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SVB FINANCIAL GROUP - Quarter Report: 2016 September (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 (Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         .
Commission File Number: 000-15637 
SVB FINANCIAL GROUP
(Exact name of registrant as specified in its charter)
  
Delaware
 
91-1962278
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3003 Tasman Drive, Santa Clara, California
 
95054-1191
(Address of principal executive offices)
 
(Zip Code)
(408) 654-7400
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
At October 31, 2016, 52,088,461 shares of the registrant’s common stock ($0.001 par value) were outstanding.


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

2

Table of Contents

Glossary of Acronyms that may be used in this Report

AFS— Available-for-Sale
APIC— Additional Paid-in Capital
ASC— Accounting Standards Codification
ASU— Accounting Standards Update
CET— Common Equity Tier
EHOP— Employee Home Ownership Program of the Company
EPS— Earnings Per Share
ESOP— Employee Stock Ownership Plan of the Company
ESPP— 1999 Employee Stock Purchase Plan of the Company
FASB— Financial Accounting Standards Board
FDIC— Federal Deposit Insurance Corporation
FHLB— Federal Home Loan Bank
FRB— Federal Reserve Bank
FTE— Full-Time Employee
FTP— Funds Transfer Pricing
GAAP— Accounting principles generally accepted in the United States of America
IASB— International Accounting Standards Board
IPO— Initial Public Offering
IRS— Internal Revenue Service
IT— Information Technology
LIBOR— London Interbank Offered Rate
NIB— Non-Interest Bearing
M&A— Merger and Acquisition
OTTI— Other Than Temporary Impairment
SEC— Securities and Exchange Commission
SPD-SVB— SPD Silicon Valley Bank (China Joint Venture)
TDR— Troubled Debt Restructuring
UK— United Kingdom
VIE— Variable Interest Entity

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Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
(Dollars in thousands, except par value and share data)

September 30,
2016

December 31,
2015
Assets




Cash and cash equivalents

$
2,521,319


$
1,503,257

Available-for-sale securities, at fair value (cost of $12,514,893 and $16,375,941, respectively)

12,665,697


16,380,748

Held-to-maturity securities, at cost (fair value of $7,885,333 and $8,758,622, respectively)

7,791,949


8,790,963

Non-marketable and other securities

625,178


674,946

Total investment securities

21,082,824


25,846,657

Loans, net of unearned income

19,112,265


16,742,070

Allowance for loan losses

(240,565
)

(217,613
)
Net loans

18,871,700


16,524,457

Premises and equipment, net of accumulated depreciation and amortization

115,014


102,625

Accrued interest receivable and other assets

683,180


709,707

Total assets

$
43,274,037


$
44,686,703

Liabilities and total equity




Liabilities:




Noninterest-bearing demand deposits

$
31,028,974


$
30,867,497

Interest-bearing deposits

7,160,442


8,275,279

Total deposits

38,189,416


39,142,776

Short-term borrowings

2,421


774,900

Other liabilities

562,912


639,094

Long-term debt

795,971


796,702

Total liabilities

39,550,720


41,353,472

Commitments and contingencies (Note 12 and Note 15)





SVBFG stockholders’ equity:




Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding




Common stock, $0.001 par value, 150,000,000 shares authorized; 52,061,435 shares and 51,610,226 shares outstanding, respectively

52


52

Additional paid-in capital

1,219,555


1,189,032

Retained earnings

2,276,865


1,993,646

Accumulated other comprehensive income

96,579


15,404

Total SVBFG stockholders’ equity

3,593,051


3,198,134

Noncontrolling interests

130,266


135,097

Total equity

3,723,317


3,333,231

Total liabilities and total equity

$
43,274,037


$
44,686,703


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

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SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
 

Three months ended September 30,

Nine months ended September 30,
(Dollars in thousands, except per share amounts)

2016

2015

2016

2015
Interest income:








Loans

$
214,227


$
174,993


$
617,456


$
507,746

Investment securities:








Taxable

83,468


87,609


261,121


253,496

Non-taxable

522


707


1,693


2,220

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

2,196


1,482


5,793


4,071

Total interest income

300,413


264,791


886,063


767,533

Interest expense:








Deposits

1,535


1,158


3,984


4,283

Borrowings

9,717


8,973


28,161


25,894

Total interest expense

11,252


10,131


32,145


30,177

Net interest income

289,161


254,660


853,918


737,356

Provision for loan losses

18,950


33,403


88,624


66,368

Net interest income after provision for loan losses

270,211


221,257


765,294


670,988

Noninterest income:








Gains on investment securities, net

23,178


18,768


41,764


77,006

Gains on derivative instruments, net

19,744


10,244


26,847


66,290

Foreign exchange fees

25,944


22,995


76,998


63,037

Credit card fees

18,295


14,536


49,226


40,841

Deposit service charges

13,356


12,272


39,142


34,309

Client investment fees

7,952


5,683


23,959


15,429

Lending related fees

8,168


7,561


23,783


23,746

Letters of credit and standby letters of credit fees

6,811


5,341


18,414


15,315

Other

20,692


11,077


42,917


22,315

Total noninterest income

144,140


108,477


343,050


358,288

Noninterest expense:








Compensation and benefits

136,568


109,345


374,410


350,030

Professional services

23,443


21,137


67,959


58,834

Premises and equipment

16,291


12,356


47,861


36,800

Business development and travel

8,504


8,028


30,077


28,904

Net occupancy

9,525


8,548


28,919


24,010

FDIC and state assessments

7,805


6,954


21,624


18,705

Correspondent bank fees

3,104


3,070


9,469


9,775

Provision for unfunded credit commitments

1,054


1,047


1,601


249

Other

15,533


14,270


44,292


42,101

Total noninterest expense

221,827


184,755


626,212


569,408

Income before income tax expense

192,524


144,979


482,132


459,868

Income tax expense

76,877


57,017


195,508


175,057

Net income before noncontrolling interests

115,647


87,962


286,624


284,811

Net income attributable to noncontrolling interests

(4,566
)

(6,229
)

(3,405
)

(28,419
)
Net income available to common stockholders

$
111,081


$
81,733


$
283,219


$
256,392

Earnings per common share—basic

$
2.13


$
1.59


$
5.46


$
5.00

Earnings per common share—diluted

2.12


1.57


5.42


4.94

 

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

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SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 

Three months ended September 30,

Nine months ended September 30,
(Dollars in thousands)

2016

2015

2016

2015
Net income before noncontrolling interests

$
115,647


$
87,962


$
286,624


$
284,811

Other comprehensive (loss) income, net of tax:








Change in cumulative translation (losses) gains:








Foreign currency translation (losses) gains

(119
)

(102
)

(2,168
)

2,588

Related tax benefit (expense)

50


87


885


(1,054
)
Change in unrealized (losses) gains on available-for-sale securities:








Unrealized holding (losses) gains

(54,204
)

58,902


157,564


100,468

Related tax benefit (expense)

21,932


(24,200
)

(64,357
)

(41,224
)
Reclassification adjustment for losses (gains) included in net income

15


(13
)

(11,567
)

(2,750
)
Related tax (benefit) expense

(6
)

6


4,707


1,111

Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity

(1,690
)

(2,565
)

(6,507
)

(7,997
)
Related tax benefit

680


1,032


2,618


3,218

Other comprehensive (loss) income, net of tax

(33,342
)

33,147


81,175


54,360

Comprehensive income

82,305


121,109


367,799


339,171

Comprehensive income attributable to noncontrolling interests

(4,566
)

(6,229
)

(3,405
)

(28,419
)
Comprehensive income attributable to SVBFG

$
77,739


$
114,880


$
364,394


$
310,752


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

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Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
 
 

Common Stock

Additional
Paid-in Capital

Retained Earnings

Accumulated
Other
Comprehensive Income

Total SVBFG
Stockholders’ Equity

Noncontrolling Interests

Total Equity
(Dollars in thousands)

Shares

Amount






Balance at December 31, 2014

50,924,925


$
51


$
1,120,350


$
1,649,967


$
42,704


$
2,813,072


$
1,238,662


$
4,051,734

Common stock issued under employee benefit plans, net of restricted stock cancellations

536,635




14,712






14,712




14,712

Common stock issued under ESOP

27,425




3,512






3,512




3,512

Income tax benefit from stock options exercised, vesting of restricted stock and other





10,813






10,813




10,813

Deconsolidation of noncontrolling interest













(1,069,437
)

(1,069,437
)
Net income







256,392




256,392


28,419


284,811

Capital calls and distributions, net













(58,315
)

(58,315
)
Net change in unrealized gains and losses on available-for-sale securities, net of tax









57,605


57,605




57,605

Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax









(4,779
)

(4,779
)



(4,779
)
Foreign currency translation adjustments, net of tax









1,534


1,534




1,534

Share-based compensation, net





22,262






22,262




22,262

Other, net
 

 

 

 
(224
)
 

 
(224
)
 

 
(224
)
Balance at September 30, 2015

51,488,985


$
51


$
1,171,649


$
1,906,135


$
97,064


$
3,174,899


$
139,329


$
3,314,228

Balance at December 31, 2015

51,610,226


$
52


$
1,189,032


$
1,993,646


$
15,404


$
3,198,134


$
135,097


$
3,333,231

Common stock issued under employee benefit plans, net of restricted stock cancellations

408,044




8,661






8,661




8,661

Common stock issued under ESOP

43,165




4,328






4,328




4,328

Income tax effect from stock options exercised, vesting of restricted stock and other





(6,300
)





(6,300
)



(6,300
)
Net income







283,219




283,219


3,405


286,624

Capital calls and distributions, net













(8,236
)

(8,236
)
Net change in unrealized gains and losses on available-for-sale securities, net of tax









86,347


86,347




86,347

Amortization of unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax









(3,889
)

(3,889
)



(3,889
)
Foreign currency translation adjustments, net of tax









(1,283
)

(1,283
)



(1,283
)
Share-based compensation, net





23,834






23,834




23,834

Balance at September 30, 2016

52,061,435


$
52


$
1,219,555


$
2,276,865


$
96,579


$
3,593,051


$
130,266


$
3,723,317



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

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SVB FINANCIAL GROUP AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 

Nine months ended September 30,
(Dollars in thousands)

2016

2015
Cash flows from operating activities:




Net income before noncontrolling interests

$
286,624


$
284,811

Adjustments to reconcile net income to net cash provided by operating activities:




Provision for loan losses

88,624


66,368

Provision for unfunded credit commitments

1,601


249

Changes in fair values of derivatives, net

(24,875
)

(42,295
)
Gains on investment securities, net

(41,764
)

(77,006
)
Depreciation and amortization

35,114


28,504

Amortization of premiums and discounts on investment securities, net

9,622


14,659

Amortization of share-based compensation

22,342


24,174

Amortization of deferred loan fees

(72,807
)

(64,275
)
Pre-tax net gain on SVBIF sale transaction



(1,287
)
Deferred income tax (benefit) expense

(6,839
)

3,131

Changes in other assets and liabilities:




Accrued interest receivable and payable, net

1,169


(6,312
)
Accounts receivable and payable, net

(12,872
)

(18,285
)
Income tax receivable and payable, net

13,181


(29,398
)
Accrued compensation

(48,740
)

(7,702
)
Foreign exchange spot contracts, net

1,803


7,522

Other, net

20,821


71,349

Net cash provided by operating activities

273,004


254,207

Cash flows from investing activities:




Purchases of available-for-sale securities



(2,911,486
)
Proceeds from sales of available-for-sale securities

2,879,409


7,762

Proceeds from maturities and pay downs of available-for-sale securities

1,002,523


1,238,950

Purchases of held-to-maturity securities

(225,526
)

(2,057,030
)
Proceeds from maturities and pay downs of held-to-maturity securities

1,206,367


1,153,363

Purchases of non-marketable and other securities

(41,925
)

(30,245
)
Proceeds from sales and distributions of non-marketable and other securities

54,420


115,338

Net increase in loans

(2,373,798
)

(911,694
)
Proceeds from recoveries of charged-off loans

8,158


5,119

Effect of deconsolidation of noncontrolling interest



15,995

Net proceeds from SVBIF sale transaction



39,284

Purchases of premises and equipment

(37,184
)

(37,465
)
Net cash provided by (used for) investing activities

2,472,444


(3,372,109
)
Cash flows from financing activities:




Net (decrease) increase in deposits

(953,360
)

2,626,379

Net decrease in short-term borrowings

(772,479
)

(4,025
)
(Distributions to noncontrolling interests), net of contributions from noncontrolling interests

(8,236
)

(16,789
)
Tax effect from stock exercises

(6,300
)

10,813

Proceeds from issuance of common stock, ESPP, and ESOP

12,989


18,224

Proceeds from issuance of 3.50% Senior Notes



346,431

Net cash (used for) provided by financing activities

(1,727,386
)

2,981,033

Net increase (decrease) in cash and cash equivalents

1,018,062


(136,869
)
Cash and cash equivalents at beginning of period (1)

1,503,257


1,811,014

Cash and cash equivalents at end of period

$
2,521,319


$
1,674,145

Supplemental disclosures:




Cash paid during the period for:




Interest

$
39,317


$
32,183

Income taxes

186,474


182,479

Noncash items during the period:




Changes in unrealized gains and losses on available-for-sale securities, net of tax

$
86,347


$
57,605

Distributions of stock from investments (2)

750


64,120

 
 
(1)
Cash and cash equivalents at December 31, 2014 included $15.0 million recognized in assets held-for-sale in conjunction with the SVBIF sale transaction.
(2)
For the nine months ended September 30, 2015, includes distributions to noncontrolling interests of $41.5 million.

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

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SVB FINANCIAL GROUP AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Basis of Presentation
SVB Financial Group is a diversified financial services company, as well as a bank holding company and financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services to support our clients of all sizes and stages throughout their life cycles. In these notes to our consolidated financial statements, when we refer to “SVB Financial Group,” “SVBFG”, the “Company,” “we,” “our,” “us” or use similar words, we mean SVB Financial Group and all of its subsidiaries collectively, including Silicon Valley Bank (the “Bank”), unless the context requires otherwise. When we refer to “SVB Financial” or the “Parent” we are referring only to the parent company, SVB Financial Group, unless the context requires otherwise.
The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature that are, in the opinion of management, necessary to fairly present our financial position, results of operations and cash flows in accordance with GAAP. Such unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of results to be expected for any future periods. These unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”).
The accompanying unaudited interim consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Consolidated Financial Statements and Supplementary Data—Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2015 Form 10-K.
The preparation of unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates may change as new information is obtained. Significant items that are subject to such estimates include measurements of fair value, the valuation of non-marketable securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and reserve for unfunded credit commitments, and the recognition and measurement of income tax assets and liabilities.
Principles of Consolidation and Presentation
Prior to April 1, 2015, the Company’s consolidated financial statements included the accounts of SVB Financial Group and entities in which we had a controlling interest.  The determination of whether we had controlling interest was based on consolidation principles prescribed by ASC Topic 810 and whether the controlling interest in an entity was a voting interest entity or a variable interest entity (“VIE”). However, during the three months ended June 30, 2015, we early adopted the provisions of ASU 2015-02, Amendments to the Consolidation Analysis (ASU 2015-02), which simplifies consolidation accounting by reducing the number of consolidation models and changing various aspects of current GAAP, including certain consolidation criteria for variable interest entities. The new guidance eliminates the presumption that a general partner of a limited partnership arrangement should consolidate a limited partnership. The amendments to ASC Topic 810 in ASU 2015-02 modify the evaluation of whether limited partnerships and similar entities are VIEs or voting entities. With these changes, we determined that the majority of our investments in limited partnership arrangements are VIEs under the new guidance while these entities were typically voting interest entities under the prior guidance.
ASU 2015-02 provided a single model for evaluating VIE entities for consolidation. VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. We assess VIEs to determine if we are the primary beneficiary of a VIE.  A primary beneficiary is defined as a variable interest holder that has a controlling financial interest. A controlling financial interest requires both: (a) power to direct the activities that most significantly impact the VIE’s economic performance, and (b) obligation to absorb losses or receive benefits of a VIE that could potentially be significant to a VIE. Under this analysis, we evaluate kick-out rights and other participating rights which could provide us a controlling financial interest. The primary beneficiary of a VIE is required to consolidate the VIE.
ASU 2015-02 also changed how we evaluate fees paid to managers of our limited partnership investments. Under the new guidance, we exclude those fee arrangements that are not deemed to be variable interests from the analysis of our interests in our investments in VIEs and the determination of a primary beneficiary, if any.

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Our consolidated financial statements include the accounts of SVB Financial Group and consolidated entities. We consolidate voting entities in which we have control through voting interests. We determine whether we have a controlling financial interest in a VIE by determining if we have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and whether we have significant variable interests. Generally, we have significant variable interests if our commitments to a limited partnership investment represent a significant amount of the total commitments to the entity. We also evaluate the impact of related parties on our determination of variable interests in our consolidation conclusions. We consolidate VIEs in which we are the primary beneficiary based on a controlling financial interest. If we are not the primary beneficiary of a VIE, we record our pro-rata interests or our cost basis in the VIE, as appropriate, based on other accounting guidance within GAAP.
All significant intercompany accounts and transactions with consolidated entities have been eliminated. We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide.
Recent Accounting Pronouncements
In May 2014, the FASB issued a new accounting standard update (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. This guidance will be effective January 1, 2018, either on a full retrospective approach or a modified retrospective approach, with early adoption permitted, but not before January 1, 2017. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In January 2016, the FASB issued a new accounting standard update (ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)), which will significantly change the income statement impact of equity investments, and the recognition of changes in fair value of financial liabilities. This guidance will be effective on January 1, 2018, on a prospective basis with a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In February 2016, the FASB issued a new accounting standard update (ASU 2016-02, Leases (Topic 842)), which will require for all operating leases the recognition of a right-of-use asset and a lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance will be effective on January 1, 2019, on a modified retrospective basis, with early adoption permitted. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In March 2016, the FASB issued a new accounting standard update (ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323)), which eliminates the requirement that when an investment qualifies for use of the equity method due to an increase in level of ownership or influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. This guidance will be effective January 1, 2017, on a prospective basis, with early adoption permitted. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In March 2016, the FASB issued a new accounting standard update (ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)), which is intended to improve the operability and understandability of the implementation guidance by clarifying the following: how an entity should identify the unit of accounting for the principal versus agent evaluation; how the control principle applies to transactions, such as service arrangements; reframes the indicators to focus on a principal rather than an agent, removes the credit risk and commission indicators and clarifies the relationship between the control principle and the indicators; and revises the existing illustrative examples and adds new illustrative examples. This guidance will be effective January 1, 2018, either on a full retrospective approach or a modified retrospective approach, with early adoption permitted, but not before January 1, 2017. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In March 2016, the FASB issued a new accounting standard update (ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718)), which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.  Under the ASU, an entity recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement in the period when the awards vest or are settled. The guidance also permits an entity to make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This guidance will be effective January 1, 2017. Early adoption is permitted, but all of the guidance must be adopted in the same period. We plan to adopt the share-based payment guidance in the first quarter of 2017. Currently, we record excess tax benefits and tax deficiencies to APIC at the

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time of vesting and or settlement, however, upon adoption of this standard, the excess tax benefits and tax deficiencies will be recorded to the income statement as income tax expense or benefit. We do not expect the guidance to have a material impact on our annual earnings; however, the impact will vary period to period depending on the volatility of the Company's stock price and the actual timing of settlement of awards. We would expect the most significant impact to occur during our second quarter as the majority of awards vest during that period.
In April 2016, the FASB issued a new accounting standard update (ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing), which amends the new revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations. The amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or a point in time. The amendments also clarify when a promised good or service is separately identifiable, that is distinct within the context of the contract, and allow entities to disregard items that are immaterial in the context of a contract. The effective date and transition requirements for this update are the same as those of the new standard. This guidance is effective January 1, 2018, on either a full retrospective approach or a modified retrospective approach, with early adoption permitted, but not before January 1, 2017. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In June 2016, the FASB issued a new accounting standard update (ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments), which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance will be effective January 1, 2020, on a modified retrospective approach, with early adoption permitted, but not before January 1, 2020. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In August 2016, the FASB issued a new accounting standard update (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments), which clarifies the guidance on eight specific cash flow issues. This guidance will be effective January 1, 2018 on a full retrospective approach, with early adoption permitted. We are currently evaluating the impact this guidance will have on our statement of cash flows.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentations.
2.
Stockholders’ Equity and EPS
Accumulated Other Comprehensive Income
The following table summarizes the items reclassified out of accumulated other comprehensive income into the Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2016 and 2015:
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
Income Statement Location
 
2016

2015
 
2016
 
2015
Reclassification adjustment for losses (gains) included in net income
 
Gains on investment securities, net
 
$
15

 
$
(13
)
 
$
(11,567
)
 
$
(2,750
)
Related tax (benefit) expense
 
Income tax expense
 
(6
)
 
6

 
4,707

 
1,111

Total reclassification adjustment for losses (gains) included in net income, net of tax
 
 
 
$
9

 
$
(7
)
 
$
(6,860
)
 
$
(1,639
)
EPS
Basic EPS is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options and restricted stock units outstanding under our equity incentive plans and our ESPP. Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive. The following is a reconciliation of basic EPS to diluted EPS for the three and nine months ended September 30, 2016 and 2015:

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Three months ended September 30,
 
Nine months ended September 30,
(Dollars and shares in thousands, except per share amounts)
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
111,081

 
$
81,733

 
$
283,219

 
$
256,392

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
 
52,046

 
51,479

 
51,842

 
51,254

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and ESPP
 
233

 
382

 
245

 
411

Restricted stock units
 
134

 
187

 
142

 
213

Denominator for diluted calculation
 
52,413

 
52,048

 
52,229

 
51,878

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
2.13

 
$
1.59

 
$
5.46

 
$
5.00

Diluted
 
$
2.12

 
$
1.57

 
$
5.42

 
$
4.94


The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation due to the antidilutive effect for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Shares in thousands)
 
2016
 
2015
 
2016
 
2015
Stock options
 
518

 
142

 
444

 
169

Restricted stock units
 
120

 
1

 
9

 

Total
 
638

 
143

 
453

 
169

3.
Share-Based Compensation
For the three and nine months ended September 30, 2016 and 2015, we recorded share-based compensation and related tax benefits as follows: 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Share-based compensation expense
 
$
7,916

 
$
8,188

 
$
22,342

 
$
24,174

Income tax benefit related to share-based compensation expense
 
(2,881
)
 
(3,051
)
 
(7,461
)
 
(8,381
)
Unrecognized Compensation Expense
As of September 30, 2016, unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Average
Expected
Recognition
  Period - in Years  
Stock options
 
$
11,150

 
2.52
Restricted stock units
 
51,094

 
2.68
Total unrecognized share-based compensation expense
 
$
62,244

 
 

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Share-Based Payment Award Activity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the nine months ended September 30, 2016:
 
 
Options
 
Weighted
Average
 Exercise Price 
 
Weighted Average Remaining Contractual Life - in Years  
 
Aggregate
  Intrinsic Value  
of In-The-
Money
Options
Outstanding at December 31, 2015
 
1,137,228

 
$
77.12

 
 
 
 
Granted
 
177,203

 
105.11

 
 
 
 
Exercised
 
(141,248
)
 
43.90

 
 
 
 
Forfeited
 
(19,305
)
 
100.80

 
 
 
 
Expired
 
(190
)
 
19.48

 
 
 
 
Outstanding at September 30, 2016
 
1,153,688

 
85.10

 
3.83
 
$
31,649,669

Vested and expected to vest at September 30, 2016
 
1,123,538

 
84.47

 
3.77
 
31,469,498

Exercisable at September 30, 2016
 
706,677

 
72.25

 
2.81
 
27,648,800

The aggregate intrinsic value of outstanding options shown in the table above represents the pre-tax intrinsic value based on our closing stock price of $110.54 as of September 30, 2016. The total intrinsic value of options exercised during the three and nine months ended September 30, 2016 was $1.5 million and $8.2 million, respectively, compared to $2.2 million and $24.0 million for the comparable 2015 periods.
The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the nine months ended September 30, 2016:
 
 
Shares    
 
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015
 
572,038

 
$
103.50

Granted
 
359,028

 
100.17

Vested
 
(215,587
)
 
87.67

Forfeited
 
(24,508
)
 
106.50

Nonvested at September 30, 2016
 
690,971

 
106.61

4.
Variable Interest Entities
Our involvement with VIEs includes our investments in venture capital and private equity funds, debt funds, private and public portfolio companies and our investments in qualified affordable housing projects.
The following table presents the carrying amounts and classification of significant variable interests in consolidated and unconsolidated VIEs as of September 30, 2016 and December 31, 2015:

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(Dollars in thousands)
 
Consolidated VIEs
 
Unconsolidated VIEs
 
Maximum Exposure to Loss in Unconsolidated VIEs
September 30, 2016:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,870

 
$

 
$

Non-marketable and other securities (1)
 
195,956

 
312,693

 
312,693

Accrued interest receivable and other assets
 
333

 

 

Total assets
 
$
209,159

 
$
312,693

 
$
312,693

Liabilities:
 
 
 
 
 
 
Accrued expenses and other liabilities (1)
 
909

 
52,846

 

Total liabilities
 
$
909

 
$
52,846

 
$

December 31, 2015:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
11,811

 
$

 
$

Non-marketable and other securities (1)
 
203,714

 
364,450

 
364,450

Accrued interest receivable and other assets
 
494

 

 

Total assets
 
$
216,019

 
$
364,450

 
$
364,450

Liabilities:
 
 
 
 
 
 
Accrued expenses and other liabilities (1)
 
433

 
90,978

 

Total liabilities
 
$
433

 
$
90,978

 
$

 
 
(1)
Included in our unconsolidated non-marketable and other securities portfolio at September 30, 2016 and December 31, 2015 are investments in qualified affordable housing projects of $106.5 million and $154.4 million, respectively and related unfunded commitments of $52.8 million and $91.0 million, respectively.

Non-marketable and other securities
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, debt funds, private and public portfolio companies and investments in qualified affordable housing projects. A majority of these investments are through third party funds held by SVB Financial in which we do not have controlling or significant variable interests. These investments represent our unconsolidated VIEs in the table above. Our non-marketable and other securities portfolio also includes investments from SVB Capital. SVB Capital is the venture capital investment arm of SVB Financial, which focuses primarily on funds management. The SVB Capital family of funds is comprised of direct venture funds that invest in companies and funds of funds that invest in other venture capital funds. We have a controlling and significant variable interest in five of these SVB Capital funds and consolidate these funds for financial reporting purposes.
All investments are generally nonredeemable and distributions are expected to be received through the liquidation of the underlying investments throughout the life of the investment fund. Investments may be sold or transferred subject to the notice and approval provisions of the underlying investment agreement. Subject to applicable regulatory requirements, including the Volcker Rule, we also make commitments to invest in venture capital and private equity funds, but are not obligated to fund commitments beyond our initial investment. For additional details, see Note 12—"Off-Balance Sheet Arrangements, Guarantees, and Other Commitments" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report.
The Bank also has variable interests in low income housing tax credit funds, in connection with fulfilling its responsibilities under the Community Reinvestment Act ("CRA"), that are designed to generate a return primarily through the realization of federal tax credits. These investments are typically limited partnerships in which the general partner, other than the Bank, holds the power over significant activities of the VIE; therefore, these investments are not consolidated. For additional information on our investments in qualified affordable housing projects see Note 6—“Investment Securities" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report.
As of September 30, 2016, our exposure to loss with respect to the consolidated VIEs is limited to our net assets of $208.3 million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $312.7 million.

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5.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
September 30, 2016

December 31, 2015
Cash and due from banks (1)
 
$
2,352,469

 
$
1,372,743

Securities purchased under agreements to resell (2)
 
163,719

 
125,391

Other short-term investment securities
 
5,131

 
5,123

Total cash and cash equivalents
 
$
2,521,319

 
$
1,503,257

 
 
(1)
At September 30, 2016 and December 31, 2015, $1.3 billion and $405 million, respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $724 million and $500 million, respectively.
(2)
At September 30, 2016 and December 31, 2015, securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $167 million and $128 million, respectively. None of these securities received as collateral were sold or pledged as of September 30, 2016 or December 31, 2015.
6.
Investment Securities
Our investment securities portfolio consists of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest-earning investment securities, and, (ii) a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business.
Available-for-Sale Securities
The components of our available-for-sale investment securities portfolio at September 30, 2016 and December 31, 2015 are as follows:
 
 
September 30, 2016
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
8,828,906

 
$
110,721

 
$

 
$
8,939,627

U.S. agency debentures
 
2,089,590

 
36,982

 

 
2,126,572

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,089,956

 
4,896

 
(2,563
)
 
1,092,289

Agency-issued collateralized mortgage obligations—variable rate
 
504,134

 
839

 
(486
)
 
504,487

Equity securities
 
2,307

 
637

 
(222
)
 
2,722

Total available-for-sale securities
 
$
12,514,893

 
$
154,075

 
$
(3,271
)
 
$
12,665,697


 
 
December 31, 2015
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
11,679,450

 
$
19,134

 
$
(20,549
)
 
$
11,678,035

U.S. agency debentures
 
2,677,453

 
17,684

 
(5,108
)
 
2,690,029

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,408,206

 
6,591

 
(15,518
)
 
1,399,279

Agency-issued collateralized mortgage obligations—variable rate
 
604,236

 
3,709

 
(9
)
 
607,936

Equity securities
 
6,596

 
460

 
(1,587
)
 
5,469

Total available-for-sale securities
 
$
16,375,941

 
$
47,578

 
$
(42,771
)
 
$
16,380,748

The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months and 12 months or longer as of September 30, 2016:

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September 30, 2016
 
 
Less than 12 months
 
12 months or longer
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 

 

Agency-issued collateralized mortgage obligations—fixed rate
 
$
310,991

 
$
(469
)
 
$
247,100

 
$
(2,094
)
 
$
558,091

 
$
(2,563
)
Agency-issued collateralized mortgage obligations—variable rate
 
221,818

 
(486
)
 

 

 
221,818

 
(486
)
Equity securities
 
932

 
(222
)
 

 

 
932

 
(222
)
Total temporarily impaired securities: (1)
 
$
533,741

 
$
(1,177
)
 
$
247,100

 
$
(2,094
)
 
$
780,841

 
$
(3,271
)
 
 
(1)
As of September 30, 2016, we identified a total of 103 investments that were in unrealized loss positions, of which 14 investments totaling $247.1 million with unrealized losses of $2.1 million have been in an impaired position for a period of time greater than 12 months. As of September 30, 2016, we do not intend to sell any impaired fixed income investment securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis. Based on our analysis as of September 30, 2016, we deem all impairments to be temporary, and therefore changes in value for our temporarily impaired securities as of the same date are included in other comprehensive income. Market valuations and impairment analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis.
The following table summarizes our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months and 12 months or longer as of December 31, 2015:
 
 
December 31, 2015
 
 
Less than 12 months
 
12 months or longer
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
7,467,519

 
$
(20,549
)
 
$

 
$

 
$
7,467,519

 
$
(20,549
)
U.S. agency debentures
 
760,071

 
(5,108
)
 

 

 
760,071

 
(5,108
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
545,404

 
(4,681
)
 
373,284

 
(10,837
)
 
918,688

 
(15,518
)
Agency-issued collateralized mortgage obligations—variable rate
 
7,776

 
(9
)
 

 

 
7,776

 
(9
)
Equity securities
 
2,955

 
(1,587
)
 

 

 
2,955

 
(1,587
)
Total temporarily impaired securities (1):
 
$
8,783,725

 
$
(31,934
)
 
$
373,284

 
$
(10,837
)
 
$
9,157,009

 
$
(42,771
)
 
 
(1)
As of December 31, 2015, we identified a total of 243 investments that were in unrealized loss positions, of which 18 investments totaling $373.3 million with unrealized losses of $10.8 million have been in an impaired position for a period of time greater than 12 months.



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The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income investment securities classified as available-for-sale as of September 30, 2016. The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. For U.S. Treasury securities and U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.
 
 
September 30, 2016
 
 
Total
 
One Year
or Less
 
After One Year to
Five Years
 
After Five Years to
Ten Years
 
After
Ten Years
(Dollars in thousands)
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
 
Carrying
Value
 
Weighted-
Average
Yield
U.S. Treasury securities
 
$
8,939,627

 
1.31
%
 
$
1,652,444

 
0.80
%
 
$
7,287,183

 
1.43
%
 
$

 
%
 
$

 
%
U.S. agency debentures
 
2,126,572

 
1.60

 
426,210

 
1.17

 
1,700,362

 
1.71

 

 

 

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations - fixed rate
 
1,092,289

 
1.91

 

 

 

 

 
755,958

 
2.09

 
336,331

 
1.52

Agency-issued collateralized mortgage obligations - variable rate
 
504,487

 
0.71

 

 

 

 

 

 

 
504,487

 
0.71

Total
 
$
12,662,975

 
1.39

 
$
2,078,654

 
0.88

 
$
8,987,545

 
1.48

 
$
755,958

 
2.09

 
$
840,818

 
1.03




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Held-to-Maturity Securities

The components of our held-to-maturity investment securities portfolio at September 30, 2016 and December 31, 2015 are as follows:
 
 
September 30, 2016
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Held-to-maturity securities, at cost:
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
622,692

 
$
17,642

 
$

 
$
640,334

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
2,092,082

 
37,993

 
(309
)
 
2,129,766

Agency-issued collateralized mortgage obligations—fixed rate
 
3,593,453

 
28,800

 
(1,962
)
 
3,620,291

Agency-issued collateralized mortgage obligations—variable rate
 
327,673

 
188

 
(580
)
 
327,281

Agency-issued commercial mortgage-backed securities
 
1,101,234

 
12,837

 
(311
)
 
1,113,760

Municipal bonds and notes
 
54,815

 
121

 
(1,035
)
 
53,901

Total held-to-maturity securities
 
$
7,791,949

 
$
97,581

 
$
(4,197
)
 
$
7,885,333

 
 
(1)
Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.
 
 
December 31, 2015
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Held-to-maturity securities, at cost:
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
545,473

 
$
8,876

 
$

 
$
554,349

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
2,366,627

 
546

 
(11,698
)
 
2,355,475

Agency-issued collateralized mortgage obligations—fixed rate
 
4,225,781

 
3,054

 
(32,999
)
 
4,195,836

Agency-issued collateralized mortgage obligations—variable rate
 
370,779

 
758

 
(33
)
 
371,504

Agency-issued commercial mortgage-backed securities
 
1,214,716

 
3,405

 
(3,475
)
 
1,214,646

Municipal bonds and notes
 
67,587

 
55

 
(830
)
 
66,812

Total held-to-maturity securities
 
$
8,790,963

 
$
16,694

 
$
(49,035
)
 
$
8,758,622

 
 
(1)
Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.


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The following table summarizes our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of September 30, 2016:
 
 
September 30, 2016
 
 
Less than 12 months
 
12 months or longer
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
$
8,249

 
$
(53
)
 
$
23,238

 
$
(256
)
 
$
31,487

 
$
(309
)
Agency-issued collateralized mortgage obligations—fixed rate
 
77,313

 
(136
)
 
247,706

 
(1,826
)
 
325,019

 
(1,962
)
Agency-issued collateralized mortgage obligations—variable rate
 
207,339

 
(580
)
 

 

 
207,339

 
(580
)
Agency-issued commercial mortgage-backed securities
 
112,586

 
(157
)
 
19,272

 
(154
)
 
131,858

 
(311
)
Municipal bonds and notes
 
14,577

 
(131
)
 
32,995

 
(904
)
 
47,572

 
(1,035
)
Total temporarily impaired securities (1):
 
$
420,064

 
$
(1,057
)
 
$
323,211

 
$
(3,140
)
 
$
743,275

 
$
(4,197
)
 
 
(1)
As of September 30, 2016, we identified a total of 140 investments that were in unrealized loss positions, of which 78 investments totaling $323.2 million with unrealized losses of $3.1 million have been in an impaired position for a period of time greater than 12 months. As of September 30, 2016, we do not intend to sell any impaired fixed income investment securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis, which is consistent with our classification of these securities. Based on our analysis as of September 30, 2016, we deem all impairments to be temporary. Market valuations and impairment analyses on assets in the held-to-maturity securities portfolio are reviewed and monitored on a quarterly basis.
The following table summarizes our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of December 31, 2015:
 
 
December 31, 2015
 
 
Less than 12 months
 
12 months or longer
 
Total
(Dollars in thousands)
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
 
Fair Value of
Investments
 
Unrealized
Losses
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
$
2,121,258

 
$
(10,860
)
 
$
22,507

 
$
(838
)
 
$
2,143,765

 
$
(11,698
)
Agency-issued collateralized mortgage obligations—fixed rate
 
3,153,483

 
(30,230
)
 
150,058

 
(2,769
)
 
3,303,541

 
(32,999
)
Agency-issued collateralized mortgage obligations—variable rate
 
170,350

 
(33
)
 

 

 
170,350

 
(33
)
Agency-issued commercial mortgage-backed securities
 
823,414

 
(2,994
)
 
40,276

 
(481
)
 
863,690

 
(3,475
)
Municipal bonds and notes
 
34,278

 
(274
)
 
25,509

 
(556
)
 
59,787

 
(830
)
Total temporarily impaired securities (1):
 
$
6,302,783

 
$
(44,391
)
 
$
238,350

 
$
(4,644
)
 
$
6,541,133

 
$
(49,035
)
 
 
(1)
As of December 31, 2015, we identified a total of 384 investments that were in unrealized loss positions, of which 58 investments totaling $238.4 million with unrealized losses of $4.6 million have been in an impaired position for a period of time greater than 12 months.

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The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income investment securities classified as held-to-maturity as of September 30, 2016. Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 35 percent. The weighted average yield is computed using the amortized cost of fixed income investment securities. For U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as held-to-maturity typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.
 
 
September 30, 2016
 
 
Total
 
One Year
or Less
 
After One Year to
Five Years
 
After Five Years to
Ten Years
 
After
Ten Years
(Dollars in thousands)
 
Amortized Cost
 
Weighted-
Average
Yield
 
Amortized Cost
 
Weighted-
Average
Yield
 
Amortized Cost
 
Weighted-
Average
Yield
 
Amortized Cost
 
Weighted-
Average
Yield
 
Amortized Cost
 
Weighted-
Average
Yield
U.S. agency debentures
 
$
622,692

 
2.43
%
 
$

 
%
 
$
47,478

 
3.25
%
 
$
575,214

 
2.36
%
 
$

 
%
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
2,092,082

 
2.38

 

 

 
257,766

 
2.58

 
216,197

 
1.74

 
1,618,119

 
2.44

Agency-issued collateralized mortgage obligations - fixed rate
 
3,593,453

 
1.73

 

 

 

 

 
22,233

 
1.75

 
3,571,220

 
1.73

Agency-issued collateralized mortgage obligations - variable rate
 
327,673

 
0.74

 

 

 

 

 

 

 
327,673

 
0.74

Agency-issued commercial mortgage-backed securities
 
1,101,234

 
2.13

 

 

 

 

 

 

 
1,101,234

 
2.13

Municipal bonds and notes
 
54,815

 
6.07

 
4,076

 
5.76

 
23,925

 
6.02

 
24,204

 
6.13

 
2,610

 
6.46

Total
 
$
7,791,949

 
2.01

 
$
4,076

 
5.76

 
$
329,169

 
2.93

 
$
837,848

 
2.29

 
$
6,620,856

 
1.92



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Table of Contents

Non-marketable and Other Securities
The components of our non-marketable and other investment securities portfolio at September 30, 2016 and December 31, 2015 are as follows:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Non-marketable and other securities:
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
Venture capital and private equity fund investments (1)
 
$
141,841

 
$
152,237

Other venture capital investments (2)
 
2,040

 
2,040

Other securities (fair value accounting) (3)
 
579

 
548

Non-marketable securities (equity method accounting) (4):
 
 
 
 
Venture capital and private equity fund investments
 
84,904

 
85,705

Debt funds
 
18,971

 
21,970

Other investments
 
128,422

 
118,532

Non-marketable securities (cost method accounting):
 
 
 
 
Venture capital and private equity fund investments (5)
 
115,113

 
120,676

Other investments
 
26,834

 
18,882

Investments in qualified affordable housing projects, net (6)
 
106,474

 
154,356

Total non-marketable and other securities
 
$
625,178

 
$
674,946

 
(1)
The following table shows the amounts of venture capital and private equity fund investments held by the following funds and our ownership percentage of each fund at September 30, 2016 and December 31, 2015 (fair value accounting):
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
SVB Strategic Investors Fund, LP
 
$
17,940

 
12.6
%
 
$
20,794

 
12.6
%
SVB Capital Preferred Return Fund, LP
 
57,488

 
20.0

 
60,619

 
20.0

SVB Capital—NT Growth Partners, LP
 
59,692

 
33.0

 
62,983

 
33.0

Other private equity fund (i)
 
6,721

 
58.2

 
7,841

 
58.2

Total venture capital and private equity fund investments
 
$
141,841

 
 
 
$
152,237

 
 
 
 
(i)
At September 30, 2016, we had a direct ownership interest of 41.5 percent in the other private equity fund and an indirect ownership interest of 12.6 percent through our ownership interest of SVB Capital—NT Growth Partners, LP and an indirect ownership interest of 4.1 percent through our ownership interest of SVB Capital Preferred Return Fund, LP.

(2)
The following table shows the amounts of other venture capital investments held by the following fund and our ownership percentage at September 30, 2016 and December 31, 2015 (fair value accounting):
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Silicon Valley BancVentures, LP
 
$
2,040

 
10.7
%
 
$
2,040

 
10.7
%
Total other venture capital investments
 
$
2,040

 
 
 
$
2,040

 
 

(3)
Investments classified as other securities (fair value accounting) represent direct equity investments in public companies held by our consolidated funds.

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(4)
The following table shows the carrying value and our ownership percentage of each investment at September 30, 2016 and December 31, 2015 (equity method accounting):
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Venture capital and private equity fund investments:
 
 
 
 
 
 
 
 
SVB Strategic Investors Fund II, LP
 
$
9,133

 
8.6
%
 
$
10,035

 
8.6
%
SVB Strategic Investors Fund III, LP
 
21,369

 
5.9

 
23,926

 
5.9

SVB Strategic Investors Fund IV, LP
 
25,737

 
5.0

 
26,411

 
5.0

Strategic Investors Fund V funds
 
11,715

 
Various

 
10,470

 
Various

Other venture capital and private equity fund investments
 
16,950

 
Various

 
14,863

 
Various

 Total venture capital and private equity fund investments
 
$
84,904

 
 
 
$
85,705

 
 
Debt funds:
 
 
 
 
 
 
 
 
Gold Hill Capital 2008, LP (i)
 
$
15,496

 
15.5
%
 
$
17,453

 
15.5
%
Other debt funds
 
3,475

 
Various

 
4,517

 
Various

Total debt funds
 
$
18,971

 
 
 
$
21,970

 
 
Other investments:
 
 
 
 
 
 
 
 
China Joint Venture investment
 
$
77,817

 
50.0
%
 
$
78,799

 
50.0
%
Other investments
 
50,605

 
Various

 
39,733

 
Various

Total other investments
 
$
128,422

 
 
 
$
118,532

 
 

 
(i)
At September 30, 2016, we had a direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent.
(5)
Represents investments in 255 and 267 funds (primarily venture capital funds) at September 30, 2016 and December 31, 2015, respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating activities and financial policies. The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $115 million and $218 million, respectively, as of September 30, 2016. The carrying value, and estimated fair value, of these venture capital and private equity fund investments (cost method accounting) was $121 million and $233 million, respectively, as of December 31, 2015.
(6)
The following table presents the balances of our investments in qualified affordable housing projects and related unfunded commitments at September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Investments in qualified affordable housing projects, net
 
$
106,474

 
$
154,356

Accrued expenses and other liabilities
 
52,846

 
90,978


The following table presents other information relating to our investments in qualified affordable housing projects for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016

2015
 
2016
 
2015
Tax credits and other tax benefits recognized
 
$
3,995

 
$
4,780

 
$
12,127

 
$
11,207

Amortization expense included in provision for income taxes (i)
 
2,556

 
2,011

 
9,746

 
7,549

 
 
(i)
All investments are amortized using the proportional amortization method and amortization expense is included in the provision for income taxes.

22

Table of Contents

The following table presents the components of gains and losses (realized and unrealized) on investment securities for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Gross gains on investment securities:
 
 
 
 
 
 
 
 
Available-for-sale securities, at fair value (1)
 
$
84

 
$
46

 
$
14,238

 
$
2,971

Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
6,030

 
6,746

 
16,377

 
24,767

Other venture capital investments
 
4

 
15

 
17

 
198

Other securities (fair value accounting)
 
271

 
40

 
639

 
9,108

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
5,679

 
6,655

 
9,351

 
19,378

Debt funds
 
295

 
379

 
1,259

 
2,067

Other investments
 
7,487

 
2,282

 
11,528

 
5,009

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
6,328

 
5,624

 
14,180

 
21,101

Other investments
 
150

 

 
163

 
576

Total gross gains on investment securities
 
26,328

 
21,787

 
67,752

 
85,175

Gross losses on investment securities:
 
 
 
 
 
 
 
 
Available-for-sale securities, at fair value (1)
 
(99
)
 
(33
)
 
(2,671
)
 
(221
)
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
(2,122
)
 
(1,148
)
 
(15,958
)
 
(2,695
)
Other venture capital investments
 

 

 
(38
)
 
(52
)
Other securities (fair value accounting)
 
(100
)
 
(325
)
 
(507
)
 
(1,117
)
Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
(444
)
 
(472
)
 
(4,465
)
 
(909
)
Debt funds
 
(129
)
 
(1
)
 
(458
)
 
(589
)
Other investments
 
(205
)
 
(902
)
 
(1,161
)
 
(2,042
)
Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (2)
 
(51
)
 
(132
)
 
(492
)
 
(530
)
Other investments
 

 
(6
)
 
(238
)
 
(14
)
Total gross losses on investment securities
 
(3,150
)
 
(3,019
)
 
(25,988
)
 
(8,169
)
Gains on investment securities, net
 
$
23,178

 
$
18,768

 
$
41,764

 
$
77,006

 
 
(1)
Includes realized gains (losses) on sales of available-for-sale equity securities that are recognized in the income statement. Unrealized gains (losses) on available-for-sale fixed income and equity securities are recognized in other comprehensive income. The cost basis of available-for-sale securities sold is determined on a specific identification basis.
(2)
For the three months ended September 30, 2016 and 2015, includes OTTI losses of $0.1 million from the declines in value for 5 of the 255 investments and $0.1 million from the declines in value for 4 of the 270 investments, respectively. For the nine months ended September 30, 2016 and 2015, includes OTTI losses of $0.5 million from the declines in value for 21 of the 255 investments and $0.4 million from the declines in value for 19 of the 270 investments, respectively. We concluded that any declines in value for the remaining investments were temporary, and as such, no OTTI was required to be recognized.
7.
Loans and Allowance for Loan Losses
We serve a variety of commercial clients in the technology, life science/healthcare, private equity/venture capital and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications and electronics), software and related services, and energy and resource innovation ("ERI"). Because of the diverse nature of ERI products and services, for our loan-related reporting purposes, ERI-related loans are reported under our hardware, software and internet, life science/healthcare and other commercial loan categories, as applicable. Our life science/healthcare clients primarily tend to be in the industries of biotechnology, medical devices, healthcare information technology and healthcare services. Loans made to private equity/venture capital firm clients typically enable them to fund investments

23

Table of Contents

prior to their receipt of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.
In addition to commercial loans, we make consumer loans through SVB Private Bank and provide real estate secured loans to eligible employees through our EHOP. Our private banking clients are primarily private equity/venture capital professionals and executive leaders in the innovation companies they support. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit.
We also provide community development loans made as part of our responsibilities under the Community Reinvestment Act. These loans are included within “Construction loans” below and are primarily secured by real estate.
The composition of loans, net of unearned income of $117 million and $115 million at September 30, 2016 and December 31, 2015, respectively, is presented in the following table:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Commercial loans:
 
 
 
 
Software and internet
 
$
5,393,425

 
$
5,437,915

Hardware
 
1,147,830

 
1,071,528

Private equity/venture capital
 
7,412,238

 
5,467,577

Life science/healthcare
 
1,732,917

 
1,710,642

Premium wine
 
190,223

 
201,175

Other
 
368,474

 
312,278

Total commercial loans
 
16,245,107

 
14,201,115

Real estate secured loans:
 
 
 
 
Premium wine (1)
 
681,808

 
646,120

Consumer loans (2)
 
1,835,630

 
1,544,440

Other
 
43,925

 
44,830

Total real estate secured loans
 
2,561,363

 
2,235,390

Construction loans
 
64,689

 
78,682

Consumer loans
 
241,106

 
226,883

Total loans, net of unearned income (3)
 
$
19,112,265

 
$
16,742,070

 
 
(1)
Included in our premium wine portfolio are gross construction loans of $109 million and $121 million at September 30, 2016 and December 31, 2015, respectively.
(2)
Consumer loans secured by real estate at September 30, 2016 and December 31, 2015 were comprised of the following:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Loans for personal residence
 
$
1,563,697

 
$
1,312,818

Loans to eligible employees
 
189,593

 
156,001

Home equity lines of credit
 
82,340

 
75,621

Consumer loans secured by real estate
 
$
1,835,630

 
$
1,544,440

(3)
Included within our total loan portfolio are credit card loans of $201 million and $177 million at September 30, 2016 and December 31, 2015, respectively.

24

Table of Contents

Credit Quality
The composition of loans, net of unearned income of $117 million and $115 million at September 30, 2016 and December 31, 2015, respectively, broken out by portfolio segment and class of financing receivable, is as follows:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Commercial loans:
 
 
 
 
Software and internet
 
$
5,393,425

 
$
5,437,915

Hardware
 
1,147,830

 
1,071,528

Private equity/venture capital
 
7,412,238

 
5,467,577

Life science/healthcare
 
1,732,917

 
1,710,642

Premium wine
 
872,031

 
847,295

Other
 
477,088

 
435,790

Total commercial loans
 
17,035,529

 
14,970,747

Consumer loans:
 
 
 
 
Real estate secured loans
 
1,835,630

 
1,544,440

Other consumer loans
 
241,106

 
226,883

Total consumer loans
 
2,076,736

 
1,771,323

Total loans, net of unearned income
 
$
19,112,265

 
$
16,742,070


25

Table of Contents

The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
30 - 59
  Days Past  
Due
 
60 - 89
  Days Past  
Due
 
Greater
Than 90
  Days Past  
Due
 
  Total Past  
Due
 
Current  
 
  Loans Past Due  
90 Days or
More Still
Accruing
Interest
September 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
11,975

 
$
2,715

 
$
59

 
$
14,749

 
$
5,359,727

 
$
59

Hardware
 
4,909

 
6,577

 

 
11,486

 
1,095,263

 

Private equity/venture capital
 
18

 
4

 
51

 
73

 
7,465,573

 
51

Life science/healthcare
 
856

 
143

 

 
999

 
1,690,070

 

Premium wine
 
12,265

 

 

 
12,265

 
860,353

 

Other
 
93

 
3

 
15

 
111

 
479,754

 
15

Total commercial loans
 
30,116

 
9,442

 
125

 
39,683

 
16,950,740

 
125

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
961

 

 

 
961

 
1,831,891

 

Other consumer loans
 
285

 

 

 
285

 
238,221

 

Total consumer loans
 
1,246

 

 

 
1,246

 
2,070,112

 

Total gross loans excluding impaired loans
 
31,362

 
9,442

 
125

 
40,929

 
19,020,852

 
125

Impaired loans
 

 
2,587

 
6,918

 
9,505

 
157,642

 

Total gross loans
 
$
31,362

 
$
12,029

 
$
7,043

 
$
50,434

 
$
19,178,494

 
$
125

December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
3,384

 
$
6,638

 
$

 
$
10,022

 
$
5,371,222

 
$

Hardware
 
1,061

 
66

 

 
1,127

 
1,051,368

 

Private equity/venture capital
 

 
17

 

 
17

 
5,511,912

 

Life science/healthcare
 
853

 
6,537

 

 
7,390

 
1,665,801

 

Premium wine
 
16

 
65

 

 
81

 
847,249

 

Other
 
14

 
22

 

 
36

 
438,313

 

Total commercial loans
 
5,328

 
13,345

 

 
18,673

 
14,885,865

 

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
4,911

 
865

 

 
5,776

 
1,537,421

 

Other consumer loans
 
228

 
115

 

 
343

 
226,369

 

Total consumer loans
 
5,139

 
980

 

 
6,119

 
1,763,790

 

Total gross loans excluding impaired loans
 
10,467

 
14,325

 

 
24,792

 
16,649,655

 

Impaired loans
 
333

 

 
7,221

 
7,554

 
175,130

 

Total gross loans
 
$
10,800

 
$
14,325

 
$
7,221

 
$
32,346

 
$
16,824,785

 
$


26

Table of Contents

The following table summarizes our impaired loans as they relate to our allowance for loan losses, broken out by portfolio segment and class of financing receivable as of September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
Impaired loans for  
which there is a
related allowance
for loan losses
 
Impaired loans for  
which there is no
related allowance
for loan losses
 
Total carrying value of impaired loans
 
Total unpaid
principal of impaired loans
September 30, 2016:
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
Software and internet
 
$
57,831

 
$

 
$
57,831

 
$
76,679

Hardware
 
48,687

 
669

 
49,356

 
49,393

Private equity/venture capital
 

 

 

 

Life science/healthcare
 
54,341

 

 
54,341

 
57,222

Premium wine
 
1,285

 

 
1,285

 
1,285

Other
 
417

 

 
417

 
417

Total commercial loans
 
162,561

 
669

 
163,230

 
184,996

Consumer loans:
 
 
 
 
 
 
 
 
Real estate secured loans
 
1,518

 

 
1,518

 
2,789

Other consumer loans
 
2,399

 

 
2,399

 
2,399

Total consumer loans
 
3,917

 

 
3,917

 
5,188

Total
 
$
166,478

 
$
669

 
$
167,147

 
$
190,184

December 31, 2015:
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
Software and internet
 
$
100,866

 
$

 
$
100,866

 
$
125,494

Hardware
 
27,736

 

 
27,736

 
27,869

Private equity/venture capital
 

 

 

 

Life science/healthcare
 
50,429

 
925

 
51,354

 
55,310

Premium wine
 
898

 
1,167

 
2,065

 
2,604

Other
 
520

 

 
520

 
520

Total commercial loans
 
180,449

 
2,092

 
182,541

 
211,797

Consumer loans:
 
 
 
 
 
 
 
 
Real estate secured loans
 
143

 

 
143

 
1,393

Other consumer loans
 

 

 

 

Total consumer loans
 
143

 

 
143

 
1,393

Total
 
$
180,592

 
$
2,092

 
$
182,684

 
$
213,190





27

Table of Contents

The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable for the three and nine months ended September 30, 2016 and 2015:
Three months ended September 30,
 
Average impaired loans
 
Interest income on impaired loans
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015 (1)
Commercial loans:
 
 
 
 
 
 
 
 
Software and internet
 
$
61,481

 
$
77,156

 
$
70

 
$

Hardware
 
45,353

 
2,796

 
761

 

Life science/healthcare
 
55,558

 
17,184

 
128

 

Premium wine
 
1,291

 
1,213

 
19

 

Other
 
3,768

 
3,132

 
6

 

Total commercial loans
 
167,451

 
101,481

 
984

 

Consumer loans:
 
 
 
 
 
 
 
 
Real estate secured loans
 
584

 
162

 

 

Other consumer loans
 
1,324

 

 
6

 

Total consumer loans
 
1,908

 
162

 
6

 

Total average impaired loans
 
$
169,359

 
$
101,643

 
$
990

 
$

 
 
(1)
For the three months ended September 30, 2015 all impaired loans were nonaccrual loans and no interest income was recognized.

Nine months ended September 30,
 
Average impaired loans
 
Interest income on impaired loans
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015 (1)
Commercial loans:
 
 
 
 
 
 
 
 
Software and internet
 
$
84,005

 
$
54,543

 
$
133

 
$

Hardware
 
31,000

 
1,944

 
1,467

 

Life science/healthcare
 
42,857

 
6,526

 
128

 

Premium wine
 
1,834

 
1,245

 
54

 

Other
 
4,369

 
3,498

 
21

 

Total commercial loans
 
164,065

 
67,756

 
1,803

 

Consumer loans:
 
 
 
 
 
 
 
 
Real estate secured loans
 
282

 
180

 

 

Other consumer loans
 
715

 
55

 
17

 

Total consumer loans
 
997

 
235

 
17

 

Total average impaired loans
 
$
165,062

 
$
67,991

 
$
1,820

 
$

 
 
(1)
For the nine months ended September 30, 2015 all impaired loans were nonaccrual loans and no interest income was recognized.


28

Table of Contents

The following tables summarize the activity relating to our allowance for loan losses for the three and nine months ended September 30, 2016 and 2015, broken out by portfolio segment:
Three months ended September 30, 2016 (dollars in thousands)
 
Beginning Balance June 30, 2016
 
Charge-offs
 
Recoveries
 
Provision for
(Reduction of) Loan Losses
 
Foreign Currency Translation Adjustments
 
Ending Balance September 30, 2016
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
104,229

 
$
(16,526
)
 
$
305

 
$
8,591

 
$
(261
)
 
$
96,338

Hardware
 
23,871

 
(3,058
)
 
1,080

 
11,048

 
(336
)
 
32,605

Private equity/venture capital
 
49,807

 

 

 
2,203

 
(67
)
 
51,943

Life science/healthcare
 
41,852

 
(28
)
 
361

 
(5,298
)
 
161

 
37,048

Premium wine
 
4,810

 

 

 
288

 
(9
)
 
5,089

Other
 
9,480

 
(5,004
)
 
207

 
142

 
(4
)
 
4,821

Total commercial loans
 
234,049

 
(24,616
)
 
1,953

 
16,974

 
(516
)
 
227,844

Consumer loans
 
10,674

 

 
131

 
1,976

 
(60
)
 
12,721

Total allowance for loan losses
 
$
244,723

 
$
(24,616
)
 
$
2,084

 
$
18,950

 
$
(576
)
 
$
240,565

Three months ended September 30, 2015 (dollars in thousands)
 
Beginning Balance June 30, 2015
 
Charge-offs
 
Recoveries
 
Provision for
(Reduction of) Loan Losses
 
Foreign Currency Translation Adjustments (1)
 
Ending Balance September 30, 2015
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
106,728

 
$
(24,815
)
 
$
195

 
$
5,965

 
$
(7
)
 
$
88,066

Hardware
 
20,472

 

 
240

 
(70
)
 

 
20,642

Private equity/venture capital
 
29,276

 

 

 
3,170

 
(4
)
 
32,442

Life science/healthcare
 
17,233

 
(117
)
 
50

 
19,815

 
(22
)
 
36,959

Premium wine
 
4,409

 

 

 
253

 

 
4,662

Other
 
5,894

 
(4,186
)
 
173

 
2,941

 
(49
)
 
4,773

Total commercial loans
 
184,012

 
(29,118
)
 
658

 
32,074

 
(82
)
 
187,544

Consumer loans
 
8,632

 

 
4

 
1,329

 
(2
)
 
9,963

Total allowance for loan losses
 
$
192,644

 
$
(29,118
)
 
$
662

 
$
33,403

 
$
(84
)
 
$
197,507

 
(1)
Reflects foreign currency translation adjustments within the allowance for loan losses. Prior period amounts were previously reported with loan recoveries and have been revised to conform to current period presentation.
Nine months ended September 30, 2016 (dollars in thousands)
 
Beginning Balance December 31, 2015
 
Charge-offs
 
Recoveries
 
Provision for
(Reduction of) Loan Losses
 
Foreign Currency Translation Adjustments
 
Ending Balance September 30, 2016
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
103,045

 
$
(56,742
)
 
$
4,525

 
$
46,438

 
$
(928
)
 
$
96,338

Hardware
 
23,085

 
(6,559
)
 
1,502

 
15,010

 
(433
)
 
32,605

Private equity/venture capital
 
35,282

 

 

 
17,008

 
(347
)
 
51,943

Life science/healthcare
 
36,576

 
(3,029
)
 
1,037

 
3,252

 
(788
)
 
37,048

Premium wine
 
5,205

 

 

 
(138
)
 
22

 
5,089

Other
 
4,252

 
(5,034
)
 
880

 
4,573

 
150

 
4,821

Total commercial loans
 
207,445

 
(71,364
)
 
7,944

 
86,143

 
(2,324
)
 
227,844

Consumer loans
 
10,168

 
(102
)
 
214

 
2,481

 
(40
)
 
12,721

Total allowance for loan losses
 
$
217,613

 
$
(71,466
)
 
$
8,158

 
$
88,624

 
$
(2,364
)
 
$
240,565


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Table of Contents



Nine months ended September 30, 2015 (dollars in thousands)
 
Beginning Balance December 31, 2014
 
Charge-offs
 
Recoveries
 
Provision for
(Reduction of) Loan Losses
 
Foreign Currency Translation Adjustments (1)
 
Ending Balance September 30, 2015
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
80,981

 
$
(26,980
)
 
$
1,239

 
$
32,834

 
$
(8
)
 
$
88,066

Hardware
 
25,860

 
(4,049
)
 
3,049

 
(4,291
)
 
73

 
20,642

Private equity/venture capital
 
27,997

 

 

 
4,551

 
(106
)
 
32,442

Life science/healthcare
 
15,208

 
(3,336
)
 
129

 
24,976

 
(18
)
 
36,959

Premium wine
 
4,473

 

 
7

 
182

 

 
4,662

Other
 
3,253

 
(4,974
)
 
729

 
5,874

 
(109
)
 
4,773

Total commercial loans
 
157,772

 
(39,339
)
 
5,153

 
64,126

 
(168
)
 
187,544

Consumer loans
 
7,587

 

 
136

 
2,242

 
(2
)
 
9,963

Total allowance for loan losses
 
$
165,359

 
$
(39,339
)
 
$
5,289

 
$
66,368

 
$
(170
)
 
$
197,507

 
(1)
Reflects foreign currency translation adjustments within the allowance for loan losses. Prior period amounts were previously reported with loan recoveries and have been revised to conform to current period presentation.
The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of September 30, 2016 and December 31, 2015, broken out by portfolio segment:
 
 
September 30, 2016
 
December 31, 2015
 
 
Individually Evaluated for  
Impairment
 
Collectively Evaluated for  
Impairment
 
Individually Evaluated for  
Impairment
 
Collectively Evaluated for  
Impairment
(Dollars in thousands)
 
Allowance for loan losses
 
Recorded investment in loans
 
Allowance for loan losses
 
Recorded investment in loans
 
Allowance for loan losses
 
Recorded investment in loans
 
Allowance for loan losses
 
Recorded investment in loans
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
24,815

 
$
57,831

 
$
71,523

 
$
5,335,594

 
$
34,098

 
$
100,866

 
$
68,947

 
$
5,337,049

Hardware
 
6,041

 
49,356

 
26,564

 
1,098,474

 
3,160

 
27,736

 
19,925

 
1,043,792

Private equity/venture capital
 

 

 
51,943

 
7,412,238

 

 

 
35,282

 
5,467,577

Life science/healthcare
 
18,206

 
54,341

 
18,842

 
1,678,576

 
20,230

 
51,354

 
16,346

 
1,659,288

Premium wine
 
128

 
1,285

 
4,961

 
870,746

 
90

 
2,065

 
5,115

 
845,230

Other
 
42

 
417

 
4,779

 
476,671

 
52

 
520

 
4,200

 
435,270

Total commercial loans
 
49,232

 
163,230

 
178,612

 
16,872,299

 
57,630

 
182,541

 
149,815

 
14,788,206

Consumer loans
 
1,141

 
3,917

 
11,580

 
2,072,819

 
143

 
143

 
10,025

 
1,771,180

Total
 
$
50,373

 
$
167,147

 
$
190,192

 
$
18,945,118

 
$
57,773

 
$
182,684

 
$
159,840

 
$
16,559,386


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Table of Contents

Credit Quality Indicators
For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of “Pass”, with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans, however, we consider them as demonstrating higher risk, which requires more frequent review of the individual exposures; these translate to an internal rating of “Performing (Criticized)”. When a significant payment delay occurs on a criticized loan, the loan is impaired. The loan is also considered for nonaccrual status if full repayment is determined to be improbable. All of our nonaccrual loans are risk-rated 8 or 9 and are classified under the nonperforming impaired category. (For further description of nonaccrual loans, refer to Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2015 Form 10-K). Loans rated 10 are charged-off and are not included as part of our loan portfolio balance. We review our credit quality indicators for performance and appropriateness of risk ratings as part of our evaluation process for our allowance for loan losses.
The following table summarizes the credit quality indicators, broken out by portfolio segment and class of financing receivables as of September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
Pass
 
  Performing  
  (Criticized)  
 
  Performing 
Impaired 
(Criticized)  
 
Nonperforming Impaired   (Nonaccrual)
 
Total
September 30, 2016:
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
4,752,376

 
$
622,100

 
$
5,012

 
$
52,819

 
$
5,432,307

Hardware
 
937,383

 
169,366

 
46,849

 
2,507

 
1,156,105

Private equity/venture capital
 
7,465,003

 
643

 

 

 
7,465,646

Life science/healthcare
 
1,549,334

 
141,735

 
6,581

 
47,760

 
1,745,410

Premium wine
 
855,731

 
16,887

 
1,285

 

 
873,903

Other
 
471,320

 
8,545

 
417

 

 
480,282

Total commercial loans
 
16,031,147

 
959,276

 
60,144

 
103,086

 
17,153,653

Consumer loans:
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
1,831,054

 
1,798

 

 
1,518

 
1,834,370

Other consumer loans
 
238,506

 

 
787

 
1,612

 
240,905

Total consumer loans
 
2,069,560

 
1,798

 
787

 
3,130

 
2,075,275

Total gross loans
 
$
18,100,707

 
$
961,074

 
$
60,931

 
$
106,216

 
$
19,228,928

December 31, 2015:
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
4,933,179

 
$
448,065

 
$
23,321

 
$
77,545

 
$
5,482,110

Hardware
 
955,675

 
96,820

 
27,306

 
430

 
1,080,231

Private equity/venture capital
 
5,474,929

 
37,000

 

 

 
5,511,929

Life science/healthcare
 
1,544,555

 
128,636

 
7,247

 
44,107

 
1,724,545

Premium wine
 
825,058

 
22,272

 
898

 
1,167

 
849,395

Other
 
429,481

 
8,868

 
520

 

 
438,869

Total commercial loans
 
14,162,877

 
741,661

 
59,292

 
123,249

 
15,087,079

Consumer loans:
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
1,539,468

 
3,729

 

 
143

 
1,543,340

Other consumer loans
 
224,601

 
2,111

 

 

 
226,712

Total consumer loans
 
1,764,069

 
5,840

 

 
143

 
1,770,052

Total gross loans
 
$
15,926,946

 
$
747,501

 
$
59,292

 
$
123,392

 
$
16,857,131



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Table of Contents

TDRs
As of September 30, 2016 we had 19 TDRs with a total carrying value of $76.0 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were $4.7 million of unfunded commitments available for funding to the clients associated with these TDRs as of September 30, 2016.
The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Loans modified in TDRs:
 
 
 
 
Commercial loans:
 
 
 
 
Software and internet
 
$
36,517

 
$
56,790

Hardware
 
10,333

 
473

Life science/healthcare
 
25,029

 
51,878

Premium wine
 
2,962

 
2,065

Other
 
417

 
519

Total commercial loans
 
75,258

 
111,725

Consumer loans:
 
 
 
 
Other consumer loans
 
786

 

Total consumer loans
 
786

 

Total
 
$
76,044

 
$
111,725

The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016

2015
 
2016
 
2015
Loans modified in TDRs during the period:
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
Software and internet
 
$
78

 
$
51,749

 
$
4,569

 
$
57,766

Hardware
 
10,329

 

 
10,329

 
2,031

Life science/healthcare
 
1,714

 
29,530

 
1,714

 
29,530

Premium wine
 

 

 
495

 

Other
 

 
518

 

 
518

Total commercial loans
 
12,121

 
81,797

 
17,107

 
89,845

Consumer loans:
 
 
 
 
 
 
 
 
Other consumer loans
 

 

 
786

 

Total loans modified in TDRs during the period (1)
 
$
12,121

 
$
81,797

 
$
17,893

 
$
89,845

 
 
(1)
There were $0.7 million and $3.5 million of partial charge-offs during the three and nine months ended September 30, 2016 and $22.4 million of partial charge-offs for loans classified as TDRs in our software and internet loan portfolio during the three and nine months ended September 30, 2015.
During the three and nine months ended September 30, 2016, new TDRs of $12.0 million and $17.6 million, respectively, were modified through payment deferrals granted to our clients. During the three and nine months ended September 30, 2016, new TDRs of $0.1 million and $0.3 million, respectively, were modified through partial forgiveness of principal.
During the three and nine months ended September 30, 2015, new TDRs of $81.8 million and $89.8 million, respectively, were modified through payment deferrals granted to our clients.
The related allowance for loan losses for the majority of our TDRs is determined on an individual basis by comparing the carrying value of the loan to the present value of the estimated future cash flows, discounted at the pre-modification contractual

32

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interest rate. For certain TDRs, the related allowance for loan losses is determined based on the fair value of the collateral if the loan is collateral dependent.
The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
2016
 
2015
TDRs modified within the previous 12 months that defaulted during the period:
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
Software and internet
 
$

 
$
11,107

 
$
584

 
$
17,124

Hardware
 

 
2,031

 

 
2,031

Life science/healthcare
 

 
958

 

 
958

Premium wine
 
790

 

 
790

 

Total TDRs modified within the previous 12 months that defaulted in the period
 
$
790

 
$
14,096

 
$
1,374

 
$
20,113

Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology was necessary to determine the allowance for loan losses as of September 30, 2016.
8.
Short-Term Borrowings and Long-Term Debt
The following table represents outstanding short-term borrowings and long-term debt at September 30, 2016 and December 31, 2015:
 
 
 
 
 
 
Carrying Value
(Dollars in thousands)
 
Maturity
 
Principal value at September 30, 2016
 
September 30,
2016
 
December 31,
2015
Short-term borrowings:
 
 
 
 
 
 
 
 
Short-term FHLB advances
 

 
$

 
$

 
$
638,000

Federal funds purchased
 
 
 

 

 
135,000

Other short-term borrowings
 
(1)
 
2,421

 
2,421

 
1,900

Total short-term borrowings
 
 
 
 
 
$
2,421

 
$
774,900

Long-term debt:
 
 
 
 
 
 
 
 
3.50% Senior Notes
 
January 29, 2025
 
$
350,000

 
$
346,900

 
$
346,667

5.375% Senior Notes
 
September 15, 2020
 
350,000

 
347,440

 
347,016

6.05% Subordinated Notes (2)
 
June 1, 2017
 
45,964

 
47,094

 
48,350

7.0% Junior Subordinated Debentures
 
October 15, 2033
 
50,000

 
54,537

 
54,669

Total long-term debt
 
 
 
 
 
$
795,971

 
$
796,702

 
 
(1)
Represents cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor.
(2)
At September 30, 2016 and December 31, 2015, included in the carrying value of our 6.05% Subordinated Notes was an interest rate swap valued at $1.3 million and $2.8 million, respectively, related to hedge accounting associated with the notes.
Interest expense related to short-term borrowings and long-term debt was $9.7 million and $28.2 million for the three and nine months ended September 30, 2016, respectively, and $9.0 million and $25.9 million for the three and nine months ended September 30, 2015, respectively. Interest expense is net of the hedge accounting impact from our interest rate swap agreement related to our 6.05% Subordinated Notes. The weighted average interest rate associated with our short-term borrowings as of September 30, 2016 and December 31, 2015 was 0.40 percent and 0.32 percent, respectively.

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Available Lines of Credit
We have certain facilities in place to enable us to access short-term borrowings on a secured (using high-quality fixed income securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. As of September 30, 2016, we did not borrow against our uncommitted federal funds lines. We also pledge securities to the FHLB of San Francisco and the discount window at the Federal Reserve Bank. The market value of collateral pledged to the FHLB of San Francisco (comprised primarily of U.S. Treasury securities) at September 30, 2016 totaled $1.8 billion, all of which was unused and available to support additional borrowings. The market value of collateral pledged at the discount window of the Federal Reserve Bank at September 30, 2016 totaled $0.8 billion, all of which was also unused and available to support additional borrowings.
9.
Derivative Financial Instruments
We primarily use derivative financial instruments to manage interest rate risk, currency exchange rate risk, and to assist customers with their risk management objectives. Also, in connection with negotiating credit facilities and certain other services, we often obtain equity warrant assets giving us the right to acquire stock in private, venture-backed companies in the technology and life science/healthcare industries.
Interest Rate Risk
Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our interest rate sensitive assets and liabilities and changes in market interest rates. To manage interest rate risk for our 6.05% Subordinated Notes, we entered into a fixed-for-floating interest rate swap agreement at the time of debt issuance based upon LIBOR with matched-terms. The net cash benefit associated with our interest rate swap is recorded as a reduction in “Interest expense—Borrowings,” a component of net interest income. The fair value of our interest rate swaps is calculated using a discounted cash flow method and adjusted for credit valuation associated with counterparty risk. Changes in fair value of the interest rate swaps are reflected in either other assets (for swaps in an asset position) or other liabilities (for swaps in a liability position).
We assess hedge effectiveness under ASC 815, Derivatives and Hedging, using the long-haul method. Any differences associated with our interest rate swap that arise as a result of hedge ineffectiveness are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
Currency Exchange Risk
We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure risk associated with the net difference between foreign currency denominated assets and liabilities. We do not designate any foreign exchange forward contracts as derivative instruments that qualify for hedge accounting. Gains or losses from changes in currency rates on foreign currency denominated instruments are included in other noninterest income, a component of noninterest income. We may experience ineffectiveness in the economic hedging relationship, because the instruments are revalued based upon changes in the currency’s spot rate on the principal value, while the forwards are revalued on a discounted cash flow basis. We record forward agreements in gain positions in other assets and loss positions in other liabilities, while net changes in fair value are recorded through net gains on derivative instruments, in noninterest income, a component of consolidated net income.
Other Derivative Instruments
Also included in our derivative instruments are equity warrant assets and client forward and option contracts, and client interest rate contracts. For further description of these other derivative instruments, refer to Note 2-“Summary of Significant Accounting Policies" under Part II, Item 8 of our 2015 Form 10-K.
Counterparty Credit Risk
We are exposed to credit risk if counterparties to our derivative contracts do not perform as expected. We mitigate counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral, as appropriate. With respect to measuring counterparty credit risk for derivative instruments, we measure the fair value of a group of financial assets and financial liabilities on a net risk basis by counterparty portfolio.

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The total notional or contractual amounts, fair value, collateral and net exposure of our derivative financial instruments at September 30, 2016 and December 31, 2015 were as follows:
 
 
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Balance Sheet
Location
 
Notional or
Contractual
Amount
 
Fair Value
 
Collateral
(1)
 
Net
Exposure
(2)
 
Notional or
Contractual
Amount
 
Fair Value
 
Collateral
(1)
 
Net
Exposure
(2)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Interest rate risks:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Other assets
 
$
45,964

 
$
1,324

 
$

 
$
1,324

 
$
45,964

 
$
2,768

 
$

 
$
2,768

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Currency exchange risks:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards
 
Other assets
 
138,796

 
1,676

 

 
1,676

 
49,287

 
809

 

 
809

Foreign exchange forwards
 
Other liabilities
 
53,051

 
(576
)
 

 
(576
)
 
6,586

 
(669
)
 

 
(669
)
Net exposure
 
 
 
 
 
1,100

 

 
1,100

 
 
 
140

 

 
140

 Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity warrant assets
 
Other assets
 
212,802

 
145,340

 

 
145,340

 
210,102

 
137,105

 

 
137,105

Other derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Client foreign exchange forwards
 
Other assets
 
1,056,821

 
44,636

 
2,421

 
42,215

 
935,514

 
29,722

 
1,900

 
27,822

Client foreign exchange forwards
 
Other liabilities
 
869,914

 
(36,188
)
 

 
(36,188
)
 
841,182

 
(24,978
)
 

 
(24,978
)
Client foreign currency options
 
Other assets
 
243,860

 
2,750

 

 
2,750

 
46,625

 
706

 

 
706

Client foreign currency options
 
Other liabilities
 
243,860

 
(2,750
)
 

 
(2,750
)
 
46,625

 
(706
)
 

 
(706
)
Client interest rate derivatives
 
Other assets
 
520,081

 
8,759

 

 
8,759

 
422,741

 
3,973

 

 
3,973

Client interest rate derivatives
 
Other liabilities
 
558,962

 
(9,324
)
 

 
(9,324
)
 
422,741

 
(4,384
)
 

 
(4,384
)
Net exposure
 
 
 
 
 
7,883

 
2,421

 
5,462

 
 
 
4,333

 
1,900

 
2,433

Net
 
 
 
 
 
$
155,647

 
$
2,421

 
$
153,226

 
 
 
$
144,346

 
$
1,900

 
$
142,446

 
 
(1)
Cash collateral received from our counterparties in relation to market value exposures of derivative contracts in our favor is recorded as a component of “short-term borrowings” on our consolidated balance sheets.
(2)
Net exposure for contracts in a gain position reflects the replacement cost in the event of nonperformance by all such counterparties. The credit ratings of our institutional counterparties as of September 30, 2016 remain at investment grade or higher and there were no material changes in their credit ratings during the three and nine months ended September 30, 2016.

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A summary of our derivative activity and the related impact on our consolidated statements of income for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
Statement of income location   
 
2016
 
2015
 
2016
 
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 Interest rate risks:
 
 
 
 
 
 
 
 
 
 
Net cash benefit associated with interest rate swaps
 
Interest expense—borrowings
 
$
580

 
$
631

 
$
1,778

 
$
1,903

Changes in fair value of interest rate swaps
 
Gains on derivative instruments, net
 
(3
)
 
(8
)
 
(33
)
 
(22
)
Net gains associated with interest rate risk derivatives
 
 
 
$
577

 
$
623

 
$
1,745

 
$
1,881

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 Currency exchange risks:
 
 
 
 
 
 
 
 
 
 
(Losses) gains on revaluations of internal foreign currency instruments, net
 
Other noninterest income
 
$
(1,406
)
 
$
186

 
$
(4,222
)
 
$
(11,667
)
Gains (losses) on internal foreign exchange forward contracts, net
 
Gains on derivative instruments, net
 
1,352

 
(218
)
 
3,067

 
11,626

Net losses associated with internal currency risk
 
 
 
$
(54
)
 
$
(32
)
 
$
(1,155
)
 
$
(41
)
 Other derivative instruments:
 
 
 
 
 
 
 
 
 
 
Gains (losses) on revaluations of client foreign currency instruments, net
 
Other noninterest income
 
$
3,488

 
2

 
$
7,009

 
(177
)
(Losses) gains on client foreign exchange forward contracts, net
 
Gains on derivative instruments, net
 
(3,194
)
 
179

 
(8,780
)
 
459

Net gains (losses) associated with client currency risk
 
 
 
$
294

 
$
181

 
$
(1,771
)
 
$
282

Net gains on equity warrant assets
 
Gains on derivative instruments, net
 
$
21,558

 
$
10,685

 
$
33,252

 
$
54,579

Net gains (losses) on other derivatives
 
Gains on derivative instruments, net
 
$
31

 
$
(394
)
 
$
(659
)
 
$
(352
)

Balance Sheet Offsetting
Certain of our derivative and other financial instruments are subject to enforceable master netting arrangements with our counterparties. These agreements provide for the net settlement of multiple contracts with a single counterparty through a single payment, in a single currency, in the event of default on or termination of any one contract.

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The following table summarizes our assets subject to enforceable master netting arrangements as of September 30, 2016 and December 31, 2015:
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements
 
 
(Dollars in thousands)
 
Gross Amounts of Recognized Assets
 
Gross Amounts offset in the Statement of Financial Position
 
Net Amounts of Assets Presented in the Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
 
   Interest rate swaps
 
$
1,324

 
$

 
$
1,324

 
$
(1,324
)
 
$

 
$

Foreign exchange forwards
 
46,312

 

 
46,312

 
(19,377
)
 
(2,421
)
 
24,514

   Foreign currency options
 
2,750

 

 
2,750

 
(1,246
)
 

 
1,504

   Client interest rate derivatives
 
8,759

 

 
8,759

 
(8,719
)
 

 
40

Total derivative assets:
 
59,145

 

 
59,145

 
(30,666
)
 
(2,421
)
 
26,058

Reverse repurchase, securities borrowing, and similar arrangements
 
163,719

 

 
163,719

 
(163,719
)
 

 

Total
 
$
222,864

 
$

 
$
222,864

 
$
(194,385
)
 
$
(2,421
)
 
$
26,058

December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets:
 
 
 
 
 
 
 
 
 
 
 
 
   Interest rate swaps
 
$
2,768

 
$

 
$
2,768

 
$
(2,768
)
 
$

 
$

Foreign exchange forwards
 
30,531

 

 
30,531

 
(18,141
)
 
(1,900
)
 
10,490

   Foreign currency options
 
711

 
(5
)
 
706

 
(706
)
 

 

   Client interest rate derivatives
 
3,973

 

 
3,973

 
(3,973
)
 

 

Total derivative assets:
 
37,983

 
(5
)
 
37,978

 
(25,588
)
 
(1,900
)
 
10,490

Reverse repurchase, securities borrowing, and similar arrangements
 
125,391

 

 
125,391

 
(125,391
)
 

 

Total
 
$
163,374

 
$
(5
)
 
$
163,369

 
$
(150,979
)
 
$
(1,900
)
 
$
10,490

The following table summarizes our liabilities subject to enforceable master netting arrangements as of September 30, 2016 and December 31, 2015:
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements
 
 
(Dollars in thousands)
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts offset in the Statement of Financial Position
 
Net Amounts of Liabilities Presented in the Statement of Financial Position
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign exchange forwards
 
$
36,764

 
$

 
$
36,764

 
$
(17,675
)
 
$

 
$
19,089

   Foreign currency options
 
2,750

 

 
2,750

 
(1,925
)
 

 
825

   Client interest rate derivatives
 
9,324

 

 
9,324

 
(9,324
)
 

 

Total derivative liabilities:
 
48,838

 

 
48,838

 
(28,924
)
 

 
19,914

Repurchase, securities lending, and similar arrangements
 

 

 

 

 

 

Total
 
$
48,838

 
$

 
$
48,838

 
$
(28,924
)
 
$

 
$
19,914

December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign exchange forwards
 
$
25,647

 
$

 
$
25,647

 
$
(10,818
)
 
$

 
$
14,829

   Foreign currency options
 
711

 
(5
)
 
706

 

 

 
706

   Client interest rate derivatives
 
4,384

 

 
4,384

 
(4,384
)
 

 

Total derivative liabilities:
 
30,742

 
(5
)
 
30,737

 
(15,202
)
 

 
15,535

Repurchase, securities lending, and similar arrangements
 

 

 

 

 

 

Total
 
$
30,742

 
$
(5
)
 
$
30,737

 
$
(15,202
)
 
$

 
$
15,535


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10.
Other Noninterest Income and Other Noninterest Expense
A summary of other noninterest income for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
Three months ended September 30,

Nine months ended September 30,
(Dollars in thousands)
 
2016

2015

2016

2015
Fund management fees
 
$
5,231

 
$
4,074

 
$
14,149

 
$
11,657

Service-based fee income
 
2,029

 
1,931

 
6,270

 
6,450

Gains (losses) on revaluation of client foreign currency instruments, net (1)
 
3,488

 
2

 
7,009

 
(177
)
(Losses) gains on revaluation of internal foreign currency instruments, net (2)
 
(1,406
)
 
186

 
(4,222
)
 
(11,667
)
Other (3)
 
11,350

 
4,884

 
19,711

 
16,052

Total other noninterest income
 
$
20,692

 
$
11,077

 
$
42,917

 
$
22,315

 
 
(1)
Represents the net revaluation of client foreign currency denominated financial instruments. We enter into client foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client foreign currency denominated financial instruments. The changes in the fair value of client foreign exchange forward contracts are included within noninterest income in the line item "Gains on derivative instruments, net".
(2)
Represents the net revaluation of foreign currency denominated financial instruments issued and held by us, primarily loans, deposits and cash. We enter into internal foreign exchange forward contracts to economically reduce our foreign exchange exposure related to these foreign currency denominated financial instruments issued and held by us. The changes in the fair value of internal foreign exchange forward contracts are included within noninterest income in the line item "Gains on derivative instruments, net".
(3)
Includes dividends on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income.
A summary of other noninterest expense for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Lending and other client related processing costs
 
$
5,885

 
$
3,608

 
$
13,721

 
$
10,861

Telephone
 
2,460

 
2,224

 
7,109

 
6,727

Data processing services
 
2,137

 
2,083

 
6,353

 
5,274

Dues and publications
 
809

 
521

 
2,258

 
1,803

Postage and supplies
 
598

 
728

 
2,172

 
2,220

Other
 
3,644

 
5,106

 
12,679

 
15,216

Total other noninterest expense
 
$
15,533

 
$
14,270

 
$
44,292

 
$
42,101

11.
Segment Reporting
We have three reportable segments for management reporting purposes: Global Commercial Bank, SVB Private Bank and SVB Capital. The results of our operating segments are based on our internal management reporting process.
Our Global Commercial Bank and SVB Private Bank segments' primary source of revenue is from net interest income, which is primarily the difference between interest earned on loans, net of funds transfer pricing (“FTP”), and interest paid on deposits, net of FTP. Accordingly, these segments are reported using net interest income, net of FTP. FTP is an internal measurement framework designed to assess the financial impact of a financial institution’s sources and uses of funds. It is the mechanism by which a funding credit is given for deposits raised, and a funding charge is made for loans funded. FTP is calculated at an instrument level based on account characteristics.
We also evaluate performance based on provision for loan losses, noninterest income and noninterest expense, which are presented as components of segment operating profit or loss. In calculating each operating segment’s noninterest expense, we consider the direct costs incurred by the operating segment as well as certain allocated direct costs. As part of this review, we allocate certain corporate overhead costs to a corporate account. We do not allocate income taxes to our segments. Additionally, our management reporting model is predicated on average asset balances; therefore, period-end asset balances are not presented

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for segment reporting purposes. Changes in an individual client’s primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods.
Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, our internal management reporting process is highly subjective, as there is no comprehensive, authoritative guidance for management reporting. Our management reporting process measures the performance of our operating segments based on our internal operating structure, which is subject to change from time to time, and is not necessarily comparable with similar information for other financial services companies.
For reporting purposes, SVB Financial Group has three operating segments for which we report our financial information:
Global Commercial Bank is comprised of results from the following:
Our Commercial Bank products and services are provided by the Bank and its subsidiaries to commercial clients in the technology, life science/healthcare and private equity/venture capital industries. The Bank provides solutions to the financial needs of commercial clients, through credit, global treasury management, foreign exchange, global trade finance, and other services. It serves clients within the United States, as well as non-U.S. clients in key international innovation markets. In addition, the Bank and its subsidiaries offer a variety of investment services and solutions to its clients that enable them to effectively manage their assets. 
Our Private Equity Division provides banking products and services primarily to our private equity and venture capital clients.
Our Wine practice provides banking products and services to our premium wine industry clients, including vineyard development loans. 
SVB Analytics provides equity valuation services to companies and private equity/venture capital firms.
Debt Fund Investments is comprised of our investments in certain debt funds in which we are a strategic investor.
SVB Private Bank is the private banking division of the Bank, which provides a range of personal financial solutions for consumers. Our clients are primarily private equity/venture capital professionals and executive leaders of the innovation companies they support. We offer a customized suite of private banking services, including mortgages, home equity lines of credit, restricted stock purchase loans, capital call lines of credit and other secured and unsecured lending, as well as cash and wealth management services. 
SVB Capital is the venture capital investment arm of SVBFG, which focuses primarily on funds management. SVB Capital manages funds (primarily venture capital funds) on behalf of third party limited partners and, on a more limited basis, SVB Financial Group. The SVB Capital family of funds is comprised of direct venture funds that invest in companies and funds of funds that invest in other venture capital funds. SVB Capital generates income for the Company primarily from investment returns (including carried interest) and management fees.
The summary financial results of our operating segments are presented along with a reconciliation to our consolidated interim results.

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Our segment information for the three and nine months ended September 30, 2016 and 2015 is as follows:
(Dollars in thousands)
 
Global
Commercial
Bank (1)
 
SVB Private  
Bank
 
SVB Capital (1)  
 
Other Items (2)      
 
Total      
Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
262,484

 
$
13,298

 
$
1

 
$
13,378

 
$
289,161

Provision for loan losses
 
(16,974
)
 
(1,976
)
 

 

 
(18,950
)
Noninterest income
 
79,226

 
664

 
30,619

 
33,631

 
144,140

Noninterest expense (3)
 
(159,429
)
 
(3,122
)
 
(3,924
)
 
(55,352
)
 
(221,827
)
Income (loss) before income tax expense (4)
 
$
165,307

 
$
8,864

 
$
26,696

 
$
(8,343
)
 
$
192,524

Total average loans, net of unearned income
 
$
16,357,099

 
$
2,074,982

 
$

 
$
215,113

 
$
18,647,194

Total average assets (5)
 
40,829,515

 
2,091,244

 
325,321

 
205,249

 
43,451,329

Total average deposits
 
36,484,125

 
1,115,446

 

 
310,183

 
37,909,754

Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
217,932

 
$
11,667

 
$
1

 
$
25,060

 
$
254,660

Provision for loan losses
 
(32,074
)
 
(1,329
)
 

 

 
(33,403
)
Noninterest income
 
68,517

 
506

 
17,332

 
22,122

 
108,477

Noninterest expense (3)
 
(137,637
)
 
(2,761
)
 
(3,745
)
 
(40,612
)
 
(184,755
)
Income before income tax expense (4)
 
$
116,738

 
$
8,083

 
$
13,588

 
$
6,570

 
$
144,979

Total average loans, net of unearned income
 
$
13,047,507

 
$
1,669,858

 
$

 
$
199,287

 
$
14,916,652

Total average assets (5)
 
39,688,677

 
1,664,602

 
334,045

 
326,896

 
42,014,220

Total average deposits
 
36,151,235

 
1,041,773

 

 
190,059

 
37,383,067

Nine months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
Net interest income (expense)
 
$
773,342

 
$
40,508

 
$
(51
)
 
$
40,119

 
$
853,918

Provision for loan losses
 
(86,143
)
 
(2,481
)
 

 

 
(88,624
)
Noninterest income
 
231,295

 
2,053

 
44,492

 
65,210

 
343,050

Noninterest expense (3)
 
(461,058
)
 
(9,481
)
 
(11,521
)
 
(144,152
)
 
(626,212
)
Income (loss) before income tax expense (4)
 
$
457,436

 
$
30,599

 
$
32,920

 
$
(38,823
)
 
$
482,132

Total average loans, net of unearned income
 
$
15,769,964

 
$
1,978,175

 
$

 
$
207,358

 
$
17,955,497

Total average assets (5)
 
41,021,311

 
1,986,215

 
334,328

 
327,862

 
43,669,716

Total average deposits
 
37,002,027

 
1,120,575

 

 
321,388

 
38,443,990

Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
625,611

 
$
32,499

 
$
3

 
$
79,243

 
$
737,356

Provision for loan losses
 
(64,126
)
 
(2,242
)
 

 

 
(66,368
)
Noninterest income
 
197,740

 
1,498

 
57,919

 
101,131

 
358,288

Noninterest expense (3)
 
(421,425
)
 
(8,869
)
 
(10,935
)
 
(128,179
)
 
(569,408
)
Income before income tax expense (4)
 
$
337,800

 
$
22,886

 
$
46,987

 
$
52,195

 
$
459,868

Total average loans, net of unearned income
 
$
12,721,972

 
$
1,529,095

 
$

 
$
180,718

 
$
14,431,785

Total average assets (5)
 
37,449,533

 
1,527,339

 
335,136

 
594,681

 
39,906,689

Total average deposits
 
34,124,748

 
1,125,345

 

 
163,260

 
35,413,353

 
 
(1)
Global Commercial Bank’s and SVB Capital’s components of net interest income, noninterest income, noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented. Noncontrolling interest is included within "Other Items".
(2)
The "Other Items" column reflects the adjustments necessary to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP. Net interest income consists primarily of interest earned from our fixed income investment portfolio, net of FTP. Noninterest income consists primarily of gains on equity warrant assets and gains on the sale of fixed income securities. Noninterest expense consists primarily of expenses associated with corporate support functions such as finance, human resources, marketing, legal and other expenses.
(3)
The Global Commercial Bank segment includes direct depreciation and amortization of $6.4 million and $4.9 million for the three months ended September 30, 2016 and 2015, respectively, and $18.3 million and $14.9 million for the nine months ended September 30, 2016 and 2015, respectively.

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(4)
The internal reporting model used by management to assess segment performance does not calculate income tax expense by segment. Our effective tax rate is a reasonable approximation of the segment rates.
(5)
Total average assets equal the greater of total average assets or the sum of total average liabilities and total average stockholders’ equity for each segment to reconcile the results to the consolidated financial statements prepared in conformity with GAAP.
12.
Off-Balance Sheet Arrangements, Guarantees and Other Commitments
In the normal course of business we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve credit risk to varying degrees. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract.
Commitments to Extend Credit
The following table summarizes information related to our commitments to extend credit at September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Loan commitments available for funding: (1)
 
 
 
 
Fixed interest rate commitments
 
$
1,377,647

 
$
1,312,734

Variable interest rate commitments
 
13,262,927

 
12,822,461

Total loan commitments available for funding
 
14,640,574

 
14,135,195

Commercial and standby letters of credit (2)
 
1,656,512

 
1,479,164

Total unfunded credit commitments
 
$
16,297,086

 
$
15,614,359

Commitments unavailable for funding (3)
 
$
2,008,689

 
$
2,026,532

Maximum lending limits for accounts receivable factoring arrangements (4)
 
856,096

 
1,006,404

Reserve for unfunded credit commitments (5)
 
35,924

 
34,415

 
 
(1)
Represents commitments which are available for funding, due to clients meeting all collateral, compliance and financial covenants required under loan commitment agreements.
(2)
See below for additional information on our commercial and standby letters of credit.
(3)
Represents commitments which are currently unavailable for funding, due to clients failing to meet all collateral, compliance and financial covenants under loan commitment agreements.
(4)
We extend credit under accounts receivable factoring arrangements when our clients’ sales invoices are deemed creditworthy under existing underwriting practices.
(5)
Our reserve for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit.
Commercial and Standby Letters of Credit
The table below summarizes our commercial and standby letters of credit at September 30, 2016. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.
(Dollars in thousands)
 
Expires In One
Year or Less
 
Expires After
One Year
 
Total Amount
Outstanding
 
Maximum Amount
of Future Payments
Financial standby letters of credit
 
$
1,489,185

 
$
49,744

 
$
1,538,929

 
$
1,538,929

Performance standby letters of credit
 
94,872

 
14,601

 
109,473

 
109,473

Commercial letters of credit
 
8,110

 

 
8,110

 
8,110

Total
 
$
1,592,167

 
$
64,345

 
$
1,656,512

 
$
1,656,512


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Deferred fees related to financial and performance standby letters of credit were $10 million at both September 30, 2016 and December 31, 2015. At September 30, 2016, collateral in the form of cash of $747 million was available to us to reimburse losses, if any, under financial and performance standby letters of credit.
Commitments to Invest in Venture Capital and Private Equity Funds
Subject to applicable regulatory requirements, including the Volcker Rule, we make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over 5 to 7 years; however in certain cases, the funds may not call 100% of committed capital over the life of the fund. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate. The following table details our total capital commitments, unfunded capital commitments, and our ownership percentage in each fund at September 30, 2016:
 Our Ownership in Venture Capital and Private Equity Funds
 (Dollars in thousands)
 
SVBFG Capital Commitments    
 
SVBFG Unfunded    
Commitments
 
SVBFG Ownership  
of each Fund (4)
Silicon Valley BancVentures, LP
 
$
6,000

 
$
270

 
10.7
%
SVB Capital Partners II, LP (1)
 
1,200

 
162

 
5.1

SVB Capital Shanghai Yangpu Venture Capital Fund
 
874

 

 
6.8

SVB Strategic Investors Fund, LP
 
15,300

 
688

 
12.6

SVB Strategic Investors Fund II, LP
 
15,000

 
1,050

 
8.6

SVB Strategic Investors Fund III, LP
 
15,000

 
1,275

 
5.9

SVB Strategic Investors Fund IV, LP
 
12,239

 
2,325

 
5.0

Strategic Investors Fund V funds
 
515

 
142

 
Various

SVB Capital Preferred Return Fund, LP
 
12,688

 

 
20.0

SVB Capital—NT Growth Partners, LP
 
24,670

 
1,340

 
33.0

Other private equity fund (2)
 
9,338

 

 
58.2

Debt funds
 
58,493

 

 
Various

Other fund investments (3)
 
298,937

 
12,114

 
Various

Total
 
$
470,254

 
$
19,366

 
 
 
 
(1)
Our ownership includes direct ownership of 1.3 percent and indirect ownership interest of 3.8 percent through our investment in SVB Strategic Investors Fund II, LP.
(2)
Our ownership includes direct ownership of 41.5 percent and indirect ownership interests of 12.6 percent and 4.1 percent in the fund through our ownership interest of SVB Capital - NT Growth Partners, LP and SVB Capital Preferred Return Fund, LP, respectively.
(3)
Represents commitments to 265 funds (primarily venture capital funds) where our ownership interest is generally less than 5 percent of the voting interests of each such fund.
(4)
We are subject to the Volcker Rule, which restricts or limits us from sponsoring or having ownership interests in “covered” funds including venture capital and private equity funds. See “Business - Supervision and Regulation” under Item 1 of Part I of our 2015 Form 10-K.

The following table details the amounts of remaining unfunded commitments to venture capital and private equity funds by our consolidated managed funds of funds (including our interest and the noncontrolling interests) at September 30, 2016:
 Limited Partnership
 (Dollars in thousands)
 
Unfunded Commitments    
SVB Strategic Investors Fund, LP
 
$
1,338

SVB Capital Preferred Return Fund, LP
 
2,006

SVB Capital—NT Growth Partners, LP
 
1,965

Total
 
$
5,309


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13.
Income Taxes
We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions and have identified our federal tax return and tax returns in California and Massachusetts as major tax filings. Our U.S. federal tax returns for 2013 and subsequent years remain open to full examination. Our California and Massachusetts tax returns for 2011 and subsequent tax years remain open to full examination.
At September 30, 2016, our unrecognized tax benefit was $3.1 million, the recognition of which would reduce our income tax expense by $2.0 million. We do not expect that our unrecognized tax benefit will materially change in the next 12 months.
We recognize interest and penalties related to income tax matters as part of income before income taxes. Interest and penalties were not material for the three and nine months ended September 30, 2016.
14.
Fair Value of Financial Instruments
Fair Value Measurements
Our available-for-sale securities, derivative instruments and certain non-marketable and other securities are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our interim consolidated financial statements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable and the significance of those inputs in the fair value measurement. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data and views of market participants. The three levels for measuring fair value are based on the reliability of inputs and are as follows:
Level 1
Fair value measurements based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. Assets utilizing Level 1 inputs include U.S. Treasury securities, exchange-traded equity securities and certain marketable securities accounted for under fair value accounting.
Level 2
Fair value measurements based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Valuations for the available-for-sale securities are provided by independent external pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent external brokers. We perform a monthly analysis on the values received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and ongoing review of third party pricing methodologies, review of pricing trends and monitoring of trading volumes. Additional corroboration, such as obtaining a non-binding price from a broker, may be obtained depending on the frequency of trades of the security and the level of liquidity or depth of the market. We ensure prices received from independent brokers represent a reasonable estimate of the fair value through the use of observable market inputs including comparable trades, yield curve, spreads and, when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. Below is a summary of the significant inputs used for each class of Level 2 assets and liabilities:
U.S. agency debentures: Fair value measurements of U.S. agency debentures are based on the characteristics specific to bonds held, such as issuer name, coupon rate, maturity date and any applicable issuer call option features. Valuations are based on market spreads relative to similar term benchmark market interest rates, generally U.S. Treasury securities.
Agency-issued mortgage-backed securities: Agency-issued mortgage-backed securities are pools of individual conventional mortgage loans underwritten to U.S. agency standards with similar coupon rates, tenor, and other attributes such as geographic location, loan size and origination vintage. Fair value measurements of these securities are based on observable price adjustments relative to benchmark market interest rates taking into consideration estimated loan prepayment speeds.
Agency-issued collateralized mortgage obligations: Agency-issued collateralized mortgage obligations are structured into classes or tranches with defined cash flow characteristics and are collateralized by U.S. agency-issued mortgage pass-through securities. Fair value measurements of these securities incorporate similar characteristics of mortgage pass-through securities such as coupon rate, tenor, geographic location, loan size and origination vintage, in addition to incorporating

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the effect of estimated prepayment speeds on the cash flow structure of the class or tranche. These measurements incorporate observable market spreads over an estimated average life after considering the inputs listed above.
Agency-issued commercial mortgage-backed securities: Fair value measurements of these securities are based on spreads to benchmark market interest rates (usually U.S. Treasury rates or rates observable in the swaps market), prepayment speeds, loan default rate assumptions and loan loss severity assumptions on underlying loans.
Municipal bonds and notes: Bonds issued by municipal governments generally have stated coupon rates, final maturity dates and are subject to being called ahead of the final maturity date at the option of the issuer. Fair value measurements of these securities are priced based on spreads to other municipal benchmark bonds with similar characteristics; or, relative to market rates on U.S. Treasury bonds of similar maturity.
Interest rate derivative assets and liabilities: Fair value measurements of interest rate derivatives are priced considering the coupon rate of the fixed leg of the contract and the variable coupon on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve and the credit worthiness of the contract counterparty.
Foreign exchange forward and option contract assets and liabilities: Fair value measurements of these assets and liabilities are priced based on spot and forward foreign currency rates and option volatility assumptions.
Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant expiration dates, the risk-free interest rate and market-observable option volatility assumptions.
Level 3
The fair value measurement is derived from valuation techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions we believe market participants would use in pricing the asset. Below is a summary of the valuation techniques used for each class of Level 3 assets:
Other venture capital investments: Fair value measurements are based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, and as it relates to the private company, the current and projected operating performance, exit strategies and financing transactions subsequent to the acquisition of the investment. The significant unobservable inputs used in the fair value measurement include the information about each portfolio company, including actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Significant changes to any one of these inputs in isolation could result in a significant change in the fair value measurement, however, we generally consider all factors available through ongoing communication with the portfolio companies and venture capital fund managers to determine whether there are changes to the portfolio company or the environment that indicate a change in the fair value measurement.
Other securities: Fair value measurements of equity securities of public companies are priced based on quoted market prices less a discount if the securities are subject to certain sales restrictions. Marketability discounts generally range from 10% to 20% depending on the duration of the sale restrictions which typically range from 3 to 6 months.
Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant expiration dates, the risk-free interest rate and market-observable option volatility assumptions. Modeled asset values are further adjusted by applying a discount of up to 20% for certain warrants that have lock-up restrictions or other features that indicate a discount to fair value is warranted. As a lock-up term nears, and other sale restrictions are lifted, discounts are adjusted downward to zero percent once all restrictions expire or are removed.
Equity warrant assets (private portfolio): Fair value measurements of equity warrant assets of private portfolio companies are priced based on a modified Black-Scholes option pricing model to estimate the asset value by using stated strike prices, option expiration dates, risk-free interest rates and option volatility assumptions. Option volatility assumptions used in the modified Black-Scholes model are based on public market indices whose members operate in similar industries as companies in our private company portfolio. Option expiration dates are modified to account for estimates to actual life relative to stated expiration. Overall model asset values are further adjusted for a general lack of liquidity due to the private nature of the associated underlying company. There is a direct correlation between changes in the volatility and remaining life assumptions in isolation and the fair value measurement while there is an inverse correlation between changes in the liquidity discount assumption and the fair value measurement.

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It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon valuation techniques that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, prepayment speeds, option volatilities and currency rates. Substantially all of our financial instruments use the foregoing methodologies, and are categorized as a Level 1 or Level 2 measurement in the fair value hierarchy. However, in certain cases, when market observable inputs for our valuation techniques may not be readily available, we are required to make judgments about assumptions we believe market participants would use in estimating the fair value of the financial instrument, and based on the significance of those judgments, the measurement may be determined to be a Level 3 fair value measurement.
The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. For inactive markets, there is little information, if any, to evaluate if individual transactions are orderly. Accordingly, we are required to estimate, based upon all available facts and circumstances, the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Accordingly, the degree of judgment exercised by management in determining fair value is greater for financial assets and liabilities categorized as Level 3.

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The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2016:
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance at September 30, 2016
Assets
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
8,939,627

 
$

 
$

 
$
8,939,627

U.S. agency debentures
 

 
2,126,572

 

 
2,126,572

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations - fixed rate
 

 
1,092,289

 

 
1,092,289

Agency-issued collateralized mortgage obligations - variable rate
 

 
504,487

 

 
504,487

Equity securities
 
381

 
2,341

 

 
2,722

Total available-for-sale securities
 
8,940,008

 
3,725,689

 

 
12,665,697

Non-marketable and other securities (fair value accounting):
 
 
 
 
 
 
 
 
Non-marketable securities:
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments measured at net asset value (1)
 

 

 

 
141,841

Other venture capital investments (2)
 

 

 
2,040

 
2,040

Other securities (2)
 
579

 

 

 
579

Total non-marketable and other securities (fair value accounting)
 
579

 

 
2,040

 
144,460

Other assets:
 
 
 
 
 
 
 
 
Interest rate swaps
 

 
1,324

 

 
1,324

Foreign exchange forward and option contracts
 

 
49,062

 

 
49,062

Equity warrant assets
 

 
2,120

 
143,220

 
145,340

Client interest rate derivatives
 

 
8,759

 

 
8,759

Total assets
 
$
8,940,587

 
$
3,786,954

 
$
145,260

 
$
13,014,642

Liabilities
 
 
 
 
 
 
 
 
Foreign exchange forward and option contracts
 
$

 
$
39,514

 
$

 
$
39,514

Client interest rate derivatives
 

 
9,324

 

 
9,324

Total liabilities
 
$

 
$
48,838

 
$

 
$
48,838

 
 
(1)
In accordance with the accounting standard (ASU 2015-07, Fair Value Measurement (Topic 820)), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
(2)
Included in Level 1 and Level 3 assets are $0.5 million and $1.8 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.


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The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2015:
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance at December 31, 2015
Assets
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
11,678,035

 
$

 
$

 
$
11,678,035

U.S. agency debentures
 

 
2,690,029

 

 
2,690,029

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations - fixed rate
 

 
1,399,279

 

 
1,399,279

Agency-issued collateralized mortgage obligations - variable rate
 

 
607,936

 

 
607,936

Equity securities
 
4,517

 
952

 

 
5,469

Total available-for-sale securities
 
11,682,552

 
4,698,196

 

 
16,380,748

Non-marketable and other securities (fair value accounting):
 
 
 
 
 
 
 
 
Non-marketable securities:
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments measured at net asset value (1)
 

 

 

 
152,237

Other venture capital investments (2)
 

 

 
2,040

 
2,040

Other securities (2)
 
548

 

 

 
548

Total non-marketable and other securities (fair value accounting)
 
548

 

 
2,040

 
154,825

Other assets:
 
 
 
 
 
 
 
 
Interest rate swaps
 

 
2,768

 

 
2,768

Foreign exchange forward and option contracts
 

 
31,237

 

 
31,237

Equity warrant assets
 

 
1,937

 
135,168

 
137,105

Client interest rate derivatives
 

 
3,973

 

 
3,973

Total assets
 
$
11,683,100

 
$
4,738,111

 
$
137,208

 
$
16,710,656

Liabilities
 
 
 
 
 
 
 
 
Foreign exchange forward and option contracts
 
$

 
$
26,353

 
$

 
$
26,353

Client interest rate derivatives
 

 
4,384

 

 
4,384

Total liabilities
 
$

 
$
30,737

 
$

 
$
30,737

 
 
(1)
In accordance with the accounting standard (ASU 2015-07, Fair Value Measurement (Topic 820)), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
(2)
Included in Level 1 and Level 3 assets are $0.4 million and $1.8 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

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The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2016 and 2015, respectively:
(Dollars in thousands)
 
Beginning
Balance
 
Total Realized and Unrealized Gains (Losses) Included in Income
 
Sales
 
Issuances  
 
Distributions and Other Settlements
 
Transfers Out of Level 3
 
Ending
Balance
Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable and other securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other venture capital investments (1)
 
$
2,040

 
$
4

 
$
(4
)
 
$

 
$

 
$

 
$
2,040

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity warrant assets (2)
 
127,811

 
21,092

 
(10,682
)
 
5,251

 

 
(252
)
 
143,220

Total assets
 
$
129,851

 
$
21,096

 
$
(10,686
)
 
$
5,251

 
$

 
$
(252
)
 
$
145,260

Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable and other securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other venture capital investments (1)
 
$
3,390

 
$
15

 
$

 
$

 
$
(15
)
 
$

 
$
3,390

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity warrant assets (2)
 
120,037

 
11,551

 
(6,215
)
 
3,556

 

 
(486
)
 
128,443

Total assets
 
$
123,427

 
$
11,566

 
$
(6,215
)
 
$
3,556

 
$
(15
)
 
$
(486
)
 
$
131,833

Nine months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable and other securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other venture capital investments (1)
 
$
2,040

 
$
(21
)
 
$
(4
)
 
$

 
$
25

 
$

 
$
2,040

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity warrant assets (2)
 
135,168

 
33,115

 
(34,276
)
 
9,842

 

 
(629
)
 
143,220

Total assets
 
$
137,208

 
$
33,094

 
$
(34,280
)
 
$
9,842

 
$
25

 
$
(629
)
 
$
145,260

Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable and other securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other venture capital investments (1)
 
$
3,291

 
$
146

 
$
(32
)
 
$

 
$
(15
)
 
$

 
$
3,390

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity warrant assets (2)
 
114,698

 
54,884

 
(48,374
)
 
8,856

 

 
(1,621
)
 
128,443

Total assets
 
$
117,989

 
$
55,030

 
$
(48,406
)
 
$
8,856

 
$
(15
)
 
$
(1,621
)
 
$
131,833

 
 
(1)
Realized and unrealized gains (losses) are recorded in the line item “Gains on investment securities, net”, a component of noninterest income.
(2)
Realized and unrealized gains (losses) are recorded in the line item “Gains on derivative instruments, net”, a component of noninterest income.



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The following table presents the amount of net unrealized gains and losses included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at September 30, 2016 and 2015, respectively:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Non-marketable and other securities (fair value accounting):
 
 
 
 
 
 
 
 
Other venture capital investments (1)
 
$

 
$

 
$

 
$
158

Other assets:
 
 
 
 
 
 
 
 
Equity warrant assets (2)
 
15,785

 
9,115

 
23,144

 
21,597

Total unrealized gains, net
 
$
15,785

 
$
9,115

 
$
23,144

 
$
21,755

Unrealized gains attributable to noncontrolling interests
 
$

 
$

 
$

 
$
141

 
 
(1)
Unrealized gains (losses) are recorded in the line item “Gains on investment securities, net”, a component of noninterest income.
(2)
Unrealized gains (losses) are recorded in the line item “Gains on derivative instruments, net”, a component of noninterest income.
The extent to which any unrealized gains or losses will 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 of securities and the timing of such actual sales.
The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at September 30, 2016 and December 31, 2015. We have not included in this table our venture capital and private equity fund investments (fair value accounting) as we use net asset value per share (as obtained from the general partners of the investments) as a practical expedient to determine fair value.
(Dollars in thousands)
 
Fair value
 
Valuation Technique
 
Significant Unobservable Inputs
 
Weighted 
Average
September 30, 2016:
 
 
 
 
 
 
 
 
Other venture capital investments (fair value accounting)
 
$
2,040

 
Private company equity pricing
 
(1)
 
(1
)
Equity warrant assets (public portfolio)
 
19,367

 
Modified Black-Scholes option pricing model
 
Volatility
 
36.1
%
 
 
 
 
Risk-Free interest rate
 
1.2
%
 
 
 
 
Sales restrictions discount (2)
 
11.7
%
Equity warrant assets (private portfolio)
 
123,853

 
Modified Black-Scholes option pricing model
 
Volatility
 
36.6
%
 
 
 
 
Risk-Free interest rate
 
0.8
%
 
 
 
 
Marketability discount (3)
 
17.5
%
 
 
 
 
Remaining life assumption (4)
 
45.0
%
December 31, 2015:
 
 
 
 
 
 
 
 
Other venture capital investments (fair value accounting)
 
$
2,040

 
Private company equity pricing
 
(1)
 
(1
)
Equity warrant assets (public portfolio)
 
1,786

 
Modified Black-Scholes option pricing model
 
Volatility
 
38.1
%
 
 
 
 
Risk-Free interest rate
 
2.1
%
 
 
 
 
Sales restrictions discount (2)
 
18.0
%
Equity warrant assets (private portfolio)
 
133,382

 
Modified Black-Scholes option pricing model
 
Volatility
 
36.0
%
 
 
 
 
Risk-Free interest rate
 
1.1
%
 
 
 
 
Marketability discount (3)
 
16.6
%
 
 
 
 
Remaining life assumption (4)
 
45.0
%
 
 
 
(1)
In determining the fair value of our other venture capital investment portfolio, we evaluate a variety of factors related to each underlying private portfolio company including, but not limited to, actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Additionally, we have ongoing communication with the portfolio companies and venture capital fund managers, to determine whether there is a material change in fair value. These factors are specific to each portfolio company and a weighted average or range of values of the unobservable inputs is not meaningful.
(2)
We adjust quoted market prices of public companies, which are subject to certain sales restrictions. Sales restriction discounts generally range from 10% to 20% depending on the duration of the sales restrictions, which typically range from 3 to 6 months.

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(3)
Our marketability discount is applied to all private company warrants to account for a general lack of liquidity due to the private nature of the associated underlying company. The quantitative measure used is based upon various option-pricing models. On a quarterly basis, a sensitivity analysis is performed on our marketability discount.
(4)
We adjust the contractual remaining term of private company warrants based on our estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At September 30, 2016, the weighted average contractual remaining term was 5.9 years, compared to our estimated remaining life of 2.7 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption.
For the three and nine months ended September 30, 2016 and 2015, we did not have any transfers between Level 2 and Level 1 or transfers between Level 3 and Level 1. Transfers from Level 3 to Level 2 for the three and nine months ended September 30, 2016 were due primarily due to the expiration of lock-up, and other sales restrictions on certain of our public warrant positions. Transfers from Level 3 to Level 2 for the three and nine months ended September 30, 2015 were due to the transfer of equity warrant assets from our private portfolio to our public portfolio (see our Level 3 reconciliation above). All amounts reported as transfers represent the fair value as of the date of the change in circumstances that caused the transfer.
Financial Instruments not Carried at Fair Value
FASB guidance over financial instruments requires that we disclose estimated fair values for our financial instruments not carried at fair value. Fair value estimates, methods and assumptions, set forth below for our financial instruments, are made solely to comply with these requirements.
Fair values are based on estimates or calculations at the transaction level using present value techniques in instances where quoted market prices are not available. As broadly traded markets do not exist for many of our financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. The aggregation of the fair value calculations presented herein does not represent, and should not be construed to represent, the underlying value of the Company.
The following describes the methods and assumptions used in estimating the fair values of financial instruments for which carrying value approximates fair value and estimated fair values of financial instruments not recorded at fair value on a recurring basis and excludes financial instruments and assets and liabilities already recorded at fair value as described above.
Financial Instruments for which Carrying Value Approximates Fair Value
Certain financial instruments that are not carried at fair value on the Consolidated Balance Sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and cash equivalents; FHLB and FRB stock; accrued interest receivable; short-term borrowings; short-term time deposits; and accrued interest payable. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Held-to-Maturity Securities
Held-to-maturity securities include similar investments held in our available-for-sale securities portfolio and are valued using the same methodologies. All securities included in our held-to-maturity securities portfolio are valued using Level 2 inputs. Refer to Level 2 fair value measurements above for significant inputs used in the valuation of our held-to-maturity investment securities.
Non-Marketable Securities (Cost and Equity Method Accounting)
Non-marketable securities includes other investments (equity method accounting), venture capital and private equity fund investments (cost method accounting), and other venture capital investments (cost method accounting). Other investments (equity method accounting) includes our investment in SPD-SVB, our joint venture bank in China. At this time, the carrying value of our investment in SPD-SVB is a reasonable estimate of fair value. The fair value of the remaining other investments (equity method accounting) and the fair value of venture capital and private equity fund investments (cost method accounting) and other venture capital investments (cost method accounting) is based on financial information obtained from the investee or obtained from the fund investments’ or debt fund investments’ respective general partners. For private company investments, estimated fair value is based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, and financing transactions subsequent to the acquisition of the investment. For our fund investments, we utilize the net asset value per share as obtained from the general partners of the investments. We adjust the net asset value per share for differences between our measurement date and the date of the fund investment’s net

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asset value by using the most recently available financial information from the investee general partner, for example June 30th, for our September 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
Loans
The fair value of fixed and variable rate loans is estimated by discounting contractual cash flows using rates that reflect current pricing for similar loans and the projected forward yield curve. This method is not based on the exit price concept of fair value required under ASC 820, Fair Value Measurements and Disclosures.
Long-Term Deposits
The fair value of long-term time deposits is estimated by discounting the cash flows using our cost of borrowings and the projected forward yield curve over their remaining contractual term.
Long-Term Debt
The fair value of long-term debt is generally based on quoted market prices, when available, or is estimated based on calculations utilizing third-party pricing services and current market spread, price indications from reputable dealers or observable market prices of the underlying instrument(s), whichever is deemed more reliable. Also included in the estimated fair value of our 6.05% Subordinated Notes are amounts related to hedge accounting associated with the notes.
Off-Balance Sheet Financial Instruments
The fair value of net available commitments to extend credit is estimated based on the average amount we would receive or pay to execute a new agreement with identical terms and pricing, while taking into account the counterparties’ credit standing.
Letters of credit are carried at their fair value, which was equivalent to the residual premium or fee at September 30, 2016 and December 31, 2015. Commitments to extend credit and letters of credit typically result in loans with a market interest rate if funded.
The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at September 30, 2016 and December 31, 2015:

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Estimated Fair Value
(Dollars in thousands)
 
Carrying Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
September 30, 2016:
 
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,521,319

 
$
2,521,319

 
$
2,521,319

 
$

 
$

Held-to-maturity securities
 
7,791,949

 
7,885,333

 

 
7,885,333

 

Non-marketable securities (cost and equity method accounting) not measured at net asset value
 
124,955

 
134,174

 

 

 
134,174

Non-marketable securities (cost and equity method accounting) measured at net asset value (1)
 
249,289

 
353,606

 

 

 

Net commercial loans
 
16,807,685

 
17,089,586

 

 

 
17,089,586

Net consumer loans
 
2,064,015

 
2,102,435

 

 

 
2,102,435

FHLB and Federal Reserve Bank stock
 
57,466

 
57,466

 

 

 
57,466

Accrued interest receivable
 
99,263

 
99,263

 

 
99,263

 

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Other short-term borrowings
 
2,421

 
2,421

 
2,421

 

 

Non-maturity deposits (2)
 
38,137,660

 
38,137,660

 
38,137,660

 

 

Time deposits
 
51,756

 
51,654

 

 
51,654

 

3.50% Senior Notes
 
346,900

 
355,681

 

 
355,681

 

5.375% Senior Notes
 
347,440

 
390,313

 

 
390,313

 

6.05% Subordinated Notes (3)
 
47,094

 
48,534

 

 
48,534

 

7.0% Junior Subordinated Debentures
 
54,537

 
53,608

 

 
53,608

 

Accrued interest payable
 
4,886

 
4,886

 

 
4,886

 

Off-balance sheet financial assets:
 
 
 
 
 
 
 
 
 
 
Commitments to extend credit
 

 
21,232

 

 

 
21,232

December 31, 2015:
 
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,503,257

 
$
1,503,257

 
$
1,503,257

 
$

 
$

Held-to-maturity securities
 
8,790,963

 
8,758,622

 

 
8,758,622

 

Non-marketable securities (cost and equity method accounting) not measured at net asset value
 
114,795

 
117,172

 

 

 
117,172

Non-marketable securities (cost and equity method accounting) measured at net asset value (1)
 
250,970

 
364,799

 

 

 

Net commercial loans
 
14,763,302

 
14,811,588

 

 

 
14,811,588

Net consumer loans
 
1,761,155

 
1,737,960

 

 

 
1,737,960

FHLB and Federal Reserve Bank stock
 
56,991

 
56,991

 

 

 
56,991

Accrued interest receivable
 
107,604

 
107,604

 

 
107,604

 

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Short-term FHLB advances
 
638,000

 
638,000

 
638,000

 

 

Federal funds purchased
 
135,000

 
135,000

 
135,000

 

 

Other short-term borrowings
 
1,900

 
1,900

 
1,900

 

 

Non-maturity deposits (2)
 
39,072,297

 
39,072,297

 
39,072,297

 

 

Time deposits
 
70,479

 
70,347

 

 
70,347

 

3.50% Senior Notes
 
346,667

 
333,648

 

 
333,648

 

5.375% Senior Notes
 
347,016

 
384,216

 

 
384,216

 

6.05% Subordinated Notes (3)
 
48,350

 
49,820

 

 
49,820

 

7.0% Junior Subordinated Debentures
 
54,669

 
52,905

 

 
52,905

 

Accrued interest payable
 
12,058

 
12,058

 

 
12,058

 

Off-balance sheet financial assets:
 
 
 
 
 
 
 
 
 
 
Commitments to extend credit
 

 
26,483

 

 

 
26,483

 
 

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(1)
In accordance with the accounting standard (ASU 2015-07, Fair Value Measurement (Topic 820)), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(2)
Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits.
(3)
At September 30, 2016 and December 31, 2015, included in the carrying value and estimated fair value of our 6.05% Subordinated Notes was an interest rate swap valued at $1.3 million and $2.8 million, respectively, related to hedge accounting associated with the notes.

Investments in Entities that Calculate Net Asset Value Per Share
FASB guidance over certain fund investments requires that we disclose the fair value of funds, significant investment strategies of the investees, redemption features of the investees, restrictions on the ability to sell investments, estimate of the period of time over which the underlying assets are expected to be liquidated by the investee, and unfunded commitments related to the investments.
Our investments in debt funds and venture capital and private equity fund investments generally cannot be redeemed. Alternatively, we expect distributions, if any, to be received primarily through IPO and M&A activity of the underlying assets of the fund. Subject to applicable requirements under the Volcker Rule, we do not have any plans to sell any of these fund investments. If we decide to sell these investments in the future, the investee fund’s management must approve of the buyer before the sale of the investments can be completed. The fair values of the fund investments have been estimated using the net asset value per share of the investments, adjusted for any differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example June 30th, for our September 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
The following table is a summary of the estimated fair values of these investments and remaining unfunded commitments for each major category of these investments as of September 30, 2016:
(Dollars in thousands)
 
Carrying Amount      
 
Fair Value        
 
Unfunded Commitments      
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
Venture capital and private equity fund investments (1)
 
$
141,841

 
$
141,841

 
$
5,309

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
Venture capital and private equity fund investments (2)
 
84,904

 
84,904

 
4,954

Debt funds (2)
 
18,971

 
20,217

 

Other investments (2)
 
30,301

 
30,297

 
886

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
Venture capital and private equity fund investments (2)
 
115,113

 
218,188

 
11,306

Total
 
$
391,130

 
$
495,447

 
$
22,455

 
 
(1)
Venture capital and private equity fund investments within non-marketable securities (fair value accounting) include investments made by our managed funds of funds and one of our direct venture funds. These investments represent investments in venture capital and private equity funds that invest primarily in U.S. and global technology and life science/healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $101 million and $4 million, respectively, attributable to noncontrolling interests. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of terms of the funds.
(2)
Venture capital and private equity fund investments, debt funds, and other fund investments within non-marketable securities (equity and cost method accounting) include funds that invest in or lend money to primarily U.S. and global technology and life science/healthcare companies. It is estimated that we will receive distributions from the funds over the next 10 to 13 years, depending on the age of the funds and any potential extensions of the terms of the funds.

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15.
Legal Matters
Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against us or our affiliates. In accordance with applicable accounting guidance, we establish accruals for all lawsuits, claims and expected settlements when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.
To the extent we believe any potential loss relating to such lawsuits and claims 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 not probable, we disclose information relating to any such potential loss, whether in excess of any established accruals or where there is no established accrual. We also disclose information relating to any material potential loss that is probable but not reasonably estimable. Where reasonably practicable, we will provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.
Based upon information available to us, our review of lawsuits and claims filed or pending against us to date and consultation with our outside legal counsel, we have not recognized a material accrual liability for these matters, nor do we currently expect it is reasonably possible that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.
16.
Related Parties
During the nine months ended September 30, 2016, the Bank made loans to related parties, including certain companies in which certain of our directors or their affiliated venture funds are beneficial owners of ten percent or more of the equity securities of such companies. Such loans: (a) were made in the ordinary course of business; (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related persons; and (c) did not involve more than the normal risk of collectability or present other unfavorable features. Additionally, we also provide real estate secured loans to eligible employees through our EHOP.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including in particular “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part I, Item 2 of this report, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, management has in the past and might in the future make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements are statements that are not historical facts. Broadly speaking, forward-looking statements include, but are not limited to, the following:
Projections of our net interest income, noninterest income, earnings per share, noninterest expenses (including professional services, compliance, compensation and other costs), cash flows, balance sheet positions, capital expenditures, liquidity and capitalization or other financial items
Descriptions of our strategic initiatives, plans or objectives for future operations, including pending sales or acquisitions
Forecasts of private equity/venture capital funding and investment levels
Forecasts of future interest rates, economic performance, and income from investments
Forecasts of expected levels of provisions for loan losses, nonperforming loans, loan growth and client funds
Descriptions of assumptions underlying or relating to any of the foregoing
You can identify these and other forward-looking statements by the use of words such as “becoming,” “may,” “will,” “should,” "could," "would," “predict,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” "assume," “seek,” “expect,” “plan,” “intend,” the negative of such words, or comparable terminology. Forward-looking statements are neither historical facts nor assurances of future performance. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may prove to be incorrect. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-

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looking statements. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among others:
Market and economic conditions, including the interest rate environment, and the associated impact on us
The credit profile and credit quality of our loan portfolio and volatility of our levels of nonperforming assets and charge-offs
The adequacy of our allowance for loan losses and the need to make provisions for loan losses for any period
The borrowing needs of our clients
The sufficiency of our capital and liquidity positions
The levels of loans, deposits and client investment fund balances
The performance of our portfolio investments; the general condition of the public and private equity and mergers and acquisitions markets and their impact on our investments, including equity warrant assets, venture capital and private equity funds and direct equity investments
Our overall investment plans and strategies; the realization, timing, valuation and performance of our equity or other investments
The levels of public offerings, mergers and acquisitions and venture capital investment activity of our clients that may impact the borrowing needs of our clients
The occurrence of fraudulent activity, including breaches of our information security or cyber security-related incidents
Business disruptions and interruptions due to natural disasters and other external events
The impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties
Expansion of our business internationally, and the impact of international market and economic events on us, such as "Brexit"
The impact of legal requirements and regulations limiting or restricting our activities or resulting in higher costs, including the Dodd-Frank Act, the Volcker Rule and Federal Reserve and other regulatory requirements
The impact of lawsuits and claims
Changes in accounting standards and tax laws
The levels of equity capital available to our client or portfolio companies
The effectiveness of our risk management framework and quantitative models
The sale of impaired assets
Our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives
Other factors as discussed in “Risk Factors” under Part I, Item 1A in our 2015 Form 10-K

We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this filing are made only as of the date of this filing. We assume no obligation and do not intend to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q, except as required by law.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and accompanying notes as presented in Part I, Item 1 of this report and in conjunction with our 2015 Form 10-K.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentations.
Management’s Overview of Third Quarter 2016 Performance
Overall, we had a solid third quarter in 2016, which was marked by healthy loan growth, stable credit quality, solid core fee income and higher investment and warrant gains. Our core business continues to perform well as a result of our ongoing focus on innovation companies and their investors and continued efforts to secure client relationships. We saw continued success in working with private equity/venture capital firms as well as growth of our private bank offerings to private equity/venture capital professionals and executive leaders of the innovation companies they support.
A summary of our performance for the three months ended September 30, 2016 (compared to September 30, 2015, where applicable) is as follows:

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BALANCE SHEET
 
EARNINGS
Assets. $43.5 billion in average total assets (up 3.4%). $43.3 billion in period-end total assets (up 3.7%).
Investments. $20.7 billion in average investment securities (down 9.5%). $21.1 billion in period-end investments securities (down 13.1%).
Loans. $18.6 billion in average total loan balances, net of unearned income (up 25.0%). $19.1 billion in period-end total loan balances, net of unearned income (up 24.8%).
Deposits. $37.9 billion in average total deposit balances (up 1.4%). $38.2 billion in period-end total deposit balances (up 3.1%).
Off-Balance Sheet Client Investment Funds. $43.1 billion in total average client investment fund balances (up 2.7%). $43.3 billion in total period-end client investment fund balances (down 0.5%).


 
EPS. Earnings per diluted share of $2.12 (up 35.0%).
Net Income. Consolidated net income available to common stockholders of $111.1 million (up 35.9%).
- Net interest income of $289.2 million (up 13.5%).
- Net interest margin of 2.75% (up 25 bps).
- Noninterest income of $144.1 million (up 32.9%), with non-GAAP core fee income+ of $80.5 million (up 17.7%).
- Noninterest expense of $221.8 million (up 20.1%)

ROE. Return on average equity (annualized) (“ROE”) performance of 12.32%.

 
 
 
CAPITAL
 
CREDIT QUALITY
Capital/Liquidity. Continued strong capital and liquidity levels, with all capital ratios considered "well-capitalized" under banking regulations. SVBFG and SVB Capital ratios, respectively, were:
- CET 1 risk-based capital ratio of 12.75% and 12.77%.
- Tier 1 risk-based capital ratio of 13.21% and 12.77%.
- Total risk-based capital ratio of 14.22% and 13.83%.
- Tier 1 leverage ratio of 8.35% and 7.74%.

 
Credit Quality. Continued disciplined underwriting.
- Allowance for loan losses of 1.25% as a percentage of period-end total gross loans.
- Provision for loan losses of 0.39% as a percentage of period-end total gross loans (annualized).
- Net loan charge-offs of 0.48% as a percentage of average total gross loans (annualized).



+ Consists of fee income for deposit services, letters of credit, business credit cards, client investments, foreign exchange and lending-related activities. This is a non-GAAP financial metric. (See the non-GAAP reconciliation under “Results of Operations—Noninterest Income”)


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A summary of our performance for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands, except per share data, employees and ratios)
 
2016

2015
 
% Change  
 
2016
 
2015
 
% Change  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
2.12

 
$
1.57

 
35.0

 
$
5.42

 
$
4.94

 
9.7

Net income available to common stockholders
 
111,081

 
81,733

 
35.9

  
 
283,219

 
256,392

 
10.5

  
Net interest income
 
289,161

 
254,660

 
13.5

  
 
853,918

 
737,356

 
15.8

  
Net interest margin
 
2.75
%
 
2.50
%
 
25

bps 
 
2.72
%
 
2.57
%
 
15

bps 
Provision for loan losses
 
$
18,950

 
$
33,403

 
(43.3
)
%
 
$
88,624

 
$
66,368

 
33.5

%
Noninterest income
 
144,140

 
108,477

 
32.9

 
 
343,050

 
358,288

 
(4.3
)
 
Noninterest expense
 
221,827

 
184,755

 
20.1

 
 
626,212

 
569,408

 
10.0

  
Non-GAAP core fee income (1)
 
80,526

 
68,388

 
17.7

 
 
231,522

 
192,677

 
20.2

 
Non-GAAP noninterest income, net of noncontrolling interests (1)
 
139,461

 
102,134

 
36.5

  
 
339,423

 
329,225

 
3.1

  
Non-GAAP noninterest expense, net of noncontrolling interests (2)
 
221,710

 
184,639

 
20.1

  
 
625,928

 
568,758

 
10.1

  
Balance Sheet:
 

 
 
 
 
 
 

 
 
 
 
 
Average available-for-sale securities
 
$
12,743,715

 
$
15,035,114

 
(15.2
)
%
 
$
13,608,722

 
$
14,140,044

 
(3.8
)
%
Average held-to-maturity securities
 
8,003,825

 
7,878,963

 
1.6

 
 
8,347,190

 
7,697,302

 
8.4

 
Average loans, net of unearned income
 
18,647,194

 
14,916,652

 
25.0


 
17,955,497

 
14,431,785

 
24.4

 
Average noninterest-bearing demand deposits
 
30,522,314

 
28,791,728

 
6.0

  
 
30,694,119

 
26,909,422

 
14.1

  
Average interest-bearing deposits
 
7,387,440

 
8,591,339

 
(14.0
)
  
 
7,749,871

 
8,503,931

 
(8.9
)
  
Average total deposits
 
37,909,754

 
37,383,067

 
1.4

  
 
38,443,990

 
35,413,353

 
8.6

  
Earnings Ratios:
 

 
 
 
 
 
 

 
 
 
 
 
Return on average assets (annualized) (3)
 
1.02
%
 
0.77
%
 
32.5

 
0.87
%
 
0.86
%
 
1.2

Return on average SVBFG stockholders’ equity (annualized) (4)
 
12.32

 
10.35

 
19.0

  
 
10.95

 
11.34

 
(3.4
)
  
Asset Quality Ratios:
 

 
 
 
 
 
 

 
 
 
 
 
Allowance for loan losses as a % of total period-end gross loans
 
1.25
%
 
1.28
%
 
(3
)
bps 
 
1.25
%
 
1.28
%
 
(3
)
bps 
Allowance for loan losses for performing loans as a % of total gross performing loans
 
1.03

 
0.99

 
4

  
 
1.03

 
0.99

 
4

  
Gross loan charge-offs as a % of average total gross loans (annualized)
 
0.52

 
0.77

 
(25
)
  
 
0.53

 
0.36

 
17

  
Net loan charge-offs as a % of average total gross loans (annualized)
 
0.48

 
0.75

 
(27
)
  
 
0.47

 
0.31

 
16

  
Capital Ratios:
 

 
 
 
 
 
 

 
 
 
 
 
CET 1 risk-based capital ratio
 
12.75
%
 
12.48
%
 
27

bps
 
12.75
%
 
12.48
%
 
27

bps
Tier 1 risk-based capital ratio
 
13.21

 
13.07

 
14

 
 
13.21

 
13.07

 
14

 
Total risk-based capital ratio
 
14.22

 
14.05

 
17

 
 
14.22

 
14.05

 
17

 
Tier 1 leverage ratio
 
8.35

 
7.67

 
68

  
 
8.35

 
7.67

 
68

  
Tangible common equity to tangible assets (5)
 
8.30

 
7.61

 
69

  
 
8.30

 
7.61

 
69

  
Tangible common equity to risk-weighted assets (5)
 
13.11

 
12.87

 
24

  
 
13.11

 
12.87

 
24

  
Bank CET 1 risk-based capital ratio
 
12.77

 
12.79

 
(2
)
 
 
12.77

 
12.79

 
(2
)
 
Bank tier 1 risk-based capital ratio
 
12.77

 
12.79

 
(2
)
  
 
12.77

 
12.79

 
(2
)
  
Bank total risk-based capital ratio
 
13.83

 
13.85

 
(2
)
  
 
13.83

 
13.85

 
(2
)
  
Bank tier 1 leverage ratio
 
7.74

 
7.13

 
61

  
 
7.74

 
7.13

 
61

  
Bank tangible common equity to tangible assets (5)
 
7.98

 
7.42

 
56

  
 
7.98

 
7.42

 
56

  
Bank tangible common equity to risk-weighted assets (5)
 
13.14

 
13.21

 
(7
)
  
 
13.14

 
13.21

 
(7
)
  
Other Ratios:
 

 
 
 
 
 
 

 
 
 
 
 
GAAP operating efficiency ratio (6)
 
51.19
%
 
50.88
%
 
0.6

 
52.32
%
 
51.97
%
 
0.7

Non-GAAP operating efficiency ratio (2)
 
51.69

 
51.69

 

  
 
52.41

 
53.27

 
(1.6
)
  
Book value per common share (7)
 
$
69.02

 
$
61.66

 
11.9

  
 
$
69.02

 
$
61.66

 
11.9

  
Other Statistics:
 

 
 
 
 
 
 

 
 
 
 
 
Average full-time equivalent employees
 
2,255

 
2,030

 
11.1

 
2,199

 
1,981

 
11.0

Period-end full-time equivalent employees
 
2,280

 
2,054

 
11.0

  
 
2,280

 
2,054

 
11.0

  

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Table of Contents

 
 
(1)
See “Results of Operations–Noninterest Income” for a description and reconciliation of non-GAAP core fee income and noninterest income.
(2)
See “Results of Operations–Noninterest Expense” for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio.
(3)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average assets.
(4)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly and year-to-date average SVBFG stockholders’ equity.
(5)
See “Capital Resources–Capital Ratios” for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.
(6)
The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income.
(7)
Book value per common share is calculated by dividing total SVBFG stockholders’ equity by total outstanding common shares at period-end.
For more information with respect to our capital ratios, please refer to “Capital Ratios” under “Consolidated Financial Condition-Capital Ratios” below.
Critical Accounting Policies and Estimates
The accompanying management’s discussion and analysis of results of operations and financial condition is based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. Management evaluates estimates and assumptions on an ongoing basis. Management bases its estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.
There have been no significant changes during the nine months ended September 30, 2016 to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of our 2015 Form 10-K.
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
Net interest income is defined as the difference between interest earned on loans, fixed income investment portfolio (available-for-sale and held-to-maturity securities), short-term investment securities and interest paid on funding sources. Net interest income is our principal source of revenue. Net interest margin is defined as the amount of annualized net interest income, on a fully taxable equivalent basis, expressed as a percentage of average interest-earning assets. Net interest income and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the federal statutory tax rate of 35 percent.
Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable Equivalent Basis)
Net interest income is affected by changes in the amount and composition of interest-earning assets and interest-bearing liabilities, referred to as “volume change.” Net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as “rate change.” The following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities. The table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the periods indicated. For this table, changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate.

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Table of Contents

 
 
2016 Compared to 2015
 
2016 Compared to 2015
 
 
Three months ended September 30, increase (decrease) due to change in
 
Nine months ended September 30, increase (decrease) due to change in
(Dollars in thousands)
 
Volume
 
Rate
 
Total
 
Volume
 
Rate
 
Total
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell, trade receivables purchased and other short-term investment securities
 
$
(198
)
 
$
912

 
$
714

 
$
69

 
$
1,653

 
$
1,722

Fixed income investment portfolio (taxable)
 
(8,344
)
 
4,203

 
(4,141
)
 
(136
)
 
7,761

 
7,625

Fixed income investment portfolio (non-taxable)
 
(287
)
 
3

 
(284
)
 
(847
)
 
36

 
(811
)
Loans, net of unearned income
 
42,429

 
(3,195
)
 
39,234

 
121,580

 
(11,870
)
 
109,710

Increase (decrease) in interest income, net
 
33,600

 
1,923

 
35,523

 
120,666

 
(2,420
)
 
118,246

Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
6

 
(1
)
 
5

 
34

 
(81
)
 
(47
)
Money market deposits
 
(118
)
 
568

 
450

 
(73
)
 
64

 
(9
)
Money market deposits in foreign offices
 

 

 

 
(14
)
 
6

 
(8
)
Time deposits
 
(4
)
 
(12
)
 
(16
)
 
(28
)
 
(47
)
 
(75
)
Sweep deposits in foreign offices
 
(74
)
 
12

 
(62
)
 
(181
)
 
21

 
(160
)
Total (decrease) increase in deposits expense
 
(190
)
 
567

 
377

 
(262
)
 
(37
)
 
(299
)
Short-term borrowings
 
654

 
6

 
660

 
970

 
67

 
1,037

3.50% Senior Notes
 
1

 
2

 
3

 
977

 
43

 
1,020

5.375% Senior Notes
 
4

 
4

 
8

 
33

 
(10
)
 
23

Junior Subordinated Debentures
 

 
(1
)
 
(1
)
 
(2
)
 
(1
)
 
(3
)
6.05% Subordinated Notes
 
(9
)
 
83

 
74

 
(24
)
 
214

 
190

Total increase in borrowings expense
 
650

 
94

 
744

 
1,954

 
313

 
2,267

Increase in interest expense, net
 
460

 
661

 
1,121

 
1,692

 
276

 
1,968

Increase (decrease) in net interest income
 
$
33,140

 
$
1,262

 
$
34,402

 
$
118,974

 
$
(2,696
)
 
$
116,278

Net Interest Income (Fully Taxable Equivalent Basis)
Three months ended September 30, 2016 and 2015
Net interest income increased by $34.4 million to $289.4 million for the three months ended September 30, 2016, compared to $255.0 million for the comparable 2015 period. Overall, our net interest income increased primarily from interest earned on loans, reflective of higher average loan balances driven by strong growth in average loan balances.
The main factors affecting interest income for the three months ended September 30, 2016, compared to the comparable 2015 period are discussed below:
Interest income for the three months ended September 30, 2016 increased by $35.5 million due primarily to:
A $39.2 million increase in interest income on loans to $214.2 million for the three months ended September 30, 2016, compared to $175.0 million for the comparable 2015 period. The increase was reflective of an increase in average loan balances of $3.7 billion, partially offset by a decrease in both gross loan yields and loan fee yields. Gross loan yields, excluding loan interest recoveries and loan fees, decreased to 3.93 percent from 3.99 percent, reflective of a shift in the mix of our overall loan portfolio from the third quarter of 2015, partially offset by the 25 basis point increase in the target federal funds rate by the Federal Reserve in December 2015. The shift in the mix of loans primarily reflects growth in private equity/venture capital and SVB Private Bank loans, which tend to be higher credit quality, lower yielding loans. Loan fee yields decreased five basis points to 61 basis points, from 66 basis points in the comparable 2015 period. This decrease was a result of lower amortizing fee income as a percentage of our overall loan portfolio, primarily reflective of the growth of our private equity/venture capital and SVB Private Bank loans which tend to have lower fees.
A $4.4 million decrease in interest income on fixed income investment securities to $84.3 million for the three months ended September 30, 2016, compared to $88.7 million for the comparable 2015 period. The decrease was reflective primarily of a decrease in average fixed income investment securities of $2.2 billion from the third quarter of 2015, as a result of our $2.9 billion sales of investment securities during the first and second

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quarters of 2016 to fund loans and repay short-term borrowings. The decrease was partially offset by lower premium amortization expense, reflective of higher market interest rates in 2016.
Nine months ended September 30, 2016 and 2015
Net interest income increased by $116.3 million to $854.8 million for the nine months ended September 30, 2016, compared to $738.6 million for the comparable 2015 period. Overall, our net interest income increased primarily from interest earned on loans, reflective of higher average loan balances driven by strong growth in average loan balances.
The main factors affecting interest income and interest expense for the nine months ended September 30, 2016, compared to the comparable 2015 period are discussed below:
Interest income for the nine months ended September 30, 2016 increased by $118.2 million due primarily to:
A $109.7 million increase in interest income on loans to $617.5 million for the nine months ended September 30, 2016, compared to $507.7 million for the comparable 2015 period. The increase was reflective of an increase in average loan balances of $3.5 billion, partially offset by a decrease in both gross loan yields and loan fee yields. Gross loan yields, excluding loan interest recoveries and loan fees, decreased to 3.99 percent from 4.03 percent, reflective of a shift in the mix of our overall loan portfolio since the nine months ended September 30, 2015, partially offset by the 25 basis point increase in the target federal funds rate by the Federal Reserve in December 2015. The shift in the mix of loans primarily reflects growth in private equity/venture capital and SVB Private Bank loans, which tend to be higher credit quality, lower yielding loans. Loan fee yields decreased eight basis points to 58 basis points, from 66 basis points in the comparable 2015 period. This decrease was a result of lower amortizing fee income as a percentage of our overall loan portfolio, primarily reflective of the growth of our private equity/venture capital and SVB Private Bank loans which tend to have lower fees.
A $6.8 million increase in interest income on fixed income investment securities to $263.7 million for the nine months ended September 30, 2016, compared to $256.9 million for the comparable 2015 period. The increase was driven primarily by a $5.0 million decrease in premium amortization expense, as well as a higher yield on our U.S. Treasury portfolio, both reflective of higher market interest rates.
Interest expense for the nine months ended September 30, 2016 increased by $2.0 million primarily due to:
An increase in long-term debt interest expense of $1.2 million, reflective of the $350.0 million issuance of our 3.50% Senior Notes on January 29, 2015.
An increase in short-term borrowings interest expense of $1.0 million, due primarily to borrowings from our available line of credit with the Federal Home Loan Bank ("FHLB") in 2016 in order to support loan growth and the liquidity needs of the Bank.
Net Interest Margin (Fully Taxable Equivalent Basis)
Three months ended September 30, 2016 and 2015
Our net interest margin increased by 25 basis points to 2.75 percent for the three months ended September 30, 2016, compared to 2.50 percent for the comparable 2015 period. The higher margin during the third quarter of 2016 was reflective primarily of a shift in the mix of our average interest-earning assets towards our loan portfolio. The shift was reflective of the utilization of fixed income investment securities to fund loan growth in 2016 as a result of the tempered growth in average deposits. Average loans represented 45 percent of interest earning assets for the third quarter of 2016 compared to 37 percent for the comparable 2015 period.
Nine months ended September 30, 2016 and 2015
Our net interest margin increased by 15 basis points to 2.72 percent for the nine months ended September 30, 2016, compared to 2.57 percent for the comparable 2015 period. The higher margin during the nine months ended September 30, 2016 was reflective primarily of a shift in the mix of our average interest-earning assets towards our loan portfolio. The shift was reflective of the utilization of fixed income investment securities to fund loan growth in 2016 as a result of the tempered growth in average deposits. Average loans represented 43 percent of interest earning assets for the nine months ended September 30, 2016 compared to 38 percent for the comparable 2015 period


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Table of Contents

Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis)
The average yield earned on interest-earning assets is the amount of annualized fully taxable equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is the amount of annualized interest expense expressed as a percentage of average funding sources. The following tables set forth average assets, liabilities, noncontrolling interests and SVBFG stockholders’ equity, interest income, interest expense, annualized yields and rates, and the composition of our annualized net interest margin for the three and nine months ended September 30, 2016 and 2015:

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Table of Contents

Average Balances, Rates and Yields for the Three Months Ended September 30, 2016 and 2015
 
 
Three months ended September 30,
 
 
2016
 
2015
(Dollars in thousands)
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
 
$
2,404,006

 
$
2,196

 
0.36
%
 
$
2,618,582

 
$
1,482

 
0.22
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
12,743,715

 
44,741

 
1.40

 
15,035,114

 
49,027

 
1.29

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
7,947,983

 
38,727

 
1.94

 
7,803,045

 
38,582

 
1.96

Non-taxable (3)
 
55,842

 
803

 
5.72

 
75,918

 
1,087

 
5.68

Total loans, net of unearned income (4) (5)
 
18,647,194

 
214,227

 
4.57

 
14,916,652

 
174,993

 
4.65

Total interest-earning assets
 
41,798,740

 
300,694

 
2.86

 
40,449,311

 
265,171

 
2.60

Cash and due from banks
 
317,044

 
 
 
 
 
349,072

 
 
 
 
Allowance for loan losses
 
(247,657
)
 
 
 
 
 
(200,683
)
 
 
 
 
Other assets (6)
 
1,583,202

 
 
 
 
 
1,416,520

 
 
 
 
Total assets
 
$
43,451,329

 
 
 
 
 
$
42,014,220

 
 
 
 
Funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
$
308,345

 
$
60

 
0.08
%
 
$
276,221

 
$
55

 
0.08
%
Money market deposits
 
5,592,603

 
1,316

 
0.09

 
6,090,936

 
866

 
0.06

Money market deposits in foreign offices
 
199,539

 
20

 
0.04

 
192,859

 
20

 
0.04

Time deposits
 
50,351

 
12

 
0.09

 
68,875

 
28

 
0.16

Sweep deposits in foreign offices
 
1,236,602

 
127

 
0.04

 
1,962,448

 
189

 
0.04

Total interest-bearing deposits
 
7,387,440

 
1,535

 
0.08

 
8,591,339

 
1,158

 
0.05

Short-term borrowings
 
513,446

 
663

 
0.51

 
6,956

 
3

 
0.17

3.50% Senior Notes
 
346,848

 
3,141

 
3.60

 
346,541

 
3,138

 
3.59

5.375% Senior Notes
 
347,345

 
4,847

 
5.55

 
346,788

 
4,839

 
5.54

Junior Subordinated Debentures
 
54,566

 
830

 
6.05

 
54,650

 
831

 
6.03

6.05% Subordinated Notes
 
47,421

 
236

 
1.98

 
49,298

 
162

 
1.30

Total interest-bearing liabilities
 
8,697,066

 
11,252

 
0.51

 
9,395,572

 
10,131

 
0.43

Portion of noninterest-bearing funding sources
 
33,101,674

 
 
 
 
 
31,053,739

 
 
 
 
Total funding sources
 
41,798,740

 
11,252

 
0.11

 
40,449,311

 
10,131

 
0.10

Noninterest-bearing funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
 
30,522,314

 
 
 
 
 
28,791,728

 
 
 
 
Other liabilities
 
517,066

 
 
 
 
 
556,935

 
 
 
 
SVBFG stockholders’ equity
 
3,586,196

 
 
 
 
 
3,131,687

 
 
 
 
Noncontrolling interests
 
128,687

 
 
 
 
 
138,298

 
 
 
 
Portion used to fund interest-earning assets
 
(33,101,674
)
 
 
 
 
 
(31,053,739
)
 
 
 
 
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity
 
$
43,451,329

 
 
 
 
 
$
42,014,220

 
 
 
 
Net interest income and margin
 
 
 
$
289,442

 
2.75
%
 
 
 
$
255,040

 
2.50
%
Total deposits
 
$
37,909,754

 
 
 
 
 
$
37,383,067

 
 
 
 
Reconciliation to reported net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments for taxable equivalent basis
 
 
 
(281
)
 
 
 
 
 
(380
)
 
 
Net interest income, as reported
 
 
 
$
289,161

 
 
 
 
 
$
254,660

 
 
 
 
(1)
Includes average interest-earning deposits in other financial institutions of $760 million and $446 million for the three months ended September 30, 2016 and 2015, respectively. For the three months ended September 30, 2016 and 2015, balances also include $1.6 billion and $2.1 billion, respectively, deposited at the FRB, earning interest at the Federal Funds target rate.
(2)
Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income.
(3)
Interest income on non-taxable investment securities are presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 35.0 percent for all periods presented.
(4)
Nonaccrual loans are reflected in the average balances of loans.
(5)
Interest income includes loan fees of $28.4 million and $24.7 million for the three months ended September 30, 2016 and 2015, respectively.
(6)
Average investment securities of $804 million and $739 million for the three months ended September 30, 2016 and 2015, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable and other securities.

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Table of Contents

Average Balances, Rates and Yields for the Nine Months Ended September 30, 2016 and 2015
 
 
Nine months ended September 30,
 
 
2016
 
2015
(Dollars in thousands)
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
 
$
2,111,619

 
$
5,793

 
0.37
%
 
$
2,086,409

 
$
4,071

 
0.26
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
13,608,722

 
140,932

 
1.38

 
14,140,044

 
139,734

 
1.32

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable

8,287,043

 
120,189

 
1.94

 
7,617,112

 
113,762

 
2.00

Non-taxable (3)

60,147

 
2,605

 
5.79

 
80,190

 
3,416

 
5.70

Total loans, net of unearned income (4) (5)
 
17,955,497

 
617,456

 
4.59

 
14,431,785

 
507,746

 
4.70

Total interest-earning assets
 
42,023,028

 
886,975

 
2.82

 
38,355,540

 
768,729

 
2.68

Cash and due from banks
 
326,144

 
 
 
 
 
302,251

 
 
 
 
Allowance for loan losses
 
(237,613
)
 
 
 
 
 
(184,119
)
 
 
 
 
Other assets (6)
 
1,558,157

 
 
 
 
 
1,433,017

 
 
 
 
Total assets
 
$
43,669,716

 
 
 
 
 
$
39,906,689

 
 
 
 
Funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
$
310,505

 
$
181

 
0.08
%
 
$
251,605

 
$
228

 
0.12
%
Money market deposits
 
5,887,627

 
3,297

 
0.07

 
6,021,622

 
3,306

 
0.07

Money market deposits in foreign offices
 
153,593

 
50

 
0.04

 
196,200

 
58

 
0.04

Time deposits
 
59,069

 
51

 
0.12

 
90,939

 
126

 
0.19

Sweep deposits in foreign offices
 
1,339,077

 
405

 
0.04

 
1,943,565

 
565

 
0.04

Total interest-bearing deposits
 
7,749,871

 
3,984

 
0.07

 
8,503,931

 
4,283

 
0.07

Short-term borrowings
 
287,735

 
1,065

 
0.49

 
25,505

 
28

 
0.15

3.5% Senior Notes
 
346,771

 
9,421

 
3.63

 
310,956

 
8,401

 
3.61

5.375% Senior Notes
 
347,205

 
14,534

 
5.59

 
346,656

 
14,511

 
5.60

Junior Subordinated Debentures
 
54,610

 
2,493

 
6.10

 
54,786

 
2,496

 
6.09

6.05% Subordinated Notes
 
47,859

 
648

 
1.81

 
49,621

 
458

 
1.23

Total interest-bearing liabilities
 
8,834,051

 
32,145

 
0.49

 
9,291,455

 
30,177

 
0.43

Portion of noninterest-bearing funding sources
 
33,188,977

 
 
 
 
 
29,064,085

 
 
 
 
Total funding sources
 
42,023,028

 
32,145

 
0.10

 
38,355,540

 
30,177

 
0.11

Noninterest-bearing funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
 
30,694,119

 
 
 
 
 
26,909,422

 
 
 
 
Other liabilities
 
556,568

 
 
 
 
 
539,787

 
 
 
 
SVBFG stockholders’ equity
 
3,453,904

 
 
 
 
 
3,022,086

 
 
 
 
Noncontrolling interests
 
131,074

 
 
 
 
 
143,939

 
 
 
 
Portion used to fund interest-earning assets
 
(33,188,977
)
 
 
 
 
 
(29,064,085
)
 
 
 
 
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity
 
$
43,669,716

 
 
 
 
 
$
39,906,689

 
 
 
 
Net interest income and margin
 
 
 
$
854,830

 
2.72
%
 
 
 
$
738,552

 
2.57
%
Total deposits
 
$
38,443,990

 
 
 
 
 
$
35,413,353

 
 
 
 
Reconciliation to reported net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments for taxable equivalent basis
 
 
 
(912
)
 
 
 
 
 
(1,196
)
 
 
Net interest income, as reported
 
 
 
$
853,918

 
 
 
 
 
$
737,356

 
 
 
 
(1)
Includes average interest-earning deposits in other financial institutions of $653 million and $467 million for the nine months ended September 30, 2016 and 2015, respectively. The balance also includes $1.4 billion and $1.5 billion deposited at the FRB, earning interest at the Federal Funds target rate for the nine months ended September 30, 2016 and 2015, respectively.
(2)
Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income.
(3)
Interest income on non-taxable available-for-sale securities is presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 35.0 percent for all periods presented.
(4)
Nonaccrual loans are reflected in the average balances of loans.
(5)
Interest income includes loan fees of $78.1 million and $71.4 million for the nine months ended September 30, 2016 and 2015, respectively.
(6)
Average investment securities of $803 million and $761 million for the nine months ended September 30, 2016 and 2015, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable securities.

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Provision for Loan Losses
The following table summarizes our allowance for loan losses for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended
 
Nine months ended
(Dollars in thousands, except ratios)
 
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Allowance for loan losses, beginning balance
 
$
244,723

 
$
192,644

 
$
217,613

 
$
165,359

Provision for loan losses
 
18,950

 
33,403

 
88,624

 
66,368

Gross loan charge-offs
 
(24,616
)
 
(29,118
)
 
(71,466
)
 
(39,339
)
Loan recoveries
 
2,084

 
662

 
8,158

 
5,289

Foreign currency translation adjustments (1)
 
(576
)
 
(84
)
 
(2,364
)
 
(170
)
Allowance for loan losses, ending balance
 
$
240,565

 
$
197,507

 
$
240,565

 
$
197,507

Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.39
%
 
0.86
%
 
0.62
%
 
0.58
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.52

 
0.77

 
0.53

 
0.36

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.48

 
0.75

 
0.47

 
0.31

Allowance for loan losses as a percentage of period-end total gross loans
 
1.25

 
1.28

 
1.25

 
1.28

Period-end total gross loans
 
$
19,228,928

 
$
15,429,941

 
$
19,228,928

 
$
15,429,941

Average total gross loans
 
18,762,144

 
15,026,206

 
18,067,893

 
14,537,874

 
(1)
Reflects foreign currency translation adjustments within the allowance for loan losses. Prior period amounts were previously reported with loan recoveries and have been revised to conform to current period presentation.
Three months ended September 30, 2016 and 2015
Our provision for loan losses is a function of our reserve methodology, which is used to determine an appropriate allowance for loan losses for the period.  Our reserve methodology is based on our evaluation of the existing allowance for loan losses in relation to total gross loans using historical and other objective information, and on our qualitative assessment of the inherent and identified credit risk of the loan portfolio. See “Consolidated Financial Condition—Credit Quality and Allowance for Loan Losses” below and Note 7—“Loans and Allowance for Loan Losses” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for further details on our allowance for loan losses.
Our provision for loan losses was $19.0 million for the three months ended September 30, 2016, compared to a provision of $33.4 million for the comparable 2015 period. The provision of $19.0 million primarily reflected an $8.0 million increase in reserves for performing loans, $5.5 million for charge-offs that did not previously have a specific reserve, $4.0 million net reserves for nonaccrual loans and $2.8 million for loan growth. The net increase in reserves for nonaccrual loans included a $5.5 million partial reserve release for one of our non-performing sponsored buyout loans due to credit improvement.
The provision for loan losses of $33.4 million for the third quarter of 2015 was driven primarily by $17.8 million of additional specific reserves on two new nonaccrual loans, $10.4 million from the increase in period-end loan balances and an additional $3.8 million for the unreserved portion of a software and internet loan charge-off during the quarter.
Gross loan charge-offs of $24.6 million for the third quarter of 2016 included $14.2 million from two late-stage clients, all of which had been fully reserved. Remaining charge-offs were primarily from early-stage clients in our software and internet and hardware loan portfolios, primarily as a result of the recalibration of venture capital investment levels and activities from the first half of the year.
Gross loan charge-offs of $29.1 million for the third quarter of 2015 included $21.7 million from one Growth stage client in our software and internet loan portfolio, of which a total of $17.9 million was previously reserved for in prior quarters.
Net loan charge-offs of $22.5 million represented 0.48 percent of average total gross loans, compared to net charge-offs of $28.5 million, or 0.75 percent of average total gross loans for the comparable 2015 period. The decrease in net loan charge-offs as a percentage of average total gross loans was reflective primarily of the decrease in gross loan charge-offs as discussed above.

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Nine months ended September 30, 2016 and 2015
Our provision for loan losses was $88.6 million for the nine months ended September 30, 2016, compared to a provision of $66.4 million for the comparable 2015 period. The provision of $88.6 million for the nine months ended September 30, 2016 was reflective primarily of $33.0 million in charge-offs that did not previously have a specific reserve and $23.0 million from period-end loan growth, with the remaining provision due primarily to reserves for new nonaccrual loans.
The provision for loan losses of $66.4 million for the nine months ended September 30, 2015 was driven by $34.2 million for net charge-offs, an increase of $31.2 million in the reserve for nonaccrual loans and $8.5 million from period-end loan growth. These increases were offset by a decrease of $7.6 million in the reserve for our performing loans due to improved credit quality.
Gross loan charge-offs of $71.5 million for the nine months ended September 30, 2016 included $35.4 million from our early-stage loan portfolio and $27.6 million from four late-stage client loans. These charge-offs were primarily from our software and internet loan portfolio. Gross loan charge-offs of $39.4 million for the nine months ended September 30, 2015 came primarily from our software and internet loan portfolio, primarily as a result of the recalibration of venture capital investment levels and activities from the first half of the year.
Net loan charge-offs of $63.3 million represented 0.47 percent of average total gross loans, compared to net charge-offs of $34.1 million, or 0.31 percent of average total gross loans for the comparable 2015 period.
Noninterest Income
For the three and nine months ended September 30, 2016, noninterest income was $144.1 million and $343.1 million, respectively, compared to $108.5 million and $358.3 million, for the comparable 2015 periods. For the three and nine months ended September 30, 2016, non-GAAP noninterest income, net of noncontrolling interests was $139.5 million and $339.4 million, respectively, compared to $102.1 million and $329.2 million, for the comparable 2015 periods. For the three and nine months ended September 30, 2016, non-GAAP core fee income was $80.5 million and $231.5 million, respectively, compared to $68.4 million and $192.7 million for the comparable 2015 periods. (See reconciliations of non-GAAP measures used below under "Use of Non-GAAP Financial Measures".)
Use of Non-GAAP Financial Measures
To supplement our unaudited interim consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP noninterest income, non-GAAP net gains on investment securities). These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding items that represent income attributable to investors other than us and our subsidiaries and other certain non-recurring items. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.
Included in net income is income and expense attributable to noncontrolling interests. We recognize, as part of our investment funds management business through SVB Capital, the entire income or loss from funds consolidated in accordance with ASC Topic 810 as discussed in Note 1— "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements (Unaudited)" under Part I, Item 1 in this report. We are required under GAAP to consolidate 100% of the results of these entities, even though we may own less than 100% of such entities. The relevant amounts attributable to investors other than us are reflected under “Net Income Attributable to Noncontrolling Interests” on our statements of income. Where applicable, the tables below for noninterest income and net gains on investment securities exclude noncontrolling interests.
Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. Core fee income includes foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees.

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The following table provides a reconciliation of GAAP noninterest income to non-GAAP noninterest income, net of noncontrolling interests, for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
GAAP noninterest income
 
$
144,140


$
108,477

 
32.9
 %
 
$
343,050


$
358,288

 
(4.3
)%
Less: income attributable to noncontrolling interests, including carried interest
 
4,679

 
6,343

 
(26.2
)
 
3,627

 
29,063

 
(87.5
)
Non-GAAP noninterest income, net of noncontrolling interests
 
$
139,461

 
$
102,134

 
36.5

 
$
339,423

 
$
329,225

 
3.1


The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
GAAP noninterest income
 
$
144,140

 
$
108,477

 
32.9
%
 
$
343,050

 
$
358,288

 
(4.3
)%
Less: gains on investment securities, net
 
23,178

 
18,768

 
23.5

 
41,764

 
77,006

 
(45.8
)
Less: gains on derivative instruments, net
 
19,744

 
10,244

 
92.7

 
26,847

 
66,290

 
(59.5
)
Less: other noninterest income
 
20,692

 
11,077

 
86.8

 
42,917

 
22,315

 
92.3

Non-GAAP core fee income (1)
 
$
80,526

 
$
68,388

 
17.7

 
$
231,522

 
$
192,677

 
20.2

 
(1)
Non-GAAP core fee income represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control and includes foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit fees.
Gains on Investment Securities, Net
Net gains and losses on investment securities include gains and losses from our non-marketable and other securities, as well as gains and losses from sales of our available-for-sale securities portfolio, when applicable.
Our available-for-sale securities portfolio is primarily a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. Sales of equity securities held as a result of our exercised warrants, result in net gains or losses on investment securities. These sales are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk. Though infrequent, sales of investment securities in our AFS securities portfolio may result in net gains or losses and are also conducted pursuant to the guidelines of our investment policy.
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, our China Joint Venture, debt funds, private and public portfolio companies and investments in qualified affordable housing projects. We experience variability in the performance of our non-marketable and other securities from quarter to quarter, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains and losses from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains or losses from non-marketable and other securities for any single period are typically driven by valuation changes, and are therefore subject to potential increases or decreases in future periods. Such variability may lead to volatility in the gains or losses from investment securities. As such, our results for a particular period are not necessarily indicative of our expected performance in a future period.
The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (i.e. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes.

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Three months ended September 30, 2016 and 2015
For the three months ended September 30, 2016, we had net gains on investment securities of $23.2 million, compared to net gains of $18.8 million for the comparable 2015 period. Net gains on investment securities, net of noncontrolling interests, were $18.4 million for the three months ended September 30, 2016, compared to net gains of $12.7 million for the comparable 2015 period.
Net gains on investment securities, net of noncontrolling interests, of $18.4 million for the three months ended September 30, 2016 were primarily driven by the following:
Gains of $13.7 million from our strategic and other investments portfolio, comprised of gains of $7.2 million from valuation increases for one of our equity method fund investments as well as higher distributions from our strategic venture capital fund investments, and
Gains of $4.3 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases due to M&A and IPO activity of investments held by the funds in the portfolio.

Nine months ended September 30, 2016 and 2015
For the nine months ended September 30, 2016, we had net gains on investment securities of $41.8 million, compared to $77.0 million for the comparable 2015 period. Net gains on investment securities, net of noncontrolling interests, were $38.1 million for the nine months ended September 30, 2016, compared to net gains of $47.7 million for the comparable 2015 period.
The gains, net of noncontrolling interests, of $38.1 million for the nine months ended September 30, 2016 were primarily driven by the following:
Gains of $24.0 million from our strategic and other investments portfolio, attributable primarily to distribution gains from our strategic venture capital funds investments and net unrealized valuation increases in one of our equity method fund investments,
Gains of $11.6 million from our available-for-sale securities portfolio, primarily reflective of $13.8 million of net gains on the sale of approximately $2.9 billion in U.S. Treasury securities, partially offset by $2.2 million of net losses on sales of shares from exercised warrants in public companies upon expiration of lock-up periods during 2016, and
Gains of $2.2 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases due to M&A and IPO activity of investments held by the funds in the portfolio.


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The following tables provide a reconciliation of GAAP total gains (losses) on investment securities, net, to non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three and nine months ended September 30, 2016 and 2015:
(Dollars in thousands)
 
Managed
Funds of
Funds
 
Managed
Direct
Venture
Funds
 
Debt
Funds
 
Available-
For-Sale
Securities
 
Strategic
and Other
Investments
 
Total
Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Total gains (losses) on investment securities, net
 
$
8,931

 
$
390

 
$
166

 
$
(15
)
 
$
13,706

 
$
23,178

Less: income attributable to noncontrolling interests, including carried interest
 
4,615

 
130

 

 

 

 
4,745

Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
$
4,316

 
$
260

 
$
166

 
$
(15
)
 
$
13,706

 
$
18,433

 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Total gains (losses) on investment securities, net
 
$
11,786

 
$
(186
)
 
$
378

 
$
13

 
$
6,777

 
$
18,768

Less: income attributable to noncontrolling interests, including carried interest
 
5,816

 
286

 

 

 

 
6,102

Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
$
5,970

 
$
(472
)
 
$
378

 
$
13

 
$
6,777

 
$
12,666

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Total gains (losses) on investment securities, net
 
$
5,830

 
$
(411
)
 
$
801

 
$
11,567

 
$
23,977

 
$
41,764

Less: income (losses) attributable to noncontrolling interests, including carried interest
 
3,668

 
(17
)
 

 

 

 
3,651

Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
$
2,162

 
$
(394
)
 
$
801

 
$
11,567

 
$
23,977

 
$
38,113

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Total gains on investment securities, net
 
$
36,726

 
$
12,352

 
$
1,478

 
$
2,750

 
$
23,700

 
$
77,006

Less: income attributable to noncontrolling interests, including carried interest
 
21,868

 
7,441

 

 

 

 
29,309

Non-GAAP net gains on investment securities, net of noncontrolling interests
 
$
14,858

 
$
4,911

 
$
1,478

 
$
2,750

 
$
23,700

 
$
47,697



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Gains on Derivative Instruments, Net
A summary of gains on derivative instruments, net, for the three and nine months ended September 30, 2016 and 2015 is as follows:
  
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Equity warrant assets (1)
 
 
 
 
 
 
 
 
 
 
 
 
Gains on exercises, net
 
$
5,931

 
$
2,173

 
172.9
 %
 
$
13,808

 
$
26,363

 
(47.6
)%
Cancellations and expirations
 
(1,161
)
 
(412
)
 
181.8

 
(2,545
)
 
(818
)
 
NM

Changes in fair value
 
16,788

 
8,924

 
88.1

 
21,989

 
29,034

 
(24.3
)
Net gains on equity warrant assets
 
21,558

 
10,685

 
101.8

 
33,252

 
54,579

 
(39.1
)
(Losses) gains on foreign exchange forward contracts, net:
 
 
 
 
 
 
 
 
 
 
 
 
(Losses) gains on client foreign exchange forward contracts, net (2)
 
(3,194
)
 
179

 
NM

 
(8,780
)
 
459

 
NM

Gains (losses) on internal foreign exchange forward contracts, net (3)
 
1,352

 
(218
)
 
NM

 
3,067

 
11,626

 
(73.6
)
Total (losses) gains on foreign exchange forward contracts, net
 
(1,842
)
 
(39
)
 
NM

 
(5,713
)
 
12,085

 
(147.3
)
Changes in fair value of interest rate swaps
 
(3
)
 
(8
)
 
(62.5
)
 
(33
)
 
(22
)
 
50.0

Net gains (losses) on other derivatives
 
31

 
(394
)
 
(107.9
)
 
(659
)
 
(352
)
 
87.2

Gains on derivative instruments, net
 
$
19,744

 
$
10,244

 
92.7

 
$
26,847

 
$
66,290

 
(59.5
)
 
 
 
NM—Not meaningful
(1)
At September 30, 2016, we held warrants in 1,719 companies, compared to 1,625 companies at September 30, 2015. The total value of our warrant portfolio was $145 million at September 30, 2016 and $130 million at September 30, 2015. Warrants in 18 companies each had values greater than $1.0 million and collectively represented 36 percent of the fair value of the total warrant portfolio at September 30, 2016.
(2)
Represents the change in the fair value of foreign exchange forward contracts executed on behalf of clients, excluding any spread or fees earned in connection with these trades. The change in fair value of our client foreign exchange contracts is offset by the net gains (losses) on revaluation of client foreign currency denominated financial instruments, which is included within noninterest income in the line item "Other". Refer to the discussion of "Other noninterest income" related to gains (losses) on revaluation of client foreign currency instruments, net for more information.
(3)
Represents the change in the fair value of foreign exchange forward contracts used to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments, issued and held by us. The change in fair value of our internal foreign exchange contracts is offset by the net gains (losses) on revaluation of internal foreign currency denominated financial instruments, issued and held by us, which is included within noninterest income in the line item "Other". Refer to the discussion of "Other noninterest income" related to gains (losses) on revaluation of internal foreign currency instruments, net for more information.

Three months ended September 30, 2016 and 2015
Net gains on derivative instruments were $19.7 million for the three months ended September 30, 2016, compared to net gains of $10.2 million for the comparable 2015 period. Net gains on derivative instruments were primarily attributable to the following:
Net gains on equity warrant assets of $21.6 million, which consisted of:
Net gains of $16.8 million from changes in warrant valuations for the three months ended September 30, 2016, compared to $8.9 million for the comparable 2015 period, primarily reflective of a $10.3 million increase in the valuation of one public company as well as warrant valuation gains in our private company warrant portfolio, and
Net gains of $5.9 million from the exercise of equity warrant assets during the three months ended September 30, 2016, compared to net gains $2.2 million for the comparable 2015 period, primarily reflective of increased IPO and M&A activity in the portfolio.

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Net losses of $3.2 million on client foreign exchange forward contracts used to economically reduce our foreign exchange exposure to foreign currency denominated financial instruments for the three months ended September 30, 2016, compared to net gains of $0.2 million for the comparable 2015 period. The net losses of $3.2 million were offset by net gains of $3.5 million from the revaluation of client foreign currency denominated instruments that are included in the line item "Other" within noninterest income below.
Net gains of $1.4 million on internal foreign exchange forward contracts used to economically reduce our foreign exchange exposure to foreign currency denominated financial instruments for the three months ended September 30, 2016, compared to net losses of $0.2 million for the comparable 2015 period. The net gains of $1.4 million were driven by the continued strengthening of the U.S. dollar against various foreign currencies, during the third quarter of 2016 and were offset by net losses of $1.4 million from the revaluation of internal foreign currency denominated instruments that are included in the line item "Other" within noninterest income below.
Nine months ended September 30, 2016 and 2015
Net gains on derivative instruments were $26.8 million for the nine months ended September 30, 2016, compared to net gains of $66.3 million for the comparable 2015 period. The net gains of $26.8 million on derivative instruments were primarily attributable to the following:
Net gains on equity warrant assets of $33.3 million for the nine months ended September 30, 2016, compared to $54.6 million for the comparable 2015 period, which consisted of the following:
Net gains of $22.0 million from changes in warrant valuations for the nine months ended September 30, 2016, compared to $29.0 million for the comparable 2015 period, primarily reflective of a $15.0 million increase in the valuation of one public company as well as warrant valuation gains in our private company warrant portfolio, due to IPO and M&A activity in the portfolio, and
Net gains of $13.8 million from the exercise of equity warrant assets for the nine months ended September 30, 2016, compared to $26.4 million for the comparable 2015 period, reflective primarily of M&A activity.
Net losses of $8.8 million on client foreign exchange forward contracts for the nine months ended September 30, 2016, compared to net gains of $0.5 million for the comparable 2015 period. The net losses of $8.8 million were partially offset by net gains of $7.0 million from the revaluation of client foreign currency denominated financial instruments that are included in the line item "Other" within noninterest income. Also contributing to the loss is a reclassification of $2.8 million in unrealized gains on forward contracts to foreign exchange fee income (included in non-GAAP core fee income above) reflecting fees earned on forward contracts executed on behalf of our clients, which were previously recorded in the line item "Gains on derivative instruments, net."
Net gains of $3.1 million on internal foreign exchange forward contracts hedging certain of our foreign currency denominated instruments for the nine months ended September 30, 2016, compared to net gains of $11.6 million for the comparable 2015 period. The net gains recognized for the nine months ended September 30, 2016 were primarily attributable to the strengthening of the U.S. Dollar against various foreign currencies. The net gains of $3.1 million and $11.6 million were offset by net losses of $4.2 million and $11.7 million, respectively, from the revaluation of internal foreign currency denominated instruments that are included in the line item "Other" within noninterest income as noted below.

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Non-GAAP Core Fee Income
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Non-GAAP core fee income (1):
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange fees
 
$
25,944

 
$
22,995

 
12.8
%
 
$
76,998

 
$
63,037

 
22.1
%
Credit card fees
 
18,295

 
14,536

 
25.9

 
49,226

 
40,841

 
20.5

Deposit service charges
 
13,356

 
12,272

 
8.8

 
39,142

 
34,309

 
14.1

Client investment fees
 
7,952

 
5,683

 
39.9

 
23,959

 
15,429

 
55.3

Lending related fees
 
8,168

 
7,561

 
8.0

 
23,783

 
23,746

 
0.2

Letters of credit and standby letters of credit fees
 
6,811

 
5,341

 
27.5

 
18,414

 
15,315

 
20.2

Total non-GAAP core fee income (1)
 
$
80,526

 
$
68,388

 
17.7

 
$
231,522

 
$
192,677

 
20.2

 
(1)
This non-GAAP measure represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. See "Use of Non-GAAP Measures" above.

Foreign Exchange Fees
Foreign exchange fees were $25.9 million and $77.0 million for the three and nine months ended September 30, 2016, compared to $23.0 million and $63.0 million for the comparable 2015 periods. The increases in foreign exchange fees were due primarily to increased volume related to an increase in our client count and market volatility. For the nine months ended September 30, 2016, a one-time reclassification of $2.9 million in foreign exchange fee income from noninterest income gains on derivative instruments also contributed to the increase.
Credit Card Fees
Credit card fees were $18.3 million and $49.2 million for the three and nine months ended September 30, 2016, compared to $14.5 million and $40.8 million for the comparable 2015 periods. The increases reflect increased client utilization of our credit card products and custom payment solutions provided to new and existing clients. The increases were partially offset by higher rebate/rewards expense.
Deposit Service Charges
Deposit service charges were $13.4 million and $39.1 million for the three and nine months ended September 30, 2016, compared to $12.3 million and $34.3 million for the comparable 2015 periods. The increases were reflective of increases in the number of deposit clients, as well as increases in transaction volumes, during the three and nine months ended September 30, 2016.
Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees were $6.8 million and $18.4 million for the three and nine months ended September 30, 2016, compared to $5.3 million and $15.3 million for the comparable 2015 periods. The increases were primarily driven by increases in deferred fee income reflective of larger letter of credit issuances.
Client Investment Fees
Client investment fees were $8.0 million and $24.0 million for the three and nine months ended September 30, 2016, compared to $5.7 million and $15.4 million for the comparable 2015 periods. The increases were attributable primarily to our clients’ increased utilization of off-balance sheet products managed by SVB Asset Management and from money fund rate increases across our off-balance sheet client investment fund platforms during 2016.
The following table summarizes average client investment funds for the three and nine months ended September 30, 2016 and 2015:

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Three months ended September 30,
 
Nine months ended September 30,
(Dollars in millions)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Client directed investment assets (1)
 
$
6,846

 
$
8,392

 
(18.4
)%
 
$
7,137

 
$
7,752

 
(7.9
)%
Client investment assets under management (2)
 
20,692

 
20,943

 
(1.2
)
 
21,215

 
19,305

 
9.9

Sweep money market funds
 
15,567

 
12,638

 
23.2

 
14,468

 
10,765

 
34.4

Total average client investment funds (3)
 
$
43,105

 
$
41,973

 
2.7

 
$
42,820

 
$
37,822

 
13.2

 
 
(1)
Comprised of mutual funds and Repurchase Agreement Program assets.
(2)
These funds represent investments in third party money market mutual funds and fixed-income securities managed by SVB Asset Management.
(3)
Client investment funds are maintained at third party financial institutions and are not recorded on our balance sheet.
The following table summarizes period-end client investment funds at September 30, 2016 and December 31, 2015:
(Dollars in millions)
 
September 30, 2016
 
December 31, 2015
 
% Change
Client directed investment assets (1)
 
$
6,262

 
$
7,527

 
(16.8
)%
Client investment assets under management (2)
 
20,819

 
22,454

 
(7.3
)
Sweep money market funds
 
16,263

 
14,011

 
16.1

Total period-end client investment funds (3)
 
$
43,344

 
$
43,992

 
(1.5
)
 
 
(1)
Comprised of mutual funds and Repurchase Agreement Program assets.
(2)
These funds represent investments in third party money market mutual funds and fixed-income securities managed by SVB Asset Management.
(3)
Client investment funds are maintained at third party financial institutions and are not recorded on our balance sheet.

Other Noninterest Income
A summary of other noninterest income for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Fund management fees
 
$
5,231

 
$
4,074

 
28.4
%
 
$
14,149

 
$
11,657

 
21.4
 %
Service-based fee income
 
2,029

 
1,931

 
5.1

 
6,270

 
6,450

 
(2.8
)
Gains (losses) on revaluation of client foreign currency instruments, net (1)
 
3,488

 
2

 
NM

 
7,009

 
(177
)
 
NM

(Losses) gains on revaluation of internal foreign currency instruments, net (2)
 
(1,406
)
 
186

 
NM

 
(4,222
)
 
(11,667
)
 
(63.8
)
Other (3)
 
11,350

 
4,884

 
132.4

 
19,711

 
16,052

 
22.8

Total other noninterest income
 
$
20,692

 
$
11,077

 
86.8

 
$
42,917

 
$
22,315

 
92.3

 
 
NM—Not meaningful
(1)
Represents the net revaluation of client foreign currency denominated financial instruments. We enter into client foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client foreign currency denominated financial instruments. The changes in the fair value of client foreign exchange forward contracts are included within noninterest income in the line item "Gains on derivative instruments, net".
(2)
Represents the net revaluation of foreign currency denominated financial instruments issued and held by us, primarily loans, deposits and cash. We enter into internal foreign exchange forward contracts to economically reduce our foreign exchange exposure related to these foreign currency denominated financial instruments issued and held by us. The changes in the fair value of internal foreign exchange forward contracts are included within noninterest income in the line item "Gains on derivative instruments, net".
(3)
Includes dividends on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income.

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Total other noninterest income was $20.7 million and $42.9 million for the three and nine months ended September 30, 2016, compared to noninterest income of $11.1 million and $22.3 million for the comparable 2015 period. The increase of $9.6 million for the three months ended September 30, 2016 was primarily due to net gains of $3.5 million on the revaluation of client foreign currency instruments during the third quarter of 2016 compared to net gains of $2 thousand for the comparable 2015 period. The net gains of $3.5 million for the three months ended September 30, 2016 were driven by the strengthening of the U.S. dollar against various foreign currencies and were partially offset by net losses of $3.2 million in changes in the fair value of client foreign exchange forward contracts, which are included within noninterest income in the line item "Gains on derivative instruments, net" as noted above. Also contributing to the increase was $6.7 million in carried interest related to the equity method fund that drove the $7.2 million of gains previously mentioned.
The increase of $20.6 million for the nine months ended September 30, 2016 was due primarily to an increase in net gains on the revaluation of client and internal foreign currency instruments of $2.8 million for the nine months ended September 30, 2016 compared to net losses of $11.8 million for the comparable 2015 period. Net gains of $2.8 million and net losses of $11.8 million for the nine months ended September 30, 2016 and 2015, respectively, were offset by net losses of $5.7 million and net gains of $12.1 million in changes in the fair value of client and internal foreign exchange forward contracts, which are included within noninterest income in the line item "Gains on derivative instruments, net" as noted above.
Noninterest Expense
A summary of noninterest expense for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016

2015
 
% Change
 
2016
 
2015
 
% Change
Compensation and benefits
 
$
136,568

 
$
109,345

 
24.9
%
 
$
374,410

 
$
350,030

 
7.0
 %
Professional services
 
23,443

 
21,137

 
10.9

 
67,959

 
58,834

 
15.5

Premises and equipment
 
16,291

 
12,356

 
31.8

 
47,861

 
36,800

 
30.1

Business development and travel
 
8,504

 
8,028

 
5.9

 
30,077

 
28,904

 
4.1

Net occupancy
 
9,525

 
8,548

 
11.4

 
28,919

 
24,010

 
20.4

FDIC and state assessments
 
7,805

 
6,954

 
12.2

 
21,624

 
18,705

 
15.6

Correspondent bank fees
 
3,104

 
3,070

 
1.1

 
9,469

 
9,775

 
(3.1
)
Provision for unfunded credit commitments
 
1,054

 
1,047

 
0.7

 
1,601

 
249

 
NM

Other
 
15,533

 
14,270

 
8.9

 
44,292

 
42,101

 
5.2

Total noninterest expense
 
$
221,827

 
$
184,755

 
20.1

 
$
626,212

 
$
569,408

 
10.0

 
 
NM—Not meaningful
Included in noninterest expense is expense attributable to noncontrolling interests. See below for a summary of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both of which exclude noncontrolling interests.
Non-GAAP Noninterest Expense
We use and report non-GAAP noninterest expense, non-GAAP taxable equivalent revenue and non-GAAP operating efficiency ratio, which excludes noncontrolling interests. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by: (i) excluding certain items that represent expenses attributable to investors other than us and our subsidiaries, or certain items that do not occur every reporting period; or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.

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The table below provides a summary of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both net of noncontrolling interests for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands, except ratios)
 
2016

2015
 
% Change
 
2016
 
2015
 
% Change
GAAP noninterest expense
 
$
221,827

 
$
184,755

 
20.1
 %
 
$
626,212

 
$
569,408

 
10.0
 %
Less: amounts attributable to noncontrolling interests
 
117

 
116

 
0.9

 
284

 
650

 
(56.3
)
Non-GAAP noninterest expense, net of noncontrolling interests
 
$
221,710

 
$
184,639

 
20.1

 
$
625,928

 
$
568,758

 
10.1

 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net interest income
 
$
289,161

 
$
254,660

 
13.5

 
$
853,918

 
$
737,356

 
15.8

Adjustments for taxable equivalent basis
 
281

 
380

 
(26.1
)
 
912

 
1,196

 
(23.7
)
Non-GAAP taxable equivalent net interest income
 
$
289,442

 
$
255,040

 
13.5

 
$
854,830

 
$
738,552

 
15.7

Less: income attributable to noncontrolling interests
 
4

 
2

 
100.0

 
62

 
6

 
NM

Non-GAAP taxable equivalent net interest income, net of noncontrolling interests
 
$
289,438

 
$
255,038

 
13.5

 
$
854,768

 
$
738,546

 
15.7

 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP noninterest income
 
$
144,140

 
$
108,477

 
32.9

 
$
343,050

 
$
358,288

 
(4.3
)
Non-GAAP noninterest income, net of noncontrolling interests
 
139,461

 
102,134

 
36.5

 
339,423

 
329,225

 
3.1

 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP total revenue
 
$
433,301

 
$
363,137

 
19.3

 
$
1,196,968

 
$
1,095,644

 
9.2

Non-GAAP taxable equivalent revenue, net of noncontrolling interests
 
$
428,899

 
$
357,172

 
20.1

 
$
1,194,191

 
$
1,067,771

 
11.8

GAAP operating efficiency ratio
 
51.19
%
 
50.88
%
 
0.6

 
52.32
%
 
51.97
%
 
0.7

Non-GAAP operating efficiency ratio (1)
 
51.69

 
51.69

 

 
52.41
%
 
53.27
%
 
(1.6
)
 
 
 
NM—Not meaningful
(1)
The non-GAAP operating efficiency ratio is calculated by dividing non-GAAP noninterest expense, net of noncontrolling interests, by non-GAAP taxable-equivalent revenue, net of noncontrolling interests.

Compensation and Benefits Expense

The following table provides a summary of our compensation and benefits expense for the three and nine months ended September 30, 2016 and 2015:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands, except employees)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Compensation and benefits:
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and wages
 
$
62,636

 
$
55,383

 
13.1
%
 
$
182,375

 
$
158,456

 
15.1
 %
Incentive compensation & ESOP
 
38,255

 
25,449

 
50.3

 
87,162

 
93,861

 
(7.1
)
Other employee incentives and benefits (1)
 
35,677

 
28,513

 
25.1

 
104,873

 
97,713

 
7.3

Total compensation and benefits
 
$
136,568

 
$
109,345

 
24.9

 
$
374,410

 
$
350,030

 
7.0

Period-end full-time equivalent employees
 
2,280

 
2,054

 
11.0

 
2,280

 
2,054

 
11.0

Average full-time equivalent employees
 
2,255

 
2,030

 
11.1

 
2,199

 
1,981

 
11.0

 
 
(1)
Other employee incentives and benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention program plans, agency fees and other employee related expenses.
Compensation and benefits expense was $136.6 million for the three months ended September 30, 2016, compared to $109.3 million for the comparable 2015 period. The key changes in factors affecting compensation and benefits expense were as follows:

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An increase of $12.8 million in expenses related to incentive compensation plans and ESOP, reflective of our current expectations for our updated internal performance targets for 2016.
An increase of $7.3 million in salaries and wages, primarily due to an increase in the number of average full-time employees ("FTE"). Average FTEs increased by 225 to 2,255 FTEs for the three months ended September 30, 2016, compared to 2,030 FTEs for the comparable 2015 period.
An increase of $7.2 million in total other employee incentives and benefits, primarily related to increased market valuations in the underlying investments associated with our deferred compensation plan and increased warrant incentive compensation expenses attributable to large gains from two warrants.
Compensation and benefits expense was $374.4 million for the nine months ended September 30, 2016, compared to $350.0 million for the comparable 2015 period. The key changes in factors affecting compensation and benefits expense were as follows:
An increase of $23.9 million in salaries and wages, due primarily to an increase in the number of average FTEs, which increased by 218 to 2,199 average FTEs in the nine months ended September 30, 2016, compared to 1,981 average FTEs for the comparable 2015 period.
An increase of $7.2 million in total other employee incentives and benefits, primarily due to higher group health and life insurance expenses, agency fees and 401(k) expenses in the nine months ended September 30, 2016.
A decrease of $6.7 million in expenses related to incentive compensation plans and ESOP, reflective primarily of current expectations for our updated internal performance estimates for 2016.
Our variable compensation plans consist primarily of our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, 401(k) and ESOP Plan, Retention Program and Warrant Incentive Plan (see descriptions in our 2015 Form 10-K). Total costs incurred under these plans were $43.7 million and $105.9 million for the three and nine months ended September 30, 2016, compared to $29.1 million and $114.7 million for the comparable 2015 periods. These amounts are included in total compensation and benefits expense discussed above.
Professional Services
Professional services expense was $23.4 million and $68.0 million for the three and nine months ended September 30, 2016, compared to $21.1 million and $58.8 million for the comparable 2015 periods. The increases were due primarily to an increase in consulting expenses for regulatory compliance initiatives.
Premises and Equipment
Premises and equipment expense was $16.3 million and $47.9 million for the three and nine months ended September 30, 2016, compared to $12.4 million and $36.8 million for the comparable 2015 periods. The increases were due primarily to increased spending to enhance and maintain our IT infrastructure and support our overall growth.
Net Occupancy
Net occupancy expense was $9.5 million and $28.9 million for the three and nine months ended September 30, 2016, compared to $8.5 million and $24.0 million for the comparable 2015 periods. The increases were due primarily to lease renewals at higher costs, reflective of market conditions, and the expansion of certain offices, primarily our UK office, to support our growth.
FDIC and State Assessments
FDIC and state assessments expense was $7.8 million and $21.6 million for the three and nine months ended September 30, 2016, compared to $7.0 million and $18.7 million for the comparable 2015 periods. The increases were due primarily to the increase in our average assets, as well as an increase in the federal assessment rate structure in 2016.
Provision for Unfunded Credit Commitments
We recorded a provision for unfunded credit commitments of $1.1 million and $1.6 million for the three and nine months ended September 30, 2016, compared to a provision for unfunded credit commitments of $1.0 million and $0.2 million for the comparable 2015 periods. The increases in the provision were reflective primarily of the increase in our unfunded credit commitments.

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Other Noninterest Expense
A summary of other noninterest expense for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Lending and other client related processing costs
 
$
5,885

 
$
3,608

 
63.1
 %
 
$
13,721

 
$
10,861

 
26.3
 %
Telephone
 
2,460

 
2,224

 
10.6

 
7,109

 
6,727

 
5.7

Data processing services
 
2,137

 
2,083

 
2.6

 
6,353

 
5,274

 
20.5

Dues and publications
 
809

 
521

 
55.3

 
2,258

 
1,803

 
25.2

Postage and supplies
 
598

 
728

 
(17.9
)
 
2,172

 
2,220

 
(2.2
)
Other
 
3,644

 
5,106

 
(28.6
)
 
12,679

 
15,216

 
(16.7
)
Total other noninterest expense
 
$
15,533

 
$
14,270

 
8.9

 
$
44,292

 
$
42,101

 
5.2

 

Net Income Attributable to Noncontrolling Interests
Included in net income is income and expense attributable to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net income attributable to noncontrolling interests” on our statements of income.
In the table below, noninterest income consists primarily of net investment gains and losses from our consolidated funds. Noninterest expense is primarily related to management fees paid by our managed funds to SVB Financial’s subsidiaries as the funds’ general partners. A summary of net income attributable to noncontrolling interests for the three and nine months ended September 30, 2016 and 2015 is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Net interest income (1)
 
$
(4
)
 
$
(2
)
 
100.0
 %
 
$
(62
)
 
$
(6
)
 
NM

Noninterest income (1)
 
(3,721
)
 
(4,608
)
 
(19.2
)
 
(1,144
)
 
(26,043
)
 
(95.6
)
Noninterest expense (1)
 
117

 
116

 
0.9

 
284

 
650

 
(56.3
)
Carried interest allocation (2)
 
(958
)
 
(1,735
)
 
(44.8
)
 
(2,483
)
 
(3,020
)
 
(17.8
)
Net income attributable to noncontrolling interests
 
$
(4,566
)
 
$
(6,229
)
 
(26.7
)
 
$
(3,405
)
 
$
(28,419
)
 
(88.0
)
 
 
NM—Not meaningful
(1)
Represents noncontrolling interests’ share in net interest income, noninterest income and noninterest expense.
(2)
Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.

Three months ended September 30, 2016 compared to the three months ended September 30, 2015
Net income attributable to noncontrolling interests was $4.6 million for the third quarter of 2016, compared to net income of $6.2 million for the comparable 2015 period. Net income attributable to noncontrolling interests of $4.6 million for the third quarter of 2016 was primarily a result of $4.7 million of net gains on investment securities (including carried interest), of which, $4.6 million was from our managed funds of funds portfolio due to net unrealized valuation increases of investments held by the funds in the portfolio, driven by increased M&A and IPO activity. See "Results of Operations—Noninterest Income—Gains on Investment Securities, Net".
Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015
Net income attributable to noncontrolling interests was $3.4 million for the nine months ended September 30, 2016, compared to net income of $28.4 million for the comparable 2015 period. Net income attributable to noncontrolling interests of $3.4 million for the nine months ended September 30, 2016 was primarily due to $3.7 million of net gains on investment securities (including carried interest) attributable to noncontrolling interests, mainly from our managed funds of funds due to net unrealized valuation increases of investments held by the funds in the portfolio, driven by increased M&A and IPO activity.

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Income Taxes
Our effective income tax expense rate was 40.9 percent and 40.8 percent for the three and nine months ended September 30, 2016, compared to 41.1 percent and 40.6 percent for the three and nine months ended September 30, 2015. The effective tax rates for the three and nine months ended September 30, 2016 were largely consistent with the comparable 2015 periods.
Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests.
Operating Segment Results
We have three segments for which we report our financial information: Global Commercial Bank, SVB Private Bank and SVB Capital.
We report segment information based on the “management” approach, which designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 11—”Segment Reporting” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.
The following is our reportable segment information for the three and nine months ended September 30, 2016 and 2015:
Global Commercial Bank
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Net interest income
 
$
262,484

 
$
217,932

 
20.4
 %
 
$
773,342

 
$
625,611

 
23.6
%
Provision for loan losses
 
(16,974
)
 
(32,074
)
 
(47.1
)
 
(86,143
)
 
(64,126
)
 
34.3

Noninterest income
 
79,226

 
68,517

 
15.6

 
231,295

 
197,740

 
17.0

Noninterest expense
 
(159,429
)
 
(137,637
)
 
15.8

 
(461,058
)
 
(421,425
)
 
9.4

Income before income tax expense
 
$
165,307

 
$
116,738

 
41.6

 
$
457,436

 
$
337,800

 
35.4

Total average loans, net of unearned income
 
$
16,357,099

 
$
13,047,507

 
25.4

 
$
15,769,964

 
$
12,721,972

 
24.0

Total average assets
 
40,829,515

 
39,688,677

 
2.9

 
41,021,311

 
37,449,533

 
9.5

Total average deposits
 
36,484,125

 
36,151,235

 
0.9

 
37,002,027

 
34,124,748

 
8.4

 
Three months ended September 30, 2016 compared to the three months ended September 30, 2015
Income before income tax expense from our Global Commercial Bank (“GCB”) increased to $165.3 million for the three months ended September 30, 2016, compared to $116.7 million for the comparable 2015 period, which reflected the continued growth of our core commercial business and clients. The key components of GCB's performance for the three months ended September 30, 2016 compared to the comparable 2015 period are discussed below.
Net interest income from GCB increased by $44.6 million for the three months ended September 30, 2016, due primarily to a $34.8 million increase in loan interest income resulting mainly from an increase in average loan balances, partially offset by lower yields.
GCB had a provision for loan losses of $17.0 million for the three months ended September 30, 2016, compared to $32.1 million for the comparable 2015 period. The provision of $17.0 million for the three months ended September 30, 2016 was reflective primarily of $8.0 million increase in reserves for performing loans, $5.5 million in charge-offs that did not previously have a specific reserve, $3.0 million net reserves for nonaccrual loans and $2.8 million for loan growth.
The provision of $32.1 million for the three months ended September 30, 2015 was driven primarily by an increase in the reserve for nonaccrual loans and period-end loan growth.
Noninterest income increased by $10.7 million for the three months ended September 30, 2016, related primarily to an increase in our core fees (higher credit card fees, foreign exchange fees and lending related fees). The increase in credit card fees was primarily reflective of increased client utilization of our credit card products and custom payment solutions provided to new and existing clients, partially offset by higher rebate/rewards expense. The increase in foreign exchange fees was due primarily to an increase in our client count as well as volume related to increased market volatility. The increase in lending related fees was due primarily to an increase in unused commitment fees associated with an increase in unfunded credit commitments.

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Noninterest expense increased by $21.8 million for the three months ended September 30, 2016, due primarily to increased compensation and benefits and premises and equipment expenses. Compensation and benefits expenses increased as a result of higher incentive compensation expenses and increased salaries and wages expenses. The increase in incentive compensation expenses reflects updated internal performance estimates for 2016. The increase in GCB salaries and wages expenses was due primarily to an increase in the average number of FTEs at GCB, which increased by 165 to 1,775 FTEs for the three months ended September 30, 2016, compared to 1,610 FTEs for the comparable 2015 period. Premises and equipment expense increased due to increased spending to enhance and maintain our IT infrastructure.
Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015
Net interest income from our GCB increased by $147.7 million for the nine months ended September 30, 2016, due primarily to an increase in loan interest income resulting mainly from an increase in average loan balances, partially offset by lower yields.
GCB had a provision for loan losses of $86.1 million for the nine months ended September 30, 2016, compared to a provision of $64.1 million for the comparable 2015 period. The provision of $86.1 million for the nine months ended September 30, 2016 was reflective of $33.0 million in charge-offs that did not previously have a specific reserve and $23.0 million from period-end loan growth, with the remaining provision due primarily to reserves for new nonaccrual loans.
Noninterest income increased by $33.6 million for the nine months ended September 30, 2016, due primarily to an increase in all of our non-GAAP components of core fee income. This increase was due primarily to the continued growth of our client base and work with larger global companies reflective of investments in our platform, capabilities and global reach.
Noninterest expense increased by $39.6 million for the nine months ended September 30, 2016, due primarily to increased expenses for compensation and benefits, premises and equipment, and net occupancy. Compensation and benefits expenses increased as a result of higher salaries and wages expenses. The increase in our salaries and wages expenses was due primarily to an increase in the average number of FTEs at GCB, which increased by 156 to 1,733 FTEs for the nine months ended September 30, 2016, compared to 1,577 FTEs for the comparable 2015 period. The increase in premises and equipment expense was due to increased spending to enhance and maintain our IT infrastructure to support GCB's growth. Net occupancy expenses increased due primarily to lease renewals at higher costs, reflective of market conditions, and the expansion of certain offices, primarily our UK office, to support our growth.
SVB Private Bank
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Net interest income
 
$
13,298

 
$
11,667

 
14.0
%
 
$
40,508

 
$
32,499

 
24.6
 %
Provision for loan losses
 
(1,976
)
 
(1,329
)
 
48.7

 
(2,481
)
 
(2,242
)
 
10.7

Noninterest income
 
664

 
506

 
31.2

 
2,053

 
1,498

 
37.0

Noninterest expense
 
(3,122
)
 
(2,761
)
 
13.1

 
(9,481
)
 
(8,869
)
 
6.9

Income before income tax expense
 
$
8,864

 
$
8,083

 
9.7

 
$
30,599

 
$
22,886

 
33.7

Total average loans, net of unearned income
 
$
2,074,982

 
$
1,669,858

 
24.3

 
$
1,978,175

 
$
1,529,095

 
29.4

Total average assets
 
2,091,244

 
1,664,602

 
25.6

 
1,986,215

 
1,527,339

 
30.0

Total average deposits
 
1,115,446

 
1,041,773

 
7.1

 
1,120,575

 
1,125,345

 
(0.4
)
 
Three months ended September 30, 2016 compared to the three months ended September 30, 2015
Net interest income from SVB Private Bank increased by $1.6 million for the three months ended September 30, 2016, due primarily to an increase in loan interest income resulting from an increase in average loan balances.
SVB Private Bank had a provision for loan losses of $2.0 million for the three months ended September 30, 2016, compared to a provision of $1.3 million for the comparable 2015 period. The provision of $2.0 million for the three months ended September 30, 2016 was driven primarily by a $1.0 million increase in the reserves for nonaccrual loans with the remaining provision due primarily to reserves for period-end loan growth. The provision of $1.3 million for the three months ended September 30, 2015 was driven primarily by period-end loan growth.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015
Net interest income from SVB Private Bank increased by $8.0 million for the nine months ended September 30, 2016, due primarily to an increase in loan interest income resulting from an increase in average loan balances.

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SVB Private Bank had a provision for loan losses of $2.5 million for the nine months ended September 30, 2016, compared to $2.2 million for the comparable 2015 period. The provision of $2.5 million for the nine months ended September 30, 2016 was reflective of a $1.0 million increase in the reserves for nonaccrual loans with the remaining provision due primarily to reserves for period-end loan growth. The provision of $2.2 million for the nine months ended September 30, 2015 was driven primarily by period-end loan growth.

SVB Capital
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Net interest (loss) income
 
$
1

 
$
1

 

 
$
(51
)
 
$
3

 
NM

Noninterest income
 
30,619

 
17,332

 
76.7
 %
 
44,492

 
57,919

 
(23.2
)%
Noninterest expense
 
(3,924
)
 
(3,745
)
 
4.8

 
(11,521
)
 
(10,935
)
 
5.4

Income before income tax expense
 
$
26,696

 
$
13,588

 
96.5

 
$
32,920

 
$
46,987

 
(29.9
)
Total average assets
 
$
325,321

 
$
334,045

 
(2.6
)
 
$
334,328

 
$
335,136

 
(0.2
)
 
 
 
 
NM—Not meaningful
SVB Capital’s components of noninterest income primarily include net gains and losses on non-marketable and other securities, carried interest and fund management fees. All components of income before income tax expense and average assets discussed below are net of noncontrolling interests.
We experience variability in the performance of SVB Capital from quarter to quarter due to a number of factors, including changes in the values of our funds’ underlying investments, changes in the amount of distributions and general economic and market conditions. Such variability may lead to volatility in the gains and losses from investment securities and cause our results to differ from period to period.
Three months ended September 30, 2016 compared to the three months ended September 30, 2015
SVB Capital had noninterest income of $30.6 million for the three months ended September 30, 2016, compared to $17.3 million for the comparable 2015 period. The increase in noninterest income was due primarily to higher gains on investment securities compared to the comparable 2015 period. SVB Capital’s components of noninterest income primarily include the following:
Net gains on investment securities of $18.2 million for the three months ended September 30, 2016, compared to net gains of $12.2 million for the comparable 2015 period. The gains on investment securities of $18.2 million for the three months ended September 30, 2016 were comprised of gains of $7.2 million from valuation increases for one of our equity method fund investments as well as distributions from our strategic venture capital fund investments and net unrealized valuation increases from our managed funds of funds,
$6.7 million in carried interest related to the equity method fund that drove the $7.2 million of gains previously mentioned, and
Fund management fees of $5.2 million compared to $4.1 million for the comparable 2015 period. The increase was due primarily to the addition of new managed funds at SVB Capital.

Nine months ended September 30, 2016 compared to the nine months ended September 30, 2015
SVB Capital had noninterest income of $44.5 million for the nine months ended September 30, 2016, compared to $57.9 million for the comparable 2015 period. The decrease in noninterest income was due primarily to lower gains on investment securities compared to the comparable 2015 period. SVB Capital’s components of noninterest income primarily include the following:
Net gains on investment securities of $23.0 million for the nine months ended September 30, 2016, compared to net gains of $42.8 million for the comparable 2015 period. The net gains on investment securities of $23.0 million for the nine months ended September 30, 2016 were comprised of distributions from our strategic venture capital fund investments as well as gains from valuation increases for one of our equity method fund investments and net unrealized valuation increases from our managed funds of funds.

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$6.7 million in additional other noninterest income related to carried interest for one of our equity method fund investments that drove the gains mentioned above.
Fund management fees of $14.1 million compared to $11.7 million for the comparable 2015 period. The increase was due primarily to the addition of new managed funds at SVB Capital.
Consolidated Financial Condition
Our total assets, total liabilities and stockholders' equity were $43.3 billion at September 30, 2016 compared to $44.7 billion at December 31, 2015, a decrease of $1.4 billion, or 3.2 percent. Below is a summary of the individual components driving the changes in total assets, total liabilities and stockholders' equity:
Cash and Cash Equivalents
Cash and cash equivalents totaled $2.5 billion at September 30, 2016, an increase of $1.0 billion, or 67.7 percent, compared to $1.5 billion at December 31, 2015. The increase in cash at period-end resulted from proceeds from the sales and maturities of U.S. Treasury securities, offset primarily by the increase in loans as well as decreased deposits and repayment of short-term borrowings during the nine months ended September 30, 2016.
As of September 30, 2016 and December 31, 2015, $1.3 billion and $405 million, respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $724 million and $500 million, respectively.
Investment Securities
Investment securities totaled $21.1 billion at September 30, 2016, a decrease of $4.7 billion, or 18.4 percent, compared to $25.8 billion at December 31, 2015. Our investment securities portfolio consists of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest-earning investment securities; and (ii) a non-marketable and other securities portfolio, which primarily represents investments managed as part of our funds management business.
Available-for-Sale Securities
Our available-for-sale securities portfolio is primarily a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. Period-end available-for-sale securities were $12.7 billion at September 30, 2016 compared to $16.4 billion at December 31, 2015, a decrease of $3.7 billion, or 22.7 percent. During the nine months ended September 30, 2016, to support loan growth and the liquidity needs of the Bank, we sold approximately $2.9 billion of U.S. Treasury securities in our available-for-sale securities portfolio. Additionally, the portfolio decreased due to principal paydowns and maturities of $1.0 billion. The decreases were partially offset by an increase in the fair value of our available-for-sale securities portfolio of $158 million as a result of a decrease in market interest rates at period-end as compared to rates at December 31, 2015. The $158 million increase in fair value was reflected as a $93 million (net of tax) increase in accumulated other comprehensive income.
Securities classified as available-for-sale are carried at fair market value with changes in fair market value recorded as unrealized gains or losses in a separate component of stockholders' equity.
Held-to-Maturity Securities
Period-end held-to-maturity securities were $7.8 billion at September 30, 2016 compared to $8.8 billion at December 31, 2015, a decrease of $1.0 billion, or 11.4 percent. For the nine months ended September 30, 2016, the portfolio decreased due to principal paydowns and maturities of $1.2 billion, partially offset by purchases of $226 million primarily in agency-backed mortgage securities and debentures.
Securities classified as held-to-maturity are accounted for at cost with no adjustments for changes in fair value. For securities previously re-designated as held-to-maturity from available-for-sale, the net unrealized gains at the date of transfer will continue to be reported as a separate component of shareholders' equity and amortized over the life of the securities in a manner consistent with the amortization of a premium or discount.
Portfolio duration is a standard measure used to approximate changes in the market value of fixed income instruments due to a change in market interest rates. The measure is an estimate based on the level of current market interest rates, expectations for changes in the path of forward rates and the effect of forward rates on mortgage prepayment speed assumptions. As such, portfolio duration will fluctuate with changes in market interest rates. Changes in portfolio duration are also impacted by changes

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in the mix of longer versus shorter term-to-maturity securities. Our estimated fixed income securities portfolio duration was 2.3 years and 2.7 years at September 30, 2016 and December 31, 2015, respectively.
Non-Marketable and Other Securities
Our non-marketable and other securities portfolio primarily represents investments in venture capital and private equity funds, our China Joint Venture, debt funds, private and public portfolio companies and investments in qualified affordable housing projects. Included in our non-marketable and other securities carried under fair value accounting are amounts that are attributable to noncontrolling interests. We are required under GAAP to consolidate 100% of these investments that we are deemed to control, even though we may own less than 100% of such entities. See below for a summary of the carrying value (as reported) of non-marketable and other securities compared to the amounts attributable to SVBFG.
Period-end non-marketable and other securities were $625.2 million at September 30, 2016 compared to $674.9 million at December 31, 2015, a decrease of $49.7 million, or 7.4 percent. Non-marketable and other securities, net of noncontrolling interests were $503.8 million at September 30, 2016, compared to $548.6 million at December 31, 2015. For the nine months ended September 30, 2016, the net $49.7 million decrease was due primarily to sales of investments included in our qualified affordable housing projects portfolio totaling $44.8 million. The following table summarizes the carrying value (as reported) of non-marketable and other securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Carrying value (as reported)
 
Amount attributable to SVBFG
 
Carrying value (as reported)
 
Amount attributable to SVBFG
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (1)
 
$
141,841

 
$
41,236

 
$
152,237

 
$
44,485

Other venture capital investments (2)
 
2,040

 
218

 
2,040

 
218

Other securities (fair value accounting) (3)
 
579

 
126

 
548

 
124

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
84,904

 
66,387

 
85,705

 
69,314

Debt funds
 
18,971

 
18,971

 
21,970

 
21,970

Other investments (4)
 
128,422

 
128,422

 
118,532

 
118,532

Non-marketable securities (cost method accounting):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
115,113

 
115,113

 
120,676

 
120,676

Other investments
 
26,834

 
26,834

 
18,882

 
18,882

Investments in qualified affordable housing projects, net
 
106,474

 
106,474

 
154,356

 
154,356

Total non-marketable and other securities
 
$
625,178

 
$
503,781

 
$
674,946

 
$
548,557

 
(1)
The following table shows the amounts of venture capital and private equity fund investments held by the following funds and amounts attributable to SVBFG for each fund at September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Carrying value (as reported)
 
Amount attributable to SVBFG
 
Carrying value (as reported)
 
Amount attributable to SVBFG
SVB Strategic Investors Fund, LP
 
$
17,940

 
$
2,253

 
$
20,794

 
$
2,612

SVB Capital Preferred Return Fund, LP
 
57,488

 
12,390

 
60,619

 
13,064

SVB Capital—NT Growth Partners, LP
 
59,692

 
19,872

 
62,983

 
20,967

Other private equity fund
 
6,721

 
6,721

 
7,841

 
7,842

Total venture capital and private equity fund investments
 
$
141,841

 
$
41,236

 
$
152,237

 
$
44,485



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(2)
The following table shows the amounts of other venture capital investments held by the following funds and amounts attributable to SVBFG for each fund at September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Carrying value (as reported)
 
Amount attributable to SVBFG
 
Carrying value (as reported)
 
Amount attributable to SVBFG
Silicon Valley BancVentures, LP
 
$
2,040

 
$
218

 
$
2,040

 
$
218

Total other venture capital investments
 
$
2,040

 
$
218

 
$
2,040

 
$
218


(3)
Investments classified as other securities (fair value accounting) represent direct equity investments in public companies held by our consolidated funds.
(4)
The following table shows the amounts of our other investments (equity method accounting) at September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Carrying value (as reported)
 
Amount attributable to SVBFG
 
Carrying value (as reported)
 
Amount attributable to SVBFG
Other investments:
 
 
 
 
 
 
 
 
China Joint Venture investment
 
$
77,817

 
$
77,817

 
$
78,799

 
$
78,799

Other investments
 
50,605

 
50,605

 
39,733

 
39,733

Total other investments
 
$
128,422

 
$
128,422

 
$
118,532

 
$
118,532

Volcker Rule
As discussed in "Business - Supervision and Regulation" under Item 1 of Part I of our 2015 Form 10-K, the “Volcker Rule” under the Dodd-Frank Act restricts, among other things, a bank's proprietary trading activities and a bank's ability to sponsor or invest in certain privately offered funds, including certain venture capital, hedge and private equity funds. On December 10, 2013, the federal bank regulatory agencies, the SEC and the CFTC adopted final regulations implementing the Volcker Rule. The final regulations became effective on April 1, 2014, subject to a conformance timeline pursuant to which affected entities (referred to as "banking entities") are required to bring their activities and investments into conformance with the prohibitions and restrictions of the Volcker Rule and the final regulations thereunder.
Subject to certain exceptions, the Volcker Rule prohibits a banking entity from engaging in “proprietary trading,” which is defined as engaging in purchases or sales of securities or certain other financial instruments, as principal, for the “trading account” of the banking entity. Certain forms of proprietary trading may qualify as “permitted activities,” and thus not be subject to the ban on proprietary trading, such as market-making related activities, risk-mitigating hedging activities, trading in U.S. government or agency obligations, or certain other U.S. state or municipal obligations, and the obligations of Fannie Mae, Freddie Mac or Ginnie Mae. The compliance date for the proprietary trading prohibition was July 1, 2015. Based on the definition described above and the exceptions provided under the regulations implementing the Volcker Rule, we believe that compliance with the Volcker Rule's proprietary trading prohibition is unlikely to have a material effect on our business or operations.
Additionally, subject to certain exceptions, the rule prohibits a banking entity from sponsoring or investing in “covered funds,” which includes many venture capital, private equity and hedge funds. One of the available exceptions permits a banking entity to sponsor and invest in a covered fund that it organizes and offers to customers, provided that additional requirements are met. These permitted investments generally are limited to three percent of the total ownership interests in each covered fund. In addition, the aggregate investments a banking entity makes in all covered funds generally are limited to three percent of the institution’s Tier 1 capital.
Under the final regulations, the Volcker Rule’s prohibitions and restrictions apply to SVB Financial, the Bank and any affiliate of SVB Financial or the Bank. SVB Financial currently maintains investments in certain venture capital and private equity funds that it did not sponsor; maintains investments in sponsored funds that exceed three percent of each such fund’s total ownership interests; and maintains aggregate investments in all covered funds that may exceed three percent of its Tier 1 capital. SVB Financial (including its affiliates) expects, therefore, that it will be required to reduce the level of its investments in covered funds over time and to forego investment opportunities in certain funds in the future. SVB Financial is generally required by the final rules to come into conformance with the Volcker Rule’s requirements regarding covered funds by July 2017 with respect to covered funds in which SVB Financial invested or SVB Financial sponsored as of December 31, 2013. In addition, the Federal Reserve may extend the conformance deadline for up to an additional five years (until July 2022) for investments that are

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considered illiquid. We intend to seek the maximum extensions (up to July 2022) available to us. However, there is no guarantee that the Federal Reserve Board will grant any further extensions and in order to be compliant with the Volcker Rule, SVB Financial may be required to reduce some or all of its investments in covered funds by July 2017. At least some of SVB Financial's investments in covered funds likely will reduce over time in the ordinary course before compliance with the Volcker Rule is required. However, a forced sale or restructuring of SVB Financial's investments in covered funds due to the Volcker Rule would likely result in SVB Financial receiving less than the carrying value of such investments (or other adverse consequences), as there could be a limited secondary market for these investments and SVB Financial may be unable to sell them in orderly transactions.
We estimate that our total venture capital and private equity fund investments deemed to be prohibited covered fund interests and therefore subject to the Volcker Rule’s restrictions, had, as of September 30, 2016, an aggregate carrying value of approximately $204 million (and an aggregate fair value of $306 million). These covered fund interests are comprised of interests attributable, solely, to the Company in our consolidated managed funds and certain of our non-marketable securities.
We continue to assess the financial impact of these rules on our fund investments, as well as the impact of other Volcker Rule restrictions on other areas of our business. (See “Risk Factors” under Item 1A of Part I of our 2015 Form 10-K.)

Loans
Loans, net of unearned income increased by $2.4 billion to $19.1 billion at September 30, 2016, compared to $16.7 billion at December 31, 2015. Unearned income was $117 million at September 30, 2016 and $115 million at December 31, 2015. Total gross loans were $19.2 billion at September 30, 2016, an increase of $2.3 billion, compared to $16.9 billion at December 31, 2015. Period-end loans increased compared to December 31, 2015, primarily driven by the increases in our private equity/venture capital and SVB Private Bank portfolios. The breakdown of total gross loans and total loans as a percentage of total gross loans by category is as follows:
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Amount
 
Percentage 
 
Amount
 
Percentage 
Commercial loans:
 
 
 
 
 
 
 
 
Software and internet
 
$
5,432,307

 
28.3
%
 
$
5,482,110

 
32.5
%
Hardware
 
1,156,105

 
6.0

 
1,080,231

 
6.4

Private equity/venture capital
 
7,465,646

 
38.8

 
5,511,929

 
32.7

Life science/healthcare
 
1,745,410

 
9.1

 
1,724,545

 
10.2

Premium wine
 
191,591

 
1.0

 
202,808

 
1.2

Other
 
371,130

 
1.9

 
314,813

 
1.9

Total commercial loans
 
16,362,189

 
85.1

 
14,316,436

 
84.9

Real estate secured loans:
 
 
 
 
 
 
 
 
Premium wine
 
682,312

 
3.5

 
646,587

 
3.8

Consumer
 
1,834,370

 
9.5

 
1,543,340

 
9.2

Other
 
44,241

 
0.3

 
45,194

 
0.3

Total real estate secured loans
 
2,560,923

 
13.3

 
2,235,121

 
13.3

Construction loans
 
64,911

 
0.3

 
78,862

 
0.5

Consumer loans
 
240,905

 
1.3

 
226,712

 
1.3

Total gross loans
 
$
19,228,928

 
100.0

 
$
16,857,131

 
100.0


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Loan Concentration
The following table provides a summary of loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of September 30, 2016:
 
 
September 30, 2016
(Dollars in thousands)
 
Less than
Five Million
 
Five to Ten
Million
 
Ten to Twenty
Million
 
 Twenty to Thirty Million
 
Thirty Million or More
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
1,271,238

 
$
926,011

 
$
1,378,604

 
$
909,990

 
$
946,464

 
$
5,432,307

Hardware
 
249,799

 
205,960

 
247,443

 
189,443

 
263,460

 
1,156,105

Private equity/venture capital
 
627,776

 
663,399

 
1,026,388

 
1,053,087

 
4,094,996

 
7,465,646

Life science/healthcare
 
327,339

 
362,776

 
391,254

 
475,425

 
188,616

 
1,745,410

Premium wine
 
72,148

 
44,002

 
57,346

 
18,095

 

 
191,591

Other
 
105,360

 
29,066

 
75,715

 
48,555

 
112,434

 
371,130

Commercial loans
 
2,653,660

 
2,231,214

 
3,176,750

 
2,694,595

 
5,605,970

 
16,362,189

Real estate secured loans:
 
 
 
 
 
 
 
 
 
 
 
 
Premium wine
 
157,383

 
177,965

 
241,872

 
105,092

 

 
682,312

Consumer
 
1,590,449

 
194,336

 
49,585

 

 

 
1,834,370

Other
 
8,076

 

 
14,832

 
21,333

 

 
44,241

Real estate secured loans
 
1,755,908

 
372,301

 
306,289

 
126,425

 

 
2,560,923

Construction loans
 
18,573

 
18,677

 
27,661

 

 

 
64,911

Consumer loans
 
90,450

 
25,539

 
23,524

 

 
101,392

 
240,905

Total gross loans
 
$
4,518,591

 
$
2,647,731

 
$
3,534,224

 
$
2,821,020

 
$
5,707,362

 
$
19,228,928

At September 30, 2016, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $8.5 billion, or 44 percent of our portfolio. These loans represented 223 clients, and of these loans, $77.4 million were on nonaccrual status as of September 30, 2016 compared to $85.2 million as of December 31, 2015. The $7.8 million decrease in nonaccrual loans greater than $20 million to any single client was primarily attributable to the repayment of a sponsored buyout loan as a result of an acquisition, partially offset by a new nonaccrual sponsored buyout loan in our life science/healthcare loan portfolio.
The following table provides a summary of loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of December 31, 2015:
 
 
December 31, 2015
(Dollars in thousands)
 
Less than Five Million
 
Five to Ten Million
 
Ten to Twenty Million
 
 Twenty to Thirty Million
 
Thirty Million or More
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software and internet
 
$
1,365,460

 
$
974,946

 
$
1,250,192

 
$
844,092

 
$
1,047,420

 
$
5,482,110

Hardware
 
225,688

 
206,124

 
256,339

 
216,943

 
175,137

 
1,080,231

Private equity/venture capital
 
498,606

 
582,871

 
830,350

 
820,379

 
2,779,723

 
5,511,929

Life science/healthcare
 
309,877

 
426,619

 
367,879

 
410,281

 
209,889

 
1,724,545

Premium wine
 
76,372

 
29,823

 
74,319

 
22,294

 

 
202,808

Other
 
115,618

 
43,203

 
45,837

 
27,678

 
82,477

 
314,813

Commercial loans
 
2,591,621

 
2,263,586

 
2,824,916

 
2,341,667

 
4,294,646

 
14,316,436

Real estate secured loans:
 
 
 
 
 
 
 
 
 
 
 
 
Premium wine
 
156,754

 
170,155

 
237,373

 
82,305

 

 
646,587

Consumer loans
 
1,340,750

 
175,750

 
26,840

 

 

 
1,543,340

Other
 
8,261

 

 
15,000

 
21,933

 

 
45,194

Real estate secured loans
 
1,505,765

 
345,905

 
279,213

 
104,238

 

 
2,235,121

Construction loans
 
9,728

 
37,924

 
31,210

 

 

 
78,862

Consumer loans
 
87,324

 
35,748

 

 
29,140

 
74,500

 
226,712

Total gross loans
 
$
4,194,438

 
$
2,683,163

 
$
3,135,339

 
$
2,475,045

 
$
4,369,146

 
$
16,857,131


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At December 31, 2015, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $6.8 billion, or 41 percent of our portfolio. These loans represented 188 clients, and of these loans, $85.2 million were on nonaccrual status as of December 31, 2015.
The credit profile of our loan portfolio clients varies based on the nature of the lending we do for different market segments. Our three main market segments include (i) technology (software and internet, and hardware) and life science/healthcare, (ii) private equity/venture capital, and (iii) SVB Private Bank.
(i) Technology and Life Science/Healthcare
Our technology and life science/healthcare loan portfolios include loans to clients at all stages of their life cycles and represent the largest segments of our loan portfolio. The primary underwriting method for our technology and life science/healthcare portfolios are classified as investor dependent, balance sheet dependent, or cash flow dependent.

Investor dependent loans represent a relatively small percentage of our overall portfolio at 10 percent of total gross loans at September 30, 2016, compared to 12 percent at December 31, 2015. These loans are made to companies in both our early-stage and Growth stage segments. Investor dependent loans typically have modest or negative cash flows and no established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or others, or in some cases, a successful sale to a third party or an IPO. Venture capital firms may provide financing selectively, at reduced amounts, or on less favorable terms, which may have an adverse effect on our borrowers' ability to repay their loans to us. When repayment is dependent upon the next round of venture investment and there is an indication that further investment is unlikely or will not occur, it is often likely that the company would need to be sold to repay debt in full. If reasonable efforts have not yielded a likely buyer willing to repay all debt at the close of the sale or on commercially viable terms, the account will most likely be deemed to be impaired.

Balance sheet dependent loans, which includes asset-based loans, represented 13 percent of total gross loans at September 30, 2016 compared to 14 percent at December 31, 2015. Balance sheet dependent loans are structured to require constant current asset coverage (i.e. cash, cash equivalents, accounts receivable and, to a much lesser extent, inventory) in an amount that exceeds the outstanding debt. These loans are generally made to companies in our Growth and Corporate Finance practices. Our asset-based lending, which includes working capital lines and accounts receivable factoring, represented seven percent and two percent of total gross loans at September 30, 2016 and December 31, 2015, respectively. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.

Cash flow dependent loans, which include sponsored buyout lending, represent our largest source of repayment within our technology and life science/healthcare loan portfolios at approximately 20 percent of total gross loans at September 30, 2016, compared to 23 percent of total gross loans at December 31, 2015. Cash flow dependent loans require the borrower to maintain cash flow from operations that is sufficient to service all debt. Borrowers must demonstrate normalized cash flow in excess of all fixed charges associated with operating the business. Sponsored buyout loans represented 11 percent of total gross loans at September 30, 2016, compared to 13 percent of total gross loans at December 31, 2015. These loans are typically used to assist a select group of experienced private equity sponsors with the acquisition of businesses, are larger in size, and repayment is generally dependent upon the cash flows of the acquired company. The acquired companies are typically established, later-stage businesses of scale and characterized by reasonable levels of leverage and loan structures that include meaningful financial covenants. The sponsor's equity contribution is often 50 percent or more of the acquisition price.

(ii) Private Equity/Venture Capital
We also provide financial services to clients in the private equity/venture capital community. At September 30, 2016, our lending to private equity/venture capital firms and funds represented 39 percent of total gross loans, compared to 33 percent of total gross loans at December 31, 2015. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds' remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are often secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.


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(iii) SVB Private Bank
Our SVB Private Bank clients are primarily private equity/venture capital professionals and executive leaders of the innovation companies they support. Our lending to SVB Private Bank clients represented 11 percent of total gross loans at both September 30, 2016 and December 31, 2015. Many of these clients have mortgages, which represented 84 percent of this portfolio at September 30, 2016; the balance of this portfolio consisted of home equity lines of credit, restricted stock purchase loans, capital call lines of credit, and other secured and unsecured lending.

State Concentrations
Approximately 32 percent and 10 percent of our outstanding total gross loan balances as of September 30, 2016 were to borrowers based in California and New York, respectively, compared to 34 percent and 12 percent as of December 31, 2015. Other than California and New York, there are no states with gross loan balances greater than 10 percent.

See generally “Risk Factors–Credit Risks” set forth under Item 1A, Part I in our 2015 Form 10-K.
Credit Quality Indicators
As of September 30, 2016 and December 31, 2015, our total criticized loans and impaired loans represented six percent of our total gross loans. Criticized and impaired loans to early-stage clients represented 14 percent and 18 percent of our total criticized and impaired loan balances at September 30, 2016 and December 31, 2015. Loans to early-stage clients represent a relatively small percentage of our overall portfolio at six percent of total gross loans. It is common for early-stage client’s remaining liquidity to fall temporarily below the threshold for a pass-rated credit during its capital-raising period for a new round of funding. Based on our experience, for most early-stage clients, this situation typically lasts one to two quarters and generally resolves itself with a subsequent round of venture funding, though there are exceptions, from time to time. As a result, we expect that each of our early-stage clients will reside in our criticized portfolio during a portion of their life cycle.
Credit Quality and Allowance for Loan Losses
Nonperforming assets consist of loans on nonaccrual status, loans past due 90 days or more still accruing interest, and Other Real Estate Owned ("OREO") and other foreclosed assets. We measure all loans placed on nonaccrual status for impairment based on the fair value of the underlying collateral or the net present value of the expected cash flows. The table below sets forth certain data and ratios between nonperforming loans, nonperforming assets and the allowance for loan losses:

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(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Gross nonaccrual, past due, and restructured loans:
 
 
 
 
Nonaccrual loans
 
$
106,216

 
$
123,392

Loans past due 90 days or more still accruing interest
 
125

 

Total nonperforming loans
 
106,341

 
123,392

OREO and other foreclosed assets
 

 

Total nonperforming assets
 
$
106,341

 
$
123,392

Performing TDRs
 
$
14,503

 
$
10,635

Nonperforming loans as a percentage of total gross loans
 
0.55
%
 
0.73
%
Nonperforming assets as a percentage of total assets
 
0.25

 
0.28

Allowance for loan losses
 
$
240,565

 
$
217,613

As a percentage of total gross loans
 
1.25
%
 
1.29
%
As a percentage of total gross nonperforming loans
 
226.22

 
176.36

Allowance for loan losses for nonaccrual loans
 
$
44,348

 
$
51,844

As a percentage of total gross loans
 
0.23
%
 
0.31
%
As a percentage of total gross nonperforming loans
 
41.70

 
42.02

Allowance for loan losses for total gross performing loans
 
$
196,217

 
$
165,769

As a percentage of total gross loans
 
1.02
%
 
0.98
%
As a percentage of total gross performing loans
 
1.03

 
0.99

Total gross loans
 
$
19,228,928

 
$
16,857,131

Total gross performing loans
 
19,122,587

 
16,733,739

Reserve for unfunded credit commitments (1)
 
35,924

 
34,415

As a percentage of total unfunded credit commitments
 
0.22
%
 
0.22
%
Total unfunded credit commitments (2)
 
$
16,297,086

 
$
15,614,359

 
 
 
(1)
The “Reserve for unfunded credit commitments” is included as a component of other liabilities. See “Provision for Unfunded Credit Commitments” above for a discussion of the changes to the reserve.
(2)
Includes unfunded loan commitments and letters of credit.
Our allowance for loan losses as a percentage of total gross loans decreased four basis points to 1.25 percent at September 30, 2016. The decrease of four basis points was reflective primarily of the decrease in our allowance for nonaccrual loans as a percentage of total gross loans by eight basis points, to 0.23 percent, at September 30, 2016, offset by an increase in our allowance for loan losses for performing loans as a percentage of total gross loans by four basis points, to 1.02 percent, at September 30, 2016 driven by a shift in the mix of our performing loan portfolio.
Our allowance for loan losses for nonaccrual loans was $44.3 million at September 30, 2016, compared to $51.8 million at December 31, 2015. The $7.5 million decrease in the allowance for nonaccrual loans reflected a $28.7 million reserve reduction as a result of charge-offs and a $12.4 million reserve reduction due to the repayment and improved credit of two of our sponsored buyout loans. The decrease was partially offset by $35.8 million of reserves on new nonaccrual loans.
Our nonperforming loans were $106.3 million at September 30, 2016, compared to $123.4 million at December 31, 2015. Our nonperforming loan balance decreased $17.1 million as a result of $57.1 million in repayments and $31.3 million in charge-offs, partially offset by $72.4 million in new nonaccrual loans. New nonaccrual loans of $72.4 million included $22.9 million from a sponsored buyout client in our life science/healthcare loan portfolio and $23.9 million from early-stage clients in our software and internet loan portfolio.
Nonaccrual loans at September 30, 2016, included $77.4 million from three clients (two life science/healthcare clients represented $45.9 million and one software and internet client represented $31.5 million). Nonaccrual loans at December 31, 2015 included $96.0 million from five clients (three software and internet clients represented $55.1 million and two life science/healthcare clients represented $40.9 million). None of these loans were from early-stage clients.

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Average impaired loans for the three and nine months ended September 30, 2016 were $169.4 million and $165.1 million compared to $101.6 million and $68.0 million for the comparable 2015 periods. The $67.8 million increase in average impaired loans for the three months ended September 30, 2016 compared to September 30, 2015 was primarily from our hardware and life science/healthcare loan portfolios. The $97.1 million increase in average impaired loans during the nine months ended September 30, 2016, compared to September 30, 2015 was from our life science/healthcare, hardware and software and internet loan portfolios. If the impaired loans had not been impaired, $1.1 million and $3.8 million in interest income would have been recorded for the three and nine months ended September 30, 2016, compared to $1.1 million and $2.5 million for the comparable 2015 periods.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at September 30, 2016 and December 31, 2015 is as follows:
(Dollars in thousands)
 
September 30, 2016

December 31, 2015
 
% Change      
Derivative assets, gross (1)
 
$
204,485

 
$
175,083

 
16.8
 %
Foreign exchange spot contract assets, gross
 
104,524

 
142,832

 
(26.8
)
Accrued interest receivable
 
99,263

 
107,604

 
(7.8
)
FHLB and Federal Reserve Bank stock
 
57,466

 
56,991

 
0.8

Accounts receivable
 
95,049

 
48,662

 
95.3

Net deferred tax assets
 
24,676

 
73,941

 
(66.6
)
Other assets
 
97,717

 
104,594

 
(6.6
)
Total accrued interest receivable and other assets
 
$
683,180

 
$
709,707

 
(3.7
)
 
 
(1)
See “Derivatives” section below.

Foreign Exchange Spot Contract Assets
Foreign exchange spot contract assets represent unsettled client trades at the end of the period. The decrease of $38.3 million was due primarily to an overall decrease in activity at period-end.
Accounts Receivable
The increase of $46.4 million in accounts receivable was due primarily to a receivable of $25.0 million from sales of investments in our qualified affordable housing projects portfolio.
Net Deferred Tax Assets
The decrease of $49.3 million in net deferred tax assets primarily related to an increase in the fair value of our available-for-sale securities portfolio due to the decrease in market interest rates at period-end.


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Derivatives
Derivative instruments are recorded as a component of other assets and other liabilities on the balance sheet. The following table provides a summary of derivative assets and liabilities, net at September 30, 2016 and December 31, 2015:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
 
% Change 
Assets:
 
 
 
 
 
 
Equity warrant assets
 
$
145,340

 
$
137,105

 
6.0
 %
Foreign exchange forward and option contracts
 
49,062

 
31,237

 
57.1

Interest rate swaps
 
1,324

 
2,768

 
(52.2
)
Client interest rate derivatives
 
8,759

 
3,973

 
120.5

Total derivative assets
 
$
204,485

 
$
175,083

 
16.8

Liabilities:
 
 
 
 
 
 
Foreign exchange forward and option contracts
 
$
(39,514
)
 
$
(26,353
)
 
49.9

Client interest rate derivatives
 
(9,324
)
 
(4,384
)
 
112.7

Total derivative liabilities
 
$
(48,838
)
 
$
(30,737
)
 
58.9

Equity Warrant Assets
In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. At September 30, 2016, we held warrants in 1,719 companies, compared to 1,652 companies at December 31, 2015. Warrants in 18 companies each had values greater than $1.0 million and collectively represented 36 percent of the fair value of the total warrant portfolio at September 30, 2016. The change in fair value of equity warrant assets is recorded in gains on derivatives instruments, net, in noninterest income, a component of consolidated net income. The following table provides a summary of transactions and valuation changes for equity warrant assets for the three and nine months ended September 30, 2016 and 2015
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Balance, beginning of period
 
$
129,800

 
$
122,504

 
$
137,105

 
$
116,604

New equity warrant assets
 
5,251

 
3,544

 
9,857

 
8,877

Non-cash increases in fair value
 
16,788

 
8,924

 
21,989

 
29,034

Exercised equity warrant assets
 
(5,338
)
 
(4,469
)
 
(21,066
)
 
(23,606
)
Terminated equity warrant assets
 
(1,161
)
 
(412
)
 
(2,545
)
 
(818
)
Balance, end of period
 
$
145,340

 
$
130,091

 
$
145,340

 
$
130,091


Foreign Exchange Forward and Foreign Currency Option Contracts
We enter into foreign exchange forward contracts and foreign currency option contracts with clients involved in foreign activities, either as the purchaser or seller, depending upon the clients’ need. For each forward or option contract entered into with our clients, we enter into an opposite way forward or option contract with a correspondent bank, which mitigates the risk of fluctuations in currency rates. We also enter into forward contracts with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments. Net gains and losses on the revaluation of foreign currency denominated instruments are recorded in the line item “Other” as part of noninterest income, a component of consolidated net income. We have not experienced nonperformance by any of our counterparties and therefore have not incurred any related losses. Further, we anticipate performance by all counterparties. Our net exposure for foreign exchange forward and foreign currency option contracts at September 30, 2016 was $7.1 million and our net exposure at December 31, 2015 was $3.0 million. For additional information on our foreign exchange forward contracts and foreign currency option contracts, see Note 9- “Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item I in this report.

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Deposits
Deposits were $38.2 billion at September 30, 2016, a decrease of $0.9 billion, or 2.4 percent, compared to $39.1 billion at December 31, 2015. The decrease in deposits was due primarily to increased utilization of higher yielding off-balance sheet client investment funds by our early-stage clients.
At September 30, 2016, the aggregate balance of time deposit accounts individually equal to or greater than $250,000 totaled $38.1 million, compared to $53.9 million at December 31, 2015. At September 30, 2016, $38.1 million of the time deposit accounts individually equal to or greater than $250,000 were scheduled to mature within one year. No material portion of our deposits has been obtained from a single depositor and the loss of any one depositor would not materially affect our business.
Short-Term Borrowings
We had $2.4 million in short-term borrowings at September 30, 2016, compared to $774.9 million at December 31, 2015. The decrease was due to the repayment of short-term borrowings utilized and outstanding at December 31, 2015.
Long-Term Debt
Our long-term debt was $796.0 million at September 30, 2016 and $796.7 million at December 31, 2015.
As of September 30, 2016, long-term debt included our 3.50% Senior Notes, 5.375% Senior Notes, 6.05% Subordinated Notes and 7.0% Junior Subordinated Debentures. For more information on our long-term debt, see Note 8–“Short-term Borrowings and Long-Term Debt” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item I in this report.
Other Liabilities
A summary of other liabilities at September 30, 2016 and December 31, 2015 is as follows:
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
 
% Change  
Foreign exchange spot contract liabilities, gross
 
$
118,194

 
$
154,699

 
(23.6
)%
Accrued compensation
 
102,394

 
151,134

 
(32.2
)
Reserve for unfunded credit commitments
 
35,924

 
34,415

 
4.4

Derivative liabilities, gross (1)
 
48,838

 
30,737

 
58.9

Other
 
257,562

 
268,109

 
(3.9
)
Total other liabilities
 
$
562,912

 
$
639,094

 
(11.9
)
 
 
(1)
See “Derivatives” section above.
Foreign Exchange Spot Contract Liabilities
Foreign exchange spot contract liabilities represent unsettled client trades at the end of the period. The decrease of $36.5 million was due primarily to decreased client trade activity at period-end.
Accrued Compensation
Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, ESOP/profit sharing and other compensation arrangements. The decrease of $48.7 million was primarily the result of 2015 incentive compensation payouts during the first quarter of 2016 as well as lower accruals for the nine months ended September 30, 2016 based on current expectations for our updated internal performance estimates for 2016.
Noncontrolling Interests
Noncontrolling interests totaled $130.3 million and $135.1 million at September 30, 2016 and December 31, 2015, respectively. The $4.8 million decrease was due primarily to net distributions of $8.2 million to limited partners from various managed funds of funds, partially offset by income attributable to noncontrolling interests of $3.4 million for the nine months ended September 30, 2016.
Fair Value Measurements

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The following table summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015. 
 
 
September 30, 2016
 
December 31, 2015
(Dollars in thousands)
 
Total Balance  
 
Level 3     
 
Total Balance  
 
Level 3     
Assets carried at fair value
 
$
13,014,642

 
$
145,260

 
$
16,710,656

 
$
137,208

As a percentage of total assets
 
30.1
%
 
0.3
%
 
37.4
%
 
0.3
%
Liabilities carried at fair value
 
$
48,838

 
$

 
$
30,737

 
$

As a percentage of total liabilities
 
0.1
%
 
%
 
0.1
%
 
%
As a percentage of assets carried at fair value
 
 
 
1.1
%
 
 
 
0.8
%
Financial assets valued using Level 3 measurements consist of our non-marketable investment securities in shares of private company stock and equity warrant assets (rights to shares of private and public company capital stock). The valuation methodologies of our non-marketable securities carried under fair value accounting and equity warrant assets involve a significant degree of management judgment. Refer to Note 14—“Fair Value of Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for a summary of the valuation techniques and significant inputs used for each class of Level 3 assets.
The inherent uncertainty in the process of valuing securities for which a ready market does not exist may cause our estimated values of these securities to differ significantly from the values that would have been derived had a ready market for the securities existed, and those differences could be material. The timing and amount of changes in fair value, if any, of these financial instruments depend upon factors beyond our control, including the performance of the underlying companies, fluctuations in the market prices of the preferred or common stock of the underlying companies, general volatility and interest rate market factors, and legal and contractual restrictions. The timing and amount of actual net proceeds, if any, from the disposition of these financial instruments depend upon factors beyond our control, including investor demand for IPOs, levels of M&A activity, legal and contractual restrictions on our ability to sell, and the perceived and actual performance of portfolio companies. All of these factors are difficult to predict and there can be no assurances that we will realize the full value of these securities, which could result in significant losses (See “Risk Factors” set forth in our 2015 Form 10-K).
During the three and nine months ended September 30, 2016, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $21.1 million and $33.1 million, primarily due to valuation increases from our public and private company warrant portfolios and net gains realized on exercised warrant assets due to IPO and M&A activity. During the three and nine months ended September 30, 2015, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $11.6 million and $55.0 million.
Capital Resources
We maintain an adequate capital base to support anticipated asset growth, operating needs and credit and other business risks, and to provide for SVB Financial and the Bank to be in compliance with all regulatory capital guidelines. Our primary sources of new capital include retained earnings and proceeds from the sale and issuance of our capital stock or other securities. In consultation with the Finance Committee of our Board of Directors, management engages in regular capital planning processes designed to effectively utilize capital resources available to us and to appropriately plan for our future capital needs. The capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments. In addition, we conduct capital stress tests as part of our annual capital planning process. The stress tests allow us to assess the impact of adverse changes in the economy and interest rates on our capital adequacy position.
SVBFG Stockholders’ Equity
SVBFG stockholders’ equity totaled $3.6 billion at September 30, 2016, an increase of $0.4 billion, or 12.3 percent, compared to $3.2 billion at December 31, 2015. This increase was due primarily to net income of $283 million for the nine months ended September 30, 2016, an increase in the net balance of our accumulated other comprehensive income to $97 million from $15 million at December 31, 2015, and an increase in additional paid-in capital of $31 million attributable primarily to amortization of share-based compensation. The increase in our accumulated other comprehensive income was driven primarily by a $158 million increase in the fair value of our AFS securities portfolio ($93 million net of tax), which resulted from a decrease in period-end market interest rates at September 30, 2016, as compared to market interest rates at December 31, 2015.

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Funds generated through retained earnings are a significant source of capital and liquidity and are expected to continue to be so in the future.
Capital Ratios
Both SVB Financial and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies.
Regulatory capital ratios for SVB Financial and the Bank exceeded minimum federal regulatory guidelines for a well-capitalized depository institution as of September 30, 2016 and December 31, 2015. Capital ratios for SVB Financial and the Bank, compared to the minimum regulatory ratios applicable to bank holding companies and banks to be considered “well capitalized” and “adequately capitalized”, are set forth below:
 
 
 
 
 
 
Minimum Ratios under Applicable Regulatory Capital Adequacy Requirements
 
 
September 30,
2016
 
December 31, 2015
 
"Well Capitalized”
 
“Adequately Capitalized” 
SVB Financial:
 
 
 
 
 
 
 
 
CET 1 risk-based capital ratio
 
12.75
%
 
12.28
%
 
6.5
%
 
4.5
%
Tier 1 risk-based capital ratio
 
13.21

 
12.83

 
8.0

 
6.0

Total risk-based capital ratio
 
14.22

 
13.84

 
10.0

 
8.0

Tier 1 leverage ratio
 
8.35

 
7.63

 
N/A  

 
4.0

Tangible common equity to tangible assets ratio (1)
 
8.30

 
7.16

 
N/A  

 
N/A  

Tangible common equity to risk-weighted assets ratio (1)
 
13.11

 
12.34

 
N/A  

 
N/A  

Bank:
 
 
 
 
 
 
 
 
CET 1 risk-based capital ratio
 
12.77
%
 
12.52
%
 
6.5
%
 
4.5
%
Tier 1 risk-based capital ratio
 
12.77

 
12.52

 
8.0

 
6.0

Total risk-based capital ratio
 
13.83

 
13.60

 
10.0

 
8.0

Tier 1 leverage ratio
 
7.74

 
7.09

 
5.0

 
4.0

Tangible common equity to tangible assets ratio (1)
 
7.98

 
6.95

 
N/A  

 
N/A  

Tangible common equity to risk-weighted assets ratio (1)
 
13.14

 
12.59

 
N/A  

 
N/A  

 
 
 
(1)
See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.

Both SVB Financial’s and the Bank's risk-based capital ratios (CET 1, tier 1 and total risk-based capital) increased as of September 30, 2016, compared to the same ratios as of December 31, 2015. The increases were a result of the proportionally higher increase in our capital compared to the increases in risk-weighted assets during the nine months ended September 30, 2016. Increased capital was reflective primarily of year-to-date earnings. The growth in period-end risk-weighted assets was primarily from loan growth, partially offset by a decrease in fixed income securities. SVB Financial's and the Bank's tier 1 leverage ratios increased 72 basis points and 65 basis points, respectively, as of September 30, 2016, compared to December 31, 2015. The higher tier 1 leverage ratios were reflective of the increase in tier 1 capital from net income and the decrease in average assets resulting from the decrease in both cash and fixed income investment securities, partially offset by loan growth. All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations.
The tangible common equity to tangible assets ratio and the tangible common equity to risk-weighted assets ratios are not required by GAAP or applicable bank regulatory requirements. However, we believe these ratios provide meaningful supplemental information regarding our capital levels. Our management uses, and believes that investors benefit from referring to, these ratios in evaluating the adequacy of the Company’s capital levels; however, these financial measures should be considered in addition to, not as a substitute for or preferable to, comparable financial measures prepared in accordance with GAAP. These ratios are calculated by dividing total SVBFG stockholders' equity, by total period-end assets and risk-weighted assets, after reducing both amounts by acquired intangibles, if any. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies.

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The following table provides a reconciliation of non-GAAP financial measures with financial measures defined by GAAP for SVB Financial and the Bank for the periods ended September 30, 2016 and December 31, 2015:
 
 
SVB Financial
 
Bank
Non-GAAP tangible common equity and tangible assets (dollars in thousands, except ratios)
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
GAAP SVBFG stockholders’ equity
 
$
3,593,051

 
$
3,198,134

 
$
3,405,028

 
$
3,059,045

Tangible common equity
 
$
3,593,051

 
$
3,198,134

 
$
3,405,028

 
$
3,059,045

GAAP Total assets
 
$
43,274,037

 
$
44,686,703

 
$
42,651,702

 
$
44,045,967

Tangible assets
 
$
43,274,037

 
$
44,686,703

 
$
42,651,702

 
$
44,045,967

Risk-weighted assets
 
$
27,407,756

 
$
25,919,594

 
$
25,909,301

 
$
24,301,043

Tangible common equity to tangible assets
 
8.30
%
 
7.16
%
 
7.98
%
 
6.95
%
Tangible common equity to risk-weighted assets
 
13.11

 
12.34

 
13.14

 
12.59

Both the tangible common equity to tangible assets ratio and tangible common equity to risk-weighted assets ratio increased for SVB Financial and the Bank. The increases are a result of the proportionally higher increase in our capital compared to the changes in total and risk-weighted assets during the nine months ended September 30, 2016. Increased capital is reflective primarily of 2016 year-to-date earnings. Total assets decreased as a result of the sale of $2.9 billion of U.S. Treasury securities, partially offset by loan growth during the nine months ended September 30, 2016. The growth in period-end risk-weighted assets was primarily from loan growth, partially offset by a decrease in fixed income securities. See "SVBFG Stockholders’ Equity" above for further details on changes to the individual components of our equity balance.
Off-Balance Sheet Arrangements
In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve, to varying degrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract. For details of our commitments to extend credit, and commercial and standby letters of credit, please refer to Note 12—“Off-Balance Sheet Arrangements, Guarantees, and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Commitments to Invest in Venture Capital and Private Equity Funds
Subject to applicable regulatory requirements, including the Volcker Rule, we make investments. We make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over 5 to 7 years; however in certain cases, the funds may not call 100% of committed capital over the life of the fund. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate.
For further details on our commitments to invest in venture capital and private equity funds, refer to Note 12—“Off-Balance Sheet Arrangements, Guarantees, and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Liquidity
The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations, including, as necessary, paying creditors, meeting depositors’ needs, accommodating loan demand and growth, funding investments, repurchasing securities and other operating or capital needs, without incurring undue cost or risk, or causing a disruption to normal operating conditions.
We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Our Asset/Liability Committee (“ALCO”), which is a management committee, provides oversight to the liquidity management process and recommends policy guidelines for the approval of the Finance Committee of our Board of Directors, and courses of action to address our actual and projected liquidity needs. Additionally, we routinely conduct liquidity stress testing as part of our liquidity management practices.

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Our deposit base is, and historically has been, our primary source of liquidity. Our deposit levels and cost of deposits may fluctuate from time to time due to a variety of factors, including market conditions, prevailing interest rates, changes in client deposit behaviors, availability of insurance protection, and our offering of deposit products. We may also offer more investment alternatives off the balance sheet which may impact deposit levels. At September 30, 2016, our period-end total deposit balances were $38.2 billion, compared to $39.1 billion at December 31, 2015.
Our liquidity requirements can also be met through the use of our portfolio of liquid assets. Our definition of liquid assets includes cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, short-term investment securities maturing within one year, available-for-sale securities eligible and available for financing or pledging purposes with a maturity in excess of one year and anticipated near-term cash flows from investments.
On a stand-alone basis, SVB Financial’s primary liquidity channels include dividends from the Bank, its portfolio of liquid assets, cash proceeds from the sale of equity warrants and fund investments and its ability to raise debt and capital. The ability of the Bank to pay dividends is subject to certain regulations described in “Business—Supervision and Regulation—Restriction on Dividends” under Part I, Item 1 of our 2015 Form 10-K.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for the nine months ended September 30, 2016 and 2015. For further details, see our "Interim Consolidated Statements of Cash Flows (Unaudited)" under Part I, Item 1 of this report.
 
 
Nine months ended September 30,
(Dollars in thousands)
 
2016
 
2015
Average cash and cash equivalents
 
$
2,437,763

 
$
2,388,660

Percentage of total average assets
 
5.6
%
 
6.0
%
Net cash provided by operating activities
 
$
273,004

 
$
254,207

Net cash provided by (used for) investing activities
 
2,472,444

 
(3,372,109
)
Net cash (used for) provided by financing activities
 
(1,727,386
)
 
2,981,033

Net increase (decrease) in cash and cash equivalents
 
$
1,018,062

 
$
(136,869
)
Average cash and cash equivalents increased by $49 million, or 2.1 percent, to $2.4 billion for the nine months ended September 30, 2016, compared to $2.4 billion for the comparable 2015 period.
Cash provided by operating activities was $273.0 million for the nine months ended September 30, 2016, reflective primarily of net income before noncontrolling interests of $286.6 million, partially offset by a $48.7 million reduction of compensation accruals during the nine months ended September 30, 2016, primarily from the incentive compensation payouts during the first quarter of 2016, offset by incentive compensation accruals for 2016.
Cash provided by investing activities of $2.5 billion for the nine months ended September 30, 2016 was driven by $2.9 billion in proceeds from the sale of U.S. Treasury securities and $2.2 billion from maturities and principal paydowns from our fixed income securities investment portfolio, partially offset by $2.4 billion in loan growth.
Cash used for financing activities was $1.7 billion for the nine months ended September 30, 2016, primarily reflective of a net decrease of $1.0 billion in deposits and $0.8 billion of payments on our overnight short-term borrowings.
Cash and cash equivalents were $2.5 billion and $1.7 billion, respectively, at September 30, 2016 and September 30, 2015.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk Management
Market risk is defined as the risk of adverse fluctuations in the market value of financial instruments due to changes in market interest rates. Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of the benchmark LIBOR/SWAP yield curve. Additionally, changes in interest rates can influence the rate of principal prepayments on mortgage securities which affects the rate of amortization of purchase premiums and discounts. Other market risks include foreign currency exchange risk and equity price risk. These risks are not considered significant compared to interest rate sensitivity risks and no separate quantitative information concerning them is presented herein.
Interest rate risk is managed by our ALCO. ALCO reviews the market valuation and 12-month forward looking earnings sensitivity of assets and liabilities to changes in interest rates, structural changes in investment and funding portfolios, loan and deposit activity and current market conditions. Adherence to relevant policies, which are approved by the Finance Committee of our Board of Directors, is monitored on an ongoing basis.
Management of interest rate risk is carried out primarily through strategies involving our fixed income securities portfolio, available funding channels and capital market activities. In addition, our policies permit the use of off-balance sheet derivative instruments to assist in managing interest rate risk.
We utilize a simulation model to perform sensitivity analysis on the economic value of equity and net interest income under a variety of interest rate scenarios, balance sheet forecasts and proposed strategies. The simulation model provides a dynamic assessment of interest rate sensitivity embedded in our balance sheet which measures the potential variability in forecasted results relating to changes in market interest rates over time. We review our interest rate risk position on a quarterly basis at a minimum.    
Model Simulation and Sensitivity Analysis
One application of the aforementioned simulation model involves measurement of the impact of changes in market interest rates on our economic value of equity (“EVE”). EVE is defined as the market value of assets, less the market value of liabilities, adjusted for any off-balance sheet items. A second application of the simulation model measures the impact of changes in market interest rates on our net interest income (“NII”) assuming a static balance sheet as of the period-end reporting date. Changes in market interest rates that affect us are principally short-term interest rates and include the following: (i) National Prime and SVB Prime rates; (ii) 1-month and 3-month LIBOR; and (iii) Federal Funds target rate. Changes in these short-term rates impact interest earned on our variable rate loans, variable rate investment securities and balances held as cash and cash equivalents. Additionally, deposit pricing generally follows overall changes in short-term interest rates.
For the period ended September 30, 2016, an assumption change was applied to the EVE simulation model for the discount spreads applied to our loan balances. Prior to this change, discount spread assumptions were derived utilizing the historical data of new loans that had originated in the previous month. The new methodology derives loan discount spread assumptions utilizing a historical rolling six-month average of new loan originations. The assumption change produced a lower overall discount spread on our loan balances at September 30, 2016, ultimately resulting in a higher base case EVE of $303 million and a lower base case estimated NII of $4 million, as compared to the respective base cases as derived under the old methodology. We believe the new methodology produces a discount spread assumption that is more stable from period to period and better represents the overall market for our loan balances.
This assumption change did not have a significant impact on NII sensitivity results, nor did it substantially change the EVE sensitivity profile. The impact of this modeling change was primarily to the overall level of EVE.

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The following table presents our EVE and NII sensitivity exposure related to an instantaneous and sustained parallel shift in market interest rates of 100 and 200 basis points at September 30, 2016, presented under both the new and old methodologies for comparative purposes, and at December, 31, 2015, as previously reported:
Change in interest rates (basis points)
(Dollars in thousands)
 
Estimated
 
Estimated Increase/(Decrease) In EVE
 
Estimated
 
Estimated Increase/
(Decrease) In NII
 
EVE
 
Amount
 
Percent
 
NII
 
Amount
 
Percent
September 30, 2016: (New Assumptions)
 
 
 
 
 
 
 
 
 
 
 
 
200
 
$
6,013,687

 
$
1,782,164

 
42.1
%
 
$
1,548,731

 
$
367,393

 
31.1
 %
100
 
4,934,132

 
702,609

 
16.6

 
1,364,926

 
183,588

 
15.5

 
4,231,523

 

 

 
1,181,338

 

 

-100
 
4,829,973

 
598,450

 
14.1

 
1,117,248

 
(64,090
)
 
(5.4
)
-200
 
4,826,240

 
594,717

 
14.1

 
1,102,758

 
(78,580
)
 
(6.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016: (Old Assumptions)
 
 
 
 
 
 
 
 
 
 
 
 
200
 
$
5,721,750

 
$
1,792,829

 
45.6
%
 
$
1,552,804

 
$
367,414

 
31.0
 %
100
 
4,635,267

 
706,346

 
18.0

 
1,368,988

 
183,598

 
15.5

 
3,928,921

 

 

 
1,185,390

 

 

-100
 
4,512,935

 
584,014

 
14.9

 
1,121,284

 
(64,106
)
 
(5.4
)
-200
 
4,506,188

 
577,267

 
14.7

 
1,106,768

 
(78,622
)
 
(6.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
200
 
$
6,007,061

 
$
1,783,649

 
42.2
%
 
$
1,454,889

 
$
268,242

 
22.6
 %
100
 
5,166,410

 
942,998

 
22.3

 
1,318,584

 
131,937

 
11.1

 
4,223,412

 

 

 
1,186,647

 

 

-100
 
4,350,421

 
127,009

 
3.0

 
1,127,223

 
(59,424
)
 
(5.0
)
-200
 
4,548,417

 
325,005

 
7.7

 
1,095,854

 
(90,793
)
 
(7.7
)
Economic Value of Equity
The estimated EVE in the preceding table is based on a combination of valuation methodologies including a discounted cash flow analysis and a multi-path lattice based valuation. Both methodologies use publicly available market interest rates. The model simulations and calculations are highly assumption-dependent and will change regularly as our asset/liability structure changes, as interest rate environments evolve, and as we change our assumptions in response to relevant market or business circumstances. These calculations do not reflect the changes that we anticipate or may make to reduce our EVE exposure in response to a change in market interest rates as a part of our overall interest rate risk management strategy.
As with any method of measuring interest rate risk, certain limitations are inherent in the method of analysis presented in the preceding table. We are exposed to yield curve risk, prepayment risk and basis risk, which cannot be fully modeled and expressed using the above methodology. Accordingly, the results in the preceding table should not be relied upon as a precise indicator of actual results in the event of changing market interest rates. Additionally, the resulting EVE and NII estimates are not intended to represent, and should not be construed to represent the underlying value. In addition, we assume different deposit balance decay rates for each interest rate scenario based on a historical deposit study of our clients.
Our base case EVE as of September 30, 2016 increased from December 31, 2015 by $8 million as a result of balance sheet mix changes, as well as yield curve changes. At September 30, 2016, as compared to December 31, 2015, total loan balances increased $2.4 billion, while total investment securities decreased $4.7 billion, primarily due to sales of AFS securities and fixed income portfolio maturities. Additionally, total deposit decreases of $953 million were offset by cash and cash equivalent balance increases of $1.0 billion.
Marginally higher LIBOR rates in the 3- to 12-month term points continue to drive a relatively flat yield curve compared to December 31, 2015. Higher rates contributed to a $240 million decrease in EVE sensitivity in the +100 bps rate shock scenario while higher rates in the -100 and -200 bps rate shock scenarios contributed to increases of $471 million and $270 million, respectively. Changes in all three of these scenarios are can be attributed to the increase in the yield curve described above, which causes the discount curves for loans and deposits to hit fewer floors as compared to the curve as of December 31, 2015.

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This allows more of the impact from a downward rate shock to flow through the valuation. The balance sheet changes described previously were not a significant factor in the change in sensitivity relative to December 31, 2015 results.
12-Month Net Interest Income Simulation
Our estimated 12-month base case NII forecast at September 30, 2016 decreased from December 31, 2015 by $5 million, primarily due to the change in balance sheet composition as noted above. Higher-yielding investment portfolio instruments are being replaced by lower-yielding floating rate loans, however, the decrease in asset yield is being mitigated to some extent by a decrease in interest expense due to balance sheet runoff in interest bearing deposits.
NII sensitivity at September 30, 2016 in the +100 and +200 bps interest rate shock scenarios increased $52 million and $99 million, respectively, as compared to December 31, 2015. These changes are due primarily to the changing composition of the balance sheet as noted above. Specifically, an increase in floating rate loans coupled with lower interest bearing deposit balances causes NII to increase in a rising rate environment.
The simulation model used in the above analysis embeds floors in our interest rate scenarios, which prevent model benchmark rates from moving below 0.0%. In addition, we assume different deposit balance decay rates for each interest rate scenario based on a historical deposit study of our clients. These assumptions may change in future periods based on management discretion. Actual changes in our deposit pricing strategies may differ from our current model assumptions and may have an impact on our overall sensitivity.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, among other things, processes, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of our most recently completed fiscal quarter, pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II–OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to Note 15–“Legal Matters” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
ITEM 1A. RISK FACTORS
There are no material changes from the risk factors set forth in our 2015 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See Index to Exhibits at end of report.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
  
SVB Financial Group
 
 
Date: November 8, 2016
  
/s/ MICHAEL DESCHENEAUX
 
  
Michael Descheneaux
 
  
Chief Financial Officer
 
  
(Principal Financial Officer)
 
 
 
  
SVB Financial Group
 
 
Date: November 8, 2016
  
/s/ KAMRAN HUSAIN
 
  
Kamran Husain
 
  
Chief Accounting Officer
 
  
(Principal Accounting Officer)

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INDEX TO EXHIBITS
 
Exhibit
Number    
 
Exhibit Description
 
Incorporated by Reference
 
 Filed
 Herewith  
Form
 
File No.
 
Exhibit  
 
Filing Date
 
31.1
 
Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer
 
 
 
 
 
 
 
 
 
X
31.2
 
Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer
 
 
 
 
 
 
 
 
 
X
32.1
 
Section 1350 Certifications
 
 
 
 
 
 
 
 
 
X
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
 
 
 
X
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
X




100