SVB FINANCIAL GROUP - Annual Report: 2019 (Form 10-K)

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•	Financial projections, including with respect to 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 and 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, loan growth and client funds; and

•	Descriptions of assumptions underlying or relating to any of the foregoing.

•	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 as well as 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 as well as 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 and demand for our investment banking and other services;

•	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;

•	Our ability to maintain or increase our market share through successfully implementing our business strategy and undertaking new business initiatives, including through the integration of SVB Leerink;

•	The impact of governmental policy, legal requirements and regulations including regulations promulgated by the Board of Governors of the Federal Reserve System (the "Federal Reserve"), and other regulatory requirements;

•	The impact of lawsuits and claims, as well as legal or regulatory proceedings;

•	The impact of 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; and

•	Other factors as discussed in “Risk Factors” under Part I, Item 1A of this report.

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ITEM 1.	BUSINESS

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Our SVB Accelerator practice focuses on serving our “emerging” or “early-stage” clients. These clients are generally privately-held companies in the start-up or early stages of their life cycles and funded by friends and family, “seed” or “angel” investors or have gone through an initial round of venture capital financing. They are typically engaged primarily in research and development activities and may have brought only a few products or services to market, if any. SVB Accelerator clients tend to have annual revenues below $5 million, and many are pre-revenue companies.

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Our SVB Growth practice serves our “mid-stage” and “late-stage” clients. These clients are generally privately-held companies in the intermediate or later stages of their life cycles, and are often dependent on venture capital for funding. However, some of these clients are in the more advanced stages of their life cycles and may be publicly-held or poised to become publicly-held. Our SVB Growth clients generally have a more established product or service offering in the market and may be in a period of expansion. SVB Growth clients tend to have annual revenues between $5 million and $75 million.

•	Our SVB Corporate Finance practice primarily serves our large corporate clients, which are more mature and established companies. These clients are generally publicly-held or large privately-held companies and have a more sophisticated product or service offering in the market. SVB Corporate Finance clients tend to have annual revenues over $75 million.

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•	Risk Management. Bank holding companies with $50 billion or more in total consolidated assets, including SVB Financial, are subject to risk committee and risk management requirements. In addition, bank holding companies with $100 billion or more in total consolidated assets are subject to liquidity risk management, liquidity buffer and liquidity stress testing requirements.

•	Comprehensive Capital Analysis and Review (“CCAR”). Bank holding companies with $100 billion or more in total consolidated assets are required to submit an annual capital plan to the Federal Reserve. For firms subject to CCAR, failure to submit a satisfactory plan can result in restrictions on capital distributions, including dividends and common stock repurchases.

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Stress Testing. Bank holding companies with $100 billion or more in total consolidated assets are subject to supervisory stress tests conducted by the Federal Reserve and, except for Category IV firms, are also subject to company-run stress testing requirements (commonly referred to as Dodd-Frank Stress Tests or “DFAST”). Under the Tailoring Rules, bank holding companies with less than $100 billion in total consolidated assets are not subject to company-run or supervisory stress testing requirements.

•	Resolution Planning. Except for Category IV firms, bank holding companies with $100 billion or more in total consolidated

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•	Liquidity Coverage Ratio. Banking organizations in Categories I-III and, in certain cases, Category IV are subject to the liquidity coverage ratio (“LCR”) requirements and must maintain high-quality liquid assets in accordance with specific quantitative requirements.

(1)	Percentages represent the minimum capital ratios plus, as applicable, the 2.5% CET1 capital conservation buffer under the Capital Rules.

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ITEM 1A.	RISK FACTORS

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•	changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts;

•	general market conditions and, in particular, developments related to market conditions for the financial services industry;

•	actual or anticipated changes in interest rates;

•	market perceptions about the innovation economy, including levels of funding or “exit” activities of companies in the industries we serve;

ITEM 1B.	UNRESOLVED STAFF COMMENTS

ITEM 2.	PROPERTIES

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ITEM 3.	LEGAL PROCEEDINGS

ITEM 4.	MINE SAFETY DISCLOSURES

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ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(1)

On October 24, 2019, the Company announced that its Board of Directors had authorized a $350 million common stock repurchase program pursuant to which the Company may, from time to time and on or before the program’s expiration date, repurchase shares of its outstanding common stock in the open market, in privately-negotiated transactions, or otherwise, subject to applicable laws and regulations. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by the Company. The Company may, in its discretion, begin, suspend or terminate repurchases at any time prior to the program’s expiration, without any prior notice. Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The new stock repurchase program expires on October 29, 2020.

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ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA

(1)	See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources-Capital Ratios” under Part II, Item 7 of this report for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

++	Consists of non-GAAP core fee income plus investment banking revenue and commissions. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under “Results of Operations—Noninterest Income”).

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(1)	See “Results of Operations–Noninterest Income” for a description and reconciliation of non-GAAP core fee income and non-GAAP core fee income plus investment banking revenue and commissions.

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(2)	See “Results of Operations–Noninterest Expense” for a description and reconciliation of non-GAAP noninterest expense and non-GAAP core operating efficiency ratio.

(3)	Ratio represents consolidated net income available to common stockholders divided by average assets.

(4)	Ratio represents consolidated net income available to common stockholders divided by average SVBFG common 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 net interest income plus noninterest income.

(7)	Ratio represents total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits.

(8)	Book value per common share is calculated by dividing total SVBFG common stockholders’ equity by total outstanding common shares at period-end.

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A reasonable and supportable forecast period of three years for all portfolio segments and classes of financing receivables and unfunded credit exposures leveraging the weighted-average of a range of macroeconomic scenarios. This period reflects management’s expectation of losses based on forward-looking economic scenarios over that time and closely aligns with other internal forecast periods. After the forecast period, our estimate of credit losses will revert to historical averages gradually over the remaining contractual lives, adjusted for prepayments. The macroeconomic scenarios are reviewed on a quarterly basis.

•	We will utilize a discounted cash flow ("DCF") approach to measure credit impairment for loans identified for individual assessment, which includes TDR's. Collateral-dependent loans identified for individual assessment will be carried at the fair value of collateral, net of selling costs (when applicable).

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Our HTM debt securities portfolio, with the exception of our municipal bond portfolio, have been evaluated and currently carry zero risk of credit loss as they are securities that are either explicitly or implicitly guaranteed by the U.S. government. A reasonable and supportable forecast period of one year will be applied to our municipal bonds, however, we do not expect the allowance for credit losses to be significant for this portion of our HTM debt securities portfolio.

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Under the prior guidance, our loan portfolio was disclosed by market segments. Going forward, our technology (software/internet and hardware) and life science/healthcare market segments will be disclosed by class of financing receivable that align with their underlying underwriting methodology. The technology (software/internet and hardware) and life science/healthcare market segments will be classified as investor dependent, balance sheet dependent or cash flow dependent and prior period amounts will be reclassified for comparability. There are no other material changes to our current market segments.

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•	Interest income for 2019 increased by $342.2 million primarily due to:

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A $240.7 million increase in interest income from loans to $1.6 billion in 2019, compared to $1.4 billion in 2018. This increase was reflective of an increase in average loan balances of $4.3 billion and an increase in the overall yield on our loan portfolio of 5 basis points to 5.35 percent from 5.30 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased by 2 basis points to 4.79 percent from 4.77 percent, reflective of the benefit of interest rate increases in effect the first half of the year, partially offset by the strong growth of our lower yielding private equity/venture capital loan portfolio and interest rate decreases in the third and fourth quarters of 2019. Our private equity/venture capital portfolio represented 53.5 percent and 49.5 percent of our total gross loan portfolio at December 31, 2019 and 2018, respectively,

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A $61.2 million increase in interest income from our short-term investment securities to $96.4 million, compared to $35.2 million in 2018. The increase was due primarily to an increase of $3.1 billion in average interest earning cash and short-term investment securities balances and higher yields reflective of the benefit of interest rate increases in effect the first half of the year, partially offset by interest rate decreases in the third and fourth quarters of 2019, and

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A $40.3 million increase in interest income from our fixed income investment securities to $625.8 million in 2019, compared to $585.4 million in 2018. The increase was reflective of an increase in our fixed income securities yield of 22 basis points to 2.58 percent from 2.36 percent, partially offset by a decrease of $0.5 billion in average fixed income investment balances primarily due to a decrease in average HTM securities. The increase

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◦	A $148.4 million increase in deposits interest expense, due primarily to an increase in interest paid on our interest-bearing money market deposits as a result of market rate adjustments and an increase of $7.8 billion in average interest-bearing deposits, partially offset by

◦	An $11.5 million decrease in borrowings interest expense, due primarily to a decrease in our average short-term borrowings balance during 2019 as a result of the increase in average deposit balances.

•	Interest income for 2018 increased by $510.9 million primarily due to:

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A $332.7 million increase in interest income from loans to $1.4 billion in 2018, compared to $1.0 billion in 2017. This increase was reflective of an increase in average loan balances of $4.5 billion and an increase in the overall yield on our loan portfolio of 45 basis points to 5.30 percent from 4.85 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased by 55 basis points to 4.77 percent from 4.22 percent, reflective of the benefit of interest rate increases, partially offset by the strong growth of our lower yielding private equity/ venture capital loan portfolio. Our private equity/venture capital portfolio represented 49.5 percent and 42.8 percent of our total gross loan portfolio at December 31, 2018 and 2017, respectively.

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A $164.5 million increase in interest income from our fixed income investment securities to $585.4 million in 2018, compared to $420.9 million in 2017. The increase was reflective of an increase of $2.4 billion in average fixed income investment balances as a result of strong deposit growth in 2018 and an increase in our fixed income securities yield of 48 basis points to 2.36 percent from 1.88 percent. The increase in our fixed income securities yield was primarily from higher reinvestment yields on maturing fixed income investments as well as higher yields on new purchases due to interest rate increases, and

◦	A $13.7 million increase in interest income from our Federal Reserve deposits to $35.2 million, compared to $21.5 million in 2017. The increase was due primarily to higher yields as a result of rate increases in 2018.

•	Interest expense for 2018 increased to $75.9 million, compared to $44.8 million for 2017, primarily due to:

◦	A $20.6 million increase in deposits interest expense, due primarily to an increase in interest paid on our interest-bearing money market deposits as a result of market rate adjustments, and

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A $10.5 million increase in borrowings interest expense, due primarily to an increase in our average short-term borrowings balance during 2018 to fund loan growth as a result of the timing of loan funding and deposit activities. The increase in interest expense from short-term borrowings was partially offset by a decrease in interest expense from long-term debt reflective of the repayment of our 6.05% Subordinated Notes and the redemption of our Junior Subordinated Debentures in 2017.

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(1)	Includes average interest-earning deposits in other financial institutions of $0.9 billion, $0.8 billion and $1.1 billion in 2019, 2018 and 2017, respectively. For 2019, 2018 and 2017, balances also include $4.1 billion, $1.6 billion and $1.9 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 is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21.0 percent for 2019 and 2018 and 35.0 percent for 2017.

(4)	Nonaccrual loans are reflected in the average balances of loans.

(5)	Interest income includes loan fees of $167.6 million, $136.6 million and $128.1 million in 2019, 2018 and 2017, respectively.

(6)	Average investment securities of $1.1 billion, $0.8 billion, and $0.7 billion in 2019, 2018 and 2017, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other equity securities.

(1)	The “allowance for unfunded credit commitments” is included as a component of “Other liabilities.”

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(1)

Non-GAAP core fee income plus investment banking revenue and commissions represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control and other noninterest income. Core fee income plus investment banking revenue and commissions is Non-GAAP core fee income (as defined in the subsequent footnote) with the addition of investment banking revenue and commissions.

(2)

Non-GAAP core fee income represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. Non-GAAP core fee income includes client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees.

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•	Gains of $37.9 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in both private and public company investments held by the funds in the portfolio,

•	Gains of $33.1 million from our strategic and other investments portfolio, primarily driven by net unrealized valuation increases in both private and public company investments held in our strategic venture capital funds, and

•	Gains of $7.9 million from our managed direct venture funds, related primarily to net unrealized valuation increases in investments held by the funds in the portfolio.

•	Gains of $39.9 million from our strategic and other investments portfolio, primarily driven by net unrealized valuation increases in both private and public company investments held in our strategic venture capital funds,

•	Gains of $29.1 million from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in both private and public company investments held by the funds in the portfolio, and

•	Losses of $25.2 million from our public equity securities portfolio primarily reflective of net losses on sales of shares of Roku, Inc. ("Roku"), from exercised warrants in 2017, which were sold in the first quarter of 2018.

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(1)	Presentation for year-ended December 31, 2017 amounts are not determined in a manner consistent with the December 31, 2019 and 2018 presentation due to the adoption of ASU 2016-01.

•	Net gains of $107.2 million from the exercises of equity warrant assets in 2019, compared to net gains of $58.2 million in 2018, driven by increased IPO activity during 2019, and

•	Net gains of $34.4 million from changes in warrant valuations in 2019, compared to net gains of $36.9 million in 2018, driven by valuation increases in our private company warrant portfolio.

•	Net gains on $58.2 million from the exercises of equity warrant assets in 2018, compared to net gains of $48.3 million in 2017, driven by increased M&A and IPO activity during 2018, and

•	Net gains of $36.9 million from changes in warrant valuations in 2018, compared to net gains of $10.7 million in 2017, driven by valuation increases in our private company warrant portfolio and reflective of increased M&A activity during 2018.

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(1)

At December 31, 2019, we held warrants in 2,268 companies, compared to 2,095 companies at December 31, 2018 and 1,868 companies at December 31, 2017. The total value of our warrant portfolio was $165.5 million at December 31, 2019, $149.2 million at December 31, 2018, and $123.8 million at December 31, 2017. Warrants in 20 companies each had fair values greater than $1.0 million and collectively represented $57.6 million, or 34.8 percent, of the fair value of the total warrant portfolio at December

(1)	This non-GAAP core fee income represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. See “Use of Non-GAAP Measures” above.

(2)	Non-GAAP core fee income plus investment banking revenue and commissions represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control and other noninterest income. See “Use of Non-GAAP Measures” above.

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(1)	These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management.

(2)	Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet.

(1)	These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management.

(2)	Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet.

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(1)	Represents the net revaluation of client and internal foreign currency denominated financial instruments. We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client and internal foreign currency denominated financial instruments.

(2)	Includes dividends on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest, valuation fee income and other fee income.

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(1)

The non-GAAP core operating efficiency ratio is calculated by dividing noninterest expense after adjusting for noninterest expense attributable to SVB Leerink by total revenue after adjusting for net interest income attributable to SVB Leerink, net gains or losses on investment securities and equity warrant assets, investment banking revenue and commissions. Additionally, noninterest expense and total revenue are adjusted for income or losses and expenses attributable to noncontrolling interests and adjustments to net interest income for a taxable equivalent basis.

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(1)	Other employee incentives and benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant incentive and retention plans, agency fees and other employee-related expenses.

•	An increase of $111.5 million in salaries and wages expense, reflective primarily of an increase in the number of average FTEs by 677 to 3,362 in 2019, compared to 2,685 in 2018, and annual pay raises. The increase in FTEs was primarily to support our overall growth as well as the acquisition of SVB Leerink which added 230 average FTEs in 2019,

•	An increase of $85.0 million in incentive compensation expense due primarily to the inclusion of SVB Leerink in our financial results for 2019, partially offset by lower incentive accruals compared to strong 2018 performance levels, and

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An increase of $66.3 million in other employee compensation and benefits, related to various expenses, particularly the inclusion of SVB Leerink in our financial results for 2019, share-based compensation reflective of an increase in restricted stock compensation due to increased headcount in 2019, an increase in warrant incentive plan expense due to the increased cash liquidations on equity warrant assets in 2019 as compared to 2018 as well as an increase in employer payroll taxes and group health and life insurance reflective of our increased headcount in 2019.

•	An increase of $56.3 million in incentive compensation expense due primarily to our strong 2018 full-year performance and reflective of our improved ROE relative to our peers, which is one of our key plan performance metrics,

•	An increase of $47.8 million in salaries and wages expense, reflective primarily of an increase in the number of average FTEs by 289 to 2,685 in 2018, compared to 2,396 in 2017, and annual pay raises. The increase in FTE was primarily to support our overall growth, and

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An increase of $14.8 million in other employee compensation and benefits, related to various expenses, particularly share-based compensation reflective of the increase in our stock price as well as employer payroll taxes and group health and life insurance reflective of our increased headcount in 2018. These increases were partially offset by a decrease in our warrant incentive plan expense in 2018 compared to 2017 primarily reflective of our exercise of Roku equity warrants in the fourth quarter of 2017 which resulted in a large accrual of warrant incentive compensation expense in 2017 and subsequent decline of Roku's common stock price, which was sold in 2018, resulting in a lower warrant incentive payout than previously accrued for.

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(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.

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Net gains on investment securities (including carried interest allocation) attributable to noncontrolling interests of $48.5 million ($20.2 million excluding carried interest allocation) primarily from our managed funds of funds and our managed direct venture funds portfolios, related primarily to net unrealized valuation increases in both private and public company investments held by the funds in the portfolios, and

•	Noninterest expense of $0.8 million, primarily related to management fees paid by the noncontrolling interests to our subsidiaries that serve as the general partner.

•	Net gains on investment securities (including carried interest allocation) attributable to noncontrolling interests of $38.2 million ($22.5 million excluding carried interest allocation) primarily from our managed funds of funds portfolio, related primarily to net unrealized valuation increases in both private and public company investments held by the funds in the portfolio, and

•	Noninterest expense of $0.5 million, primarily related to management fees paid by the noncontrolling interests to our subsidiaries that serve as the general partner.

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Net gains on investment securities of $82.2 million in 2019, compared to net gains of $69.8 million in 2018. The net gains on investment securities of $82.2 million in 2019 were related to net unrealized valuation increases in both private and public company investments held in our strategic venture capital funds as well as in our managed funds of funds portfolio driven by IPO and M&A activity in 2019, and

•	Fund management fees of $26.9 million for 2019, compared to $23.0 million in 2018.

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Net gains on investment securities of $69.8 million in 2018, compared to net gains of $35.8 million in 2017. The net gains on investment securities of $69.8 million in 2018 were related to net unrealized valuation increases in both private and public company investments held in our strategic venture capital funds as well as in our managed funds of funds portfolio driven by IPO and M&A activity in 2018, and

•	Fund management fees of $23.0 million for 2018, compared to $21.2 million in 2017.

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(1)	The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and amounts attributable to SVBFG for each fund at December 31, 2019, 2018 and 2017:

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(2)

The carrying values represented investments in 205 and 213 funds (primarily venture capital funds) at December 31, 2019 and December 31, 2018, 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. Effective January 1, 2018, we adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. We carry our unconsolidated venture capital and private equity fund investments at fair value based on the fund investments' net asset values per share as obtained from the general partners of the investments. For each fund investment, we adjust the net asset value per share for 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 September 30th, for our December 31st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment and significant fund transactions or market events during the reporting period. We recorded a cumulative adjustment to opening retained earnings on January 1, 2018 for the difference between fair value and cost for these fund investments. The estimated fair values and carrying values of these venture capital and private equity fund investments were $178.2 million and $201.1 million as of December 31, 2019 and 2018, respectively. As of December 31, 2017, these investments were carried at cost and had a carrying value of $98.5 million.

(3)

Effective January 1, 2018, we adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which eliminated the concept of cost method accounting. On a prospective basis, we report our other investments in the line item "Other investments without a readily determinable fair value." These investments include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. For further details on the carrying value of these investments refer to Note 9—“Investment Securities" of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.

(4)

Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets and direct equity investments in public companies held by our consolidated funds. Effective January 1, 2018 we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity securities to be measured at fair value with changes in the fair value recognized through net income. Prior to January 1, 2018, we reported equity securities in public companies that we held as a result of exercising public equity warrant assets in available-for-sale securities. These equity securities are reported in non-marketable and other equity securities.

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(5)	The following table shows the carrying value and our ownership percentage of each investment at December 31, 2019, 2018 and 2017 (equity method accounting):

(i)	Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments in Strategic Investors Fund II, LP.

(ii)	Our ownership includes 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.

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(1)	Due to the diverse nature of energy and resource innovation products and services, for our loan-related reporting purposes, ERI-related loans are reported under our software/internet, hardware, life science/healthcare and other commercial loan categories, as applicable.

(2)	Included in our premium wine portfolio are gross construction loans of $83 million, $99 million, $100 million, $110 million and $121 million at December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(3)	Consumer loans secured by real estate at December 31, 2019, 2018, 2017, 2016 and 2015 were comprised of the following:

(4)	Construction loans consist of qualified affordable housing project loans made to fulfill our responsibilities under the Community Reinvestment Act and are primarily secured by real estate.

(5)	Unearned income, net of deferred costs, was $163 million, $173 million, $148 million, $125 million and $115 million in 2019, 2018, 2017, 2016 and 2015, respectively.

(6)	Included within our total loan portfolio are credit card loans of $395 million, $335 million, $270 million, $224 million, and $177 million at December 31, 2019, 2018, 2017, 2016 and 2015, respectively, and primarily represent corporate credit cards.

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(1)	Represents loan balances as a percentage of total gross loans at each respective year-end.

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(1)	The “allowance for unfunded credit commitments” is included as a component of other liabilities and any provision is included in the "Provision for credit losses" in the statement of income. See “Provision for Credit Losses” for a discussion of the changes to the allowance.

(2)	Includes unfunded loan commitments and letters of credit.

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(1)	See “Derivatives” section below.

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(1)	As part of our liquidity risk management practices, we periodically test availability and access to overnight borrowings in the Federal Funds market. These balances represent short-term borrowings.

(2)	Represents cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor.

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(1)	See “Derivatives” section above.

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(1)	Percentages represent the minimum capital ratios plus, as applicable, the fully phased-in 2.5% CET1 capital conservation buffer under the Capital Rules.

(2)	"Well-Capitalized Minimum" CET 1 risk-based capital and Tier 1 leverage ratios are not formally defined under applicable banking regulations for bank holding companies.

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

(4)	The FRB has not issued any minimum guidelines for the tangible common equity to tangible assets ratio or the tangible common equity to risk-weighted assets ratio, however, we believe these ratios provide meaningful supplemental information regarding our capital levels and are therefore provided above.

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(1)	Includes time deposits and deposits with no defined maturity, such as noninterest-bearing demand, interest-bearing checking, savings, money market and sweep accounts.

(2)	Amounts exclude contractual interest.

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ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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(1)	Estimated NII sensitivity for December 31, 2018 has been revised from prior period presentations to reflect updated assumptions.

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•	evaluating that the Company’s methodology is sufficiently structured, transparent, and repeatable for compliance with U.S. generally accepted accounting principles,

•	evaluating the methodology used to determine the loss emergence and historical observation periods used in the quantitative loss estimate,

•	evaluating the methodology used to determine the qualitative factors and the effect of those factors on the collectively evaluated ALL and AUCC compared with relevant credit risk factors and consistency with credit trends, and

•	testing individual loan grades for a selection of commercial loans by evaluating the financial performance of the borrower and underlying collateral, as applicable.

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(1)	See Note 2- "Summary of Significant Accounting Policies" of the "Notes to Consolidated Financial Statements" under Part II, Item 8 of this report for additional details.

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1.	Nature of Business

2.	Summary of Significant Accounting Policies

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•	The length of time and the extent to which the fair value has been less than the amortized cost basis (severity and duration);

•	Adverse conditions specifically related to the security, an industry or geographic area; for example, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, changes in the financial condition of the underlying loan obligors. Examples of those changes include any of the following:

◦	Changes in technology;

◦	The discontinuance of a segment of the business that may affect the future earnings potential of the issuer or underlying loan obligors of the security; and

◦	Changes in the quality of the credit enhancement.

•	The historical and implied volatility of the fair value of the security;

•	The payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future;

•	Failure of the issuer of the security to make scheduled interest or principal payments;

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•	Any changes to the rating of the security by a rating agency; and

•	Recoveries or additional declines in fair value after the balance sheet date.

•	Funds of funds, which make investments in venture capital and private equity funds, and

•	Direct venture funds, which make equity investments in privately held companies.

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•	Equity securities, such as preferred or common stock in privately-held companies in which we hold a voting interest of at least 20 percent, or in which we have the ability to exercise significant influence over the investees' operating and financial policies through board involvement or other influence, are accounted for under the equity method,

•	Investments in limited partnerships in which we hold voting interests of more than 5 percent, or in which we have the ability to exercise significant influence over the partnerships' operating and financial policies, are accounted for using the equity method, and

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•	Our China Joint Venture partnership, for which we have 50 percent ownership, is accounted for under the equity method.

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•	Changes in lending policies and procedures, including underwriting standards and collections, and charge-off and recovery practices;

•	Changes in national and local economic business conditions, including the market and economic condition of our clients' industry sectors;

•	Changes in the nature of our loan portfolio;

•	Changes in experience, ability, and depth of lending management and staff;

•	Changes in the trend of the volume and severity of past due and classified loans;

•	Changes in the trend of the volume of nonaccrual loans, troubled debt restructurings and other loan modifications;

•	Reserve floor for portfolio segments that would not draw a minimum reserve based on the lack of historical loan loss experience;

•	Reserve for large funded loan exposure;

•	Reserve for performing impaired loan exposure; and

•	Other factors as determined by management from time to time.

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•	An underlying asset value, which is estimated based on current information available in valuation reports, including any information regarding subsequent rounds of funding or performance of a company.

•	Stated strike price, which can be adjusted for certain warrants upon the occurrence of subsequent funding rounds or other future events.

•

Price volatility or risk associated with possible changes in the warrant price. The volatility assumption is based on historical price volatility of publicly traded companies within indices similar in nature to the underlying client companies issuing the warrant. The actual volatility input is based on the mean and median volatility for an individual public company within an index for the past 16 quarters, from which an average volatility was derived.

•

Actual data on terminations and exercises of our warrants are utilized as the basis for determining the expected remaining life of the warrants in each financial reporting period. Warrants may be exercised in the event of acquisitions, mergers or IPOs, and cancelled due to events such as bankruptcies, restructuring activities or additional financings. These events cause the expected remaining life assumption to be shorter than the contractual term of the warrants.

•	The risk-free interest rate is derived from the Treasury yield curve and is calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.

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•	Other adjustments, including a marketability discount, are estimated based on management's judgment about the general industry environment.

•	Number of shares and contingencies associated with obtaining warrant positions such as the funding of associated loans.

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3.	Business Combination

(1)	The replacement award liabilities recognized as part of the total purchase consideration and the post-combination expenses of $9.1 million related to share-based replacement awards will be paid out in cash in accordance with SVB Leerink's original grant date vesting schedules.

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4.	Stockholders' Equity and EPS

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5.	Share-Based Compensation

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(1)	On February 1, 2019, we granted 125,160 restricted stock awards to SVB Leerink employees at a market price of $238.28 under the retention plan previously announced on November 13, 2018. The restricted stock awards will vest over a five-year period.

6.	Variable Interest Entities

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(1)	Included in our unconsolidated non-marketable and other equity securities portfolio at December 31, 2019 and December 31, 2018 are investments in qualified affordable housing projects of $458.5 million and $318.6 million, respectively, and related other liabilities consisting of unfunded commitments of $302.0 million and $205.7 million, respectively.

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7.	Reserves on Deposit with the Federal Reserve Bank and Federal Bank Stock

8.	Cash and Cash Equivalents

(1)	At December 31, 2019 and 2018, $3.7 billion and $1.7 billion, respectively, of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $2.1 billion and $1.2 billion, respectively.

(2)	At December 31, 2019 and 2018, securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $295 million and $126 million, respectively. None of these securities were sold or repledged as of December 31, 2019 and 2018.

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9.	Investment Securities

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(1)

As of December 31, 2019, we identified a total of 58 investments that were in unrealized loss positions, of which 12 investments totaling $0.4 billion with unrealized losses of $0.1 million have been in an impaired position for a period of time greater than 12 months. As of December 31, 2019, we do not intend to sell any of our impaired 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 December 31, 2019, 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 AFS securities portfolio are reviewed and monitored on a quarterly basis.

(1)	As of December 31, 2018, we identified a total of 200 investments that were in unrealized loss positions, of which 162 investments totaling $6.0 billion with unrealized losses of $78.9 million have been in an impaired position for a period of time greater than 12 months.

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(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.

(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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(1)

As of December 31, 2019, we identified a total of 266 investments that were in unrealized loss positions, of which 143 investments totaling $1.4 billion with unrealized losses of $11.7 million have been in an impaired position for a period of time greater than 12 months. As of December 31, 2019, we do not intend to sell any of our impaired 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 December 31, 2019, we deem all impairments to be temporary. Market valuations and impairment analyses on assets in the HTM securities portfolio are reviewed and monitored on a quarterly basis.

(1)	As of December 31, 2018, we identified a total of 1,244 investments that were in unrealized loss positions, of which 695 investments totaling $8.1 billion with unrealized losses of $259.6 million have been in an impaired position for a period of time greater than 12 months.

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(1)	The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and our ownership percentage of each fund at December 31, 2019 and 2018 (fair value accounting):

(2)

The carrying value represents investments in 205 and 213 funds (primarily venture capital funds) at December 31, 2019 and December 31, 2018, 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. We carry our unconsolidated venture capital and private equity fund investments at fair value based on the fund investments' net asset values per share as obtained from the general partners of the investments. For each fund investment, we adjust the net asset value per share for 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 September 30th for our December 31st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.

(3)

These investments include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted.

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(4)	Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets, direct equity investments in public companies held by our consolidated funds, and exchange traded funds held by SVB Leerink. Changes in equity securities measured at fair value are recognized through net income.

(5)	The following table shows the carrying value and our ownership percentage of each investment at December 31, 2019 and 2018 (equity method accounting):

(i)	Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments in Strategic Investors Fund II, LP.

(ii)	Our ownership includes 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.

(6)	The following table presents the balances of our investments in qualified affordable housing projects and related unfunded commitments included as a component of "other liabilities" on our consolidated balance sheets at December 31, 2019 and 2018:

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(i)

All investments are amortized using the proportional amortization method and amortization expense is included in the provision for income taxes. Included in amortization expense for the year ended December 31, 2017 is a one-time cumulative effect adjustment of $3.8 million due to the decrease in value of deductions in the 2018 tax year and going forward, due to the TCJ Act federal corporate income tax rate reduction.

(1)	Presentation for year-ended December 31, 2017 amounts are not determined in a manner consistent with the December 31, 2018 and 2019 presentation due to the adoption of ASU 2016-01.

(2)	Realized gains and losses include sales and OTTI of non-marketable and other equity securities. Includes gains of $5.2 million on sales and $0.4 million of OTTI for the period ended December 31, 2019. Includes losses of $20.8 million and gains of $3.8 million on sales and $5.3 million and $4.2 million of OTTI for the periods ended December 31, 2018 and 2017, respectively.

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10.	Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments

(1)	Included in our premium wine portfolio are gross construction loans of $83 million and $99 million at December 31, 2019 and 2018, respectively.

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(2)	Consumer loans secured by real estate at December 31, 2019 and 2018 were comprised of the following:

(3)	Included within our total loan portfolio are credit card loans of $395 million and $335 million at December 31, 2019 and 2018, respectively.

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(1)	The “allowance for unfunded credit commitments” is included as a component of “other liabilities” on our consolidated balance sheets. See Note 22—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for additional disclosures related to our commitments to extend credit.

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(1)	There were $11.3 million, $4.6 million and $3.0 million of partial charge-offs during 2019, 2018 and 2017, respectively.

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11.	Premises and Equipment

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(1)	Included in these amounts are $21.7 million and $30.0 million of ROU assets and lease liabilities, respectively, attributable to the inclusion of SVB Leerink in our financial results at December 31, 2019.

(1)

The incremental borrowing rate used to calculate the lease liability was determined based on the facts and circumstances of the economic environment and the Company’s credit standing as of the effective date of ASC 842. Additionally, the total lease term and total lease payments were also considered in determining the rate. Based on these considerations the Company identified credit terms available under its existing credit lines which represent a collateralized borrowing rate that has varying credit terms that could be matched to total lease terms and total lease payments in ultimately determining the implied borrowing rate in each lease contract.

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(1)	As of December 31, 2019, we have additional leases that have not yet commenced. We estimate that we will record additional lease liabilities of $29.1 million upon commencement. These leases will commence in 2020 with lease terms of two to five years.

13.	Goodwill and Other Intangible Assets

(1)	All reported goodwill amounts have been allocated to the SVB Leerink reporting segment and are expected to be deductible for tax purposes. Refer to Note 25—“Segment Reporting” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for additional information.

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14.	Deposits

15.	Short-Term Borrowings and Long-Term Debt

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(1)	Securities sold under repurchase agreements are effectively short-term borrowings collateralized by U.S. Treasury securities.

(2)	Represents cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor.

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16.	Derivative Financial Instruments

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(1)	Derivative assets and liabilities are included in "accrued interest receivable and other assets" and "other liabilities", respectively, on our consolidated balance sheets.

(2)	The amount reported reflects reductions of approximately $17.4 million of derivative liabilities and $0.4 million of derivative assets at December 31, 2019 and 2018, respectively, reflecting variation margin treated as settlement of the related derivative fair values for legal and accounting purposes as required by central clearing houses.

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(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.

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(1)	Cash collateral pledged to our counterparties in relation to market value exposures of derivative contracts in a liability position and repurchase agreements are recorded as a component of “cash and cash equivalents" on our consolidated balance sheets.

17.	Noninterest Income

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(1)	Represents fees earned from investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management.

(2)	Represents fees earned on client investment funds which are maintained at third-party financial institutions and are not recorded on our balance sheet.

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(1)	Represents the net revaluation of client and internal foreign currency denominated financial instruments. We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure related to client and internal foreign currency denominated financial instruments.

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(1)	Amounts are accounted for under separate guidance than ASC 606.

(2)	Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items."

(1)	Amounts are accounted for under separate guidance than ASC 606.

(2)	Global Commercial Bank’s and SVB Capital’s components of noninterest income are shown net of noncontrolling interests. Noncontrolling interest is included within “Other Items."

(3)	For the year ended December 31, 2018, the amount of client investment fees previously reported as "Other Items" has been correctly allocated to the reportable segment "Global Commercial Bank" to properly reflect the source of such revenue. The correction of this immaterial error had no impact on the "Total" amount of client investment fees.

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19.	Income Taxes

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20.	Employee Compensation and Benefit Plans

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21.	Related Parties

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

(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)	Our allowance for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit.

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(1)	Our ownership includes direct ownership of 1.3 percent and indirect ownership of 3.8 percent through our investment in Strategic Investors Fund II, LP.

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(2)	Represents commitments to 211 funds (primarily venture capital funds) where our ownership interest is generally less than five percent of the voting interests of each such fund.

(3)	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 Part I, Item 1 of this report.

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23.	Fair Value of Financial Instruments

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(1)	Included in Level 3 assets is $120 thousand attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

(1)	Included in Level 3 assets is $964 thousand attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

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(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 equity warrant assets, net,” a component of noninterest income.

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(1)	Unrealized gains are recorded in the line item “Gains on investment securities, net,” a component of noninterest income.

(2)	Unrealized gains are recorded in the line item “Gains on equity warrant assets, net,” a component of noninterest income.

(1)

In determining the fair value of our venture capital and private equity fund investment portfolio (not measured at net asset value), 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. We use company provided valuation reports, if available, to support our valuation

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(2)	We adjust quoted market prices of public companies, which are subject to certain sales restrictions. Sales restriction discounts generally range from 10 percent to 20 percent depending on the duration of the sales restrictions which typically range from three to six months.

(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 terminations and exercises. At December 31, 2019, the weighted average contractual remaining term was 6.1 years, compared to our estimated remaining life of 2.8 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption.

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(1)	Includes noninterest-bearing demand deposits, interest-bearing checking accounts, money market accounts and interest-bearing sweep deposits.

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(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 (consolidated VIEs) and investments in venture capital and private equity fund investments (unconsolidated VIEs). Collectively, these investments in venture capital and private equity funds are 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 $64.6 million and $4.0 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 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 5 to 8 years, depending on the age of the funds and any potential extensions of the terms of the funds.

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24.	Regulatory Matters

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N/A	"Well-Capitalized Minimum" CET 1 risk-based capital and Tier 1 leverage ratios are not formally defined under applicable banking regulations for bank holding companies.

(1)	The percentages as of December 31,2019 represent the minimum capital ratios plus, the fully phased-in 2.5% CET1 capital conservation buffer under the Capital Rules.

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25.	Segment Reporting

•	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 primarily 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, treasury management, foreign exchange, trade finance and other services. We broadly serve clients within the U.S., 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 Global Funds Banking (formerly Private Equity) Division provides banking products and services primarily to our private equity and venture capital clients.

◦	SVB Wine provides banking products and services to our premium wine industry clients, including vineyard development loans.

◦	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 products, as well as cash and wealth management services.

•

SVB Capital is the funds management business of SVBFG, which focuses primarily on venture capital investments. 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 allocations) and management fees.

•	SVB Leerink is an investment bank specializing in the equity and convertible capital markets, mergers and acquisitions, equity research and sales and trading for growth and innovation-minded healthcare and life science companies and operates as a wholly-owned subsidiary of SVB Financial. SVB Leerink provides investment banking

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(1)	Global Commercial Bank’s, SVB Capital’s and SVB Leerink's components of net interest income, noninterest income, noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented. 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

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(3)	The Global Commercial Bank segment includes direct depreciation and amortization of $20.4 million, $21.8 million and $25.3 million for 2019, 2018 and 2017, respectively.

(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.

(6)	Included in the total average assets for SVB Leerink is goodwill of $137.8 million for the year ended December 31, 2019 related to the acquisition effective January 4, 2019.

(7)	For the years ended December 31, 2018 and 2017, amounts of client investment fees included in the line item "Noninterest Income" previously reported as "Other Items" have been correctly allocated to our reportable segment "Global Commercial Bank" to properly reflect the source of such revenue. The correction of this immaterial error had no impact on the "Total" amount of noninterest income.

(8)

For the years ended December 31, 2018 and 2017, amounts for average assets previously reported as "Other Items" have been correctly allocated to the reportable segments "Global Commercial Bank" and “SVB Private Bank” to properly reflect the greater of total average assets or the sum of total average liabilities and total average stockholders’ equity for “Global Commercial Bank” and “SVB Private Bank.” The correction of this immaterial error had no impact on the "Total" amount of average assets.

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26.	Parent Company Only Condensed Financial Information

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27.	Unaudited Quarterly Financial Data

28.	Legal Matters

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ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.	CONTROLS AND PROCEDURES

(a)	Disclosure Controls and Procedures

(b)	Management's Report on Internal Control over Financial Reporting

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ITEM 9B.	OTHER INFORMATION

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ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.	EXECUTIVE COMPENSATION

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS

(1)	Represents options granted under our 2006 Equity Incentive Plan. This number does not include securities to be issued for unvested restricted stock units of 847,972 shares.

(2)	Includes shares available for issuance under our 2006 Equity Incentive Plan and 1,337,808 shares available for issuance under the 1999 Employee Stock Purchase Plan. This amount excludes securities already granted under our 2006 Equity Incentive Plan (as discussed above).

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

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ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	Financial Statements and Exhibits:

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ITEM 16.	FORM 10-K SUMMARY

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