37.3millionwereonnonaccrualstatusasofDecember31,2019.
TableofContents
75
Our three main market segments include (i) Global Fund Banking (formerly private equity/venture capital), (ii)technology(software/internetandhardware)andlifescience/healthcareand(iii)SVBPrivateBank.
(i)GlobalFundBanking
OurGlobal FundBanking loanportfolio includes financial services to clients in theprivateequity/venture capitalcommunity. Our lending to private equity/venture capital firms and funds represented 57 percent of total loans atDecember31,2020and53percentatDecember31,2019.Thevastmajorityofthisportfolioconsistsofcapitalcalllinesofcredit,therepaymentofwhichisdependentonthepaymentofcapitalcallsbytheunderlyinglimitedpartnerinvestorsinthefundsmanagedbythesefirms.Thesefacilitiesaregenerallygovernedbymeaningfulfinancialcovenantsorientedtowards ensuring that the funds' remaining callable capital is sufficient to repay the loan, and larger commitments(typicallyprovidedtolargerprivateequityfunds)areoftensecuredbyanassignmentofthegeneralpartner'srighttocallcapitalfromthefund'slimitedpartnerinvestors.
(ii)TechnologyandLifeScience/Healthcare
Ourtechnologyandlifescience/healthcareloanportfoliosincludeloanstoclientsatthevariousstagesoftheirlifecycles.Therisk-basedsegmentsforourtechnologyandlifescience/healthcaremarketsegmentsareclassifiedasinvestordependent,cashflowdependentorbalancesheetdependentforreportingpurposes.
Investor dependent loans represented 11 percent of total loans at December 31, 2020 and 13 percent atDecember31,2019.TheseloansaremadetocompaniesinbothourAccelerator(early-stage)andGrowthpractices(mid-stageandlater-stage).
Cash flow dependent loans,which include sponsor led buyout lending, represented 11 percent of total loans atDecember31,2020and13percentatDecember31,2019.Sponsorledbuyoutloansrepresented4percentoftotalloansatDecember31,2020,comparedto7percentatDecember31,2019.
Balance sheet dependent loans, which include asset-based loans, represented 5 percent of total loans atDecember31,2020and4percentatDecember31,2019.Workingcapitallinesandaccountsreceivablefinancing,bothpartofourasset-basedlending,representedonepercentandhalfapercentoftotalloans,respectively,atDecember31,2020andtwopercentandonepercentoftotalloans,respectively,atDecember31,2019.
(iii)SVBPrivateBank
OurSVBPrivateBankclientsareprimarilyexecutiveleadersandseniorinvestmentprofessionalsintheinnovationeconomy.Our lendingtoSVBPrivateBankclients represented11percentof total loansatDecember31,2020and10percentatDecember31,2019.Manyoftheseclientshavemortgages,whichrepresented83percentofthisportfolioatDecember31,2020; thebalanceof thisportfolioconsistedofhomeequity linesof credit, restrictedandprivate stockloans,capitalcalllinesofcredit,linesofcreditagainstliquidassetsandothersecuredandunsecuredlendingproducts.Inaddition,we provide owner occupied commercialmortgages to Private Bank clients and real estate secured loans toeligibleemployeesthroughourEHOP.
PaycheckProtectionProgram
BeginninginApril2020,weacceptedapplicationsunderthePPPadministeredbytheSmallBusinessAssociation(“SBA”)undertheCoronavirusAid,Relief,andEconomicSecurityAct(the"CARESAct"),asamendedbytheEconomicAidtoHard-HitSmallBusinesses,Nonprofits,andVenuesAct(the"EconomicAidAct")enactedonDecember27,2020,andhaveoriginatedloanstoqualifiedsmallbusinesses.Underthetermsoftheprogram,loansfundedthroughthePPPareeligibletobeforgivenif certain requirements are met, including using the funds for certain costs relating to payroll, healthcare and qualifyingmortgage interest, rent and utility payments. Eligible expenses also include covered operations expenditures, coveredpropertydamagecosts,coveredsuppliercostsandcoveredworkerprotectionexpenditures.Totheextentnotforgiven,loansaresubjecttocertaintermsincluding,amongothers,thefollowing:maximumtwo-yeartermforloansissuedbeforeJune5,2020(unlessborrowerandlenderagreeotherwise);amaximumfive-yeartermforloansissuedonorafterJune5,2020;aninterestrateof1.0%;deferralofloanpaymentsuntilaloanforgivenessdecisionisrenderedoruntil10monthsaftertheendofaborrower’sforgivenesscoveredperiod;andnorequirementforanycollateralorpersonalguarantees.PPPborrowersarenotrequiredtopayanyfeestothegovernmentorthelender,andtheloansmayberepaidbytheborroweratanytime.TheSBA,however,willpaylendersaprocessingfeebasedonthesizeofthePPPloan,rangingfrom1%to5%oftheloanforloansmadebeforetheenactmentoftheEconomicAidAct,andthereafter,aprocessingfeeof(1)thelesserof50%oftheloanor$2,500forloansofnotmorethan$50,000,(2)5%oftheloanforloansabove$50,000butnotmorethan$350,000and(3)3%of the loan for loansabove$350,000 (and, in caseof the firstdrawPPP loansonly, a feeof1% for the loansatorabove$2,000,000). Pursuant to the Economic Aid Act, additional loansmay be issued up untilMarch 31, 2021, and certain PPP
TableofContents
76
borrowersareabletoapplyforseconddrawloansinanamountofupto$2million.WecontinuetoparticipateinthePPP,includingtheseconddrawloanprogram.
AsofDecember31,2020,wehaveoutstandingPPPloansintheamountof$1.6billion,asapprovedbytheSBA.Thisfundedamountreflectsrepaymentsreceivedasofsuchdate.
Additionally,wehavedonatedapproximately$20millioninPPPfeesreceivedfromtheSBA,netofourcostsincurred,tocharitablereliefefforts.
LoanDeferralPrograms
InApril2020,weimplementedthreeloanpaymentdeferralprogramstargetedtoassistborrowerswhowerethemostimpactedbytheCOVID-19pandemic.Theseprogramsincludedreliefforventure-backed,privatebankandwineborrowerswhometcertaincriteria.Thethree-monthprivatebankandwinedeferralprogramsended,andpaymentsresumed, inthethirdquarterof2020.Thesix-monthventuredebtandprivatebankdeferralprogramsended,andpaymentsresumed,inthefourthquarterof2020.AsofDecember31,2020,loansmodifiedundertheseprogramshadoutstandingbalancesof$768.9million, $12.6million and $1.6million for venture-backed, private bank andwine borrowers, respectively. These amountsreflectrepaymentsreceivedasofDecember31,2020.
For loansmodified under these programs, in accordancewith the provisions of Section 4013 of the CARES Act, weelectedtonotapplytroubleddebtrestructuringclassificationstoborrowerswhowerecurrentasofDecember31,2019.Inaddition,for loansmodifiedundertheseprogramsthatdidnotmeettheCARESActcriteria,weappliedtheguidanceinaninteragency statement issued by bank regulatory agencies. Using this guidance, we may find that borrowers are notexperiencingfinancialdifficultythatmayotherwiseresultinaTDRclassification,inaccordancewithASCSubtopic310-40,ifloanmodificationsareperformedinresponsetotheCOVID-19pandemic,provideshort-termloanpaymentdeferrals(e.g.sixmonthsinduration)andaregrantedtoborrowerswhowerecurrentasoftheimplementationdateoftheloanmodificationprogram. We evaluated all loans modified under these programs against the CARES Act and interagency guidance, asapplicable, and determined the loan modifications would not be considered TDRs. We did not defer interest incomerecognition during periods of payment deferral, nor did any qualifying modification trigger nonaccrual status. TheeffectivenessofourprogramsisuncertainconsideringtheunknowndurationandimpactoftheCOVID-19pandemic.
StateConcentrations
Approximately26percentofouroutstandingtotalloanbalancesasofDecember31,2020weretoborrowersbasedinCaliforniacomparedto27percentasofDecember31,2019.Additionally,asofDecember31,2020,borrowersinNewYorkandMassachusettsincreasedto10percentofouroutstandingtotalloanbalanceseachasofDecember31,2020,comparedtoninepercenteachasofDecember31,2019.OtherthanCalifornia,NewYorkandMassachusetts,asofDecember31,2020,therearenostateswithloanbalancesgreaterthanorequalto10percent.
Seegenerally"RiskFactors—CreditRisks"setforthunderPartI,Item1Aofthisreport.
TableofContents
77
As of December 31, 2020, 92 percent, or $41.4 billion, of our outstanding total loanswere variable-rate loans thatadjustataprescribedmeasurementdateuponachangeinourprime-lendingrateorothervariableindices,comparedto93percent, or $30.9 billion, as of December 31, 2019. The following table sets forth the remaining contractual maturitydistributionofourtotalloansbyrisk-basedsegmentatDecember31,2020,forfixedandvariablerateloans:
RemainingContractualMaturityofLoans
(Dollarsinthousands) OneYearorLessAfterOneYearandThroughFiveYears AfterFiveYears Total
Fixed-rateloans:
Globalfundbanking $ 411,569 $ 7,394 $ 4,204 $ 423,167
Investordependent:
Earlystage 88,648 15,768 — 104,416
Midstage 40,964 18,974 — 59,938
Laterstage 40,332 32,756 — 73,088
Totalinvestordependent 169,944 67,498 — 237,442
Cashflowdependent:
Sponsorledbuyout 4,641 31,389 44,376 80,406
Other 184,447 50,703 — 235,150
Totalcashflowdependent 189,088 82,092 44,376 315,556
Privatebank 5,881 130,599 374,581 511,061
Balancesheetdependent 32,353 5,062 — 37,415
Premiumwine 22,786 171,465 524,745 718,996
Other 16,940 6,915 3,830 27,685
SBAloans — 1,559,524 — 1,559,524
Totalfixed-rateloans $ 848,561 $ 2,030,549 $ 951,736 $ 3,830,846
Variable-rateloans:
Globalfundbanking $ 24,390,171 $ 637,294 $ 92,566 $ 25,120,031
Investordependent:
Earlystage 79,555 1,273,147 28,748 1,381,450
Midstage 121,908 1,216,883 166,141 1,504,932
Laterstage 218,061 1,629,933 — 1,847,994
Totalinvestordependent 419,524 4,119,963 194,889 4,734,376
Cashflowdependent:
Sponsorledbuyout 178,733 1,628,879 101,155 1,908,767
Other 865,375 1,628,452 216,383 2,710,210
Totalcashflowdependent 1,044,108 3,257,331 317,538 4,618,977
Privatebank 154,133 358,066 3,877,796 4,389,995
Balancesheetdependent 518,075 1,598,199 37,334 2,153,608
Premiumwine 164,903 127,954 40,790 333,647
Other — — 2 2
SBAloans 6 — — 6
Totalvariable-rateloans 26,690,920 10,098,807 4,560,915 41,350,642
Totalloans $ 27,539,481 $ 12,129,356 $ 5,512,651 $ 45,181,488
Uponmaturity, loanssatisfyingourcreditqualitystandardsmaybeeligibleforrenewal.Suchrenewalsaresubjecttothe normal underwriting and credit administration practices associated with new loans. We do not grant loans withunconditionalextensionterms.
TableofContents
78
LoanAdministration
TheCreditCommitteeofourBoardofDirectorsoverseesourcreditrisksandstrategies,aswellasourkeycreditpoliciesandlendingpractices.
SubjecttotheoversightoftheCreditCommittee, lendingauthority isdelegatedtoourChiefCreditOfficerandotherseniormembersofourlendingmanagementbasedoncertainsizeandunderwritingcriteria.
CreditQualityIndicators
As of both December 31, 2020 and December 31, 2019, our total criticized loans and nonaccrual loans collectivelyrepresented three percent of our total loans. Criticized loans and nonaccrual loans to early-stage clients represented 15percentand23percentofourtotalcriticizedloansandnonaccrual loanbalancesatDecember31,2020andDecember31,2019,respectively.Loanstoearly-stageclientsrepresentarelativelysmallpercentageofouroverallportfolioatthreeandfivepercentof total loansatDecember31,2020andDecember31,2019, respectively. It iscommonforanearly-stageclient’sremaining liquiditytofall temporarilybelowthethresholdforapass-ratedcreditduring itscapital-raisingperiodforanewroundoffunding.Basedonourexperience,formostearly-stageclients,thissituationtypicallylastsonetotwoquartersandgenerallyresolves itselfwithasubsequentroundofventurefunding, thoughthereareexceptions, fromtimetotime.Asaresult,weexpectthateachofourearly-stageclientswillresideinourcriticizedportfolioduringaportionoftheirlifecycle.
CreditQualityandAllowanceforCreditLossesforLoansandforUnfundedCreditCommitments
The following tablepresentsa summaryof theactivity for theallowance for credit lossesasof the fivemost recentyear-ends:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018 2017 2016
Allowanceforcreditlosses,beginningbalance $ 304,924 $ 280,903 $ 255,024 $ 225,366 $ 217,613
ImpactofadoptingASC326 25,464 — — — —
Charge-offs:
Globalfundbanking — (2,047) (112) (323) —
Investordependent:
Earlystage (35,305) (31,568) (32,495) (35,362) (42,576)
Growthstage (53,338) (53,255) (16,727) (10,298) (20,454)
Totalinvestordependent (88,643) (84,823) (49,222) (45,660) (63,030)
Cashflowandbalancesheetdependent (11,187) (3,118) (16,223) (18,956) (33,633)
Privatebank (1,616) (1,031) (289) (1,566) (102)
Premiumwineandother (1,458) (1,584) (2,071) (177) (92)
SBAloans — — — — —
Totalcharge-offs (102,904) (92,603) (67,917) (66,682) (96,857)
Recoveries:
Globalfundbanking — 2,047 — — —
Investordependent:
Earlystage 10,821 9,088 6,154 2,635 2,963
Growthstage 14,042 4,945 2,873 2,516 2,001
Totalinvestordependent 24,863 14,033 9,027 5,151 4,964
Cashflowandbalancesheetdependent 2,846 4,683 2,064 1,807 6,519
Privatebank 30 255 486 1,363 258
Premiumwineandother 1,279 20 59 217 471
SBAloans — — — — —
Totalrecoveries 29,018 21,038 11,636 8,538 12,212
Provisionforloans 189,226 94,183 84,292 85,939 95,697
Foreigncurrencytranslationadjustments 2,037 1,403 (2,132) 1,863 (3,299)
Allowanceforcreditlosses,endingbalance $ 447,765 $ 304,924 $ 280,903 $ 255,024 $ 225,366
TableofContents
79
TodeterminetheACLforperformingloansasofDecember31,2020,weutilizedthreescenarios,onaweightedbasis,fromMoody’sAnalyticsDecember2020forecastinourexpectedlifetimelossestimates.Thebaselinescenario,whichcarriesthehighestweighting, reflectedanunemploymentrateofsevenpercentasofDecember31,2020,asaresultofexpectedbusinessre-openingsandtheeffectofgovernmentaidprograms,andaGDPgrowthrateoffourpercentasofDecember31,2020, reflectingexpectedeconomic recovery aswell as theongoing impactof theCOVID-19pandemic.Wealsoutilizedamorefavorable(Moody’sS1,Upside)andalessfavorable(Moody’sS3,Downside)economicforecastscenario,inadditiontothe baseline. To the extent we identified credit risk considerations that were not captured by the Moody's AnalyticsDecember2020scenarios,weaddressedtheriskthroughmanagement'squalitativeadjustmentstoourACLforperformingloans.
In2020,totalcharge-offsincreasedto$102.9millioncomparedto$92.6millionin2019.Grossloancharge-offsin2020cameprimarilyfromourInvestorDependentloanportfolio.
The following tablesummarizes theallocationof theACL forourportfoliosegmentsasof the fivemost recentyear-ends:
December31,
2020 2019 2018 2017 2016
(Dollarsinthousands)ACL
Amount
PercentofTotalLoans(1)
ACLAmount
PercentofTotalLoans(1)
ACLAmount
PercentofTotalLoans(1)
ACLAmount
PercentofTotalLoans(1)
ACLAmount
PercentofTotalLoans(1)
Globalfundbanking $45,584 56.5% $107,285 53.1% $93,781 49.6% $82,468 42.3% $50,299 38.7%
Investordependent:
Earlystage 86,674 3.3 26,245 5.0 25,885 6.0 22,742 6.2 21,132 6.4
Growthstage 126,683 7.7 56,125 8.3 46,216 9.8 38,280 10.5 33,086 9.6
Totalinvestordependent 213,357 11.0 82,370 13.3 72,101 15.8 61,022 16.7 54,218 16.0
Totalcashflowandbalancesheetdependent 124,249 15.7 80,820 17.3 87,735 19.3 87,620 23.6 99,782 29.0
Privatebank 53,629 10.9 21,551 10.4 20,583 10.7 16,441 11.5 12,184 11.0
Premiumwineandother 9,036 2.4 12,898 5.9 6,703 4.6 7,473 5.9 8,883 5.3
SBAloans 1,910 3.5 — — — — — — — —
Total $447,765 100.0% $304,924 100.0% $280,903 100.0% $255,024 100.0% $225,366 100.0%
(1) Represents loanbalances as apercentageof total loans at each respective year-end.AsofDecember31, 2020, loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasis.
TableofContents
80
NonperformingAssets
Nonperformingassetsconsistofloansonnonaccrualstatus,loanspastdue90daysormorestillaccruinginterest,andOther Real Estate Owned (“OREO”) and other foreclosed assets. We measure all loans placed on nonaccrual status forimpairmentbasedonthefairvalueoftheunderlyingcollateralorthenetpresentvalueoftheexpectedcashflows.Thetablebelowsets forthcertaindataand ratiosbetweennonperforming loans,nonperformingassetsand theallowance for creditlossesforloansandunfundedcreditcommitments:
December31,
(Dollarsinthousands) 2020 2019 2018 2017 2016
Nonperforming,pastdue,andrestructuredloans:
Nonaccrualloans $ 104,244 $ 102,669 $ 94,142 $ 119,259 $ 118,979
Loanspastdue90daysormorestillaccruinginterest — 3,515 1,964 191 33
Totalnonperformingloans(1) 104,244 106,184 96,106 119,450 119,012
OREOandotherforeclosedassets 1,179 — — — —
Totalnonperformingassets $ 105,423 $ 106,184 $ 96,106 $ 119,450 $ 119,012
PerformingTDRs $ 4,550 $ 31,990 $ 31,639 $ 71,468 $ 33,732
Nonperformingloansasapercentageoftotalloans(1) 0.23% 0.32% 0.34% 0.51% 0.59%
Nonperformingassetsasapercentageoftotalassets 0.09 0.15 0.17 0.23 0.27
Allowanceforcreditlossesforloans $ 447,765 $ 304,924 $ 280,903 $ 255,024 $ 225,366
Asapercentageoftotalloans(1) 0.99% 0.91% 0.99% 1.10% 1.13%
Asapercentageoftotalnonperformingloans(1) 429.54 287.17 292.28 213.50 189.36
Allowanceforcreditlossesfornonaccrualloans $ 54,029 $ 44,859 $ 37,941 $ 41,793 $ 37,277
Asapercentageoftotalloans(1) 0.12% 0.13% 0.13% 0.18% 0.19%
Asapercentageoftotalnonperformingloans(1) 51.83 42.25 39.48 34.99 31.32
Allowanceforcreditlossesfortotalperformingloans $ 393,736 $ 260,065 $ 242,962 $ 213,231 $ 188,089
Asapercentageoftotalloans(1) 0.87% 0.78% 0.85% 0.92% 0.94%
Asapercentageoftotalperformingloans(1) 0.87 0.78 0.86 0.92 0.94
Totalloans(1) $45,181,488 $33,327,704 $28,511,312 $23,254,153 $20,024,662
Totalperformingloans(1) 45,077,244 33,221,520 28,415,206 23,134,703 19,905,650
Allowanceforcreditlossesforunfundedcreditcommitments(2) 120,796 67,656 55,183 51,770 45,265
Asapercentageoftotalunfundedcreditcommitments 0.38% 0.28% 0.29% 0.30% 0.27%
Totalunfundedcreditcommitments(3) $31,982,251 $24,521,920 $18,913,021 $17,462,537 $16,743,196
(1) AsofDecember31, 2020, loanamounts aredisclosed, and ratios are calculated, using the amortized costbasis as aresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosed,andratioscalculated,usingthegrossbasis.
(2) The“allowanceforcredit lossesforunfundedcreditcommitments”is includedasacomponentofotherliabilitiesandanyprovisionisincludedinthe"provisionforcreditlosses"inthestatementofincome.See“ProvisionforCreditLosses”foradiscussionofthechangestotheallowance.
(3) Includesunfundedloancommitmentsandlettersofcredit.
Ourallowanceforcreditlossesforloansasapercentageoftotalloansincreasedeightbasispointsto0.99percentatDecember31, 2020, compared to0.91percent atDecember31, 2019under theprevious incurred lossmethodology. Theincreasewasdueprimarilytoaninebasispointincreaseinourperformingloanreserveasapercentageoftotalloansandaonebasispointdecreasefornonaccrualloans.
Ourallowance forcredit losses forperforming loanswas$393.7millionatDecember31,2020,comparedto$260.1million atDecember 31, 2019. Included in the allowance for credit losses atDecember 31, 2020 is thedayone impact ofadoptingCECLof$22.4milliondrivenbyan increase inourexpectedcredit loss forour InvestorDependent loanportfoliogiven thehigher relative riskaswell as theportfolio'sduration,which is taken intoaccountunder theCECLmethodology,partiallyoffsetbyadecreaseforourGlobalFundBankingloanportfolio,givenitshigherhistoricalcreditqualityandshorterduration. The remaining$111.2million increasewasdueprimarily to an increaseof $56.6million related to theexpectedcreditlossesforourperformingloanreservesbasedonourforecastmodelsofthecurrenteconomicenvironmentand$54.6millionrelatedtoperiod-endloangrowthof$12.0billion.
TableofContents
81
NonaccrualLoans
The following table presents a detailed composition of nonaccrual loans by risk-based segment as of the fivemostrecentyear-ends:
December31,
(Dollarsinthousands) 2020 2019 2018 2017 2016
Globalfundbanking $ 11 $ — $ 3,700 $ 658 $ —
Investordependent
Earlystage 18,340 11,093 7,616 11,575 22,860
Midstage 4,056 17,330 4,751 23,932 9,757
Laterstage 28,657 6,296 11,385 7,968 3,017
Totalinvestordependent 51,053 34,719 23,752 43,475 35,634
Cashflowdependent
Sponsorledbuyout 39,996 44,585 39,534 50,438 51,556
Other 6,004 17,681 17,156 20,907 28,182
Totalcashflowdependent 46,000 62,266 56,690 71,345 79,738
Privatebank 6,152 5,480 3,919 2,603 3,116
Balancesheetdependent — — 5,004 760 —
Premiumwine 998 204 285 401 491
Other 30 — 792 17 —
SBAloans — — — — —
Totalnonaccrualloans(1) $ 104,244 $ 102,669 $ 94,142 $ 119,259 $ 118,979
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasis.
The followingtablepresentsasummaryofchanges innonaccrual loans for theyearsendedDecember31,2020and2019:
YearendedDecember31,
(Dollarsinthousands) 2020 2019
Balance,beginningofperiod(1) $ 102,669 $ 94,142
Additions 200,776 165,827
Paydowns (136,441) (101,994)
Charge-offs (62,760) (55,224)
Otherreductions — (82)
Balance,endofperiod(1) $ 104,244 $ 102,669
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasis.
Ournonaccrualloanbalanceincreased$1.6millionto$104.2millionatDecember31,2020,comparedto$102.7millionat December 31, 2019. Our nonaccrual loan balance increased $1.6 million primarily driven by $200.8 million in newnonaccrual loans, partially offset by $136.4million in paydowns and other reductions and $62.8million charge-offs. Newnonaccrual loansweredrivenprimarilyby$57.4millionforsixclientsinourInvestorDependentportfolio,$40.3millionfortwoclients inourSponsorLedBuyoutportfolioand$14.8million foroneclient inourBalanceSheetDependentportfolio.Repaymentswereprimarilydrivenby$34.5millionforoneSponsorLedBuyoutclientthatwasaddedtoournonaccrualloanportfolioin2019,$11.7millionforoneBalanceSheetDependentclientthatwasaddedin2020and$11.7millionforthreeInvestorDependentclientstwoofwhichwereaddedin2020andonein2019.AsofDecember31,2020,wehavespecificallyreserved$54.0millionforournonaccrualloans.
Average nonaccrual loans for the years ended December 31, 2020, 2019, 2018, 2017 and 2016were $85.1million,$160.3million,$117.1million,$123.8million,and$108.7million,respectively.Thedecreaseinaveragenonaccrualloanswas
TableofContents
82
primarilydrivenbylargepaydownsinthefirstandthirdquartersof2020andthenewnonaccrualsoccurringinthelatterpartofthesecondandthirdquarters.IfthenonaccrualloansfortheyearsendedDecember31,2020,2019,2018,2017and2016hadnotbeennonperforming,$2.4million,$5.6million,$7.4million,$7.7millionand$4.6million, respectively, in interestincomewouldhavebeenrecorded.
AccruedInterestReceivableandOtherAssets
AsummaryofaccruedinterestreceivableandotherassetsatDecember31,2020and2019isasfollows:
December31,
(Dollarsinthousands) 2020 2019 %Change
Derivativeassets(1) $ 488,269 $ 332,814 46.7%
Foreignexchangespotcontractassets,gross 2,107,510 810,275 160.1
Accruedinterestreceivable 244,748 216,962 12.8
Netdeferredtaxassets 776 28,433 (97.3)
FHLBandFederalReserveBankstock 61,232 60,258 1.6
Accountsreceivable 36,812 47,663 (22.8)
Otherassets 266,478 248,828 7.1
Totalaccruedinterestreceivableandotherassets $ 3,205,825 $ 1,745,233 83.7
(1) See“Derivatives”sectionbelow.
ForeignExchangeSpotContractAssets
The increase of $1.3 billion in foreign exchange spot contract assetswas primarily due to an overall increase in theamountofunsettledspottradesreflectiveofseverallargetradesatyear-endDecember31,2020ascomparedtoDecember31,2019.
Accruedinterestreceivable
The increase of $27.8million in accrued interest receivablewas primarily due to an overall increase in the interestreceivableformortgagebackedsecuritiesatyear-endDecember31,2020ascomparedtoDecember31,2019.
OtherAssets
Other assets includes various asset amounts for other operational transactions. The increase of $17.7 million wasprimarily due to a $57.9 million increase in Leerink trade receivables reflective of increased investment banking activity,partiallyoffsetby$27.3milliondecreaseindeferredcompensationand$10.7milliondecreaseinmerchantcardreceivables.
TableofContents
83
Derivatives
Derivative instruments are recorded as a component of other assets and other liabilities on the balance sheet. ThefollowingtableprovidesasummaryofderivativeassetsandliabilitiesatDecember31,2020and2019:
December31,
(Dollarsinthousands) 2020 2019 %Change
Assets:
Equitywarrantassets $ 203,438 $ 165,473 22.9%
Foreignexchangeforwardandoptioncontracts 216,977 115,854 87.3
Clientinterestratederivatives 67,854 28,811 135.5
Interestrateswaps — 22,676 —
Totalderivativesassets $ 488,269 $ 332,814 46.7
Liabilities:
Foreignexchangeforwardandoptioncontracts $ 210,833 $ 98,207 114.7
Clientinterestratederivatives 26,646 14,154 88.3
Interestrateswaps — 25,623 —
Totalderivativesliabilities $ 237,479 $ 137,984 72.1
EquityWarrantAssets
Inconnectionwithnegotiatingcreditfacilitiesandcertainotherservices,weoftenobtainrightstoacquirestockintheformofequitywarrantassets inprimarilyprivate,venture-backedcompanies inthetechnologyand lifescience/healthcareindustries. At December 31, 2020,we heldwarrants in 2,602 companies, compared to 2,268 companies at December 31,2019.Warrantsin25companieseachhadvaluesgreaterthan$1.0millionandcollectivelyrepresented$75.9million,or37.3percent,ofthefairvalueofthetotalwarrantportfolio.Thechangeinfairvalueofequitywarrantassetsisrecordedingainsonequitywarrantassets,net,innoninterestincome,acomponentofconsolidatednetincome.ThefollowingtableprovidesasummaryoftransactionsandvaluationchangesfortheyearsendedDecember31,2020and2019:
YearendedDecember31,
(Dollarsinthousands) 2020 2019
Balance,beginningofperiod $ 165,473 $ 149,238
Newequitywarrantassets 19,719 16,103
Non-cashincreasesinfairvalue 59,728 34,412
Exercisedequitywarrantassets (39,534) (30,778)
Terminatedequitywarrantassets (1,948) (3,502)
Balance,endofperiod $ 203,438 $ 165,473
ForeignExchangeForwardandForeignCurrencyOptionContracts
Weenterintoforeignexchangeforwardcontractsandforeigncurrencyoptioncontractswithclientsinvolvedinforeignactivities,eitheras thepurchaserorseller,dependingupontheclients'need.Foreachforwardoroptioncontractenteredintowithourclients,weenterintoanoppositewayforwardoroptioncontractwithacorrespondentbank,whichmitigatesthe risk of fluctuations in currency rates.Wealso enter into forward contractswith correspondent banks to economicallyreduceourforeignexchangeexposurerelatedtocertainforeigncurrencydenominatedinstruments.Netgainsandlossesonthe revaluationof foreign currencydenominated instruments are recorded in the line item "Other" aspartof noninterestincome,acomponentofconsolidatednet income.Wehavenotexperiencednonperformancebyanyofourcounterpartiesand therefore have not incurred any related losses. Further, we anticipate performance by all counterparties. Our netexposure for foreign exchange forward and foreign currency option contracts, net of cash collateral,was $31.0million atDecember 31, 2020 and$22.2million atDecember 31, 2019. For additional informationonour foreign exchange forwardcontracts and foreign currency option contracts, see Note 15—“Derivative Financial Instruments” of the “Notes to theConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
ClientInterestRateDerivatives
Wesellinterestratecontractstoclientswhowishtomitigatetheirinterestrateexposure.Weeconomicallyreducetheinterestrateriskfromthisbusinessbyenteringintooppositewaycontractswithcorrespondentbanks.Ournetexposurefor
TableofContents
84
client interestratederivativecontracts,netofcashcollateral,was$67.3millionatDecember31,2020and$28.6millionatDecember 31, 2019. For information on our client interest rate derivatives, refer to Note 15—“Derivative FinancialInstruments”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
InterestRateSwaps
Tomanageinterestrateriskonourvariable-interestrate loanportfolio,weenter intointerestrateswapcontractstohedge against future changes in interest rates by using hedging instruments to lock in future cash inflows that wouldotherwisebeimpactedbymovementsinthemarketinterestrates.WedesignatetheseinterestrateswapcontractsascashflowhedgesthatqualifyforhedgeaccountingunderASC815andrecordtheminotherassetsandother liabilities.Ournetexposureforinterestrateswaps,netofcashcollateral,waszeroatDecember31,2020.AsofMarch31,2020,allderivativespreviouslyclassifiedashedgeswithnotionalbalancestotaling$5.0billionandanetasset fairvalueof$227.5millionwereterminated.Refer toNote15—“Derivative Financial Instruments”of the “Notes to theConsolidatedFinancial Statements”underPart II, Item8ofthisreportforadditional informationregardingtheterminationofour interestrateswapcashflowhedgesduringthefirstquarterof2020.
Deposits
ThefollowingtablepresentsthecompositionofourdepositsasofDecember31,2020,2019and2018:
December31,
(Dollarsinthousands) 2020 2019 2018
Noninterest-bearingdemand $ 66,519,240 $ 40,841,570 $ 39,103,422
Interest-bearingcheckingandsavingsaccounts 4,800,831 568,256 648,468
Moneymarket 28,406,195 17,749,736 7,498,205
Moneymarketdepositsinforeignoffices 616,570 352,437 152,781
Sweepdepositsinforeignoffices 950,510 2,057,715 1,875,298
Time 688,461 188,093 50,726
Totaldeposits $ 101,981,807 $ 61,757,807 $ 49,328,900
Theincreaseindepositsof$40.2billionin2020wasdrivenbystrongpublicandprivatefundraisingandexitactivityas
wellassignificantnewclientacquisition.Wesawgrowthacrossallportfolioswiththeprimarycontributorscomingfromourtechnology and life science/healthcare portfolios. No material portion of our deposits has been obtained from a singledepositor and the loss of any one depositor would not materially affect our business. Approximately 12 percent and 13percentofourtotaldepositsatDecember31,2020and2019,respectively,werefromourclientsinAsia.
Theincreaseindepositsof$12.4billionin2019wasdrivenprimarilybyahealthyequityfundingenvironmentacrossamajorityofourmarketsegmentswithrobustactivitiesintheIPOandsecondarypublicofferingmarketsaswellasstrongnewclientacquisition.
At December 31, 2020, 35 percent of our total depositswere interest-bearing deposits, compared to 34 percent atDecember31,2019.
AtDecember31,2020,theaggregatebalanceoftimedepositaccountsindividuallyequaltoorgreaterthan$100,000totaled$686million,comparedto$185millionatDecember31,2019.AtDecember31,2020,$686million intimedepositaccountsindividuallyequaltoorgreaterthan$100,000werescheduledtomaturewithinoneyear.ThematurityprofileofourtimedepositsasofDecember31,2020isasfollows:
December31,2020
(Dollarsinthousands)Threemonths
orless
Morethanthreemonthstosixmonths
Morethansixmonthsto
twelvemonthsMorethan
twelvemonths Total
Timedeposits,$100,000andover $ 590,870 $ 325 $ 94,408 $ 100 $ 685,703
Othertimedeposits 1,705 798 255 — 2,758
Totaltimedeposits $ 592,575 $ 1,123 $ 94,663 $ 100 $ 688,461
TableofContents
85
Short-TermBorrowings
Thefollowingtablesummarizesourshort-termborrowingsthatmatureinonemonthorless:
December31,
2020 2019 2018
(Dollarsinthousands) Amount Rate Amount Rate Amount Rate
Short-termFHLBadvances $ — —% $ — —% $ 300,000 2.54%
Securitiessoldunderagreementtorepurchase — — — — 319,414 2.70
Othershort-termborrowings 20,553 0.08 17,430 1.55 11,998 2.39
Totalshort-termborrowings $ 20,553 0.08 $ 17,430 1.55 $ 631,412 2.62
Wehad$20.6millioninshort-termborrowingsatDecember31,2020,comparedto$17.4millionatDecember31,2019.Therewerenoovernightshort-termborrowingsasofDecember31,2020or2019.Formoreinformationonourshort-termdebt,seeNote14—“Short-TermBorrowingsandLong-TermDebt”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
Averagedailybalancesandmaximummonth-endbalancesforourshort-termborrowingsin2020,2019and2018wereasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Averagedailybalances:
Short-termFHLBadvances $ 295,902 $ 63,836 $ 424,384
FederalFundspurchased(1) 13,123 25,959 44,164
Securitiessoldunderagreementstorepurchase 64,606 36,716 164,938
Othershort-termborrowings(2) 27,528 19,034 10,400
Totalaverageshort-termborrowings $ 401,159 $ 145,545 $ 643,886
Weightedaverageinterestrateduringtheyear:
Short-termFHLBadvances 0.62% 2.57% 2.24%
FederalFundspurchased 0.73 2.45 2.1
Securitiessoldunderagreementstorepurchase 1.74 2.65 2.37
Othershort-termborrowings 0.28 1.92 2.28
Maximummonth-endbalances:
Short-termFHLBadvances $ 2,700,000 $ 400,000 $ 2,250,000
FederalFundspurchased 375,000 265,000 490,000
Securitiessoldunderagreementstorepurchase 1,030,622 196,000 394,592
Othershort-termborrowings 63,162 30,246 19,770
(1) Aspartofourliquidityriskmanagementpractices,weperiodicallytestavailabilityandaccesstoovernightborrowingsintheFederalFundsmarket.Thesebalancesrepresentshort-termborrowings.
(2) Represents cash collateral received from certain counterparties in relation to market value exposures of derivativecontractsinourfavor.
TableofContents
86
Long-TermDebt
Thefollowingtablerepresentsoutstandinglong-termdebtatDecember31,2020,2019and2018:
PrincipalvalueatDecember31,2020
December31,
(Dollarsinthousands) 2020 2019 2018
3.50%SeniorNotes $ 350,000 $ 348,348 $ 347,987 $ 347,639
3.125%SeniorNotes 500,000 495,280 — —
5.375%SeniorNotes — — — 348,826
Totallong-termdebt $ 850,000 $ 843,628 $ 347,987 $ 696,465
As of December 31, 2020, long-termdebtwas comprised of our 3.50% SeniorNotes and 3.125% SeniorNotes. Theincreaseinourlong-termdebtatDecember31,2020ascomparedtoDecember31,2019wasduetotheissuanceof3.125%SeniorNotesduringthesecondquarterof2020.Formoreinformationonourlong-termdebtoutstandingatDecember31,2020, refer to Note 14—“Short-Term Borrowings and Long-Term Debt” of the “Notes to the Consolidated FinancialStatements”underPartII,Item8ofthisreport.
OnFebruary2,2021,theCompanyissued$500millionofSeniorNotes.RefertoNote28—“SubsequentEvents”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreportforadditionalinformation.
OtherLiabilities
AsummaryofotherliabilitiesatDecember31,2020and2019isasfollows:
December31,
(Dollarsinthousands) 2020 2019 %Change
Foreignexchangespotcontractliabilities,gross $ 2,164,805 $ 888,360 143.7%
Accruedcompensation 545,376 354,393 53.9
Derivativeliabilities(1) 237,478 137,984 72.1
Allowanceforunfundedcreditcommitments 120,796 67,656 78.5
Netdeferredtaxliabilities 173,030 — —
Otherliabilities 730,489 593,359 23.1
Totalotherliabilities $ 3,971,974 $ 2,041,752 94.5
(1) See“Derivatives”sectionabove.
ForeignExchangeSpotContractLiabilities
Theincreaseof$1.3billioninforeignexchangespotcontractliabilitieswasdueprimarilytoanincreaseintheamountofunsettledspottradesatDecember31,2020ascomparedtoDecember31,2019.
AccruedCompensation
Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive CompensationPlan, Retention Program,Warrant Incentive Plan, ESOP, SVB Leerink Incentive Compensation Plan, SVB Leerink RetentionAwardandother compensationarrangements.The increaseof$191.0millionwasdueprimarily toan increase inourSVBLeerink incentiveaccrualsasa resultofour strong2020 full-year financialperformance,andaswellas the increase in thenumber of average FTEs in 2020. For a description of our variable compensation plans, refer to Note 19—“EmployeeCompensationandBenefitPlans”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
AllowanceforUnfundedCreditCommitments
Allowanceforunfundedcreditcommitmentsincludesanallowanceforbothourunfundedloancommitmentsandourletters of credit. The increase of $53.1 million was due primarily to the day one impact of the adoption of CECL of$22.8 million as well as an $30.2 million increase for the year ended December 31, 2020, driven primarily by growth inunfundedcreditcommitmentsof$7.5billion.
NetDeferredTaxLiabilities
Netdeferredtaxliabilitiesincreasedto$173.0millionduetoanincreaseinunrealizedgainsrecordedtoaccumulatedothercomprehensive incomefromouravailable-for-salesecuritiesandtheterminationofour interestrateswapcashflow
TableofContents
87
hedgecontracts,asdiscussedinthe"Derivatives"sectionabove,aswellasgainsfromconversionofconvertibledebtoptions,partiallyoffsetbyanincreaseinallowanceforcreditlossesforloans.
OtherLiabilities
Other liabilities includes various accrued liability amounts for other operational transactions. The increase of $137.1millionwasreflectiveprimarilyofa$68.2millionincreaseininvestmentsecuritiespayableduetounsettledpurchasesoffixedincomeinvestmentsecuritiesanda$41.3millionincreaseinincometaxpayable.
NoncontrollingInterests
Noncontrolling interests totaled$213.8millionand$150.8millionatDecember31,2020and2019, respectively.Theincrease was due to net income attributable to noncontrolling interests of $85.9 million, partially offset by net capitaldistributionsof$22.9millionprimarilytoinvestorsinourmanagedfundsoffundsfortheyearendedDecember31,2020.Formoreinformation,refertoNote2—“SummaryofSignificantAccountingPolicies”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
CapitalResources
Wemaintain an adequate capital base to support anticipated asset growth, operating needs, and credit and otherbusinessrisks,andtoprovideforSVBFinancialandtheBanktobeincompliancewithapplicableregulatorycapitalguidelines,includingthe jointagencyrules implementingthe"Basel III"capital rules (the"CapitalRules").Ourprimarysourcesofnewcapitalincluderetainedearningsandproceedsfromthesaleandissuanceofourcapitalstockorothersecurities.UndertheoversightoftheFinanceCommitteeofourBoardofDirectors,managementengagesinregularcapitalplanningprocessesinanefforttooptimizetheuseofthecapitalavailabletousandtoappropriatelyplanforourfuturecapitalneeds.Thecapitalplanconsiderscapitalneeds for the foreseeable futureandallocatescapital tobothexistingand futurebusinessactivities.Expected future use or activities forwhich capitalmay be set aside include balance sheet growth and associated relativeincreases in market or credit exposure, investment activity, potential product and business expansions, acquisitions andstrategic or infrastructure investments. In addition, we conduct capital stress tests as part of our annual capital planningprocess.Thecapitalstresstestsallowustoassesstheimpactofadversechangesintheeconomyandinterestratesonourcapitaladequacyposition.
CommonStock
OnNovember13,2018,theCompanyannouncedaprogramtopurchaseupto$500millionofouroutstandingcommonstock(the"StockRepurchaseProgram").TheprogramcompletedonJuly1,2019,afterwerepurchasedandretired2.2millionsharesofouroutstandingcommonstocktotaling$499.6million.
OnOctober24,2019,theCompany’sBoardofDirectorsauthorizedanewstockrepurchaseprogramthatenabledtheCompanytorepurchaseupto$350millionofitsoutstandingcommonstock.Undertheprogram,wepurchasedandretired244,223sharesofouroutstandingcommonstocktotaling$60.0million.ThisprogramexpiredonOctober29,2020.
PreferredStock
OnDecember9,2019,theCompanyissueddepositaryshareseachrepresentinga1/40thownershipinterestin350,000sharesofSeriesAPreferredStockwith$0.001parvalueandliquidationpreferenceof$1,000pershare,or$25perdepositaryshare.TheSeriesAPreferredStockhasnostatedmaturityandisnotsubjecttoanysinkingfundorotherobligationofSVBFinancialGroup.DividendsareapprovedbytheBoardofDirectorsand,ifdeclared,arepayablequarterly,inarrears,atarateperannumequalto5.25percent.
AsofDecember31,2020,therewere350,000sharesissuedandoutstandingofSeriesAPreferredStock,whichhadacarrying value of $340.1million and liquidation preference of $350million. For the year ended December 31, 2020, theCompany'sBoardofDirectorsdeclaredandSVBFinancialdistributedquarterlycashdividendstotaling$17.2milliontoSeriesAPreferredStockholders.
On February 2, 2021, the Company issued Series B Preferred Stock. Refer to Note 28—“Subsequent Events” of the“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreportforadditionalinformation.
TableofContents
88
SVBFGStockholders’Equity
SVBFG stockholders’ equity totaled $8.2 billion at December 31, 2020, an increase of $1.7 billion, or 27.0 percentcomparedto$6.5billionatDecember31,2019.Thisincreasewasprimarilytheresultofnetincomeof$1.2billionin2020,anincrease in accumulated other comprehensive income reflective primarily of a $544.9 million ($393.3 million net of tax)increaseinthefairvalueofourAFSsecuritiesportfoliodrivenbydecreasesinperiod-endmarketinterestrates,and$182.0million($131.4millionnetoftax)ofremainingunrealizedgainsoncashflowhedge.
Fundsgeneratedthroughretainedearningsareasignificantsourceofcapitalandliquidityandareexpectedtocontinuetobesointhefuture.
CapitalRatios
Regulatory capital ratios for SVB Financial and the Bank exceededminimum federal regulatory guidelines under thecurrentCapitalRulesaswellasforawell-capitalizedbankholdingcompanyandinsureddepositoryinstitution,respectively,asofDecember31,2020,2019and2018.SeeNote23—“RegulatoryMatters”of the“Notes to theConsolidatedFinancialStatements” under Part II, Item 8 of this report for further information. Capital ratios for SVB Financial and the Bank,comparedtotheminimumcapitalratiosaresetforthbelow:
December31,Required
Minimum(1)
WellCapitalizedMinimum2020 2019 2018
SVBFinancial:CET1risk-basedcapitalratio(2)(3) 11.04% 12.58% 13.41% 7.0% N/ATier1risk-basedcapitalratio(3) 11.89 13.43 13.58 8.5 6.0Totalrisk-basedcapitalratio(3) 12.64 14.23 14.45 10.5 10.0Tier1leverageratio(2)(3) 7.45 9.06 9.06 4.0 N/ATangiblecommonequitytotangibleassetsratio(4)(5) 6.66 8.39 8.99 N/A N/ATangiblecommonequitytorisk-weightedassetsratio(4)(5) 11.87 12.76 13.28 N/A N/ABank:CET1risk-basedcapitalratio(3) 10.70% 11.12% 12.41% 7.0% 6.5%Tier1risk-basedcapitalratio(3) 10.70 11.12 12.41 8.5 8.0Totalrisk-basedcapitalratio(3) 11.49 11.96 13.32 10.5 10.0Tier1leverageratio(3) 6.43 7.30 8.10 4.0 5.0Tangiblecommonequitytotangibleassetsratio(4)(5) 6.24 7.24 8.13 N/A N/ATangiblecommonequitytorisk-weightedassetsratio(4)(5) 11.58 11.31 12.28 N/A N/A
(1) Percentagesrepresenttheminimumcapitalratiosplus,asapplicable,thefullyphased-in2.5%CET1capitalconservationbufferundertheCapitalRules.
(2) "Well-CapitalizedMinimum"CET1risk-basedcapitalandTier1leverageratiosarenotformallydefinedunderapplicablebankingregulationsforbankholdingcompanies.
(3) Capitalratiosincluderegulatorycapitalphase-inoftheallowanceforcreditlossesunderthe2020CECLTransitionRuleforperiodsbeginningDecember31,2020.
(4) Seebelowforareconciliationofnon-GAAPtangiblecommonequitytotangibleassetsandtangiblecommonequitytorisk-weightedassets.
(5) TheFRBhasnotissuedanyminimumguidelinesforthetangiblecommonequitytotangibleassetsratioorthetangiblecommon equity to risk-weighted assets ratio, however, we believe these ratios provide meaningful supplementalinformationregardingourcapitallevelsandarethereforeprovidedabove.
Risk-basedcapital ratios (CET1, tier1, total risk-basedcapital,and tier1 leverage) forSVBFinancialdecreasedasofDecember31,2020,comparedtothesameratiosasofDecember31,2019,primarilyasaresultofaproportionallyhigherincreaseinourrisk-weightedassetsrelativetotheincreaseincapitalduring2020.Theincreaseinrisk-weightedassetswasdrivenprimarily by the increases in our loan and fixed incomeportfolios during 2020. The increase in average assetswasdrivenbyincreasesinfixedincomeinvestmentsandloanportfolios,aswellascashandcashequivalentsreflectiveofstrongdepositgrowth.Theincreaseincapitalwasreflectiveprimarilyofnetincomeof$1.2billion.
Risk-basedcapitalratios(CET1,tier1,totalrisk-basedcapital,andtier1leverage)forSiliconValleyBank(the"Bank")decreasedasofDecember31,2020,comparedtothesameratiosasofDecember31,2019.Thedecreaseswerearesultoftheproportionally higher increase in our risk-weighted assets and average assets relative to the increase in capital during2020. The increase in risk-weighted assets and average assets were driven by increases in our loan and fixed income
TableofContents
89
portfolios,aswellascashandcashequivalents2020reflectiveofstrongdepositgrowth.TheincreasesincapitalincludesforSiliconvalleybankwasdrivenbynet incomeaswellasa$700milliondownstreamcapital infusion fromourbankholdingcompany.
RegulatoryCapitalPhase-Inunderthe2020CECLTransitionRule
InMarch2020,thefederalbankingagenciesissuedthe2020CECLTransitionRule,whichprovidestransitionalrelieftobankingorganizationswith respect to the impactofCECLon regulatorycapital.Under the rule,bankingorganizations thatadoptCECLduringthe2020calendaryear,suchasSVBFinancialandtheBank,maydelaytheestimatedimpactofCECLonregulatorycapitalfortwoyears,followedbyathree-yearperiodtophaseouttheaggregatecapitalbenefitprovidedduringtheinitialtwo-yeardelay.TheruleprescribesamethodologyforestimatingtheimpactofdifferencesincreditlossallowancesreflectedunderCECLversusundertheincurredlossmethodologyduringthefive-yeartransitionperiod.Wehaveelectedtousethefive-yeartransitionoptionunderthe2020CECLTransitionRule.
CapitalSimplificationRules
InJuly2019,thefederalbankingagenciesadoptedfinalrulesintendedtosimplifycompliancewithcapitalrulesfornon-advanced approaches banking organizations (the “Capital Simplification Rules”), such as SVB Financial and the Bank. TheCapitalSimplificationRulestookeffectforSVBFinancialasofJanuary1,2020andsimplifythecapitaltreatmentofmortgageservicing assets, certain deferred tax assets, investments in unconsolidated financial institutions andminority interests forbankingorganizations.
All our reported capital ratios remainabove the levels considered tobe "well capitalized"underapplicablebankingregulations.
Non-GAAPTangibleCommonEquitytoTangibleAssetsandNon-GAAPTangibleCommonEquitytoRisk-weightedAssets
Thetangiblecommonequity,ortangiblebookvalue,totangibleassetsratioandthetangiblecommonequitytorisk-weighted assets ratios are not required by GAAP or applicable bank regulatory requirements. However,we believe theseratiosprovidemeaningful supplemental information regardingour capital levels.Ourmanagementuses, andbelieves thatinvestors benefit from referring to, these ratios in evaluating the adequacyof theCompany’s capital levels; however, thisfinancialmeasureshouldbeconsideredinadditionto,notasasubstitutefororpreferableto,comparablefinancialmeasurespreparedinaccordancewithGAAP.TheseratiosarecalculatedbydividingtotalSVBFGstockholder’sequity,bytotalperiod-endassetsandrisk-weightedassets,afterreducingbothamountsbyacquired intangibles, ifany.Themanner inwhichthisratioiscalculatedvariesamongcompanies.Accordingly,ourratioisnotnecessarilycomparabletosimilarmeasuresofothercompanies.Thefollowingtableprovidesareconciliationofnon-GAAPfinancialmeasureswithfinancialmeasuresdefinedbyGAAP:
Non-GAAPtangiblecommonequityandtangibleassets(Dollarsinthousands,exceptratios)
SVBFinancial
December31,2020
December31,2019
December31,2018
December31,2017
December31,2016
GAAPSVBFGstockholders’equity $ 8,219,700 $ 6,470,307 $ 5,116,209 $ 4,179,795 $ 3,642,554
Less:preferredstock 340,138 340,138 — — —
Less:intangibleassets 204,120 187,240 — — —
Tangiblecommonequity $ 7,675,442 $ 5,942,929 $ 5,116,209 $ 4,179,795 $ 3,642,554
GAAPtotalassets $115,511,007 $ 71,004,903 $ 56,927,979 $ 51,214,467 $ 44,683,660
Less:intangibleassets 204,120 187,240 — — —
Tangibleassets $115,306,887 $ 70,817,663 $ 56,927,979 $ 51,214,467 $ 44,683,660
Risk-weightedassets $ 64,680,666 $ 46,577,485 $ 38,527,853 $ 32,736,959 $ 28,248,750
Non-GAAPtangiblecommonequitytotangibleassets 6.66% 8.39% 8.99% 8.16% 8.15%
Non-GAAPtangiblecommonequitytorisk-weightedassets 11.87 12.76 13.28 12.77 12.89
TableofContents
90
Non-GAAPtangiblecommonequityandtangibleassets(Dollarsinthousands,exceptratios)
Bank
December31,2020
December31,2019
December31,2018
December31,2017
December31,2016
Tangiblecommonequity $ 7,068,964 $ 5,034,095 $ 4,554,814 $ 3,762,542 $ 3,423,427
Tangibleassets $113,303,370 $ 69,563,817 $ 56,047,134 $ 50,383,774 $ 44,059,340
Risk-weightedassets $ 61,023,462 $ 44,502,150 $ 37,104,080 $ 31,403,489 $ 26,856,850
Non-GAAPtangiblecommonequitytotangibleassets 6.24% 7.24% 8.13% 7.47% 7.77%
Non-GAAPtangiblecommonequitytorisk-weightedassets 11.58 11.31 12.28 11.98 12.75
SVBFinancial'sandtheBank'stangiblecommonequitytotangibleassetsandSVBFinancial'srisk-weightedassetsratiosdecreasedduetotheproportionallyhigherincreasesintangibleandrisk-weightedassetsrelativetotangiblecommonequity.Theincreaseinrisk-tangibleandrisk-weightedassetsweredrivenbyrobustassetgrowthduring2020drivenbyincreasesinfixedincomeandloanportfolios.Increasedcapitalwasreflectiveprimarilyofnetincome.
TheincreaseintheBank'stangiblecommonequitytotangibleassetsratiowasdrivenbytheincreaseincapitalduetothelargeunrealizedgainsfromtheavailableforsaleandsecuritiesandunrealizedgainsonthecashflowhedgesduring2020.See"SVBFGStockholders’Equity"aboveforfurtherdetailsonchangestotheindividualcomponentsofourequitybalance.
Off-BalanceSheetArrangementsandAggregateContractualObligations
Inthenormalcourseofbusiness,weusefinancialinstrumentswithoff-balancesheetrisktomeetthefinancingneedsofourcustomers.Thesefinancialinstrumentsincludecommitmentstoextendcredit,commercialandstandbylettersofcreditand commitments to invest in venture capital and private equity fund investments. These instruments involve, to varyingdegrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to thefinancialinstrumentfailtoperforminaccordancewiththetermsofthecontract.Theactualliquidityneedsandthecreditriskthat we have experienced have historically been lower than the contractual amount of these commitments because asignificantportionofthesecommitmentsexpirewithoutbeingdrawnupon.Refertothediscussionofouroff-balancesheetarrangements in Note 21—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to theConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
ThefollowingtablesummarizesourunfundedcommercialcommitmentsasofDecember31,2020:
AmountofCommitmentsExpiringperPeriod
(Dollarsinthousands) TotalLessthan1
year 1-3years 4-5years After5years
Commercialcommitments:
Loancommitmentsavailableforfunding $ 28,975,133 $ 21,879,793 $ 5,258,406 $ 1,555,776 $ 281,158
Standbylettersofcredit 3,002,752 2,916,623 65,079 9,742 11,308
Commerciallettersofcredit 4,366 4,366 — — —
Totalunfundedcreditcommitments $ 31,982,251 $ 24,800,782 $ 5,323,485 $ 1,565,518 $ 292,466
ThefollowingtablesummarizesourcontractualobligationstomakefuturepaymentsasofDecember31,2020:
PaymentsDueByPeriod
(Dollarsinthousands) TotalLessthan1
year 1-3years 4-5years After5years
SVBFGcontractualobligations:
Deposits(1)(2) $101,981,807 $101,981,807 $ — $ — $ —
Borrowings(2) 864,181 20,553 — 348,348 495,280
Non-cancelableoperatingleases 276,924 51,547 97,037 74,498 53,842
Commitmentstoqualifiedaffordablehousingprojects 370,208 167,026 170,552 13,977 18,653
Otherobligations 2,258 1,962 296 — —
TotalobligationsattributabletoSVBFG $103,495,378 $102,222,895 $ 267,885 $ 436,823 $ 567,775
(1) Includes time deposits and depositswith no definedmaturity, such as noninterest-bearing demand, interest-bearingchecking,savings,moneymarketandsweepaccounts.
TableofContents
91
(2) Amountsexcludecontractualinterest.
Excludedfromthetablesaboveareunfundedcommitmentobligationsof$22.1milliontoourmanagedfundsoffundsandotherfund investmentsforwhichneitherthepayment,timing,noreventualobligation iscertain.Subjecttoapplicableregulatoryrequirements,includingtheVolckerRule(see"Business-SupervisionandRegulation"underPartI,Item1ofthisreport), we make commitments to invest in venture capital and private equity funds, which in turn make investmentsgenerallyin,orinsomecasesmakeloansto,privately-heldcompanies.Commitmentstoinvestinthesefundsaregenerallymade for a 10-year period from the inception of the fund. Although the limited partnership agreements governing theseinvestmentstypicallydonotrestrictthegeneralpartnersfromcalling100%ofcommittedcapitalinoneyear,itiscustomaryforthesefundstogenerallycallmostofthecapitalcommitmentsover5to7years;howeverincertaincases,thefundsmaynot call 100%of committed capital over the lifeof the fund. Theactual timingof future cash requirements to fund thesecommitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type ofindustry inwhich theprivately held companies operate.Additionally, our consolidatedmanaged fundsof fundshave $4.3millionofremainingunfundedcommitmentstoventurecapitalandprivateequityfunds.SeeNote8—“InvestmentSecurities"ofthe“NotestotheConsolidatedFinancialStatements”underPartII, Item8ofthisreportforfurtherdisclosurerelatedtonon-marketable and other equity securities. Additional discussion of our off-balance sheet arrangements for these fundinvestmentsisincludedinNote21—“Off-BalanceSheetArrangements,GuaranteesandOtherCommitments”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
Liquidity
Theobjectiveof liquiditymanagement is toensurethat fundsareavailable ina timelymanner tomeetour financialobligations, including,asnecessary,payingcreditors,meetingdepositors’needs,accommodating loandemandandgrowth,funding investments, repurchasing securitiesandotheroperatingor capitalneeds,without incurringunduecostor risk,orcausingadisruptiontonormaloperatingconditions.
Weregularlyassesstheamountandlikelihoodofprojectedfundingrequirementsthroughareviewoffactorssuchashistoricaldeposit volatilityand fundingpatterns,presentand forecastedmarketandeconomicconditions, individual clientfundingneeds,andexistingandplannedbusinessactivities.OurAsset/LiabilityCommittee(“ALCO”),whichisamanagementcommittee,providesoversighttotheliquiditymanagementprocessandrecommendspolicyguidelinesfortheapprovaloftheFinance Committee of our Board of Directors, and courses of action to address our actual and projected liquidity needs.Additionally,weroutinelyconductliquiditystresstestingaspartofourliquiditymanagementpractices.
Ourdepositbase is,andhistoricallyhasbeen,ourprimarysourceof liquidity.Ourdeposit levelsandcostofdepositsmayfluctuatefromtimetotimeduetoavarietyoffactors,includingmarketconditions,prevailinginterestrates,changesinclientdepositbehaviors,availabilityofinsuranceprotection,andourofferingofdepositproducts.AtDecember31,2020,ourperiod-endtotaldepositbalancesincreasedto$102.0billion,comparedto$61.8billionatDecember31,2019.
Our liquidity requirements canalsobemet through theuseofourportfolioof liquidassets.Ourdefinitionof liquidassetsincludescashandcashequivalentsinexcessoftheminimumlevelsnecessarytocarryoutnormalbusinessoperations,short-term investment securities maturing within one year, AFS securities eligible and available for financing or pledgingpurposeswithamaturityinexcessofoneyearandanticipatednear-termcashflowsfrominvestments.
Wehavecertainfacilitiesinplacetoenableustoaccessshort-termborrowingsonasecuredandunsecuredbasis.OursecuredfacilitiesincludecollateralpledgedtotheFHLBofSanFranciscoandthediscountwindowattheFRB(usingbothfixedincome securities and loans as collateral). Our unsecured facility consists of our uncommitted federal funds lines. As ofDecember 31, 2020, collateral pledged to the FHLB of San Franciscowas comprised primarily of fixed income investmentsecurities and loans and had a carrying value of $6.8 billion, of which $5.8 billion was available to support additionalborrowings.AsofDecember31,2020,collateralpledgedtothediscountwindowattheFRBwascomprisedoffixedincomeinvestment securitiesandhada carryingvalueof$0.9billion, all ofwhichwasunusedandavailable to supportadditionalborrowings.Ourtotalunusedandavailableborrowingcapacityforouruncommittedfederalfundslinestotaled$1.9billionatDecember31,2020.Ourtotalunusedandavailableborrowingcapacityunderourmasterrepurchaseagreementswithvariousfinancialinstitutionstotaled$4.0billionatDecember31,2020.
Inconnectionwithourparticipation in thePPPunder theCARESActasdiscussed,weconsideredparticipating in theFederalReserve’sPaycheckProtectionProgramLendingFacility ("PPPLF").ThePPPLFwasestablishedtoallowparticipatinginstitutions to facilitate lendingunder thePPPandextends credit toeligiblePPP loanoriginatorsonanon-recoursebasis,takingPPPloansascollateralatfacevalue.Ultimately,wewereabletoextendcredittoPPPborrowerswithoutrelyingonthePPPLF. Additionally, interim final capital rules issued by federal bank regulatory agencies have neutralized the regulatorycapital effects of participating in thePPP, in that loansoutstanding are assesseda zeropercent riskweight for regulatorycapitalpurposes.
TableofContents
92
Onastand-alonebasis,SVBFinancial’sprimaryliquiditychannelsincludedividendsfromtheBank,itsportfolioofliquidassets, and its ability to raise debt and capital. The ability of the Bank to pay dividends is subject to certain regulationsdescribedin“Business—SupervisionandRegulation—RestrictionsonDividends”underPartI,Item1ofthisreport.
ConsolidatedSummaryofCashFlows
Belowisasummaryofouraveragecashpositionandstatementofcashflowsfor2020,2019and2018,respectively:(For further details, see our Consolidated Statements of Cash Flows under "Consolidated Financial Statements andSupplementaryData"underPartII,Item8ofthisreport.)
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Averagecashandcashequivalents $13,273,237 $ 6,524,342 $ 3,301,783
Percentageoftotalaverageassets 15.5% 10.3% 6.0%
Netcashprovidedbyoperatingactivities $ 1,445,487 $ 1,164,129 $ 933,562
Netcashusedforinvestingactivities (31,205,721) (9,371,882) (4,800,375)
Netcashprovidedbyfinancingactivities 40,653,214 11,417,997 4,515,277
Netincreaseincashandcashequivalents $10,892,980 $ 3,210,244 $ 648,464
Average cash and cash equivalents increased to $13.3 billion in 2020, compared to $6.5 billion for 2019. Averagedepositsincreased$20.0billionwhichenabledustogrowouraverageloanportfolioby$7.3billionin2020.
2020
Cashprovidedbyoperatingactivitiesof$1.4billionin2020includednetincomebeforenoncontrollinginterestsof$1.3billionand$200millionfromchangesinotherassetsandliabilities,offsetby$49millionfromchangesfromadjustmentstoreconciletonetincometonetcash.
Cashusedforinvestingactivitiesof$31.2billionin2020included$19.1billionofnetoutflowsfromourfixedincomesecuritiesportfoliodue to$30.0billionofpurchases,offsetby fixed income inflowsof$10.9billion inportfoliocash flowsfromsales,maturitiesandpaydowns,and$11.9billionofnetoutflowsfromfundedloans.
Cashprovidedby financing activities of $40.7billion in 2020wasdrivenprimarily by thenet increase in deposits of$40.2billionand$0.5billionfromtheissuanceofour3.125%SeniorNotes.
CashandcashequivalentsatDecember31,2020were$17.7billion,comparedto$6.8billionatDecember31,2019.
2019
Cashprovidedbyoperatingactivitiesof$1.2billionin2019includednetincomebeforenoncontrollinginterestsof$1.2billion.Thesenetinflowswereoffsetby$62millionofadjustmentstoreconcilenetincometonetcashand$82millionfromchangesinotherassetsandliabilities.
Cashusedfor investingactivitiesof$9.4billion in2019 included$4.8billionofnetoutflowsfromthenet increase inloans fundedand$4.4billionofnetoutflows fromour fixed income securitiesportfoliodue to$10.4billionofpurchases,offsetbyfixedincomeinflowsof$6.0billionofportfoliocashflowsfromsales,maturitiesandpaydowns.
Cashprovidedby financing activities of $11.4billion in 2019wasdrivenprimarily by thenet increase in deposits of$12.4 billion and $0.3 billion in proceeds from issuance of preferred stock, partially offset by a $1.0 billion decrease inborrowingsoutstandingasofDecember31,2019aswellas$0.4billionincashoutflowsfromtherepurchaseofourcommonstockundertheStockRepurchaseProgram.
SubsequentEvents
PotentialFraudulentClientActivity
TheCompanyrecentlybecameawareofpotentiallyfraudulentactivityconductedbyJESGlobalCapitalIII,L.P.(“JES”),aclientoftheBank,inconnectionwithaloantransactionfundedinearlyFebruary2021.
Wearecurrentlyinvestigatingthisincidenttodetermineourpotentialcreditexposure,whichiscurrentlyestimatedtobeup to$70million,netof tax, relating toaGlobal FundBanking capital call lineof credit.Wehavebeenadvised thataprincipalof JESwasrecentlyarrested,andthematter ispending intheU.S.DistrictCourt for theSouthernDistrictofNew
TableofContents
93
York.Wearecontinuingtoworkwiththeappropriatelawenforcementauthoritiesinconnectionwiththismatterandintendtopursueallavailablesourcesofrecoveryandothermeasurestomitigatethepotentialloss.
Basedonour reviewof thepotentially fraudulent activity, aswell as our risk assessment reviewof theGlobal FundBanking loan portfolio conducted in light of the incident, the Company currently believes this incident is an isolatedoccurrenceinvolvingasinglebusinessrelationship.
Thismatter (andother updates about the first quarter of 2021)was initially disclosedby theCompany in a CurrentReport on Form 8-K on February 26, 2021. Wemay be limited in any additional informationwe can disclose due to theongoinginvestigation.
TableofContents
94
ITEM7A. QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
InterestRateRiskManagement
Marketriskisdefinedastheriskofadversefluctuationsinthemarketvalueoffinancialinstrumentsduetochangesinmarketinterestrates.Interestrateriskisourprimarymarketriskandcanresultfromtimingandvolumedifferencesintherepricingofourrate-sensitiveassetsandliabilities,wideningortighteningofcreditspreads,changesinthegeneral levelofmarket interest ratesandchanges in theshapeand levelof thebenchmark interest rates.Additionally,changes in interestrates can influence the rate of principal prepayments on mortgage securities, which affects the rate of amortization ofpurchasepremiumsanddiscounts.Othermarketrisksincludeforeigncurrencyexchangeriskandequitypricerisk(includingtheeffectofcompetitiononproductpricing).Theserisksandrelated impactsare importantmarketconsiderationsbutareinherently difficult to assess through simulation results. Consequently, simulations used to analyze the sensitivity of netinterest incometochangesininterestrateswilldifferfromactualresultsduetodifferencesinthetimingandfrequencyofrate resets, themagnitudeof changes inmarket rates, the impactof competition, fluctuatingbusiness conditions and theimpactofstrategiestakenbymanagementtomitigatetheserisks.
InterestrateriskismanagedbyourALCO.ALCOreviewsthesensitivityofthemarketvaluationonearningassetsandfundingliabilitiesandmodeled12-monthprojectionsofnetinterestincomefromchangesininterestrates,structuralchangesininvestmentandfundingportfolios,loananddepositactivityandmarketconditions.Relevantmetricsandguidelines,whichare approved by the Finance Committee of our Board of Directors and are included in our Interest Rate Risk Policy, aremonitoredonanongoingbasis.
Interest rate risk is managed primarily through strategies involving our fixed income securities portfolio, availablefundingchannelsandcapitalmarketactivities.Inaddition,ourpoliciespermittheuseofoff-balancesheetderivatives,suchasinterestrateswaps,toassistwithmanaginginterestraterisk.
Weutilizeasimulationmodeltoperformsensitivityanalysisontheeconomicvalueofequityandnetinterestincomeunderavarietyof interestratescenarios,balancesheetforecastsandbusinessstrategies.Thesimulationmodelprovidesadynamicassessmentof interest ratesensitivitywhich isembeddedwithinourbalancesheet.Ratesensitivitymeasures thepotentialvariabilityineconomicvalueandnetinterestincomerelatingsolelytochangesinmarketinterestratesovertime.Wereviewourinterestrateriskpositionandsensitivitytomarketinterestratesregularly.
ModelSimulationandSensitivityAnalysis
Aspecificapplicationofoursimulationmodelinvolvesmeasurementoftheimpactofchangesinmarketinterestrateson theeconomic valueof equity (“EVE”). EVE is definedas themarket valueof assets, less themarket valueof liabilities.Anotherapplicationofthesimulationmodelmeasurestheimpactofchangesinmarketinterestratesonnetinterestincome(“NII”)assumingastaticbalancesheet,inbothsizeandcompositionasoftheperiod-endreportingdate.IntheNIIsimulation,the levelofmarket interestratesandthesizeandcompositionof thebalancesheetareheldconstantoverthesimulationhorizon. Simulated cash flowsduring the scenariohorizonareassumed tobe replacedas theyoccur,whichmaintains thebalance sheet at its current size and composition. Yield and spread assumptions on cash and investment balances reflectcurrentmarketratesandtheshapeoftheyieldcurve.Yieldandspreadassumptionsonloansreflectrecentmarketimpactson product pricing. Similarly,wemake certain deposit balance decay rate assumptions on demand deposits and interest-bearingdeposits,whicharereplenishedtoholdthelevelandmixoffundingliabilitiesconstant.Changesinmarket interestratesthataffectnet interest incomeareprincipallyshort-terminterestratesand includethefollowingbenchmark indexes:(i)theNationalPrimeRate,(ii)1-monthand3-monthLIBOR,and(iii)theFederalFundstargetrate.Changesintheseshort-termrates impact interestearnedonourvariable rate loansandbalancesheldascashandcashequivalents.Additionally,simulated changes in deposit pricing relative to changes inmarket rates, commonly referred to as deposit beta, generallyfollowoverallchangesinshort-terminterestrates,althoughactualchangesmaylagintermsoftimingandmagnitude.
BothEVEandNIImeasuresrelyupontheuseofmodelstosimulatecashflowbehaviorforloansanddeposits.Thesemodelsweredevelopedinternallyandarebasedonhistoricalbalanceandrateobservations.Investmentportfoliocashflowisbased on a combination of third-party prepayment models and internally managed prepayment vectors depending onsecuritytype.Aspartofourongoinggovernancestructure,eachofthesemodelsandassumptionsareperiodicallyreviewedandrecalibratedasneededtoensurethattheyarerepresentativeofourunderstandingofexistingbehaviors.
Duringthefourthquarterof2020,amodelingassumptionchangewasmadetoalign investmentportfoliocashflowswithanestablishedbenchmarkmodel.Thisincludedrecalibrationofthird-partyprepaymentmodelsassociatedwithcertainmortgage-backedsecurityclasses.Asaresultofthesechanges,themeasureof interestratesensitivityoftotal investmentswas reduced resulting in an overall lower EVE sensitivity. Thismodeling change did not significantly impact NII sensitivitymeasures.
TableofContents
95
Simulation results presented include an "asymmetric" beta assumption that is applied in theNII and EVE simulationmodelsforinterest-bearingdeposits.Thisreflectsmanagementexpectationsthatdepositrepricingbehaviorinafallingrateenvironmentwouldbedifferentthanrepricingbehaviorinarisingrateenvironment.Thismodelassumestheoverallbetaforinterest-bearingdepositsinafallingrateenvironmentwouldbeapproximately60percent.Thatis,overallchangesininterest-bearing deposit rates would be approximately 60 percent of the change in short-term market rates. The deposit betaassumptionforanincreasingrateenvironmentis50percent.Theserepricingassumptionsarereflectedaschangesininterestexpenseoninterest-bearingdepositbalances.
The following tablepresentsour EVEandNII sensitivity exposure related to an instantaneous and sustainedparallelshiftinmarketinterestratesof100and200basispoints("bps")atDecember31,2020andDecember31,2019.NetInterestIncomesensitivityandthemodeledEconomicValueofEquityforDecember31,2019hasbeenrevisedtoreflecttheupdatedmodelassumptions.
Changeininterestrates(bps)(Dollarsinthousands)
EstimatedEstimatedIncrease/(Decrease)InEVE Estimated
EstimatedIncrease/(Decrease)InNII
EVE Amount Percent NII Amount Percent
December31,2020:+200 $9,499,738 $(1,724,648) (15.4)% $3,063,350 $ 691,748 29.2%+100 10,558,232 (666,154) (5.9) 2,728,691 357,089 15.1— 11,224,386 — — 2,371,602 — —-100 11,581,718 357,332 3.2 2,309,596 (62,006) (2.6)-200 11,534,332 309,946 2.8 2,306,280 (65,322) (2.8)
December31,2019(asrevised):+200 $7,503,986 $ (619,463) (7.6)% $2,588,319 $ 523,423 25.3%+100 7,792,507 (330,942) (4.1) 2,326,428 261,532 12.7— 8,123,449 — — 2,064,896 — —-100 8,495,627 372,178 4.6 1,789,625 (275,271) (13.3)-200 8,567,118 443,669 5.5 1,514,354 (550,542) (26.7)
EconomicValueofEquity
TheestimatedEVEintheprecedingtableisbasedonacombinationofvaluationmethodologiesincludingdiscountedcashflowanalysisandamulti-pathlattice-basedvaluation.Bothmethodologiesusepubliclyavailablemarketinterestratestodetermine discounting factors on projected cash flows. The model simulations and calculations are highly assumption-dependentandwillchangeregularlyasthecompositionofearningassetsandfundingliabilitieschange(includingtheimpactof changes in the value of interest rate derivatives, if any), as interest rate environments evolve, and as we change ourassumptions in response to relevantmarket conditions, competition or business circumstances. These calculations do notreflectforecastchangesinourbalancesheetorchangeswemaymaketoreduceourEVEexposureasapartofouroverallinterestrateriskmanagementstrategy.
Aswithanymethodofmeasuringinterestraterisk,certainlimitationsareinherentinthemethodofanalysispresentedintheprecedingtable.Weareexposedtoyieldcurverisk,prepaymentrisk,basisriskandyieldspreadcompression,whichcannotbefullymodeledandexpressedusingtheabovemethodology.Accordingly,theresultsintheprecedingtableshouldnotbe relieduponasaprecise indicatorofactual results in theeventof changingmarket interest rates.Additionally, theresultingEVEandNIIestimatesarenotintendedtorepresentandshouldnotbeconstruedtorepresentourestimateoftheunderlyingEVEorforecastofNII.
OurbaseEVEasofDecember31,2020increased$3.1billionfromDecember31,2019,drivenbyoverallbalancesheetgrowthandthesignificantdecreaseinmarketratessincethefirstquarterof2020.FortheperiodendedDecember31,2020,ascomparedtoDecember31,2019,cashbalancesandfixedincomeinvestmentsinourAFSandHTMportfoliosincreasedby$10.9 billion and $19.6 billion, respectively,while loan balances increasedby $12.0 billion. Funding for these assets cameprimarilyfromgrowthof$40.2billionintotaldeposits,whichconsistsof$25.7billionand$14.5billionincreaseinnoninterestbearing and interest-bearing accounts, respectively. Themix of noninterest bearing and interest-bearing deposits to totaldepositsremainedrelativelyunchangedatDecember31,2020,comparedtoDecember31,2019.
Rapiddepositgrowthhasexceededthepaceofourloangrowth,andasaresult,asignificantamountofexcessdepositsnotusedtofundloangrowthhavecontributedtothegrowthofourcashandinvestmentsbalances.MuchoftheinvestmentportfolioisheldinfixedrateMBSandCMOswhichgenerallyhaveahighermarketvaluesensitivitythanvariablerateloansor
TableofContents
96
cash.Thus,underanupwardrateshockscenario,themarketvalueof investmentschangesmorethanthemarketvalueofdepositsresultinginanegativeEVEsensitivityinthosescenarios.
DuetothesuddendecreaseinmarketratesthatoccurredinMarch2020,EVEsensitivitymeasuresinthe-100and-200bpsrateshockscenariosdonotrepresentthefullmagnitudeofthoserateshocksbecauseweassumethatU.S.FederalFundratesareflooredatzero.Asaresult,theDecember31,2020EVEsensitivityofthe-100and-200bpsrateshockscenariosaresimilar.
ThemodelingassumptionchangedescribedabovecombinedwithcontinuedbalancesheetgrowthandaloweroverallrateenvironmentaretheprimarycontributingfactorstotheoverallchangeinEVEsensitivity.
12-MonthNetInterestIncomeSimulation
NIIsensitivityismeasuredasthepercentagechangeinprojected12-monthnetinterestincomeearnedin+/-100and+/-200 basis point interest rate shock scenarios compared to a base scenariowhere balances and interest rates are heldconstant over the forecast horizon. At December 31, 2020, NII sensitivitywas 15.1 percent in the +100 bps interest ratescenario,comparedto12.7percentatDecember31,2019.OurNIIsensitivityinthe+200bpsinterestrateshockscenariowas29.2percentcomparedto25.3percentatDecember31,2019.NIIsensitivityinthe-100bpsscenarioofnegative2.6percentwasloweratDecember31,2020,comparedtoanegative13.3percentatDecember31,2019.The-200bpsscenariocurrentlyindicatesalowerpercentagechangeinNIIofnegative2.8percentatDecember31,2020,comparedtonegative26.7percentatDecember31,2019.However,asnotedabove,the-100and-200bpsscenariosarenotcompleterateshocksinthisrateenvironment,sinceratesareassumedtobeflooredatzero.TheDecember31,2020NIIsensitivitypercentagesareinclusiveof therealized incomeorexpenseassociatedwith interest rateswapsthatwereunwoundreflectiveof themacrohedgingprocessinitiatedin2019toreducetheimpactofdecreasingratesonNII.ThechangesinNIIsensitivityareprimarilytheresultof the changes in balance sheet composition previously described, combinedwith the impact of hedges in the respectiveparallelrateshockscenarios.
Ourbasecasestatic12-monthNIIforecastatDecember31,2020increasedcomparedtoDecember31,2019by$306.7million,primarilydrivenbygrowthinthebalancesheetthathastakenplaceyear-to-datecombinedwithanoverallrelativelylower rate environment, reflective of the decrease in the Federal Funds Rate in March 2020, compared to last year.Specifically,alargeportionoftheloanportfolioisindexedtothePrimerate,whichdecreased150bpsinMarchof2020duetoactionsundertakenbytheFederalReservetomitigateapossibleeconomicdownturn.Theadverseimpactofchanges ininterestratesonNIIwaspartiallytemperedtoacertaindegreebycontinuedgrowthintheloanportfolio,aswellascontinuedbalancesheetgrowthaspreviouslydescribed.
AmajorityofourloansareindexedtoPrimeandLIBOR.Inthepositiveparallelsimulatedrateshockscenarios,interestincomeonassetsthataretiedtovariablerateindexes,primarilyourvariablerateloans,areexpectedtobenefitourbase12-monthNIIprojections.Theoppositeistruefornegativerateshockscenarios.
The12-monthNIIsimulationsincluderepricingassumptionsonourinterest-bearingdepositproductswhichwesetatourdiscretionbasedonclientneedsandouroverall fundingmix.Repricingof interest-bearingdeposits impactsestimatedinterestexpense.
Fortheinterestratescenarios,thesimulationmodelincorporatesembeddedratefloorsonloans,wherepresent,whichpreventsmodelbenchmarkratesfrommovingbelowzeropercentinthedownratescenarios.Theembeddedratefloorsarealsoa factor in the increasingratescenarios to theextentasimulated increase in rates isneededbefore flooredratesarecleared. In addition, we assume deposit balance decay rates based on a historical deposit study of our clients. Theseassumptions may change in future periods based on changes in client behavior and at management's discretion. Actualchanges inourdeposit pricing strategiesmaydiffer fromour currentmodel assumptions andmayhavean impactonouractualsensitivityoverall.
TableofContents
97
ITEM8.CONSOLIDATEDFINANCIALSTATEMENTSANDSUPPLEMENTARYDATA
ReportofIndependentRegisteredPublicAccountingFirm
TotheStockholdersandBoardofDirectors SVBFinancialGroup:
OpinionsontheConsolidatedFinancialStatementsandInternalControlOverFinancialReporting
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofSVBFinancialGroupandsubsidiaries(theCompany)asofDecember31,2020and2019,therelatedconsolidatedstatementsofincome,comprehensiveincome,stockholders’equity,andcash flows foreachof theyears in the three-yearperiodendedDecember31,2020, and the relatednotes (collectively, theconsolidated financial statements). We also have audited the Company’s internal control over financial reporting as ofDecember31,2020,basedoncriteriaestablishedinInternalControl–IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the financialpositionoftheCompanyasofDecember31,2020and2019,andtheresultsofitsoperationsanditscashflowsforeachoftheyearsinthethree-yearperiodendedDecember31,2020,inconformitywithU.S.generallyacceptedaccountingprinciples.Alsoin our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember31,2020basedoncriteriaestablishedinInternalControl–IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.
ChangeinAccountingPrinciple
AsdiscussedinNotes2and9totheconsolidatedfinancialstatements,theCompanyhaschangeditsmethodofaccountingforthe recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13, FinancialInstruments–CreditLosses(Topic326):MeasurementofCreditLossesonFinancialInstruments(CECL).
BasisforOpinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedin the accompanyingManagement’s Report on Internal ControlOver Financial Reporting.Our responsibility is to express anopinionontheCompany’sconsolidatedfinancialstatementsandanopinionontheCompany’s internalcontrolover financialreportingbasedonouraudits.WeareapublicaccountingfirmregisteredwiththePublicCompanyAccountingOversightBoard(UnitedStates)(PCAOB)andarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement,whetherdue toerroror fraud,andwhethereffective internal controlover financial reportingwasmaintained inallmaterialrespects.
Ourauditsoftheconsolidatedfinancialstatementsincludedperformingprocedurestoassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontroloverfinancialreporting includedobtaininganunderstandingof internalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedon the assessed risk. Our audits also included performing such other procedures as we considered necessary in thecircumstances.Webelievethatourauditsprovideareasonablebasisforouropinions.
DefinitionandLimitationsofInternalControlOverFinancialReporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyaccepted accounting principles. A company’s internal control over financial reporting includes thosepolicies andproceduresthat (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsand
TableofContents
98
expenditures of the company are beingmade only in accordance with authorizations of management and directors of thecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Because of its inherent limitations, internal control over financial reportingmay not prevent or detectmisstatements. Also,projectionsofanyevaluationofeffectiveness to futureperiodsaresubject to the risk thatcontrolsmaybecome inadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
CriticalAuditMatter
Thecriticalauditmattercommunicatedbelowisamatterarisingfromthecurrentperiodauditoftheconsolidatedfinancialstatementsthatwascommunicatedorrequiredtobecommunicatedtotheauditcommitteeandthat:(1)relatestoaccountsordisclosuresthatarematerialtotheconsolidatedfinancialstatementsand(2)involvedourespeciallychallenging,subjective,orcomplex judgments.Thecommunicationofacriticalauditmatterdoesnotalter inanywayouropinionon theconsolidatedfinancialstatements,takenasawhole,andwearenot,bycommunicatingthecriticalauditmatterbelow,providingaseparateopiniononthecriticalauditmatterorontheaccountsordisclosurestowhichitrelates.
Allowanceforcreditlossesforloansandunfundedloancommitmentsevaluatedonacollectivebasis
AsdiscussedinNotes2and9oftheconsolidatedfinancialstatements,theCompany’sallowanceforcreditlosses(ACL)forloansandunfundedcreditcommitmentswere$447.8millionand$120.8millionasofDecember31,2020,respectively.TheallowanceprincipallyrelatestotheCompany’sloansandunfundedloancommitmentsevaluatedonacollectivebasis(thecollectiveALLandthecollectiveAULC,respectively).ThecollectiveALLandthecollectiveAULCincludethemeasureofexpectedcreditlossesonacollective(pooled)basisforthoseloansandunfundedloancommitmentsthatsharesimilarriskcharacteristics. TheCompanyestimated the collectiveALLusing a current expected credit lossesmethodologybasedonrelevant information about historical experience, the current macroeconomic environment, and reasonable andsupportableeconomicforecaststhataffectthecollectabilityoftheloanbalances.Thequantitativeexpectedcredit lossesare the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD), andindividualloanlevelexposureatdefault(EAD)onanundiscountedbasis.TheCompanyderivesthePD,LGD,andEADfrominternal historical default and loss experience adjusted formultiple probability-weighted economic forecast scenarios ofmacroeconomicassumptionsoverareasonableandsupportableforecastperiodofthreeyears.Afterthereasonableandsupportableforecastperiod,theCompanyrevertstohistoricalaveragesusinganautoregressivemethodofmeanreversionthattrendstowardsthemeanhistoricallossovertheremainingcontractuallives,adjustedforprepayments.TheCompanyalsoappliescertainqualitativeadjustmentstotheresultsofitsquantitativemodelforasset-specificriskcharacteristics,andcurrentconditionsandreasonableandsupportableforecastsbasedonitsexpectationoftherisksthatmayleadtofutureloan lossexperiencedifferentfromitshistorical loan lossexperience.Theseadjustmentsarebasedonqualitativefactorsnotreflected in thequantitativemodelbutareexpectedto impact theestimateofcredit losses. InordertocapturetheuniquerisksoftheloanportfoliowithinthePD,LGD,EADmodel,theCompanysegmentstheportfolio intopoolsandbycreditriskrating.TheCompanyestimatedthecollectiveAULCusingasimilarmethodologyasthecollectiveALLadjustedbythe probability of an unfunded loan commitment being funded. Certain qualitative adjustments to historical lossinformationarealsoappliedtothecollectiveAULC.
WeidentifiedtheassessmentoftheDecember31,2020collectiveALLandcollectiveAULCasacriticalauditmatter.Ahighdegreeofauditeffort, includingspecializedskillsandknowledge,andsubjectiveandcomplexauditor judgmentwasinvolvedintheassessmentduetomeasurementuncertainty.Specifically,theassessmentencompassedtheevaluationofthe methodology, including the methods and model used to estimate (1) the PD, LGD, and EAD and their significantassumptionsandinputs,and(2)certainqualitativeadjustments.Significantassumptionsandinputsincludetheeconomicforecast scenarios of macroeconomic assumptions and their weightings, the historical observation period, portfoliosegmentation, and credit risk ratings. The assessment also included an evaluation of the conceptual soundness andperformanceofthePD,LGD,andEADmodel.Auditorjudgmentwasrequiredtoevaluatethesufficiencyofauditevidenceobtained.
Thefollowingaretheprimaryproceduresweperformedtoaddressthiscriticalauditmatter.WeevaluatedthedesignandtestedtheoperatingeffectivenessofcertaininternalcontrolsrelatedtotheCompany’smeasurementoftheDecember31,2020collectiveALLandcollectiveAULCestimates,includingcontrolsoverthe:
• periodicreviewandmonitoringofthecollectiveALLandthecollectiveAULCmethodology
• identificationanddeterminationofsignificantassumptionsusedinthePD,LGD,andEADmodel
TableofContents
99
• evaluation of the qualitative adjustments, including significant assumptions used in the measurement of thequalitativeadjustments
• determinationofcreditriskratings
• analysisofthecollectiveALLandcollectiveAULCresults,trends,andratios.
WeevaluatedtheCompany’sprocesstodeveloptheDecember31,2020collectiveALLandcollectiveAULCestimatesbytestingcertainsourcesofdata,qualitativefactorsandassumptionsthattheCompanyused,andconsideredtherelevanceand reliability of such data, qualitative factors, and assumptions. In addition, we involved credit risk professionals withspecializedskillsandknowledgewhoassistedin:
• evaluatingthattheCompany’scollectiveALLandcollectiveAULCmethodologyandkeyassumptionsforcompliancewithU.S.generallyacceptedaccountingprinciples
• assessing the conceptual soundness and performance of the PD, LGD, and EAD model by inspecting the modeldocumentationtodeterminewhetherthemodelissuitablefortheintendeduse
• evaluatingthemethodologyusedtodevelopthequalitativefactorsandtheeffectofthosefactorsonthecollectiveALLandthecollectiveAULCcomparedwithrelevantcreditriskfactorsandconsistencywithcredittrendsassociatedwiththeCompany’sportfolio
• evaluating the historical observation period, focusing on the relevance of the full economic cycle relative to theCompany’scurrentportfolio
• evaluating the approach to incorporate macroeconomic forecast assumptions in the PD, LGD, EAD model withrespecttotheCompany’sbusinessenvironmentandtheloanproductsusedacrosstheindustry
• evaluatingmodelvalidationfindingsandassessingtheirpossibleimpact,ifany
• determiningwhethertheloanportfolioissegmentedbysimilarriskcharacteristicsbycomparingtotheCompany’sbusinessandenvironmentandrelevantindustrypractices
• testingindividualcreditriskratingsforaselectionofloanandunfundedloancommitmentborrowerrelationshipsbyevaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees orunderlyingcollateral,asapplicable.
We also assessed the sufficiency of the audit evidence obtained related to the December 31, 2020 collective ALL andcollectiveAULCestimatesbyevaluatingthe:
• cumulativeresultsoftheauditprocedures
• qualitativeaspectsoftheCompany’saccountingpractices
• potentialbiasintheaccountingestimates.
/s/KPMGLLP
WehaveservedastheCompany'sauditorsince1994.SanFrancisco,CaliforniaMarch1,2021
TableofContents
100
SVBFINANCIALGROUPANDSUBSIDIARIES
CONSOLIDATEDBALANCESHEETS
December31,
(Dollarsinthousands,exceptparvalueandsharedata) 2020 2019
Assets
Cashandcashequivalents $ 17,674,763 $ 6,781,783
Available-for-salesecurities,atfairvalue(costof$30,244,896and$13,894,348,respectively) 30,912,438 14,014,919
Held-to-maturitysecurities,atamortizedcostandnetofallowanceforcreditlossesof$392and$0(fairvalueof$17,216,871and$14,115,272,respectively)(1) 16,592,153 13,842,946
Non-marketableandotherequitysecurities 1,802,235 1,213,829
Totalinvestmentsecurities 49,306,826 29,071,694
Loans,amortizedcost 45,181,488 33,164,636
Allowanceforcreditlosses:loans (447,765) (304,924)
Netloans 44,733,723 32,859,712
Premisesandequipment,netofaccumulateddepreciationandamortization 175,818 161,876
Goodwill 142,685 137,823
Otherintangibleassets,net 61,435 49,417
Leaseright-of-useassets 209,932 197,365
Accruedinterestreceivableandotherassets 3,205,825 1,745,233
Totalassets $ 115,511,007 $ 71,004,903
Liabilitiesandtotalequity
Liabilities:
Noninterest-bearingdemanddeposits $ 66,519,240 $ 40,841,570
Interest-bearingdeposits 35,462,567 20,916,237
Totaldeposits 101,981,807 61,757,807
Short-termborrowings 20,553 17,430
Leaseliabilities 259,554 218,847
Otherliabilities 3,971,974 2,041,752
Long-termdebt 843,628 347,987
Totalliabilities 107,077,516 64,383,823
Commitmentsandcontingencies(Note21andNote27)
SVBFGstockholders’equity:
Preferredstock,$0.001parvalue,20,000,000sharesauthorized;350,000and350,000sharesissuedandoutstanding,respectively 340,138 340,138
Commonstock,$0.001parvalue,150,000,000sharesauthorized;51,888,463and51,655,607sharesissuedandoutstanding,respectively 52 52
Additionalpaid-incapital 1,585,244 1,470,071
Retainedearnings 5,671,749 4,575,601
Accumulatedothercomprehensiveincome 622,517 84,445
TotalSVBFGstockholders’equity 8,219,700 6,470,307
Noncontrollinginterests 213,791 150,773
Totalequity 8,433,491 6,621,080
Totalliabilitiesandtotalequity $ 115,511,007 $ 71,004,903
(1) PriortoouradoptionofAccountingStandardUpdate(ASU2016-13,FinancialInstruments-CreditLosses(Topic326):MeasurementofCreditLossesonFinancialInstruments)onJanuary1,2020,theallowanceforcreditlossesrelatedtoheld-to-maturity(HTM)securitieswasnotapplicableandisthereforepresentedaszeroatDecember31,2019.See"AdoptionofNewAccountingStandards"inNote2—“SummaryofSignificantAccountingPolicies”foradditionaldetails.
Seeaccompanyingnotestotheconsolidatedfinancialstatements.
TableofContents
101
SVBFINANCIALGROUPANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFINCOME
YearendedDecember31,
(Dollarsinthousands,exceptpershareamounts) 2020 2019 2018
Interestincome:
Loans $ 1,520,021 $ 1,599,165 $ 1,358,480
Investmentsecurities:
Taxable 634,992 568,851 541,605
Non-taxable 61,055 44,952 34,616Federalfundssold,securitiespurchasedunderagreementstoresellandothershort-term
investmentsecurities 25,542 96,440 35,208
Totalinterestincome 2,241,610 2,309,408 1,969,909
Interestexpense:
Deposits 60,219 177,672 29,306
Borrowings 25,107 35,135 46,615
Totalinterestexpense 85,326 212,807 75,921
Netinterestincome 2,156,284 2,096,601 1,893,988
Provisionforcreditlosses 219,510 106,416 87,870
Netinterestincomeafterprovisionforcreditlosses 1,936,774 1,990,185 1,806,118
Noninterestincome:
Gainsoninvestmentsecurities,net 420,752 134,670 88,094
Gainsonequitywarrantassets,net 237,428 138,078 89,142
Clientinvestmentfees 132,200 182,068 130,360
Foreignexchangefees 178,733 159,262 138,812
Creditcardfees 97,737 118,719 94,072
Depositservicecharges 90,336 89,200 76,097
Lendingrelatedfees 57,533 49,920 41,949
Lettersofcreditandstandbylettersofcreditfees 46,659 42,669 34,600
Investmentbankingrevenue 413,985 195,177 —
Commissions 66,640 56,346 —
Other 98,145 55,370 51,858
Totalnoninterestincome 1,840,148 1,221,479 744,984
Noninterestexpense:
Compensationandbenefits 1,318,457 989,734 726,980
Professionalservices 247,084 205,479 158,835
Premisesandequipment 127,125 96,770 77,918
Netoccupancy 100,889 69,279 54,753
Businessdevelopmentandtravel 23,724 68,912 48,180
FDICandstateassessments 27,587 18,509 34,276
Other 190,175 152,579 87,251
Totalnoninterestexpense 2,035,041 1,601,262 1,188,193
Incomebeforeincometaxexpense 1,741,881 1,610,402 1,362,909
Incometaxexpense 447,587 425,685 351,561
Netincomebeforenoncontrollinginterests 1,294,294 1,184,717 1,011,348
Netincomeattributabletononcontrollinginterests (85,926) (47,861) (37,508)
Preferredstockdividends (17,151) — —
Netincomeavailabletocommonstockholders $ 1,191,217 $ 1,136,856 $ 973,840
Earningspercommonshare—basic $ 23.05 $ 21.90 $ 18.35
Earningspercommonshare—diluted 22.87 21.73 18.11
Seeaccompanyingnotestotheconsolidatedfinancialstatements.
TableofContents
102
SVBFINANCIALGROUPANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOME
YearendedDecember31,(Dollarsinthousands) 2020 2019 2018
Netincomebeforenoncontrollinginterests $ 1,294,294 $ 1,184,717 $ 1,011,348
Othercomprehensiveincome(loss),netoftax:
Changeinforeigncurrencycumulativetranslationgainsandlosses:
Foreigncurrencytranslationgains(losses) 16,467 3,208 (5,999)
Relatedtax(expense)benefit (4,621) (889) 1,669
Changeinunrealizedgainsandlossesonavailable-for-salesecurities:
Unrealizedholdinggains(losses) 606,038 189,813 (22,348)
Relatedtax(expense)benefit (168,521) (52,697) 6,315
Reclassificationadjustmentfor(gains)lossesincludedinnetincome (61,165) 3,905 740
Relatedtaxexpense(benefit) 16,953 (1,087) (205)
ReclassificationofunrealizedgainsonequitysecuritiestoretainedearningsforASU2016-01 — — (40,316)
Relatedtaxexpense — — 11,145
Amortizationofunrealizedholdinglosses(gains)onsecuritiestransferredfromavailable-for-saletoheld-to-maturity 2,104 (2,158) (4,607)
Relatedtax(expense)benefit (586) 600 1,277
ReclassificationofstrandedtaxeffecttoretainedearningsforASU2018-02 — — (319)
Changeinunrealizedgainsandlossesoncashflowhedges:
Unrealizedgains(losses) 231,920 (8,305) —
Relatedtax(expenses)benefit (64,281) 2,306 —
Reclassificationadjustmentfor(gains)lossesincludedinnetincome (49,928) 5,358 —
Relatedtaxexpense(benefit) 13,692 (1,489) —
Othercomprehensiveincome(loss),netoftax 538,072 138,565 (52,648)
Comprehensiveincome 1,832,366 1,323,282 958,700
Comprehensiveincomeattributabletononcontrollinginterests (85,926) (47,861) (37,508)
ComprehensiveincomeattributabletoSVBFG $ 1,746,440 $ 1,275,421 $ 921,192
Seeaccompanyingnotestotheconsolidatedfinancialstatements.
TableofContents
103
SVBFINANCIALGROUPANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFSTOCKHOLDERS’EQUITY
PreferredStock
CommonStockAdditional
Paid-inCapitalRetainedEarnings
AccumulatedOtherComprehensiveIncome(Loss)
TotalSVBFGStockholders’
EquityNoncontrolling
Interests TotalEquity(Dollarsinthousands,exceptsharedata) Shares Amount
BalanceatDecember31,2017 $ — 52,835,188 $ 53 $ 1,314,377 $ 2,866,837 $ (1,472) $ 4,179,795 $ 139,620 $ 4,319,415
CumulativeadjustmentforASU2014-09,netoftax — — — — (5,802) — (5,802) — (5,802)
CumulativeadjustmentforASU2016-01,netoftax — — — — 103,766 (29,171) 74,595 — 74,595
ReclassificationofstrandedtaxeffectforASU2018-02 — — — — 319 (319) — — —
Commonstockissuedunderemployeebenefitplans,netofrestrictedstockcancellations — 456,845 1 15,809 — — 15,810 — 15,810
CommonstockissuedunderESOP — 9,672 — 2,577 — — 2,577 — 2,577
Netincome — — — — 973,840 — 973,840 37,508 1,011,348
Capitalcallsanddistributions,net — — — — — — — (28,494) (28,494)
NetchangeinunrealizedgainsandlossesonAFSsecurities,netoftax — — — — — (15,498) (15,498) — (15,498)
AmortizationofunrealizedgainsonsecuritiestransferredfromAFStoHTM,netoftax — — — — — (3,330) (3,330) — (3,330)
Foreigncurrencytranslationadjustments,netoftax — — — — — (4,330) (4,330) — (4,330)
Share-basedcompensation,net — — — 45,675 — — 45,675 — 45,675
Commonstockrepurchases — (715,207) (1) — (147,122) — (147,123) — (147,123)
BalanceatDecember31,2018 $ — 52,586,498 $ 53 $ 1,378,438 $ 3,791,838 $ (54,120) $ 5,116,209 $ 148,634 $ 5,264,843
Cumulativeadjustmentfortheadoptionofpremiumamortizationonpurchasedcallabledebtsecurities(ASU2017-08)(1) — — — — (583) — (583) — (583)
AcquisitionofSVBLeerink — — — — — — — 5,256 5,256
Commonstockissuedunderemployeebenefitplans,netofrestrictedstockcancellations — 586,877 — 21,312 — — 21,312 — 21,312
CommonstockissuedunderESOP — 14,442 — 3,506 — — 3,506 — 3,506
IssuanceofSeriesAPreferredStock 340,138 — — — — — 340,138 — 340,138
Netincome — — — — 1,136,856 — 1,136,856 47,861 1,184,717
Capitalcallsanddistributions,net — — — — — — — (50,978) (50,978)
NetchangeinunrealizedgainsandlossesonAFSsecurities,netoftax — — — — — 139,934 139,934 — 139,934
AmortizationofunrealizedgainsonsecuritiestransferredfromAFStoHTM,netoftax — — — — — (1,558) (1,558) — (1,558)
Foreigncurrencytranslationadjustments,netoftax — — — — — 2,319 2,319 — 2,319
Netchangeinunrealizedgainsandlossesoncashflowhedges,netoftax — — — — — (2,130) (2,130) — (2,130)
Share-basedcompensation,net — — — 66,815 — — 66,815 — 66,815
Commonstockrepurchases — (1,532,210) (1) — (352,510) — (352,511) — (352,511)
BalanceatDecember31,2019 $ 340,138 51,655,607 $ 52 $ 1,470,071 $ 4,575,601 $ 84,445 $ 6,470,307 $ 150,773 $ 6,621,080
CumulativeadjustmentforthedayoneadoptionofASC326,netoftax(1) — — — — (35,049) — (35,049) — (35,049)
Commonstockissuedunderemployeebenefitplans,netofrestrictedstockcancellations — 464,985 — 28,699 — — 28,699 — 28,699
CommonstockissuedunderESOP — 12,094 — 2,447 — — 2,447 — 2,447
Netincome — — — — 1,208,368 — 1,208,368 85,926 1,294,294
Capitalcallsanddistributions,net — — — — — — — (22,908) (22,908)
NetchangeinunrealizedgainsandlossesonAFSsecurities,netoftax — — — — — 393,305 393,305 — 393,305
AmortizationofunrealizedgainsonsecuritiestransferredfromAFStoHTM,netoftax — — — — — 1,518 1,518 — 1,518
Foreigncurrencytranslationadjustments,netoftax — — — — — 11,846 11,846 — 11,846
Netchangeinunrealizedgainsandlossesoncashflowhedges,netoftax — — — — — 131,403 131,403 — 131,403
Share-basedcompensation,net — — — 83,986 — — 83,986 — 83,986
Commonstockrepurchases — (244,223) — — (60,020) — (60,020) — (60,020)
Dividendsonpreferredstock — — — — (17,151) — (17,151) — (17,151)
Other,net — — — 41 — — 41 — 41
BalanceatDecember31,2020 $ 340,138 51,888,463 $ 52 $ 1,585,244 $ 5,671,749 $ 622,517 $ 8,219,700 $ 213,791 $ 8,433,491
(1) SeeNote2-"SummaryofSignificantAccountingPolicies"foradditionaldetails.Seeaccompanyingnotestotheconsolidatedfinancialstatements.
TableofContents
104
SVBFINANCIALGROUPANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFCASHFLOWS
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Cashflowsfromoperatingactivities:
Netincomebeforenoncontrollinginterests $ 1,294,294 $ 1,184,717 $ 1,011,348
Adjustmentstoreconcilenetincometonetcashprovidedbyoperatingactivities:
Provisionforcreditlosses 219,510 106,416 87,870
Changesinfairvalueofequitywarrantassets,netofproceedsfromexercises (2,347) 2,240 (24,417)
Changesinfairvaluesofderivatives,net (48,013) (18,506) (11,043)
Gainsoninvestmentsecurities,net (420,752) (134,670) (88,094)
Distributionsofearningsfromnon-marketableandotherequitysecurities 85,587 95,131 72,015
Depreciationandamortization 100,840 82,717 57,906
Amortizationofpremiumsanddiscountsoninvestmentsecurities,net 75,178 15,513 (28)
Amortizationofshare-basedcompensation 83,986 66,815 45,675
Amortizationofdeferredloanfees (173,975) (155,429) (128,077)
Deferredincometaxexpense(benefit) 6,911 (3,072) (21,061)
Excesstaxbenefitfromexerciseofstockoptionsandvestingofrestrictedshares (5,857) (9,588) (17,989)
Lossesfromthewrite-offofpremisesandequipmentandright-of-useassets 30,170 5,219 7,278
Otherlosses — 8,959 —
Changesinotherassetsandliabilities:
Accruedinterestreceivableandpayable,net (26,205) (24,189) (55,834)
Accountsreceivableandpayable,net 18,765 (17,019) (23,020)
Incometaxreceivableandpayable,net 97,607 (11,630) (5,820)
Accruedcompensation 190,983 (15,253) 56,874
Foreignexchangespotcontracts,net (20,790) 59,998 24,018
Proceedsfromterminationofinterestrateswaps 227,500 — —
Other,net (287,905) (74,240) (54,039)
Netcashprovidedbyoperatingactivities 1,445,487 1,164,129 933,562
Cashflowsfrominvestingactivities:
Purchasesofavailable-for-salesecurities (23,207,791) (9,872,095) (668,264)
Proceedsfromsalesofavailable-for-salesecurities 2,654,212 2,189,087 474,482
Proceedsfrommaturitiesandpaydownsofavailable-for-salesecurities 4,183,888 1,643,357 3,436,064
Purchasesofheld-to-maturitysecurities (6,778,370) (492,502) (4,726,595)
Proceedsfrommaturitiesandpaydownsofheld-to-maturitysecurities 4,035,952 2,124,513 1,891,761
Purchasesofnon-marketableandotherequitysecurities (201,293) (136,186) (81,574)
Proceedsfromsalesanddistributionsofcapitalofnon-marketableandotherequitysecurities 148,224 113,526 95,025
Netincreaseinloans (11,926,436) (4,773,775) (5,175,409)
Purchasesofpremisesandequipment (87,407) (65,479) (45,865)
Businessacquisitions (26,700) (102,328) —
Netcashusedforinvestingactivities (31,205,721) (9,371,882) (4,800,375)
Cashflowsfromfinancingactivities:
Netincreaseindeposits 40,224,000 12,428,907 5,074,825
Netincrease(decrease)inshort-termborrowings 3,123 (613,982) (402,318)
Principalpaymentsoflong-termdebt — (358,395) —
Proceedsfromissuanceof3.125%SeniorNotes 495,024 — —
(Distributionstononcontrollinginterests),netofcontributionsfromnoncontrollinginterests (22,908) (50,978) (28,494)
Netproceedsfromtheissuanceofpreferredstock — 340,138 —
Paymentofpreferredstockdividends (17,151) — —
Commonstockrepurchase (60,020) (352,511) (147,123)
Proceedsfromissuanceofcommonstock,ESPPandESOP 31,146 24,818 18,387
Netcashprovidedbyfinancingactivities 40,653,214 11,417,997 4,515,277
Netincreaseincashandcashequivalents 10,892,980 3,210,244 648,464
Cashandcashequivalentsatbeginningofperiod 6,781,783 3,571,539 2,923,075
Cashandcashequivalentsatendofperiod $ 17,674,763 $ 6,781,783 $ 3,571,539
Supplementaldisclosures:
Cashpaidduringtheperiodfor:
Interest $ 83,746 $ 217,961 $ 75,601
Incometaxes 299,175 422,346 376,425
Noncashitemsduringtheperiod:
Changesinunrealizedgainsandlossesonavailable-for-salesecurities,netoftax $ 393,305 $ 139,934 $ (15,498)
Distributionsofstockfrominvestments 11,913 8,917 5,277
Seeaccompanyingnotestotheconsolidatedfinancialstatements.
TableofContents
105
SVB FINANCIAL GROUP AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NatureofBusiness
SVBFinancialGroupisadiversifiedfinancialservicescompany,aswellasabankholdingcompanyandafinancialholdingcompany. SVB Financial was incorporated in the state of Delaware inMarch 1999. Through our various subsidiaries anddivisions,weofferadiversesetofbankingandfinancialproductsandservicestosupportourclientsofallsizesandstagesthroughouttheirlifecycles.Inthesenotestoourconsolidatedfinancialstatements,whenwereferto“SVBFinancialGroup,”“SVBFG”, the “Company,” “we,” “our,” “us” or use similarwords,wemean SVB FinancialGroup and all of its subsidiariescollectively, including Silicon Valley Bank (the “Bank”), unless the context requires otherwise. When we refer to “SVBFinancial” or the “Parent” we are referring only to the parent company entity, SVB Financial Group (not includingsubsidiaries).
Weoffercommercialbankingproductsandservices throughourprincipal subsidiary, theBank,which isaCalifornia-charteredbankfoundedin1983andamemberoftheFederalReserveSystem.Throughitssubsidiaries,theBankalsooffersassetmanagement, privatewealthmanagement and other investment services. In addition, through SVB Financial's othersubsidiariesanddivisions,weoffer investmentbankingandnon-bankingproductsandservices,suchasfundsmanagementand M&A advisory services. We primarily focus on serving corporate clients in the following industries: technology, lifescience/healthcare,privateequity/venturecapitalandpremiumwine.Ourcorporateclientsrangewidelyintermsofsizeandstageofmaturity.Additionally,wefocusoncultivatingstrongrelationshipswithfirmswithintheventurecapitalandprivateequitycommunityworldwide,manyofwhicharealsoourclientsandmayinvestinourcorporateclients.
Headquartered in Santa Clara, California, we operate in centers of innovation in the United States and around theworld.
Forreportingpurposes,SVBFinancialGrouphasfouroperatingsegmentsforwhichwereportfinancialinformationinthisreport:GlobalCommercialBank,SVBPrivateBank,SVBCapitalandSVBLeerink.
2. SummaryofSignificantAccountingPolicies
UseofEstimatesandAssumptions
ThepreparationofconsolidatedfinancialstatementsinconformitywithGAAPrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresults coulddiffer fromthoseestimates.Estimatesmaychangeasnew information isobtained. Items thatare subject tosuch estimates include: 1) measurements of fair value, which include the valuation of non-marketable and other equitysecuritiesandthevaluationofequitywarrantassets,2)incometaxes,and3)theadequacyoftheallowanceforcreditlossesfor loans and the allowance for credit losses for unfunded credit commitments. The following discussion of significantaccountingpoliciesincludesfurtherdetailsregardingtheseestimates.
PrinciplesofConsolidationandPresentation
Our consolidated financial statements include the accounts of SVB Financial Group and consolidated entities. Weconsolidatevotingentitiesinwhichwehavecontrolthroughvotinginterestsorentitiesthroughwhichwehaveacontrollingfinancialinterestinavariableinterestentity("VIE").WedeterminewhetherwehaveacontrollingfinancialinterestinaVIEbydetermining ifwehave(a)thepowertodirecttheactivitiesoftheVIEthatmostsignificantly impacttheentity’seconomicperformance,(b)theobligationtoabsorbtheexpectedlossesor(c)therighttoreceivetheexpectedreturnsoftheentity.Generally, we have significant variable interests if our commitments to a limited partnership investment represent asignificant amount of the total commitments to the entity. We also evaluate the impact of related parties on ourdetermination of variable interests in our consolidation conclusions. We consolidate VIEs in which we are the primarybeneficiarybasedonacontrolling financial interest. Ifwearenot theprimarybeneficiaryofaVIE,werecordourpro-ratainterestsbasedonourownershippercentage.
VIEsareentitieswhere investors lacksufficientequityatrisk fortheentityto finance itsactivitieswithoutadditionalsubordinatedfinancialsupportorequityinvestorsand,asagroup,lackoneofthefollowingcharacteristics:(a)thepowertodirect the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb theexpectedlossesoftheentityor(c)therighttoreceivetheexpectedreturnsoftheentity.WeassessVIEstodetermineifweare the primary beneficiary of a VIE. A primary beneficiary is defined as a variable interest holder that has a controllingfinancial interest.Acontrolling financial interest requiresboth: (a) thepower todirect theactivities thatmost significantly
TableofContents
106
impact the VIEs economic performance, and (b) the obligation to absorb losses or receive benefits of a VIE that couldpotentiallybesignificanttoaVIE.Underthisanalysis,wealsoevaluatekick-outrightsandotherparticipatingrights,whichcouldprovideusacontrollingfinancialinterest.TheprimarybeneficiaryofaVIEisrequiredtoconsolidatetheVIE.
Wealsoevaluate feespaid tomanagersofour limitedpartnership investments.Weexcludethose feearrangementsthat are not deemed to be variable interests from the analysis of our interests in our investments in VIEs and thedeterminationofaprimarybeneficiary,ifany.Feearrangementsbasedontermsthatarecustomaryandcommensuratewiththeservicesprovidedaredeemednottobevariableinterestsandare,therefore,excluded.
Allsignificant intercompanyaccountsandtransactionswithconsolidatedentitieshavebeeneliminated.Wehavenotprovided financial or other support during the periods presented to any VIE that we were not previously contractuallyrequiredtoprovide.
CashandCashEquivalents
Cashandcashequivalentsconsistofcashonhand,cashbalancesdue frombanks, interest-earningdeposits,FederalReserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investmentsecurities. For the consolidated statementsof cash flows,we consider cashequivalents tobe investments thatare readilyconvertibletoknownamountsofcash,soneartotheirmaturitythattheypresentaninsignificantriskofchangeinfairvalueduetochangesinmarketinterestrates,andpurchasedinconjunctionwithourcashmanagementactivities.
InvestmentSecurities
Available-for-SaleSecuritiesandtheAllowanceforCreditLossesonAvailable-for-SaleSecurities
Ouravailable-for-salesecuritiesportfolioisafixedincomeinvestmentportfoliothatismanagedtoearnanappropriateportfolio yield over the long-term while maintaining sufficient liquidity and credit diversification and meeting our asset/liability management objectives. Unrealized gains and losses on available-for-sale securities, net of applicable taxes, arereportedinaccumulatedothercomprehensiveincome,whichisaseparatecomponentofSVBFG'sstockholders'equity,untilrealized.
We analyze available-for-sale securities for impairment related to credit losses each quarter. Market valuationsrepresentthecurrentfairvalueofasecurityataspecifiedpointintimeandincorporatestheriskoftimingofinterestdueandthereturnofprincipaloverthecontractual lifeofeachsecurity.Gainsandlossesonsecuritiesarerealizedwhenthereisasaleof thesecurityprior tomaturity.Acredit impairment is recognizedthroughavaluationallowanceagainst thesecuritywithanoffset throughearnings; theallowance is limited to theamount that fair value, calculatedas thepresent valueofexpected future cash flow discounted at the security’s effective interest rate, is less than the amortized cost basis. Weseparatetheamountoftheimpairmentrelatedtocreditlosses,ifany,andtheamountduetoallotherfactors.ThecreditlosscomponentisrecognizedinearningsandrecordedasanallowanceforcreditlossesforAFSsecurities.
Weconsidernumerousfactorsindeterminingwhetheracreditlossexistsandtheperiodoverwhichthedebtsecurityisexpectedtorecover.Thefollowinglistisnotmeanttobeallinclusive.Allofthefollowingfactorsareconsidered:
• Thelengthoftimeandtheextenttowhichthefairvaluehasbeenlessthantheamortizedcostbasis(severityandduration);
• Adverseconditionsspecificallyrelatedtothesecurity,anindustryorgeographicarea;forexample,changesinthefinancial conditionof the issuerof the security,or in thecaseofanasset-backeddebt security, changes in thefinancialconditionoftheunderlyingloanobligors.Examplesofthosechangesincludeanyofthefollowing:
◦ Changesintechnology;◦ Thediscontinuanceofasegmentof thebusiness thatmayaffect the futureearningspotentialof the
issuerorunderlyingloanobligorsofthesecurity;and◦ Changesinthequalityofthecreditenhancement.
• Thehistoricalandimpliedvolatilityofthefairvalueofthesecurity;
• Thepayment structureof thedebt security and the likelihoodof the issuerbeing able tomakepayments thatincreaseinthefuture;
• Failureoftheissuerofthesecuritytomakescheduledinterestorprincipalpayments;
• Anychangestotheratingofthesecuritybyaratingagency;and
• Recoveriesoradditionaldeclinesinfairvalueafterthebalancesheetdate.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
107
InaccordancewithASC310-20,Receivables-NonrefundableFeesandOtherCosts,weuseestimatesoffutureprincipalprepayments,providedbythird-partymarket-datavendors,inadditiontoactualprincipalprepaymentexperiencetocalculatethe constant effective yieldnecessary to apply the effective interestmethod in the amortizationof purchasediscounts orpremiumsonmortgage-backedsecuritiesandfixedratecollateralizedmortgageobligations.Theaccretionandamortizationof discounts and premiums, respectively, are included in interest income over the contractual terms of the underlyingsecuritiesreplicatingtheeffectiveinterestmethod.
Held-to-MaturitySecuritiesandtheAllowanceforCreditLossesonHeld-to-MaturitySecurities
Debtsecuritiespurchasedwith thepositive intentandability tohold to itsmaturityareclassifiedasheld-to-maturitysecuritiesandarerecordedatamortizedcost,netofanyallowanceforcreditlosses.
EffectiveJanuary1,2020,wemeasureexpectedcreditlosses("ECL")onheld-to-maturitysecuritiesonacollectivebasisby major security type and standard credit rating. Our held-to-maturity securities portfolio, with the exception of ourmunicipal bond portfolio, are either explicitly or implicitly guaranteed by the U.S. government, are highly rated bymajorratingagenciesandhavealonghistoryofnocreditlosses.Withrespecttothesesecurities,weconsidertheriskofcreditlosstobezeroand,therefore,wedonotrecordanECL.OurmunicipalbondportfolioprimarilyconsistsofhighlyratedbondsandcurrentlycarryratingsnolowerthanAa2.TheestimateofECLonourmunicipalbondportfolioconsidershistoricalcreditlossinformation and severity of loss in the event of default and leverages external data adjusted for current conditions. Areasonableandsupportableforecastperiodofoneyearisappliedtoourmunicipalbondportfolio,withimmediatereversiontolong-termaveragehistoricallossrateswhenremainingcontractuallivesofsecuritiesexceedoneyear.WedonotestimateECL on accrued interest receivable ("AIR") fromheld-to-maturity securities as AIR is reversed orwritten offwhen the fullcollection of the AIR related to a security becomes doubtful. AIR fromheld-to-maturity securities totaled $55.0million atDecember31,2020and$45.2millionatDecember31,2019andisexcludedfromtheamortizedcostdisclosureswithinourHTMsecuritydisclosuresinNote8—“InvestmentSecurities”asitisincludedandreportedseparatelywithin"Accruedinterestreceivableandotherassets"inourconsolidatedbalancesheets.
Expectedcreditlossonmunicipalbondsthatdonotsharecommonriskcharacteristicswithourcollectiveportfolioareindividuallymeasuredbasedonnetrealizablevalue,orthedifferencebetweenthediscountedvalueoftheexpectedfuturecashflowsandtherecordedamortizedcostbasisofthesecurity.
PriortotheadoptionofCECL,weappliedtheother-than-temporaryimpairmentstandardsofASC320,Investment-DebtandEquitySecurities,forourheld-to-maturitysecurities.ForperiodspriortoJanuary1,2020,weseparatedtheamountoftheother-than-temporaryimpairment,ifany,intotheamountthatiscreditrelated(creditlosscomponent)andtheamountdue to all other factors. The credit loss component is recognized in earnings and is the difference between a security'samortizedcostbasisandthepresentvalueofexpectedfuturecashflowsdiscountedatthesecurity'seffectiveinterestrate.Theamountduetoallotherfactorsisrecognizedinothercomprehensiveincome.
Transfersofinvestmentsecuritiesintotheheld-to-maturitycategoryfromtheavailable-for-salecategoryaremadeatfairvalueatthedateoftransfer.Thenetunrealizedgains,netoftax,areretainedinothercomprehensiveincome,andthecarryingvalueoftheheld-to-maturitysecuritiesareamortizedoverthelifeofthesecuritiesinamannerconsistentwiththeamortizationofapremiumordiscount.
Non-MarketableandOtherEquitySecurities
Non-marketableandotherequitysecuritiesincludeinvestmentsinventurecapitalandprivateequityfunds,SPD-SVB,debtfunds,privateandpublicportfoliocompanies,includingpublicequitysecuritiesheldasaresultofequitywarrantassetsexercised,andinvestmentsinqualifiedaffordablehousingprojects.AmajorityoftheseinvestmentsaremanagedthroughourSVBCapitalfundsbusinessinfundsoffundsanddirectventurefunds.Ouraccountingforinvestmentsinnon-marketableandotherequitysecuritiesdependsonseveralfactors,includingthelevelofownership,powertocontrolandthelegalstructureofthesubsidiarymakingtheinvestment.Asfurtherdescribedbelow,webaseouraccountingforsuchsecuritieson:(i) fairvalue accounting, (ii)measurement alternative for other investmentswithout a readily determinable fair value, (iii) equitymethod accounting and (iv) the proportional amortization method which is used only for qualified affordable housingprojects.
FairValueAccounting
OurmanagedfundsareinvestmentcompaniesundertheAICPAAuditandAccountingGuideforInvestmentCompanies(codifiedinASC946)andaccordingly,thesefundsreporttheirinvestmentsatestimatedfairvalue,withunrealizedgainsandlossesresultingfromchangesinfairvaluereflectedasinvestmentgainsorlossesinourconsolidatedstatementsofincome.Our non-marketable and other equity securities recorded pursuant to fair value accounting consist of our investmentsthroughourmanagedfundsoffunds,whichmakeinvestmentsinventurecapitalandprivateequityfunds.Asummaryofour
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
108
ownershipinterestsintheinvestmentsheldunderfairvalueaccountingasofDecember31,2020ispresentedinthefollowingtable:
Limitedpartnership
CompanyDirectandIndirectOwnershipinLimited
Partnership
Managedfundsoffunds
StrategicInvestorsFund,LP 12.6%
CapitalPreferredReturnFund,LP 20.0
GrowthPartners,LP 33.0
Thegeneralpartner interestsof thesefundsarecontrolled,and insomecases,ownedbySVBFinancial.The limitedpartnersofthesefundsdonothavesubstantiveparticipatingorkick-outrights.Therefore,thesefundsareconsolidatedandanygainsorlossesresultingfromchangesintheestimatedfairvalueoftheinvestmentsarerecordedasinvestmentgainsorlossesinourconsolidatednetincome.
Under fair value accounting, investments are carried at their estimated fair value based on financial informationobtained as the general partner of the fund or obtained from the funds' respective general partner. For direct privatecompanyinvestments,valuationsarebaseduponconsiderationofarangeoffactorsincluding,butnotlimitedto,thepriceatwhichtheinvestmentwasacquired,thetermandnatureoftheinvestment,localmarketconditions,valuesforcomparablesecurities, current and projected operating performance, exit strategies and financing transactions subsequent to theacquisition of the investment. For direct equity investments in public companies, valuations are based on quotedmarketpriceslessadiscountifthesecuritiesaresubjecttocertainsalesrestrictions.Salesrestrictiondiscountsgenerallyrangefromten to twenty depending on the sale restrictions which typically range from three to six months. The valuation of non-marketable securities in shares of private company capital stock and the valuation of other securities in shares of publiccompany stockwith certain sales restrictions is subject to significant judgment. The inherentuncertainty in theprocessofvaluing securities for which a ready market does not exist may cause our estimated values of these securities to differsignificantly from the values that would have been derived had a ready market for the securities existed, and thosedifferencescouldbematerial.
Forourfundinvestments,weutilizethenetassetvalueasobtainedfromthegeneralpartnersofthefundinvestmentsas the funds do not have a readily determinable fair value. The general partners of our fund investments prepare theirfinancial statements using guidance consistent with fair value accounting. We account for differences between ourmeasurement date and the date of the fund investment's net asset value by using the most recent available financialinformation from the investee general partner, for example September 30th, for our December 31st consolidated financialstatements.Weadjust thevalueofour investments foranycontributionspaid,distributions received fromthe investmentandknownsignificant fund transactionsormarketeventsaboutwhichweareaware through informationprovidedby thefundmanagersorfrompubliclyavailabletransactiondataduringthereportingperiod.
Gainsorlossesresultingfromchangesintheestimatedfairvalueoftheinvestmentsandfromdistributionsreceivedarerecordedasgainsoninvestmentsecurities,net,acomponentofnoninterestincome.Theportionofanyinvestmentgainsorlossesattributabletothelimitedpartnersisreflectedasnetincomeattributabletononcontrollinginterestsandadjustsournetincometoreflectitspercentageownership.
OtherInvestmentswithoutaReadilyDeterminableFairValue
Our direct investments in private companies do not have a readily determinable fair value. We measure theseinvestments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderlytransactions for identical or similar investments from the same issuer. Such changes are recognized throughearnings.Weconsidera rangeof factorswhenadjusting the fairvalueof these investments, including,butnot limited to, the termandnature of the investment, local market conditions, values for comparable securities, current and projected operatingperformance,financingtransactionssubsequenttotheacquisitionoftheinvestmentandadiscountforcertaininvestmentsthathavelock-uprestrictionsorotherfeaturesthatindicateadiscounttofairvalueiswarranted.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
109
EquityMethod
Our equity method non-marketable securities consist of investments in venture capital and private equity funds,privately-held companies, debt funds, and joint ventures. Our equity method non-marketable securities and relatedaccountingpoliciesaredescribedasfollows:
• Equity securities and investments in limited partnerships, such as preferred or common stock in privately-heldcompanies inwhichweholdavoting interestofat least20percent,or inwhichwehavetheabilitytoexercisesignificant influence over the investees' operating and financial policies through voting interests, boardinvolvementorotherinfluenceareaccountedforundertheequitymethod,
• Investmentsinlimitedpartnershipsinwhichweholdvotinginterestsofmorethan5percent,orinwhichwehavetheabilitytoexercisesignificant influenceoverthepartnerships'operatingandfinancialpolicies,areaccountedforusingtheequitymethod,and
• OurSPD-SVB (theBank's joint venturebank inChina)partnership, forwhichwehave50percentownership, isaccountedforundertheequitymethod.
Werecognizeourproportionateshareoftheresultsofoperationsoftheseequitymethod investees inourresultsofoperations, based on the most current financial information available from the investee. We review our investmentsaccountedforundertheequitymethodatleastquarterlyforpossibleother-than-temporaryimpairment.Ourreviewtypicallyincludesananalysisoffactsandcircumstancesforeachinvestment,theexpectationsofthe investment'sfuturecashflowsandcapitalneeds,variabilityofitsbusinessandthecompany'sexitstrategy.Forourfundinvestments,weutilizethenetassetvalue per share as provided by the general partners of the fund investments. We account for differences between ourmeasurement date and the date of the fund investment's net asset value by using the most recent available financialinformation from the investee general partner, for example September 30th, for our December 31st consolidated financialstatements.Weadjustthevalueofour investmentsforanycontributionspaid,distributionsreceivedfromthe investment,andknownsignificant fund transactionsormarketeventsaboutwhichweareaware through informationprovidedby thefundmanagersorfrompubliclyavailabletransactiondataduringthereportingperiod.
We reduceour investment valuewhenwe considerdeclines in value tobeother-than-temporary and recognize theestimatedlossasalossoninvestmentsecurities,acomponentofnoninterestincome.
ProportionalAmortizationMethod
In order to fulfill our responsibilities under the Community Reinvestment Act,we invest as a limited partner in lowincomehousingpartnershipsthatoperatequalifiedaffordablehousingprojectsandgeneratetaxbenefits, includingfederallow incomehousingtaxcredits, for investors.ThepartnershipsaredeemedtobeVIEsbecausetheydonothavesufficientequityinvestmentatriskandarestructuredwithnon-substantivevotingrights.WearenottheprimarybeneficiaryoftheVIEsanddonotconsolidatethem.Ourinvestmentsinlowincomehousingpartnershipsarerecordedinnon-marketableandotherequitysecuritieswithinour investmentsecuritiesportfolioontheconsolidatedbalancesheet.Asapracticalexpedient,weamortize the investment in proportion to the allocated tax benefits under the proportional amortization method ofaccountingandpresentsuchbenefitsnetofinvestmentamortizationinincometaxexpense.
Loans
Loansarereportedatamortizedcostwhichconsistsof theprincipalamountoutstanding,netofunearned loanfees.Unearned loan fees reflectunamortizeddeferred loanoriginationandcommitment feesnetofunamortizeddeferred loanoriginationcosts. Inadditiontocash loanfees,weoftenobtainequitywarrantassets thatgiveusanoptiontopurchaseapositioninaclientcompany'sstockinconsiderationforprovidingcreditfacilities.Thegrantdatefairvaluesoftheseequitywarrantassetsaredeemedtobe loanfeesandaredeferredasunearned incomeandrecognizedasanadjustmentof loanyield through loan interest income.Thenetamountofunearned loan fees isamortized into loan interest incomeover thecontractual termsof theunderlying loansandcommitmentsusing theconstanteffectiveyieldmethod,adjusted foractualloanprepaymentexperience,orthestraight-linemethod,asapplicable.
AllowanceforCreditLosses:Loans
TheallowanceforcreditlossesforloansconsiderscreditriskandisadjustedbyaprovisionforECLchargedtoexpenseandreducedbythecharge-offofloanamounts,netofrecoveries.Ourallowanceforcreditlossesisanestimateofexpectedlosses inherent with the Company's existing loans at the balance sheet date. Determining the appropriateness of theallowanceiscomplexandrequiresjudgmentbymanagementabouttheeffectofmattersthatareinherentlyuncertain.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
110
PortfolioSegmentsandRisk-BasedSegments
TheprocesstoestimatetheECLonloansinvolvesprocedurestoappropriatelyconsidertheuniquecharacteristicsofoursixloanportfoliosegments.Oursixportfoliosegmentsaredeterminedbyusingthefollowingriskdimensions:(i)underwritingmethodology, (ii) industryniche and (iii) life stage. The six portfolio segments are furtherdisaggregated into11 classesoffinancing receivable, or risk-based segments, and represents the level at which credit risk is monitored. Credit quality isassessedandmonitoredbyevaluatingvariousattributesandtheresultsofthoseevaluationsareutilizedinunderwritingnewloansandinourprocesstoestimateECL.Forfurther informationrefertoNote9—“LoansandAllowanceforCreditLosses:Loans and Unfunded Credit Commitments.” The following provides additional information regarding our six portfoliosegmentsandtheadditionaldisaggregationofour11risk-basedsegments:
GlobalFundBanking
ThevastmajorityofourGlobalFundBanking(formerlyPrivateEquity/VentureCapital)portfoliosegmentconsistsofcapitalcalllinesofcredit,therepaymentofwhichisdependentonthepaymentofcapitalcallsbytheunderlyinglimitedpartnerinvestorsinthefundsmanagedbycertainprivateequityandventurecapitalfirms.Thesefacilitiesaregenerallygoverned by meaningful financial covenants oriented towards ensuring that the funds' remaining callable capital issufficienttorepaytheloan,andlargercommitments(typicallyprovidedtolargerprivateequityfunds)areoftensecuredbyanassignmentofthegeneralpartner'srighttocallcapitalfromthefund'slimitedpartnerinvestors.
InvestorDependent-Accelerator(Early-Stage)andGrowth(Mid-StageandLater-Stage)
InvestorDependent loans are comprisedof twoportfolio segments: (i) Accelerator,which is comprisedof Early-Stageclients,and(ii)Growth,whichiscomprisedofMid-StageandLater-Stageclients.OurInvestorDependentloansaremadeprimarilytotechnologyandlifescience/healthcarecompanies.InvestorDependentloanstypicallyhavemodestornegative cash flows andnoestablished recordof profitableoperations. Repaymentof these loansmaybedependentupon receipt by borrowers of additional equity financing from venture capital firms or others, or in some cases, asuccessfulsaletoathirdpartyoranIPO.Venturecapitalfirmsmayprovidefinancingselectively,atreducedamounts,oron less favorable terms,whichmayhaveanadverseeffectonourborrowers'ability to repay their loans tous.Whenrepaymentisdependentuponthenextroundofventureinvestmentandthereisanindicationthatfurtherinvestmentisunlikelyorwillnotoccur,itisoftenlikelythatthecompanywouldneedtobesoldtorepaythedebtinfull.Ifreasonableeffortshavenotyieldedalikelybuyerwillingtorepayalldebtatthecloseofthesaleoroncommerciallyviableterms,theaccountwillmostlikelybedeemedtobenon-performingorcharged-off.
Our Accelerator, or Early-Stage, portfolio segment consists of pre-revenue, development-stage companies andcompanies thatare in theearlyphasesof commercialization,with revenuesofup to$5million.OurGrowthportfoliosegment isdisaggregated into two risk-based segments fordisclosurepurposes;Mid-StageandLater-Stage.Mid-Stagecompaniesconsistofgrowth-stageenterpriseswith revenuesofbetween$5millionand$15millionor, in thecaseofbiotechnology,pre-revenueclinical-stagecompanies.Later-Stageconsistsofcompanieswithrevenuesof$15millionormore.ThisdisaggregationofourInvestorDependentloansisbasedinpartonthemateriallydifferenthistoricallossratewe have experienced with each risk-based segment, with historical loss rates being the highest in the Early-Stageportfolio segment, anddeclining in theMid-Stage and Later-Stage risk-based segments, as a functionof the relativelyhigher enterprise value and asset coverage that is created as a company progresses through the various stages ofdevelopment.
CashFlowandBalanceSheetDependent
OurCash FlowandBalance SheetDependent portfolio segment is disaggregated into Cash FlowDependent andBalance Sheet Dependent loans. Additionally, our Cash Flow Dependent loans are disaggregated into two risk-basedsegments for disclosure purposes: (i) Sponsor Led Buyout and (ii) Other. Our Cash Flow Dependent loans are madeprimarily to technology and life science/healthcare companies and require the borrower tomaintain cash flow fromoperationsthatissufficienttoservicealldebt.Borrowersmustdemonstratenormalizedcashflowinexcessofallfixedchargesassociatedwithoperatingthebusiness.SponsorLedBuyout loansaretypicallyusedtoassistaselectgroupofexperienced private equity sponsorswith the acquisition of businesses, are larger in size, and repayment is generallydependentuponthecashflowsoftheacquiredcompany.Theacquiredcompaniesaretypicallyestablished,later-stagebusinesses of scale and characterized by reasonable levels of leverage with loan structures that include meaningfulfinancialcovenants.Thesponsor'sequitycontributionisoften50percentormoreoftheacquisitionprice.
Balance Sheet Dependent loans aremade primarily to technology and life science/healthcare companies, whichinclude asset-based loans, and are structured to require constant current asset coverage (i.e., cash, cash equivalents,accountsreceivableand,toamuchlesserextent,inventory)inanamountthatexceedstheoutstandingdebt.TheseloansaregenerallymadetocompaniesinourGrowthandCorporateFinancepractices.Therepaymentofthesearrangements
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
111
isdependenton the financial condition,andpaymentability,of thirdpartieswithwhomourclientsdobusiness.AsaresultoftheadoptionofCECLandinconnectionwiththerevisedapproachtoportfoliodisaggregationdiscussedabove,certain loans that were previously considered to be Balance Sheet Dependent have been reclassified as InvestorDependent-Later-Stage.
PrivateBank
OurPrivateBankclientsareprimarilyprivateequity/venturecapitalprofessionalsandexecutivesintheinnovationcompaniestheysupport.Weofferacustomizedsuiteofprivatebankingservices,includingmortgages,homeequitylinesof credit, restricted and private stock loans, capital call lines of credit, lines of credit against liquid assets and othersecuredandunsecuredlendingproducts,aswellascashandwealthmanagementservices.Inaddition,weprovideowneroccupiedcommercialmortgagestoPrivateBankclientsandrealestatesecuredloanstoeligibleemployeesthroughourEHOP.
PremiumWineandOther
OurPremiumWineandOtherportfolio segment consistsof two risk-based segments fordisclosurepurposes: (i)PremiumWine and (ii)Other.Our PremiumWine clients primarily consist of premiumwineproducers, vineyards andwine industryorhospitality relatedbusinessesacross theWesternUnitedStates,primarily inCalifornia'sNapaValley,Sonoma County and Central Coast regions, as well as the Pacific Northwest. Our Other risk-based segment primarilyincludesourcommunitydevelopmentloansmadeaspartofourresponsibilitiesundertheCommunityReinvestmentAct.
SBALoans
SBA loansare includedacrossallofoursixportfoliosegmentsandareseparatelydisclosedasasinglerisk-basedsegment. We participated in the SBA's Paycheck Protection Program ("PPP") to support small businesses across theUnited States. Under this program, the SBA provides a guarantee to banks making unsecured term loans of up to$10millionforqualifiedinitialborrowers,andupto$2millionforsecond-timeborrowers,asprovidedbytheCARESAct,theEconomicAidAct,andrelatedregulationsandguidance.TheabilitytodisburseloansunderthePPPwasextendedtoMarch31,2021aftertheenactmentoftheEconomicAidActandwehavealsobegunacceptingforgivenessapplicationsfromclients,wherebyclientsapplyforloanstobeforgiven(paidoff)bytheSBA.Loansfundedunderthisprogramareprimarilymadetoclientsinthetechnology,lifescience/healthcare,premiumwineandenergyresourceindustries.WhiletherecipientswerelocatedacrosstheUnitedStates,morethanhalfweremadetoclientsthatappliedfromthewesternUnitedStates.
Wemaintain a systematic process for the evaluation of individual loans and portfolio segments for inherent risk ofestimatedcreditlossesforloans.Atthetimeofapproval,eachloaninourportfolioisassignedacreditriskrating.Creditriskratingsareassignedonascaleof1to10,with1representingloanswithalowriskofnonpayment,9representingloanswiththehighestriskofnonpaymentand10representingloanswhichhavebeencharged-off.Thecreditriskratingsforeachloanaremonitoredandupdatedonanongoingbasis.Thiscreditriskratingprocessincludes,butisnotlimitedto,considerationofsuch factors as payment status, the financial condition andoperatingperformanceof theborrower, borrower compliancewith loan covenants, underlying collateral values and performance trends, the degree of access to additional capital, thepresence of credit enhancements such as third party guarantees (where applicable), the degree towhich the borrower issensitive to external factors and the depth and experience of the borrower's management team. Our policies require acommitteeofseniormanagementtoreview,atleastquarterly,creditrelationshipswithacreditriskratingof5through9thatexceedspecificdollarvalues.
ExpectedCreditLossMeasurement
ThemethodologyforestimatingtheamountofECLreportedintheallowanceforcreditlossesisthesumoftwomaincomponents: (1)ECLassessedonacollectivebasisforpoolsof loansthatsharesimilarriskcharacteristicswhich includesaqualitative adjustment based on management’s assessment of the risks that may lead to a future loan loss experiencedifferent from our historical loan loss experience and (2) ECL assessed for individual loans that do not share similar riskcharacteristicswith other loans.We do not estimate ECL on AIR on loans as AIR is reversed orwritten offwhen the fullcollectionoftheAIRrelatedtoaloanbecomesdoubtful,whichiswhenloansareplacedonnonaccrualstatus.AIRonloanstotaled$126.4millionatDecember31,2020and$119.1millionatDecember31,2019andisexcludedfromtheamortizedcost disclosures in Note 9—“Loans and Allowance for Credit Losses: Loans and Unfunded Credit Commitments”, as it isincludedandreportedseparatelywithin"Accruedinterestreceivableandotherassets"inourconsolidatedbalancesheets.
Whiletheevaluationprocessofourallowanceforcreditlossesonloansuseshistoricalandotherobjectiveinformation,theclassificationofloansandtheestimateoftheallowanceforcreditlossesforloansrelyonthejudgmentandexperienceof
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
112
ourmanagement.Acommitteecomprisedofseniormanagementevaluatestheappropriatenessoftheallowanceforcreditlossesforloans,whichincludesreviewofloanportfoliosegmentation,quantitativemodels,internalandexternaldatainputs,economicforecasts,creditriskratingsandqualitativeadjustments.
LoansThatShareSimilarRiskCharacteristicswithOtherLoans
WederiveanestimatedECLassumption fromanon-discountedcash flowapproachbasedonourportfoliosegmentsdiscussedabove.Thisapproachincorporatesacalculationofthreepredictivemetrics:(1)probabilityofdefault("PD"),(2)lossgivendefault("LGD")and(3)exposureatdefault("EAD"),overtheestimatedlifeoftheexposure.PDandLGDassumptionsare developed based on quantitativemodels and inherent risk of credit loss, both of which involve significant judgment.Renewals andextensionswithinour control arenot considered in theestimated contractual termof a loan.However,weincludepotentialextensionsifmanagementhasareasonableexpectationthatwewillexecuteaTDRwiththeborrower.Thequantitativemodels are based on historical credit loss experience, adjusted for probability-weighted economic scenarios.Thesescenariosareusedtosupportareasonableandsupportableforecastperiodofthreeyearsforallportfoliosegments.Tothe extent the remaining contractual lives of loans in the portfolio extend beyond this three-year period, we revert tohistoricalaveragesusinganautoregressivemethodofmeanreversionthatwillcontinuetograduallytrendtowardsthemeanhistorical loss over the remaining contractual lives of loans, adjusted for prepayments. Themacroeconomic scenarios arereviewedonaquarterlybasis.
WealsoapplyaqualitativefactoradjustmenttotheresultsobtainedthroughourquantitativeECLmodelstoconsidermodelimprecision,emergingriskassessments,trendsandothersubjectivefactorsthatmaynotbeadequatelyrepresentedinquantitativeECLmodels.Theseadjustmentstohistorical loss informationareforassetspecificriskcharacteristics,andalsoreflectourassessmentoftheextentthatcurrentconditionsandreasonableandsupportableforecastsdifferfromconditionsthatexistedduringtheperiodoverwhichhistoricalinformationwasevaluated.Theseadjustmentsareaggregatedtobecomeourqualitative allocation. Basedonourqualitative assessment estimateof changing risks in the lending environment, thequalitativeallocationmayvarysignificantlyfromperiodtoperiodandmayinclude,butisnotlimitedto,considerationofthefollowingfactors:
• Changesinlendingpoliciesandprocedures,includingchangesinunderwritingstandardsandcollection,charge-off,andrecoverypracticesnotconsideredelsewhereinestimatingcreditlosses;
• Changes in international, national, regional, and local economic and business conditions and developments thataffectthecollectabilityoftheportfolio,includingtheconditionofvariousmarketsegments;
• Changesinthenatureandvolumeoftheportfolioandinthetermsofloans;
• Changesintheexperience,abilityanddepthoflendingmanagementandotherrelevantstaff;
• Changesinthevolumeandseverityofpastdueloans,thevolumeofnonaccrualloansandthevolumeandseverityofadverselyclassifiedorgradedloans;
• Changesinthequalityofourloanreviewsystem;
• Changesinthevalueofunderlyingcollateralforcollateral-dependentloans;
• Theexistenceandeffectofanyconcentrationsofcredit,andchangesinthelevelofsuchconcentrations;
• The effect of other external factors such as competition and legal and regulatory requirements on the level ofestimatedcreditlossesinourexistingportfolio;and
• Theeffectof limitationsofavailabledata,model imprecisionandrecentmacro-economic factors thatmaynotbereflectedintheforecastinformation.
LoansThatDoNotShareSimilarRiskCharacteristics
Wemonitorourloanpoolstoensureallassetsthereincontinuetosharesimilarriskcharacteristicswithotherfinancialassets inside thepool. Changes in credit risk, borrower circumstances or the recognitionofwrite-offsmay indicate that aloan's riskprofilehaschanged,andtheassetshouldberemovedfrom itscurrentpool.Fora loanthatdoesnotshareriskcharacteristicswithother loans,expectedcredit loss ismeasuredbasedon thenet realizablevalue, that is, thedifferencebetween thediscountedvalueof theexpected futurecash flowsand theamortizedcostbasisof the loan.Whena loan iscollateral-dependent and the repayment is expected to be provided substantially through the operation or sale of thecollateral, the ECL ismeasured as the difference between the amortized cost basis of the loan and the fair value of thecollateral.Thefairvalueofthecollateralwillbedeterminedbythemostrecentappraisal,asadjustedtoreflectareasonablemarketingperiodforthesaleoftheasset(s)andanestimateofreasonablesellingexpenses.Collateral-dependentloanswillhaveindependentappraisalscompletedandacceptedatleastannually.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
113
AllowanceforCreditLosses:UnfundedCreditCommitments
We maintain a separate allowance for credit losses for unfunded credit commitments which is included in otherliabilitiesandtherelatedECLinourprovisionforcreditlosses.Weestimatetheamountofexpectedlossesbyusinghistoricaltrendstocalculateaprobabilityofanunfundedcreditcommitmentbeingfundedandderivehistoricallifetimeexpectedlossfactors for each portfolio segment similar to our funded loan ECL. The collectively assessed ECL for unfunded creditcommitments also includes the same qualitative allocations applied for our funded loan ECL. For unfunded creditcommitments related to loans thatdonot share similar risk characteristicswithother loans,where applicable, a separateestimateofECLwillbeincludedinourtotalallowanceforcreditlossesonunfundedcreditcommitments.Loancommitmentsthat are determined to be unconditionally cancellable by the Company do not require an allowance for credit losses onunfundedcreditcommitments.
UncollectibleLoansandWrite-offs
Ourcharge-offpolicyappliestoallloans,regardlessofportfoliosegment.Commercialloansareconsideredforafullorpartialcharge-offintheeventthatprincipalorinterestisover180dayspastdueandtheloanlackssufficientcollateralanditisnotintheprocessofcollection.Consumerloansareconsideredforafullorpartialcharge-offintheeventthatprincipalorinterest isover120dayspastdueandthe loan lackssufficientcollateraland it isnot in theprocessofcollection.Wealsoconsiderwritingoffloansintheeventofanyofthefollowingcircumstances:1)theloan,oraportionoftheloanisdeemeduncollectibledueto:a)theborrower'sinabilitytomakerecurringpayments,b)materialchangesintheborrower'sfinancialcondition,orc)theexpectedsaleofalloraportionoftheborrower'sbusinessisinsufficienttorepaytheloaninfull,or2)theloanhasbeenidentifiedforcharge-offbyregulatoryauthorities.
TroubledDebtRestructurings
A TDR arises from themodification of a loanwherewe have granted a concession to the borrower related to theborrower's financial difficulties that we would not have otherwise considered for economic or legal reasons. Theseconcessionsmayinclude:(1)deferralofpaymentformorethananinsignificantperiodoftimethatdoesnotincludesufficientoffsettingborrowerconcessions; (2) interest rate reductions; (3)extensionof thematuritydateoutsideofordinarycourseextension;(4)principalforgiveness;and/or(5)reductionofaccruedinterest.
WeusethefactorsinASC310-40,Receivables,TroubledDebtRestructuringsbyCreditors,inanalyzingwhenaborrowerisexperiencingfinancialdifficulty,andwhenwehavegrantedaconcession,bothofwhichmustbepresentforarestructuringtomeet the criteria of a TDR. Ifwe determine that a TDR exists,wemeasure impairment based on the present value ofexpectedfuturecashflowsdiscountedattheloan'seffectiveinterestrate,exceptthatasapracticalexpedient,wemayalsomeasureimpairmentbasedonaloan'sobservablemarketprice,orthefairvalueofthecollaterallesssellingcostsiftheloanisacollateral-dependentloan.
InApril2020,weimplementedthreeloanpaymentdeferralprogramstargetedtoassistborrowerswhowerethemostimpactedbytheCOVID-19pandemic.Theseprogramsincludedreliefforventure-backed,privatebankandwineborrowerswhometcertaincriteria.Forloansmodifiedundertheseprograms,inaccordancewiththeprovisionsofSection4013oftheCARESAct,weelectedtonotapplytroubleddebtrestructuringclassificationstoborrowerswhowerecurrentasofDecember31,2019.Inaddition,forloansthatdidnotmeettheCARESActcriteria,weappliedtheguidanceinaninteragencystatementissuedbybankregulatoryagencies.Usingthisguidance,wemayfindthatborrowersarenotexperiencingfinancialdifficultythatmayotherwiseresultinaTDRclassification,inaccordancewithASCSubtopic310-40,ifloanmodificationsareperformedin response to the COVID-19 pandemic, provide short-term loan payment deferrals (e.g. sixmonths in duration) and aregrantedtoborrowerswhowerecurrentasofthe implementationdateofthe loanmodificationprogram.WeevaluatedallloansmodifiedundertheseprogramsagainsttheCARESActandinteragencyguidance,asapplicable,anddeterminedtheloanmodifications would not be considered TDRs. We did not defer interest income recognition during periods of paymentdeferral,nordidanyqualifyingmodificationtriggernonaccrualstatus.
NonaccrualLoans
Loans are generally placed on nonaccrual status when they become 90 days past due as to principal or interestpayments(unlesstheprincipalandinterestarewellsecuredandintheprocessofcollection);orwhenwehavedetermined,baseduponcurrentlyknowninformation,thatthetimelycollectionofprincipalorinterestisnotprobable.
Whenaloanisplacedonnonaccrualstatus,theaccruedinterestandfeesarereversedagainstinterestincomeandtheloanisaccountedforusingthecostrecoverymethodthereafteruntilqualifyingforreturntoaccrualstatus.Foraloantobereturnedtoaccrualstatus,alldelinquentprincipalandinterestmustbecomecurrentinaccordancewiththetermsoftheloanagreement and future collection of remaining principal and interestmust be deemedprobable.We apply a cost recovery
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
114
method inwhichall cashreceived isapplied to the loanprincipaluntil ithasbeencollected.Under thisapproach, interestincomeisrecognizedaftertotalcashflowsreceivedexceedtherecordedinvestmentatthedateofinitialnonaccrual.Allofournonaccrualloanshavecreditriskratingsof8or9andareclassifiedunderthenonperformingcategory.
PremisesandEquipment
Premises and equipment are reported at cost less accumulated depreciation and amortization. Depreciation andamortizationarecomputedusingthestraight-linemethodovertheestimateduseful livesoftheassetsorthetermsoftherelatedleases,whicheverisshorter.Themaximumestimatedusefullivesbyassetclassificationareasfollows:
Leaseholdimprovements Lesserofleasetermorassetlife
Furnitureandequipment 7years
Computersoftware 3-7years
Computerhardware 3-5years
We capitalize the costs of computer software developed or obtained for internal use, including costs related todevelopedsoftware,purchasedsoftwarelicensesandcertainimplementationcosts.
Forpropertyandequipmentthatisretiredorotherwisedisposedof,thecostandrelatedaccumulateddepreciationareremovedfromtheaccountsandtheresultinggainorlossisincludedinnoninterestexpenseinconsolidatednetincome.
LeaseObligations
Wehaveentered into leases for real estate and various equipmentutilized for thebusiness.At the inceptionof thelease,eachleaseisevaluatedtodeterminewhethertheleasewillbeaccountedforasanoperatingorfinancelease.WehadnofinanceleaseobligationsatDecember31,2020and2019.Wehavemadeanaccountingpolicyelectionnottorecognizeright-of-use assets and lease liabilities that arise from short-term leases for any class of underlying asset. In addition toexcludingshort-term leases,wehave implementedanaccountingpolicy inwhichnon-leasecomponentsarenotseparatedfromleasecomponentsinthemeasurementofright-of-use("ROU")assetandleaseliabilitiesforallleasecontracts.
ROUassetsrepresentourrighttouseanunderlyingassetfortheleasetermandleaseliabilitiesrepresentourobligationto make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at thecommencementdatebasedonthepresentvalueofleasepaymentsovertheleaseterm.Asmostofourleasesdonotprovidean implicit rate,weuseour incrementalborrowing ratebasedon the informationavailableat thecommencementdate indeterminingthepresentvalueof leasepayments.Weusethe implicitratewhenreadilydeterminable.Theoperating leaseROUasset also includes any lease paymentsmade and excludes lease incentives.Our lease termsmay includeoptions toextend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for leasepaymentsisrecognizedonastraight-linebasisovertheleaseterm.
The Company reviews ROU assets for impairment whenever events or changes in circumstances indicate that thecarryingamountofanassetmaynotberecoverable.ROUassetsarereviewedforrecoverabilityatthelowestlevelinwhichthereare identifiablecash flows (“assetgroup”).Thecarryingamountofanassetgroup isnotconsideredrecoverable if itexceedsthesumoftheundiscountedcashflowsexpectedtoresultfromitsuseandeventualdisposition.Iftheassetgroupisdeterminednottoberecoverable,thenanimpairmentchargeisrecognizedintheamountbywhichthecarryingamountofthestoreassetgroupexceedsitsfairvalue.Theresultingimpairmentcharge,ifany,isallocatedtotheunderlyingassetsonaproratabasisusingtheirrelativecarryingamounts.
BusinessCombinations
Business combinations are accounted for under the acquisition method of accounting. Acquired assets, includingseparately identifiable intangibleassets,andassumedliabilitiesarerecordedattheiracquisition-dateestimatedfairvalues.Theexcessofthecostofacquisitionoverthesefairvaluesisrecognizedasgoodwill.Duringthemeasurementperiod,whichcannot exceed one year from the acquisition date, changes to estimated fair values are recognized as an adjustment togoodwill.Certaintransactioncostsareexpensedasincurred.
GoodwillandOtherIntangibleAssets
Goodwill is not amortized and is subject, at a minimum, to an annual impairment assessment. A quantitativeassessmentwillbecompletedifwehavenotrecentlycompletedafairvalueassessmentoftheassociatedreportingunitandcomparedtheassessedfairvalueofthatreportingunitwithitscarryingamount,includinggoodwill.Shouldweberequiredtocalculate the fair value of the entity, we would generally apply a discounted cash flow analysis that uses forecasted
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
115
performanceestimates,andadiscountrateleveragingareportingunitspecificcapitalassetpricingmodel,whichinturnusesassumptionsrelatedtomarketperformanceandvariousmacroeconomicandreportingunitspecificrisks.Ifthisquantitativeassessment was recently completed and if we deem the estimate to be current and reliable, we will not perform a fullquantitativeassessmentof thereportingunit’s fairvalue for that reportingperiod. Instead,wewillqualitativelydeterminewhetheritismorelikelythannotthatthefairvalueofthereportingunitislessthanitscarryingamount,includinggoodwill.Aspartof thisqualitativeanalysisweconsidermacroeconomic factors thatmight impact theentity’sperformance,entity-specificfinancialperformanceofthereportingunit,changesinmanagementorstrategyandotherfactors.Wewillevaluategoodwillforimpairmentmorefrequentlyifcircumstancesindicatethatthefairvalueofourreportingunitsislessthantheircarryingvalue,includinggoodwill.
Intangibleassetswithfinitelivesareamortizedovertheirestimatedusefullivesandallintangibleassetsaresubjecttoimpairmentifeventsorcircumstancesindicatethatthefairvalueislessthanthecarryingamount.
FairValueMeasurements
Our available-for-sale securities, derivative instruments and certain non-marketable and other equity securities arefinancial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets andliabilitiesmeasuredatfairvalueinpreparingourconsolidatedfinancialstatements.
FairValueMeasurement-DefinitionandHierarchy
Fairvalueisdefinedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliability(the“exitprice”)inanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Thereisathree-levelhierarchyfordisclosureof assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based onwhether the inputs to the valuation methodology used for measurement are observable or unobservable and on thesignificance of those inputs in the fair value measurement. Observable inputs reflect market-derived or market-basedinformation obtained from independent sources, while unobservable inputs reflect our estimates aboutmarket data andviewsofmarketparticipants.Thethreelevelsformeasuringfairvaluearebasedonthereliabilityofinputsandareasfollows:
Level1
Fairvaluemeasurementsbasedonquotedprices inactivemarkets for identicalassetsor liabilities thatwehave theability to access. Since valuations are based on quoted prices that are readily and regularly available in an activemarket,valuationof these instrumentsdoesnotentail a significantdegreeof judgment.AssetsutilizingLevel1 inputs includeU.S.Treasurysecurities,foreigngovernmentdebtsecurities,exchange-tradedequitysecuritiesandcertainmarketablesecuritiesaccountedforunderfairvalueaccounting.
Level2
Fairvaluemeasurementsbasedonquotedprices inmarkets thatarenotactiveor forwhichall significant inputsareobservable,directlyorindirectly.Valuationsfortheavailable-for-salesecuritiesareprovidedbyindependentpricingserviceproviderswhohaveexperienceinvaluingthesesecuritiesandarecomparedtotheaverageofquotedmarketpricesobtainedfrom independent brokers. We perform a monthly analysis on the values received from third parties so that the pricesrepresentareasonableestimateofthefairvalue.Theproceduresinclude,butarenotlimitedto,initialandongoingreviewofthird-partypricingmethodologies,reviewofpricingtrendsandmonitoringoftradingvolumes.Additionalcorroboration,suchasobtaininganon-bindingpricefromabroker,maybeobtaineddependingonthefrequencyoftradesofthesecurityandthelevelofliquidityordepthofthemarket.Pricesreceivedfromindependentbrokersrepresentareasonableestimateofthefairvalueandarevalidatedthroughtheuseofobservablemarketinputsincludingcomparabletrades,yieldcurve,spreadsand,whenavailable,marketindices.Ifwedeterminethatthereisamoreappropriatefairvaluebasedupontheavailablemarketdata, theprice received fromthethirdparty isadjustedaccordingly.Below isasummaryof thesignificant inputsused foreachclassofLevel2assetsandliabilities:
U.S.agencydebentures:FairvaluemeasurementsofU.S.agencydebenturesarebasedonthecharacteristicsspecifictobonds held, such as issuer name, issuance date, coupon rate, maturity date and any applicable issuer call optionfeatures.Valuationsarebasedonmarket spreads relative to similar termbenchmarkmarket interest rates,generallyU.S.Treasurysecurities.
Agency-issued mortgage-backed securities: Agency-issued mortgage-backed securities are pools of individualconventional mortgage loans underwritten to U.S. agency standards with similar coupon rates, tenor, and otherattributessuchasgeographiclocation,loansizeandoriginationvintage.Fairvaluemeasurementsofthesesecuritiesare
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
116
basedonobservablepriceadjustmentsrelativetobenchmarkmarketinterestratestakingintoconsiderationestimatedloanprepaymentspeeds.
Agency-issued collateralizedmortgage obligations: Agency-issued collateralizedmortgage obligations are structuredinto classes or trancheswith defined cash flow characteristics and are collateralized byU.S. agency-issuedmortgagepass-through securities. Fair value measurements of these securities incorporate similar characteristics of mortgagepass-throughsecuritiessuchascouponrate,tenor,geographiclocation,loansizeandoriginationvintage,inadditiontoincorporating the effect of estimated prepayment speeds on the cash flow structure of the class or tranche. Thesemeasurementsincorporateobservablemarketspreadsoveranestimatedaveragelifeafterconsideringtheinputslistedabove.
Agency-issued commercial mortgage-backed securities: Fair value measurements of these securities are based onspreads to benchmark market interest rates (usually U.S. Treasury rates or rates observable in the swaps market),prepaymentspeeds,loandefaultrateassumptionsandloanlossseverityassumptionsonunderlyingloans.
Foreign exchange forward and option contract assets and liabilities: Fair valuemeasurements of these assets andliabilitiesarepricedbasedonspotandforwardforeigncurrencyratesandoptionvolatilityassumptions.
Interest rate derivative and interest rate swap assets and liabilities: Fair value measurements of interest ratederivatives and interest rate swaps are priced considering the coupon rate of the fixed leg of the contract and thevariablecouponrateonthefloatinglegofthecontract.Valuationisbasedonbothspotandforwardratesontheswapyieldcurveandthecreditworthinessofthecontractcounterparty.
Otherequitysecurities:Fairvaluemeasurementsofequitysecuritiesofpubliccompaniesarepricedbasedonquotedmarketpriceslessadiscountifthesecuritiesaresubjecttocertainsalesrestrictions.Certainsalesrestrictiondiscountsgenerallyrangefrom10percentto20percentdependingonthedurationofthesalerestrictionswhichtypicallyrangefromthreetosixmonths.
Equitywarrantassets(publicportfolio):Fairvaluemeasurementsofequitywarrantassetsofpublicly-tradedportfoliocompanies are valued based on the Black-Scholes option pricingmodel. Themodel uses the price of publicly-tradedcompanies(underlyingstockprice),statedstrikeprices,warrantexpirationdates,therisk-freeinterestrateandmarket-observableoptionvolatilityassumptions.
Level3
Thefairvaluemeasurementisderivedfromvaluationtechniquesthatusesignificantassumptionsnotobservableinthemarket.Theseunobservableassumptionsreflectourownestimatesofassumptionswebelievemarketparticipantswouldusein pricing the asset. The valuation techniques are consistentwith themarket approach, incomeapproach and/or the costapproachusedtomeasurefairvalue.BelowisasummaryofthevaluationtechniquesusedforeachclassofLevel3assets:
Venturecapitalandprivateequity fund investmentsnotmeasuredatnetassetvalue:Fairvaluemeasurementsarebased on consideration of a range of factors including, but not limited to, the price at which the investment wasacquired, the termandnatureof the investment, localmarket conditions, values for comparable securities,andas itrelates to the private company, the current and projected operating performance, exit strategies and financingtransactionssubsequenttotheacquisitionoftheinvestment.Thesignificantunobservableinputsusedinthefairvaluemeasurement include the information about each portfolio company, including actual and forecasted results, cashposition,recentorplannedtransactionsandmarketcomparablecompanies.
Equitywarrantassets(publicportfolio):Fairvaluemeasurementsofequitywarrantassetsofpublicly-tradedportfoliocompanies are valued based on the Black-Scholes option pricingmodel. Themodel uses the price of publicly-tradedcompanies(underlyingstockprice),statedstrikeprices,warrantexpirationdates,therisk-freeinterestrateandmarket-observableoptionvolatilityassumptions.Modeledassetvaluesarefurtheradjustedbyapplyingadiscountofupto20percentforcertainwarrantsthathavecertainsalesrestrictionsorotherfeaturesthatindicateadiscounttofairvalueiswarranted.
Equity warrant assets (private portfolio): Fair value measurements of equity warrant assets of private portfoliocompaniesarepricedbasedonaBlack-Scholesoptionpricingmodeltoestimatetheassetvaluebyusingstatedstrikeprices,optionexpirationdates,risk-free interestratesandoptionvolatilityassumptions.Optionvolatilityassumptionsused in theBlack-Scholesmodel arebasedonpublicmarket indiceswhosemembersoperate in similar industries ascompaniesinourprivatecompanyportfolio.Optionexpirationdatesaremodifiedtoaccountforestimatestoactualliferelativetostatedexpiration.Overallmodelassetvaluesare furtheradjustedforageneral lackof liquidityduetotheprivatenatureoftheassociatedunderlyingcompany.Thereisadirectcorrelationbetweenchangesinthevolatilityand
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
117
remaining lifeassumptions in isolationandthe fairvaluemeasurementwhile there isan inversecorrelationbetweenchangesintheliquiditydiscountassumptionandthefairvaluemeasurement.
Fee-basedServicesRevenueRecognition
RefertoNote16—“NoninterestIncome”forourfee-basedservicesrevenuerecognitionpoliciesforourcontractswithcustomers.
IncomeTaxes
Incometaxesareaccountedforundertheassetandliabilitymethod.Deferredtaxassetsandliabilitiesarerecognizedfor the future tax consequences attributable to differences between the financial statement carrying amounts of existingassetsand liabilities and their respective taxbasesandoperating lossand tax credit carryforwards.Our federal, stateandforeign income tax provisions are based upon taxes payable for the current year, current year changes in deferred taxesrelated to temporary differences between the tax basis and financial statement balances of assets and liabilities, and areserveforuncertaintaxpositions.Deferredtaxassetsandliabilitiesareincludedintheconsolidatedfinancialstatementsatcurrentlyenactedincometaxratesapplicabletotheperiodinwhichthedeferredtaxassetsandliabilitiesareexpectedtoberealized.Aschangesintaxlawsorratesareenacted,deferredtaxassetsandliabilitiesareadjustedthroughtheprovisionforincometaxes.Avaluationallowanceisprovided,whenitisdeterminedbaseduponavailableevidence,thatitismorelikelythannotthatsomeportionofthedeferredtaxassetwillnotberealized.Wefileaconsolidatedfederalincometaxreturn,andconsolidated,combined,orseparatestate incometax returnsasappropriate.Our foreign incorporatedsubsidiaries file taxreturnsintheapplicableforeignjurisdictions.Werecordinterestandpenaltiesrelatedtounrecognizedtaxbenefitsinothernoninterestexpense,acomponentofconsolidatednetincome.
Share-BasedCompensation
Forall stock-basedawardsgranted, stock-basedcompensationexpense isamortizedonastraight-linebasisover therequisite service period, including consideration of vesting conditions and anticipated forfeitures. The fair value of stockoptions are measured using the Black-Scholes option-pricing model and the fair value for restricted stock awards andrestrictedstockunitsarebasedonthequotedpriceofourcommonstockonthedateofgrant.
EarningsPerShare
Basic earnings per common share is computed using the weighted average number of common stock sharesoutstanding during the period. Diluted earnings per common share is computed using the weighted average number ofcommonstocksharesandpotentialcommonsharesoutstandingduringtheperiod.Potentialcommonsharesconsistofstockoptions,ESPPsharesandrestrictedstockunits.Commonstockequivalentsharesareexcludedfromthecomputation iftheeffectisantidilutive.
DerivativeFinancialInstruments
Allderivativeinstrumentsarerecordedonthebalancesheetatfairvalue.Theaccountingforchangesinfairvalueofaderivativefinancialinstrumentdependsonwhetherthederivativefinancialinstrumentisdesignatedandqualifiesaspartofahedgingrelationshipand,ifso,thenatureofthehedgingactivity.Changesinfairvaluearerecognizedthroughearningsforderivativesthatdonotqualifyforhedgeaccountingtreatment,orthathavenotbeendesignatedinahedgingrelationship.
CashFlowHedges
For derivative instruments that are designated and qualify as a cash flow hedge, changes in the fair value of thederivativearerecordedinaccumulatedothercomprehensiveincomeandrecognizedinearningsasthehedgeditemaffectsearnings.Derivativeamountsaffectingearningsarerecognizedconsistentwiththeclassificationofthehedgediteminthelineitem"loans"aspartofinterestincome,acomponentofconsolidatednetincome.WeassesshedgeeffectivenessunderASC815,DerivativesandHedging("ASC815"),onaquarterlybasistoensureallhedgesremainhighlyeffectivetoensurehedgeaccountingunderASC815canbeapplied.IfthehedgingrelationshipnolongerexistsornolongerqualifiesasahedgeperASC815,anyamountsremainingasgainorlossinaccumulatedothercomprehensiveincomearereclassifiedintoearningsinthelineitem"loans"aspartofinterestincome,acomponentofconsolidatednetincome.
EquityWarrantAssets
Inconnectionwithnegotiatedcreditfacilitiesandcertainotherservices,wemayobtainequitywarrantassetsgivingusthe right to acquire stock in primarily private, venture-backed companies in the technology and life science/healthcare
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
118
industries.Weholdtheseassetsforprospectiveinvestmentgains.Wedonotusethemtohedgeanyeconomicrisksnordoweuseotherderivativeinstrumentstohedgeeconomicrisksstemmingfromequitywarrantassets.
Weaccountforequitywarrantassets incertainprivateandpublicclientcompaniesasderivativeswhentheycontainnetsettlementtermsandotherqualifyingcriteriaunderASC815.Ingeneral,equitywarrantassetsentitleustobuyaspecificnumberofsharesofstockataspecificpricewithinaspecifictimeperiod.Certainequitywarrantassetscontaincontingentprovisions,whichadjust theunderlyingnumberof sharesorpurchasepriceupon theoccurrenceof certain futureevents.Substantiallyallofourwarrantagreementscontainnetsharesettlementprovisions,whichpermitustoreceiveatexerciseasharecountequaltotheintrinsicvalueofthewarrantdividedbytheshareprice(otherwiseknownasa“cashless”exercise).Theseequitywarrantassetsarerecordedatfairvalueandareclassifiedasderivativeassets,acomponentofotherassets,onourconsolidatedbalancesheetatthetimetheyareobtained.
The grant date fair values of equity warrant assets received in connectionwith the issuance of a credit facility aredeemedtobe loan feesandrecognizedasanadjustmentof loanyield through loan interest income.Similar toother loanfees,theyieldadjustmentrelatedtograntdatefairvalueofwarrantsisrecognizedoverthelifeofthatcreditfacility.
Any changes in fair value from the grant date fair value of equitywarrant assetswill be recognized as increases ordecreasestootherassetsonourbalancesheetandasnetgainsorlossesonequitywarrantassets,innoninterestincome,acomponentofconsolidatednetincome.WevalueourequitywarrantassetsusingaBlack-Scholesoptionpricingmodel,whichincorporatesthefollowingsignificantinputs:
• An underlying asset value, which is estimated based on current information available in valuation reports,includinganyinformationregardingsubsequentroundsoffundingorperformanceofacompany.
• Statedstrikeprice,whichcanbeadjustedforcertainwarrantsupontheoccurrenceofsubsequentfundingroundsorotherfutureevents.
• Pricevolatilityorriskassociatedwithpossiblechangesinthewarrantprice.Thevolatilityassumptionisbasedonhistorical price volatility of publicly traded companies within indices similar in nature to the underlying clientcompanies issuing the warrant. The actual volatility input is based on the mean and median volatility for anindividualpubliccompanywithinanindexforthepast16quarters,fromwhichanaveragevolatilitywasderived.
• Actualdataonterminationsandexercisesofourwarrantsareutilizedasthebasisfordeterminingtheexpectedremaining life of the warrants in each financial reporting period. Warrants may be exercised in the event ofacquisitions, mergers or IPOs, and cancelled due to events such as bankruptcies, restructuring activities oradditional financings. These events cause the expected remaining life assumption to be shorter than thecontractualtermofthewarrants.
• Therisk-freeinterestrateisderivedfromtheTreasuryyieldcurveandiscalculatedbasedonaweightedaverageoftherisk-freeinterestratesthatcorrespondclosesttotheexpectedremaininglifeofthewarrant.
• Otheradjustments,includingamarketabilitydiscount,areestimatedbasedonmanagement'sjudgmentaboutthegeneralindustryenvironment.
• Numberofsharesandcontingenciesassociatedwithobtainingwarrantpositionssuchasthefundingofassociatedloans.
Whenacompany in theportfoliocompletesan IPO,or isacquired,wemayexercise theseequitywarrantassets forshares or cash. In the event of an exercise for common stock shares, the basis or value in the common stock shares isreclassifiedfromotherassetsto investmentsecuritiesonthebalancesheetonthe latterof theexercisedateorcorporateactiondate.Thecommonstockofpubliccompaniesareclassifiedasnon-marketableandotherequitysecurities.Changesinthefairvalueofthecommonstocksharesisrecordedasgainsorlossesoninvestmentssecurities,innoninterestincome,acomponentofconsolidatednetincome.Thecommonstockofprivatecompaniesareclassifiedasnon-marketableandotherequitysecurities.WeaccountforthesesecuritiesunderthemethodologyunderASU2016-01,other investmentswithoutareadilydeterminablefairvalue.Thecarryingvalueintheprivatecommonstockwithoutareadilydeterminablefairvalueisbasedonthepriceatwhichtheinvestmentwasacquiredplusorminuschangesresultingfromobservablepricechangesinorderly transactions for identical or similar investments and are recorded as gains or losses on investments securities, innoninterestincome,acomponentofconsolidatednetincome.
ForeignExchangeForwardsandForeignCurrencyOptionContracts
We enter into foreign exchange forward contracts and foreign currency option contracts with clients involved ininternationalactivities,eitherasthepurchaserorseller,dependingupontheclients'need.Wealsoenter intoanopposite-
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
119
wayforwardoroptioncontractwithacorrespondentbanktoeconomicallyhedgeclientcontractstomitigatethefairvaluerisk tous from fluctuations in currency rates. Settlement, credit andoperational risks remain.Wealso enter into forwardcontracts with correspondent banks to economically hedge currency exposure risk related to certain foreign currencydenominatedassetsandliabilities.Thesecontractsarenotdesignatedashedginginstrumentsandarerecordedatfairvalueinourconsolidatedbalancesheets.Thecontractsgenerallyhavetermsofoneyearorless,althoughwemayhavecontractsextending forup to fiveyears.Generally,wehavenotexperiencednonperformanceon thesecontracts,havenot incurredcredit losses and anticipate performance by all counterparties to such agreements. Changes in the fair value of thesecontractsarerecognized inconsolidatednet incomeunderothernoninterest income,acomponentofnoninterest income.Period-end gross positive fair values are recorded in other assets and gross negative fair values are recorded in otherliabilities.
InterestRateContracts
Wesellinterestratecontractstoclientswhowishtomitigatetheirinterestrateexposure.Weeconomicallyreducetheinterestrateriskfromthisbusinessbyenteringintoopposite-waycontractswithcorrespondentbanks.Wedonotdesignateanyofthesecontracts(whicharederivativeinstruments)asqualifyingforhedgeaccounting.Contractsinanassetpositionareincludedinotherassetsandcontractsinaliabilitypositionareincludedinotherliabilities.Thenetchangeinthefairvalueofthese derivatives is recorded through other noninterest income, in noninterest income, a component of consolidated netincome.
AdoptionofNewAccountingStandards
FinancialInstruments-CreditLosses
InJune2016,theFASBissuedanewAccountingStandardUpdate(ASU2016-13,Financial Instruments-CreditLosses(Topic 326): Measurement of Credit Losses on Financial Instruments), which amends the incurred loss impairmentmethodologyincurrentGAAPwithamethodologythatreflectsacurrentexpectedcreditlossmeasurementtoestimatetheallowanceforcreditlossesoverthecontractuallifeofthefinancialassets(includingloans,unfundedcreditcommitmentsandHTMsecurities)andrequiresconsiderationofabroader rangeof reasonableandsupportable information to informcreditlossestimates.WhiletheCECLmodeldoesnotapplytoavailable-for-saledebtsecurities,ASU2016-13doesrequireentitiestorecordanallowanceforcredit losseswhenrecognizingcredit lossesforavailable-for-salesecurities,ratherthanreducetheamortizedcostofthesecuritiesbydirectwrite-offs,whichallowsforreversalofcreditimpairmentsinfutureperiodsbasedonimprovements in credit. We adopted the guidance on January 1, 2020, using a modified retrospective approach. WerecognizedthecumulativeeffectofinitiallyapplyingCECLasanadjustmenttotheopeningbalanceofretainedearnings,netoftax.Thecomparativeinformationhasnotbeenrestatedandcontinuestobereportedundertheaccountingstandardsineffectforthoseperiods.
Wecompletedacomprehensiveimplementationprocessthatincludedlossforecastingmodeldevelopment,evaluationoftechnicalaccountingtopics,updatestoourallowanceforcredit lossaccountingpolicies,reportingprocessesandrelatedinternal controls, overall operational readiness for our adoption of CECL as well as parallel runs for CECL alongside ourpreviousallowanceprocess.WeprovidedquarterlyupdatestoseniormanagementandtotheAuditandCreditCommitteesoftheBoardofDirectorsthroughouttheimplementationprocess.Foradditionaldetailsregardingourallowanceforcreditlossesmethodology,seeNote9—“LoansandAllowanceforCreditLosses:LoansandUnfundedCreditCommitments.”
UpontheadoptionofthestandardonJanuary1,2020,andbasedonourloan,unfundedcreditcommitment,andHTMsecurity portfolios composition at December 31, 2019, and the then current economic environment, we recorded a$48.5million increase to the allowance for credit losses. After adjusting for deferred taxes, a $35.0million decreasewasrecordedtoretainedearningsthroughacumulative-effectadjustment.
Underthepriorguidance,our loanportfolioandcreditqualitydisclosuresweredisaggregatedbasedonclientmarketsegments. Upon adoption of CECL, our technology (software/internet and hardware) and life science/healthcare marketsegments are disclosed by disaggregated risk-based segments determined by portfolio segments that align with theirrespective underwriting methodology and the level at which credit risk is now monitored by management. The primaryunderwriting method for our technology and life science/healthcare portfolios are classified as Investor Dependent -Accelerator(Early-Stage)andGrowth(Mid-StageandLater-Stage)andCashFlow(SponsorLedBuyoutandOther)andBalanceSheetDependent,asnotedabove,andpriorperiodamountswerereclassifiedforcomparability.Therearenoothermaterialchangestoourcurrentmarketsegments.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
120
SummaryofAllowanceforLoanLosses,AllowanceforUnfundedCreditCommitmentsandImpairedLoansSupersededbyRecentlyAdoptedAccountingStandards(ApplicabletotheYearsEndingDecember31,2019and2018)
AllowanceforLoanLosses
The allowance for loan losses considers credit risk and is established through a provision for loan losses charged toexpense.Ourallowance for loan losses isestablished forestimated loan losses thatareprobableand incurredbutnotyetrealized.Ourevaluationprocess is designed todetermine that theallowance for loan losses is appropriate at thebalancesheetdate.Theprocessofestimatingloanlossesisinherentlyimprecise.
Wemaintain a systematic process for the evaluation of individual loans andpools of loans for inherent risk of loanlosses. At the time of approval, each loan in our portfolio is assigned a Credit Risk Rating and industry niche. Credit RiskRatingsareassignedonascaleof1to10,with1representingloanswithalowriskofnonpayment,9representingloanswiththehighestriskofnonpayment,and10representingloanswhichhavebeencharged-off.Thecreditriskratingsforeachloanaremonitoredandupdatedonanongoingbasis.ThisCreditRiskRatingprocessincludes,butisnotlimitedto,considerationofsuchfactorsaspaymentstatus,thefinancialconditionandoperatingperformanceoftheborrower,borrowercompliancewith loan covenants, underlying collateral values and performance trends, the degree of access to additional capital, thepresence of credit enhancements such as third party guarantees (where applicable), the degree towhich the borrower issensitivetoexternalfactors,thedepthandexperienceoftheborrower'smanagementteam,potential loanconcentrations,andgeneraleconomicconditions.Ourpoliciesrequireacommitteeofseniormanagementtoreview,atleastquarterly,creditrelationshipswith a credit risk rating of 5 through 9 that exceed specific dollar values. Our review process evaluates theappropriatenessofthecreditriskratingandallocationoftheallowanceforloanlosses,aswellasotheraccountmanagementfunctions.Theallowanceforloanlossesisdeterminedbasedonaqualitativeanalysisandaformulaallocationforsimilarrisk-ratedloanscategorizedbyportfoliosegment,andindividuallyforimpairedloans.Theformulaallocationprovidestheaverageloanlossexperienceforeachportfoliosegment,whichconsidersourquarterlyhistoricallossexperiencesincetheyear2000,bothbyrisk-ratingcategoryandclientindustrysector.Theresultingloanlossfactorsforeachrisk-ratingcategoryandclientindustry sector are ultimately applied to the respective period-end client loan balances for each corresponding risk-ratingcategory and client industry sector to provide an estimation of the allowance for loan losses. The probable loan lossexperienceforanyoneyearperiodoftimeisreasonablyexpectedtobegreaterorlessthantheaverageasdeterminedbythelossfactors.Assuch,managementappliesaqualitativeallocationtotheresultsoftheaforementionedmodeltoascertainthetotalallowanceforloanlosses.Thisqualitativeallocationisbasedonmanagement'sassessmentoftherisksthatmayleadtoa loan loss experience that is different from our historical loan loss experience. Based on management's prediction orestimateofchangingrisksinthelendingenvironment,thequalitativeallocationmayvarysignificantlyfromperiodtoperiodandincludes,butisnotlimitedto,considerationofthefollowingfactors:
• Changesinlendingpoliciesandprocedures,includingunderwritingstandardsandcollections,andcharge-offandrecoverypractices;
• Changesinnationalandlocaleconomicbusinessconditions,includingthemarketandeconomicconditionofourclients'industrysectors;
• Changesinthenatureofourloanportfolio;
• Changesinexperience,ability,anddepthoflendingmanagementandstaff;
• Changesinthetrendofthevolumeandseverityofpastdueandclassifiedloans;
• Changesinthetrendofthevolumeofnonaccrualloans,troubleddebtrestructuringsandotherloanmodifications;
• Reservefloorforportfoliosegmentsthatwouldnotdrawaminimumreservebasedonthelackofhistoricalloanlossexperience;
• Reserveforlargefundedloanexposure;
• Reserveforperformingimpairedloanexposure;and
• Otherfactorsasdeterminedbymanagementfromtimetotime.
While the evaluation process of our allowance for loan losses uses historical and other objective information, theclassificationof loansand theestablishmentof theallowance for loan losses rely, toagreatextent,on the judgmentandexperienceofourmanagement.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
121
AllowanceforUnfundedCreditCommitments
We record a liability for probable and estimable incurred losses associatedwith our unfunded credit commitmentsbeingfundedandsubsequentlybeingchargedoff.Eachquarter,everyunfundedclientcreditcommitment isallocatedtoacredit risk-rating in accordance with each client's credit risk rating and portfolio segment. We use the segment specifichistorical loan loss factors described above under "Allowance for Loan Losses" to calculate the loan loss experience ifunfundedcreditcommitmentsarefunded.Separately,weusehistoricaltrendstocalculateaprobabilityofanunfundedcreditcommitmentbeingfunded.Weapplytheloanfundingprobabilityfactortorisk-factoradjustedunfundedcreditcommitmentsbycreditrisk-ratingandportfoliosegmenttoderivetheallowanceforunfundedcreditcommitments,similartofundedloans.The allowance for unfunded credit commitments also includes certain qualitative allocations as deemed appropriate bymanagement.Weincludetheallowanceforunfundedcreditcommitmentsinotherliabilitiesandtherelatedprovisioninourprovisionforcreditlosses.
ImpairedLoans
Aloan isconsidered impairedwhen,baseduponcurrentlyknowninformation, it isdeemedprobablethatwewillbeunabletocollectallamountsdueaccordingtothecontractualtermsoftheagreement.Onaquarterlybasis,wereviewourloan portfolio for impairment.Within each class of loans,we review individual loans for impairment based on credit riskratings.Loansrisk-rated5through7areperformingloans;however,weconsiderthemasdemonstratinghigherrisk,whichrequiresmorefrequentreviewofindividualexposures.Suchloanstranslatetoaninternalratingof"Performing(Criticized)"andcouldbeclassifiedasaperformingimpairedloan.
Foreachloanidentifiedasimpaired,wemeasuretheimpairmentbaseduponthepresentvalueofexpectedfuturecashflowsdiscountedat the loan'seffective interest rate. In limitedcircumstances,wemaymeasure impairmentbasedon theloan'sobservablemarketpriceorthefairvalueofthecollaterallesssellingcostsiftheloaniscollateraldependent.Impairedcollateral-dependentloanswillhaveindependentappraisalscompletedandacceptedatleastannually.Thefairvalueofthecollateralwillbedeterminedbythemostrecentappraisal,asadjustedtoreflectareasonablemarketingperiodforthesaleoftheasset(s)andanestimateofreasonablesellingexpenses.
Ifitisdeterminedthatthevalueofanimpairedloanislessthantherecordedinvestmentintheloan,netofpreviouscharge-offsandpaymentscollected,werecognize impairment throughtheallowance for loan lossesasdeterminedbyouranalysis.
Reclassifications
CertainpriorperiodamountsprimarilyrelatedtotheadoptionoftheASU2016-13FinancialInstruments-CreditLosses(Topic326):MeasurementofCredit LossesonFinancial Instruments) ("ASU2016-13"or "CECL")asmentionedabovehavebeenreclassifiedtoconformtocurrentperiodpresentations.
3. Stockholders'EquityandEPS
AccumulatedOtherComprehensiveIncome
The following table summarizes the items reclassified out of accumulated other comprehensive income into theConsolidatedStatementsofIncomefor2020,2019and2018:
YearendedDecember31,
(Dollarsinthousands) IncomeStatementLocation 2020 2019 2018
Reclassificationadjustmentfor(gains)lossesonavailable-for-salesecuritiesincludedinnetincome
Gainsoninvestmentsecurities,net $ (61,165) $ 3,905 $ 740
Relatedtaxexpense(benefit) Incometaxexpense 16,953 (1,087) (205)Reclassificationadjustmentfor(gains)lossesoncashflowhedgesincludedinnetincome Netinterestincome (49,928) 5,358 —
Relatedtaxexpense(benefit) Incometaxexpense 13,692 (1,489) —Totalreclassificationadjustmentfor(gains)lossesincludedinnetincome,netoftax $ (80,448) $ 6,687 $ 535
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
122
The table below summarizes the activity relating to net gains and losses on our cash flow hedges included inaccumulatedothercomprehensiveincomefor2020,2019and2018.RefertoNote15—“DerivativeFinancialInstruments”foradditionalinformationregardingtheterminationofourcashflowhedgesduringthequarterendedMarch31,2020.Overthenext 12 months, we expect that approximately $63.3 million in accumulated other comprehensive income ("AOCI") atDecember31,2020,relatedtoourcashflowhedgeswillbereclassifiedoutofAOCIandrecognizedinnetincome.
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Balance,beginningofperiod,netoftax $ (2,130) $ — $ —
Netincrease(decrease)infairvalue,netoftax 167,639 (5,999) —
Netrealized(gain)lossreclassifiedtonetincome,netoftax (36,236) 3,869 —
Balance,endofperiod,netoftax $ 129,273 $ (2,130) $ —
EPS
BasicEPSistheamountofearningsavailabletoeachshareofcommonstockoutstandingduringthereportingperiod.Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting periodadjustedtoincludetheeffectofpotentiallydilutivecommonshares.Potentiallydilutivecommonsharesincludeincrementalshares issuableforstockoptionandrestrictedstockunitawardsoutstandingunderour2006Equity IncentivePlanandourESPP.Potentiallydilutivecommonsharesareexcluded fromthecomputationofdilutiveEPS inperiods inwhich theeffectwouldbeantidilutive.ThefollowingisareconciliationofbasicEPStodilutedEPSfor2020,2019and2018:
YearendedDecember31,
(Dollarsandsharesinthousands,exceptpershareamounts) 2020 2019 2018
Numerator:
Netincomeavailabletocommonstockholders $ 1,191,217 $ 1,136,856 $ 973,840Denominator:
Weightedaveragecommonsharesoutstanding—basic 51,685 51,915 53,078Weightedaverageeffectofdilutivesecurities:
StockoptionsandESPP 151 227 377Restrictedstockunits 248 169 317
Weightedaveragecommonsharesoutstanding—diluted 52,084 52,311 53,772Earningspercommonshare:
Basic $ 23.05 $ 21.90 $ 18.35Diluted 22.87 21.73 18.11
ThefollowingtablesummarizestheweightedaveragecommonsharesexcludedfromthedilutedEPScalculationduetotheantidilutiveeffectfor2020,2019and2018:
YearendedDecember31,
(Sharesinthousands) 2020 2019 2018
Stockoptions 279 167 59Restrictedstockunits 10 250 85Total 289 417 144
StockRepurchaseProgram
OnOctober24,2019,ourBoardofDirectorsauthorizedastockrepurchaseprogramthatenabledustorepurchaseupto$350millionofouroutstandingcommonstock.TheprogramexpiredonOctober29,2020.Priortotheprogram'sexpirationand for the year ended December 31, 2020, we had repurchased 244,223 shares of our outstanding common stock for$60.0millionunderthestockrepurchaseprogram.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
123
PreferredStock
OnDecember9,2019,theCompanyissueddepositarysharesrepresentinganownershipinterestin350,000sharesofSeriesAPreferredStockwith$0.001parvalueandliquidationpreferenceof$1,000pershare,or$25perdepositaryshare.Allpreferredshareswereissuedintheformofdepositaryshares,witheachdepositarysharerepresentinga1/40thownershipinterestinashareofthepreferredstock.TheSeriesAPreferredStockhasnostatedmaturityandisnotsubjecttoanysinkingfund or other obligation of the Company.Dividends are approved by the Board ofDirectors and, if declared, are payablequarterly,inarrears,atarateperannumequalto5.25percent.TheSeriesAPreferredStockisredeemableattheCompany’soption, in whole or in part, on or after February 15, 2025. Prior to February 15, 2025, the Series A Preferred Stock isredeemableattheCompany’soption, inwholeandnot inpart, followinganychangein lawsorregulationsthatwouldnotallowtheCompanytotreatthefullliquidationvalueoftheSeriesAPreferredStockasTier1capitalforpurposesofthecapitaladequacy guidelines of the Board of Governors of the Federal Reserve System ("the Federal Reserve"). The redemptionamountiscomputedatthepershareliquidationpreferenceplusanydeclaredbutunpaiddividends.Redemptionsaresubjecttocertainregulatoryprovisions,includingapprovaloftheFederalReserve.
AsofDecember31,2020,therewere350,000sharesissuedandoutstandingofSeriesAPreferredShares,whichhadacarryingvalueof$340.1millionandliquidationpreferenceof$350.0million.
ThefollowingtablesummarizesourpreferredstockatDecember31,2020:
Series Description
Amountoutstanding(inmillions)
Carryingvalue
(inmillions)
Sharesissuedandoutstanding ParValue
Ownershipinterestperdepositary
share
Liquidationpreference
perdepositary
share
2020dividendspaidperdepositary
share
SeriesA5.250%Fixed-RateNon-CumulativePerpetualPreferredStock $ 350 $ 340.1 350,000 $ 0.001 1/40th $ 25 $ 1.23
On February 2, 2021, the Company issued Series B Preferred Stock. Refer to Note 28—“Subsequent Events” foradditionalinformation.
4. Share-BasedCompensation
Share-based compensation expense was recorded net of estimated forfeitures for 2020, 2019 and 2018, such thatexpensewas recordedonly for thoseshare-basedawards thatareexpected tovest. In2020,2019and2018,werecordedshare-basedcompensationandrelatedbenefitsasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Share-basedcompensationexpense $ 83,986 $ 66,815 $ 45,675
Incometaxbenefitrelatedtoshare-basedcompensationexpense (20,426) (16,152) (10,997)
Capitalizedcompensationcosts 1,383 1,517 1,466
EquityIncentivePlan
Our2006Equity IncentivePlan (the“2006 IncentivePlan”)wasadopted inMay2006,and isamended fromtime totime.The2006IncentivePlanprovidesforthegrantofvarioustypesofincentiveawards,ofwhichthefollowinghavebeengranted:(i)stockoptions;(ii)restrictedstockawards;(iii)restrictedstockunits(subjecttoeithertime-and/orperformance-based vesting); and (iv) other cash or stock settled equity awards. Eligible participants in the 2006 Incentive Plan includedirectors,employeesandconsultants.
SubjecttotheprovisionsofSection16ofthe2006IncentivePlan,themaximumaggregatenumberofsharesthatmaybeawardedandsoldthereunderis12,028,505.
Restricted stockawards/unitsare countedagainst theavailable-for-issuance limitsof the2006 IncentivePlanas twoshares for every one share awarded. Further, if shares acquired under any such award are forfeited, repurchased by SVBFinancial, used to satisfy the taxwithholding obligations related to an award or otherwise canceled andwould otherwisereturntothe2006IncentivePlan,twotimesthenumberofsuchshareswillreturntothe2006IncentivePlanandwillagainbecomeavailableforissuance.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
124
Under the terms of the 2006 Incentive Plan and subject to certain exceptions: (i) restricted stock awards/units aresubjecttoaminimumofatleastthreeyearsofannualvesting,and(ii)performance-basedrestrictedstockawards/unitsandstockoptionsaresubjecttoaminimumofatleastoneyearofvesting.Generallyinpractice,restrictedstockawards/unitsvestannuallyoverfouryearsandrequirecontinuedemploymentorotherservicethroughthevestingperiod.Performance-basedrestrictedstockawards/unitsgrantedtoexecutivesgenerallyvestuponmeetingcertainperformance-basedobjectivesoverathreeyearperiodand,typicallythepassageoftime,andrequirecontinuedemploymentorotherservicethroughthevestingperiod.Stockoptionstypicallyvestannuallyoverfouryears,fromthegrantdatebasedoncontinuedemploymentorotherservice,andexpirenolaterthansevenyearsafterthegrantdate.
EmployeeStockPurchasePlan
Wemaintain the1999ESPPunderwhichparticipatingemployeesmayannually contributeup to10percentof theirgrosscompensation(nottoexceed$25,000)topurchasesharesofourcommonstockat85percentofitsfairmarketvalueateitherthebeginningorendofeachsix-monthofferingperiod,whicheverpriceisless.TobeeligibletoparticipateintheESPP,an employeemust, among other requirements, be employed by the Company on both the date of offering and date ofpurchase,andbeemployedcustomarilyforatleast20hoursperweekandatleastfivemonthspercalendaryear.Weissued167,336sharesandreceived$30.2millionincashundertheESPPin2020.AtDecember31,2020,atotalof1,170,472sharesofourcommonstockwerestillavailableforfutureissuanceundertheESPP.
UnrecognizedCompensationExpense
AsofDecember31,2020,unrecognizedshare-basedcompensationexpensewasasfollows:
(Dollarsinthousands)Unrecognized
Expense
WeightedAverageExpectedRecognitionPeriod-inYears
Stockoptions $ 13,854 2.42
Restrictedstockawards/units 119,764 2.59
Totalunrecognizedshare-basedcompensationexpense $ 133,618
ValuationAssumptions
Thefairvaluesofshare-basedawardsforemployeestockoptionsandemployeestockpurchasesmadeunderourESPPwere estimated using the Black-Scholes option pricingmodel. The fair values of restricted stock unitswere based on ourclosing stock price on the date of grant. The following weighted average assumptions and fair values were used for ouremployeestockoptionsandrestrictedstockunits:
EquityIncentivePlanAwards 2020 2019 2018
Weightedaverageexpectedtermofoptions-inyears 4.6 4.6 4.8
WeightedaverageexpectedvolatilityoftheCompany'sunderlyingcommonstock 41.9% 35.5% 34.7%
Risk-freeinterestrate 0.37 2.26 2.82
Expecteddividendyield — — —
Weightedaveragegrantdatefairvalue-stockoptions $66.44 $83.50 $105.81
Weightedaveragegrantdatefairvalue-restrictedstockunits 199.51 243.65 294.50
ThefollowingweightedaverageassumptionsandfairvalueswereusedforourESPP:
ESPP 2020 2019 2018
Expectedterminyears 0.5 0.5 0.5
WeightedaverageexpectedvolatilityoftheCompany'sunderlyingcommonstock 51.9% 38.1% 32.2%
Risk-freeinterestrate 1.12 2.40 1.79
Expecteddividendyield — — —
Weightedaveragegrantdatefairvalue $69.54 $52.90 $62.76
Theexpectedtermisbasedontheimpliedtermofthestockoptionsusingfactorsbasedonhistoricalexercisebehavior.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
125
Theexpectedvolatilitiesarebasedonablendedrateconsistingofourhistoricvolatilityandourexpectedvolatilityoverafive-year term which is an indicator of expected volatility and future stock price trends. For 2020, 2019 and 2018, expectedvolatilities for the ESPP were equal to the historical volatility for the previous six-month periods. The expected risk-freeinterestrateswerebasedontheyieldsofU.S.Treasurysecurities,asreportedbytheFederalReserveBankofNewYork,withmaturitiesequaltotheexpectedtermsoftheemployeestockoptions.
Share-BasedPaymentAwardActivity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the year endedDecember31,2020:
Options
WeightedAverage
ExercisePrice
WeightedAverageRemaining
ContractualLife-inYears
AggregateIntrinsicValueofIn-The-Money
Options
OutstandingatDecember31,2019 625,407 $ 169.33Granted 124,091 187.59Exercised (173,536) 106.42Forfeited (15,931) 232.60Expired (1,030) 71.11
OutstandingatDecember31,2020 559,001 191.29 4.01 $ 109,865,324VestedandexpectedtovestatDecember31,2020 538,524 190.30 3.94 106,375,308ExercisableatDecember31,2020 276,191 157.07 2.47 63,734,604
The aggregate intrinsic value of outstanding options shown in the table above represents the pre-tax intrinsic valuebasedonourclosingstockpriceof$387.83asofDecember31,2020.ThefollowingtablesummarizesinformationregardingstockoptionsoutstandingandexercisableasofDecember31,2020:
OutstandingOptions ExercisableOptions
RangeofExercisePrices Shares
WeightedAverageRemaining
ContractualLife-inYears
WeightedAverage
ExercisePrice Shares
WeightedAverage
ExercisePrice
$101.14-105.84 87,538 2.31 $ 105.15 87,538 $ 105.15
105.85-126.18 42,249 0.33 108.04 42,249 108.04
126.19-173.94 47,407 1.36 130.42 46,673 129.81
173.95-181.63 64,974 3.33 178.39 45,579 178.39
181.64-195.34 116,375 6.33 184.86 — —
195.35-247.56 15,765 5.69 230.24 3,777 227.23
247.57-277.95 112,934 5.33 250.43 15,367 250.43
277.96-306.22 68,705 4.33 305.46 33,875 305.46
306.23-315.88 790 6.84 306.98 — —
315.89-324.77 2,264 4.60 324.77 1,133 324.77
Total 559,001 4.01 191.29 276,191 157.07
Weexpecttosatisfytheexerciseofstockoptionsbyissuingsharesunderthe2006IncentivePlan.Allfutureawardsofstockoptionsandrestrictedstockunitswillbeissuedfromthe2006IncentivePlan.AtDecember31,2020,2,682,494shareswereavailableforfutureissuance.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
126
Thetablebelowprovidesinformationforrestrictedstockunitsunderthe2006EquityIncentivePlanfortheyearendedDecember31,2020:
SharesWeightedAverage
GrantDateFairValue
NonvestedatDecember31,2019 847,972 $ 236.54Granted 460,671 199.51Vested (261,302) 209.30Forfeited (52,292) 225.66
NonvestedatDecember31,2020 995,049 227.12
Thefollowingtablesummarizesinformationregardingstockoptionandrestrictedstockunitactivityduring2020,2019and2018:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Totalintrinsicvalueofstockoptionsexercised $ 25,380 $ 23,088 $ 40,681
Totalgrantdatefairvalueofstockoptionsvested 5,868 5,735 5,823
Totalintrinsicvalueofrestrictedstockvested 55,782 56,101 63,917
Totalgrantdatefairvalueofrestrictedstockvested 47,237 35,191 28,813
5. VariableInterestEntities
OurinvolvementwithVIEsincludesourinvestmentsinventurecapitalandprivateequityfunds,debtfunds,privateandpublicportfoliocompaniesandourinvestmentsinqualifiedaffordablehousingprojects.
ThefollowingtablepresentsthecarryingamountsandclassificationofsignificantvariableinterestsinconsolidatedandunconsolidatedVIEsasofDecember31,2020andDecember31,2019:
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
127
(Dollarsinthousands) ConsolidatedVIEs UnconsolidatedVIEs
MaximumExposuretoLossinUnconsolidated
VIEs
December31,2020:Assets:
Cashandcashequivalents $ 14,859 $ — $ —
Non-marketableandotherequitysecurities(1) 422,049 858,617 858,617
Accruedinterestreceivableandotherassets 937 — —
Totalassets $ 437,845 $ 858,617 $ 858,617
Liabilities:
Otherliabilities(1) 1,410 370,208 —
Totalliabilities $ 1,410 $ 370,208 $ —
December31,2019:Assets:
Cashandcashequivalents $ 7,629 $ — $ —
Non-marketableandotherequitysecurities(1) 270,057 689,360 689,360
Accruedinterestreceivableandotherassets 1,117 — —
Totalassets $ 278,803 $ 689,360 $ 689,360
Liabilities:
Otherliabilities(1) 2,854 302,031 —
Totalliabilities $ 2,854 $ 302,031 $ —
(1) Included in our unconsolidated non-marketable and other equity securities portfolio at December 31, 2020 andDecember 31, 2019 are investments in qualified affordable housing projects of $616.2 million and $458.5 million,respectively, and related other liabilities consisting of unfunded commitments of $370.2 million and $302.0 million,respectively.
Non-marketableandotherequitysecurities
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital andprivateequityfunds,SPD-SVB,debtfunds,privateandpublicportfoliocompanies,includingpublicequitysecuritiesheldasaresult of equity warrant assets exercised and investments in qualified affordable housing projects. A majority of theseinvestments are investments held by SVB Financial in third-party funds inwhichwe do not have controlling or significantvariable interests.These investmentsrepresentourunconsolidatedVIEs inthetableabove.Ournon-marketableandotherequitysecuritiesportfolioalsoincludesinvestmentsfromSVBCapital.SVBCapitalisthefundsmanagementbusinessofSVBFinancialGroup,whichfocusesprimarilyonventurecapitalinvestments.TheSVBCapitalfamilyoffundsiscomprisedofdirectventurefundsthatinvestincompaniesandfundsoffundsthatinvestinotherventurecapitalfunds.Wehaveacontrollingand significant variable interest in three of these SVB Capital funds and consolidate these funds for financial reportingpurposes.
Allinvestmentsaregenerallynon-redeemableanddistributionsareexpectedtobereceivedthroughtheliquidationoftheunderlyinginvestmentsthroughoutthelifeoftheinvestmentfund.Investmentsmayonlybesoldortransferredsubjecttothenoticeandapprovalprovisionsoftheunderlying investmentagreement.Subjecttoapplicableregulatoryrequirements,includingtheVolckerRule,wealsomakecommitmentsto invest inventurecapitalandprivateequityfunds.Foradditionaldetails,seeNote21—“Off-BalanceSheetArrangements,GuaranteesandOtherCommitments.”
The Bank also has variable interests in low income housing tax credit funds, in connection with fulfilling itsresponsibilitiesundertheCommunityReinvestmentAct("CRA"),thataredesignedtogenerateareturnprimarilythroughtherealizationoffederaltaxcredits.Theseinvestmentsaretypicallylimitedpartnershipsinwhichthegeneralpartner,otherthanthe Bank, holds the power over significant activities of the VIE; therefore, these investments are not consolidated. ForadditionalinformationonourinvestmentsinqualifiedaffordablehousingprojectsseeNote8—“InvestmentSecurities."
As of December 31, 2020, our exposure to losswith respect to the consolidatedVIEs is limited to our net assets of$436.4million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $858.6million.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
128
6. ReservesonDepositwiththeFederalReserveBankandFederalBankStock
TheBankisrequiredtomaintainreservesagainstcustomerdepositsbykeepingbalanceswiththeFederalReserve.ThecashbalancesattheFederalReserveareclassifiedascashandcashequivalents.Additionally,asamemberoftheFHLBandFRB,wearerequiredtoholdsharesofFHLBandFRBstockundertheBank'sborrowingagreement.FHLBandFRBstockarerecordedat cost as a componentof other assets, andany cashdividends receivedare recordedas a componentof othernoninterestincome.
ThetablesbelowprovideinformationontherequiredreservebalancesattheFederalReserve,aswellassharesheldattheFHLBandFRBfortheyearsendedandasofDecember31,2020and2019:
YearendedDecember31,
(Dollarsinthousands) 2020 2019
AveragerequiredreservebalancesatFRBSanFrancisco $ 82,461 $ 315,784
December31,
(Dollarsinthousands) 2020 2019
FHLBstockholdings $ 17,250 $ 17,250
FRBstockholdings 43,982 43,008
7. CashandCashEquivalents
ThefollowingtabledetailsourcashandcashequivalentsatDecember31,2020andDecember31,2019:
(Dollarsinthousands) December31,2020 December31,2019
Cashandduefrombanks(1) $ 17,447,916 $ 6,492,443Securitiespurchasedunderagreementstoresell(2) 226,847 289,340Totalcashandcashequivalents $ 17,674,763 $ 6,781,783
(1) At December 31, 2020 and 2019, $13.7 billion and $3.7 billion, respectively, of our cash and due from banks wasdepositedat theFRBandwasearning interestat theFederalFunds target rate,and interest-earningdeposits inotherfinancialinstitutionswere$3.0billionand$2.1billion,respectively.
(2) AtDecember31,2020and2019, securitiespurchasedunderagreements to resellwerecollateralizedbyU.S.TreasurysecuritiesandU.S.agencysecuritieswithaggregate fairvaluesof$232millionand$295million, respectively.NoneofthesesecuritiesweresoldorrepledgedasofDecember31,2020and2019.
Additionalinformationregardingoursecuritiespurchasedunderagreementstoresellfor2020and2019areasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019
Averagesecuritiespurchasedunderagreementstoresell $ 149,385 $ 166,205Maximumamountoutstandingatanymonth-endduringtheyear 450,164 613,247
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
129
8. InvestmentSecurities
Our investment securities portfolio consists of (i) an available-for-sale securities portfolio and a held-to-maturitysecurities portfolio, both of which represent interest-earning investment securities; and (ii) a non-marketable and otherequity securitiesportfolio,whichprimarily represents investmentsmanagedaspartofour fundsmanagementbusinessaswellaspublicequitysecuritiesheldasaresultofequitywarrantassetsexercised.
Available-for-SaleSecurities
ThemajorcomponentsofourAFSinvestmentsecuritiesportfolioat2020and2019areasfollows:
December31,2020
(Dollarsinthousands)Amortized
CostUnrealized
GainsUnrealizedLosses
CarryingValue
Available-for-salesecurities,atfairvalue:U.S.Treasurysecurities $ 4,197,858 $ 271,977 $ (107) $ 4,469,728U.S.agencydebentures 233,727 4,165 (585) 237,307Foreigngovernmentdebtsecurities 24,491 1 — 24,492Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 13,271,482 232,850 (651) 13,503,681Agency-issuedcollateralizedmortgageobligations—fixedrate 8,076,832 40,010 (10,278) 8,106,564
Agency-issuedcommercialmortgage-backedsecurities 4,440,506 133,527 (3,367) 4,570,666Totalavailable-for-salesecurities $ 30,244,896 $ 682,530 $ (14,988) $ 30,912,438
December31,2019
(Dollarsinthousands)Amortized
CostUnrealized
GainsUnrealizedLosses
CarryingValue
Available-for-salesecurities,atfairvalue:U.S.Treasurysecurities $ 6,815,874 $ 82,267 $ (4,131) $ 6,894,010U.S.agencydebentures 100,000 — (453) 99,547Foreigngovernmentdebtsecurities 9,037 1 — 9,038Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 4,109,372 39,438 (19) 4,148,791Agency-issuedcollateralizedmortgageobligations—fixedrate 1,520,414 17,929 — 1,538,343
Agency-issuedcommercialmortgage-backedsecurities 1,339,651 1,078 (15,539) 1,325,190Totalavailable-for-salesecurities $ 13,894,348 $ 140,713 $ (20,142) $ 14,014,919
The following table summarizes sale activity of available-for-sale securities as recorded in the line item “Gains oninvestmentsecurities,net,"acomponentofnoninterestincome:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Salesproceeds $ 2,654,212 $ 2,189,087 $ 474,482
Netrealizedgainsandlosses:
Grossrealizedgains 61,165 1,250 127
Grossrealizedlosses — (5,155) (867)
Netrealizedlosses $ 61,165 $ (3,905) $ (740)
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
130
ThefollowingtablessummarizeourAFSsecuritiesinanunrealizedlosspositionforwhichanallowanceforcreditlosseshasnotbeenrecordedandsummarizedintocategoriesoflessthan12months,or12monthsorlongerasofDecember31,2020and2019:
December31,2020
Lessthan12months 12monthsorlonger(1) Total
(Dollarsinthousands)FairValueofInvestments
UnrealizedLosses
FairValueofInvestments
UnrealizedLosses
FairValueofInvestments
UnrealizedLosses
Available-for-salesecurities:
U.S.Treasurysecurities $ 59,929 $ (107) $ — $ — $ 59,929 $ (107)
U.S.agencydebentures 133,143 (585) — — 133,143 (585)
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 903,767 (651) — — 903,767 (651)
Agency-issuedcollateralizedmortgageobligations—fixedrate 2,199,207 (10,278) — — 2,199,207 (10,278)
Agency-issuedcommercialmortgage-backedsecurities 989,389 (3,367) — — 989,389 (3,367)
Totalavailable-for-salesecurities(1) $ 4,285,435 $ (14,988) $ — $ — $ 4,285,435 $ (14,988)
(1) As of December 31, 2020, we identified a total of 93 investments that were in unrealized loss positions with noinvestments in unrealized loss positions for a period of time greater than 12 months. Based on our analysis of thesecurities inanunrealized losspositionasofDecember31,2020,thedecline invalue isunrelatedtocredit lossand isrelatedtochangesinmarketinterestratessincepurchaseandthereforechangesinvalueforsecuritiesareincludedinother comprehensive income.Market valuations and credit loss analyses on assets in the AFS securities portfolio arereviewedandmonitoredonaquarterlybasis.AsofDecember31,2020,wedonotintendtosellanyofoursecuritiesinanunrealizedlosspositionpriortorecoveryofouramortizedcostbasis,anditismorelikelythannotthatwewillnotberequiredtosellanyofoursecuritiespriortorecoveryofouramortizedcostbasis.Noneofthe investments inourAFSsecuritiesportfoliowerepastdueasofDecember31,2020.
December31,2019
Lessthan12months 12monthsorlonger(1) Total
(Dollarsinthousands)FairValueofInvestments
UnrealizedLosses
FairValueofInvestments
UnrealizedLosses
FairValueofInvestments
UnrealizedLosses
Available-for-salesecurities:
U.S.Treasurysecurities $ 971,572 $ (3,996) $ 449,850 $ (135) $ 1,421,422 $ (4,131)
U.S.agencydebentures 99,547 (453) — — 99,547 (453)
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 4,014 (19) — — 4,014 (19)
Agency-issuedcommercialmortgage-backedsecurities 1,027,232 (15,539) — — 1,027,232 (15,539)
Totalavailable-for-salesecurities(1) $ 2,102,365 $ (20,007) $ 449,850 $ (135) $ 2,552,215 $ (20,142)
(1) As ofDecember 31, 2019,we identified a total of 58 investments thatwere in unrealized loss positions, ofwhich 12investments totaling $0.4 billionwith unrealized losses of $0.1million have been in an unrealized loss position for aperiodoftimegreaterthan12months.
Thefollowingtablesummarizesthefixedincomesecurities,carriedatfairvalue,classifiedasAFSasofDecember31,2020 by the remaining contractual principal maturities. For U.S. Treasury securities, U.S. agency debentures and foreigngovernmentdebt securities, theexpectedmaturity is theactual contractualmaturityof thenotes.Expectedmaturities formortgage-backedsecuritiesmaydiffersignificantlyfromtheircontractualmaturitiesbecausemortgageborrowershavetherighttoprepayoutstandingloanobligationswithorwithoutpenalties.Mortgage-backedsecuritiesclassifiedasAFStypicallyhave original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to besignificantlyshorterandvarybaseduponstructureandprepaymentsinlowerinterestrateenvironments.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
131
December31,2020
(Dollarsinthousands) TotalOneYearorLess
AfterOneYearto
FiveYears
AfterFiveYearstoTenYears
AfterTenYears
U.S.Treasurysecurities $ 4,469,728 $ 10,092 $ 3,532,784 $ 926,852 $ —U.S.agencydebentures 237,307 — — 237,307 —Foreigngovernmentdebtsecurities 24,492 24,492 — — —Residentialmortgage-backedsecurities:
Agency-issuedcollateralizedmortgage-backedsecurities 13,503,681 — — — 13,503,681
Agency-issuedcollateralizedmortgageobligations—fixedrate 8,106,564 — — — 8,106,564
Agency-issuedcommercialmortgage-backedsecurities 4,570,666 — — 1,502,572 3,068,094Total $30,912,438 $ 34,584 $ 3,532,784 $ 2,666,731 $24,678,339
Held-to-MaturitySecurities
ThecomponentsofourHTMinvestmentsecuritiesportfolioatDecember31,2020and2019areasfollows:
December31,2020
(Dollarsinthousands)Amortized
CostUnrealized
GainsUnrealizedLosses FairValue
AllowanceforCreditLosses(2)
Held-to-maturitysecurities,atcost:
U.S.agencydebentures(1) $ 402,265 $ 18,961 $ — $ 421,226 $ —
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 7,739,763 240,121 (2,211) 7,977,673 —Agency-issuedcollateralizedmortgageobligations—fixedrate 1,735,451 23,227 (296) 1,758,382 —Agency-issuedcollateralizedmortgageobligations—variablerate 136,913 317 — 137,230 —
Agency-issuedcommercialmortgage-backedsecurities 2,942,959 123,846 — 3,066,805 —
Municipalbondsandnotes 3,635,194 220,866 (505) 3,855,555 392
Totalheld-to-maturitysecurities $16,592,545 $ 627,338 $ (3,012) $17,216,871 $ 392
(1) ConsistsofpoolsofSmallBusiness InvestmentCompanydebentures issuedandguaranteedbytheU.S.SmallBusinessAdministration,anindependentagencyoftheUnitedStates.
(2)RefertoNote2—“SummaryofSignificantAccountingPolicies”formoreinformationonourcreditlossmethodology.
December31,2019
(Dollarsinthousands)Amortized
CostUnrealized
GainsUnrealizedLosses FairValue
Held-to-maturitysecurities,atcost:
U.S.agencydebentures(1) $ 518,728 $ 6,640 $ (668) $ 524,700
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 6,992,009 142,209 (2,066) 7,132,152
Agency-issuedcollateralizedmortgageobligations—fixedrate 1,608,032 592 (8,502) 1,600,122
Agency-issuedcollateralizedmortgageobligations—variablerate 178,611 94 (259) 178,446
Agency-issuedcommercialmortgage-backedsecurities 2,759,615 56,914 (4,508) 2,812,021
Municipalbondsandnotes 1,785,951 83,314 (1,434) 1,867,831
Totalheld-to-maturitysecurities $ 13,842,946 $ 289,763 $ (17,437) $ 14,115,272
(1) ConsistsofpoolsofSmallBusiness InvestmentCompanydebentures issuedandguaranteedbytheU.S.SmallBusinessAdministration,anindependentagencyoftheUnitedStates.
AllowanceforCreditLossesforHTMSecurities
ThefollowingtablesummarizestheactivityrelatingtoourallowanceforcreditlossesforHTMsecuritiesfor2020:
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
132
YearendedDecember31,2020:BeginningBalanceDecember31,2019
DayOneImpactofAdoptingASC326
ProvisionforHTMSecurities
EndingBalanceDecember31,2020(Dollarsinthousands)
Municipalbondsandnotes $ — $ 174 $ 218 $ 392
Totalallowanceforcreditlosses $ — $ 174 $ 218 $ 392
CreditQualityIndicators
Onaquarterly basis,managementmonitors the credit quality forHTM securities through theuseof standard creditratings. The following table summarizes our amortized cost of HTM securities aggregated by credit quality indicator atDecember31,2020:
(Dollarsinthousands) December31,2020
Municipalbondsandnotes:Aaa $ 2,070,311Aa1 1,144,500Aa2 420,383
Total $ 3,635,194
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
133
ThefollowingtablesummarizestheremainingcontractualprincipalmaturitiesonfixedincomeinvestmentsecuritiesclassifiedasHTMasofDecember31,2020.ForU.S.agencydebentures,theexpectedmaturity istheactualcontractualmaturityofthenotes.Expectedmaturitiesformortgage-backedsecuritiesmaydiffersignificantlyfromtheircontractualmaturitiesbecausemortgageborrowershavetherighttoprepayoutstandingloanobligationswithorwithoutpenalties.Mortgage-backedsecuritiesclassifiedasHTMtypicallyhaveoriginalcontractualmaturitiesfrom10to30yearswhereasexpectedaveragelivesofthesesecuritiestendtobesignificantlyshorterandvarybaseduponstructureandprepaymentsinlowerinterestrateenvironments.
December31,2020
TotalOneYearorLess
AfterOneYeartoFiveYears
AfterFiveYearstoTenYears
AfterTenYears
(Dollarsinthousands)Amortized
Cost FairValueAmortized
Cost FairValueAmortized
Cost FairValueAmortized
Cost FairValueAmortized
Cost FairValue
U.S.agencydebentures $ 402,265 $ 421,226 $ 4,675 $ 4,705 $ 148,478 $ 153,756 $ 249,112 $ 262,765 $ — $ —
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities 7,739,763 7,977,673 4,762 4,951 20,389 21,150 540,731 559,727 7,173,881 7,391,845
Agency-issuedcollateralizedmortgageobligations-fixedrate 1,735,451 1,758,382 — — 5,952 6,073 494,532 505,156 1,234,967 1,247,153
Agency-issuedcollateralizedmortgageobligations-variablerate 136,913 137,230 — — — — — — 136,913 137,230
Agency-issuedcommercialmortgage-backedsecurities 2,942,959 3,066,805 — — — — 102,359 119,922 2,840,600 2,946,883
Municipalbondsandnotes 3,635,194 3,855,555 46,292 46,641 144,347 150,940 669,281 721,554 2,775,274 2,936,420
Total $16,592,545 $17,216,871 $ 55,729 $ 56,297 $ 319,166 $ 331,919 $2,056,015 $2,169,124 $14,161,635 $14,659,531
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
134
Non-marketableandOtherEquitySecurities
Themajorcomponentsofournon-marketableandotherequitysecuritiesportfolioatDecember31,2020and2019areasfollows:
(Dollarsinthousands) December31,2020 December31,2019
Non-marketableandotherequitysecurities:Non-marketablesecurities(fairvalueaccounting):
Consolidatedventurecapitalandprivateequityfundinvestments(1) $ 88,937 $ 87,180Unconsolidatedventurecapitalandprivateequityfundinvestments(2) 184,886 178,217Otherinvestmentswithoutareadilydeterminablefairvalue(3) 60,975 55,255
Otherequitysecuritiesinpubliccompanies(fairvalueaccounting)(4) 280,804 59,200Non-marketablesecurities(equitymethodaccounting)(5):
Venturecapitalandprivateequityfundinvestments 362,192 215,367Debtfunds 5,444 7,271Otherinvestments 202,809 152,863
Investmentsinqualifiedaffordablehousingprojects,net(6) 616,188 458,476Totalnon-marketableandotherequitysecurities $ 1,802,235 $ 1,213,829
(1) The following table shows theamountsof venture capital andprivateequity fund investmentsheldby the followingconsolidatedfundsandourownershippercentageofeachfundatDecember31,2020and2019(fairvalueaccounting):
December31,2020 December31,2019
(Dollarsinthousands) Amount Ownership% Amount Ownership%
StrategicInvestorsFund,LP $ 4,850 12.6% $ 5,729 12.6%
CapitalPreferredReturnFund,LP 49,574 20.0 45,341 20.0
GrowthPartners,LP 34,513 33.0 35,976 33.0
CPI,LP — — 134 10.7
Totalconsolidatedventurecapitalandprivateequityfundinvestments $ 88,937 $ 87,180
(2) Thecarryingvaluerepresentsinvestmentsin162and205funds(primarilyventurecapitalfunds)atDecember31,2020andDecember31,2019,respectively,whereourownershipinterest istypically lessthan5%ofthevotinginterestsofeachsuchfundandinwhichwedonothavetheabilitytoexercisesignificantinfluenceoverthepartnershipsoperatingactivitiesandfinancialpolicies.Wecarryourunconsolidatedventurecapitalandprivateequityfundinvestmentsatfairvalue based on the fund investments' net asset values per share as obtained from the general partners of theinvestments. For each fund investment, we adjust the net asset value per share for differences between ourmeasurementdateandthedateofthefundinvestment’snetassetvaluebyusingthemostrecentlyavailablefinancialinformationfromtheinvesteegeneralpartner,forexampleSeptember30thforourDecember31stconsolidatedfinancialstatements, adjusted for any contributions paid, distributions received from the investment, and significant fundtransactionsormarketeventsduringthereportingperiod.
(3) These investments includedirectequity investments inprivatecompanies.Thecarryingvalue isbasedonthepriceatwhich the investment was acquired plus or minus changes resulting from observable price changes in orderlytransactionsforidenticalorsimilarinvestments.Weconsiderarangeoffactorswhenadjustingthefairvalueoftheseinvestments, including,butnot limitedto, thetermandnatureof the investment, localmarketconditions,values forcomparablesecurities,currentandprojectedoperatingperformance,exitstrategies,financingtransactionssubsequentto the acquisition of the investment and a discount for certain investments that have lock-up restrictions or otherfeaturesthatindicateadiscounttofairvalueiswarranted.
The following table shows the carrying amount of other investments without a readily determinable fair value atDecember 31, 2020, and the amounts recognized in earnings for the year ended December 31, 2020 and on acumulativebasis:
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
135
(Dollarsinthousands)Yearended
December31,2020CumulativeAdjustments
Measurementalternative:
CarryingvalueatDecember31,2020 $ 60,975
Carryingvalueadjustments:
Impairment $ (487) $ (947)
Upwardchangesforobservableprices 3,479 4,216
Downwardchangesforobservableprices (2,799) (3,898)
(4) Investmentsclassifiedasotherequitysecurities(fairvalueaccounting)representsharesheldinpubliccompaniesasaresultofexercisingpublicequitywarrantassets,directequityinvestmentsinpubliccompaniesheldbyourconsolidatedfunds, and exchange traded funds held by SVB Leerink. Changes in equity securities measured at fair value arerecognizedthroughnetincome.
(5) ThefollowingtableshowsthecarryingvalueandourownershippercentageofeachinvestmentatDecember31,2020and2019(equitymethodaccounting):
December31,2020 December31,2019
(Dollarsinthousands) Amount Ownership% Amount Ownership%
Venturecapitalandprivateequityfundinvestments:
StrategicInvestorsFundII,LP $ 3,705 8.6% $ 3,612 8.6%
StrategicInvestorsFundIII,LP 16,110 5.9 15,668 5.9
StrategicInvestorsFundIV,LP 25,169 5.0 27,064 5.0
StrategicInvestorsFundVfunds 67,052 Various 46,830 Various
CPII,LP(i) 7,887 5.1 5,907 5.1
Otherventurecapitalandprivateequityfundinvestments 242,269 Various 116,286 Various
Totalventurecapitalandprivateequityfundinvestments $ 362,192 $ 215,367Debtfunds:
GoldHillCapital2008,LP(ii) $ 3,941 15.5% $ 5,525 15.5%Otherdebtfunds 1,503 Various 1,746 Various
Totaldebtfunds $ 5,444 $ 7,271Otherinvestments:
SPDSiliconValleyBankCo.,Ltd. $ 115,232 50.0% $ 74,190 50.0%Otherinvestments 87,577 Various 78,673 Various
Totalotherinvestments $ 202,809 $ 152,863
(i) Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percentthroughourinvestmentsinStrategicInvestorsFundII,LP.
(ii) Ourownership includesdirectownership interestof11.5percent inthefundandan indirect interest inthefundthroughourinvestmentinGoldHillCapital2008,LLCof4.0percent.
(6) The following table presents the balances of our investments in qualified affordable housing projects and relatedunfunded commitments included as a component of "other liabilities" on our consolidated balance sheets atDecember31,2020and2019:
(Dollarsinthousands) December31,2020 December31,2019
Investmentsinqualifiedaffordablehousingprojects,net $ 616,188 $ 458,476
Otherliabilities 370,208 302,031
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
136
ThefollowingtablepresentsotherinformationrelatingtoourinvestmentsinqualifiedaffordablehousingprojectsfortheyearsendedDecember31,2020,2019and2018:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Taxcreditsandothertaxbenefitsrecognized $ 56,969 $ 35,037 $ 24,047
Amortizationexpenseincludedinprovisionforincometaxes(i) 43,875 28,267 18,876
(i) Allinvestmentsareamortizedusingtheproportionalamortizationmethodandamortizationexpenseisincludedintheprovisionforincometaxes.
Thefollowingtablepresentsthenetgainsandlossesonnon-marketableandotherequitysecuritiesin2020,2019and2018asrecordedinthelineitem“Gainsoninvestmentsecurities,net,"acomponentofnoninterestincome:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Netgains(losses)onnon-marketableandotherequitysecurities:
Non-marketablesecurities(fairvalueaccounting):
Consolidatedventurecapitalandprivateequityfundinvestments $ 32,439 $ 22,507 $ 20,999
Unconsolidatedventurecapitalandprivateequityfundinvestments 59,909 31,482 39,075
Otherinvestmentswithoutareadilydeterminablefairvalue 253 2,742 3,206
Otherequitysecuritiesinpubliccompanies(fairvalueaccounting) 104,865 7,772 (25,483)
Non-marketablesecurities(equitymethodaccounting):
Venturecapitalandprivateequityfundinvestments 161,828 73,813 49,341
Debtfunds (403) 1,647 541
Otherinvestments 696 (1,388) 1,155
Totalnetgainsonnon-marketableandotherequitysecurities $ 359,587 $ 138,575 $ 88,834
Less:realizednetgains(losses)onsalesofnon-marketableandotherequitysecurities 23,344 4,744 (26,097)
Netgainsonnon-marketableandotherequitysecuritiesstillheld $ 336,243 $ 133,831 $ 114,931
9. LoansandAllowanceforCreditLosses:LoansandUnfundedCreditCommitments
Weserveavarietyofcommercialclientsinthetechnology,lifescience/healthcare,privateequity/venturecapitalandpremiumwineindustries.Ourtechnologyclientsgenerallytendtobeintheindustriesofhardware(suchassemiconductors,communications, data, storage and electronics), software/internet (such as infrastructure software, applications, softwareservices,digitalcontentandadvertisingtechnology)andenergyandresourceinnovation("ERI").Ourlifescience/healthcareclients primarily tend to be in the industries of biotechnology, medical devices, healthcare information technology andhealthcare services. Loans to our technology, life science/healthcare and ERI clients are reported under the InvestorDependent,CashFlowDependentandBalanceSheetDependentrisk-basedsegmentsbelow.Loansmadetoprivateequity/venturecapitalfirmclientstypicallyenablethemtofundinvestmentspriortotheirreceiptoffundsfromcapitalcallsandarereportedunder theGlobalFundBanking (previouslyPrivateEquity/VentureCapital)portfolio segmentbelow.Loans to thepremium wine industry focus on vineyards and wineries that produce grapes and wines of high quality. In addition tocommercial loans, we make consumer loans through SVB Private Bank and provide real estate secured loans to eligibleemployeesthroughourEHOP.
Wealsoprovidecommunitydevelopment loansmadeaspartofour responsibilitiesunder theCRA.These loansareincludedwithin“constructionloans”belowandareprimarilysecuredbyrealestate.Additionally,beginninginApril2020,weacceptedapplicationsunder thePPPadministeredby theSBAunder theCARESActandoriginated loans toqualifiedsmallbusinesses.DisbursementofPPPfundsundertheCARESActexpiredonAugust8,2020,however,onDecember27,2020,theEconomicAidActwasenacted,andallowsborrowers toapply forPPP loansup toMarch31,2021,aswellasallowing forcertainPPPborrowerstoapplyforseconddrawloans.
CECLAdoption
OnJanuary1,2020,weadoptedthenewcreditlossguidance,CECL,andallrelatedamendments.Ourloanportfoliowaspooledintosixportfoliosegmentsthatsharesimilarriskcharacteristicsandrepresentthelevelatwhichwedevelopedour
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
137
systematicmethodology todetermineourallowance for credit losses. Further,ourportfolio segmentsweredisaggregatedandgroupedintotenclassesoffinancingreceivablethatrepresentthelevelatwhichwemonitorandassesscreditrisk,whichwerefertoas"risk-basedsegments".Assuch,ourfundedloansandcreditqualitydisclosuresbelowareprimarilypresentedattherisk-basedsegmentlevelofdisaggregation.AsofDecember31,2020,wehavesixportfoliosegmentsandelevenrisk-based segments reflective of the funding of SBA loans under the PPP. The comparative information below has beenreclassified to conform to current period presentations. However, the financial results continue to be reported under theaccountingstandardsineffectforthoseperiods.CertainpriorperiodcreditqualitydisclosuresrelatedtoimpairedloansandourindividuallyandcollectivelyevaluatedloanportfoliohavebeensupersededwiththenewCECLguidancebutareincludedbelowfor referencepurposes.Thesupersededtablesprovidedbelowarenotcomparative toourcreditqualitydisclosuresunderthenewcreditlossguidancefor2020.
Thecompositionof loansatamortizedcostbasisbrokenoutbyrisk-basedsegmentatDecember31,2020and2019,respectively,ispresentedinthefollowingtable:
December31,
(Dollarsinthousands) 2020 2019
Globalfundbanking $ 25,543,198 $ 17,696,794
Investordependent:
Earlystage 1,485,866 1,624,221
Midstage 1,564,870 1,047,398
Laterstage 1,921,082 1,663,576
Totalinvestordependent 4,971,818 4,335,195
Cashflowdependent:
Sponsorledbuyout 1,989,173 2,185,497
Other 2,945,360 2,238,741
Totalcashflowdependent 4,934,533 4,424,238
Privatebank(1)(5) 4,901,056 3,492,269
Balancesheetdependent 2,191,023 1,286,153
Premiumwine(1)(5) 1,052,643 1,062,264
Other(1)(5) 27,687 867,723
SBAloans 1,559,530 —
Totalloans(2)(3)(4) $ 45,181,488 $ 33,164,636
Allowanceforcreditlosses (447,765) (304,924)
Netloans $ 44,733,723 $ 32,859,712
(1) AsofDecember31,2020,asaresultofenhancedportfoliocharacteristicdefinitionsforourrisk-basedsegments,loansintheamountof$427millionand$53millionthatwouldhavebeenreportedinOtherunderhistoricaldefinitions,arenowbeingreportedinourPrivateBankandPremiumWinerisk-basedsegments,respectively.
(2) Total loansatamortizedcost isnetofunearned incomeof$226millionand$163millionatDecember31,2020and2019,respectively.
(3) Includedwithinourtotalloanportfolioarecreditcardloansof$400millionand$395millionatDecember31,2020and2019,respectively.
(4) Includedwithinourtotal loanportfolioareconstructionloansof$118millionand$183millionatDecember31,2020and2019,respectively.
(5) Ofourtotal loans,thetablebelowincludesthosesecuredbyrealestateatamortizedcostatDecember31,2020and2019andwerecomprisedofthefollowing:
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
138
December31,
(Dollarsinthousands) 2020 2019
Realestatesecuredloans:
Privatebank:
Loansforpersonalresidence $ 3,392,237 $ 2,829,880
Loanstoeligibleemployees 481,098 401,396
Homeequitylinesofcredit 42,449 55,461
Other 142,895 38,880
Totalprivatebankloanssecuredbyrealestate $ 4,058,679 $ 3,325,617
Premiumwine 824,008 820,730
Other 56,882 —
Totalrealestatesecuredloans $ 4,939,569 $ 4,146,347
CreditQualityIndicators
For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing andmonitoringcreditriskaswellasperformanceoftheloanandtheoverallportfolio.Ourinternalcreditriskratingsarealsousedtosummarizetheriskof lossduetofailurebyanindividualborrowertorepaytheloan.Forour internalcreditriskratings,eachindividualloanisgivenariskratingof1through10.Loansrisk-rated1through4areperformingloansandtranslatetoan internal ratingof“Pass,”with loans risk-rated1beingcashsecured.Loans risk-rated5 through7areperforming loans;however,weconsiderthemasdemonstratinghigherrisk,whichrequiresmorefrequentreviewoftheindividualexposures;thesetranslatetoaninternalratingof“Criticized.”Allofournonaccrualloansarerisk-rated8or9andareclassifiedunderthenonperformingcategory.Loansrated10arecharged-offandarenotincludedaspartofourloanportfoliobalance.Wereviewourcreditqualityindicatorsonaquarterlybasisforperformanceandappropriatenessofriskratingsaspartofourevaluationprocessforourallowanceforcreditlossesforloans.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
139
The following table summarizes the credit quality indicators, brokenoutby risk-based segment, asofDecember31,2020and2019:
(Dollarsinthousands) Pass CriticizedNonperforming(Nonaccrual) Total
December31,2020
Globalfundbanking $ 25,537,354 $ 5,833 $ 11 $ 25,543,198
Investordependent:
Earlystage 1,288,897 178,629 18,340 1,485,866
Midstage 1,420,788 140,026 4,056 1,564,870
Laterstage 1,744,662 147,763 28,657 1,921,082
Totalinvestordependent 4,454,347 466,418 51,053 4,971,818
Cashflowdependent:
Sponsorledbuyout 1,795,972 153,205 39,996 1,989,173
Other 2,677,371 261,985 6,004 2,945,360
Totalcashflowdependent 4,473,343 415,190 46,000 4,934,533
Privatebank 4,862,176 32,728 6,152 4,901,056
Balancesheetdependent 2,104,645 86,378 — 2,191,023
Premiumwine 910,397 141,248 998 1,052,643
Other 27,594 63 30 27,687
SBAloans 1,455,990 103,540 — 1,559,530
Totalloans(1) $ 43,825,846 $ 1,251,398 $ 104,244 $ 45,181,488
December31,2019
Globalfundbanking $ 17,708,550 $ 4,247 $ — $ 17,712,797
Investordependent
Earlystage 1,436,022 206,310 11,093 1,653,425
Midstage 924,002 125,451 17,330 1,066,783
Laterstage 1,490,561 201,819 6,296 1,698,676
Totalinvestordependent 3,850,585 533,580 34,719 4,418,884
Cashflowdependent
Sponsorledbuyout 2,039,847 118,588 44,585 2,203,020
Other 2,141,766 93,400 17,681 2,252,847
Totalcashflowdependent 4,181,613 211,988 62,266 4,455,867
Privatebank 3,472,138 11,601 5,480 3,489,219
Balancesheetdependent 1,231,961 65,343 — 1,297,304
Premiumwine 1,026,973 36,335 204 1,063,512
Other 890,059 62 — 890,121
Totalloans(1) $ 32,361,879 $ 863,156 $ 102,669 $ 33,327,704
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasisinaccordancewiththepreviousmethodology.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
140
Thefollowingtablesummarizesthecreditqualityindicators,brokenoutbyrisk-basedsegmentsandvintageyear,asofDecember31,2020:
TermLoansbyOriginationYear
(Dollarsinthousands) 2020 2019 2018 2017 2016 PriorRevolvingLoans
RevolvingLoans
ConvertedtoTermLoans Total
Globalfundbanking:
Riskrating:
Pass $ 439,494 $ 48,297 $ 68,491 $ 22,878 $ 2,389 $ 5,999 $24,947,428 $ 2,378 $25,537,354
Criticized — — — — — — 410 5,423 5,833
Nonperforming 3 8 — — — — — — 11
Totalglobalfundbanking $ 439,497 $ 48,305 $ 68,491 $ 22,878 $ 2,389 $ 5,999 $24,947,838 $ 7,801 $25,543,198
Investordependent:
Earlystage:
Riskrating:
Pass $ 667,006 $ 370,189 $ 120,920 $ 32,163 $ 1,234 $ 405 $ 96,363 $ 617 $ 1,288,897
Criticized 46,889 72,495 26,170 10,204 3,557 334 18,980 — 178,629
Nonperforming 2,438 9,354 5,368 441 — — 739 — 18,340
Totalearlystage $ 716,333 $ 452,038 $ 152,458 $ 42,808 $ 4,791 $ 739 $ 116,082 $ 617 $ 1,485,866
Midstage:
Riskrating:
Pass $ 840,431 $ 301,905 $ 145,588 $ 22,834 $ 5,086 $ 1,026 $ 101,423 $ 2,495 $ 1,420,788
Criticized 43,288 48,294 26,023 8,242 — 4,998 9,181 — 140,026
Nonperforming 10 614 218 2,539 — 675 — — 4,056
Totalmidstage $ 883,729 $ 350,813 $ 171,829 $ 33,615 $ 5,086 $ 6,699 $ 110,604 $ 2,495 $ 1,564,870
Laterstage:
Riskrating:
Pass $ 905,468 $ 393,584 $ 170,128 $ 37,967 $ 11 $ 8,087 $ 224,432 $ 4,985 $ 1,744,662
Criticized 22,286 55,254 30,252 1,142 — 1,547 37,282 — 147,763
Nonperforming 16,691 1,797 3,522 — — — 6,647 — 28,657
Totallaterstage $ 944,445 $ 450,635 $ 203,902 $ 39,109 $ 11 $ 9,634 $ 268,361 $ 4,985 $ 1,921,082
Totalinvestordependent $2,544,507 $1,253,486 $ 528,189 $ 115,532 $ 9,888 $ 17,072 $ 495,047 $ 8,097 $ 4,971,818
Cashflowdependent:
Sponsorledbuyout:
Riskrating:
Pass $ 791,480 $ 451,561 $ 273,719 $ 166,820 $ 36,900 $ — $ 75,492 $ — $ 1,795,972
Criticized 500 70,324 39,020 21,607 13,003 — 8,751 — 153,205
Nonperforming 33 11,869 16,068 7,177 — — 4,849 — 39,996
Totalsponsorledbuyout $ 792,013 $ 533,754 $ 328,807 $ 195,604 $ 49,903 $ — $ 89,092 $ — $ 1,989,173
Other
Riskrating:
Pass $ 879,542 $ 513,242 $ 179,169 $ 133,235 $ 38,808 $ 101 $ 933,274 $ — $ 2,677,371
Criticized 19,246 67,854 33,779 4,477 — — 136,629 — 261,985
Nonperforming — — 4,552 — — — 1,452 — 6,004
Totalother $ 898,788 $ 581,096 $ 217,500 $ 137,712 $ 38,808 $ 101 $ 1,071,355 $ — $ 2,945,360
Totalcashflowdependent $1,690,801 $1,114,850 $ 546,307 $ 333,316 $ 88,711 $ 101 $ 1,160,447 $ — $ 4,934,533
Privatebank:
Riskrating:
Pass $1,878,184 $1,152,903 $ 394,351 $ 352,857 $294,870 $405,909 $ 382,442 $ 660 $ 4,862,176
Criticized 3,480 9,985 4,486 1,202 5,101 7,725 749 — 32,728
Nonperforming — 563 3,197 — — 1,679 713 — 6,152
Totalprivatebank $1,881,664 $1,163,451 $ 402,034 $ 354,059 $299,971 $415,313 $ 383,904 $ 660 $ 4,901,056
Balancesheetdependent:
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
141
Riskrating:
Pass $ 837,613 $ 190,140 $ 198,532 $ 19,213 $ — $ — $ 857,642 $ 1,505 $ 2,104,645
Criticized 55,887 3,733 171 — — — 26,587 — 86,378
Nonperforming — — — — — — — — —
Totalbalancesheetdependent $ 893,500 $ 193,873 $ 198,703 $ 19,213 $ — $ — $ 884,229 $ 1,505 $ 2,191,023
Premiumwine:
Riskrating:
Pass $ 126,476 $ 193,744 $ 70,783 $ 79,088 $114,812 $153,841 $ 135,461 $ 36,192 $ 910,397
Criticized 17,882 24,286 35,737 10,300 13,559 5,766 33,718 — 141,248
Nonperforming — — — — 998 — — — 998
TotalPremiumwine $ 144,358 $ 218,030 $ 106,520 $ 89,388 $129,369 $159,607 $ 169,179 $ 36,192 $ 1,052,643
Other:
Riskrating:
Pass $ — $ 16,251 $ 10,910 $ — $ — $ 433 $ — $ — $ 27,594
Criticized 3 — — — — — 60 — 63
Nonperforming — 30 — — — — — — 30
Totalother $ 3 $ 16,281 $ 10,910 $ — $ — $ 433 $ 60 $ — $ 27,687
SBAloans:
Riskrating:
Pass $1,455,990 $ — $ — $ — $ — $ — $ — $ — $ 1,455,990
Criticized 103,540 — — — — — — — 103,540
Nonperforming — — — — — — — — —
TotalSBAloans $1,559,530 $ — $ — $ — $ — $ — $ — $ — $ 1,559,530
Totalloans $9,153,860 $4,008,276 $1,861,154 $ 934,386 $530,328 $598,525 $28,040,704 $ 54,255 $45,181,488
AllowanceforCreditLosses:Loans
FortheyearendingDecember31,2020,theACLforallsegmentswas impactedprimarilybytheunemploymentrateforecastassumptions,macroeconomicconditionsandtheforecastvolatilityrelatedtotheeconomicdownturncausedbytheCOVID-19pandemic. Inaddition to theabovedrivers, the change in theACL for theglobal fundbankingandprivatebankportfoliosegmentswasdrivenbysubstantialloangrowthandtheGDPgrowthrateforecastassumptions.
TheeconomicforecastinMoody’sAnalyticsDecember2020forecastwasutilizedinourquantitativemodelfortheACLasofDecember31,2020.Wedetermined the forecast tobea reasonableviewof theoutlook for theeconomygiven theavailableinformationasofDecember31,2020.TotheextentweidentifiedcreditriskconsiderationsthatwerenotcapturedbytheMoody'sAnalyticsDecember2020forecast,weaddressedtheriskthroughmanagement'squalitativeadjustmentstoourACL.
Thefollowingtablessummarizetheactivityrelatingtoourallowanceforcreditlossesforloansfor2020,2019and2018brokenoutbyportfoliosegment:
YearendedDecember31,2020 BeginningBalanceDecember31,
2019
ImpactofadoptingASC326 Charge-offs Recoveries
Provisionfor(Reductionof)Loans
ForeignCurrencyTranslationAdjustments
EndingBalanceDecember31,
2020(Dollarsinthousands)
Globalfundbanking $ 107,285 $ (69,888) $ — $ — $ 8,367 $ (180) $ 45,584
Investordependent:
Earlystage 26,245 39,911 (35,305) 10,821 45,825 (823) 86,674
Growthstage 56,125 31,713 (53,338) 14,042 79,145 (1,004) 126,683
Totalinvestordependent 82,370 71,624 (88,643) 24,863 124,970 (1,827) 213,357
Cashflowandbalancesheetdependent 80,820 (1,269) (11,187) 2,846 53,369 (330) 124,249
Privatebank 21,551 12,615 (1,616) 30 21,329 (280) 53,629
Premiumwineandother 12,898 12,382 (1,458) 1,279 (20,719) 4,654 9,036
SBAloans — — — — 1,910 — 1,910
Totalallowanceforcreditlosses $ 304,924 $ 25,464 $(102,904) $ 29,018 $ 189,226 $ 2,037 $ 447,765
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
142
YearendedDecember31,2019 BeginningBalanceDecember31,
2018 Charge-offs Recoveries
Provisionfor(Reductionof)
Loans
ForeignCurrencyTranslationAdjustments
EndingBalanceDecember31,
2019(Dollarsinthousands)
Globalfundbanking $ 93,781 $ (2,047) $ 2,047 $ 13,534 $ (30) $ 107,285
Investordependent:
Earlystage 25,885 (31,568) 9,088 22,462 378 26,245
Growthstage 46,216 (53,255) 4,945 58,337 (118) 56,125
Totalinvestordependent 72,101 (84,823) 14,033 80,799 260 82,370
Cashflowandbalancesheetdependent 87,735 (3,118) 4,683 (9,093) 613 80,820
PrivateBank 20,583 (1,031) 255 1,865 (121) 21,551
Premiumwineandother 6,703 (1,584) 20 7,078 681 12,898
Totalallowanceforcreditlosses $ 280,903 $ (92,603) $ 21,038 $ 94,183 $ 1,403 $ 304,924
YearendedDecember31,2018: BeginningBalanceDecember31,
2017 Charge-offs RecoveriesProvisionfor
Loans
ForeignCurrencyTranslationAdjustments
EndingBalanceDecember31,
2018(Dollarsinthousands)
Globalfundbanking $ 82,468 $ (112) $ — $ 11,698 $ (273) $ 93,781
Investordependent:
Earlystage 22,742 (32,495) 6,154 29,788 (304) 25,885
Growthstage 38,280 (16,727) 2,873 22,332 (542) 46,216
Totalinvestordependent 61,022 (49,222) 9,027 52,120 (846) 72,101
Cashflowandbalancesheetdependent 87,620 (16,223) 2,064 15,304 (1,030) 87,735
PrivateBank 16,441 (289) 486 3,986 (41) 20,583
Premiumwineandother 7,473 (2,071) 59 1,184 58 6,703
Totalallowanceforcreditlosses $ 255,024 $ (67,917) $ 11,636 $ 84,292 $ (2,132) $ 280,903
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
143
Thefollowingtablesummarizestheagingofourloansbrokenoutbyrisk-basedsegmentsasofDecember31,2020and2019:
(Dollarsinthousands)
30-59DaysPast
Due
60-89DaysPast
Due
EqualtoorGreaterThan90
DaysPastDue
TotalPastDue Current Total
LoansPastDue90DaysorMoreStillAccruingInterest
December31,2020:
Globalfundbanking $ 27,606 $ 8 $ 11 $ 27,625 $ 25,515,573 $ 25,543,198 $ —
Investordependent:
Earlystage 6,320 1,840 202 8,362 1,477,504 1,485,866 —
Midstage 5,984 238 907 7,129 1,557,741 1,564,870 —
Laterstage 5,363 — — 5,363 1,915,719 1,921,082 —
Totalinvestordependent 17,667 2,078 1,109 20,854 4,950,964 4,971,818 —
Cashflowdependent:
Sponsorledbuyout 34 — — 34 1,989,139 1,989,173 —
Other 6,510 58 — 6,568 2,938,792 2,945,360 —
Totalcashflowdependent 6,544 58 — 6,602 4,927,931 4,934,533 —
Privatebank 4,292 3,990 — 8,282 4,892,774 4,901,056 —
Balancesheetdependent 987 1,089 — 2,076 2,188,947 2,191,023 —
Premiumwine 3,168 — 998 4,166 1,048,477 1,052,643 —
Other 3 28 82 113 27,574 27,687 —
SBAloans — — — — 1,559,530 1,559,530 —
Totalloans(1) $ 60,267 $ 7,251 $ 2,200 $ 69,718 $ 45,111,770 $ 45,181,488 $ —
December31,2019:
Globalfundbanking $ 97,739 $ 383 $ 3,150 $ 101,272 $ 17,611,525 $ 17,712,797 $ 3,150
Investordependent:
Earlystage 1,307 22,062 723 24,092 1,629,333 1,653,425 —
Midstage 10,025 6,999 — 17,024 1,049,759 1,066,783 —
Laterstage 8,113 500 10,569 19,182 1,679,494 1,698,676 —
Totalinvestordependent 19,445 29,561 11,292 60,298 4,358,586 4,418,884 —
Cashflowdependent
Sponsorledbuyout — — — — 2,203,020 2,203,020 —
Other 2,426 3,061 2 5,489 2,247,358 2,252,847 —
Totalcashflowdependent 2,426 3,061 2 5,489 4,450,378 4,455,867 —
Privatebank 6,582 2,049 1,544 10,175 3,479,044 3,489,219 365
Balancesheetdependent 2,731 — — 2,731 1,294,573 1,297,304 —
Premiumwine 8,435 3,170 — 11,605 1,051,907 1,063,512 —
Other 17 — — 17 890,104 890,121 —
Totalloans(1) $ 137,375 $ 38,224 $ 15,988 $ 191,587 $ 33,136,117 $ 33,327,704 $ 3,515
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasisinaccordancewiththepreviousmethodology.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
144
NonaccrualLoans
ThefollowingtablesummarizesournonaccrualloanswithnoallowanceforcreditlossatDecember31,2020and2019:
December31,2020 December31,2019
(Dollarsinthousands)Nonaccrual
Loans
NonaccrualLoanswithnoAllowanceforCreditLoss
NonaccrualLoans
NonaccrualLoanswithnoAllowanceforCreditLoss
Globalfundbanking $ 11 $ 11 $ — $ —
Investordependent:
Earlystage 18,340 3 11,093 460
Midstage 4,056 3,159 17,330 274
Laterstage 28,657 118 6,296 —
Totalinvestordependent 51,053 3,280 34,719 734
Cashflowdependent:
Sponsorledbuyout 39,996 — 44,585 —
Other 6,004 1,138 17,681 2,782
Totalcashflowdependent 46,000 1,138 62,266 2,782
Privatebank 6,152 2,393 5,480 3,714
Balancesheetdependent — — — —
Premiumwine 998 998 204 —
Other 30 30 — —
SBAloans — — — —
Totalnonaccrualloans(1) $ 104,244 $ 7,850 $ 102,669 $ 7,230
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasisinaccordancewiththepreviousmethodology.
TroubledDebtRestructurings
AsofDecember31,2020,wehad17TDRswitha total carryingvalueof$61.1millionwhereconcessionshavebeengranted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were no unfundedcommitmentsavailableforfundingtotheclientsassociatedwiththeseTDRsasofDecember31,2020.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
145
ThefollowingtablesummarizesourloansmodifiedinTDRs,brokenoutbyrisk-basedsegment,atDecember31,2020and2019:
(Dollarsinthousands) December31,2020 December31,2019
LoansmodifiedinTDRs:
Globalfundbanking $ — $ —
Investordependent
Earlystage 6,705 9,471
Midstage 4,050 5,189
Laterstage 24,896 23,318
Totalinvestordependent 35,651 37,978
Cashflowdependent
Sponsorledbuyout 21,529 55,443
Other 1,237 —
Totalcashflowdependent 22,766 55,443
Privatebank — 2,104
Balancesheetdependent — —
Premiumwine 2,661 13,457
Other — —
SBAloans — —
TotalloansmodifiedinTDRs(1) $ 61,078 $ 108,982
(1) AsofDecember31,2020,loanamountsaredisclosedusingtheamortizedcostbasisasaresultoftheadoptionofCECL.Priorperiodloanamountsaredisclosedusingthegrossbasisinaccordancewiththepreviousmethodology.
ThefollowingtablesummarizestherecordedinvestmentinloansmodifiedinTDRs,brokenoutbyrisk-basedsegment,formodificationsmadeduring2020,2019and2018:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
LoansmodifiedinTDRsduringtheperiod:
Globalfundbanking $ — $ — $ —
Investordependent
Earlystage 6,112 9,471 660
Midstage 897 3,445 6,657
Laterstage 24,896 16,293 21,051
Totalinvestordependent 31,905 29,209 28,368
Cashflowdependent
Sponsorledbuyout 21,529 48,153 —
Other 1,237 — 12,386
Totalcashflowdependent 22,766 48,153 12,386
Privatebank — 1,792 320
Balancesheetdependent — — —
Premiumwine 998 11,017 —
Other — — —
SBAloans — — —
TotalloansmodifiedinTDRsduringtheperiod(1)(2) $ 55,669 $ 90,171 $ 41,074
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
146
(1) For theyearendedDecember31,2020, loanamountsaredisclosedusing theamortizedcostbasisasa resultof theadoption of CECL. Prior period loan amounts are disclosed using the gross basis in accordance with the previousmethodology.
(2) Therewere$31.1million,$11.3millionand$4.6millionofpartialcharge-offsduring2020,2019and2018,respectively.
During2020,$54.8millionofnewTDRsweremodifiedthroughpaymentdeferralsgrantedtoourclientsand$0.9millionwere modified through partial forgiveness of principal. During 2019, $86.9 million of new TDRs were modified throughpaymentdeferralsgrantedtoourclientsand$3.3millionweremodifiedthroughpartialforgivenessofprincipal.During2018,allnewTDRsof$41.1millionweremodifiedthroughpaymentdeferralsgrantedtoourclients.
ThefollowingtablesummarizestherecordedinvestmentinloansmodifiedinTDRswithintheprevious12monthsthatsubsequentlydefaultedduring2020,2019and2018:
December31,
(Dollarsinthousands) 2020 2019 2018
TDRsmodifiedwithintheprevious12monthsthatdefaultedduringtheperiod:
Globalfundbanking $ — $ — $ —
Investordependent
Earlystage — — —
Midstage — — —
Laterstage — 10,639 —
Totalinvestordependent — 10,639 —
Cashflowdependent
Sponsorledbuyout — 37,294
Other 487 — —
Totalcashflowdependent 487 37,294 —
Privatebank — — —
Balancesheetdependent — — —
Premiumwine 998 — —
Other — — —
SBAloans — — —
TotalTDRsmodifiedwithintheprevious12monthsthatdefaultedintheperiod(1) $ 1,485 $ 47,933 $ —
(1) For theyearendedDecember31,2020, loanamountsaredisclosedusing theamortizedcostbasisasa resultof theadoption of CECL. Prior period loan amounts are disclosed using the gross basis in accordance with the previousmethodology.
Charge-offsanddefaultsonpreviouslyrestructuredloansareevaluatedtodeterminetheimpacttotheallowanceforcreditlossesforloans,ifany.TheevaluationofthesedefaultsmayimpacttheassumptionsusedincalculatingthereserveonotherTDRsandnonaccrualloansaswellasmanagement’soveralloutlookofmacroeconomicfactorsthataffectthereserveontheloanportfolioasawhole.Afterevaluatingthecharge-offsanddefaultsexperiencedonourTDRswedeterminedthatnochangetoourreservingmethodologyforTDRswasnecessarytodeterminetheallowanceforcreditlossesforloansasofDecember31,2020.
AllowanceforCreditLosses:UnfundedCreditCommitments
We maintain a separate allowance for credit losses for unfunded credit commitments that is determined using amethodologythat is inherentlysimilartothemethodologyusedforcalculatingtheallowanceforcredit lossesfor loans.AtDecember31,2020,ourACLestimatesutilizedtheimprovedMoody'seconomicforecastsfromDecember2020asmentionedabove.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
147
Thefollowingtablesummarizestheactivityrelatingtoourallowanceforcreditlossesforunfundedcreditcommitmentsfor2020,2019and2018:
December31,
(Dollarsinthousands) 2020 2019 2018
Allowanceforcreditlosses:unfundedcreditcommitments,beginningbalance $ 67,656 $ 55,183 $ 51,770
ImpactofadoptingASC326 22,826 — —
Provisionforunfundedcreditcommitments 30,066 12,233 3,578
Foreigncurrencytranslationadjustments 248 240 (165)
Allowanceforcreditlosses:unfundedcreditcommitments,endingbalance(1) $ 120,796 $ 67,656 $ 55,183
(1) The“allowanceforcreditlosses:unfundedcreditcommitments”isincludedasacomponentof“otherliabilities”onourconsolidatedbalancesheets.SeeNote21—“Off-BalanceSheetArrangements,GuaranteesandOtherCommitments”foradditionaldisclosuresrelatedtoourcommitmentstoextendcredit.
CreditQualityDisclosuresSupersededbyRecentlyAdoptedAccountingStandards
Thefollowingtablesummarizesourimpairedloansastheyrelatetoourallowanceforloanlosses,brokenoutbyourpreviousportfoliosegmentsandclassesoffinancingreceivablefortheyearendedDecember31,2019:
(Dollarsinthousands)
Impairedloansforwhichthereisarelatedallowanceforloanlosses
Impairedloansforwhichthereisnorelatedallowanceforloanlosses
Totalcarryingvalueofimpairedloans
Totalunpaidprincipalof
impairedloans
December31,2019:
Commercialloans:
Software/internet $ 64,100 $ 31,472 $ 95,572 $ 109,736
Hardware 2,143 3,315 5,458 10,049
Privateequity/venturecapital — — — —
Lifescience/healthcare 25,941 5,671 31,612 70,600
Premiumwine 204 11,718 11,922 12,010
Other 1,284 1,681 2,965 3,114
Totalcommercialloans 93,672 53,857 147,529 205,509
Consumerloans:
Realestatesecuredloans 1,766 3,714 5,480 8,527
Totalconsumerloans 1,766 3,714 5,480 8,527
Total $ 95,438 $ 57,571 $ 153,009 $ 214,036
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
148
Thefollowingtablesummarizesouraverageimpairedloansandinterestincomerecognizedonimpairedloans,brokenoutbyourpreviousportfoliosegmentsandclassesoffinancingreceivableduring2019and2018:
YearendedDecember31,(Dollarsinthousands)
AverageimpairedloansInterestincomerecognizedon
impairedloans
2019 2018 2019 2018
Commercialloans:
Software/internet $ 88,628 $ 112,493 $ 2,813 $ 1,513
Hardware 12,500 28,540 464 312
Privateequity/venturecapital 2,264 1,327 — —
Lifescience/healthcare 44,827 30,144 919 756
Premiumwine 2,912 2,605 311 68
Other 2,050 171 21 —
Totalcommercialloans 153,181 175,280 4,528 2,649
Consumerloans:
Realestatesecuredloans 7,159 4,028 54 15
Otherconsumerloans 7 358 — —
Totalconsumerloans 7,166 4,386 54 15
Totalaverageimpairedloans $ 160,347 $ 179,666 $ 4,582 $ 2,664
ThefollowingtablesummarizestheallowanceforloanlossesindividuallyandcollectivelyevaluatedforimpairmentasofDecember31,2019,brokenoutbyourpreviousportfoliosegments:
December31,2019
IndividuallyEvaluatedforImpairment
CollectivelyEvaluatedforImpairment
(Dollarsinthousands)
Allowanceforloanlosses
Recordedinvestmentin
loans
Allowanceforloanlosses
Recordedinvestmentin
loans
Commercialloans:
Software/internet $ 26,613 $ 95,572 $ 73,610 $ 6,103,976
Hardware 1,214 5,458 18,430 1,365,701
Privateequity/venturecapital — — 115,805 17,801,324
Lifescience/healthcare 16,414 31,612 22,831 2,336,436
Premiumwine 204 11,922 4,944 1,076,295
Other 203 2,965 3,150 556,689
Totalcommercialloans 44,648 147,529 238,770 29,240,421
Totalconsumerloans 211 5,480 21,295 3,771,206
Total $ 44,859 $ 153,009 $ 260,065 $ 33,011,627
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
149
10. PremisesandEquipment
PremisesandequipmentatDecember31,2020and2019consistedofthefollowing:
December31,
(Dollarsinthousands) 2020 2019
Computersoftware $ 296,324 $ 261,643
Computerhardware 91,870 82,643
Leaseholdimprovements 124,057 121,907
Furnitureandequipment 50,036 46,300
Total 562,287 512,493
Accumulateddepreciationandamortization (386,469) (350,617)
Premisesandequipment,net $ 175,818 $ 161,876
Depreciationandamortizationexpenseforpremisesandequipmentwas$52.8million,$42.0millionand$38.1millionfortheyearsended2020,2019and2018,respectively.
11.Leases
Wehaveoperatingleasesforourcorporateofficesandcertainequipmentutilizedatthoseproperties.Weareobligatedunderanumberofnoncancelableoperatingleasesforpremisesandequipmentthatexpireatvariousdates,through2030,andinmostinstances, includeoptionstoreneworextendatmarketratesandterms.Suchleasesmayprovideforperiodicadjustmentsofrentalsduringthetermoftheleasebasedonchangesinvariouseconomicindicators.
Totalrecordedbalancesfortheleaseassetsandliabilitiesareasfollows:
December31,
(Dollarsinthousands) 2020 2019
Assets:
Right-of-useassets-operatingleases $ 209,932 $ 197,365
Liabilities:
Leaseliabilities-operatingleases 259,554 218,847
The components of our lease cost and supplemental cash flow information related to leases for the year endedDecember31,2020and2019wereasfollows:
December31,
(Dollarsinthousands) 2020 2019
Operatingleasecost $ 69,249 $ 41,049
Short-termleasecost 1,404 1,823
Variableleasecost 3,692 3,477
Less:subleaseincome (2,265) (4,492)
Totalleaseexpense,net $ 72,080 $ 41,857Supplementalcashflowsinformation:
Cashpaidforamountsincludedinthemeasurementofleaseliabilities:
Cashpaidforoperatingleases $ 50,194 $ 44,976
Noncashitemsduringtheperiod:
Leaseobligationsinexchangeforobtainingright-of-useassets:
Operatingleases $ 75,244 $ 33,167
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
150
ThetablebelowpresentsadditionalinformationrelatedtotheCompany'sleasesasofDecember31,2020and2019:December31,
2020 2019
Weighted-averageremainingterm(inyears)-operatingleases 6.05 6.29
Weighted-averagediscountrate-operatingleases(1) 2.38% 2.92%
(1) Theincrementalborrowingrateusedtocalculatetheleaseliabilitywasdeterminedbasedonthefactsandcircumstancesof theeconomicenvironmentandtheCompany’screditstandingasof theeffectivedateofASC842.Additionally, thetotal leasetermandtotal leasepaymentswerealsoconsideredindeterminingtherate.BasedontheseconsiderationstheCompany identifiedcredit termsavailableunder itsexistingcredit lineswhichrepresentacollateralizedborrowingrate that has varying credit terms that could bematched to total lease terms and total lease payments in ultimatelydeterminingtheimpliedborrowingrateineachleasecontract.
The following table presents our undiscounted future cash payments for our operating lease liabilities as ofDecember31,2020:
YearsendedDecember31,(Dollarsinthousands) OperatingLeases
2021 $ 51,547
2022 48,847
2023 48,190
2024 42,418
2025 32,080
2026andthereafter 53,842
Totalleasepayments $ 276,924
Less:imputedinterest (17,370)
Totalleaseliabilities $ 259,554
LeaseExits
The Company periodically reviews its lease portfolio to assess whether leased office space is adequate for itsoperations.DuetotheongoingimpactsofCOVID-19andthecontinuationofthework-from-homepolicy,wedecidedtoexitvariouslocationsduringthethreemonthsendedDecember31,2020.
TheCompanyexitedfromaportionofitscorporateheadquarters.Inrelationtothisexit,netoccupancyexpenseswere$7.6millionduetotheaccelerateddepreciationofROUassetsandleaseholdimprovements,aswellasadditionalterminationcosts. Premises and equipment expenses included $0.6 million related to the accelerated depreciation of furniture andfixtures. Both net occupancy and premises and equipment are included in the noninterest expense section of ourconsolidatedstatementsofincome.
Additionally, theCompanydecidedtoexit leases forportionsofvariousoffice locationsandmarket thesespaces forsublease.WhenacompanyplanstoutilizeanROUassetforlessthanitwasinitiallyintended,ASC842,Leases,requiresanevaluationforimpairmentanddisclosureinaccordancewithASC360-10-45-2,ImpairmentorDisposalofLong-LivedAssets.Usingeachlocationasastandaloneassetgroup,wedeterminedimpairmentchargesarerequired.Impairmentchargesthattotaled $16.8million are included in net occupancy expense in the consolidated statements of income and represent thepresent value of remaining lease obligations on the cease use dates. The related leasehold improvements, furniture andfixtures for these locationswere also impairedwith a loss recorded to premises and equipment, of $4.4million,which isincludedinthenoninterestexpensesectionoftheconsolidatedstatementsofincome.Thisimpairmentchargerepresentsthehistoricalcostoftheassetlessanyaccumulateddepreciation.
12.GoodwillandOtherIntangibleAssets
Goodwill
GoodwillatDecember31,2020was$142.7million,comprisedofrevenuegeneratingsynergiesfromouracquisitionofSVBLeerinkin2019aswellasouracquisitionofWRG'sdebtfundbusinessinDecember2020.
ThechangesingoodwillwereasfollowsfortheyearendedDecember31,2020and2019:
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
151
(Dollarsinthousands) Goodwill
BeginningbalanceatDecember31,2018 $ —
Acquisitions 137,823
EndingbalanceatDecember31,2019 $ 137,823
Acquisitions 4,862
EndingbalanceatDecember31,2020 $ 142,685
During2020,wecompletedourannualgoodwillimpairmenttestasofSeptember30,2020,asaresult,wedeterminedtherewas no impairment as ofDecember 31, 2020. Formore informationonour annual impairment policies, seeNote 2—“SummaryofSignificantAccountingPolicies."
OtherIntangibleAssets
Thefollowingtablepresentsthegrosscarryingamountandaccumulatedamortizationofother intangibleassetsasofDecember31,2020and2019:
December31,2020 December31,2019
(Dollarsinthousands) GrossAmountAccumulatedAmortization
NetCarryingAmount GrossAmount
AccumulatedAmortization
NetCarryingAmount
Otherintangibleassets:
Customerrelationships $ 42,000 $ 7,636 $ 34,364 $ 42,000 $ 3,818 $ 38,182Other 36,300 9,229 27,071 18,900 7,665 11,235Totalotherintangibleassets,net $ 78,300 $ 16,865 $ 61,435 $ 60,900 $ 11,483 $ 49,417
For the year ended December 31, 2020, we recorded amortization expense of $5.4 million. Assuming no futureimpairmentsofotherintangibleassetsoradditionalacquisitionsordispositions,thefollowingtablepresentstheCompany'sfutureexpectedamortizationexpenseforotherintangibleassetsthatwillcontinuetobeamortizedasofDecember31,2020:
YearsendedDecember31,(Dollarsinthousands)
OtherIntangibleAssets
2021 $ 8,217
2022 8,141
2023 8,141
2024 8,141
2025 6,900
2026andthereafter 21,895
Totalfutureamortizationexpense $ 61,435
13.Deposits
ThefollowingtablepresentsthecompositionofourdepositsatDecember31,2020and2019:
December31,
(Dollarsinthousands) 2020 2019
Noninterest-bearingdemand $ 66,519,240 $ 40,841,570
Interest-bearingcheckingandsavingsaccounts 4,800,831 568,256
Moneymarket 28,406,195 17,749,736
Moneymarketdepositsinforeignoffices 616,570 352,437
Sweepdepositsinforeignoffices 950,510 2,057,715
Time 688,461 188,093
Totaldeposits $ 101,981,807 $ 61,757,807
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
152
Theaggregateamountoftimedepositaccountsindividuallyequaltoorgreaterthan$250,000totaled$682millionand$180millionatDecember31,2020and2019,respectively.AtDecember31,2020,timedepositaccountsindividuallyequaltoorgreaterthan$250,000totaling$682millionwerescheduledtomaturewithinoneyear.
14.Short-TermBorrowingsandLong-TermDebt
Thefollowingtablerepresentsoutstandingshort-termborrowingsandlong-termdebtatDecember31,2020and2019:
CarryingValue
(Dollarsinthousands) MaturityPrincipalvalueatDecember31,2020
December31,2020
December31,2019
Short-termborrowings:
Othershort-termborrowings (1) $ 20,553 $ 20,553 $ 17,430
Totalshort-termborrowings $ 20,553 $ 17,430
Long-termdebt:
3.50%SeniorNotes January29,2025 $ 350,000 $ 348,348 $ 347,987
3.125%SeniorNotes June5,2030 500,000 495,280 —
Totallong-termdebt $ 843,628 $ 347,987
(1) Represents cash collateral received from certain counterparties in relation to market value exposures of derivativecontractsinourfavor.
Theaggregateannualmaturitiesoflong-termdebtobligationsasofDecember31,2020areasfollows:
YearendedDecember31,(Dollarsinthousands) Amount
2021 $ —
2022 —
2023 —
2024 —
2025 348,348
2026andthereafter 495,280
Total $ 843,628
Interest expense related to short-term borrowings and long-term debt was $25.1 million, $35.1 million and $46.6millionin2020,2019and2018,respectively.Theweightedaverageinterestrateassociatedwithourshort-termborrowingswas0.80percentasofDecember31,2020and1.55percentasofDecember31,2019.
3.50%SeniorNotes
InJanuary2015,SVBFinancialissued$350millionof3.50%SeniorNotesdueinJanuary2025.Wereceivednetproceedsofapproximately$346.4millionafterdeductingunderwritingdiscountsandcommissionsandissuancecosts.Thebalanceofour3.50%SeniorNotesatDecember31,2020was$348.3million,whichisreflectiveof$1.6millionofdebtissuancecostsanda$0.1milliondiscount.
3.125%SeniorNotes
OnJune5,2020,theCompanyissued$500.0millionof3.125%SeniorNotesdueinJune2030("3.125%SeniorNotes").The3.125%SeniorNotesmayberedeemedbyus,atouroption,atanytimepriortoMarch5,2030,ataredemptionpriceequal to the full aggregateprincipal amountplusa “make-whole”premiumpayment.We receivednetproceeds from thisoffering of approximately $495.4million after deducting underwriting discounts and commissions and issuance costs. Thebalance of our 3.125% SeniorNotes at December 31, 2020was $495.3million,which is reflective of $4.3million of debtissuancecostsanda$0.4milliondiscount.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
153
Short-termBorrowings
Wehavecertainfacilitiesinplacetoenableustoaccessshort-termborrowingsonasecuredandunsecuredbasis.OursecuredfacilitiesincludecollateralpledgedtotheFHLBofSanFranciscoandthediscountwindowattheFRB(usingbothfixedincome securities and loans as collateral). Our unsecured facility consists of our uncommitted federal funds lines. As ofDecember 31, 2020, collateral pledged to the FHLB of San Franciscowas comprised primarily of fixed income investmentsecurities and loans and had a carrying value of $6.8 billion, of which $5.8 billion was available to support additionalborrowings.AsofDecember31,2020,collateralpledgedtothediscountwindowattheFRBwascomprisedoffixedincomeinvestment securitiesandhada carryingvalueof$0.9billion, all ofwhichwasunusedandavailable to supportadditionalborrowings.Ourtotalunusedandavailableborrowingcapacityforouruncommittedfederalfundslinestotaled$1.9billionatDecember31,2020.Ourtotalunusedandavailableborrowingcapacityunderourmasterrepurchaseagreementswithvariousfinancialinstitutionstotaled$4.0billionatDecember31,2020.
On February 2, 2021, the Company issued $500million of SeniorNotes. The notes. Refer toNote 28—“SubsequentEvents”foradditionalinformation.
15. DerivativeFinancialInstruments
Weprimarilyusederivativefinancial instrumentstomanageinterestrateriskandcurrencyexchangerateriskandtoassist customerswith their riskmanagementobjectives,whichmay include currency exchange rate risks and interest raterisks.Also, inconnectionwithnegotiatingcredit facilitiesandcertainotherservices,weoftenobtainequitywarrantassetsgiving us the right to acquire stock in private, venture-backed companies in the technology and life science/healthcareindustries.
InterestRateRisk
Interestraterisk isourprimarymarketriskandcanresult fromtimingandvolumedifferences intherepricingofourinterestratesensitiveassetsandliabilitiesandchangesinmarketinterestrates.Tomanageinterestrateriskonourvariable-interestrate loanportfolio,weenter into interestrateswapcontractstohedgeagainst futurechanges in interestratesbyusing hedging instruments to lock in future cash inflows thatwould otherwise be impacted bymovements in themarketinterestrates.WedesignatetheseinterestrateswapcontractsascashflowhedgesthatqualifyforhedgeaccountingunderASC815,DerivativesandHedging("ASC815"),andrecordtheminotherassetsandotherliabilities.Forqualifyingcashflowhedges,changesinthefairvalueofthederivativearerecordedinaccumulatedothercomprehensiveincomeandrecognizedin earnings as thehedged itemaffects earnings.Derivative amounts affecting earnings are recognized consistentwith theclassificationofthehedgediteminthelineitem"Loans"aspartofinterestincome,acomponentofconsolidatednetincome.
WeassesshedgeeffectivenessunderASC815onaquarterlybasistoensureallhedgesremainhighlyeffectivetoensurehedgeaccountingunderASC815canbeapplied.IfthehedgingrelationshipnolongerexistsornolongerqualifiesasahedgeperASC815,anyamountsremainingasgainorlossinaccumulatedothercomprehensiveincomearereclassifiedintoearningsin the line item "loans" as part of interest income, a component of consolidated net income. As of March 31, 2020, allderivatives previously classified as hedgeswith notional balances totaling $5.0 billion and a net asset fair value of $227.5millionwereterminated.AsofDecember31,2020,thetotalunrealizedgainsonterminatedcashflowhedgesremaininginAOCI is $179.0 million, or $129.3 million net of tax. The unrealized gains will be reclassified into interest income as theunderlyingforecastedtransactionsimpactearningsthroughtheoriginalmaturityofthehedgedforecastedtransactions.Thetotalremainingtermoverwhichtheunrealizedgainswillbereclassifiedintoearningsisapproximatelyfouryears.
CurrencyExchangeRisk
We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure riskassociatedwith the net difference between foreign currency denominated assets and liabilities.Wedo not designate anyforeignexchangeforwardcontractsasderivativeinstrumentsthatqualifyforhedgeaccounting.Gainsorlossesfromchangesincurrencyratesonforeigncurrencydenominatedinstrumentsarerecordedinthelineitem"other"aspartofnoninterestincome,acomponentofconsolidatednetincome.Wemayexperienceineffectivenessintheeconomichedgingrelationship,because the instruments are revalued based upon changes in the currency’s spot rate on the principal value, while theforwardsarerevaluedonadiscountedcashflowbasis.Werecordforwardagreementsingainpositionsinotherassetsandlosspositionsinotherliabilities,whilenetchangesinfairvaluearerecordedinthelineitem"other"aspartofnoninterestincome,acomponentofconsolidatednetincome.
OtherDerivativeInstruments
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
154
Alsoincludedinourderivativeinstrumentsareequitywarrantassetsandclientforwardandoptioncontracts,andclientinterest rate contracts. For further description of these other derivative instruments, refer to Note 2—“Summary ofSignificantAccountingPolicies.”
CounterpartyCreditRisk
Weareexposed tocredit risk if counterparties toourderivativecontractsdonotperformasexpected.Wemitigatecounterpartycreditriskthroughcreditapprovals,limits,monitoringproceduresandobtainingcollateral,asappropriate.Withrespect tomeasuringcounterparty credit risk forderivative instruments,wemeasure the fair valueofagroupof financialassetsandfinancialliabilitiesonanetriskbasisbycounterpartyportfolio.
ThetotalnotionalorcontractualamountsandfairvalueofourderivativefinancialinstrumentsatDecember31,2020and2019wereasfollows:
December31,2020 December31,2019
NotionalorContractualAmount
FairValueNotionalorContractualAmount
FairValue
(Dollarsinthousands)DerivativeAssets(1)
DerivativeLiabilities(1)
DerivativeAssets(1)
DerivativeLiabilities(1)
Derivativesdesignatedashedginginstruments:
Interestraterisks:
Interestrateswaps $ — $ — $ — $ 1,915,000 $ 22,676 $ —
Interestrateswaps — — — 3,085,000 — 25,623
Derivativesnotdesignatedashedginginstruments:
Currencyexchangerisks:
Foreignexchangeforwards 68,381 306 — — — —
Foreignexchangeforwards 566,988 — 20,566 300,250 — 2,154
Otherderivativeinstruments:
Equitywarrantassets 253,153 203,438 — 225,893 165,473 —
Clientforeignexchangeforwards 8,025,973 214,969 — 4,661,517 114,546 —
Clientforeignexchangeforwards 7,490,723 — 188,565 4,326,059 — 94,745
Clientforeigncurrencyoptions 97,529 1,702 — 154,985 1,308 —
Clientforeigncurrencyoptions 97,522 — 1,702 154,985 — 1,308
Clientinterestratederivatives 1,082,265 67,854 — 1,275,190 28,811 —
Clientinterestratederivatives(2) 1,250,975 — 26,646 1,372,914 — 14,154
Totalderivativesnotdesignatedashedginginstruments 488,269 237,479 310,138 112,361
Totalderivatives $ 488,269 $ 237,479 $ 332,814 $ 137,984
(1) Derivativeassetsandliabilitiesareincludedin"accruedinterestreceivableandotherassets"and"otherliabilities",respectively,onourconsolidatedbalancesheets.
(2) Theamount reported reflects reductionsofapproximately$45.4millionand$17.4millionofderivative liabilitiesatDecember31,2020 and 2019, respectively, reflecting variation margin treated as settlement of the related derivative fair values for legal andaccountingpurposesasrequiredbycentralclearinghouses.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
155
Asummaryofourderivativeactivityandtherelatedimpactonourconsolidatedstatementsofincomefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) Statementofincomelocation 2020 2019 2018
Derivativesdesignatedashedginginstruments:
Interestraterisks:
Amountsreclassifiedfromaccumulatedothercomprehensiveincomeintoincome Interestincome—loans $ 49,928 $ (5,358) $ —
Derivativesnotdesignatedashedginginstruments:
Currencyexchangerisks:
Gains(losses)onrevaluationsofinternalforeigncurrencyinstruments,net Othernoninterestincome $ 39,247 $ 1,444 $ (373)
(Losses)gainsoninternalforeignexchangeforwardcontracts,net Othernoninterestincome (39,716) (1,853) 52
Netlossesassociatedwithinternalcurrencyrisk $ (469) $ (409) $ (321)
Otherderivativeinstruments:
Gains(losses)onrevaluationsofclientforeigncurrencyinstruments,net Othernoninterestincome $ 2,560 $ (15,146) $ 4,998
(Losses)gainsonclientforeignexchangeforwardcontracts,net Othernoninterestincome (3,017) 15,900 (4,011)
Net(losses)gainsassociatedwithclientcurrencyrisk $ (457) $ 754 $ 987
Netgainsonequitywarrantassets Gainsonequitywarrantassets,net $ 237,428 $ 138,078 $ 89,142
Netgains(losses)onotherderivatives Othernoninterestincome $ 28,056 $ (1,190) $ (179)
BalanceSheetOffsetting
Certainofourderivativeandotherfinancialinstrumentsaresubjecttoenforceablemasternettingarrangementswithourcounterparties.Theseagreementsprovideforthenetsettlementofmultiplecontractswithasinglecounterpartythrougha single payment, in a single currency, in the event of default on or termination of any one contract. The following tablesummarizesourassetssubjecttoenforceablemasternettingarrangementsasofDecember31,2020and2019:
(Dollarsinthousands)
GrossAmountsofRecognized
Assets
GrossAmountsoffsetintheStatementofFinancialPosition
NetAmountsofAssets
PresentedintheStatementofFinancialPosition
GrossAmountsNotOffsetintheStatementofFinancialPositionBut
SubjecttoMasterNettingArrangements
NetAmountFinancial
InstrumentsCashCollateralReceived(1)
December31,2020:
DerivativeAssets:
Interestrateswaps $ — $ — $ — $ — $ — $ —
Foreignexchangeforwards 215,275 — 215,275 (75,983) (20,550) 118,742
Foreigncurrencyoptions 1,702 — 1,702 (1,045) (3) 654
Clientinterestratederivatives 67,854 — 67,854 (67,854) — —
Totalderivativeassets: 284,831 — 284,831 (144,882) (20,553) 119,396
Reverserepurchase,securitiesborrowing,andsimilararrangements 226,847 — 226,847 (226,847) — —
Total $ 511,678 $ — $ 511,678 $ (371,729) $ (20,553) $ 119,396
December31,2019:
DerivativeAssets:
Interestrateswaps $ 22,676 $ — $ 22,676 $ (22,598) $ — $ 78
Foreignexchangeforwards 114,546 — 114,546 (36,855) (17,095) 60,596
Foreigncurrencyoptions 1,308 — 1,308 (848) (335) 125
Clientinterestratederivatives 28,811 — 28,811 (28,811) — —
Totalderivativeassets: 167,341 — 167,341 (89,112) (17,430) 60,799
Reverserepurchase,securitiesborrowing,andsimilararrangements 289,340 — 289,340 (289,340) — —
Total $ 456,681 $ — $ 456,681 $ (378,452) $ (17,430) $ 60,799
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
156
(1) Cashcollateralreceivedfromourcounterpartiesinrelationtomarketvalueexposuresofderivativecontractsinourfavorisrecordedasacomponentof“short-termborrowings”onourconsolidatedbalancesheets.
ThefollowingtablesummarizesourliabilitiessubjecttoenforceablemasternettingarrangementsasofDecember31,2020and2019:
(Dollarsinthousands)
GrossAmountsofRecognizedLiabilities
GrossAmountsoffsetintheStatementofFinancialPosition
NetAmountsofLiabilitiesPresentedintheStatementofFinancialPosition
GrossAmountsNotOffsetintheStatementofFinancialPositionBut
SubjecttoMasterNettingArrangements
NetAmountFinancial
InstrumentsCashCollateralPledged(1)
December31,2020:
DerivativeLiabilities:
Interestrateswaps $ — $ — $ — $ — $ — $ —
Foreignexchangeforwards 209,131 — 209,131 (84,547) (45,367) 79,217
Foreigncurrencyoptions 1,702 — 1,702 (645) (8) 1,049
Clientinterestratederivatives 26,646 — 26,646 — (26,100) 546
Totalderivativeliabilities: 237,479 — 237,479 (85,192) (71,475) 80,812
Repurchase,securitieslending,andsimilararrangements — — — — — —
Total $ 237,479 $ — $ 237,479 $ (85,192) $ (71,475) $ 80,812
December31,2019:
DerivativeLiabilities:
Interestrateswaps $ 25,623 $ — $ 25,623 $ (22,676) $ (2,947) $ —
Foreignexchangeforwards 96,899 — 96,899 (33,314) (22,030) 41,555
Foreigncurrencyoptions 1,308 — 1,308 (531) — 777
Clientinterestratederivatives 14,154 — 14,154 — (13,936) 218
Totalderivativeliabilities: 137,984 — 137,984 (56,521) (38,913) 42,550
Repurchase,securitieslending,andsimilararrangements — — — — — —
Total $ 137,984 $ — $ 137,984 $ (56,521) $ (38,913) $ 42,550
(1) Cashcollateralpledgedtoourcounterpartiesinrelationtomarketvalueexposuresofderivativecontractsinaliabilitypositionandrepurchaseagreementsarerecordedasacomponentof“cashandcashequivalents"onourconsolidatedbalancesheets.
16.NoninterestIncome
All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized withinnoninterestincome.IncludedbelowisasummaryofnoninterestincomefortheyearsendedDecember31,2020,2019and2018:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Noninterestincome:
Gainsoninvestmentsecurities,net $ 420,752 $ 134,670 $ 88,094
Gainsonequitywarrantassets,net 237,428 138,078 89,142
Clientinvestmentfees 132,200 182,068 130,360
Foreignexchangefees 178,733 159,262 138,812
Creditcardfees 97,737 118,719 94,072
Depositservicecharges 90,336 89,200 76,097
Lendingrelatedfees 57,533 49,920 41,949
Lettersofcreditandstandbylettersofcreditfees 46,659 42,669 34,600
Investmentbankingrevenue 413,985 195,177 —
Commissions 66,640 56,346 —
Other 98,145 55,370 51,858
Totalnoninterestincome $1,840,148 $ 1,221,479 $ 744,984
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
157
Gainsoninvestmentsecurities,net
Netgainsoninvestmentsecuritiesincludebothgainsandlossesfromournon-marketableandotherequitysecurities,which includepublicequitysecuritiesasaresultofexercisedequitywarrantassets,gainsand losses fromsalesofourAFSdebtsecuritiesportfolio,whenapplicable,andcarriedinterest.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital andprivateequityfunds,ourChinaJointVenture,debtfunds,privateandpublicportfoliocompanies,whichincludepublicequitysecurities held as a result of exercised equity warrant assets and qualified affordable housing projects. We experiencevariabilityintheperformanceofournon-marketableandotherequitysecuritiesfromperiodtoperiod,whichresultsinnetgainsorlossesoninvestmentsecurities(bothrealizedandunrealized).Thisvariabilityisduetoanumberoffactors,includingunrealizedchangesinthevaluesofourinvestments,changesintheamountofrealizedgainsfromdistributions,changesinliquidity events and general economic and market conditions. Unrealized gains from non-marketable and other equitysecuritiesforanysingleperiodaretypicallydrivenbyvaluationchanges.
The extent towhich any unrealized gains or losseswill become realized is subject to a variety of factors, including,amongotherthings,theexpirationofcertainsalesrestrictionstowhichtheseequitysecuritiesmaybesubjectto(e.g.,lock-upagreements),changes inprevailingmarketprices,marketconditions, theactual salesordistributionsofsecurities,andthetiming of such actual sales or distributions,which, to the extent such securities aremanaged by ourmanaged funds, aresubjecttoourfunds'separatediscretionarysales/distributionsandgovernanceprocesses.
Carried interest is comprised of preferential allocations of profits recognizable when the return on assets of ourindividualmanagedfundoffundsanddirectventurefundsexceedscertainperformancetargetsandispayabletous,asthegeneralpartnersofthemanagedfunds.Thecarriedinterestweearnisoftensharedwithemployees,whoarealsomembersofthegeneralpartnerentities.Werecordcarriedinterestonaquarterlybasisbymeasuringfundperformancetodateversustheperformancetarget.Forourunconsolidatedmanagedfunds,carriedinterestisrecordedasgainsoninvestmentsecurities,net. For our consolidated managed funds, it is recorded as a component of net income attributable to noncontrollinginterests. Carried interest allocated to others is recorded as a component of net income attributable to noncontrollinginterests. Any carried interest paid to us (or our employees)may be subject to reversal to the extent fund performancedeclines toa levelwhere inception todate carried interest is lower thanactualpaymentsmadeby the funds. The limitedpartnershipagreementsforourfundsprovidethatcarriedinterestisgenerallynotpaidtothegeneralpartnersuntilthefundshaveprovidedafullreturnofcontributedcapitaltothelimitedpartners.Accrued,butunpaidcarriedinterestmaybesubjecttoreversaltotheextentthatthefundperformancedeclinestoa levelwhere inception-to-datecarried interest is lessthanprioramountsrecognized.Carried interest incomeisaccountedforunderanownershipmodelbasedonASC323—EquityMethodofAccountingandASC810—Consolidation.
OurAFS securitiesportfolio is a fixed income investmentportfolio that ismanagedwith theobjectiveof earning anappropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well asaddressing our asset/liability management objectives. Though infrequent, sales of debt securities in our AFS securitiesportfoliomayresult innetgainsorlossesandareconductedpursuanttotheguidelinesofourinvestmentpolicyrelatedtothemanagementofourliquiditypositionandinterestraterisk.
Gains on investment securities are recognized outside of the scope of ASC 606 as it explicitly excludes noninterestincomeearnedfromourinvestment-relatedactivities.Asummaryofgainsandlossesoninvestmentsecuritiesfor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Gainsonnon-marketableandotherequitysecurities,net $ 359,587 $ 138,575 $ 88,834
Gains(losses)onsalesofavailable-for-saledebtsecurities,net 61,165 (3,905) (740)
Totalgainsoninvestmentsecurities,net $ 420,752 $ 134,670 $ 88,094
Gainsonequitywarrantassets,net
Inconnectionwithnegotiatingcreditfacilitiesandcertainotherservices,weoftenobtainrightstoacquirestockintheformofequitywarrantassets inprimarilyprivate,venture-backedcompanies inthetechnologyand lifescience/healthcareindustries.Anychangesinfairvaluefromthegrantdatefairvalueofequitywarrantassetswillberecognizedasincreasesordecreasestootherassetsonourbalancesheetandasnetgainsorlossesonequitywarrantassets,innoninterestincome,acomponentofconsolidatednetincome.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
158
Gains on equitywarrant assets are recognized outside of the scope of ASC 606 as it explicitly excludes noninterestincomeearned fromourderivative-relatedactivities.Asummaryofnetgainsonequitywarrantassets for2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Equitywarrantassets:
Gainsonexercises,net $ 179,648 $ 107,168 $ 58,186
Terminations (1,948) (3,502) (5,964)
Changesinfairvalue,net 59,728 34,412 36,920
Totalnetgainsonequitywarrantassets $ 237,428 $ 138,078 $ 89,142
Clientinvestmentfees
Client investment fees include fees earned from discretionary investmentmanagement services for substantially allclients,managing clients’ portfolios based on their investment policies, strategies and objectives and investment advisoryfees.Revenueisrecognizedonamonthlybasisuponcompletionofourperformanceobligationandconsiderationistypicallyreceived in the subsequentmonth. Included in our sweepmoneymarket fees are Rule 12(b)-1 fees, revenue sharing andcustomertransactional-basedfees.Rule12(b)-1feesandrevenuesharingarerecognizedasearnedbasedonclientfundsthatareinvestedintheperiod,typicallymonthly.Transactionalbasedfeesareearnedandrecognizedonfixedincomesecuritieswhen the transaction is executed on the clients' behalf. Amounts paid to third-party service providers are predominantlyexpensed, such that client investment fees are recorded gross of payments made to third parties. A summary of clientinvestmentfeesbyinstrumenttypefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Clientinvestmentfeesbytype:
Sweepmoneymarketfees $ 74,176 $ 104,236 $ 75,654
Assetmanagementfees(1) 42,768 28,665 23,882
Repurchaseagreementfees 15,256 49,167 30,824
Totalclientinvestmentfees(2) $ 132,200 $ 182,068 $ 130,360
(1) Represents fees earned from investments in third-party money market mutual funds and fixed-income securitiesmanagedbySVBAssetManagement.
(2) Representsfeesearnedonclientinvestmentfundswhicharemaintainedatthird-partyfinancialinstitutionsandarenotrecordedonourbalancesheet.
Foreignexchangefees
Foreignexchangefeesrepresenttheincomedifferentialbetweenpurchasesandsalesofforeigncurrencyonbehalfofour clients,primarily fromspot contracts. Foreignexchange spot contract feesare recognizedupon the completionof thesingleperformanceobligation,theexecutionofaspottradeinexchangeforafee.Inlinewithcustomarybusinesspractice,the legal right transfers to the client upon execution of a foreign exchange contract on the trade date, and as such, wecurrentlyrecognizeourfeesbasedonthetradedateandthetransactionsaretypicallysettledwithintwobusinessdays.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
159
Forward contract and option premium fees are recognized outside of the scope of ASC 606 as it explicitly excludesnoninterestincomeearnedfromourderivative-relatedactivities.Asummaryofforeignexchangefeeincomebyinstrumenttypefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Foreignexchangefeesbyinstrumenttype:
Spotcontractcommissions $ 157,852 $ 145,915 $ 127,459
Forwardcontractcommissions 19,849 13,068 10,940
Optionpremiumfees 1,032 279 413
Totalforeignexchangefees $ 178,733 $ 159,262 $ 138,812
Creditcardfees
Creditcardfeesincludeinterchangeincomefromcreditanddebitcardsandfeesearnedfromprocessingtransactionsfor merchants. Interchange income is earned after satisfying our performance obligation of providing nightly settlementservices to a payment network. Costs related to rewards programs are recorded when the rewards are earned by thecustomerandpresentedasa reductionto interchange fee income.Rewardsprogramscontinuetobeaccounted forunderASC310-Receivables.Ourperformanceobligations formerchantservice feesaretotransmitdataandfundsbetweenthemerchantandthepaymentnetwork.Creditcardinterchangeandmerchantservicefeesareearneddailyuponcompletionoftransactionsettlementservices.
Annualcardservicefeesarerecognizedonastraight-linebasisovera12-monthperiodandcontinuetobeaccountedforunderASC310-Receivables.Asummaryofcreditcardfeesbyinstrumenttypefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Creditcardfeesbyinstrumenttype:
Cardinterchangefees,net $ 75,562 $ 93,553 $ 74,381
Merchantservicefees 17,732 18,355 14,420
Cardservicefees 4,443 6,811 5,271
Totalcreditcardfees $ 97,737 $ 118,719 $ 94,072
Depositservicecharges
Deposit service charges include feesearned fromperforming cashmanagementactivities andotherdeposit accountservices.Depositservicesinclude,butarenotlimitedto,thefollowing:receivablesservices,whichincludemerchantservices,remotecapture,lockbox,electronicdepositcapture,andfraudcontrolservices.Paymentandcashmanagementproductsandservices include wire transfer and automated clearing house payment services to enable clients to transfer funds morequickly, aswell as business bill pay, business credit and debit cards, account analysis, and disbursement services. Depositservice charges are recognized over the period in which the related performance obligation is provided, generally on amonthlybasis,andarepresentedinthe"Disaggregationofrevenuefromcontractswithcustomers"tablebelow.
Lendingrelatedfees
Unusedcommitment fees,minimum finance feesandunused line feesare recognizedasearnedonamonthlybasis.Feesthatqualifyforsyndicationtreatmentarerecognizedatthecompletionofthesyndicatedloandealforwhichthefeeswerereceived.
LendingrelatedfeesarerecognizedoutsideofthescopeofASC606asitexplicitlyexcludesnoninterestincomeearnedfrom our lending-related activities. A summary of lending related fees by instrument type for 2020, 2019 and 2018 is asfollows:
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
160
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Lendingrelatedfeesbyinstrumenttype:
Unusedcommitmentfees $ 42,399 $ 34,829 $ 32,452
Other 15,134 15,091 9,497
Totallendingrelatedfees $ 57,533 $ 49,920 $ 41,949
Lettersofcreditandstandbylettersofcreditfees
Commercial and standby letters of credit represent conditional commitments issued by us on behalf of a client toguaranteetheperformanceoftheclienttoathirdpartywhencertainspecifiedfutureeventshaveoccurred.Feesgeneratedfrom letters of credit and standby letters of credit are deferred as a component of other liabilities and recognized innoninterest income over the commitment period using the straight-line method, based on the likelihood that thecommitmentbeingdrawndownwillberemote.LettersofcreditandstandbylettersofcreditfeesarerecognizedoutsideofthescopeofASC606asitexplicitlyexcludesnoninterestincomeearnedfromourlendingrelatedactivities.
Investmentbankingrevenue
We earn investment banking revenue from clients for providing services related to securities underwriting, privateplacementsandadvisoryservicesonstrategicmatterssuchasmergersandacquisitions.Underwritingfeesareattributabletopublicandprivateofferingsofequityanddebtsecuritiesandarerecognizedatthepointintimewhentheofferinghasbeendeemedtobecompletedbytheleadmanageroftheunderwritinggroup.Oncetheofferingiscompleted,theperformanceobligation has been satisfied; we recognize the applicable management fee as well as the underwriting fee, net ofconsiderationpayabletocustomers.Privateplacementfeesarerecognizedatthepointintimewhentheprivateplacementiscompleted, which is generally when the client accepts capital from the fund raise. Advisory fees from mergers andacquisitionsengagementsaregenerallyrecognizedatthepointintimewhentherelatedtransactioniscompleted.Expensesaredeferredonlytotheextenttheyareexplicitlyreimbursablebytheclientandtherelatedrevenueisrecognizedatapointintime.Allotherdeal-relatedexpensesareexpensedasincurred.Wehavedeterminedthatweactasprincipalinthemajorityofthesetransactionsandthereforepresentexpensesgrosswithinotheroperatingexpenses.
Asummaryofinvestmentbankingrevenuebyinstrumenttypefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Investmentbankingrevenue:
Underwritingfees $ 352,951 $ 153,306 $ —
Advisoryfees 40,006 37,846 —
Privateplacementsandother 21,028 4,025 —
Totalinvestmentbankingrevenue $ 413,985 $ 195,177 $ —
Commissions
Commissions includecommissions received fromclients for theexecutionofagency-basedbrokerage transactions inlistedandover-the-counterequities.Theexecutionofeachtradeorderrepresentsadistinctperformanceobligationandthetransactionpriceisfixedatthepointintimeortradeorderexecution.Tradeexecutionissatisfiedatthepointintimethatthecustomerhascontrolof theassetandassuch, feesare recordedona tradedatebasis.Commissionsarepresented in the"Disaggregationofrevenuefromcontractswithcustomers"tablebelow.
Other
Othernoninterestincomeprimarilyincludesincomefromfundmanagementfees,gainsfromconversionofconvertibledebtoptionsandservicerevenue.Fundmanagementfeesarecomprisedof feeschargeddirectlytoourmanagedfundsoffunds and direct venture funds. Fundmanagement fees are based upon the contractual terms of the limited partnershipagreementsandaregenerallyrecognizedasearnedoverthespecifiedcontractperiod,whichisgenerallyequaltothelifeoftheindividualfund.Fundmanagementfeesarecalculatedasapercentageofcommittedcapitalandcollectedinadvanceandare received quarterly. Fund management fees for certain of our limited partnership agreements are calculated as apercentageofdistributionsmadebythefundsandrevenueisrecordedonlyatthetimeofadistributionevent.Asdistribution
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
161
eventsarenotpredeterminedforthesecertainfunds,managementfeesareconsideredvariableandconstrainedunderASC606.
Gainsfromconversionofconvertibledebtoptionsrepresentunrealizedvaluationgainson loanconversionderivativeassets, and realized gains from the conversionof debt instruments, convertible into a thirdparty’s common stockupon atriggeringeventsuchasanIPO.GainsfromconversionofconvertibledebtoptionsarerecognizedoutsideofthescopeofASC606asitexplicitlyexcludesnoninterestincomeearnedfromourderivative-relatedactivities.
Other service revenueprimarily consists of dividend incomeon FHLB/FRB stock, correspondent bank rebate income,incentivefeesrelatedtocarriedinterestandotherfeeincome.Werecognizerevenuewhenourperformanceobligationsaremetandrecordrevenuesonadaily/monthly,quarterly,semi-annualorannualbasis.Foreventdrivenrevenuesources,werecognizerevenuewhen:(i)persuasiveevidenceofanarrangementexists,(ii)wehaveperformedtheservice,providedwehavenootherremainingobligationstothecustomer,(iii)thefeeisfixedordeterminableand(iv)collectabilityisprobable.
Asummaryofothernoninterestincomebyinstrumenttypefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Othernoninterestincomebyinstrumenttype:
Fundmanagementfees $ 38,960 $ 32,522 $ 23,016
Net(losses)gainsonrevaluationofforeigncurrencyinstruments,netofforeignexchangeforwardcontracts(1) (926) 345 666
Lossesonextinguishmentofdebt — (8,960) —
Gainsfromconversionofconvertibledebtoptions 30,018 — —
Otherservicerevenue 30,093 31,463 28,176
Totalothernoninterestincome $ 98,145 $ 55,370 $ 51,858
(1) Representsthenetrevaluationofclientandinternalforeigncurrencydenominatedfinancialinstruments.Weenterintoforeignexchangeforwardcontractstoeconomicallyreduceourforeignexchangeexposurerelatedtoclientandinternalforeigncurrencydenominatedfinancialinstruments.
DisaggregationofRevenuefromContractswithCustomers
ThefollowingtablespresentourrevenuesfromcontractswithcustomersdisaggregatedbyrevenuesourceandsegmentfortheyearsendedDecember31,2020,2019,and2018:
YearendedDecember31,2020 GlobalCommercialBank(2)
SVBPrivateBank
SVBCapital(2)
SVBLeerink(2) OtherItems Total(Dollarsinthousands)
Revenuefromcontractswithcustomers:Clientinvestmentfees $ 129,378 $ 2,822 $ — $ — $ — $ 132,200Spotcontractcommissions 156,725 544 — — 583 157,852Cardinterchangefees,gross 128,239 23 — — 1,545 129,807Merchantservicefees 17,732 — — — — 17,732Depositservicecharges 89,565 81 — — 690 90,336Investmentbankingrevenue — — — 413,985 — 413,985Commissions — — — 66,640 — 66,640Fundmanagementfees — — 32,233 6,727 — 38,960Performancefees — — 3,601 — — 3,601Correspondentbankrebates 5,729 — — — — 5,729Totalrevenuefromcontractswithcustomers $ 527,368 $ 3,470 $ 35,834 $ 487,352 $ 2,818 $1,056,842RevenuesoutsidethescopeofASC606(1) 78,365 66 190,120 8,624 506,131 783,306Totalnoninterestincome $ 605,733 $ 3,536 $225,954 $ 495,976 $ 508,949 $1,840,148
(1) AmountsareaccountedforunderseparateguidancethanASC606.(2) Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of noninterest income are shown net of
noncontrollinginterests.Noncontrollinginterestisincludedwithin“OtherItems."
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
162
YearendedDecember31,2019 GlobalCommercialBank(2)
SVBPrivateBank
SVBCapital(2)
SVBLeerink(2) OtherItems Total(Dollarsinthousands)
Revenuefromcontractswithcustomers:Clientinvestmentfees $ 180,152 $ 1,916 $ — $ — $ — $ 182,068Spotcontractcommissions 144,930 510 — — 475 145,915Cardinterchangefees,gross 154,197 — — — 756 154,953Merchantservicefees 18,355 — — — — 18,355Depositservicecharges 88,136 137 — — 927 89,200Investmentbankingrevenue — — — 195,177 — 195,177Commissions — — — 56,346 — 56,346Fundmanagementfees — — 26,850 5,672 — 32,522Correspondentbankrebates 6,415 — — — — 6,415Totalrevenuefromcontractswithcustomers $ 592,185 $ 2,563 $ 26,850 $ 257,195 $ 2,158 $ 880,951RevenuesoutsidethescopeofASC606(1) 45,737 803 95,544 7,321 191,123 340,528Totalnoninterestincome $ 637,922 $ 3,366 $122,394 $ 264,516 $ 193,281 $1,221,479
(1) AmountsareaccountedforunderseparateguidancethanASC606.(2) Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of noninterest income are shown net of
noncontrollinginterests.Noncontrollinginterestisincludedwithin“OtherItems."
YearendedDecember31,2018 GlobalCommercialBank(2)
SVBPrivateBank SVBCapital(2) OtherItems Total(Dollarsinthousands)
Revenuefromcontractswithcustomers:Clientinvestmentfees(3) $ 128,834 $ 1,526 $ — $ — $ 130,360Spotcontractcommissions 126,445 691 — 323 127,459Cardinterchangefees,gross 134,074 — — 428 134,502Merchantservicefees 14,415 4 — 1 14,420Depositservicecharges 74,348 108 — 1,641 76,097Fundmanagementfees — — 23,016 — 23,016Correspondentbankrebates 5,802 — — — 5,802Totalrevenuefromcontractswithcustomers $ 483,918 $ 2,329 $ 23,016 $ 2,393 $ 511,656RevenuesoutsidethescopeofASC606(1) 36,384 (48) 78,165 118,827 233,328Totalnoninterestincome $ 520,302 $ 2,281 $ 101,181 $ 121,220 $ 744,984
(1) AmountsareaccountedforunderseparateguidancethanASC606.(2) Global Commercial Bank’s and SVB Capital’s components of noninterest income are shown net of noncontrolling
interests.Noncontrollinginterestisincludedwithin“OtherItems."(3) FortheyearendedDecember31,2018,theamountofclientinvestmentfeespreviouslyreportedas"OtherItems"has
been correctly allocated to the reportable segment "Global Commercial Bank" to properly reflect the sourceof suchrevenue.Thecorrectionofthisimmaterialerrorhadnoimpactonthe"Total"amountofclientinvestmentfees.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
163
17. OtherNoninterestExpense
Asummaryofothernoninterestexpensefor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Lendingandotherclientrelatedprocessingcosts $ 29,783 $ 28,491 $ 24,237
Correspondentbankfees 15,065 14,503 13,713
Investmentbankingactivities 20,591 13,733 —
Tradeorderexecutioncosts 11,144 10,813 —
Dataprocessingservices 14,910 12,536 10,811
Telephone 8,591 9,861 9,404
Duesandpublications 4,251 4,603 4,605
Postageandsupplies 2,545 3,198 2,799
Other 83,295 54,841 21,682
Totalothernoninterestexpense $ 190,175 $ 152,579 $ 87,251
18. IncomeTaxes
Thecomponentsofourprovisionforincometaxesfor2020,2019and2018wereasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Currentprovision:
Federal $ 299,882 $ 296,400 $ 249,358
State 140,794 132,357 123,264
Deferredexpense(benefit):
Federal 5,296 (1,530) (11,777)
State 1,615 (1,542) (9,284)
Incometaxexpense $ 447,587 $ 425,685 $ 351,561
Oureffectivetaxrateiscalculatedbydividingincometaxexpensebythesumofincomebeforeincometaxexpenseandthenetincomeattributabletononcontrollinginterests.Thereconciliationbetweenthefederalstatutoryincometaxrateandoureffectiveincometaxratefor2020,2019and2018,isasfollows:
December31,
(Dollarsinthousands) 2020 2019 2018
Federalstatutoryincometaxrate 21.0% 21.0% 21.0%
Stateincometaxes,netofthefederaltaxeffect 6.8 7.0 7.2
Mealsandentertainment 0.1 0.4 0.3
Disallowedofficers'compensation 0.2 0.2 0.2
FDICpremiums 0.3 0.2 0.5
Share-basedcompensationexpenseonincentivestockoptionsandESPP (0.3) (0.6) (1.4)
Qualifiedaffordablehousingprojecttaxcredits (0.5) (0.3) (0.3)
Tax-exemptinterestincome (0.8) (0.6) (0.6)
Other,net 0.2 (0.1) (0.4)
Effectiveincometaxrate 27.0% 27.2% 26.5%
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
164
DeferredtaxassetsandliabilitiesatDecember31,2020and2019,consistedofthefollowing:
December31,
(Dollarsinthousands) 2020 2019
Deferredtaxassets:
Allowanceforcreditlosses $ 158,161 $ 103,267
Share-basedcompensationexpense 15,531 14,233
Stateincometaxes 16,640 16,097
Accruedcompensation 44,112 22,578
Leaseliability 69,714 60,635
Otheraccruals 10,018 12,383
Netoperatingloss 7,501 6,386
Goodwillandintangibles 3,165 3,141
Foreigntaxcreditcarryforward 9,028 —
SBAloanfees 6,115 —
Other 8,110 7,923
Deferredtaxassets 348,095 246,643
Valuationallowance (7,094) (5,919)
Netdeferredtaxassetsaftervaluationallowance 341,001 240,724
Deferredtaxliabilities:
Derivativeequitywarrantassets (71,019) (45,533)
Netunrealizedgainsoncashflowhedgederivatives (49,772) —
NetunrealizedgainsonAFSdebtsecurities (185,634) (33,480)
Non-marketableandotherequitysecurities (118,712) (54,239)
Premisesandequipmentandotherintangibles (23,721) (16,459)
Right-of-useassetanddeferredrentassets (52,057) (50,493)
Other (12,340) (12,087)
Deferredtaxliabilities (513,255) (212,291)
Netdeferredtax(liabilities)assets $ (172,254) $ 28,433
NetDeferredTaxAssets
U.S.federalnetoperatinglosscarryforwardstotaled$1.9millionand$2.2millionforDecember31,2020and2019.Ourforeignnetoperatinglosscarryforwardstotaled$25.3millionand$20.8millionatDecember31,2020and2019,respectively.Thesenetoperatinglosscarryforwardsexpireatvariousdatesbeginningin2022.
Currently,webelievethatitismorelikelythannotthatthebenefitfromtheforeignnetoperatinglosscarryforwards,whichareassociatedwithourGermanyandCanadaoperations,willnotberealizedintheneartermduetouncertaintiesinthetimingoffutureprofitabilityinthecourseofbusiness.Inrecognitionofthis,ourvaluationallowanceis$7.1milliononthedeferred tax assets related to our German and Canadian net operating loss carryforwards as of December 31, 2020.Webelieveitismorelikelythannotthattheremainingdeferredtaxassetswillberealizedthroughrecoveryoftaxespreviouslypaidand/orfuturetaxableincome.Therefore,novaluationallowancewasprovidedfortheremainingdeferredtaxassets.
Wearesubjectto incometaxandnon-incomebasedtaxesbytheU.S.federaltaxauthoritiesaswellasvariousstateandforeigntaxauthorities.WehaveidentifiedtheU.S.federalandCaliforniastatejurisdictionsasmajortaxfilings.OurU.S.federaltaxreturnsremainopentofullexaminationfor2017andsubsequenttaxyears.OurCaliforniataxreturnsremainopentofullexaminationfor2016andsubsequenttaxyears.
At December 31, 2020, our unrecognized tax benefitwas $16.5million, the recognition ofwhichwould reduce ourincometaxexpenseby$13.1million.Wedonotexpectthatourunrecognizedtaxbenefitwillmateriallychangeinthenext12months.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
165
Werecognizeinterestandpenaltiesrelatedtoincometaxmattersaspartofincomebeforeincometaxes.InterestandpenaltieswerenotmaterialfortheyearsendedDecember31,2020,2019and2018.
Asummaryofchangesinourunrecognizedtaxbenefit(includinginterestandpenalties)forDecember31,2020,2019and2018isasfollows:
(Dollarsinthousands)
ReconciliationofUnrecognizedTax
BenefitInterestandPenalties Total
BalanceatDecember31,2017 $ 11,505 $ 1,178 $ 12,683
Additionsfortaxpositionsforcurrentyear 4,171 — 4,171
Additionsfortaxpositionsforprioryears 631 823 1,454
Reductionfortaxpositionsforprioryears (1,865) (243) (2,108)
Lapseoftheapplicablestatuteoflimitations (435) (86) (521)
Reductionasaresultofsettlement (1,318) (222) (1,540)
BalanceatDecember31,2018 $ 12,689 $ 1,450 $ 14,139
Additionsfortaxpositionsforcurrentyear 3,712 — 3,712
Additionsfortaxpositionsforprioryears 63 826 889
Reductionfortaxpositionsforprioryears (884) (524) (1,408)
Lapseoftheapplicablestatuteoflimitations (1,826) (569) (2,395)
Reductionasaresultofsettlement (1,142) (17) (1,159)
BalanceatDecember31,2019 $ 12,612 $ 1,166 $ 13,778
Additionsfortaxpositionsforcurrentyear 5,051 — 5,051
Additionsfortaxpositionsforprioryears 1,765 1,224 2,989
Reductionfortaxpositionsforprioryears (730) (69) (799)
Lapseoftheapplicablestatuteoflimitations (1,100) (323) (1,423)
Reductionasaresultofsettlement (1,108) (219) (1,327)
BalanceatDecember31,2020 $ 16,490 $ 1,779 $ 18,269
19.EmployeeCompensationandBenefitPlans
Our employee compensation and benefit plans include: (i) Incentive Compensation Plan; (ii) Direct Drive IncentiveCompensation Plan; (iii) Retention Program; (iv)Warrant Incentive Plan; (v) Deferred Compensation Plan; (vi) 401(k) andESOP;(vii)SVBLeerink IncentiveCompensationPlan; (viii)SVBLeerinkRetentionAward;(ix)EHOP;(x)2006IncentivePlan;and(xi)ESPP.The2006IncentivePlanandtheESPParedescribedinNote4—“Share-BasedCompensation.”
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
166
Asummaryofexpensesincurredundercertainemployeecompensationandbenefitplansfor2020,2019and2018isasfollows:
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
IncentiveCompensationPlan $ 193,004 $ 143,888 $ 160,293
DirectDriveIncentiveCompensationPlan 37,681 37,315 40,578
RetentionProgram — 2,438 1,438
WarrantIncentivePlan 33,921 14,881 9,112
SVBFG401(k)Plan 29,939 25,687 21,323
SVBFGESOP 5,807 4,197 6,435
SVBLeerinkIncentiveCompensationPlan 233,145 106,871 —
SVBLeerinkRetentionAward 12,991 12,015 —
IncentiveCompensationPlan
Our Incentive Compensation Plan (“ICP”) is an annual cash incentive plan that rewards performance based on ourfinancial results andotherperformance criteria.Awardsaremadebasedon companyperformance, theemployee's targetbonuslevelandmanagement'sassessmentofindividualemployeeperformance.
DirectDriveIncentiveCompensationPlan
TheDirectDrive IncentiveCompensationPlan (“DirectDrive”) isanannual salescash incentiveprogram.Awardsarebasedonsalesteams'performanceastopredeterminedfinancialtargetsandothercompany/individualperformancecriteria.ActualawardsforeachsalesteammemberunderDirectDrivearebasedon:(i)theactualresultsandfinancialperformancewithrespecttotheincentivegrossprofittargets;(ii)thesalesteampayouttargets;and(iii)thesalesteammember'ssalespositionandteampayoutallocation.
RetentionProgram
TheRetentionProgram(“RP”) isa long-termincentiveplanthatallowsdesignatedemployeestosharedirectly inourinvestment success. Plan participants were granted an interest in the distributions of gains from certain designatedinvestmentsmadebyusduringtheapplicableyear.Specifically,participantssharein:(i)returnsfromdesignatedinvestmentsmade by us, including investments in certain venture capital and private equity funds, debt funds and direct equityinvestmentsincompanies;(ii)netincomerealizedfromtheexerciseof,andthesubsequentsaleofsharesobtainedthroughtheexerciseof,warrantsheldbyus;and(iii)otherdesignatedamountsasdeterminedbyus.Since2009,nonewparticipantshavebeenaddedandnonewinvestmentshavebeendesignatedtotheplan.Thefinaldistributionsunderthisprogramweremadeduring2020andwedidnotincuranyexpensesfortheyearendedDecember31,2020.
WarrantIncentivePlan
TheWarrant IncentivePlanprovides individualandteamawardstothoseemployeeswhonegotiatewarrantsonourbehalf.Designatedparticipants,asdeterminedbytheCompany,shareinthecashproceedsreceivedbytheCompanyfromtheexerciseofequitywarrantassets.
DeferredCompensationPlan
UndertheDeferredCompensationPlan(the“DCPlan”),eligibleemployeesmayelecttodeferupto50percentoftheirbasesalaryand/orupto100percentofanyeligiblebonuspaymentearnedduringtheplanyear.AnyamountsdeferredundertheDCPlanwillbe investedandadministeredbyus (or suchpersonwedesignate).Wegenerallydonotmatchemployeedeferrals to the DC Plan. From time to time, we may also offer deferred special retention incentives and employercontributions under this plan to key planparticipants. Thedeferred incentives and employer contributions are eligible forinvestmentintheDCPlanduringtheretentionqualifyingperiodorvestingperiod.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
167
Voluntary deferrals under the DC Plan were $5.8 million $6.9 million and $5.5 million in 2020, 2019 and 2018,respectively.TheDCPlanoverall,hadinvestmentgainsof$8.5million,gainsof$6.9millionandlossesof$1.7millionin2020, 2019and2018,respectively.
401(k)andESOP
The401(k)PlanandESOP, collectively referred toas the “Plan”, is a combined401(k) tax-deferred savingsplanandemployeestockownershipplaninwhichallregularU.S.employeesareeligibletoparticipate.
Employeesparticipatinginthe401(k)Planareallowedtocontributeupto75percentoftheirpre-taxpayasdefinedinthePlan,uptothemaximumannualamountallowableunderfederalincometaxregulationsof$19,500for2020,$19,000for2019,and$18,500for2018.Wematchtheemployee'scontributionsdollar-for-dollar,uptofivepercentoftheemployee'spre-taxpayasdefined inthePlan.Ourmatchingcontributionsvest immediately.Theamountofsalarydeferred,uptotheallowedmaximum,isnotsubjecttofederalorstateincometaxesatthetimeofdeferral.
Discretionary ESOP contributions, based on our company performance, are made by us to all eligible individualsemployedbyusonthelastdayofthefiscalyear.Wemayelecttocontributecashorourcommonstock(oracombinationofcashandstock), inanamountnotexceedingtenpercentoftheemployee'seligiblepayearnedinthefiscalyear.TheESOPcontributionsvestinequalannualincrementsoveraparticipant'sfirstfiveyearsofservice(thereafter,allsubsequentESOPcontributionsarefullyvested).
SVBLeerinkIncentiveCompensationPlan
OurSVBLeerinkIncentiveCompensationPlanisanannualcashincentiveplanthatrewardsperformanceofSVBLeerinkemployeesbasedonSVBLeerink'sfinancialresults.Thisplanrequiresemployeeswhoexceedcertaincompensationlevelstodefer aportionof their compensation, ofwhich, 25%will be settled in the formof restricted stockunits and75%will besettledintheformofcash.Thedeferredcompensationvestsoveraperiodofuptofiveyears.
SVBLeerinkRetentionAward
TheSVBLeerinkRetentionAwardisanincentiveawardthatgranteddesignatedSVBLeerinkemployeesrestrictedstockawardsandcashafterthecloseoftheacquisitionofSVBLeerinkinJanuary2019.Theaggregateamountoftheawardswas$60million,ofwhich50%willbesettledintheformofcashand50%intheformofrestrictedstockawards.Theawardsvestinequalannualincrementsoverfiveyears.
EHOPProgram
TheEHOPisabenefitplanthatprovidesfortheissuanceofmortgageloanstoeligibleemployees.Eligibleemployeesmayapplyforeitheranadjustableratemortgage(ARM)orafixedrateloanfortheirprimaryresidence.TheARMisa30yearloanandhasaninitialfixedinterestrateforfive,sevenortenyearsafterwhichafloatingratewillbesetannually.Thefixedrateloanprogramoffersa15or30yearsloanandtheinterestrateisfixedforthelifeoftheloan.Applicantsmustqualifyforaloanthroughthenormalmortgagereviewandapprovalprocess,whichistypicalofindustrystandards.Themaximumloanamountgenerallycannotbegreaterthan85percentofthelesserofthepurchasepriceortheappraisedvalue.Theinterestrateonthefixed-rateloaniswrittenatSVBPrivateBankclientmortgageratesanddeterminedatSVB'sdiscretion.Floatingratesappliedattheendofthefixed-rateperiodwillberesetannuallyat12monthLIBORplustwoandonequarterpercent.Foradditionaldetails,seeNote9—“LoansandAllowanceforCreditLosses:LoansandUnfundedCreditCommitments.''
20. RelatedParties
Wehavenomaterialrelatedpartytransactionsrequiringdisclosure.Intheordinarycourseofbusiness,theBankmayextend credit to related parties, including executive officers, directors, principal shareholders and their related interests.Additionally,wealsoprovide realestate secured loans toeligibleemployees throughourEHOP.Foradditionaldetails, seeNote19—“EmployeeCompensationandBenefitPlans.”
21. Off-BalanceSheetArrangements,GuaranteesandOtherCommitments
Inthenormalcourseofbusiness,weusefinancialinstrumentswithoff-balancesheetrisktomeetthefinancingneedsofourcustomers.Thesefinancialinstrumentsincludecommitmentstoextendcredit,commercialandstandbylettersofcreditand commitments to invest in venture capital and private equity fund investments. These instruments involve, to varyingdegrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to thefinancialinstrumentfailtoperforminaccordancewiththetermsofthecontract.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
168
CommitmentstoExtendCredit
Acommitmenttoextendcredit isaformalagreementtolendfundstoaclientas longasthereisnoviolationofanycondition established in the agreement. Such commitments generally have fixed expiration dates, or other terminationclauses, and usually require a fee paid by the client upon us issuing the commitment. The following table summarizesinformationrelatedtoourcommitmentstoextendcreditatDecember31,2020and2019,respectively:
December31,
(Dollarsinthousands) 2020 2019
Loancommitments(1) $ 28,975,133 $ 21,743,359
Commercialandstandbylettersofcredit(2) 3,007,118 2,778,561
Totalunfundedcreditcommitments $ 31,982,251 $ 24,521,920
Allowanceforunfundedcreditcommitments(3) 120,796 67,656
(1) Representscommitmentswhichareavailableforfunding,duetoclientsmeetingallcollateral,complianceandfinancialcovenantsrequiredunderloancommitmentagreements.
(2) Seebelowforadditionalinformationonourcommercialandstandbylettersofcredit.(3) Our allowance for credit losses for unfunded credit commitments includes an allowance for bothour unfunded loan
commitmentsandourlettersofcredit.
Ourpotentialexposuretocreditlossforcommitmentstoextendcredit,intheeventofnonperformancebytheotherparty to the financial instrument, is the contractual amount of the available unused loan commitment.We use the samecreditapprovalandmonitoringprocessinextendingcreditcommitmentsaswedoinmakingloans.Theactualliquidityneedsandthecreditriskthatwehaveexperiencedhavehistoricallybeen lowerthanthecontractualamountofcommitmentstoextend credit because a significant portion of these commitments expire without being drawn upon. We evaluate eachpotential borrower and the necessary collateral on an individual basis. The type of collateral varies, butmay include realproperty, intellectual property, bank deposits or business and personal assets. The credit risk associated with thesecommitmentsisconsideredintheallowanceforunfundedcreditcommitments.
CommercialandStandbyLettersofCredit
Commercial and standby letters of credit represent conditional commitments issued by us on behalf of a client toguarantee theperformanceof the client to a thirdpartywhen certain specified future events haveoccurred. Commerciallettersofcreditareissuedprimarilyforinventorypurchasesbyaclientandaretypicallyshort-terminnature.Weprovidetwotypesofstandbylettersofcredit:performanceandfinancialstandbylettersofcredit.Performancestandbylettersofcreditareissuedtoguaranteetheperformanceofaclienttoathirdpartywhencertainspecifiedfutureeventshaveoccurredandareprimarilyusedtosupportperformanceinstrumentssuchasbidbonds,performancebonds,leaseobligations,repaymentofloansandpastduenotices.Financialstandbylettersofcreditareconditionalcommitmentsissuedbyustoguaranteethepaymentbyaclienttoathirdparty(beneficiary)andareprimarilyusedtosupportmanytypesofdomesticandinternationalpayments.Thesestandbylettersofcredithavefixedexpirationdatesandgenerallyrequireafeetobepaidbytheclientatthetimeweissuethecommitment.
The credit risk involved in issuing letters of credit is essentially the same as that involved with extending creditcommitmentstoclients,andaccordingly,weuseacreditevaluationprocessandcollateralrequirementssimilartothoseforcreditcommitments.Ourstandby lettersofcreditoftenarecashsecuredbyourclients.Theactual liquidityneedsandthecredit risk thatwe have experienced historically have been lower than the contractual amount of letters of credit issuedbecauseasignificantportionoftheseconditionalcommitmentsexpirewithoutbeingdrawnupon.
The table below summarizes our commercial and standby letters of credit at December 31, 2020. The maximumpotentialamountof futurepaymentsrepresents theamountthatcouldberemittedunder lettersofcredit if therewereatotaldefaultbytheguaranteedparties,withoutconsiderationofpossiblerecoveriesunderrecourseprovisionsorfromthecollateralheldorpledged.
(Dollarsinthousands)ExpiresInOneYear
orLessExpiresAfterOne
YearTotalAmountOutstanding
MaximumAmountofFuturePayments
Financialstandbylettersofcredit $ 2,807,942 $ 66,641 $ 2,874,583 $ 2,874,583
Performancestandbylettersofcredit 108,681 19,488 128,169 128,169
Commerciallettersofcredit 4,366 — 4,366 4,366
Total $ 2,920,989 $ 86,129 $ 3,007,118 $ 3,007,118
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
169
Deferredfeesrelatedtofinancialandperformancestandbylettersofcreditwere$16.9millionatDecember31,2020and$17.2millionatDecember31,2019.AtDecember31,2020,collateralintheformofcashof$1.7billionwasavailabletoustoreimburselosses,ifany,underfinancialandperformancestandbylettersofcredit.
CommitmentstoInvestinVentureCapitalandPrivateEquityFunds
Wemake commitments to invest in venture capital andprivate equity funds,which generallymakes investments inprivately-heldcompanies.Commitmentstoinvestinthesefundsaregenerallymadefora10-yearperiodfromtheinceptionof thefund.Althoughthe limitedpartnershipagreementsgoverningthese investmentstypicallydonotrestrict thegeneralpartners from calling 100% of committed capital in one year, it is customary for these funds to call most of the capitalcommitmentsover5to7years,andincertaincases,thefundsmaynotcall100%ofcommittedcapital.Theactualtimingoffuture cash requirements to fund these commitments is generally dependent upon the investment cycle, overall marketconditions,andthenatureandtypeofindustryinwhichtheprivatelyheldcompaniesoperate.Thefollowingtabledetailsourtotal capital commitments, unfunded capital commitments, and our ownership percentage in each fund at December 31,2020:
(Dollarsinthousands)SVBFGCapitalCommitments
SVBFGUnfundedCommitments
SVBFGOwnershipofeachFund
CPII,LP(1) $ 1,200 $ 162 5.1%
CapitalPreferredReturnFund,LP 12,688 — 20.0
GrowthPartners,LP 24,670 1,340 33.0
StrategicInvestorsFund,LP 15,300 688 12.6
StrategicInvestorsFundII,LP 15,000 1,050 8.6
StrategicInvestorsFundIII,LP 15,000 1,275 5.9
StrategicInvestorsFundIV,LP 12,239 2,325 5.0
StrategicInvestorsFundVfunds 515 131 Various
Otherventurecapitalandprivateequityfundinvestments(equitymethodaccounting) 25,232 5,566 Various
Debtfunds(equitymethodaccounting) 58,733 211 Various
Otherfundinvestments(2) 277,301 9,335 Various
Total $ 457,878 $ 22,083
(1) Ourownershipincludesdirectownershipof1.3percentandindirectownershipof3.8percentthroughourinvestmentinStrategicInvestorsFundII,LP.
(2) Representscommitmentsto168funds(primarilyventurecapitalfunds)whereourownershipinterestisgenerallylessthanfiveofthevotinginterestsofeachsuchfund.
The following table details the amounts of remaining unfunded commitments to venture capital and private equityfundsbyourconsolidatedmanagedfundsoffunds(includingourinterestandthenoncontrollinginterests)atDecember31,2020:
(Dollarsinthousands)Unfunded
Commitments
StrategicInvestorsFund,LP $ 196
CapitalPreferredReturnFund,LP 1,516
GrowthPartners,LP 2,549
Total $ 4,261
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
170
22. FairValueofFinancialInstruments
FairValueMeasurements
Our available-for-sale securities, derivative instruments and certain non-marketable and other equity securities arefinancial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets andliabilitiesmeasuredatfairvalueinpreparingourconsolidatedfinancialstatements.
ThefollowingfairvaluehierarchytablepresentsinformationaboutourassetsandliabilitiesthataremeasuredatfairvalueonarecurringbasisasofDecember31,2020:
(Dollarsinthousands) Level1 Level2 Level3
BalanceatDecember31,
2020
Assets
Available-for-salesecurities:
U.S.Treasurysecurities $ 4,469,728 $ — $ — $ 4,469,728
U.S.agencydebentures — 237,307 — 237,307
Foreigngovernmentdebtsecurities 24,492 — — 24,492
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities — 13,503,681 — 13,503,681
Agency-issuedcollateralizedmortgageobligations—fixedrate — 8,106,564 — 8,106,564
Agency-issuedcommercialmortgage-backedsecurities — 4,570,666 — 4,570,666
Totalavailable-for-salesecurities 4,494,220 26,418,218 — 30,912,438
Non-marketableandotherequitysecurities(fairvalueaccounting):
Non-marketablesecurities:
Venturecapitalandprivateequityfundinvestmentsmeasuredatnetassetvalue — — — 273,823
Otherequitysecuritiesinpubliccompanies 43,344 237,460 — 280,804
Totalnon-marketableandotherequitysecurities(fairvalueaccounting) 43,344 237,460 — 554,627
Otherassets:
Foreignexchangeforwardandoptioncontracts — 216,977 — 216,977
Equitywarrantassets — 11,221 192,217 203,438
Clientinterestratederivatives — 67,854 — 67,854
Totalassets $ 4,537,564 $26,951,730 $ 192,217 $31,955,334
Liabilities
Foreignexchangeforwardandoptioncontracts $ — $ 210,833 $ — $ 210,833
Clientinterestratederivatives — 26,646 — 26,646
Totalliabilities $ — $ 237,479 $ — $ 237,479
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
171
ThefollowingfairvaluehierarchytablepresentsinformationaboutourassetsandliabilitiesthataremeasuredatfairvalueonarecurringbasisasofDecember31,2019:
(Dollarsinthousands) Level1 Level2 Level3
BalanceatDecember31,
2019
Assets
Available-for-salesecurities:
U.S.Treasurysecurities $ 6,894,010 $ — $ — $ 6,894,010
U.S.agencydebentures — 99,547 — 99,547
Foreigngovernmentdebtsecurities 9,038 — — 9,038
Residentialmortgage-backedsecurities:
Agency-issuedmortgage-backedsecurities — 4,148,791 — 4,148,791
Agency-issuedcollateralizedmortgageobligations—fixedrate — 1,538,343 — 1,538,343
Agency-issuedcommercialmortgage-backedsecurities — 1,325,190 — 1,325,190
Totalavailable-for-salesecurities 6,903,048 7,111,871 — 14,014,919
Non-marketableandotherequitysecurities(fairvalueaccounting):
Non-marketablesecurities:
Venturecapitalandprivateequityfundinvestmentsmeasuredatnetassetvalue — — — 265,263
Venturecapitalandprivateequityfundinvestmentsnotmeasuredatnetassetvalue(1) — — 134 134
Otherequitysecuritiesinpubliccompanies 17,290 41,910 — 59,200
Totalnon-marketableandotherequitysecurities(fairvalueaccounting) 17,290 41,910 134 324,597
Otherassets:
Foreignexchangeforwardandoptioncontracts — 115,854 — 115,854
Equitywarrantassets — 4,435 161,038 165,473
Interestrateswaps — 22,676 — 22,676
Clientinterestratederivatives — 28,811 — 28,811
Totalassets $ 6,920,338 $ 7,325,557 $ 161,172 $14,672,330
Liabilities
Foreignexchangeforwardandoptioncontracts $ — $ 98,207 $ — $ 98,207
Interestrateswaps — 25,623 — 25,623
Clientinterestratederivatives — 14,154 — 14,154
Totalliabilities $ — $ 137,984 $ — $ 137,984
(1) IncludedinLevel3assetsis$120thousandattributabletononcontrollinginterestscalculatedbasedontheownershippercentagesofthenoncontrollinginterests.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
172
ThefollowingtablepresentsadditionalinformationaboutLevel3assetsmeasuredatfairvalueonarecurringbasisfor2020,2019and2018,respectively:
(Dollarsinthousands)BeginningBalance
TotalNetGains(Losses)IncludedinNetIncome Purchases Sales/Exits Issuances
DistributionsandOtherSettlements
TransfersOutofLevel3
EndingBalance
YearendedDecember31,2020:
Non-marketableandotherequitysecurities(fairvalueaccounting):
Venturecapitalandprivateequityfundinvestmentsnotmeasuredatnetassetvalue(1) $ 134 $ (30) $ — $ (104) $ — $ — $ — $ —
Otherassets:
Equitywarrantassets(2) 161,038 228,944 — (214,933) 19,014 — (1,846) 192,217
Totalassets $ 161,172 $ 228,914 $ — $ (215,037) $ 19,014 $ — $ (1,846) $ 192,217
YearendedDecember31,2019:
Non-marketableandotherequitysecurities(fairvalueaccounting):
Venturecapitalandprivateequityfundinvestmentsnotmeasuredatnetassetvalue(1) $ 1,079 $ 12 $ — $ (960) $ — $ 3 $ — $ 134
Otherassets:
Equitywarrantassets(2) 145,199 133,910 575 (130,392) 16,453 — (4,707) 161,038
Totalassets $ 146,278 $ 133,922 $ 575 $ (131,352) $ 16,453 $ 3 $ (4,707) $ 161,172
YearendedDecember31,2018:
Non-marketableandotherequitysecurities(fairvalueaccounting):
Venturecapitalandprivateequityfundinvestmentsnotmeasuredatnetassetvalue(1) $ 919 $ 457 $ — $ — $ — $ (297) $ — $ 1,079
Otherassets:
Equitywarrantassets(2) 121,331 87,982 — (78,752) 17,941 — (3,303) 145,199
Totalassets $ 122,250 $ 88,439 $ — $ (78,752) $ 17,941 $ (297) $ (3,303) $ 146,278
(1) Realizedandunrealizedgains(losses)arerecordedinthelineitem“Gainsoninvestmentsecurities,net,”acomponentofnoninterestincome.(2) Realizedandunrealizedgains(losses)arerecordedinthelineitem“Gainsonequitywarrantassets,net,”acomponentofnoninterestincome.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
173
The following table presents the amount of unrealized gains (losses) included in earnings (which is inclusive ofnoncontrollinginterest)attributabletoLevel3assetsstillheldatDecember31,2020and2019,respectively:
YearendedDecember31,
(Dollarsinthousands) 2020 2019
Non-marketableandotherequitysecurities(fairvalueaccounting):
Venturecapitalandprivateequityfundinvestmentsnotmeasuredatnetassetvalue(1) $ — $ (222)
Otherassets:
Equitywarrantassets(2) 54,417 34,691
Totalunrealizedgains,net $ 54,417 $ 34,469
Unrealizedlossesattributabletononcontrollinginterests(1) $ — $ (199)
(1) Unrealized gains are recorded in the line item “Gains on investment securities, net,” a component of noninterestincome.
(2) Unrealized gains are recorded in the line item “Gains on equity warrant assets, net,” a component of noninterestincome.
The extent towhich any unrealized gains or losseswill become realized is subject to a variety of factors, including,among other things, the expiration of current sales restrictions to which these securities are subject, the actual sales ofsecuritiesandthetimingofsuchactualsales.
ThefollowingtablepresentsquantitativeinformationaboutthesignificantunobservableinputsusedforcertainofourLevel3fairvaluemeasurementsatDecember31,2020and2019.Wehavenotincludedinthistableourventurecapitalandprivateequity fund investments (fair valueaccounting)asweusenetasset valueper share (asobtained from thegeneralpartnersoftheinvestments)asapracticalexpedienttodeterminefairvalue.
(Dollarsinthousands) FairValue ValuationTechnique SignificantUnobservableInputs InputRageWeightedAverage
December31,2020:
Equitywarrantassets(publicportfolio)
$ 1,036 Black-Scholesoptionpricingmodel
Volatility 46.0%-56.8% 49.1%Risk-Freeinterestrate 0.3-0.9 0.6
Salesrestrictionsdiscount(2) 10.0-20.0 10.2Equitywarrantassets(privateportfolio)
191,181 Black-Scholesoptionpricingmodel
Volatility 24.4-56.8 43.2Risk-Freeinterestrate 0.01-0.5 0.1
Marketabilitydiscount(3) 20.6 20.6Remaininglifeassumption(4) 40.0 40.0
December31,2019:
Venturecapitalandprivateequityfundinvestments(fairvalueaccounting)
$ 134 Privatecompanyequitypricing
(1) (1) (1)
Equitywarrantassets(publicportfolio)
346 Black-Scholesoptionpricingmodel
Volatility 39.2%-54.8% 50.7%Risk-Freeinterestrate 1.9 1.9
Salesrestrictionsdiscount(2) 10.0-20.0 13.6Equitywarrantassets(privateportfolio)
160,692 Black-Scholesoptionpricingmodel
Volatility 23.6-54.8 38.2Risk-Freeinterestrate 0.5-1.9 1.6
Marketabilitydiscount(3) 17.5 17.5Remaininglifeassumption(4) 45.0 45.0
(1) Indeterminingthefairvalueofourventurecapitalandprivateequityfundinvestmentportfolio(notmeasuredatnetassetvalue),weevaluateavarietyof factors related toeachunderlyingprivateportfolio company including,butnotlimited to, actual and forecasted results, cash position, recent or planned transactions and market comparablecompanies. Additionally, we have ongoing communication with the portfolio companies and venture capital fundmanagers,todeterminewhetherthereisamaterialchangeinfairvalue.Weusecompanyprovidedvaluationreports,ifavailable, tosupportourvaluationassumptions.These factorsarespecific toeachportfoliocompanyandaweightedaverageorrangeofvaluesoftheunobservableinputsisnotmeaningful.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
174
(2) Weadjustquotedmarketpricesofpublic companies,whichare subject to certain sales restrictions. Sales restrictiondiscounts generally range from 10 percent to 20 percent depending on the duration of the sales restrictions whichtypicallyrangefromthreetosixmonths.
(3) Ourmarketabilitydiscountisappliedtoallprivatecompanywarrantstoaccountforagenerallackofliquidityduetotheprivate nature of the associated underlying company. The quantitativemeasure used is based upon various option-pricingmodels.Onaquarterlybasis,asensitivityanalysisisperformedonourmarketabilitydiscount.
(4) Weadjustthecontractualremainingtermofprivatecompanywarrantsbasedonourestimateoftheactualremaininglife,whichwedeterminebyutilizinghistoricaldataonterminationsandexercises.AtDecember31,2020,theweightedaveragecontractualremainingtermwas6.0years,comparedtoourestimatedremaininglifeof2.4years.Onaquarterlybasis,asensitivityanalysisisperformedonourremaininglifeassumption.
During2020,2019and2018,wedidnothaveanytransfersbetweenLevel3andLevel1.AllothertransfersfromLevel3toLevel2during2020,2019and2018wereduetothetransferofequitywarrantassets fromourprivateportfolio toourpublicportfolio(seeourLevel3reconciliationabove).
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
175
FinancialInstrumentsnotCarriedatFairValue
FASBguidanceoverfinancial instrumentsrequiresthatwediscloseestimatedfairvaluesforourfinancial instrumentsnotcarriedatfairvalue.ThefollowingfairvaluehierarchytablepresentstheestimatedfairvaluesofourfinancialinstrumentsthatarenotcarriedatfairvalueatDecember31,2020and2019:
EstimatedFairValue
(Dollarsinthousands) CarryingAmount Total Level1 Level2 Level3
December31,2020:Financialassets:Cashandcashequivalents $ 17,674,763 $17,674,763 $17,674,763 $ — $ —
Held-to-maturitysecurities 16,592,153 17,216,871 — 17,216,871 —
Non-marketablesecuritiesnotmeasuredatnetassetvalue 240,761 240,761 — — 240,761
Non-marketablesecuritiesmeasuredatnetassetvalue 390,658 390,658 — — —Netcommercialloans 39,886,296 40,412,490 — — 40,412,490Netconsumerloans 4,847,427 4,911,451 — — 4,911,451FHLBandFederalReserveBankstock 61,232 61,232 — — 61,232
Financialliabilities:Short-termborrowings 20,553 20,553 — 20,553 —Non-maturitydeposits(1) 101,293,346 101,293,346 101,293,346 — —Timedeposits 688,461 501,853 — 501,853 —3.50%SeniorNotes 348,348 382,855 — 382,855 —3.125%SeniorNotes 495,280 563,840 — 563,840 —
Off-balancesheetfinancialassets:Commitmentstoextendcredit — 36,672 — — 36,672
December31,2019:Financialassets:Cashandcashequivalents $ 6,781,783 $ 6,781,783 $ 6,781,783 $ — $ —
Held-to-maturitysecurities 13,842,946 14,115,272 — 14,115,272 —
Non-marketablesecuritiesnotmeasuredatnetassetvalue 195,405 195,405 — — 195,405
Non-marketablesecuritiesmeasuredatnetassetvalue 235,351 235,351 — — —Netcommercialloans 29,104,532 29,615,176 — — 29,615,176Netconsumerloans 3,755,180 3,820,804 — — 3,820,804FHLBandFederalReserveBankstock 60,258 60,258 — — 60,258
Financialliabilities:Short-termborrowings 17,430 17,430 — 17,430 —Non-maturitydeposits(1) 61,569,714 61,569,714 61,569,714 — —Timedeposits 188,093 187,980 — 187,980 —3.50%SeniorNotes 347,987 366,856 — 366,856 —
Off-balancesheetfinancialassets:Commitmentstoextendcredit — 27,197 — — 27,197
(1) Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts andinterest-bearingsweepdeposits.
InvestmentsinEntitiesthatCalculateNetAssetValuePerShare
FASBguidanceovercertain fund investmentsrequiresthatwedisclosethefairvalueof funds,significant investmentstrategiesofthe investees,redemptionfeaturesofthe investees,restrictionsontheabilitytosell investments,estimateofthe period of time over which the underlying assets are expected to be liquidated by the investee, and unfundedcommitmentsrelatedtotheinvestments.
Our investments in debt funds and venture capital and private equity fund investments generally cannot beredeemed. Alternatively, we expect distributions, if any, to be received primarily through IPOs and M&A activity of the
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
176
underlyingassetsofthefund.SubjecttoapplicablerequirementsundertheVolckerRule,wedonothaveanyplanstosellanyof these fund investments. If we decide to sell these investments in the future, the investee fund’s management mustapproveofthebuyerbeforethesaleoftheinvestmentscanbecompleted.Thefairvaluesofthefundinvestmentshavebeenestimatedusing thenetassetvalueper shareof the investments,adjusted foranydifferencesbetweenourmeasurementdateandthedateofthefundinvestment’snetassetvaluebyusingthemostrecentlyavailablefinancialinformationfromtheinvesteegeneralpartner,forexampleSeptember30th,forourDecember31stconsolidatedfinancialstatements,adjustedforanycontributionspaid,distributionsreceivedfromtheinvestment,andsignificantfundtransactionsormarketeventsduringthereportingperiod.
The following table is a summary of the estimated fair values of these investments and remaining unfundedcommitmentsforeachmajorcategoryoftheseinvestmentsasofDecember31,2020:
(Dollarsinthousands) CarryingAmount FairValueUnfunded
Commitments
Non-marketablesecurities(fairvalueaccounting):
Venturecapitalandprivateequityfundinvestments(1) $ 273,823 $ 273,823 $ 12,709
Non-marketablesecurities(equitymethodaccounting):
Venturecapitalandprivateequityfundinvestments(2) 362,192 362,192 10,509
Debtfunds(2) 5,444 5,444 211
Otherinvestments(2) 23,023 23,023 886
Total $ 664,482 $ 664,482 $ 24,315
(1) Venture capital and private equity fund investmentswithin non-marketable securities (fair value accounting) includeinvestments made by our managed funds of funds and one of our direct venture funds (consolidated VIEs) andinvestments in venture capital and private equity fund investments (unconsolidated VIEs). Collectively, theseinvestments in venture capital and private equity funds are primarily inU.S. and global technology and life science/healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair valueaccountingare$66.2millionand$3.1million,respectively,attributabletononcontrollinginterests.Itisestimatedthatwewillreceivedistributionsfromthefundinvestmentsoverthenext10to13years,dependingontheageofthefundsandanypotentialextensionsoftermsofthefunds.
(2) Venture capital and private equity fund investments, debt funds and other fund investmentswithin non-marketablesecurities(equitymethodaccounting)includefundsthatinvestinorlendmoneytoprimarilyU.S.andglobaltechnologyandlifescience/healthcarecompanies.Itisestimatedthatwewillreceivedistributionsfromthefundsoverthenext5to8years,dependingontheageofthefundsandanypotentialextensionsofthetermsofthefunds.
23.RegulatoryMatters
SVBFinancialandtheBankaresubjecttovariousregulatorycapitaladequacyrequirementsadministeredbytheFederalReserveBoardandtheDFPI.TheFederalDepositInsuranceCorporationImprovementActof1991requiredthatthefederalregulatory agencies adopt regulations defining five capital categories for banks: well-capitalized, adequately capitalized,undercapitalized,significantlyundercapitalizedandcriticallyundercapitalized.
In July 2013, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency published final rulesestablishing a comprehensive capital framework forU.S. bankingorganizations (the “Capital Rules”),which implement theBaselIIIregulatorycapitalreformsandchangesrequiredbytheDodd-FrankAct.“BaselIII”referstotheinternationallyagreedregulatorycapitalframeworkadoptedbytheBaselCommittee.
TherearethreecategoriesofcapitalundertheBasel IIIstandards;CET1,additionalTier1andTier2.CET1 includescommonstockplusrelatedsurplusandretainedearnings,lesscertaindeductions.AdditionalTier1capitalincludesqualifyingpreferredstockandtrustpreferredsecurities,lesscertaindeductions.AdditionalTier1,togetherwithCET1,equaltotalTier1capital.Tier2capitalincludesprimarilycertainqualifyingunsecuredsubordinateddebtandqualifyingallowancesforloanandleaselosses.Tier1capitaltogetherwithTier2capitalequaltotalcapital.
UndertheCapitalRules,theminimumcapitalratiosapplicabletoSVBFinancialandtheBankareasfollows:4.5%CET1capital,6.0%Tier1capital,8.0%Totalcapitaland4.0%Tier1leverage.Inaddition,bankingorganizationsmustmeeta2.5%CET1 risk-based capital conservation buffer requirement in order to avoid constraints on capital distributions, such asdividends and equity repurchases, and certain bonus compensation for executive officers. The severity of the constraints
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
177
woulddependontheamountoftheshortfallandthebankingorganization’s“eligibleretainedincome”(thatis,four-quartertrailingnetincome,netofdistributionsandtaxeffectsnotreflectedinnetincome).
AsofDecember31,2020,bothSVBFinancialandtheBankexceedtherequiredratiosundertheCapitalRulesandwereconsidered“well-capitalized” for regulatorypurposesunderexistingcapitalguidelinesaswell.The followingtablepresentsthecapitalratiosfortheCompanyandtheBankunderfederalregulatoryguidelines,comparedtotheminimumregulatorycapitalrequirements,asofDecember31,2020and2019:
CapitalRatios CapitalAmounts
(Dollarsinthousands) ActualRequired
Minimum(1)
WellCapitalizedMinimum Actual
RequiredMinimum(1)
WellCapitalizedMinimum
December31,2020:
CET1risk-basedcapital:
SVBFinancial 11.04% 7.0% N/A $ 7,138,006 $ 4,527,647 N/A
Bank 10.70 7.0 6.5 6,530,167 4,271,642 $ 3,966,525
Tier1risk-basedcapital:
SVBFinancial 11.89 8.5 6.0 7,691,936 5,497,857 3,880,840
Bank 10.70 8.5 8.0 6,530,167 5,186,994 4,881,877
Totalrisk-basedcapital:
SVBFinancial 12.64 10.5 10.0 8,175,430 6,791,470 6,468,066
Bank 11.49 10.5 10.0 7,013,630 6,407,463 6,102,346
Tier1leverage:
SVBFinancial 7.45 4.0 N/A 7,691,936 4,128,596 N/A
Bank 6.43 4.0 5.0 6,530,167 4,060,180 5,075,225
December31,2019:
CET1risk-basedcapital:
SVBFinancial 12.58% 7.0% N/A $ 5,857,744 $ 3,260,424 N/A
Bank 11.12 7.0 6.5 4,949,393 3,115,151 $ 2,892,640
Tier1risk-basedcapital:
SVBFinancial 13.43 8.5 6.0 6,257,442 3,959,086 2,794,649
Bank 11.12 8.5 8.0 4,949,393 3,782,683 3,560,172
Totalrisk-basedcapital:
SVBFinancial 14.23 10.5 10.0 6,630,022 4,890,636 4,657,748
Bank 11.96 10.5 10.0 5,321,850 4,672,726 4,450,215
Tier1leverage:
SVBFinancial 9.06 4.0 N/A 6,257,442 2,763,146 N/A
Bank 7.30 4.0 5.0 4,949,393 2,713,367 3,391,709
N/A "Well-CapitalizedMinimum"CET1risk-basedcapitalandTier1leverageratiosarenotformallydefinedunderapplicablebankingregulationsforbankholdingcompanies.
(1) Thepercentagesrepresenttheminimumcapitalratiosplus, thefullyphased-in2.5%CET1capitalconservationbufferundertheCapitalRules.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
178
24. SegmentReporting
Wehave four reportable segments formanagement reportingpurposes:GlobalCommercialBank, SVBPrivateBank,SVBCapitalandSVBLeerink.Theresultsofouroperatingsegmentsarebasedonourinternalmanagementreportingprocess.
OurGlobalCommercialBankandSVBPrivateBanksegmentsprimarysourceof revenue is fromnet interest income,whichisprimarilythedifferencebetweeninterestearnedonloans,netoffundstransferpricing("FTP")andinterestpaidondeposits, net of FTP. Accordingly, these segments are reported using net interest income, net of FTP. FTP is an internalmeasurementframeworkdesignedtoassessthefinancialimpactofafinancialinstitution’ssourcesandusesoffunds.Itisthemechanismbywhichanearningscreditisgivenfordepositsraised,andanearningschargeismadeforfundedloans.FTPiscalculatedataninstrumentlevelbasedonaccountcharacteristics.
Wealsoevaluateperformancebasedonprovisionforcreditlosses,noninterestincomeandnoninterestexpense,whichare presented as components of segment operating profit or loss. In calculating each operating segment’s noninterestexpense,weconsiderthedirectcostsincurredbytheoperatingsegmentaswellascertainallocateddirectcosts.Aspartofthisreview,weallocatecertaincorporateoverheadcoststoacorporateaccount.Wedonotallocateincometaxexpenseortheprovision forunfunded credit commitments (included inprovision for credit losses) toour segments.Additionally, ourmanagement reporting model is predicated on average asset balances; therefore, period-end asset balances are notpresentedforsegmentreportingpurposes.Changes inan individualclient’sprimaryrelationshipdesignationhaveresulted,andinthefuturemayresult,intheinclusionofcertainclientsindifferentsegmentsindifferentperiods.
Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, our internalmanagement reportingprocess ishighly subjective, as there isno comprehensive, authoritativeguidance formanagementreporting.Ourmanagementreportingprocessmeasurestheperformanceofouroperatingsegmentsbasedonour internaloperatingstructure,whichissubjecttochangefromtimetotime,andisnotnecessarilycomparablewithsimilarinformationforotherfinancialservicescompanies.
Forreportingpurposes,SVBFinancialGrouphasfouroperatingsegmentsforwhichwereportourfinancialinformation:
• GlobalCommercialBankiscomprisedofresultsfromthefollowing:◦ OurCommercialBankproductsandservicesareprovidedby theBankand its subsidiaries tocommercial
clientsinkeyinnovationmarkets.TheBankprovidessolutionstothefinancialneedsofcommercialclientsthroughcredit,treasurymanagement,foreignexchange,tradefinanceandotherservices. Inaddition,theBankanditssubsidiariesofferavarietyofinvestmentservicesandsolutionstoitsclientsthatenablethemtoeffectivelymanagetheirassets.
◦ Our Global Fund Banking (formerly Private Equity) Division provides banking products and servicesprimarilytoourprivateequityandventurecapitalclients.
◦ SVBWineprovidesbankingproductsandservicestoourpremiumwineindustryclients,includingvineyarddevelopmentloans.
◦ DebtFundInvestments iscomprisedofour investments incertaindebtfunds inwhichweareastrategicinvestor.
• SVBPrivateBankistheprivatebankingandwealthmanagementdivisionoftheBankandprovidesabroadarrayof personal financial solutions for its clients, which are primarily executive leaders and senior investmentprofessionals intheinnovationeconomy.Weofferacustomizedapproachtoprivatewealthmanagementandprivate banking services including residential real property lending, stock secured loans and other lendingproductsalongsideafullsuiteofcashmanagementanddepositproductsandonline/remotebankingandservicecapabilities.Inaddition,weproviderealestatesecuredloanstoeligibleemployeesthroughourEHOP.
• SVB Capital is the funds management business of SVB Financial Group, which focuses primarily on venturecapitalinvestments.SVBCapitalmanagesfunds(primarilyventurecapitalfunds)onbehalfofthird-partylimitedpartnersand,onamorelimitedbasis,SVBFinancialGroup.TheSVBCapitalfamilyoffundsiscomprisedofdirectventurefundsthatinvestincompaniesandfundsoffundsthatinvestinotherventurecapitalfunds.SVBCapitalgeneratesincomefortheCompanyprimarilyfrominvestmentreturns(includingcarriedinterestallocations)andmanagementfees.
• SVB Leerink is an investment bank specializing in the equity and convertible capital markets, mergers andacquisitions,equityresearchandsalesandtradingforgrowthandinnovation-mindedhealthcareandlifesciencecompanies and operates as a wholly-owned subsidiary of SVB Financial. SVB Leerink provides investmentbankingservicesacrossallsubsectorsofhealthcareincludingbiotechnology,pharmaceuticals,medicaldevices,diagnosticandlifesciencetools,healthcareservicesanddigitalhealth.SVBLeerinkfocusesontwoprimarylinesofbusiness:(i)investmentbankingfocusedonprovidingcompanieswithcapital-raisingservices,financialadvice
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
179
on mergers and acquisitions, sales and trading services and equity research, and (ii) sponsorship of privateinvestmentfunds.
Thesummaryfinancialresultsofouroperatingsegmentsarepresentedalongwithareconciliationtoourconsolidatedresults.
Oursegmentinformationfor2020,2019and2018isasfollows:
(Dollarsinthousands)
GlobalCommercialBank(1)
SVBPrivateBank
SVBCapital(1)
SVBLeerink(1)
OtherItems(2) Total
YearendedDecember31,2020Netinterestincome $ 2,025,240 $ 77,490 $ 30 $ 578 $ 52,946 $ 2,156,284Provisionforcreditlosses (165,987) (21,329) — — (32,194) (219,510)Noninterestincome 605,733 3,536 225,954 495,976 508,949 1,840,148Noninterestexpense(3) (1,019,995) (46,099) (50,589) (378,970) (539,388) (2,035,041)
Income(loss)beforeincometaxexpense(4) $ 1,444,991 $ 13,598 $ 175,395 $ 117,584 $ (9,687) $ 1,741,881Totalaverageloans,amortizedcost $31,218,037 $4,195,804 $ — $ — $1,852,135 $37,265,976Totalaverageassets(5)(6) 75,034,226 4,229,818 437,132 556,778 5,533,705 85,791,659Totalaveragedeposits 72,127,148 2,171,556 — — 716,726 75,015,430YearendedDecember31,2019Netinterestincome $ 1,850,391 $ 51,022 $ 38 $ 1,252 $ 193,898 $ 2,096,601Provisionforcreditlosses (91,814) (2,369) — — (12,233) (106,416)Noninterestincome 637,922 3,366 122,394 264,516 193,281 1,221,479Noninterestexpense(3) (874,854) (40,151) (30,798) (252,678) (402,781) (1,601,262)
Income(loss)beforeincometaxexpense(4) $ 1,521,645 $ 11,868 $ 91,634 $ 13,090 $ (27,835) $ 1,610,402Totalaverageloans,amortizedcost $26,031,284 $3,341,188 $ — $ — $ 543,735 $29,916,207Totalaverageassets(5)(6) 56,043,321 3,371,052 405,152 397,650 2,994,455 63,211,630Totalaveragedeposits 53,053,665 1,524,232 — — 479,053 55,056,950YearendedDecember31,2018Netinterestincome $ 1,623,488 $ 64,902 $ 23 $ — $ 205,575 $ 1,893,988Provisionforcreditlosses (80,953) (3,339) — — (3,578) (87,870)Noninterestincome(7) 520,302 2,281 101,181 — 121,220 744,984Noninterestexpense(3) (793,159) (25,064) (22,792) — (347,178) (1,188,193)
Income(loss)beforeincometaxexpense(4) $ 1,269,678 $ 38,780 $ 78,412 $ — $ (23,961) $ 1,362,909Totalaverageloans,amortizedcost $22,354,305 $2,850,271 $ — $ — $ 425,944 $25,630,520Totalaverageassets(5)(8) 48,854,416 2,871,743 380,543 — 3,122,358 55,229,060Totalaveragedeposits 46,039,570 1,502,308 — — 533,466 48,075,344
(1) Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of net interest income, noninterest income,noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented.Noncontrollinginterestisincludedwithin"OtherItems."
(2) The"OtherItems"columnreflectstheadjustmentsnecessarytoreconciletheresultsoftheoperatingsegmentstotheconsolidatedfinancialstatementspreparedinconformitywithGAAP.Netinterestincomeconsistsprimarilyofinterestearnedfromourfixedincomeinvestmentportfolio,netofFTP.Noninterestincomeconsistsprimarilyofgainsorlosseson equitywarrant assets, gains or losses on the sale of AFS securities and gains or losses on equity securities fromexercised warrant assets. Noninterest expense consists primarily of expenses associated with corporate supportfunctionssuchasfinance,humanresources,marketing,legalandotherexpenses.
(3) TheGlobalCommercialBanksegmentincludesdirectdepreciationandamortizationof$25.3million,$20.4millionand$21.8millionfor2020,2019and2018,respectively.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
180
(4) The internal reporting model used by management to assess segment performance does not calculate income taxexpensebysegment.Oureffectivetaxrateisareasonableapproximationofthesegmentrates.
(5) Totalaverageassetsequal thegreaterof totalaverageassetsorthesumoftotalaverage liabilitiesandtotalaveragestockholders’ equity for each segment to reconcile the results to the consolidated financial statements prepared inconformitywithGAAP.
(6) IncludedinthetotalaverageassetsforSVBLeerinkisgoodwillof$137.8millionforboththeyearsendedDecember31,2020and2019.
(7) For the year ended December 31, 2018, amounts of client investment fees included in the line item "NoninterestIncome" previously reported as "Other Items" have been correctly allocated to our reportable segment "GlobalCommercialBank"toproperlyreflectthesourceofsuchrevenue.Thecorrectionofthisimmaterialerrorhadnoimpactonthe"Total"amountofnoninterestincome.
(8) For theyearendedDecember31,2018,amounts foraverageassetspreviously reportedas "Other Items"havebeencorrectlyallocatedtothereportablesegments"GlobalCommercialBank"and“SVBPrivateBank”toproperlyreflectthegreateroftotalaverageassetsorthesumoftotalaverageliabilitiesandtotalaveragestockholders’equityfor“GlobalCommercialBank”and“SVBPrivateBank.”Thecorrectionofthisimmaterialerrorhadnoimpactonthe"Total"amountofaverageassets.
25.ParentCompanyOnlyCondensedFinancialInformation
ThecondensedbalancesheetsofSVBFinancialatDecember31,2020and2019,andtherelatedcondensedstatementsofincome,comprehensiveincomeandcashflowsfor2020,2019and2018,arepresentedbelow:
CondensedBalanceSheets
December31,
(Dollarsinthousands) 2020 2019
Assets:
Cashandcashequivalents $ 670,738 $ 800,926
Investmentsecurities 666,860 474,842
Loans,amortizedcost 682 15,245
Leaseright-of-useassets 99,363 71,847
Otherassets 260,331 214,167
Investmentinsubsidiaries:
Banksubsidiary 7,068,964 5,034,095
Nonbanksubsidiaries 666,997 432,073
Totalassets $ 9,433,935 $ 7,043,195
LiabilitiesandSVBFGstockholders’equity:
3.125%SeniorNotes $ 495,280 $ —
3.50%SeniorNotes 348,348 347,987
Leaseliabilities 134,607 87,999
Otherliabilities 236,000 136,903
Totalliabilities $ 1,214,235 $ 572,889
SVBFGstockholders’equity 8,219,700 6,470,306
TotalliabilitiesandSVBFGstockholders’equity $ 9,433,935 $ 7,043,195
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
181
CondensedStatementsofIncome
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Interestincome $ 2,849 $ 4,473 $ 3,307
Interestexpense (21,565) (31,666) (32,037)
Dividendincomefrombanksubsidiary 50,000 733,000 140,000
Gainsonequitywarrantassets,net 226,942 138,078 89,142
Gainsoninvestmentsecurities,net 157,594 45,345 13,546
Fundmanagementfeesandothernoninterestincome 62,046 21,567 26,388
Generalandadministrativeexpenses (120,863) (94,712) (70,976)
Incometaxexpense (145,790) (40,218) (14,383)
Incomebeforenetincomeofsubsidiaries 211,213 775,867 154,987
Equityinundistributednetincomeofbanksubsidiary 776,243 303,618 793,641
Equityinundistributednetincomeofnonbanksubsidiaries 220,912 57,371 25,212
Netincomebeforepreferredstockdividend $ 1,208,368 $ 1,136,856 $ 973,840
Preferredstockdividends (17,151) — —
Netincomeavailabletocommonstockholders $ 1,191,217 $ 1,136,856 $ 973,840
CondensedStatementsofComprehensiveIncome
YearendedDecember31,(Dollarsinthousands) 2020 2019 2018
Netincomebeforepreferredstockdividend $ 1,208,368 $ 1,136,856 $ 973,840
Othercomprehensiveincome(loss),netoftax:
Foreigncurrencytranslationgains(losses) 11,846 2,319 (4,107)
ChangesinunrealizedholdinggainsandlossesonAFSsecurities 70 2,310 120
Changesinfairvalueonbankcashflowhedges,netofreclassificationadjustmentsinbanknetincome 131,403 (2,130) —
Equityinothercomprehensiveincome(loss)ofbankandnonbanksubsidiaries 394,753 136,066 (19,171)
Reclassificationstoretainedearningsfortheadoptionofnewaccountingguidance — — (29,490)
Othercomprehensiveincome(loss),netoftax 538,072 138,565 (52,648)
Totalcomprehensiveincome $ 1,746,440 $ 1,275,421 $ 921,192
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
182
CondensedStatementsofCashFlows
YearendedDecember31,
(Dollarsinthousands) 2020 2019 2018
Cashflowsfromoperatingactivities:Netincomebeforepreferredstockdividend $ 1,208,368 $ 1,136,856 $ 973,840
Adjustmentstoreconcilenetincometonetcashprovidedbyoperatingactivities:Gainsonequitywarrantassets,net (226,942) (138,078) (89,142)Gainsoninvestmentsecurities,net (157,594) (45,345) (13,546)Gainsonderivatives,net (30,018) — —Distributionsofearningsfrominvestmentsecurities 65,237 49,776 47,596Netincomeofbanksubsidiary (826,243) (1,036,618) (933,641)Netincomeonnonbanksubsidiaries (220,912) (57,371) (25,212)Cashdividendsfrombanksubsidiary 50,000 733,000 140,000Amortizationofshare-basedcompensation 83,986 66,815 45,675Decreaseinotherassets 17,189 27,205 51,169Increaseinotherliabilities 98,209 21,391 21,619Other,net 13,206 8,084 (31,024)
Netcashprovidedbyoperatingactivities 74,486 765,715 187,334
Cashflowsfrominvestingactivities:Netdecreaseininvestmentsecuritiesfrompurchases,salesandmaturities 122,823 128,635 73,742
Netdecrease(increase)inloans 14,563 (15,245) —Increaseininvestmentinbanksubsidiary (68,630) (42,952) (31,292)Capitalinfusioninbanksubsidiary (700,000) — —Decrease(increase)ininvestmentinnonbanksubsidiaries 4,271 23,275 (5,323)Businessacquisitions (26,700) (265,601) —
Netcash(usedfor)providedbyinvestingactivities (653,673) (171,888) 37,127
Cashflowsfromfinancingactivities:
Principalpaymentsoflong-termdebt — (358,395) —Proceedsfromissuanceof3.125%SeniorNotes 495,024 — —Proceedsfromissuanceofcommonstock,ESPPandESOP 31,146 24,818 18,387Netproceedsfromtheissuanceofpreferredstock — 340,138 —Paymentofpreferredstockdividends (17,151) — —Commonstockrepurchase (60,020) (352,511) (147,123)
Netcashprovidedby(usedfor)financingactivities 448,999 (345,950) (128,736)Net(decrease)increaseincashandcashequivalents (130,188) 247,877 95,725Cashandcashequivalentsatbeginningofperiod 800,926 553,049 457,324Cashandcashequivalentsatendofperiod $ 670,738 $ 800,926 $ 553,049
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
183
26.UnauditedQuarterlyFinancialData
Oursupplementalconsolidatedfinancialinformationforeachthreemonthperiodin2020and2019areasfollows:
Threemonthsended
(Dollarsinthousands,exceptpershareamounts) March31, June30, September30, December31,
2020:
Interestincome $ 567,402 $ 523,523 $ 543,127 $ 607,558
Interestexpense 43,265 10,596 15,387 16,078
Netinterestincome 524,137 512,927 527,740 591,480
Provisionfor(reduction)creditlosses 243,480 66,481 (52,018) (38,433)
Noninterestincome 301,934 368,848 547,583 621,783
Noninterestexpense 399,585 479,636 491,021 664,799
Incomebeforeincometaxexpense 183,006 335,658 636,320 586,897
Incometaxexpense 49,357 87,869 162,265 148,096
Netincomebeforenoncontrollinginterests 133,649 247,789 474,055 438,801
Netloss(income)attributabletononcontrollinginterests 1,973 (14,260) (27,748) (45,891)
Preferredstockdividends (3,369) (4,594) (4,594) (4,594)
Netincomeavailabletocommonstockholders $ 132,253 $ 228,935 $ 441,713 $ 388,316
Earningspercommonshare—basic $ 2.56 $ 4.44 $ 8.53 $ 7.49
Earningspercommonshare—diluted 2.55 4.42 8.47 7.40
2019:
Interestincome $ 551,014 $ 585,767 $ 583,892 $ 588,735
Interestexpense 38,128 56,364 63,248 55,067
Netinterestincome 512,886 529,403 520,644 533,668
Provisionforcreditlosses 28,551 23,946 36,536 17,383
Noninterestincome 280,376 333,750 294,009 313,344
Noninterestexpense 365,664 383,522 391,324 460,752
Incomebeforeincometaxexpense 399,047 455,685 386,793 368,877
Incometaxexpense 107,435 119,114 105,075 94,061
Netincomebeforenoncontrollinginterests 291,612 336,571 281,718 274,816
Netincomeattributabletononcontrollinginterests (2,880) (18,584) (14,437) (11,960)
Netincomeavailabletocommonstockholders $ 288,732 $ 317,987 $ 267,281 $ 262,856
Earningspercommonshare—basic $ 5.49 $ 6.12 $ 5.19 $ 5.10
Earningspercommonshare—diluted 5.44 6.08 5.15 5.06
27. LegalMatters
Certainlawsuitsandclaimsarisingintheordinarycourseofbusinesshavebeenfiledorarependingagainstusand/orour affiliates, and we may from time to time be involved in other legal or regulatory proceedings. In accordance withapplicableaccountingguidance,weestablishaccrualsforallsuchmatters,includingexpectedsettlements,whenwebelieveitisprobablethatalosshasbeenincurredandtheamountofthelossisreasonablyestimable.Whenalosscontingencyisnotboth probable and estimable,we do not establish an accrual. Any such loss estimates are inherently uncertain, based oncurrently available information and are subject tomanagement’s judgment and various assumptions. Due to the inherentsubjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may notrepresenttheultimateresolutionofsuchmatters.
To the extent we believe any potential loss relating to such matters may have a material impact on our liquidity,consolidated financial position, results of operations and/or our business as a whole and is reasonably possible but notprobable,weaimtodiscloseinformationrelatingtosuchpotentialloss.Wealsoaimtodiscloseinformationrelatingtoany
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
184
materialpotentiallossthatisprobablebutnotreasonablyestimable.Insuchcases,wherereasonablypracticable,weaimtoprovideanestimateoflossorrangeofpotentialloss.Nodisclosuresaregenerallymadeforanylosscontingenciesthataredeemedtoberemote.
Based upon information available to us, our review of lawsuits and claims filed or pending against us to date andconsultation with our outside legal counsel, we have not recognized amaterial liability for any suchmatters, nor do wecurrentlyexpectthatthesematterswillresultinamaterialliabilitytotheCompany.However,theoutcomeoflitigationandother legal and regulatorymatters is inherently uncertain, and it is possible that one or more of suchmatters currentlypendingorthreatenedcouldhaveanunanticipatedmaterialadverseeffectonour liquidity,consolidatedfinancialposition,resultsofoperationsand/orourbusinessasawhole,inthefuture.
28. SubsequentEvents
MergerAgreement
On January 4, 2021, the Company entered into amerger agreement with Boston Private (NASDAQ: BPFH) for totalconsideration of approximately $900 million, based on SIVB's closing price as of December 31, 2020. The mergerconsiderationconsistsof$2.10 incashand0.0228sharesofSIVBcommonstockforeachshareofBostonPrivatecommonstock.Duetothefixedexchangeratio,thevalueoftheconsiderationwillchangebasedonSIVB'sstockprice.Themergerisexpectedtocloseinmid-2021andissubjecttoregulatoryapproval.
SeriesBPreferredStockandSeniorNotesOfferings
On February 2, 2021, the Company issued depositary shares representing a 1/100th ownership interest in 750,000sharesofSeriesBPreferredStockwith$0.001parvalueand liquidationpreferencesof$100,000per share,or$1,000perdepositaryshare.Dividends,ifapprovedanddeclaredbytheBoardofDirectors,arepayablequarterly,inarrears,atarateperannumequalto(i)4.10percentfromtheoriginalissuedateto,butexcluding,February15,2031and(ii)fortheFebruary15,2031dividenddateandduringeachsubsequenttenyearperiod,theten-yeartreasuryrate(calculatedthreebusinessdayspriortoeachresetdateasthefivedayaverageoftheyieldsonactivelytradedU.S.treasurysecuritiesadjustedtoconstantmaturity,forten-yearmaturities)plus3.064percent.
ConcurrentlywiththeofferingoftheSeriesBPreferredStock,SVBFinancialissued$500millionof1.800%SeniorNotesdueFebruary2031,withinterestpaymentsstartingAugust2,2021,andpayableeveryFebruary2ndandAugust2nd.Thenoteswill be senior unsecured obligations of SVB Financial Group and will rank equally with all of our other unsecured andunsubordinatedindebtedness.
For both the Series B Preferred Stock and Senior Notes, we intend to use the net proceeds for general corporatepurposes,whichmayincludeworkingcapital,capitalinvestmentsandexpenditures,supportingcapitalratiosattheBankandcapitalizingotheroperatingsubsidiariesallowingcontinuedsupportforBankclients.
PotentialFraudulentClientActivity
TheCompanyrecentlybecameawareofpotentiallyfraudulentactivityconductedbyaclientoftheBankinconnectionwithaloantransactionfundedinearlyFebruary2021.Wearecurrentlyinvestigatingthisincidenttodetermineourpotentialcreditexposure,whichiscurrentlyestimatedtobeupto$70million,netoftax,relatingtoaGlobalFundBankingcapitalcalllineofcredit.Additionally,weareworkingwiththeappropriatelawenforcementauthoritiesinconnectionwiththismatterandintendtopursueallavailablesourcesofrecoveryandothermeasurestomitigatethepotentialloss.
TableofContentsSVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
185
ITEM9. CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIALDISCLOSURE
None.
ITEM9A. CONTROLSANDPROCEDURES
(a) DisclosureControlsandProcedures
Disclosurecontrolsandproceduresarethecontrolsandotherproceduresthataredesignedtoensurethatinformationrequired to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, asamended, is recorded,processed, summarized,and reportedwithin the timeperiods specified in theSEC rulesand forms.Disclosurecontrolsandproceduresinclude,amongotherthings,processes,controlsandproceduresdesignedtoensurethatinformationrequiredtobedisclosedinthereportsthattheCompanyfilesorsubmitsundertheExchangeActisaccumulatedandcommunicatedtomanagement,includingtheChiefExecutiveOfficerandChiefFinancialOfficer,asappropriate,toallowtimelydecisionsregardingrequireddisclosure.
TheCompanycarriedoutanevaluation,underthesupervisionandwiththeparticipationofmanagement,includingtheChief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosurecontrolsandproceduresasofDecember31,2020,pursuant toExchangeActRule13a-15(b).Basedonthisevaluation, theChief ExecutiveOfficer and Chief FinancialOfficer have concluded that the Company's disclosure controls and procedureswereeffectiveasofDecember31,2020.
(b) Management'sReportonInternalControloverFinancialReporting
Management is responsible forestablishingandmaintainingadequate internalcontrolover financial reportingat theCompany.Our internal control over financial reporting is a process designed under the supervision of the Chief ExecutiveOfficerandtheChiefFinancialOfficertoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationof theCompany's financial statements forexternal reportingpurposes inaccordancewithGAAP.A company'sinternalcontroloverfinancialreportingincludespoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthataccurately and fairly reflect, in reasonable detail, transactions and dispositions of the company's assets, (ii) providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithGAAPandthatreceiptsandexpendituresarebeingmadeonlyinaccordancewithauthorizationofmanagementandthedirectorsof the company,and (iii)provide reasonableassurance regardingpreventionor timelydetectionofunauthorizedacquisition, use, or disposition of the company's assets that could have a material effect on the Company's financialstatements.
Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance ofachievingfinancialreportingobjectives.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
AsofDecember31,2020,theCompanycarriedoutanassessment,underthesupervisionandwiththeparticipationoftheCompany'smanagement,includingtheCompany'sChiefExecutiveOfficerandChiefFinancialOfficer,oftheeffectivenessof the Company's internal control over financial reporting pursuant to Rule 13a-15(c), as adopted by the SEC under theExchangeAct. Inevaluatingtheeffectivenessof theCompany's internalcontrolover financial reporting,managementusedthe framework established in “Internal Control-Integrated Framework (2013),” issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that, as ofDecember31,2020,theCompany'sinternalcontroloverfinancialreportingwaseffective.
KPMGLLP,theindependentregisteredpublicaccountingfirmthatauditedtheconsolidatedfinancialstatementsoftheCompanyincludedinthisAnnualReportonForm10-K,hasissuedanattestationreportontheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofDecember31,2020.Thereport,whichexpressesanunqualifiedopinionontheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofDecember31,2020,isincludedin"ConsolidatedFinancialStatementsandSupplementaryData"underPartII,Item8ofthisreportundertheheading“ReportofIndependentRegisteredPublicAccountingFirm.”
(c) ChangesinInternalControloverFinancialReporting
Therewerenochangesinourinternalcontroloverfinancialreportingidentifiedinmanagement'sevaluationduringthefourthquarteroftheperiodcoveredbythisAnnualReportonForm10-Kthatmateriallyaffected,orarereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
ITEM9B. OTHERINFORMATION
None.
TableofContents
186
PARTIII.
ITEM10. DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCE
The information set forthunder the sections titled “ProposalNo.1-ElectionofDirectors,” “InformationonExecutiveOfficers,”“BoardCommittees,”and“CorporateGovernanceandBoardMatters”containedinthedefinitiveproxystatementforSVBFinancial's2021AnnualMeetingofStockholdersisincorporatedhereinbyreference.
WehaveaCodeofConduct for thePrincipalExecutiveOfficerandSeniorFinancialOfficers thatapplies toallofourdirectors, executive officers and senior financial officers aswell as ourU.S. employees. A copy of the Code of Conduct isavailableonourwebsiteatwww.svb.comunder “AboutUs-InvestorRelations-CorporateGovernance,”or canbeobtainedwithoutchargebyanypersonrequestingit.TorequestacopyofourCodeofConduct,pleasecontact:CorporateSecretary,SVBFinancialGroup,3003TasmanDrive,SantaClara,California95054,orbytelephone(408)654-7400.
We intend to disclose anywaivers fromour Codeof Conduct granted to our directors, executive officers and seniorfinancialofficers,andanymaterialsubstantivechangestoourCodeofConductbypostingsuchinformationonourwebsite.Nosuchwaiversorsubstantivechangesweremadeduringfiscalyear2020.
ITEM11. EXECUTIVECOMPENSATION
Theinformationsetforthunderthesectionstitled“InformationonExecutiveOfficers,”“CompensationDiscussionandAnalysis,”“CompensationforNamedExecutiveOfficers,”“CompensationforDirectors,”“CompensationCommitteeInterlocksand Insider Participation” and “Compensation Committee Report” contained in the definitive proxy statement for SVBFinancial's2021AnnualMeetingofStockholdersisincorporatedhereinbyreference.
ITEM12. SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENT,ANDRELATEDSTOCKHOLDERMATTERS
The information set forth under the sections titled “Security Ownership of Directors and Executive Officers” and“SecurityOwnershipofPrincipalStockholders”contained in thedefinitiveproxystatement forSVBFinancial's2021AnnualMeetingofStockholdersisincorporatedhereinbyreference.
Our stockholders have approvedeachof our active equity compensationplans. The following table provides certaininformationasofDecember31,2020withrespecttoourequitycompensationplans:
Plancategory
Numberofsecuritiestobeissueduponexerciseofoutstandingoptions,warrantsandrights(1)
Weightedaverageexercisepriceof
outstandingoptions,warrantsandrights
Numberofsecuritiesremainingavailableforfutureissuanceunderequitycompensation
plans(2)
Equitycompensationplansapprovedbystockholders 559,001 $ 191.29 3,852,966
Equitycompensationplansnotapprovedbystockholders n/a n/a n/a
Total 559,001 $ 191.29 3,852,966
(1) Representsoptionsgrantedunderour2006EquityIncentivePlan.Thisnumberdoesnotincludesecuritiestobeissuedforunvestedrestrictedstockunitsof995,049shares.
(2) Includessharesavailableforissuanceunderour2006EquityIncentivePlanand1,170,472sharesavailableforissuanceunderthe1999EmployeeStockPurchasePlan.Thisamountexcludessecuritiesalreadygrantedunderour2006EquityIncentivePlan(asdiscussedabove).
Foradditionalinformationconcerningourequitycompensationplans,refertoNote4—“Share-BasedCompensation”ofthe“NotestotheConsolidatedFinancialStatements”underPartII,Item8ofthisreport.
ITEM13. CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCE
The information set forthunder the sections titled “CertainRelationships andRelated Transactions” and “CorporateGovernance andBoardMatters-Board Independence and Leadership” in thedefinitiveproxy statement for SVB Financial's2021AnnualMeetingofStockholdersisincorporatedhereinbyreference.
ITEM14. PRINCIPALACCOUNTINGFEESANDSERVICES
Theinformationsetforthunderthesectiontitled“PrincipalAuditFeesandServices”containedinthedefinitiveproxystatementforSVBFinancial's2021AnnualMeetingofStockholdersisincorporatedhereinbyreference.
TableofContents
187
PARTIV.
ITEM15. EXHIBITSANDFINANCIALSTATEMENTSCHEDULES
(a) FinancialStatementsandExhibits:
Page
(1) FinancialStatements.ThefollowingconsolidatedfinancialstatementsoftheregistrantanditssubsidiariesareincludedinPartIIItem8:
ReportofIndependentRegisteredPublicAccountingFirm 98
ConsolidatedBalanceSheetsasofDecember31,2020and2019 101
ConsolidatedStatementsofIncomeforthethreeyearsendedDecember31,2020 102
ConsolidatedStatementsofComprehensiveIncomeforthethreeyearsendedDecember31,2020 103
ConsolidatedStatementsofStockholders'EquityforthethreeyearsendedDecember31,2020 104
ConsolidatedStatementsofCashFlowsforthethreeyearsendedDecember31,2020 105
NotestotheConsolidatedFinancialStatements 106
(2) FinancialStatementSchedule.TheconsolidatedfinancialstatementsandsupplementarydataarecontainedinPartIIItem8.Allschedulesotherthanassetforthaboveareomittedbecauseoftheabsenceoftheconditionsunder which they are required or because the required information is included in the consolidated financialstatementsorrelatednotesinPartIIItem8. 98
(3) Exhibits. 189
TableofContents
188
ITEM16. FORM10-KSUMMARY
None.
INDEXTOEXHIBITS
ExhibitNumber ExhibitDescription
IncorporatedbyReferenceFiledHerewithForm FileNo. Exhibit FilingDate
2.1 AgreementandPlanofMergerbyandbetweenSVBFinancialGroupandBostonPrivateFinancialHoldings,Inc.
8-K 000-39154 2.1 January8,2021
3.1 AmendedandRestatedCertificateofIncorporation 10-Q 000-15637 3.1 May9,2019
3.2 AmendedandRestatedBylaws,effectiveasofFebruary19,2019 8-K 000-15637 3.2 February20,2019
3.3 CertificateofDesignationsoftheRegistrantwithrespecttotheSeriesAPreferredStock,datedDecember6,2019,filedwiththeSecretaryofStateoftheStateofDelawareandeffectiveDecember6,2019
8-A 000-15637 3.2 December6,2019
3.4 CertificateofDesignationsoftheRegistrantwithrespecttotheSeriesBPreferredStock,datedFebruary1,2021,filedwiththeSecretaryofStateoftheStateofDelawareandeffectiveFebruary1,2021
8-K 000-39154 3.1 February2,2021
4.1 Officer’sCertificatedatedFebruary2,2021,relatingtothe1.800%SeniorNotedue2031
8-K 000-39154 4.6 February2,2021
4.2 Officer'sCertificate,datedasofJune5,2020,relatingtothe3.125%SeniorNoteDue2030
8-K 000-39154 4.2 June5,2020
4.3 Indenture,datedSeptember20,2010,byandbetweenSVBFinancialandU.S.BankNationalAssociation,astrustee
8-K 000-15637 4.1 September20,2010
4.4 Officer'sCertificate,datedasofJanuary29,2015,relatingtothe3.50%SeniorNoteDue2025
8-K 000-15637 4.2 January29,2015
4.5 DepositAgreement,datedDecember9,2019,amongSVBFinancialGroupandAmericanStockTransferandTrustCompany,LLC,actingasdepositary,andtheholdersfromtimetotimeoftheDepositaryReceiptsdescribedtherein
8-K 000-15637 4.2 December9,2019
4.6 Formof3.50%SeniorNotedue2025 8-K 000-15637 4.2 January29,2015
4.7 DescriptionofRegistrant'sSecurities 10-K 000-15637 4.4 February28,2020
*10.1 OfficeLeaseAgreement,datedasofSeptember15,2004,betweenCA-LakeMarriottBusinessParkLimitedPartnershipandSiliconValleyBank:3001,3003and3101TasmanDrive,SantaClara,CA95054
8-K 000-15637 10.28 September20,2004
*10.2 401(k)andEmployeeStockOwnershipPlan 10-K 000-15637 10.2 February27,2014
*10.3 1999EmployeeStockPurchasePlan 10-Q 000-15637 10.1 August8,2016
*10.4 FormofIndemnificationAgreement 10-Q 000-15637 10.7 November6,2009
*10.5 IncentiveCompensationPlan 10-Q 000-15637 10.1 August7,2018
*10.6 DeferredCompensationPlan 10-K 000-15637 10.7 February28,2019
*10.7 ChangeinControlSeverancePlan 8-K 000-15637 10.14 March15,2012
*10.8 2006EquityIncentivePlan X
*10.9 OfferLetterdatedNovember2,2006,forMichaelDescheneaux 8-K 000-15637 10.31 April17,2007
*10.10 OfferLetterdatedApril25,2007,forMichaelDescheneaux 8-K/A 000-15637 10.32 May2,2007
*10.11 FormofLetterAgreementwithMichaelDescheneauxre:SalaryChanges
8-K 000-15637 10.31 May14,2009
*10.12 FormofNonqualifiedStockOptionAgreementunder2006EquityIncentivePlan+
10-K 000-15637 10.35 February27,2014
*10.13 UKSub-Planofthe2006EquityIncentivePlan+ 10-Q 000-15637 10.3 May9,2014
*10.14 IsraeliSub-Planofthe2006EquityIncentivePlan+ 10-Q 000-15637 10.5 May9,2014
*10.15 FormofNonqualifiedStockOptionAgreementunder2006EquityIncentivePlan++
8-K 000-15637 10.3 January9,2015
*10.16 FormofRestrictedStockUnitAgreementunder2006EquityIncentivePlan(SubjecttoTime-BasedVesting)++
8-K 000-15637 10.4 January9,2015
*10.17 FormofRestrictedStockUnitAgreementunder2006IncentivePlan(SubjecttoPerformance-BasedVesting)++
8-K 000-15637 10.5 January9,2015
TableofContents
189
ExhibitNumber ExhibitDescription
IncorporatedbyReference
FiledHerewithForm FileNo. Exhibit FilingDate
*10.18 FormofIncentiveStockOptionAgreementunder2006EquityIncentivePlan+++
X
*10.19 FormofNonqualifiedStockOptionAgreementunder2006EquityIncentivePlan+++
X
*10.20 FormofRestrictedStockUnitAgreementunder2006EquityIncentivePlan(SubjecttoTime-BasedVesting)+++
X
*10.21 FormofRestrictedStockUnitAgreementunder2006EquityIncentivePlan(SubjecttoPerformance-BasedVesting)+++
X
*10.22 FormofRestrictedStockAwardAgreementunder2006EquityIncentivePlan+++
X
*10.23 FormofStockAppreciationRightsAgreementunder2006EquityIncentivePlan+++
X
*10.24 FormofIncentiveStockOptionAgreementunder2006EquityIncentivePlan(ContinuedVestingUponRetirement)+++
X
*10.25 FormofNonqualifiedStockOptionAgreementunder2006EquityIncentivePlan(ContinuedVestingUponRetirement)+++
X
*10.26 FormofRestrictedStockUnitAgreementunder2006EquityIncentivePlan(SubjecttoTime-BasedVesting)(ContinuedVestingUponRetirement)+++
X
*10.27 FormofRestrictedStockUnitAgreementunder2006IncentivePlan(SubjecttoPerformance-BasedVesting)(ContinuedVestingUponRetirement)+++
X
*10.28 FormofRestrictedStockAwardAgreementunder2006EquityIncentivePlan(ContinuedVestingUponRetirement)+++
X
*10.29 FormofStockAppreciationRightsAgreementunder2006EquityIncentivePlan(ContinuedVestingUponRetirement)+++
X
*10.30 FormofU.K.-ApprovedStockOptionAgreement++ 8-K 000-15637 10.8 January9,2015
*10.31 ServiceAgreement,datedJuly14,2009,betweenSVBFinancialGroupUKLimitedandPhilipCox
10-K 000-15637 10.47 February26,2015
*10.32 OfferAgreementdatedApril28,2017,byandbetweenDanielBeckandSVBFinancialGroup
8-K 000-15637 10.1 May12,2017
*10.33 LetterAgreementdatedMay11,2017,byandbetweenMichaelDescheneauxandSVBFinancialGroup
8-K 000-15637 10.2 May12,2017
21.1 SubsidiariesofSVBFinancial X
23.1 ConsentofKPMGLLP,independentregisteredpublicaccountingfirm
X
31.1 Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalExecutiveOfficer
X
31.2 Rule13a-14(a)/15(d)-14(a)CertificationofPrincipalFinancialOfficer
X
32.1 Section1350Certifications X
101.INS XBRLInstanceDocument X
101.SCH XBRLTaxonomyExtensionSchemaDocument X
101.CAL XBRLTaxonomyExtensionCalculationLinkbaseDocument X
101.DEF XBRLTaxonomyExtensionDefinitionLinkbaseDocument X
101.LAB XBRLTaxonomyExtensionLabelLinkbaseDocument X
101.PRE XBRLTaxonomyExtensionPresentationLinkbaseDocument X
* Denotesmanagementcontractoranycompensatoryplan,contractorarrangement.
+ Formsapplicabletograntsmadeunderthe2006EquityIncentivePlanduring2014.
++ Formsapplicabletograntsmadeunderthe2006EquityIncentivePlanbeginningin2015to2020.
+++ Formsapplicabletograntsmadeunderthe2006EquityIncentivePlanbeginningin2021.
TableofContents
190
SIGNATURES
Pursuant to the requirements of Section 13or 15(d) of the Securities ExchangeAct of 1934, the registrant has dulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
SVBFinancialGroup
/s/GREGW.BECKERGregW.BeckerPresidentandChiefExecutiveOfficer
Dated:March1,2021
TableofContents
191
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated:
Signature Title Date
/s/ROGERF.DUNBAR ChairmanoftheBoardofDirectorsandDirector March1,2021RogerF.Dunbar
/s/GREGW.BECKER President,ChiefExecutiveOfficerandDirector(PrincipalExecutiveOfficer)
March1,2021GregW.Becker
/s/DANIELJ.BECK ChiefFinancialOfficer(PrincipalFinancialOfficer)
March1,2021DanielJ.Beck
/s/KARENHON ChiefAccountingOfficer(PrincipalAccountingOfficer)
March1,2021KarenHon
/s/ERICA.BENHAMOU Director March1,2021
EricA.Benhamou
/s/JOHNS.CLENDENING Director March1,2021
JohnS.Clendening
/s/RICHARDD.DANIELS Director March1,2021
RichardD.Daniels
/s/ALISONDAVIS Director March1,2021
AlisonDavis
/s/JOELP.FRIEDMAN Director March1,2021
JoelP.Friedman
/s/JEFFREYN.MAGGIONCALDA Director March1,2021
JeffreyN.Maggioncalda
/s/BEVERLYKAYMATTHEWS Director March1,2021
BeverlyKayMatthews
/s/MARYJ.MILLER Director March1,2021
MaryJ.Miller
/s/KATED.MITCHELL Director March1,2021
KateD.Mitchell
/s/JOHNF.ROBINSON Director March1,2021
JohnF.Robinson
/s/GARENK.STAGLIN Director March1,2021
GarenK.Staglin
TableofContents
192
