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SVB FINANCIAL GROUP - Quarter Report: 2019 March (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2019
 
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer        x             Accelerated filer        ¨    
Non-accelerated filer        ¨                 Smaller reporting company     ¨        
Emerging growth company        ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class
 
Trading Symbol
 
Name of Exchange on Which Registered
Common Stock, par value $0.001 per share
 
SIVB
 
NASDAQ Global Select Market
At April 30, 2019, 52,027,190 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
ERI— Energy and Resource Innovation
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
HTM— Held-to-Maturity
IASB— International Accounting Standards Board
IPO— Initial Public Offering
IRS— Internal Revenue Service
IT— Information Technology
LIBOR— London Interbank Offered Rate
M&A— Merger and Acquisition
OTTI— Other Than Temporary Impairment
SEC— Securities and Exchange Commission
SPD-SVB— SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China)
TDR— Troubled Debt Restructuring
UK— United Kingdom
VIE— Variable Interest Entity

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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)

March 31,
2019

December 31,
2018
Assets




Cash and cash equivalents

$
7,066,883


$
3,571,539

Available-for-sale securities, at fair value (cost of $6,776,896 and $7,862,311, respectively)

6,755,094


7,790,043

Held-to-maturity securities, at cost (fair value of $14,996,508 and $15,188,236, respectively)

15,055,255


15,487,442

Non-marketable and other equity securities

974,979


941,104

Total investment securities

22,785,328


24,218,589

Loans, net of unearned income

28,850,445


28,338,280

Allowance for loan losses

(300,151
)

(280,903
)
Net loans

28,550,294


28,057,377

Premises and equipment, net of accumulated depreciation and amortization

139,003


129,213

Goodwill
 
135,190

 

Other intangible assets, net
 
58,029

 

Lease right-of-use assets
 
164,659

 

Accrued interest receivable and other assets

1,260,899


951,261

Total assets

$
60,160,285


$
56,927,979

Liabilities and total equity




Liabilities:




Noninterest-bearing demand deposits

$
39,278,712


$
39,103,422

Interest-bearing deposits

13,048,485


10,225,478

Total deposits

52,327,197


49,328,900

Short-term borrowings

14,455


631,412

Lease liabilities
 
205,167

 

Other liabilities

1,432,928


1,006,359

Long-term debt

696,715


696,465

Total liabilities

54,676,462


51,663,136

Commitments and contingencies (Note 16 and Note 19)





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; 52,322,105 shares and 52,586,498 shares issued and outstanding, respectively

52


53

Additional paid-in capital

1,394,130


1,378,438

Retained earnings

3,963,965


3,791,838

Accumulated other comprehensive loss

(15,374
)

(54,120
)
Total SVBFG stockholders’ equity

5,342,773


5,116,209

Noncontrolling interests

141,050


148,634

Total equity

5,483,823


5,264,843

Total liabilities and total equity

$
60,160,285


$
56,927,979

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 INCOME (UNAUDITED)
 
 

Three months ended March 31,
(Dollars in thousands, except per share amounts)

2019

2018
Interest income:




Loans

$
394,144


$
297,073

Investment securities:




Taxable

126,717


124,477

Non-taxable

10,937


5,092

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

19,216


5,756

Total interest income

551,014


432,398

Interest expense:




Deposits

27,907


4,097

Borrowings

10,221


8,438

Total interest expense

38,128


12,535

Net interest income

512,886


419,863

Provision for credit losses

28,551


27,972

Net interest income after provision for credit losses

484,335


391,891

Noninterest income:




Gains on investment securities, net

29,028


9,058

Gains on equity warrant assets, net

21,305


19,191

Foreign exchange fees

38,048


33,827

Credit card fees

27,483


21,692

Deposit service charges

20,939


17,699

Client investment fees

44,482


22,875

Lending related fees

13,937


10,735

Letters of credit and standby letters of credit fees

9,354


8,182

Investment banking revenue
 
49,795

 

Commissions
 
14,108

 

Other

11,897


12,259

Total noninterest income

280,376


155,518

Noninterest expense:




Compensation and benefits

238,061


165,806

Professional services

36,986


28,725

Premises and equipment

21,700


18,545

Net occupancy

16,048


13,616

Business development and travel

15,354


11,191

FDIC and state assessments

3,979


9,430

Other

33,536


18,104

Total noninterest expense

365,664


265,417

Income before income tax expense

399,047


281,992

Income tax expense

107,435


73,966

Net income before noncontrolling interests

291,612


208,026

Net income attributable to noncontrolling interests

(2,880
)

(13,065
)
Net income available to common stockholders

$
288,732


$
194,961

Earnings per common share—basic

$
5.49


$
3.69

Earnings per common share—diluted

5.44


3.63

 
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 COMPREHENSIVE INCOME (UNAUDITED)
 
 

Three months ended March 31,
(Dollars in thousands)

2019

2018
Net income before noncontrolling interests

$
291,612


$
208,026

Other comprehensive income (loss), net of tax:

 
 
 
Change in foreign currency cumulative translation gains and losses:

 
 
 
Foreign currency translation gains

2,806


3,106

Related tax expense

(782
)

(856
)
Change in unrealized gains and losses on available-for-sale securities:

 
 
 
Unrealized holding gains (losses)

46,836


(58,027
)
Related tax (expense) benefit

(13,045
)

15,926

Reclassification adjustment for losses included in net income

3,630



Related tax benefit

(1,010
)


Reclassification of unrealized gains on equity securities to retained earnings for ASU 2016-01
 

 
(40,316
)
Related tax expense
 

 
11,145

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

(674
)

(1,206
)
Related tax benefit

188


333

Reclassification of stranded tax effect to retained earnings for ASU 2018-02
 

 
(319
)
Change in unrealized gains and losses on cash flow hedges:
 
 
 
 
Unrealized gains
 
1,102

 

Related tax expense
 
(307
)
 

Reclassification adjustment for losses included in net income
 
3

 

Related tax benefit
 
(1
)
 

Other comprehensive income (loss), net of tax

38,746


(70,214
)
Comprehensive income

330,358


137,812

Comprehensive income attributable to noncontrolling interests

(2,880
)

(13,065
)
Comprehensive income attributable to SVBFG

$
327,478


$
124,747

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 Loss

Total SVBFG
Stockholders’ Equity

Noncontrolling Interests

Total Equity
(Dollars in thousands)

Shares

Amount






Balance at December 31, 2017

52,835,188

 
$
53

 
$
1,314,377

 
$
2,866,837

 
$
(1,472
)

$
4,179,795


$
139,620


$
4,319,415

Cumulative adjustment for adoption of the revenue standard (ASU 2014-09), net of tax


 

 

 
(5,802
)
 


(5,802
)



(5,802
)
Cumulative adjustment for adoption of financial instruments (ASU 2016-01), net of tax


 

 

 
103,766

 
(29,171
)

74,595




74,595

Reclassification of stranded tax effect for ASU 2018-02


 

 

 
319

 
(319
)






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

77,359

 

 
(479
)
 

 


(479
)



(479
)
Common stock issued under ESOP

9,672

 

 
2,577

 

 


2,577




2,577

Net income


 

 

 
194,961

 


194,961


13,065


208,026

Capital calls and distributions, net


 

 

 

 




(8,407
)

(8,407
)
Net change in unrealized gains and losses on AFS securities, net of tax


 

 

 

 
(42,101
)

(42,101
)



(42,101
)
Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax
 

 

 

 

 
(873
)
 
(873
)
 

 
(873
)
Foreign currency translation adjustments, net of tax
 

 

 

 

 
2,250

 
2,250

 

 
2,250

Share-based compensation, net
 

 

 
10,523

 

 

 
10,523

 

 
10,523

Balance at March 31, 2018

52,922,219


$
53


$
1,326,998


$
3,160,081


$
(71,686
)

$
4,415,446


$
144,278


$
4,559,724

Balance at December 31, 2018

52,586,498

 
$
53

 
$
1,378,438

 
$
3,791,838

 
$
(54,120
)
 
$
5,116,209

 
$
148,634

 
$
5,264,843

Cumulative adjustment for the adoption of premium amortization on purchased callable debt securities (ASU 2017-08) (1)
 

 

 

 
(583
)
 

 
(583
)
 

 
(583
)
Acquisition of SVB Leerink
 

 

 

 

 

 

 
5,256

 
5,256

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

209,743

 

 
(2,936
)
 

 


(2,936
)



(2,936
)
Common stock issued under ESOP

14,442

 

 
3,506

 

 


3,506




3,506

Net income


 

 

 
288,732

 


288,732


2,880


291,612

Capital calls and distributions, net


 

 

 

 




(15,720
)

(15,720
)
Net change in unrealized gains and losses on AFS securities, net of tax


 

 

 

 
36,411


36,411




36,411

Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax


 

 

 

 
(486
)

(486
)



(486
)
Foreign currency translation adjustments, net of tax


 

 

 

 
2,024


2,024




2,024

Net change in unrealized gains and losses on cash flow hedges, net of tax
 

 

 

 

 
797

 
797

 

 
797

Share-based compensation, net


 

 
15,122

 

 


15,122




15,122

Common stock repurchases
 
(488,578
)
 
(1
)
 

 
(116,022
)
 

 
(116,023
)
 

 
(116,023
)
Balance at March 31, 2019

52,322,105


$
52


$
1,394,130


$
3,963,965


$
(15,374
)

$
5,342,773


$
141,050


$
5,483,823

 
(1)
See "Adoption of New Accounting Standards" in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.
  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 CASH FLOWS (UNAUDITED)
 

Three months ended March 31,
(Dollars in thousands)

2019

2018
Cash flows from operating activities:




Net income before noncontrolling interests

$
291,612


$
208,026

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




Provision for credit losses

28,551


27,972

Changes in fair values of equity warrant assets, net of proceeds from exercises

(10,248
)
 
(17,508
)
Changes in fair values of derivatives, net

(3,068
)

3,928

Gains on investment securities, net

(29,028
)
 
(9,058
)
Distributions of earnings from non-marketable and other equity securities
 
15,619

 
11,385

Depreciation and amortization

20,830


14,377

Amortization of premiums and discounts on investment securities, net

1,606


(1,125
)
Amortization of share-based compensation

15,122


10,523

Amortization of deferred loan fees

(35,276
)

(29,133
)
Deferred income tax benefit

(8,834
)

(8,834
)
Excess tax benefit from exercise of stock options and vesting of restricted shares
 
(2,804
)
 
(2,543
)
Losses from the write-off of premises and equipment
 
52

 

Changes in other assets and liabilities:




Accrued interest receivable and payable, net

(3,361
)

(18,365
)
Accounts receivable and payable, net

30,447


(7,277
)
Income tax receivable and payable, net

94,552


69,869

Accrued compensation

(253,769
)

(106,356
)
Foreign exchange spot contracts, net

169,079


134,638

Other, net

19,668


67,885

Net cash provided by operating activities

340,750


348,404

Cash flows from investing activities:




Purchases of available-for-sale securities

(204,328
)


Proceeds from sales of available-for-sale securities

1,171,564



Proceeds from maturities and paydowns of available-for-sale securities

116,001


911,839

Purchases of held-to-maturity securities



(2,295,985
)
Proceeds from maturities and paydowns of held-to-maturity securities

428,433


470,232

Purchases of non-marketable and other equity securities

(16,165
)

(20,401
)
Proceeds from sales and distributions of capital of non-marketable and other equity securities

19,979


9,377

Net increase in loans

(505,516
)

(1,463,998
)
Purchases of premises and equipment

(5,504
)

(7,717
)
Acquisition of SVB Leerink, net of cash acquired
 
(100,037
)
 

Net cash provided by (used for) investing activities

904,427


(2,396,653
)
Cash flows from financing activities:




Net increase in deposits

2,998,297


1,682,457

Net (decrease) increase in short-term borrowings

(616,957
)

68,410

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

(15,720
)

(8,407
)
Common stock repurchases
 
(116,023
)
 

Proceeds from issuance of common stock, ESPP and ESOP

570


2,098

Net cash provided by financing activities

2,250,167


1,744,558

Net increase (decrease) in cash and cash equivalents

3,495,344


(303,691
)
Cash and cash equivalents at beginning of period

3,571,539


2,923,075

Cash and cash equivalents at end of period

$
7,066,883


$
2,619,384

Supplemental disclosures:




Cash paid during the period for:




Interest

$
46,548


$
20,411

Income taxes

17,570


9,385

Noncash items during the period:




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

$
36,411


$
(42,101
)
Distributions of stock from investments

1,276


2,282

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

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Table of Contents

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 a financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a diverse set 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 (not including subsidiaries).
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 months ended March 31, 2019 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, 2018 (“2018 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 2018 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 and other equity securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and allowance for unfunded credit commitments, and the recognition and measurement of income tax assets and liabilities.
Principles of Consolidation and Presentation
Our consolidated financial statements include the accounts of SVB Financial Group and consolidated entities. We consolidate voting entities in which we have control through voting interests or entities through which we have a controlling financial interest in a variable interest entity (“VIE”). We determine whether we have a controlling financial interest in a VIE by determining if we have: (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses, or (c) the right to receive the expected returns of the entity. 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 based on our ownership percentage.
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) the 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 also 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.
We also evaluate fees paid to managers of our limited partnership investments. 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. Fee arrangements based on terms that are customary and commensurate with the services provided are deemed not to be variable interests and are, therefore, excluded.

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Table of Contents

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.
Adoption of New Accounting Standards
In February 2016, the FASB issued a new accounting standard update (ASU 2016-02, Leases (Topic 842)), which requires for all operating leases the recognition of a right-of-use ("ROU") asset and a corresponding lease liability, in the statement of financial position. For short term leases (term of 12 months or less), a lessee is permitted to make an accounting election not to recognize lease assets and lease liabilities. The lease cost will be allocated over the lease term on a straight-line basis. There were further amendments, including practical expedients, with the issuance of ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” in January 2018. In July 2018 the FASB issued ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements", which provides us with the option to apply the new leasing standard to all open leases as of the adoption date, on a prospective basis.
On January 1, 2019, we adopted the new accounting standard ASU 2016-02, Leases (Topic 842) and all the related amendments ("new lease standard", "ASC 842" or "ASU 2016-02") utilizing the practical expedient to apply the new lease standard as of the January 1, 2019 on a prospective basis. We also elected the "package of expedients" and elected as an accounting policy to exclude recording ROU assets and lease liabilities for leases that meet the definition of short-term leases. In addition to excluding short-term leases, we have implemented an accounting policy in which non-lease components are not separated from lease components in the measurement of ROU assets and lease liabilities for all lease contracts. The "package of expedients" allowed us to continue to account for existing leases for which the commencement date is before January 1, 2019, in accordance with the previous guidance, Leases (Topic 840), throughout the lease term, including periods after adoption of the new guidance. We recognized $146 million in ROU assets and $178 million in lease liabilities as a result of applying the new lease standard as an adjustment to our opening consolidated balance sheet on January 1, 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 9—"Leases" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional disclosures related to our leases.
In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium. The ASU requires entities to amortize premiums on debt securities by the first call date when the securities have fixed and determinable call dates and prices. The scope of the ASU includes all accounting premiums, such as purchase premiums and cumulative fair value hedge adjustments. The ASU does not change the accounting for discounts, which continue to be recognized over the contractual life of a security. Adoption of the ASU is on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption. Adoption of the ASU primarily affected our HTM portfolio of callable state and municipal debt securities. On January 1, 2019, we adopted the ASU and recognized a net reduction to retained earnings of $583 thousand.
Recent Accounting Pronouncements
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 over the life of the loan 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, 2019. We currently have a project team in place and subject matter experts to assist with our review of key interpretive issues and assist in the assessment of our existing credit loss forecasting models and processes against the new guidance to determine what modifications may be required. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In August 2018, the FASB issued a new accounting standard update (ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement). The ASU primarily modifies certain disclosures with respect to Level 3 fair value measurements. This guidance will be effective January 1, 2020, with early adoption permitted. This guidance will not have an impact on our consolidated financial position or results of operations, and we do not expect the adoption of this standard to have a material impact on the disclosures in our Notes to the Consolidated Financial Statements.
Reclassifications

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Certain prior period amounts, primarily related to presentation changes to our financial statement line items and immaterial changes to our reportable segments, have been reclassified to conform to current period presentations.
2.
Business Combination
On January 4, 2019, we completed the acquisition of Leerink Holdings LLC, the Boston-based parent company of healthcare and life science investment bank Leerink Partners LLC, now SVB Leerink Holdings LLC ("SVB Leerink"). The acquisition was previously announced on November 13, 2018. SVB Leerink is an investment bank specializing in Equity & Convertible Capital Markets, Mergers & Acquisitions, Equity Research and Sales & Trading for growth and innovation-minded healthcare and life science companies and operates as a wholly-owned subsidiary of SVB Financial.

The acquisition was accounted for as a business combination and accordingly, the results of SVB Leerink's operations have been included in the Company's consolidated statement of income for the three months ended March 31, 2019 from the date of acquisition. We acquired SVB Leerink for approximately $270.9 million comprised of cash and share-based replacement award liabilities. The previously announced agreed upon purchase price of $280.0 million included $9.1 million of post-combination expenses related to share-based replacement awards. In addition, we provided a retention pool for employees of $60.0 million to be paid over five years comprised of a mix of cash and equity issued under the Company's current Equity Incentive Plan. Refer to Note 4—“Share-Based Compensation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for more information. The following table summarizes the allocation of the purchase price to the net assets of SVB Leerink as of January 4, 2019:
(Dollars in thousands)
 
January 4, 2019
Cash paid
 
$
263,310

Replacement award liabilities (1)
 
7,629

Total purchase consideration
 
$
270,939

Fair value of net assets acquired
 
135,749

Goodwill
 
$
135,190

 
 
(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.
The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition:
(Dollars in thousands)
 
January 4, 2019
Assets acquired:
 
 
Cash and cash equivalents
 
$
163,273

Investment securities
 
32,986

Accounts receivable
 
37,538

Intangible assets
 
60,900

Other assets
 
35,128

Total assets acquired
 
329,825

Liabilities assumed:
 
 
Accrued compensation
 
137,206

Due to broker-dealers
 
18,483

Other liabilities
 
33,131

Noncontrolling interests
 
5,256

Total liabilities assumed
 
194,076

Fair value of net assets acquired
 
$
135,749


The Company recognized provisional identifiable intangible assets of $60.9 million and goodwill of $135.2 million as a result of the acquisition. The goodwill recorded includes revenue generating synergies expected from collaboration between SVB Leerink and the Company. All reported goodwill amounts have been allocated to the SVB Leerink reporting segment and are expected to be deductible for tax purposes. The Company recorded intangible assets of $60.9 million, which are subject to amortization

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over their estimated useful lives. These fair value estimates represent our best estimate of fair value at March 31, 2019. The final amounts are subject to the completion of the fiscal 2018 financial statement audit of Leerink Holdings LLC, which is expected to be completed during the second quarter of 2019. The fair value of the noncontrolling interests in Leerink Holdings LLC represents the noncontrolling ownership percentage for SVB Leerink's consolidated VIE investment securities which are measured at net asset value.
The following table summarizes the fair value and estimated useful lives of the other intangible assets at the date of acquisition:
(Dollars in thousands)
 
Estimated Fair Value
 
Weighted Average Estimated Useful Life - in Years
Other intangible assets:
 
 
 
 
Customer relationships
 
$
42,000

 
11.0
Other
 
18,900

 
9.9
Total other intangible assets
 
$
60,900

 


SVB Leerink's net income from January 4, 2019 through March 31, 2019 was approximately $5.8 million. Supplementary pro forma financial information related to the acquisition is not included because the impact to the Company's consolidated statements of income is not material. The following table represents the amount of revenue and earnings attributable to SVB Leerink that is included in our financial results from January 4, 2019 through March 31, 2019:
(Dollars in thousands)
 
Three months ended March 31, 2019
Net interest income
 
$
442

Noninterest income
 
68,117

Noninterest expense
 
60,540

Income before income tax expense
 
8,019

Income tax expense
 
2,174

Net income attributable to noncontrolling interests
 

Net income available to common stockholders
 
$
5,845

The following table shows the components of acquisition-related activities expense:
(Dollars in thousands)
 
Three months ended March 31, 2019
Professional fees
 
$
368

Other
 
204

Total acquisition-related expenses
 
$
572


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3.
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 months ended March 31, 2019 and 2018:
 
 
 
 
Three months ended March 31,
(Dollars in thousands)
 
Income Statement Location
 
2019
 
2018
Reclassification adjustment for losses on available-for-sale securities included in net income
 
Gains on investment securities, net
 
$
3,630

 
$

Related tax benefit
 
Income tax expense
 
(1,010
)
 

Reclassification adjustment for losses on cash flow hedges included in net income
 
Net interest income
 
3

 

Related tax benefit
 
Income tax expense
 
(1
)
 

Total reclassification adjustment for losses included in net income, net of tax
 
 
 
$
2,622

 
$

The table below summarizes the activity relating to net gains on our cash flow hedges included in accumulated other comprehensive income for the three months ended March 31, 2019 and 2018. Over the next 12 months, we expect that approximately $0.7 million in accumulated other comprehensive income ("AOCI") at March 31, 2019, related to our cash flow hedges will be reclassified out of AOCI and recognized in net income.
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Beginning balance
 
$

 
$

Net increase in fair value, net of tax
 
795

 

Net realized loss reclassified to net income, net of tax
 
2

 

Ending balance
 
$
797

 
$

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 issuable for stock options and restricted stock unit awards outstanding under our 2006 Equity Incentive Plan 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 months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars and shares in thousands, except per share amounts)
 
2019
 
2018
Numerator:
 
 
 
 
Net income available to common stockholders
 
$
288,732

 
$
194,961

Denominator:
 
 
 
 
Weighted average common shares outstanding—basic
 
52,587

 
52,883

Weighted average effect of dilutive securities:
 
 
 
 
Stock options and ESPP
 
297

 
420

Restricted stock units and awards
 
225

 
382

Weighted average common shares outstanding—diluted
 
53,109

 
53,685

Earnings per common share:
 
 
 
 
Basic
 
$
5.49

 
$
3.69

Diluted
 
5.44

 
3.63



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The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation due to the antidilutive effect for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Shares in thousands)
 
2019
 
2018
Stock options
 
91

 
4

Restricted stock units
 
134

 

Total
 
225

 
4

Stock Repurchase Program
On November 13, 2018, the Company announced a new program to repurchase up to $500 million of our outstanding common stock (the "Stock Repurchase Program"). For the three months ended March 31, 2019, we repurchased 0.5 million shares of our outstanding common stock for $116.0 million under the Stock Repurchase Program. As of March 31, 2019, we have repurchased 1.2 million shares of our outstanding common stock for $263.1 million under the Stock Repurchase Program.
4.
Share-Based Compensation
For the three months ended March 31, 2019 and 2018, we recorded share-based compensation and related tax benefits as follows: 
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Share-based compensation expense
 
$
15,122

 
$
10,523

Income tax benefit related to share-based compensation expense
 
(3,327
)
 
(2,317
)
Unrecognized Compensation Expense
As of March 31, 2019, unrecognized share-based compensation expense was as follows:
(Dollars in thousands)
 
  Unrecognized  
Expense
 
Weighted Average Expected
Recognition Period 
- in Years  
Stock options
 
$
10,714

 
2.58
Restricted stock units and awards
 
74,885

 
2.71
Total unrecognized share-based compensation expense
 
$
85,599

 
 
Share-Based Payment Award Activity
The table below provides stock option information related to the 2006 Equity Incentive Plan for the three months ended March 31, 2019:
 
 
Options
 
Weighted
Average
 Exercise Price 
 
Weighted Average Remaining Contractual Life - in Years  
 
Aggregate
  Intrinsic Value  
of In-The-
Money
Options
Outstanding at December 31, 2018
 
679,659

 
$
137.19

 
 
 
 
Granted
 
1,328

 
239.56

 
 
 
 
Exercised
 
(44,973
)
 
73.17

 
 
 
 
Forfeited
 
(1,897
)
 
168.90

 
 
 
 
Outstanding at March 31, 2019
 
634,117

 
141.85

 
3.45
 
$
58,330,402

Vested and expected to vest at March 31, 2019
 
620,349

 
139.89

 
3.41
 
57,863,381

Exercisable at March 31, 2019
 
366,474

 
103.35

 
2.36
 
43,630,770


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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 $222.36 as of March 31, 2019. The total intrinsic value of options exercised during the three months ended March 31, 2019 was $7.5 million, compared to $9.4 million for the comparable 2018 period.
The table below provides information for restricted stock units and awards under the 2006 Equity Incentive Plan for the three months ended March 31, 2019:
 
 
Shares    
 
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2018
 
597,296

 
$
194.48

Granted (1)
 
176,076

 
233.03

Vested
 
(65,748
)
 
97.06

Forfeited
 
(16,780
)
 
125.52

Nonvested at March 31, 2019
 
690,844

 
215.25

 
 
(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.
5.
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 qualified affordable housing projects.
The following table presents the carrying amounts and classification of significant variable interests in consolidated and unconsolidated VIEs as of March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
Consolidated VIEs
 
Unconsolidated VIEs
 
Maximum Exposure to Loss in Unconsolidated VIEs
March 31, 2019:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
4,660

 
$

 
$

Non-marketable and other equity securities (1)
 
224,136

 
591,260

 
591,260

Accrued interest receivable and other assets
 
764

 

 

Total assets
 
$
229,560

 
$
591,260

 
$
591,260

Liabilities:
 
 
 
 
 
 
Other liabilities (1)
 
1,975

 
223,206

 

Total liabilities
 
$
1,975

 
$
223,206

 
$

December 31, 2018:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
9,058

 
$

 
$

Non-marketable and other equity securities (1)
 
221,646

 
568,272

 
568,272

Accrued interest receivable and other assets
 
228

 

 

Total assets
 
$
230,932

 
$
568,272

 
$
568,272

Liabilities:
 
 
 
 
 
 
Other liabilities (1)
 
919

 
205,685

 

Total liabilities
 
$
919

 
$
205,685

 
$

 
 
(1)
Included in our unconsolidated non-marketable and other equity securities portfolio at March 31, 2019 and December 31, 2018 are investments in qualified affordable housing projects of $339.9 million and $318.6 million, respectively, and related other liabilities consisting of unfunded credit commitments of $223.2 million and $205.7 million, respectively.


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Non-marketable and other equity securities
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies and 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 equity securities portfolio also includes investments from SVB Capital. SVB Capital is the funds management business of SVB Financial Group, which focuses primarily on venture capital investments. 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 four 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 only 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. For additional details, see Note 16—“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 7—“Investment Securities" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
As of March 31, 2019, our exposure to loss with respect to the consolidated VIEs is limited to our net assets of $227.6 million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $591.3 million.
6.
Cash and Cash Equivalents
The following table details our cash and cash equivalents at March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
March 31, 2019

December 31, 2018
Cash and due from banks (1)
 
$
6,766,158

 
$
3,444,971

Securities purchased under agreements to resell (2)
 
298,755

 
123,611

Other short-term investment securities
 
1,970

 
2,957

Total cash and cash equivalents
 
$
7,066,883

 
$
3,571,539

 
 
(1)
At March 31, 2019 and December 31, 2018, $4.7 billion and $1.7 billion, respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $1.4 billion and $1.2 billion, respectively.
(2)
At March 31, 2019 and December 31, 2018, securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $304.7 million and $126.2 million, respectively. None of these securities were sold or repledged as of March 31, 2019 and December 31, 2018.

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7.
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 equity securities portfolio, which primarily represents investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised.
Available-for-Sale Securities
The major components of our available-for-sale investment securities portfolio at March 31, 2019 and December 31, 2018 are as follows:
 
 
March 31, 2019
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
3,767,777

 
$
19,425

 
$
(19,792
)
 
$
3,767,410

U.S. agency debentures
 
1,066,279

 
394

 
(2,960
)
 
1,063,713

Foreign government debt securities
 
5,689

 

 
(4
)
 
5,685

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,858,979

 

 
(19,096
)
 
1,839,883

Agency-issued collateralized mortgage obligations—variable rate
 
78,172

 
243

 
(12
)
 
78,403

Total available-for-sale securities
 
$
6,776,896

 
$
20,062

 
$
(41,864
)
 
$
6,755,094


 
 
December 31, 2018
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Carrying
Value
Available-for-sale securities, at fair value:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
4,762,182

 
$
11,638

 
$
(35,562
)
 
$
4,738,258

U.S. agency debentures
 
1,090,426

 
61

 
(6,370
)
 
1,084,117

Foreign government debt securities
 
5,815

 

 
(3
)
 
5,812

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,922,618

 

 
(42,400
)
 
1,880,218

Agency-issued collateralized mortgage obligations—variable rate
 
81,270

 
383

 
(15
)
 
81,638

Total available-for-sale securities
 
$
7,862,311

 
$
12,082

 
$
(84,350
)
 
$
7,790,043


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The following table summarizes sale activity of available-for-sale securities during the three months ended March 31, 2019 and 2018 as recorded in the line item “Gains on investment securities, net," a component of noninterest income:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Sales proceeds
 
$
1,171,564

 
$

Net realized gains and losses:
 
 
 
 
Gross realized gains
 

 

Gross realized losses
 
(3,630
)
 

Net realized losses
 
$
(3,630
)
 
$

The following tables summarize our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
 
Less than 12 months
 
12 months or longer (1)
 
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
 
$
101,342

 
$
(28
)
 
$
2,878,665

 
$
(19,764
)
 
$
2,980,007

 
$
(19,792
)
U.S. agency debentures
 

 

 
865,746

 
(2,960
)
 
865,746

 
(2,960
)
Foreign government debt securities
 
5,685

 
(4
)
 

 

 
5,685

 
(4
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
5,085

 

 
1,834,798

 
(19,096
)
 
1,839,883

 
(19,096
)
Agency-issued collateralized mortgage obligations—variable rate
 
2,630

 
(7
)
 
6,960

 
(5
)
 
9,590

 
(12
)
Total temporarily impaired securities (1)
 
$
114,742

 
$
(39
)
 
$
5,586,169

 
$
(41,825
)
 
$
5,700,911

 
$
(41,864
)
 
 
(1)
As of March 31, 2019, we identified a total of 159 investments that were in unrealized loss positions, of which 151 investments totaling $5.6 billion with unrealized losses of $41.8 million have been in an impaired position for a period of time greater than 12 months. As of March 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 March 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 available-for-sale securities portfolio are reviewed and monitored on a quarterly basis.
 
 
December 31, 2018
 
 
Less than 12 months
 
12 months or longer (1)
 
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
 
$
494,287

 
$
(3,785
)
 
$
3,568,119

 
$
(31,777
)
 
$
4,062,406

 
$
(35,562
)
U.S. agency debentures
 
443,790

 
(1,602
)
 
591,216

 
(4,768
)
 
1,035,006

 
(6,370
)
Foreign government debt securities
 
5,812

 
(3
)
 

 

 
5,812

 
(3
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
13,430

 
(22
)
 
1,866,788

 
(42,378
)
 
1,880,218

 
(42,400
)
Agency-issued collateralized mortgage obligations—variable rate
 

 

 
13,516

 
(15
)
 
13,516

 
(15
)
Total temporarily impaired securities (1)
 
$
957,319

 
$
(5,412
)
 
$
6,039,639

 
$
(78,938
)
 
$
6,996,958

 
$
(84,350
)
 
 

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(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.
The following table summarizes the fixed income securities, carried at fair value, classified as available-for-sale as of March 31, 2019 by the remaining contractual principal maturities. 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 interest rate environments.
 
 
March 31, 2019
(Dollars in thousands)
 
Total
 
One Year
or Less
 
After One
Year to
Five Years
 
After Five
Years to
Ten Years
 
After
Ten Years
U.S. Treasury securities
 
$
3,767,410

 
$
1,165,910

 
$
2,194,840

 
$
406,660

 
$

U.S. agency debentures
 
1,063,713

 
643,279

 
420,434

 

 

Foreign government debt securities
 
5,685

 

 
5,685

 

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,839,883

 

 

 
8,654

 
1,831,229

Agency-issued collateralized mortgage obligationsvariable rate
 
78,403

 

 

 

 
78,403

Total
 
$
6,755,094

 
$
1,809,189

 
$
2,620,959

 
$
415,314

 
$
1,909,632

Held-to-Maturity Securities

The components of our held-to-maturity investment securities portfolio at March 31, 2019 and December 31, 2018 are as follows:
 
 
March 31, 2019
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Held-to-maturity securities, at cost:
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
585,892

 
$
2,858

 
$
(2,950
)
 
$
585,800

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
7,887,579

 
41,279

 
(50,917
)
 
7,877,941

Agency-issued collateralized mortgage obligations—fixed rate
 
2,058,789

 
66

 
(40,414
)
 
2,018,441

Agency-issued collateralized mortgage obligations—variable rate
 
206,421

 
114

 
(727
)
 
205,808

Agency-issued commercial mortgage-backed securities
 
2,745,662

 
16,866

 
(53,676
)
 
2,708,852

Municipal bonds and notes
 
1,570,912

 
30,028

 
(1,274
)
 
1,599,666

Total held-to-maturity securities
 
$
15,055,255

 
$
91,211

 
$
(149,958
)
 
$
14,996,508

 
 
(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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December 31, 2018
(Dollars in thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Held-to-maturity securities, at cost:
 
 
 
 
 
 
 
 
U.S. agency debentures (1)
 
$
640,990

 
$
2,148

 
$
(4,850
)
 
$
638,288

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
8,103,638

 
5,011

 
(157,767
)
 
7,950,882

Agency-issued collateralized mortgage obligations—fixed rate
 
2,183,204

 

 
(62,272
)
 
2,120,932

Agency-issued collateralized mortgage obligations—variable rate
 
214,483

 
608

 
(14
)
 
215,077

Agency-issued commercial mortgage-backed securities
 
2,769,706

 
6,969

 
(64,374
)
 
2,712,301

Municipal bonds and notes
 
1,575,421

 
2,304

 
(26,969
)
 
1,550,756

Total held-to-maturity securities
 
$
15,487,442

 
$
17,040

 
$
(316,246
)
 
$
15,188,236

 
 
(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.

The following tables summarize our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
 
Less than 12 months
 
12 months or longer (1)
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency debentures
 
$
86,931

 
$
(222
)
 
$
278,876

 
$
(2,728
)
 
$
365,807

 
$
(2,950
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 

 

 
4,886,510

 
(50,917
)
 
4,886,510

 
(50,917
)
Agency-issued collateralized mortgage obligations—fixed rate
 

 

 
2,002,038

 
(40,414
)
 
2,002,038

 
(40,414
)
Agency-issued collateralized mortgage obligations—variable rate
 
162,374

 
(720
)
 
7,837

 
(7
)
 
170,211

 
(727
)
Agency-issued commercial mortgage-backed securities
 
48,634

 
(70
)
 
1,622,658

 
(53,606
)
 
1,671,292

 
(53,676
)
Municipal bonds and notes
 
1,485

 

 
142,042

 
(1,274
)
 
143,527

 
(1,274
)
Total temporarily impaired securities (1)
 
$
299,424

 
$
(1,012
)
 
$
8,939,961

 
$
(148,946
)
 
$
9,239,385

 
$
(149,958
)
 
 
(1)
As of March 31, 2019, we identified a total of 676 investments that were in unrealized loss positions, of which 659 investments totaling $8.9 billion with unrealized losses of $148.9 million have been in an impaired position for a period of time greater than 12 months. As of March 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 March 31, 2019, 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.

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December 31, 2018
 
 
Less than 12 months
 
12 months or longer (1)
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency debentures
 
$
291,432

 
$
(2,915
)
 
$
66,624

 
$
(1,935
)
 
$
358,056

 
$
(4,850
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
2,493,156

 
(34,956
)
 
3,972,690

 
(122,811
)
 
6,465,846

 
(157,767
)
Agency-issued collateralized mortgage obligations—fixed rate
 
16,952

 
(109
)
 
2,103,980

 
(62,163
)
 
2,120,932

 
(62,272
)
Agency-issued collateralized mortgage obligations—variable rate
 
3,364

 
(1
)
 
8,101

 
(13
)
 
11,465

 
(14
)
Agency-issued commercial mortgage-backed securities
 
177,697

 
(1,580
)
 
1,600,277

 
(62,794
)
 
1,777,974

 
(64,374
)
Municipal bonds and notes
 
868,751

 
(17,075
)
 
340,413

 
(9,894
)
 
1,209,164

 
(26,969
)
Total temporarily impaired securities (1)
 
$
3,851,352

 
$
(56,636
)
 
$
8,092,085

 
$
(259,610
)
 
$
11,943,437

 
$
(316,246
)
 
 
(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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The following table summarizes the remaining contractual principal maturities on fixed income investment securities classified as held-to-maturity as of March 31, 2019. 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 interest rate environments.
 
 
March 31, 2019
 
 
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
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
U.S. agency debentures
 
$
585,892

 
$
585,800

 
$

 
$

 
$
101,464

 
$
101,854

 
$
484,428

 
$
483,946

 
$

 
$

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
7,887,579

 
7,877,941

 

 

 
133,021

 
131,935

 
868,170

 
854,690

 
6,886,388

 
6,891,316

Agency-issued collateralized mortgage obligationsfixed rate
 
2,058,789

 
2,018,441

 

 

 

 

 
515,013

 
501,867

 
1,543,776

 
1,516,574

Agency-issued collateralized mortgage obligationsvariable rate
 
206,421

 
205,808

 

 

 

 

 

 

 
206,421

 
205,808

Agency-issued commercial mortgage-backed securities
 
2,745,662

 
2,708,852

 

 

 

 

 

 

 
2,745,662

 
2,708,852

Municipal bonds and notes
 
1,570,912

 
1,599,666

 
13,230

 
13,231

 
80,710

 
80,824

 
318,981

 
322,914

 
1,157,991

 
1,182,697

Total
 
$
15,055,255

 
$
14,996,508

 
$
13,230

 
$
13,231

 
$
315,195

 
$
314,613

 
$
2,186,592

 
$
2,163,417

 
$
12,540,238

 
$
12,505,247



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Table of Contents

Non-marketable and Other Equity Securities
The major components of our non-marketable and other equity securities portfolio at March 31, 2019 and December 31, 2018 are as follows:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Non-marketable and other equity securities:
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
Consolidated venture capital and private equity fund investments (1)
 
$
108,404

 
$
118,333

Unconsolidated venture capital and private equity fund investments (2)
 
196,049

 
201,098

Other investments without a readily determinable fair value (3)
 
37,796

 
25,668

Other equity securities in public companies (fair value accounting) (4)
 
11,644

 
20,398

Non-marketable securities (equity method accounting) (5):
 
 
 
 
Venture capital and private equity fund investments
 
148,096

 
129,485

Debt funds
 
5,826

 
5,826

Other investments
 
127,264

 
121,721

Investments in qualified affordable housing projects, net (6)
 
339,900

 
318,575

Total non-marketable and other equity securities
 
$
974,979

 
$
941,104

 
(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 March 31, 2019 and December 31, 2018 (fair value accounting):
 
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Strategic Investors Fund, LP
 
$
8,618

 
12.6
%
 
$
12,452

 
12.6
%
Capital Preferred Return Fund, LP
 
51,219

 
20.0

 
53,957

 
20.0

Growth Partners, LP
 
47,532

 
33.0

 
50,845

 
33.0

CP I, LP
 
1,035

 
10.7

 
1,079

 
10.7

Total consolidated venture capital and private equity fund investments
 
$
108,404

 
 
 
$
118,333

 
 

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Table of Contents

(2)
The carrying value represents investments in 212 and 213 funds (primarily venture capital funds) at March 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 December 31st for our March 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.
The following table shows the changes to the carrying amount of other investments without a readily determinable fair value for the three months ended March 31, 2019:
(Dollars in thousands)
 
Three months ended March 31, 2019
 
Cumulative Adjustments
Measurement alternative:
 
 
 
 
Carrying value at March 31, 2019
 
$
37,796

 
 
Carrying value adjustments:
 
 
 
 
Impairment
 
$

 
$

Upward changes for observable prices
 
5,071

 
6,755

Downward changes for observable prices
 
121

 
625

(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. Changes in equity securities measured at fair value are recognized through net income.


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Table of Contents

(5)
The following table shows the carrying value and our ownership percentage of each investment at March 31, 2019 and December 31, 2018 (equity method accounting):
 
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
 
Amount
 
Ownership %
 
Amount
 
Ownership %
Venture capital and private equity fund investments:
 
 
 
 
 
 
 
 
Strategic Investors Fund II, LP
 
$
4,648

 
8.6
%
 
$
4,670

 
8.6
%
Strategic Investors Fund III, LP
 
17,485

 
5.9

 
17,396

 
5.9

Strategic Investors Fund IV, LP
 
28,785

 
5.0

 
28,974

 
5.0

Strategic Investors Fund V funds
 
28,953

 
Various

 
28,189

 
Various

CP II, LP (i)
 
7,454

 
5.1

 
7,122

 
5.1

Other venture capital and private equity fund investments
 
60,771

 
Various

 
43,134

 
Various

 Total venture capital and private equity fund investments
 
$
148,096

 
 
 
$
129,485

 
 
Debt funds:
 
 
 
 
 
 
 
 
Gold Hill Capital 2008, LP (ii)
 
$
3,901

 
15.5
%
 
$
3,901

 
15.5
%
Other debt funds
 
1,925

 
Various

 
1,925

 
Various

Total debt funds
 
$
5,826

 
 
 
$
5,826

 
 
Other investments:
 
 
 
 
 
 
 
 
SPD Silicon Valley Bank Co., Ltd.
 
$
79,415

 
50.0
%
 
$
76,412

 
50.0
%
Other investments
 
47,849

 
Various

 
45,309

 
Various

Total other investments
 
$
127,264

 
 
 
$
121,721

 
 

 
(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 March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Investments in qualified affordable housing projects, net
 
$
339,900

 
318,575

Other liabilities
 
223,206

 
205,685


The following table presents other information relating to our investments in qualified affordable housing projects for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Tax credits and other tax benefits recognized
 
$
9,257

 
$
5,422

Amortization expense included in provision for income taxes (i)
 
7,636

 
4,792

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

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The following table presents the net gains and losses on non-marketable and other equity securities for the three months ended March 31, 2019 and 2018 as recorded in the line item “Gains on investment securities, net," a component of noninterest income:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Net gains (losses) on non-marketable and other equity securities:
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
Consolidated venture capital and private equity fund investments
 
$
3,289

 
$
11,647

Unconsolidated venture capital and private equity fund investments
 
8,006

 
11,719

Other investments without a readily determinable fair value
 
5,005

 
1,741

Other equity securities in public companies (fair value accounting)
 
11,803

 
(22,282
)
Non-marketable securities (equity method accounting):
 


 


Venture capital and private equity fund investments
 
2,789

 
9,569

Debt funds
 

 
(2,299
)
Other investments
 
1,766

 
(1,037
)
Total net gains on non-marketable and other equity securities
 
$
32,658

 
$
9,058

Less: realized net gains (losses) on sales of securities (1)
 
9,835

 
(22,490
)
Net gains on non-marketable and other equity securities still held
 
$
22,823

 
$
31,548

 
 
(1)
Realized gains and losses include sales of non-marketable and other equity securities. No OTTI was recorded during the three months ended March 31, 2019 and 2018.

8.
Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments
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, data, storage, and electronics), software/internet (such as infrastructure software, applications, software services, digital content and advertising technology), 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/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 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 $170 million and $173 million at March 31, 2019 and December 31, 2018, respectively, is presented in the following table:

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Table of Contents

(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Commercial loans:
 
 
 
 
Software/internet
 
$
6,236,266

 
$
6,154,755

Hardware
 
1,256,891

 
1,234,557

Private equity/venture capital
 
14,308,077

 
14,110,560

Life science/healthcare
 
2,522,731

 
2,385,612

Premium wine
 
256,021

 
249,266

Other
 
260,206

 
321,978

Total commercial loans
 
24,840,192

 
24,456,728

Real estate secured loans:
 
 
 
 
Premium wine (1)
 
758,954

 
710,397

Consumer loans (2)
 
2,679,084

 
2,612,971

Other
 
40,037

 
40,435

Total real estate secured loans
 
3,478,075

 
3,363,803

Construction loans
 
111,854

 
97,077

Consumer loans
 
420,324

 
420,672

Total loans, net of unearned income (3)
 
$
28,850,445

 
$
28,338,280

 
 
(1)
Included in our premium wine portfolio are gross construction loans of $96 million and $99 million at March 31, 2019 and December 31, 2018, respectively.
(2)
Consumer loans secured by real estate at March 31, 2019 and December 31, 2018 were comprised of the following:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Loans for personal residence
 
$
2,311,701

 
$
2,251,292

Loans to eligible employees
 
302,671

 
290,194

Home equity lines of credit
 
64,712

 
71,485

Consumer loans secured by real estate
 
$
2,679,084

 
$
2,612,971

(3)
Included within our total loan portfolio are credit card loans of $375 million and $335 million at March 31, 2019 and December 31, 2018, respectively.
Credit Quality
The composition of loans, net of unearned income of $170 million and $173 million at March 31, 2019 and December 31, 2018, respectively, broken out by portfolio segment and class of financing receivable, is as follows:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Commercial loans:
 
 
 
 
Software/internet
 
$
6,236,266

 
$
6,154,755

Hardware
 
1,256,891

 
1,234,557

Private equity/venture capital
 
14,308,077

 
14,110,560

Life science/healthcare
 
2,522,731

 
2,385,612

Premium wine
 
1,014,975

 
959,663

Other
 
412,097

 
459,490

Total commercial loans
 
25,751,037

 
25,304,637

Consumer loans:
 
 
 
 
Real estate secured loans
 
2,679,084

 
2,612,971

Other consumer loans
 
420,324

 
420,672

Total consumer loans
 
3,099,408

 
3,033,643

Total loans, net of unearned income
 
$
28,850,445

 
$
28,338,280


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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 March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
30 - 59
  Days Past  
Due
 
60 - 89
  Days Past  
Due
 
Equal to or Greater
Than 90
  Days Past  
Due
 
  Total Past  
Due
 
Current  
 
  Loans Past Due  
90 Days or
More Still
Accruing
Interest
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software/internet
 
$
34,680

 
$
4,042

 
$
1,945

 
$
40,667

 
$
6,147,766

 
$
1,945

Hardware
 
379

 
55

 

 
434

 
1,245,841

 

Private equity/venture capital
 
24,960

 

 
1

 
24,961

 
14,284,752

 
1

Life science/healthcare
 
2,711

 
640

 
201

 
3,552

 
2,522,991

 
201

Premium wine
 
2,981

 

 

 
2,981

 
1,011,487

 

Other
 
1

 
4

 
1

 
6

 
445,402

 
1

Total commercial loans
 
65,712

 
4,741

 
2,148

 
72,601

 
25,658,239

 
2,148

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
3,050

 

 

 
3,050

 
2,664,875

 

Other consumer loans
 

 

 

 

 
420,647

 

Total consumer loans
 
3,050

 

 

 
3,050

 
3,085,522

 

Total gross loans excluding impaired loans
 
68,762

 
4,741

 
2,148

 
75,651

 
28,743,761

 
2,148

Impaired loans
 
11,562

 
2,517

 
26,412

 
40,491

 
160,616

 

Total gross loans
 
$
80,324

 
$
7,258

 
$
28,560

 
$
116,142

 
$
28,904,377

 
$
2,148

December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software/internet
 
$
28,134

 
$
6,944

 
$
378

 
$
35,456

 
$
6,059,672

 
$
378

Hardware
 
300

 
34

 
4

 
338

 
1,233,956

 
4

Private equity/venture capital
 
59,481

 
11

 

 
59,492

 
14,054,940

 

Life science/healthcare
 
16,082

 
817

 
19

 
16,918

 
2,410,091

 
19

Premium wine
 
2,953

 
14

 

 
2,967

 
956,285

 

Other
 
7,391

 
163

 
1

 
7,555

 
477,442

 
1

Total commercial loans
 
114,341

 
7,983

 
402

 
122,726

 
25,192,386

 
402

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
3,598

 
1,750

 
1,562

 
6,910

 
2,598,496

 
1,562

Other consumer loans
 
361

 

 

 
361

 
420,359

 

Total consumer loans
 
3,959

 
1,750

 
1,562

 
7,271

 
3,018,855

 
1,562

Total gross loans excluding impaired loans
 
118,300

 
9,733

 
1,964

 
129,997

 
28,211,241

 
1,964

Impaired loans
 
2,843

 
1,181

 
25,092

 
29,116

 
140,958

 

Total gross loans
 
$
121,143

 
$
10,914

 
$
27,056

 
$
159,113

 
$
28,352,199

 
$
1,964


28

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 March 31, 2019 and December 31, 2018:
(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
March 31, 2019:
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
Software/internet
 
$
45,908

 
$
53,026

 
$
98,934

 
$
117,640

Hardware
 
8,054

 
11,753

 
19,807

 
20,482

Private equity/venture capital
 
2,247

 
3,700

 
5,947

 
5,947

Life science/healthcare
 
52,944

 
14,427

 
67,371

 
78,353

Premium wine
 

 
1,236

 
1,236

 
1,305

Other
 
4

 

 
4

 
4

Total commercial loans
 
109,157

 
84,142

 
193,299

 
223,731

Consumer loans:
 
 
 
 
 
 
 
 
Real estate secured loans
 
1,827

 
5,967

 
7,794

 
9,691

Other consumer loans
 
14

 

 
14

 
15

Total consumer loans
 
1,841

 
5,967

 
7,808

 
9,706

Total
 
$
110,998

 
$
90,109

 
$
201,107

 
$
233,437

December 31, 2018:
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
Software/internet
 
$
49,625

 
$
65,225

 
$
114,850

 
$
131,858

Hardware
 
1,256

 
10,250

 
11,506

 
12,159

Private equity/venture capital
 

 
3,700

 
3,700

 
3,700

Life science/healthcare
 
17,791

 
16,276

 
34,067

 
44,446

Premium wine
 

 
1,301

 
1,301

 
1,365

Other
 
411

 

 
411

 
411

Total commercial loans
 
69,083

 
96,752

 
165,835

 
193,939

Consumer loans:
 
 
 
 
 
 
 
 
Real estate secured loans
 
3,919

 
320

 
4,239

 
5,969

Other consumer loans
 

 

 

 

Total consumer loans
 
3,919

 
320

 
4,239

 
5,969

Total
 
$
73,002

 
$
97,072

 
$
170,074

 
$
199,908





29

Table of Contents

The following tables summarize our average impaired loans and interest income recognized on impaired loans, broken out by portfolio segment and class of financing receivable for the three months ended March 31, 2019 and 2018:
Three months ended March 31,
 
Average impaired loans
 
Interest income recognized on impaired loans
(Dollars in thousands)
 
2019

2018

2019

2018
Commercial loans:
 
 
 
 
 
 
 
 
Software/internet
 
$
104,312

 
$
108,788

 
$
603

 
$
532

Hardware
 
16,815

 
38,426

 
252

 
363

Private equity/venture capital
 
5,198

 
302

 

 

Life science/healthcare
 
44,163

 
22,679

 
347

 
37

Premium wine
 
1,256

 
2,769

 
18

 
36

Other
 
140

 
11

 

 

Total commercial loans
 
171,884

 
172,975

 
1,220

 
968

Consumer loans:
 
 
 
 
 
 
 
 
Real estate secured loans
 
9,613

 
3,063

 
54

 

Other consumer loans
 
5

 
739

 

 
5

Total consumer loans
 
9,618

 
3,802

 
54

 
5

Total average impaired loans
 
$
181,502

 
$
176,777

 
$
1,274

 
$
973

The following tables summarize the activity relating to our allowance for loan losses for the three months ended March 31, 2019 and 2018, broken out by portfolio segment:
Three months ended March 31, 2019
 
Beginning Balance December 31, 2018
 
Charge-offs
 
Recoveries
 
Provision for
(Reduction of) Loan Losses
 
Foreign Currency Translation Adjustments
 
Ending Balance March 31, 2019
(Dollars in thousands)
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software/internet
 
$
103,567

 
$
(8,254
)
 
$
1,054

 
$
(658
)
 
$
(26
)
 
$
95,683

Hardware
 
19,725

 
(253
)
 
56

 
5,384

 
209

 
25,121

Private equity/venture capital
 
98,581

 

 

 
(1,079
)
 
(42
)
 
97,460

Life science/healthcare
 
32,180

 
(23
)
 
105

 
22,672

 
880

 
55,814

Premium wine
 
3,355

 

 

 
427

 
17

 
3,799

Other
 
3,558

 
(411
)
 

 
59

 
2

 
3,208

Total commercial loans
 
260,966

 
(8,941
)
 
1,215

 
26,805

 
1,040

 
281,085

Total consumer loans
 
19,937

 
(59
)
 
210

 
(984
)
 
(38
)
 
19,066

Total allowance for loan losses
 
$
280,903

 
$
(9,000
)
 
$
1,425

 
$
25,821

 
$
1,002

 
$
300,151



30

Table of Contents

Three months ended March 31, 2018
 
Beginning Balance December 31, 2017
 
Charge-offs
 
Recoveries
 
Provision for
(Reduction of) Loan Losses
 
Foreign Currency Translation Adjustments
 
Ending Balance March 31, 2018
(Dollars in thousands)
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
Software/internet
 
$
96,104

 
$
(6,671
)
 
$
573

 
$
12,801

 
$
488

 
$
103,295

Hardware
 
27,614

 
(2,953
)
 
588

 
3,104

 
119

 
28,472

Private equity/venture capital
 
82,468

 

 
10

 
8,805

 
335

 
91,618

Life science/healthcare
 
24,924

 
(864
)
 
53

 
1,631

 
62

 
25,806

Premium wine
 
3,532

 

 

 
(161
)
 
(6
)
 
3,365

Other
 
3,941

 
(99
)
 
537

 
(906
)
 
9

 
3,482

Total commercial loans
 
238,583

 
(10,587
)
 
1,761

 
25,274

 
1,007

 
256,038

Total consumer loans
 
16,441

 

 
27

 
1,722

 
66

 
18,256

Total allowance for loan losses
 
$
255,024

 
$
(10,587
)
 
$
1,788

 
$
26,996

 
$
1,073

 
$
274,294

The following table summarizes the activity relating to our allowance for unfunded credit commitments for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Allowance for unfunded credit commitments, beginning balance
 
$
55,183

 
$
51,770

Provision for unfunded credit commitments
 
2,730

 
976

Foreign currency translation adjustments
 
57

 
77

Allowance for unfunded credit commitments, ending balance (1)
 
$
57,970

 
$
52,823

 
(1)
See Note 16—“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 for additional disclosures related to our commitments to extend credit.
The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of March 31, 2019 and December 31, 2018, broken out by portfolio segment:
 
 
March 31, 2019
 
December 31, 2018
 
 
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/internet
 
$
22,770

 
$
98,934

 
$
72,913

 
$
6,137,332

 
$
28,527

 
$
114,850

 
$
75,040

 
$
6,039,905

Hardware
 
5,311

 
19,807

 
19,810

 
1,237,084

 
1,253

 
11,506

 
18,472

 
1,223,051

Private equity/venture capital
 
2,247

 
5,947

 
95,213

 
14,302,130

 

 
3,700

 
98,581

 
14,106,860

Life science/healthcare
 
30,730

 
67,371

 
25,084

 
2,455,360

 
7,484

 
34,067

 
24,696

 
2,351,545

Premium wine
 

 
1,236

 
3,799

 
1,013,739

 

 
1,301

 
3,355

 
958,362

Other
 
4

 
4

 
3,204

 
412,093

 
411

 
411

 
3,147

 
459,079

Total commercial loans
 
61,062

 
193,299

 
220,023

 
25,557,738

 
37,675

 
165,835

 
223,291

 
25,138,802

Total consumer loans
 
163

 
7,808

 
18,903

 
3,091,600

 
266

 
4,239

 
19,671

 
3,029,404

Total
 
$
61,225

 
$
201,107

 
$
238,926

 
$
28,649,338

 
$
37,941

 
$
170,074

 
$
242,962

 
$
28,168,206



31

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 full repayment of a criticized loan has been deemed improbable under the original contractual terms but full repayment remains probable overall, the loan is considered to be a “Performing Impaired (Criticized)” loan. 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 2018 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 March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
Pass
 
Performing (Criticized)
 
Performing Impaired (Criticized)
 
Nonperforming Impaired (Nonaccrual)
 
Total
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
Software/internet
 
$
5,619,634

 
$
568,799

 
$
36,336

 
$
62,598

 
$
6,287,367

Hardware
 
1,096,461

 
149,814

 
11,753

 
8,054

 
1,266,082

Private equity/venture capital
 
14,306,933

 
2,780

 

 
5,947

 
14,315,660

Life science/healthcare
 
2,422,438

 
104,105

 
14,427

 
52,944

 
2,593,914

Premium wine
 
945,712

 
68,756

 
968

 
268

 
1,015,704

Other
 
425,012

 
20,396

 

 
4

 
445,412

Total commercial loans
 
24,816,190

 
914,650

 
63,484

 
129,815

 
25,924,139

Consumer loans:
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
2,656,069

 
11,856

 
4,000

 
3,794

 
2,675,719

Other consumer loans
 
419,732

 
915

 

 
14

 
420,661

Total consumer loans
 
3,075,801

 
12,771

 
4,000

 
3,808

 
3,096,380

Total gross loans
 
$
27,891,991

 
$
927,421

 
$
67,484

 
$
133,623

 
$
29,020,519

December 31, 2018:
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
Software/internet
 
$
5,574,332

 
$
520,796

 
$
48,069

 
$
66,781

 
$
6,209,978

Hardware
 
1,146,985

 
87,309

 
10,250

 
1,256

 
1,245,800

Private equity/venture capital
 
14,098,281

 
16,151

 

 
3,700

 
14,118,132

Life science/healthcare
 
2,291,356

 
135,653

 
16,276

 
17,791

 
2,461,076

Premium wine
 
909,965

 
49,287

 
1,017

 
284

 
960,553

Other
 
467,653

 
17,344

 

 
411

 
485,408

Total commercial loans
 
24,488,572

 
826,540

 
75,612

 
90,223

 
25,480,947

Consumer loans:
 
 
 
 
 
 
 
 
 
 
Real estate secured loans
 
2,584,261

 
21,145

 
320

 
3,919

 
2,609,645

Other consumer loans
 
419,771

 
949

 

 

 
420,720

Total consumer loans
 
3,004,032

 
22,094

 
320

 
3,919

 
3,030,365

Total gross loans
 
$
27,492,604

 
$
848,634

 
$
75,932

 
$
94,142

 
$
28,511,312



32

Table of Contents

Troubled Debt Restructurings
As of March 31, 2019, we had 19 TDRs with a total carrying value of $86.9 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were $3.3 million of unfunded commitments available for funding to the clients associated with these TDRs as of March 31, 2019.
The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Loans modified in TDRs:
 
 
 
 
Commercial loans:
 
 
 
 
Software/internet
 
$
55,493

 
$
58,089

Hardware
 
11,759

 
9,665

Life science/healthcare
 
16,532

 
12,738

Premium wine
 
2,806

 
2,883

Total commercial loans
 
86,590

 
83,375

Consumer loans:
 
 
 
 
Other consumer loans
 
318

 
320

Total loans modified in TDRs
 
$
86,908

 
$
83,695

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 months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Loans modified in TDRs during the period:
 
 
 
 
Commercial loans:
 
 
 
 
Software/internet
 
$
677

 
$
756

Hardware
 

 
1,559

Life science/healthcare
 
5,000

 
1,239

Total commercial loans
 
5,677

 
3,554

Consumer loans:
 
 
 
 
Other consumer loans
 

 
326

Total loans modified in TDRs during the period (1)
 
$
5,677

 
$
3,880

 
 
(1)
There were $2.2 million of partial charge-offs for the three months ended March 31, 2019 and no partial charge-offs during the three months ended March 31, 2018.
During the three months ended March 31, 2019 and 2018, all new TDRs of $5.7 million and $3.9 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 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.

33

Table of Contents

The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
TDRs modified within the previous 12 months that defaulted during the period:
 
 
 
 
Commercial loans:
 
 
 
 
Software/internet
 
$

 
$
3,032

Life science/healthcare
 
5,000

 

Total TDRs modified within the previous 12 months that defaulted in the period
 
$
5,000

 
$
3,032

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 for TDRs was necessary to determine the allowance for loan losses as of March 31, 2019.
9.
Leases
We have operating leases for our corporate offices, data centers and certain equipment utilized at those properties. We are obligated under a number of noncancelable operating leases for premises and equipment that expire at various dates, through 2030, and in most instances, include options to renew or extend at market rates and terms. Such leases may provide for periodic adjustments of rentals during the term of the lease based on changes in various economic indicators.
At the inception of the lease, the lease is evaluated to determine whether the lease will be accounted for as an operating or a finance lease. There were no significant assumptions or judgments required upon applying the new lease standard. Operating lease ROU assets and operating lease liabilities are included in our consolidated balance sheets. We have no leases that meet the definition of a finance lease under ASC 842 and our lessor accounting treatment for subleases is not material. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Total recorded balances for the lease assets and liabilities are as follows:
(Dollars in thousands)
 
March 31, 2019
Assets:
 
 
Right-of-use assets - operating leases (1)
 
$
164,659

Liabilities:
 
 
Lease liabilities - operating leases (1)
 
205,167

 
(1)
Included in these amounts are $24.4 million and $33.7 million of ROU assets and lease liabilities, respectively, attributable to the inclusion of SVB Leerink in our financial results at March 31, 2019.

34

Table of Contents

The components of our lease cost and other information related to leases for the three months ended March 31, 2019 were as follows:
 (Dollars in thousands)
 
Three months ended March 31, 2019
Operating lease cost
 
$
9,518

Short-term lease cost
 
263

Variable lease cost
 
846

Less: sublease income
 
(1,108
)
Total lease cost, net
 
$
9,519

Other information:
 
 
Weighted-average remaining term (in years) - operating leases
 
6.40

Weighted-average discount rate - operating leases (1)
 
3.18
%
Supplemental cash flows information:
 
 
Cash paid for operating leases
 
$
10,354

 
(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.

The following table presents our undiscounted future cash payments for our operating lease liabilities as of March 31, 2019:
(Dollars in thousands)
 
Operating Leases
2019 (excluding the three months ended March 31, 2019)
 
$
32,717

2020
 
40,282

2021
 
37,458

2022
 
31,902

2023
 
30,440

2024 and thereafter
 
38,577

Total future lease payments (1)
 
$
211,376

Less: imputed interest
 
(6,209
)
Total lease liabilities
 
$
205,167

 
(1)
As of March 31, 2019, we have additional operating leases that have not yet commenced. We estimate that we will record additional operating lease liabilities of $27.1 million upon commencement. These operating leases will commence in 2019 with lease terms of one to ten years.


35

Table of Contents

The following table presents minimum future payments under noncancelable operating leases under ASC 840, Leases as of December 31, 2018:

(Dollars in thousands)
 
Amount
2019
 
$
38,609

2020
 
37,575

2021
 
35,854

2022
 
31,659

2023
 
30,904

2024 and thereafter
 
49,071

Total minimum future payments
 
$
223,672

10.
Goodwill and Other Intangible Assets

Goodwill
On January 4, 2019, we completed the acquisition of Leerink Holdings LLC, the Boston-based parent company of healthcare and life science investment bank Leerink Partners LLC, now SVB Leerink. We recognized provisional identifiable intangible assets of $60.9 million and goodwill of $135.2 million as a result of the acquisition. For additional information, refer to Note 2—“Business Combination” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report. The goodwill of $135.2 million includes revenue generating synergies expected from collaboration between SVB Leerink and the Company.
The changes in goodwill were as follows for the three months ended March 31, 2019:
(Dollars in thousands)
 
Goodwill
Beginning balance at December 31, 2018
 
$

Acquisitions (1)
 
135,190

Ending balance at March 31, 2019
 
$
135,190

 
(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 15—“Segment Reporting” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional information.

Other Intangible Assets
The components of net other intangible assets related to the acquisition of SVB Leerink were as follows:
 
 
March 31, 2019
(Dollars in thousands)
 
Gross Amount
 
Accumulated Amortization
 
Net Carrying Amount
Other intangible assets:
 
 
 
 
 
 
Customer relationships
 
$
42,000

 
$
955

 
$
41,045

Other
 
18,900

 
1,916

 
16,984

Total other intangible assets
 
$
60,900

 
$
2,871

 
$
58,029



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For the three months ended March 31, 2019, we recorded amortization expense of $2.9 million. Assuming no future impairments of other intangible assets or additional acquisitions or dispositions, the following table presents the Company's future expected amortization expense for other intangible assets that will continue to be amortized:
Years ended December 31,
(Dollars in thousands)
 
Other Intangible Assets
2019 (excluding the three months ended March 31, 2019)
 
$
8,612

2020
 
5,382

2021
 
4,732

2022
 
4,732

2023
 
4,732

2024 and thereafter
 
29,839

Total future amortization expense
 
$
58,029

11.
Short-Term Borrowings and Long-Term Debt
The following table represents outstanding short-term borrowings and long-term debt at March 31, 2019 and December 31, 2018:
 
 
 
 
 
 
Carrying Value
(Dollars in thousands)
 
Maturity
 
Principal value at March 31, 2019
 
March 31,
2019
 
December 31,
2018
Short-term borrowings:
 
 
 
 
 
 
 
 
Short-term FHLB advances
 

 


 
$

 
$
300,000

Securities sold under agreement to repurchase
 
(1)
 


 

 
319,414

Other short-term borrowings
 
(2)
 
$
14,455

 
14,455

 
11,998

Total short-term borrowings
 
 
 
 
 
$
14,455

 
$
631,412

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

 
$
347,725

 
$
347,639

5.375% Senior Notes
 
September 15, 2020
 
350,000

 
348,990

 
348,826

Total long-term debt
 
 
 
 
 
$
696,715

 
$
696,465

 
 
(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.
Interest expense related to short-term borrowings and long-term debt was $10.2 million for the three months ended March 31, 2019 and $8.4 million for the three months ended March 31, 2018. The weighted average interest rate associated with our short-term borrowings was 2.62 percent as of December 31, 2018. There were no overnight short-term borrowings as of March 31, 2019.
Short-term Borrowings
We have certain facilities in place to enable us to access short-term borrowings on a secured and unsecured basis. Our secured facilities include collateral pledged to the FHLB of San Francisco and the discount window at the FRB (using both fixed income securities and loans as collateral). Our unsecured facility consists of our uncommitted federal funds lines. As of March 31, 2019, collateral pledged to the FHLB of San Francisco was comprised primarily of fixed income investment securities and loans and had a carrying value of $4.5 billion, of which $4.0 billion was available to support additional borrowings. As of March 31, 2019, collateral pledged to the discount window at the FRB was comprised of fixed income investment securities and had a carrying value of $0.9 billion, all of which was unused and available to support additional borrowings. Our total unused and available borrowing capacity for our uncommitted federal funds lines totaled $1.9 billion at March 31, 2019. Our total unused and available borrowing capacity under our master repurchase agreements with various financial institutions totaled $3.3 billion at March 31, 2019.

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12.
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, which may include currency exchange rate risks and interest rate risks. 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 on our variable-interest rate loan portfolio, we enter into interest rate swap contracts to hedge against future changes in interest rates by using hedging instruments to lock in future cash inflows that would otherwise be impacted by movements in the market interest rates. We designate these interest rate swap contracts as cash flow hedges that qualify for hedge accounting under ASC 815, Derivatives and Hedging ("ASC 815"), and record them in other assets and other liabilities. For qualifying cash flow hedges, changes in the fair value of the derivative are recorded in accumulated other comprehensive income and recognized in earnings as the hedged item affects earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item in the line item "Loans" as part of interest income, a component of consolidated net income.
We assess hedge effectiveness under ASC 815 on a quarterly basis to ensure all hedges remain highly effective to ensure hedge accounting under ASC 815 can be applied. If the hedging relationship no longer exists or no longer qualifies as a hedge per ASC 815, any amounts remaining as gain or loss in accumulated other comprehensive income are reclassified into earnings in the line item "Loans" as part of interest income, a component of consolidated net income. As of March 31, 2019, no derivatives classified as hedges were terminated or were disqualified for hedge accounting. The maximum length of time over which the forecasted transactions are hedged is approximately five years.
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 recorded in the line item “Other” as part of noninterest income, a component of consolidated net 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 in the line item “Other” as part of 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 2018 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 and fair value of our derivative financial instruments at March 31, 2019 and December 31, 2018 were as follows:
 
 
March 31, 2019
 
December 31, 2018
 
 
Notional or
Contractual
Amount
 
Fair Value
 
Notional or
Contractual
Amount
 
Fair Value
(Dollars in thousands)
 

Derivative Assets (1)

Derivative Liabilities (1)
 
 
Derivative Assets (1)

Derivative Liabilities (1)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 Interest rate risks:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
165,000

 
$
1,408

 
$

 
$

 
$

 
$

Interest rate swaps
 
200,000

 

 
303

 

 

 

Derivatives not designated as hedging instruments:
 





 

 
 


 Currency exchange risks:
 





 

 
 


Foreign exchange forwards
 
180,055


3,312



 
263,733

 
4,767



Foreign exchange forwards
 
184,353




2,845

 
178,310

 


1,094

 Other derivative instruments:
 


 

 
 

 
 

 
Equity warrant assets
 
226,734


162,215



 
223,532

 
149,238



Client foreign exchange forwards
 
2,907,771


87,716



 
2,759,878

 
93,876



Client foreign exchange forwards
 
2,779,090




78,287

 
2,568,085

 


85,706

Client foreign currency options
 
91,808


1,333



 
93,556

 
1,759



Client foreign currency options
 
91,908




1,336

 
93,579

 


1,759

Client interest rate derivatives (2)
 
1,198,257


11,763



 
1,020,416

 
8,499



Client interest rate derivatives (2)
 
1,274,564




8,841

 
1,337,328

 


9,491

Total derivatives not designated as hedging instruments
 
 
 
266,339


91,309

 
 
 
258,139


98,050

Total derivatives
 
 
 
$
267,747

 
$
91,612

 
 
 
$
258,139

 
$
98,050

 
 
(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 for March 31, 2019 reflects rule changes implemented by two central clearing houses that require entities to treat derivative assets, liabilities and the related variation margin as settlement of the related derivative fair values for legal and accounting purposes, as opposed to presenting gross derivative assets and liabilities. As a result, client interest rate derivatives reflect reductions of approximately $3.9 million of derivative liabilities and approximately $0.4 million of derivative assets at March 31, 2019 and December 31, 2018, respectively.
A summary of our derivative activity and the related impact on our consolidated statements of income for the three months ended March 31, 2019 and 2018 is as follows:
 
 
 
 
Three months ended March 31,
(Dollars in thousands)
 
Statement of income location   
 
2019
 
2018
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 Interest rate risks:
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income into income
 
Interest income—loans
 
$
(3
)
 
$

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 Currency exchange risks:
 
 
 
 
 
 
Gains on revaluations of internal foreign currency instruments, net
 
Other noninterest income
 
$
1,050

 
$
2,926

Losses on internal foreign exchange forward contracts, net
 
Other noninterest income
 
(469
)
 
(3,512
)
Net gains (losses) associated with internal currency risk
 
 
 
$
581

 
$
(586
)
 Other derivative instruments:
 
 
 
 
 
 
(Losses) gains on revaluations of client foreign currency instruments, net
 
Other noninterest income
 
$
(13,571
)
 
$
7,653

Gains (losses) on client foreign exchange forward contracts, net
 
Other noninterest income
 
12,654

 
(7,114
)
Net (losses) gains associated with client currency risk
 
 
 
$
(917
)
 
$
539

Net gains on equity warrant assets
 
Gains on equity warrant assets, net
 
$
21,305

 
$
19,191

Net (losses) gains on other derivatives
 
Other noninterest income
 
$
(365
)
 
$
431


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Table of Contents

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.
The following table summarizes our assets subject to enforceable master netting arrangements as of March 31, 2019 and December 31, 2018:
 
 
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
 
Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements
 
Net Amount
(Dollars in thousands)
 
 
 
 
Financial Instruments
 
Cash Collateral Received (1)
 
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
1,408

 
$

 
$
1,408

 
$
(1,408
)
 
$

 
$

Foreign exchange forwards
 
91,028

 

 
91,028

 
(32,638
)
 
(13,991
)
 
44,399

   Foreign currency options
 
1,333

 

 
1,333

 
(222
)
 
(425
)
 
686

   Client interest rate derivatives
 
11,763

 

 
11,763

 
(11,724
)
 
(39
)
 

Total derivative assets
 
105,532

 

 
105,532

 
(45,992
)
 
(14,455
)
 
45,085

Reverse repurchase, securities borrowing, and similar arrangements
 
298,755

 

 
298,755

 
(298,755
)
 

 

Total
 
$
404,287

 
$

 
$
404,287

 
$
(344,747
)
 
$
(14,455
)
 
$
45,085

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards
 
$
98,643

 
$

 
$
98,643

 
$
(38,213
)
 
$
(11,825
)
 
$
48,605

   Foreign currency options
 
1,759

 

 
1,759

 
(613
)
 
(90
)
 
1,056

   Client interest rate derivatives
 
8,499

 

 
8,499

 
(8,416
)
 
(83
)
 

Total derivative assets
 
108,901

 

 
108,901

 
(47,242
)
 
(11,998
)
 
49,661

Reverse repurchase, securities borrowing, and similar arrangements
 
123,611

 

 
123,611

 
(123,611
)
 

 

Total
 
$
232,512

 
$

 
$
232,512

 
$
(170,853
)
 
$
(11,998
)
 
$
49,661

 
 
(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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The following table summarizes our liabilities subject to enforceable master netting arrangements as of March 31, 2019 and December 31, 2018:
 
 
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
 
Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements
 
Net Amount
(Dollars in thousands)
 
 
 
 
Financial Instruments
 
Cash Collateral Pledged (1)
 
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
303

 
$

 
$
303

 
$
(303
)
 
$

 
$

   Foreign exchange forwards
 
81,132

 

 
81,132

 
(10,238
)
 
(32,690
)
 
38,204

   Foreign currency options
 
1,336

 

 
1,336

 
(346
)
 
(341
)
 
649

   Client interest rate derivatives
 
8,841

 

 
8,841

 

 
(8,680
)
 
161

Total derivative liabilities
 
91,612

 

 
91,612

 
(10,887
)
 
(41,711
)
 
39,014

Repurchase, securities lending, and similar arrangements
 

 

 

 

 

 

Total
 
$
91,612

 
$

 
$
91,612

 
$
(10,887
)
 
$
(41,711
)
 
$
39,014

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign exchange forwards
 
$
86,800

 
$

 
$
86,800

 
$
(24,778
)
 
$
(20,732
)
 
$
41,290

   Foreign currency options
 
1,759

 

 
1,759

 
(1,054
)
 

 
705

   Client interest rate derivatives
 
9,491

 

 
9,491

 

 
(9,207
)
 
284

Total derivative liabilities
 
98,050

 

 
98,050

 
(25,832
)
 
(29,939
)
 
42,279

Repurchase, securities lending, and similar arrangements
 
319,414

 

 
319,414

 

 

 
319,414

Total
 
$
417,464

 
$

 
$
417,464

 
$
(25,832
)
 
$
(29,939
)
 
$
361,693

 
 
(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.
13.
Noninterest Income
On January 1, 2018, we adopted accounting standard ASU 2014-09, Revenue from Contracts with Customers and all the related amendments ("ASC 606" or "ASU 2014-09"). Included below is a summary of noninterest income, as well as the impact of such adoption, for the three months ended March 31, 2019 and 2018:

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Table of Contents

 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Noninterest income:
 
 
 
 
Gains on investment securities, net
 
$
29,028

 
$
9,058

Gains on equity warrant assets, net
 
21,305

 
19,191

Foreign exchange fees
 
38,048

 
33,827

Credit card fees
 
27,483

 
21,692

Deposit service charges
 
20,939

 
17,699

Client investment fees
 
44,482

 
22,875

Lending related fees
 
13,937

 
10,735

Letters of credit and standby letters of credit fees
 
9,354

 
8,182

Investment banking revenue
 
49,795

 

Commissions
 
14,108

 

Other
 
11,897

 
12,259

Total noninterest income
 
$
280,376

 
$
155,518

Gains on investment securities, net
Net gains on investment securities include both gains and losses from our non-marketable and other equity securities, which include public equity securities held as a result of exercised equity warrant assets, gains and losses from sales of our AFS debt securities portfolio, when applicable, and carried interest.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, our China Joint Venture, debt funds, private and public portfolio companies, which include public equity securities held as a result of exercised equity warrant assets and qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, 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 from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains from non-marketable and other equity securities for any single period are typically driven by valuation changes.
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, and 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.
Carried interest is comprised of preferential allocations of profits recognizable when the return on assets of our individual managed fund of funds and direct venture funds exceeds certain performance targets and is payable to us, as the general partners of the managed funds. The carried interest we earn is often shared with employees, who are also members of the general partner entities. We record carried interest on a quarterly basis by measuring fund performance to date versus the performance target.  For our unconsolidated managed funds, carried interest is recorded as gains on investment securities, net. For our consolidated managed funds, it is recorded as a component of net income attributable to noncontrolling interests. Carried interest allocated to others is recorded as a component of net income attributable to noncontrolling interests. Any carried interest paid to us (or our employees) may be subject to reversal to the extent fund performance declines to a level where inception to date carried interest is lower than actual payments made by the funds. The limited partnership agreements for our funds provide that carried interest is generally not paid to the general partners until the funds have provided a full return of contributed capital to the limited partners. Accrued, but unpaid carried interest may be subject to reversal to the extent that the fund performance declines to a level where inception-to-date carried interest is less than prior amounts recognized. Carried interest income is accounted for under an ownership model based on ASC 323 — Equity Method of Accounting and ASC 810 — Consolidation.
Our available-for-sale securities portfolio is 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. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk.

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Gains on investment securities are recognized outside of the scope of ASC 606 as it explicitly excludes noninterest income earned from our investment-related activities. A summary of gains and losses on investment securities for the three months ended March 31, 2019 and 2018 is as follows:
  
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Gains on non-marketable and other equity securities, net
 
$
32,658

 
$
9,058

Losses on sales of available-for-sale securities, net
 
(3,630
)
 

Total gains on investment securities, net
 
$
29,028

 
$
9,058

Gains on equity warrant assets, net
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. Any changes in fair value from the grant date fair value of equity warrant assets will be recognized as increases or decreases to other assets on our balance sheet and as net gains or losses on equity warrant assets, in noninterest income, a component of consolidated net income. Gains on equity warrant assets are recognized outside of the scope of ASC 606 as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of net gains on equity warrant assets for the three months ended March 31, 2019 and 2018 is as follows:
  
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Equity warrant assets:
 
 
 
 
Gains on exercises, net
 
$
5,482

 
$
9,927

Terminations
 
(415
)
 
(922
)
Changes in fair value, net
 
16,238

 
10,186

Total net gains on equity warrant assets
 
$
21,305

 
$
19,191

Foreign exchange fees
Foreign exchange fees represent the income differential between purchases and sales of foreign currency on behalf of our clients, primarily from spot contracts. Foreign exchange spot contract fees are recognized upon the completion of the single performance obligation, the execution of a spot trade in exchange for a fee. In line with customary business practice, the legal right transfers to the client upon execution of a foreign exchange contract on the trade date, and as such, we currently recognize our fees based on the trade date and are typically settled within two business days.
Forward contract and option premium fees are recognized outside of the scope of ASC 606 as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of foreign exchange fee income by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Foreign exchange fees by instrument type:
 
 
 
 
Spot contract commissions
 
$
35,029

 
$
31,202

Forward contract commissions
 
2,995

 
2,485

Option premium fees
 
24

 
140

Total foreign exchange fees
 
$
38,048

 
$
33,827

Credit card fees
Credit card fees include interchange income from credit and debit cards and fees earned from processing transactions for merchants. Interchange income is earned after satisfying our performance obligation of providing nightly settlement services to a payment network. Costs related to rewards programs are recorded when the rewards are earned by the customer and presented as a reduction to interchange fee income. Rewards programs continue to be accounted for under ASC 310 - Receivables. Our performance obligations for merchant service fees are to transmit data and funds between the merchant and the payment network. Credit card interchange and merchant service fees are earned daily upon completion of transaction settlement services.

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Annual card service fees are recognized on a straight-line basis over a 12-month period and continue to be accounted for under ASC 310 - Receivables.
A summary of credit card fees by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Credit card fees by instrument type:
 
 
 
 
Card interchange fees, net
 
$
21,393

 
$
17,560

Merchant service fees
 
4,534

 
2,906

Card service fees
 
1,556

 
1,226

Total credit card fees
 
$
27,483

 
$
21,692

Deposit service charges
Deposit service charges include fees earned from performing cash management activities and other deposit account services. Deposit services include, but are not limited to, the following: receivables services, which include merchant services, remote capture, lockbox, electronic deposit capture, and fraud control services. Payment and cash management products and services include wire transfer and automated clearing house payment services to enable clients to transfer funds more quickly, as well as business bill pay, business credit and debit cards, account analysis, and disbursement services. Deposit service charges are recognized over the period in which the related performance obligation is provided, generally on a monthly basis, and are presented in the "Disaggregation of revenue from contracts with customers" table below.
Client investment fees
Client investment fees include fees earned from discretionary investment management services for substantially all clients, managing clients’ portfolios based on their investment policies, strategies and objectives and investment advisory fees. Revenue is recognized on a monthly basis upon completion of our performance obligation and consideration is typically received in the subsequent month. Included in our sweep money market fees are Rule 12(b)-1 fees, revenue sharing and customer transactional-based fees. Rule 12(b)-1 fees and revenue sharing are recognized as earned based on client funds that are invested in the period, typically monthly. Transactional based fees are earned and recognized on fixed income securities when the transaction is executed on the clients' behalf. Amounts paid to third-party service providers are predominantly expensed, such that client investment fees are recorded gross of payments made to third parties. A summary of client investment fees by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Client investment fees by type:
 
 
 
 
Sweep money market fees
 
$
26,544

 
$
12,322

Asset management fees (1)
 
6,671

 
5,358

Repurchase agreement fees
 
11,267

 
5,195

Total client investment fees (2)
 
$
44,482

 
$
22,875

 
 
(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.
Lending related fees
Unused commitment fees, minimum finance fees and unused line fees are recognized as earned on a monthly basis. Fees that qualify for syndication treatment are recognized at the completion of the syndicated loan deal for which the fees were received. Lending related fees are recognized outside of the scope of ASC 606 as it explicitly excludes noninterest income earned from our lending-related activities. A summary of lending related fees by instrument type for the three months ended March 31, 2019 and 2018 is as follows:

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Table of Contents

 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
Lending related fees by instrument type:
 
 
 
 
Unused commitment fees
 
$
9,670

 
$
8,757

Other
 
4,267

 
1,978

Total lending related fees
 
$
13,937

 
$
10,735

Letters of credit and standby letters of credit fees
Commercial and standby letters of credit represent conditional commitments issued by us on behalf of a client to guarantee the performance of the client to a third party when certain specified future events have occurred. Fees generated from letters of credit and standby letters of credit are deferred as a component of other liabilities and recognized in noninterest income over the commitment period using the straight-line method, based on the likelihood that the commitment being drawn down will be remote. Letters of credit and standby letters of credit fees are recognized outside of the scope of ASC 606 as it explicitly excludes noninterest income earned from our lending related activities.
Investment banking revenue
The Company earns investment banking revenue from clients for providing services related to securities underwriting, private placements and advisory services on strategic matters such as mergers and acquisitions. Underwriting fees are attributable to public and private offerings of equity and debt securities and are recognized at the point in time when the offering has been deemed to be completed by the lead manager of the underwriting group. Once the offering is completed, the performance obligation has been satisfied and the Company recognizes the applicable management fee as well the underwriting fee, net of consideration payable to customers. Estimated offering expenses are presented gross in our statements of income. The Company recognizes private placement fee revenue at the point in time when the private placement is completed, which is generally when the client accepts capital from the fund raise. Advisory fees from mergers and acquisitions engagements are generally recognized at the point in time when the related transaction is completed. Expenses are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other deal-related expenses are expensed as incurred. The Company has determined that it acts as principal in the majority of these transactions and therefore presents expenses gross within other operating expenses.
A summary of investment banking revenue by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
  
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Investment banking revenue:
 
 
 
 
Underwriting fees
 
$
35,772

 
$

Advisory fees
 
12,273

 

Private placements and other
 
1,750

 

Total investment banking revenue
 
$
49,795

 
$

Commissions
Commissions include commissions received from customers for the execution of agency-based brokerage transactions in listed and over-the-counter equities. The execution of each trade order represents a distinct performance obligation and the transaction price is fixed at the point in time or trade order execution. Trade execution is satisfied at the point in time that the customer has control of the asset and as such, fees are recorded on a trade date basis. Commissions for the three months ended March 31, 2019 were $14.1 million.
Other
Other noninterest income primarily includes income from fund management fees and service revenue. Fund management fees are comprised of fees charged directly to our managed funds of funds and direct venture funds. Fund management fees are based upon the contractual terms of the limited partnership agreements and are generally recognized as earned over the specified contract period, which is generally equal to the life of the individual fund. Fund management fees are calculated as a percentage of committed capital and collected in advance and are received quarterly. Fund management fees for certain of our limited partnership agreements are calculated as a percentage of distributions made by the funds and revenue is recorded only at the

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time of a distribution event. As distribution events are not predetermined for these certain funds, management fees are considered variable and constrained under ASC 606.
Other service revenue primarily consists of dividend income on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income. We recognize revenue when our performance obligations are met and record revenues on a daily/monthly basis, quarterly, semi-annually or annual basis. For event driven revenue sources, we recognize revenue when: (i) persuasive evidence of an arrangement exists, (ii) we have performed the service, provided we have no other remaining obligations to the customer, (iii) the fee is fixed or determinable and (iv) collectability is probable.
A summary of other noninterest income by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Other noninterest income by instrument type:
 
 
 
 
Fund management fees
 
$
8,041

 
$
5,736

Net losses on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1)
 
(336
)
 
(47
)
Other service revenue
 
4,192

 
6,570

Total other noninterest income
 
$
11,897

 
$
12,259

 
(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.
Disaggregation of revenue from contracts with customers
The following tables present our revenues from contracts with customers disaggregated by revenue source and segment for the three months ended March 31, 2019 and 2018:
Three months ended March 31, 2019
(Dollars in thousands)
 
Global
Commercial
Bank
 
SVB Private  
Bank
 
SVB Capital
 
SVB Leerink
 
Other Income
 
Total      
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
 
 
 
Spot contract commissions
 
$
34,806

 
$
122

 
$

 
$

 
$
101

 
$
35,029

Card interchange fees, gross
 
38,715

 

 

 

 
147

 
38,862

Merchant service fees
 
4,534

 

 

 

 

 
4,534

Deposit service charges
 
20,793

 
35

 

 

 
111

 
20,939

Client investment fees
 
17,558

 
380

 

 

 
26,544

 
44,482

Investment banking revenue
 

 

 

 
49,795

 

 
49,795

Commissions
 

 

 

 
14,108

 

 
14,108

Fund management fees
 

 

 
6,659

 
1,382

 

 
8,041

Correspondent bank rebates
 
1,467

 

 

 

 

 
1,467

Total revenue from contracts with customers
 
$
117,873

 
$
537

 
$
6,659

 
$
65,285

 
$
26,903

 
$
217,257

Revenues outside the scope of ASC 606 (1)
 
8,444

 
(27
)
 
18,186

 
2,832

 
33,684

 
63,119

Total noninterest income
 
$
126,317

 
$
510

 
$
24,845

 
$
68,117

 
$
60,587

 
$
280,376

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

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Three months ended March 31,2018
(Dollars in thousands)
 
Global
Commercial
Bank
 
SVB Private  
Bank
 
SVB Capital
 
Other Income
 
Total      
Revenue from contracts with customers:
 
 
 
 
 
 
 
 
 
 
Spot contract commissions
 
$
30,972

 
$
179

 
$

 
$
51

 
$
31,202

Card interchange fees, gross
 
29,449

 

 

 
99

 
29,548

Merchant service fees
 
2,906

 

 

 

 
2,906

Deposit service charges
 
17,040

 
28

 

 
631

 
17,699

Client investment fees
 
10,250

 
302

 

 
12,323

 
22,875

Fund management fees
 

 

 
5,736

 

 
5,736

Correspondent bank rebates
 
1,396

 

 

 

 
1,396

Total revenue from contracts with customers
 
$
92,013

 
$
509

 
$
5,736

 
$
13,104

 
$
111,362

Revenues outside the scope of ASC 606 (1)
 
6,779

 
(2
)
 
23,174

 
14,205

 
44,156

Total noninterest income
 
$
98,792

 
$
507

 
$
28,910

 
$
27,309

 
$
155,518

 
(1)
Amounts are accounted for under separate guidance than ASC 606.
The timing of revenue recognition may differ from the timing of cash settlements or invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, and unearned revenue when revenue is recognized subsequent to receipt of consideration. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. During the three months ended March 31, 2019 and 2018, changes in our contract assets, contract liabilities and receivables were not material. Additionally, revenues recognized during the three months ended March 31, 2019 and 2018 that were included in the corresponding contract liability balance at the beginning of the periods were not material.
14.
Other Noninterest Expense
A summary of other noninterest expense for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Lending and other client related processing costs
 
$
5,177

 
$
3,201

Correspondent bank fees
 
3,744

 
3,410

Investment banking activities
 
4,185

 

Trade order execution costs
 
2,516

 

Data processing services
 
2,899

 
2,492

Telephone
 
2,741

 
2,377

Dues and publications
 
1,524

 
850

Postage and supplies
 
770

 
667

Other
 
9,980

 
5,107

Total other noninterest expense
 
$
33,536

 
$
18,104

15.
Segment Reporting
We have four reportable segments for management reporting purposes: Global Commercial Bank, SVB Private Bank, SVB Capital and SVB Leerink. SVB Leerink is a new reportable segment and was created as a result of the acquisition of Leerink Holdings LLC effective January 4, 2019. 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 funded loans. FTP is calculated at an instrument level based on account characteristics.

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We also evaluate performance based on provision for credit 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 tax expense or the provision for unfunded credit commitments (included in provision for credit losses) to our segments. Additionally, our management reporting model is predicated on average asset balances; therefore, period-end asset balances are not presented 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 four 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, 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 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. 
SVB Analytics previously provided equity valuation services and currently provides research for investors and companies in the global innovation economy. In September 2017, SVB Analytics sold its equity valuation services business.
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 services across all subsectors of healthcare including: biotechnology, pharmaceuticals, medical devices, diagnostic and life science tools, healthcare services and digital health. SVB Leerink focuses on two primary lines of business: (i) investment banking focused on providing companies with capital-raising services, financial advice on mergers and acquisitions, sales and trading services and equity research, and (ii) sponsorship of private investment funds.
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 months ended March 31, 2019 and 2018 is as follows:
(Dollars in thousands)
 
Global
Commercial
Bank (1)
 
SVB Private  
Bank
 
SVB Capital (1)  
 
SVB
Leerink (1)
 
Other Items (2)      
 
Total      
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
445,876

 
$
11,981

 
$
6

 
$
442

 
$
54,581

 
$
512,886

(Provision for) reduction of credit losses
 
(26,805
)
 
984

 

 

 
(2,730
)
 
(28,551
)
Noninterest income
 
126,317

 
510

 
24,845

 
68,117

 
60,587

 
280,376

Noninterest expense (3)
 
(198,683
)
 
(7,414
)
 
(5,782
)
 
(60,540
)
 
(93,245
)
 
(365,664
)
Income before income tax expense (4)
 
$
346,705

 
$
6,061

 
$
19,069

 
$
8,019

 
$
19,193

 
$
399,047

Total average loans, net of unearned income
 
$
24,798,197

 
$
3,085,883

 
$

 
$

 
$
503,992

 
$
28,388,072

Total average assets (5) (6)
 
55,883,000

 
2,507,131

 
378,732

 
300,332

 
(1,540,758
)
 
57,528,437

Total average deposits
 
47,596,868

 
1,491,234

 

 

 
626,107

 
49,714,209

Three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
369,867

 
$
16,247

 
$
7

 
$

 
$
33,742

 
$
419,863

Provision for credit losses
 
(25,274
)
 
(1,722
)
 

 

 
(976
)
 
(27,972
)
Noninterest income
 
98,792

 
507

 
28,910

 

 
27,309

 
155,518

Noninterest expense (3)
 
(186,891
)
 
(6,593
)
 
(5,046
)
 

 
(66,887
)
 
(265,417
)
Income (loss) before income tax expense (4)
 
$
256,494

 
$
8,439

 
$
23,871

 
$

 
$
(6,812
)
 
$
281,992

Total average loans, net of unearned income
 
$
20,679,202

 
$
2,666,658

 
$

 
$

 
$
461,352

 
$
23,807,212

Total average assets (5)
 
49,953,396

 
2,590,476

 
373,322

 

 
(549,952
)
 
52,367,242

Total average deposits
 
44,041,634

 
1,572,424

 

 

 
492,023

 
46,106,081

 
 
(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 earned from our fixed income investment portfolio, net of FTP. Noninterest income consists primarily of gains on equity warrant assets and gains or losses on the sale of fixed income investments and equity securities from exercised warrant assets. 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 $4.9 million and $5.5 million for the three months ended March 31, 2019 and 2018, 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 $135.2 million for the three months ended March 31, 2019 related to the acquisition effective January 4, 2019.
16.
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, 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.

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Commitments to Extend Credit
The following table summarizes information related to our commitments to extend credit at March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Loan commitments available for funding: (1)
 
 
 
 
Fixed interest rate commitments
 
$
1,848,611

 
$
1,839,190

Variable interest rate commitments
 
16,153,959

 
14,821,815

Total loan commitments available for funding
 
18,002,570

 
16,661,005

Commercial and standby letters of credit (2)
 
2,264,959

 
2,252,016

Total unfunded credit commitments
 
$
20,267,529

 
$
18,913,021

Commitments unavailable for funding (3)
 
$
2,746,202

 
$
2,723,835

Allowance for unfunded credit commitments (4)
 
57,970

 
55,183

 
 
(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.
Commercial and Standby Letters of Credit
The table below summarizes our commercial and standby letters of credit at March 31, 2019. 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
 
$
2,063,334

 
$
46,913

 
$
2,110,247

 
$
2,110,247

Performance standby letters of credit
 
116,759

 
8,946

 
125,705

 
125,705

Commercial letters of credit
 
25,297

 
3,710

 
29,007

 
29,007

Total
 
$
2,205,390

 
$
59,569

 
$
2,264,959

 
$
2,264,959

Deferred fees related to financial and performance standby letters of credit were $14.4 million at March 31, 2019 and $14.1 million at December 31, 2018. At March 31, 2019, collateral in the form of cash of $1.3 billion was available to us to reimburse losses, if any, under financial and performance standby letters of credit.

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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 generally makes investments in 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 call most of the capital commitments over 5 to 7 years, and in certain cases, the funds may not call 100% of committed capital. 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 March 31, 2019:
(Dollars in thousands)
 
SVBFG Capital Commitments    
 
SVBFG Unfunded    
Commitments
 
SVBFG Ownership  
of each Fund (3)
CP I, LP
 
$
6,000

 
$
270

 
10.7
%
CP II, LP (1)
 
1,200

 
162

 
5.1

Capital Preferred Return Fund, LP
 
12,688

 

 
20.0

Growth Partners, LP
 
24,670

 
1,340

 
33.0

Strategic Investors Fund, LP
 
15,300

 
688

 
12.6

Strategic Investors Fund II, LP
 
15,000

 
1,050

 
8.6

Strategic Investors Fund III, LP
 
15,000

 
1,275

 
5.9

Strategic Investors Fund IV, LP
 
12,239

 
2,325

 
5.0

Strategic Investors Fund V funds
 
515

 
131

 
Various

Other venture capital and private equity fund investments (equity method accounting)
 
21,832

 
7,858

 
Various

Debt funds (equity method accounting)
 
58,493

 

 
Various

Other fund investments (2)
 
295,501

 
7,947

 
Various

Total
 
$
478,438

 
$
23,046

 
 
 
 
(1)
Our ownership includes direct ownership of 1.3 percent and indirect ownership interest of 3.8 percent through our investment in Strategic Investors Fund II, LP.
(2)
Represents commitments to 215 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 1, Item 1 of our 2018 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 March 31, 2019:
(Dollars in thousands)
 
Unfunded Commitments    
Strategic Investors Fund, LP
 
$
1,338

Capital Preferred Return Fund, LP
 
1,625

Growth Partners, LP
 
2,516

Total
 
$
5,479

17.
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 and California tax returns as major tax filings. Our U.S. federal tax returns for 2015 and subsequent tax years remain open to full examination. Our California tax returns for 2015 and subsequent tax years remain open to full examination.

At March 31, 2019, our unrecognized tax benefit was $12.5 million, the recognition of which would reduce our income tax expense by $9.8 million. We do not expect that our unrecognized tax benefit will materially change in the next 12 months.


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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 months ended March 31, 2019.
18.
Fair Value of Financial Instruments
Fair Value Measurements
Our available-for-sale securities, derivative instruments and certain non-marketable and other equity 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 on 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, foreign government debt 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 pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent 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 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

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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.
Other equity 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. Certain sales restriction discounts generally range from 10 percent to 20 percent depending on the duration of the sale restrictions which typically range from three to six 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.
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.
Interest rate derivative and interest rate swap 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.
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:
Venture capital and private equity fund investments not measured at net asset value: 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.
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 percent 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 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 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.
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

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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.
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 March 31, 2019:
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance at
March 31, 2019
Assets:
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
3,767,410

 
$

 
$

 
$
3,767,410

U.S. agency debentures
 

 
1,063,713

 

 
1,063,713

Foreign government debt securities
 
5,685

 

 

 
5,685

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligationsfixed rate
 

 
1,839,883

 

 
1,839,883

Agency-issued collateralized mortgage obligations—variable rate
 

 
78,403

 

 
78,403

Total available-for-sale securities
 
3,773,095

 
2,981,999

 

 
6,755,094

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

 

 

 
303,418

Venture capital and private equity fund investments not measured at net asset value (1)
 

 

 
1,035

 
1,035

Other equity securities in public companies
 
3,332

 
8,312

 

 
11,644

Total non-marketable and other equity securities (fair value accounting)
 
3,332

 
8,312

 
1,035

 
316,097

Other assets:
 
 
 
 
 
 
 
 
Foreign exchange forward and option contracts
 

 
92,361

 

 
92,361

Equity warrant assets
 

 
5,466

 
156,749

 
162,215

Interest rate swaps
 

 
1,408

 

 
1,408

Client interest rate derivatives
 

 
11,763

 

 
11,763

Total assets
 
$
3,776,427

 
$
3,101,309

 
$
157,784

 
$
7,338,938

Liabilities:
 
 
 
 
 
 
 
 
Foreign exchange forward and option contracts
 
$

 
$
82,468

 
$

 
$
82,468

Interest rate swaps
 

 
303

 

 
303

Client interest rate derivatives
 

 
8,841

 

 
8,841

Total liabilities
 
$

 
$
91,612

 
$

 
$
91,612

 
 

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(1)
Included in Level 3 assets is $925 thousand attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

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, 2018:
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance at December 31, 2018
Assets:
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
4,738,258

 
$

 
$

 
$
4,738,258

U.S. agency debentures
 

 
1,084,117

 

 
1,084,117

Foreign government debt securities
 
5,812

 

 

 
5,812

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

 
1,880,218

 

 
1,880,218

Agency-issued collateralized mortgage obligations—variable rate
 

 
81,638

 

 
81,638

Total available-for-sale securities
 
4,744,070

 
3,045,973

 

 
7,790,043

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

 

 

 
318,352

Venture capital and private equity fund investments not measured at net asset value (1)
 

 

 
1,079

 
1,079

Other equity securities in public companies
 
1,181

 
19,217

 

 
20,398

Total non-marketable and other equity securities (fair value accounting)
 
1,181

 
19,217

 
1,079

 
339,829

Other assets:
 
 
 
 
 
 
 
 
Foreign exchange forward and option contracts
 

 
100,402

 

 
100,402

Equity warrant assets
 

 
4,039

 
145,199

 
149,238

Client interest rate derivatives
 

 
8,499

 

 
8,499

Total assets
 
$
4,745,251

 
$
3,178,130

 
$
146,278

 
$
8,388,011

Liabilities:
 
 
 
 
 
 
 
 
Foreign exchange forward and option contracts
 
$

 
$
88,559

 
$

 
$
88,559

Client interest rate derivatives
 

 
9,491

 

 
9,491

Total liabilities
 
$

 
$
98,050

 
$

 
$
98,050

 
 
(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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The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2019 and 2018:
(Dollars in thousands)
 
Beginning Balance
 
Total Realized and Unrealized Gains (Losses) Included in Income
 
Purchases
 
Sales/Exits
 
Issuances  
 
Distributions and Other Settlements
 
Transfers Out of Level 3
 
Ending Balance
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable and other equity securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments not measured at net asset value (1)
 
$
1,079

 
$
(47
)
 
$

 
$

 
$

 
$
3

 
$

 
$
1,035

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity warrant assets (2)
 
145,199

 
19,165

 
575

 
(12,304
)
 
4,543

 

 
(429
)
 
156,749

Total assets
 
$
146,278

 
$
19,118

 
$
575

 
$
(12,304
)
 
$
4,543

 
$
3

 
$
(429
)
 
$
157,784

Three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-marketable and other equity securities (fair value accounting):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments not measured at net asset value (1)
 
$
919

 
$
82

 
$

 
$

 
$

 
$

 
$

 
$
1,001

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity warrant assets (2)
 
121,331

 
18,611

 

 
(12,128
)
 
4,899

 

 
(1,207
)
 
131,506

Total assets
 
$
122,250

 
$
18,693

 
$

 
$
(12,128
)
 
$
4,899

 
$

 
$
(1,207
)
 
$
132,507

 
 
(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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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 March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Non-marketable and other equity securities (fair value accounting):
 
 
 
 
Venture capital and private equity fund investments not measured at net asset value (1)
 
$
(47
)
 
$
82

Other assets:
 
 
 
 
Equity warrant assets (2)
 
14,772

 
9,573

Total unrealized gains, net
 
$
14,725

 
$
9,655

Unrealized (losses) gains attributable to noncontrolling interests (1)
 
$
(39
)
 
$
73

 
 
(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 equity warrant assets, 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 March 31, 2019 and December 31, 2018. 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
March 31, 2019:
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (fair value accounting)
 
$
1,035

 
Private company equity pricing
 
(1)
 
(1
)
Equity warrant assets (public portfolio)
 
6,505

 
Black-Scholes option pricing model
 
Volatility
 
54.2
%
 
 
 
 
Risk-Free interest rate
 
2.3

 
 
 
 
Sales restrictions discount (2)
 
15.3

Equity warrant assets (private portfolio)
 
150,244

 
Black-Scholes option pricing model
 
Volatility
 
38.6

 
 
 
 
Risk-Free interest rate
 
2.2

 
 
 
 
Marketability discount (3)
 
17.7

 
 
 
 
Remaining life assumption (4)
 
45.0

December 31, 2018:
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments (fair value accounting)
 
$
1,079

 
Private company equity pricing
 
(1)
 
(1
)
Equity warrant assets (public portfolio)
 
2,757

 
Black-Scholes option pricing model
 
Volatility
 
54.7
%
 
 
 
 
Risk-Free interest rate
 
2.6

 
 
 
 
Sales restrictions discount (2)
 
18.5

Equity warrant assets (private portfolio)
 
142,442

 
Black-Scholes option pricing model
 
Volatility
 
38.5

 
 
 
 
Risk-Free interest rate
 
2.5

 
 
 
 
Marketability discount (3)
 
17.7

 
 
 
 
Remaining life assumption (4)
 
45.0

 
 
 
(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 assumptions. These factors are specific to each portfolio company and a weighted average or range of values of the unobservable inputs is not meaningful.

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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 March 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.
For the three months ended March 31, 2019 and 2018, we did not have any transfers between Level 2 and Level 1 or transfers between Level 3 and Level 1. All transfers from Level 3 to Level 2 for the three months ended March 31, 2019 and 2018 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.

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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. The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at March 31, 2019 and December 31, 2018:
 
 
 
 
Estimated Fair Value
(Dollars in thousands)
 
Carrying Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,066,883

 
$
7,066,883

 
$
7,066,883

 
$

 
$

Held-to-maturity securities
 
15,055,255

 
14,996,508

 

 
14,996,508

 

Non-marketable securities not measured at net asset value
 
149,679

 
149,679

 

 

 
149,679

Non-marketable securities measured at net asset value
 
169,303

 
169,303

 

 

 

Net commercial loans
 
25,469,952

 
25,925,308

 

 

 
25,925,308

Net consumer loans
 
3,080,342

 
3,135,149

 

 

 
3,135,149

FHLB and Federal Reserve Bank stock
 
59,508

 
59,508

 

 

 
59,508

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
 
14,455

 
14,455

 

 
14,455

 

Non-maturity deposits (1)
 
52,278,463

 
52,278,463

 
52,278,463

 

 

Time deposits
 
48,734

 
48,418

 

 
48,418

 

3.50% Senior Notes
 
347,725

 
345,765

 

 
345,765

 

5.375% Senior Notes
 
348,990

 
362,096

 

 
362,096

 

Off-balance sheet financial assets:
 
 
 
 
 
 
 
 
 
 
Commitments to extend credit
 

 
24,012

 

 

 
24,012

December 31, 2018:
 
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,571,539

 
$
3,571,539

 
$
3,571,539

 
$

 
$

Held-to-maturity securities
 
15,487,442

 
15,188,236

 

 
15,188,236

 

Non-marketable securities not measured at net asset value
 
131,453

 
131,453

 

 

 
131,453

Non-marketable securities measured at net asset value
 
151,247

 
151,247

 

 

 

Net commercial loans
 
25,043,671

 
25,463,968

 

 

 
25,463,968

Net consumer loans
 
3,013,706

 
3,064,093

 

 

 
3,064,093

FHLB and Federal Reserve Bank stock
 
58,878

 
58,878

 

 

 
58,878

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
 
631,412

 
631,412

 

 
631,412

 

Non-maturity deposits (1)
 
49,278,174

 
49,278,174

 
49,278,174

 

 

Time deposits
 
50,726

 
50,337

 

 
50,337

 

3.50% Senior Notes
 
347,639

 
336,088

 

 
336,088

 

5.375% Senior Notes
 
348,826

 
361,281

 

 
361,281

 

Off-balance sheet financial assets:
 
 
 
 
 
 
 
 
 
 
Commitments to extend credit
 

 
22,930

 

 

 
22,930

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



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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 December 31st, for our March 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.
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 March 31, 2019:
(Dollars in thousands)
 
Carrying Amount      
 
Fair Value        
 
Unfunded Commitments      
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
Venture capital and private equity fund investments (1)
 
$
303,418

 
$
303,418

 
$
12,540

Non-marketable securities (equity method accounting):
 
 
 
 
 
 
Venture capital and private equity fund investments (2)
 
148,096

 
148,096

 
12,801

Debt funds (2)
 
5,826

 
5,826

 

Other investments (2)
 
15,381

 
15,381

 
886

Total
 
$
472,721

 
$
472,721

 
$
26,227

 
 
(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 $79.4 million and $4.1 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.
19.
Legal Matters
Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against us and/or our affiliates, and we may from time to time be involved in other legal or regulatory proceedings. In accordance with applicable accounting guidance, we establish accruals for all such matters, including 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 matters may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we aim to disclose information relating to such potential loss. We also aim to disclose information relating to any material potential loss that is probable but not reasonably estimable. In such cases, where reasonably practicable, we aim to 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.

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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 any such matters, nor do we currently expect 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.
20.
Related Parties
We have no material related party transactions requiring disclosure. In the ordinary course of business, the Bank may extend credit to related parties, including executive officers, directors, principal shareholders and their related interests. Additionally, we provide real estate secured loans to eligible employees through our EHOP. For additional details, see Note 17—“Employee Compensation and Benefit Plans" under Part II, Item 8 of our 2018 Form 10-K.

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 safe harbor provisions 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:
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/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; and
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-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;

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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;
The impact of governmental policy, legal requirements and regulations, including the Economic Growth, Regulatory Relief and Consumer Protection Act and the Dodd-Frank Act, promulgated by 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;
Our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives, including through the integration of SVB Leerink; and
Other factors as discussed in “Risk Factors” under Part I, Item 1A in our 2018 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 2018 Form 10-K.
Reclassifications
Certain prior period amounts, primarily related to the adoption of new accounting guidance, presentation changes to our financial statement line items and immaterial changes to our reportable segments, have been reclassified to conform to current period presentations.
Management’s Overview of First Quarter 2019 Performance
Overall, we delivered strong first quarter results in 2019, which was marked by healthy balance sheet growth, stable credit quality, robust core fee income and notable market gains. Noninterest income and noninterest expense increased primarily due to the inclusion of SVB Leerink in our financial results beginning on January 4, 2019. Our core business continued 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, our technology and life science/healthcare clients and clients in our private bank division.

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A summary of our performance for the three months ended March 31, 2019 (compared to the three months ended March 31, 2018, where applicable) is as follows:
BALANCE SHEET
 
EARNINGS
Assets. $57.5 billion in average total assets (up 9.9%). $60.2 billion in period-end total assets (up 12.4%).
Loans.  $28.4 billion in average total loan balances, net of unearned income (up 19.2%). $28.9 billion in period-end total loan balances, net of unearned income (up 17.3%).
Total Client Funds. (on-balance sheet deposits and off-balance sheet client investment funds). $137.1 billion in average total client fund balances (up 24.1%). $140.5 billion in period-end total client fund balances (up 23.6%).
AFS/HTM Fixed Income Investments.  $22.1 billion in average fixed income investment securities (down 7.9%). $21.8 billion in period-end fixed income investment securities (down 11.4%).


 
 EPS.  Earnings per diluted share of $5.44 (up 49.9%).
Net Income. Consolidated net income available to common stockholders of $288.7 million (up 48.1%).
- Net interest income of $512.9 million (up 22.2%).
- Net interest margin of 3.81% (up 43 bps).
- Noninterest income of $280.4 million (up 80.3%), with non-GAAP core fee income+ of $154.2 million (up 34.1%).
- Noninterest expense of $365.7 million (up 37.8%).

ROE. Return on average equity (annualized) (“ROE”) performance of 22.16%.
Operating Efficiency Ratio.  Operating efficiency ratio of 46.10% with a non-GAAP core operating efficiency ratio of 44.71%++.

 
 
 
CAPITAL
 
CREDIT QUALITY
Capital. Continued strong capital, with all capital ratios considered “well-capitalized” under banking regulations. SVBFG and SVB capital ratios, respectively, were:
- CET 1 risk-based capital ratio of 12.89% and 12.35%.
- Tier 1 risk-based capital ratio of 13.04% and 12.35%.
- Total risk-based capital ratio of 13.94% and 13.29%.
- Tier 1 leverage ratio of 9.10% and 8.38%.

 
Credit Quality.  Continued disciplined underwriting.
- Allowance for loan losses of 1.03% as a percentage of period-end total gross loans.
- Provision for loan losses of 0.36% as a percentage of period-end total gross loans (annualized).
- Net loan charge-offs of 0.11% as a percentage of average total gross loans (annualized).



+ Consists of fee income for deposit services, letters of credit and standby letters of credit, credit cards, client investments, foreign exchange and lending-related activities. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under “Results of Operations—Noninterest Income”)
++ This ratio excludes certain financial line items where performance is typically subject to market or other conditions beyond our control and excludes SVB Leerink revenue and expenses. It is calculated by dividing noninterest expense after adjusting for noninterest expense attributable to SVB Leerink by total revenue after adjusting for noninterest income attributable to SVB Leerink, net gains or losses on investment securities and equity warrant assets, investment banking revenue and commissions. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under "Results of Operations-Noninterest Expense").


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A summary of our performance for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands, except per share data, employees and ratios)
 
2019

2018
 
% Change  
Income Statement:
 
 
 
 
 
 
 
Diluted earnings per share
 
$
5.44

 
$
3.63

 
49.9

Net income available to common stockholders
 
288,732

 
194,961

 
48.1

  
Net interest income
 
512,886

 
419,863

 
22.2

  
Net interest margin
 
3.81
%
 
3.38
%
 
43

bps 
Provision for credit losses
 
$
28,551

 
$
27,972

 
2.1

%
Noninterest income
 
280,376

 
155,518

 
80.3

 
Noninterest expense
 
365,664

 
265,417

 
37.8

 
Non-GAAP core fee income (1)
 
154,243

 
115,010

 
34.1

 
Non-GAAP core fee income, including investment banking revenue and commissions (1)
 
218,146

 
115,010

 
89.7

 
Non-GAAP noninterest income, net of noncontrolling interests (1)
 
277,128

 
142,494

 
94.5

  
Non-GAAP noninterest expense, net of noncontrolling interests (2)
 
365,285

 
265,449

 
37.6

  
Balance Sheet:
 

 
 
 
 
 
Average available-for-sale securities
 
$
6,870,168

 
$
10,748,512

 
(36.1
)
%
Average held-to-maturity securities
 
15,223,958

 
13,234,326

 
15.0

 
Average loans, net of unearned income
 
28,388,072

 
23,807,212

 
19.2


Average noninterest-bearing demand deposits
 
38,222,687

 
37,950,787

 
0.7

  
Average interest-bearing deposits
 
11,491,522

 
8,155,294

 
40.9

  
Average total deposits
 
49,714,209

 
46,106,081

 
7.8

  
Earnings Ratios:
 

 
 
 
 
 
Return on average assets (annualized) (3)
 
2.04
%
 
1.51
%
 
35.1

Return on average SVBFG stockholders’ equity (annualized) (4)
 
22.16

 
18.12

 
22.3

  
Asset Quality Ratios:
 

 
 
 
 
 
Allowance for loan losses as a % of total period-end gross loans
 
1.03
%
 
1.11
%
 
(8
)
bps 
Allowance for loan losses for performing loans as a % of total gross performing loans
 
0.83

 
0.93

 
(10
)
  
Gross loan charge-offs as a % of average total gross loans (annualized)
 
0.13

 
0.18

 
(5
)
  
Net loan charge-offs as a % of average total gross loans (annualized)
 
0.11

 
0.15

 
(4
)
  
Capital Ratios:
 

 
 
 
 
 
SVBFG CET 1 risk-based capital ratio
 
12.89
%
 
12.87
%
 
2

bps
SVBFG tier 1 risk-based capital ratio
 
13.04

 
13.06

 
(2
)
 
SVBFG total risk-based capital ratio
 
13.94

 
13.99

 
(5
)
 
SVBFG tier 1 leverage ratio
 
9.10

 
8.67

 
43

  
SVBFG tangible common equity to tangible assets (5)
 
8.59

 
8.25

 
34

  
SVBFG tangible common equity to risk-weighted assets (5)
 
12.86

 
12.65

 
21

  
Bank CET 1 risk-based capital ratio
 
12.35

 
11.90

 
45

 
Bank tier 1 risk-based capital ratio
 
12.35

 
11.90

 
45

  
Bank total risk-based capital ratio
 
13.29

 
12.88

 
41

  
Bank tier 1 leverage ratio
 
8.38

 
7.69

 
69

  
Bank tangible common equity to tangible assets (5)
 
7.99

 
7.41

 
58

  
Bank tangible common equity to risk-weighted assets (5)
 
12.32

 
11.68

 
64

  
Other Ratios:
 

 
 
 
 
 
GAAP operating efficiency ratio (6)
 
46.10
%
 
46.13
%
 
(0.1
)
Non-GAAP core operating efficiency ratio (2)
 
44.71

 
48.41

 
(7.6
)
 
Book value per common share (7)
 
$
102.11

 
$
83.43

 
22.4

  
Other Statistics:
 

 
 
 
 
 
Average full-time equivalent employees
 
3,228

 
2,498

 
29.2

Period-end full-time equivalent employees
 
3,250

 
2,512

 
29.4

  
 
 
(1)
See “Results of Operations–Noninterest Income” for a description and reconciliation of non-GAAP core fee income and non-GAAP core fee income including 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 annualized consolidated net income available to common stockholders divided by quarterly average assets.
(4)
Ratio represents annualized consolidated net income available to common stockholders divided by quarterly 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 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 three months ended March 31, 2019 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 2018 Form 10-K.
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
Net interest income is defined as the difference between: (i) interest earned on loans, fixed income investment in our available-for-sale and held-to-maturity securities portfolios and short-term investment securities, (ii) interest paid on funding sources. Net interest margin is defined as annualized net interest income, on a fully taxable equivalent basis, 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 21.0 percent for the three months ended March 31, 2019 and 2018.
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 mix 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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2019 Compared to 2018
 
 
Three months ended March 31, increase (decrease) due to change in
(Dollars in thousands)
 
Volume
 
Rate
 
Total
Interest income:
 
 
 
 
 
 
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities
 
$
7,524

 
$
5,936

 
$
13,460

Fixed income investment portfolio (taxable)
 
(11,732
)
 
13,972

 
2,240

Fixed income investment portfolio (non-taxable)
 
6,636

 
762

 
7,398

Loans, net of unearned income
 
63,601

 
33,470

 
97,071

Increase in interest income, net
 
66,029

 
54,140

 
120,169

Interest expense:
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
(14
)
 
12

 
(2
)
Money market deposits
 
6,582

 
11,394

 
17,976

Money market deposits in foreign offices
 
(3
)
 
1

 
(2
)
Time deposits
 
2

 
15

 
17

Sweep deposits in foreign offices
 
2,450

 
3,371

 
5,821

Total increase in deposits expense
 
9,017

 
14,793

 
23,810

Short-term borrowings
 
1,505

 
266

 
1,771

3.50% Senior Notes
 
3

 

 
3

5.375% Senior Notes
 
9

 

 
9

Total increase in borrowings expense
 
1,517

 
266

 
1,783

Increase in interest expense, net
 
10,534

 
15,059

 
25,593

Increase in net interest income
 
$
55,495

 
$
39,081

 
$
94,576

Net Interest Income (Fully Taxable Equivalent Basis)
Three months ended March 31, 2019 and 2018
Net interest income increased by $94.6 million to $515.8 million for the three months ended March 31, 2019, compared to $421.2 million for the comparable 2018 period. Overall, our net interest income increased primarily from interest earned on loans, reflective of higher average loan balances driven by strong loan growth from our private equity/venture capital loan portfolio as well as increases from our life science/healthcare and private bank loan portfolios and rate increases subsequent to March 31, 2018. In addition, we saw an increase in interest yields on our fixed income investment securities portfolio reflective of higher average fixed income investment securities balances driven by higher average deposit balances as well as an increase in yield from rate increases. These increases were partially offset by an increase in interest paid on our interest-bearing deposits due to the increase in average interest-bearing deposits as well as market rate adjustments on our interest-bearing deposits.
The main factors affecting interest income for the three months ended March 31, 2019, compared to the comparable 2018 period are discussed below:
Interest income for the three months ended March 31, 2019 increased by $120.2 million due primarily to:
A $97.1 million increase in interest income on loans to $394.1 million for the three months ended March 31, 2019, compared to $297.1 million for the comparable 2018 period. The increase was reflective of an increase in average loan balances of $4.6 billion and an increase in the overall loan yield of 57 basis points to 5.63 percent from 5.06 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased 56 basis points to 5.10 percent from 4.54 percent, reflective primarily of the benefit of interest rate increases. Loan fee yields were relatively flat, 52 basis points for the three months ended March 31, 2019, compared to 51 basis points for the comparable 2018 period,
A $9.6 million increase in interest income on fixed income investment securities to $140.6 million for the three months ended March 31, 2019, compared to $130.9 million for the comparable 2018 period. The increase was reflective of an increase in our fixed income investment securities yield of 37 basis points to 2.58 percent from 2.21 percent resulting primarily from higher reinvestment yields on maturing fixed income investments as well as sales and maturities of lower yielding securities during the quarter, and

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A $13.5 million increase in interest income from our interest-earning cash and short-term investment securities. The increase was due to the benefit from the impact of the increases in the Federal Funds target rate since March 31, 2018 as well as an increase of $1.7 billion in average interest-earning Federal Reserve cash balances.
Interest expense for the three months ended March 31, 2019 increased by $25.6 million due primarily to:
A $23.8 million increase in interest expense on deposits due primarily to an increase in interest paid on our interest-bearing money market and foreign sweep deposits as a result of market rate adjustments as well as growth in average interest-bearing deposits of $3.3 billion, and
A $1.8 million increase in interest expense on borrowings primarily due to a $0.2 billion increase in our average short-term borrowings during the three months ended March 31, 2019 to fund loan growth as a result of the timing of loan funding and deposit activities.
Net Interest Margin (Fully Taxable Equivalent Basis)
Three months ended March 31, 2019 and 2018
Our net interest margin increased by 43 basis points to 3.81 percent for the three months ended March 31, 2019, compared to 3.38 percent for the comparable 2018 period. The higher margin during the first quarter of 2019 was reflective primarily of the increases in the Federal Funds target rate since March 31, 2018 as well as a shift in the mix of the growth in our interest-earning assets to higher-yielding loans from our fixed income investment securities portfolio. Average loans represented 51.7 percent of average interest earnings assets for the three months ended March 31, 2019, compared to 47.1 percent for the comparable 2018 period.
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 months ended March 31, 2019 and 2018:

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Average Balances, Rates and Yields for the Three Months Ended March 31, 2019 and 2018
 
 
Three months ended March 31,
 
 
2019
 
2018
(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)
 
$
4,460,378

 
$
19,216

 
1.75
%
 
$
2,713,976

 
$
5,756

 
0.86
%
Investment securities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
6,870,168

 
35,422

 
2.09

 
10,748,512

 
47,976

 
1.81

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
13,651,311

 
91,295

 
2.71

 
12,415,508

 
76,501

 
2.50

Non-taxable (3)
 
1,572,647

 
13,844

 
3.57

 
818,818

 
6,446

 
3.19

Total loans, net of unearned income (4) (5)
 
28,388,072

 
394,144

 
5.63

 
23,807,212

 
297,073

 
5.06

Total interest-earning assets
 
54,942,576

 
553,921

 
4.09

 
50,504,026

 
433,752

 
3.48

Cash and due from banks
 
527,109

 
 
 
 
 
400,256

 
 
 
 
Allowance for loan losses
 
(288,927
)
 
 
 
 
 
(263,086
)
 
 
 
 
Other assets (6)
 
2,347,679

 
 
 
 
 
1,726,046

 
 
 
 
Total assets
 
$
57,528,437

 
 
 
 
 
$
52,367,242

 
 
 
 
Funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing checking and savings accounts
 
$
545,238

 
$
114

 
0.08
%
 
$
608,686

 
$
116

 
0.08
%
Money market deposits
 
9,073,622

 
21,831

 
0.98

 
6,337,944

 
3,855

 
0.25

Money market deposits in foreign offices
 
148,342

 
16

 
0.04

 
181,294

 
18

 
0.04

Time deposits
 
50,691

 
30

 
0.24

 
47,029

 
13

 
0.11

Sweep deposits in foreign offices
 
1,673,629

 
5,916

 
1.43

 
980,341

 
95

 
0.04

Total interest-bearing deposits
 
11,491,522

 
27,907

 
0.98

 
8,155,294

 
4,097

 
0.20

Short-term borrowings
 
353,389

 
2,205

 
2.53

 
112,063

 
434

 
1.57

3.50% Senior Notes
 
347,669

 
3,148

 
3.67

 
347,332

 
3,145

 
3.67

5.375% Senior Notes
 
348,882

 
4,868

 
5.66

 
348,242

 
4,859

 
5.66

Total interest-bearing liabilities
 
12,541,462

 
38,128

 
1.23

 
8,962,931

 
12,535

 
0.57

Portion of noninterest-bearing funding sources
 
42,401,114

 
 
 
 
 
41,541,095

 
 
 
 
Total funding sources
 
54,942,576

 
38,128

 
0.28

 
50,504,026

 
12,535

 
0.10

Noninterest-bearing funding sources:
 
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
 
38,222,687

 
 
 
 
 
37,950,787

 
 
 
 
Other liabilities
 
1,330,037

 
 
 
 
 
952,032

 
 
 
 
SVBFG stockholders’ equity
 
5,283,808

 
 
 
 
 
4,364,667

 
 
 
 
Noncontrolling interests
 
150,443

 
 
 
 
 
136,825

 
 
 
 
Portion used to fund interest-earning assets
 
(42,401,114
)
 
 
 
 
 
(41,541,095
)
 
 
 
 
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity
 
$
57,528,437

 
 
 
 
 
$
52,367,242

 
 
 
 
Net interest income and margin
 
 
 
$
515,793

 
3.81
%
 
 
 
$
421,217

 
3.38
%
Total deposits
 
$
49,714,209

 
 
 
 
 
$
46,106,081

 
 
 
 
Reconciliation to reported net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Adjustments for taxable equivalent basis
 
 
 
(2,907
)
 
 
 
 
 
(1,354
)
 
 
Net interest income, as reported
 
 
 
$
512,886

 
 
 
 
 
$
419,863

 
 
 
 
(1)
Includes average interest-earning deposits in other financial institutions of $0.8 billion and $1.2 billion for the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019 and 2018, balances also include $2.8 billion and $1.4 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 tax rate of 21.0 percent for all periods presented.
(4)
Nonaccrual loans are reflected in the average balances of loans.
(5)
Interest income includes loan fees of $36.7 million and $29.9 million for the three months ended March 31, 2019 and 2018, respectively.
(6)
Average investment securities of $913 million and $787 million for the three months ended March 31, 2019 and 2018, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other equity securities.

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Provision for Credit Losses
The provision for credit losses is the combination of both the provision for loan losses and the provision for unfunded credit commitments. 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. Our provision for unfunded credit commitments is determined using a methodology that is similar to the methodology used for calculating the allowance for loan losses, adjusted for factors specific to binding commitments, including the probability of funding and exposure at funding. Our provision for credit losses equals our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date.
The following table summarizes our allowance for loan losses and the allowance for unfunded credit commitments for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands, except ratios)
 
2019
 
2018
Allowance for loan losses, beginning balance
 
$
280,903

 
$
255,024

Provision for loan losses
 
25,821

 
26,996

Gross loan charge-offs
 
(9,000
)
 
(10,587
)
Loan recoveries
 
1,425

 
1,788

Foreign currency translation adjustments
 
1,002

 
1,073

Allowance for loan losses, ending balance
 
$
300,151

 
$
274,294

Allowance for unfunded credit commitments, beginning balance
 
55,183

 
51,770

Provision for unfunded credit commitments
 
2,730

 
976

Foreign currency translation adjustments
 
57

 
77

Allowance for unfunded credit commitments, ending balance (1)
 
$
57,970

 
$
52,823

Ratios and other information:
 
 
 
 
Provision for loan losses as a percentage of period-end total gross loans (annualized)
 
0.36
%
 
0.44
%
Gross loan charge-offs as a percentage of average total gross loans (annualized)
 
0.13

 
0.18

Net loan charge-offs as a percentage of average total gross loans (annualized)
 
0.11

 
0.15

Allowance for loan losses as a percentage of period-end total gross loans
 
1.03

 
1.11

Provision for credit losses
 
$
28,551

 
$
27,972

Period-end total gross loans
 
29,020,519

 
24,745,752

Average total gross loans
 
28,555,655

 
23,956,784

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

Three months ended March 31, 2019 and 2018
Our provision for credit losses was $28.6 million for the three months ended March 31, 2019, consisting of a provision for loan losses of $25.8 million and a provision for unfunded credit commitments of $2.7 million. Our provision for credit losses was $28.0 million for the three months ended March 31, 2018, consisting of a provision for loan losses of $27.0 million and a provision for unfunded credit commitments of $1.0 million.
The provision for loan losses of $25.8 million for the three months ended March 31, 2019 reflects primarily an increase of $27.4 million in net new specific reserves for nonaccrual loans, $4.1 million in additional reserves for period-end loan growth and $4.9 million for charge-offs not specifically reserved for, partially offset by a decrease of $8.2 million for our performing loans reserve.
The provision for unfunded credit commitments of $2.7 million was driven primarily by growth in unfunded credit commitments of $1.4 billion for three months ended March 31, 2019.
The provision for loan losses of $27.0 million for the three months ended March 31, 2018 primarily reflects a $14.0 million increase in reserves for period-end loan growth and $11.3 million in specific reserves for net new nonaccrual loans.

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The provision for unfunded credit commitments of $1.0 million for three months ended March 31, 2018 was driven primarily by an increase in qualitative reserves for funded loans.
Gross loan charge-offs were $9.0 million for the three months ended March 31, 2019, of which $4.9 million was not specifically reserved for at December 31, 2018. Gross loan charge-offs were primarily due to $8.3 million from our software/internet loan portfolio driven by three mid-stage clients and one early-stage client.
Gross loan charge-offs were $10.6 million for the three months ended March 31, 2018, of which $3.4 million was not specifically reserved for at December 31, 2017. Gross loan charge-offs included $6.1 million from early-stage client loans, mostly in our software/internet and hardware portfolios of $3.2 million from a late-stage client loan in our software/internet portfolio.
See “Consolidated Financial Condition—Credit Quality and Allowance for Loan Losses” below and Note 8—“Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments” 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.
Noninterest Income
For the three months ended March 31, 2019, noninterest income was $280.4 million, compared to $155.5 million for the comparable 2018 period. For the three months ended March 31, 2019, non-GAAP noninterest income, net of noncontrolling interests was $277.1 million, compared to $142.5 million for the comparable 2018 period. For the three months ended March 31, 2019, non-GAAP core fee income including investment banking revenue and commissions was $218.1 million, compared to $115.0 million for the comparable 2018 period. For the three months ended March 31, 2019, non-GAAP core fee income was $154.2 million, compared to $115.0 million for the comparable 2018 period. (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 core fee income including investment banking revenue and commissions, non-GAAP noninterest income, and 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 certain other 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, and 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 of 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, primarily our net gains (losses) on investment securities and equity warrant assets. Core fee income includes foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit and letters of credit fees.
Core fee income including investment banking revenue and commissions is a non-GAAP measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control.

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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 months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
GAAP noninterest income
 
$
280,376


$
155,518

 
80.3
 %
Less: income attributable to noncontrolling interests, including carried interest allocation
 
3,248

 
13,024

 
(75.1
)
Non-GAAP noninterest income, net of noncontrolling interests
 
$
277,128

 
$
142,494

 
94.5

The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
GAAP noninterest income
 
$
280,376

 
$
155,518

 
80.3
 %
Less: gains on investment securities, net
 
29,028

 
9,058

 
NM

Less: gains on equity warrant assets, net
 
21,305

 
19,191

 
11.0

Less: other noninterest income
 
11,897

 
12,259

 
(3.0
)
Non-GAAP core fee income including investment banking revenue and commissions (1)
 
$
218,146

 
$
115,010

 
89.7

Less: investment banking revenue
 
49,795

 

 

Less: commissions
 
14,108

 

 

Non-GAAP core fee income (2)
 
$
154,243

 
$
115,010

 
34.1

 
NM—Not meaningful
(1)
Non-GAAP core fee income including 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.
(2)
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, as well as our investment banking revenue and commissions, and includes foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit and standby letters of credit fees.
Gains on Investment Securities, Net
Net gains on investment securities include gains and losses from our non-marketable and other equity securities, which include public equity securities held as a result of exercised equity warrant assets, as well as gains and losses from sales of our AFS debt securities portfolio, when applicable.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies and qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, 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 equity 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 (e.g. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, and 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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Our AFS securities portfolio is 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. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk.
Three months ended March 31, 2019 and 2018
For the three months ended March 31, 2019, we had net gains on investment securities of $29.0 million, compared to $9.1 million for the comparable 2018 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, were $25.6 million for the three months ended March 31, 2019, compared to non-GAAP net losses, net of controlling interest of $3.8 million for the comparable 2018 period.
Non-GAAP net gains on investment securities, net of noncontrolling interests, of $25.6 million for the three months ended March 31, 2019 were driven by the following:
Gains of $15.0 million from our strategic and other investments portfolio, comprised primarily of net unrealized valuation increases in public companies held in our strategic venture capital funds and an unrealized valuation increase for one company in our direct equity portfolio due to M&A activity, and
Gains of $9.6 million from our public equity securities portfolio primarily attributable to the sale of our shares from exercised warrants in one company which were sold as soon as practicable following the lock-up period expiration, partially offset by
Losses of $3.6 million from our AFS securities portfolio due to realized losses on the sale of approximately $1.2 billion of U.S. Treasury securities.
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 months ended March 31, 2019 and 2018:
(Dollars in thousands)
 
Managed
Funds of
Funds
 
Managed
Direct
Venture
Funds
 
Public Equity Securities
 
Debt
Funds
 
Sales of AFS Securities
 
Strategic
and Other
Investments
 
SVB Leerink
 
Total
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total gains (losses) on investment securities, net

$
6,229

 
$
(634
)

$
9,636


$


$
(3,630
)

$
15,002

 
$
2,425

 
$
29,028

Less: income (loss) attributable to noncontrolling interests, including carried interest allocation

3,745

 
(309
)








 

 
3,436

Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
$
2,484

 
$
(325
)
 
$
9,636

 
$

 
$
(3,630
)
 
$
15,002

 
$
2,425

 
$
25,592


(Dollars in thousands)
 
Managed
Funds of
Funds
 
Managed
Direct
Venture
Funds
 
Public Equity Securities
 
Debt
Funds
 
Sales of AFS Securities
 
Strategic
and Other
Investments
 
Total
Three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total gains (losses) on investment securities, net
 
$
19,073

 
$
1,919

 
$
(22,282
)
 
$
(2,299
)
 
$

 
$
12,647

 
$
9,058

Less: income attributable to noncontrolling interests, including carried interest allocation
 
12,197

 
708

 

 

 

 

 
12,905

Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
$
6,876

 
$
1,211

 
$
(22,282
)
 
$
(2,299
)
 
$

 
$
12,647

 
$
(3,847
)
Gains on Equity Warrant Assets, Net
Three months ended March 31, 2019 and 2018
Net gains on equity warrant assets were $21.3 million for the three months ended March 31, 2019, compared to net gains of $19.2 million for the comparable 2018 period. Net gains on equity warrant assets for the three months ended March 31, 2019 consisted of:

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Net gains of $16.2 million from increases in warrant valuations compared to net gains of $10.2 million, driven by valuation increases in our private company warrant portfolio during the three months ended March 31, 2019, and
Net gains of $5.5 million from the exercise of equity warrant assets compared to net gains of $9.9 million, primarily driven by decreased IPO activity as a result of the government shutdown during the three months ended March 31, 2019
A summary of gains on equity warrant assets, net, for the three months ended March 31, 2019 and 2018 is as follows:
  
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Equity warrant assets (1):
 
 
 
 
 
 
Gains on exercises, net
 
$
5,482

 
$
9,927

 
(44.8
)%
Terminations
 
(415
)
 
(922
)
 
(55.0
)
Changes in fair value, net
 
16,238

 
10,186

 
59.4

Total gains on equity warrant assets, net
 
$
21,305

 
$
19,191

 
11.0

 
 
(1)
At March 31, 2019, we held warrants in 2,149 companies, compared to 1,929 companies at March 31, 2018. The total fair value of our warrant portfolio was $162.2 million at March 31, 2019 and $135.7 million at March 31, 2018. Warrants in 26 companies each had fair values greater than $1.0 million and collectively represented $56.8 million, or 35.0 percent, of the fair value of the total warrant portfolio at March 31, 2019. Warrants in 13 companies each had fair values greater than $1.0 million and collectively represented $31.0 million, or 22.8 percent, of the fair value of the total warrant portfolio at March 31, 2018.
Non-GAAP Core Fee Income
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Non-GAAP core fee income (1):
 
 
 
 
 
 
Foreign exchange fees
 
$
38,048

 
$
33,827

 
12.5
%
Credit card fees
 
27,483

 
21,692

 
26.7

Deposit service charges
 
20,939

 
17,699

 
18.3

Client investment fees
 
44,482

 
22,875

 
94.5

Lending related fees
 
13,937

 
10,735

 
29.8

Letters of credit and standby letters of credit fees
 
9,354

 
8,182

 
14.3

Total non-GAAP core fee income (1)
 
$
154,243

 
$
115,010

 
34.1

Investment banking revenue
 
49,795

 

 

Commissions
 
14,108

 

 

Total non-GAAP core fee income including investment banking revenue and commissions (2)
 
$
218,146

 
$
115,010

 
89.7

 
(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.
(2)
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, as well as investment banking revenue and commissions. See “Use of Non-GAAP Measures” above.
Foreign Exchange Fees
Foreign exchange fees were $38.0 million for the three months ended March 31, 2019, compared to $33.8 million for the comparable 2018 period. The increase in foreign exchange fees were driven primarily by increases in spot contract commissions driven by increased volume of trades for the three months ended March 31, 2019 compared to the 2018 period. The volume of trades for spot contracts increased 10.6 percent for the three months ended March 31, 2019, respectively, compared to the comparable 2018 period reflective primarily of our global expansion initiative and increased client engagement efforts. A summary of foreign exchange fee income by instrument type for the three months ended March 31, 2019 and 2018 is as follows:

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Three months ended March 31,
(Dollars in thousands)
 
2019

2018

% Change
Foreign exchange fees by instrument type:
 
 
 
 
 
 
Spot contract commissions
 
$
35,029

 
$
31,202

 
12.3
 %
Forward contract commissions
 
2,995

 
2,485

 
20.5

Option premium fees
 
24

 
140

 
(82.9
)
Total foreign exchange fees
 
$
38,048

 
$
33,827

 
12.5

Credit Card Fees
Credit card fees were $27.5 million for the three months ended March 31, 2019, compared to $21.7 million for the comparable 2018 period. The increase was primarily due to higher gross interchange fee income driven by an increase in transaction volume reflective of higher spending by our commercial clients and our focus on our credit card business as a key area targeted for growth. The increase in gross interchange fee income was partially offset by an increase in rebates/rewards expense for the three months ended March 31, 2019. A summary of credit card fees by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Credit card fees by instrument type:
 
 
 
 
 
 
Card interchange fees, net
 
$
21,393

 
$
17,560

 
21.8
%
Merchant service fees
 
4,534

 
2,906

 
56.0

Card service fees
 
1,556

 
1,226

 
26.9

Total credit card fees
 
$
27,483

 
$
21,692

 
26.7

Deposit Service Charges
Deposit service charges were $20.9 million for the three months ended March 31, 2019, compared to $17.7 million for the comparable 2018 period. The increase was reflective of higher deposit client counts, as well as higher volumes of our transaction-based fee products, during the three months ended March 31, 2019.
Client Investment Fees
Client investment fees were $44.5 million for the three months ended March 31, 2019, compared to $22.9 million for the comparable 2018 period. The increase was reflective of the large increase in average client investment funds driven by our clients’ increased utilization of our off-balance sheet sweep money market funds and products managed by SVB Asset Management. Client investment fees also benefited from improved spreads on our client investment funds due to increases in general market rates and the reintroduction of fees that had been previously waived due to the low rate environment. A summary of client investment fees by instrument type for the three months ended March 31, 2019 and 2018 is as follows:

 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Client investment fees by type:
 
 
 
 
 
 
Sweep money market fees
 
$
26,544

 
$
12,322

 
115.4
%
Asset management fees
 
6,671

 
5,358

 
24.5

Repurchase agreement fees
 
11,267

 
5,195

 
116.9

Total client investment fees
 
$
44,482

 
$
22,875

 
94.5

The following table summarizes average client investment funds for the three months ended March 31, 2019 and 2018:

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Three months ended March 31,
(Dollars in millions)
 
2019

2018

% Change
Sweep money market funds
 
$
39,805

 
$
26,132

 
52.3
%
Client investment assets under management (1)
 
39,247

 
30,699

 
27.8

Repurchase agreements
 
8,362

 
7,546

 
10.8

Total average client investment funds (2)
 
$
87,414

 
$
64,377

 
35.8

 
 
(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.
The following table summarizes period-end client investment funds at March 31, 2019 and December 31, 2018:
(Dollars in millions)
 
March 31, 2019
 
December 31, 2018
 
% Change
Sweep money market funds
 
$
40,686

 
$
38,348

 
6.1
 %
Client investment assets under management (1)
 
39,376

 
39,214

 
0.4

Repurchase agreements
 
8,120

 
8,422

 
(3.6
)
Total period-end client investment funds (2)
 
$
88,182

 
$
85,984

 
2.6

 
 
(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.
Lending Related Fees
Lending related fees were $13.9 million for the three months ended March 31, 2019, compared to $10.7 million for the comparable 2018 period. The increase was due to an increase in unused commitment fees and higher syndication fee income. A summary of lending related fees by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Lending related fees by instrument type:
 
 
 
 
 
 
Unused commitment fees
 
$
9,670

 
$
8,757

 
10.4
%
Other
 
4,267

 
1,978

 
115.7

Total lending related fees
 
$
13,937

 
$
10,735

 
29.8

Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees were $9.4 million for the three months ended March 31, 2019, compared to $8.2 million for the comparable 2018 period. The increase was primarily driven by increases in deferred fee income reflective of larger letter of credit issuances.
Investment banking revenue
The Company earns investment banking revenue from clients for providing services related to securities underwriting, private placements and advisory services on strategic matters such as mergers and acquisitions. Underwriting fees are attributable to public and private offerings of equity and debt securities and are recognized at the point in time when the offering has been deemed to be completed by the lead manager of the underwriting group. Once the offering is completed, the performance obligation has been satisfied and the Company recognizes the applicable management fee as well the underwriting fee, net of consideration payable to customers. Estimated offering expenses are presented gross in our statements of income. The Company recognizes private placement fee revenue at the point in time when the private placement is completed, which is generally when the client accepts capital from the fund raise. Advisory fees from mergers and acquisitions engagements are generally recognized at the point in time when the related transaction is completed. Expenses are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other deal-related expenses are expensed

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as incurred. The Company has determined that it acts as principal in the majority of these transactions and therefore presents expenses gross within other operating expenses.
A summary of investment banking revenue by instrument type for the three months ended March 31, 2019 and 2018 is as follows:
  
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Investment banking revenue:
 
 
 
 
 
 
Underwriting fees
 
$
35,772

 
$

 

Advisory fees
 
12,273

 

 

Private placements and other
 
1,750

 

 

Total investment banking revenue
 
$
49,795

 
$

 

Commissions
Commissions include commissions received from customers for the execution of agency-based brokerage transactions in listed and over-the-counter equities. The execution of each trade order represents a distinct performance obligation and the transaction price is fixed at the point in time or trade order execution. Trade execution is satisfied at the point in time that the customer has control of the asset and as such, fees are recorded on a trade date basis. Revenue is recognized for direct payments received by the Company equity research services at a point in time when access to research has been provided, the transaction price is determined, it is probable that a significant reversal of revenue will not occur and uncertainty related to variability is resolved. Commissions for the three months ended March 31, 2019 were $14.1 million.
Other Noninterest Income
Total other noninterest income was $11.9 million for the three months ended March 31, 2019, compared to $12.3 million for the comparable 2018 period. The decrease of $0.4 million was due primarily to a decrease in other service revenue partially offset by an increase in fund management fees due to the inclusion of SVB Leerink in our financial results as of January 4, 2019.
A summary of other noninterest income for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Other noninterest income by instrument type:
 
 
 
 
 
 
Fund management fees
 
$
8,041

 
$
5,736

 
40.2
 %
Net losses on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1)
 
(336
)
 
(47
)
 
NM

Other service revenue (2)
 
4,192

 
6,570

 
(36.2
)
Total other noninterest income
 
$
11,897

 
$
12,259

 
(3.0
)
 
  
NM—Not meaningful
(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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Noninterest Expense
A summary of noninterest expense for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019

2018
 
% Change
Compensation and benefits
 
$
238,061

 
$
165,806

 
43.6
 %
Professional services
 
36,986

 
28,725

 
28.8

Premises and equipment
 
21,700

 
18,545

 
17.0

Net occupancy
 
16,048

 
13,616

 
17.9

Business development and travel
 
15,354

 
11,191

 
37.2

FDIC and state assessments
 
3,979

 
9,430

 
(57.8
)
Other
 
33,536

 
18,104

 
85.2

Total noninterest expense
 
$
365,664

 
$
265,417

 
37.8

Included in noninterest expense is expense attributable to noncontrolling interests. See below for a description and reconciliation of non-GAAP noninterest expense and non-GAAP core 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 core 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 core operating efficiency ratio for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
Non-GAAP core operating efficiency ratio (Dollars in thousands, except ratios)
 
2019

2018
 
% Change
GAAP noninterest expense
 
$
365,664

 
$
265,417

 
37.8
 %
Less: expense attributable to noncontrolling interests
 
379

 
(32
)
 
NM

Non-GAAP noninterest expense, net of noncontrolling interests
 
365,285

 
265,449

 
37.6

Less: expense attributable to SVB Leerink
 
60,540

 

 

Non-GAAP noninterest expense, net of noncontrolling interests and SVB Leerink
 
$
304,745

 
$
265,449

 
14.8

 
 
 
 
 
 
 
GAAP net interest income
 
$
512,886

 
$
419,863

 
22.2

Adjustments for taxable equivalent basis
 
2,907

 
1,354

 
114.7

Non-GAAP taxable equivalent net interest income
 
515,793

 
421,217

 
22.5

Less: income attributable to noncontrolling interests
 
11

 
9

 
22.2

Non-GAAP taxable equivalent net interest income, net of noncontrolling interests
 
515,782

 
421,208

 
22.5

Less: net interest income attributable to SVB Leerink
 
442

 

 

Non-GAAP taxable equivalent net interest income, net of noncontrolling interests and SVB Leerink
 
$
515,340

 
$
421,208

 
22.3

 
 
 
 
 
 
 
GAAP noninterest income
 
$
280,376

 
$
155,518

 
80.3

Less: income attributable to noncontrolling interests, including carried interest allocation
 
3,248

 
13,024

 
(75.1
)
Non-GAAP noninterest income, net of noncontrolling interests
 
277,128

 
142,494

 
94.5

Less: Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests
 
25,592

 
(3,847
)
 
NM

Less: net gains on equity warrant assets
 
21,305

 
19,191

 
11.0

Less: investment banking revenue
 
49,795

 

 

Less: commissions
 
14,108

 

 

Non-GAAP noninterest income, net of noncontrolling interests and net of net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions
 
$
166,328

 
$
127,150

 
30.8

 
 
 
 
 
 
 
GAAP total revenue
 
$
793,262

 
$
575,381

 
37.9

Non-GAAP taxable equivalent revenue, net of noncontrolling interests and SVB Leerink, net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions
 
$
681,668

 
$
548,358

 
24.3

 
 
 
 
 
 
 
GAAP operating efficiency ratio
 
46.10
%
 
46.13
%
 
(0.1
)
Non-GAAP core operating efficiency ratio (1)
 
44.71

 
48.41

 
(7.6
)
 
 
 
NM—Not meaningful
(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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Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense for the three months ended March 31, 2019 and 2018:
 
 
Three months ended March 31,
(Dollars in thousands, except employees)
 
2019
 
2018
 
% Change
Compensation and benefits:
 
 
 
 
 
 
Salaries and wages
 
$
101,200

 
$
73,039

 
38.6
%
Incentive compensation & ESOP
 
70,552

 
43,633

 
61.7

Other employee incentives and benefits (1)
 
66,309

 
49,134

 
35.0

Total compensation and benefits
 
$
238,061

 
$
165,806

 
43.6

Period-end full-time equivalent employees
 
3,250

 
2,512

 
29.4

Average full-time equivalent employees
 
3,228

 
2,498

 
29.2

 
 
(1)
Other employee incentives and benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), warrant and retention plans, agency fees and other employee-related expenses.
Compensation and benefits expense was $238.1 million for the three months ended March 31, 2019, compared to $165.8 million for the comparable 2018 period. The key changes in factors affecting compensation and benefits expense were as follows:
An increase of $28.2 million in salaries and wages reflective primarily of the increase in the number of average FTE by 730 to 3,228 for the first quarter of 2019, of which 233 FTEs were attributable to the acquisition of SVB Leerink compared to the same period in 2018, as well as annual pay raises,
An increase of $26.9 million in incentive compensation and ESOP expense reflective primarily of the inclusion of SVB Leerink in our financial results, accounting for $25.6 million of the increase, and
An increase of $17.2 million in other employee incentives and benefits primarily driven by seasonal expenses relating to additional 401(k) matching contributions as a result of the 2018 annual incentive compensation plan payments and an increase in employer payroll taxes reflective of our increased headcount since the first quarter of 2018, driven by our continued growth initiatives as well as the inclusion of SVB Leerink FTEs mentioned above.
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 2018 Form 10-K). Total costs incurred under these plans were $87.7 million for the three months ended March 31, 2019, compared to $53.1 million for the comparable 2018 period. These amounts are included in total compensation and benefits expense discussed above.
Professional Services
Professional services expense was $37.0 million for the three months ended March 31, 2019, compared to $28.7 million for the comparable 2018 period. The increase was primarily related to enhancements in our regulatory, risk and compliance infrastructure to support our momentum as we continue to grow both domestically and globally as well as an increase in legal and consulting costs related to the acquisition of SVB Leerink.
Net Occupancy
Net occupancy expense was $16.0 million for the three months ended March 31, 2019, compared to $13.6 million for the comparable 2018 period. The increase was primarily due to lease renewals at higher costs, reflective of market conditions, and the expansion of certain offices to support our growth as well as a $1.8 million increase directly attributable to the inclusion of SVB Leerink in our financial results effective January 1, 2019.
FDIC and State Assessments
FDIC and state assessments expense was $4.0 million for the three months ended March 31, 2019, compared to $9.4 million for the comparable 2018 period. The decrease was due primarily to the elimination of the FDIC surcharge for banks effective October 1, 2018, reflective of the deposit insurance fund reserve ratio reaching its minimum funding requirements.

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Business Development and Travel
Business development and travel expense was $15.4 million for the three months ended March 31, 2019, compared to $11.2 million for the comparable 2018 period. The increase was to support expansion initiatives as we continue to grow both domestically and globally.
Other Noninterest Expense
Total other noninterest expense was $33.5 million for the three months ended March 31, 2019, compared to $18.1 million for the comparable 2018 period. The $15.4 million increase in other noninterest expense for the three months ended March 31, 2019 was driven primarily by the inclusion of SVB Leerink in our financial results effective January 4, 2019, which contributed $9.6 million to the overall increase related to new expenses for investment banking and trade order execution costs as well as amortization of intangible assets recorded as part of the acquisition.
A summary of other noninterest expense for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Lending and other client related processing costs
 
$
5,177

 
$
3,201

 
61.7
%
Correspondent bank fees
 
3,744

 
3,410

 
9.8

Investment banking activities
 
4,185

 

 

Trade order execution costs
 
2,516

 

 

Data processing services
 
2,899

 
2,492

 
16.3

Telephone
 
2,741

 
2,377

 
15.3

Dues and publications
 
1,524

 
850

 
79.3

Postage and supplies
 
770

 
667

 
15.4

Other
 
9,980

 
5,107

 
95.4

Total other noninterest expense
 
$
33,536

 
$
18,104

 
85.2

 
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 managed funds’ general partners. A summary of net income attributable to noncontrolling interests for the three months ended March 31, 2019 and 2018 is as follows:
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Net interest income (1)
 
$
(11
)
 
$
(9
)
 
22.2
 %
Noninterest income (1)
 
(2,270
)
 
(9,522
)
 
(76.2
)
Noninterest expense (1)
 
379

 
(32
)
 
NM

Carried interest allocation (2)
 
(978
)
 
(3,502
)
 
(72.1
)
Net income attributable to noncontrolling interests
 
$
(2,880
)
 
$
(13,065
)
 
(78.0
)
 
 
NM—Not meaningful
(1)
Represents noncontrolling interests’ share in net interest income, noninterest income or loss and noninterest expense.

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(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 March 31, 2019 and 2018
Net income attributable to noncontrolling interests was $2.9 million for the three months ended March 31, 2019, compared to $13.1 million for the comparable 2018 period. Net income attributable to noncontrolling interests of $2.9 million for the three months ended March 31, 2019 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds in the portfolio, related primarily to net unrealized valuation increases for public and private company investments held by the funds in the portfolio. See “Results of Operations—Noninterest Income—Gains on Investment Securities, Net”.
Income Taxes
Our effective income tax expense rate was 27.1 percent for the three months ended March 31, 2019, compared to 27.5 percent for the comparable 2018 period. 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.
The reduction in the effective tax rate for the three months ended March 31, 2019 was due primarily to a decrease in non-deductible FDIC premiums due to the elimination of the FDIC surcharge for banks effective October 1, 2018.
Operating Segment Results
We have four segments for which we report our financial information: Global Commercial Bank, SVB Private Bank, SVB Capital and SVB Leerink. SVB Leerink is a new reportable segment for 2019 as a result of the acquisition of SVB Leerink effective January 4, 2019.
We report segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 15—“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 months ended March 31, 2019 and 2018:
Global Commercial Bank
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Net interest income
 
$
445,876

 
$
369,867

 
20.6
%
Provision for credit losses
 
(26,805
)
 
(25,274
)
 
6.1

Noninterest income
 
126,317

 
98,792

 
27.9

Noninterest expense
 
(198,683
)
 
(186,891
)
 
6.3

Income before income tax expense
 
$
346,705

 
$
256,494

 
35.2

Total average loans, net of unearned income
 
$
24,798,197

 
$
20,679,202

 
19.9

Total average assets
 
55,883,000

 
49,953,396

 
11.9

Total average deposits
 
47,596,868

 
44,041,634

 
8.1

 
Three months ended March 31, 2019 and 2018
Income before income tax expense from our Global Commercial Bank (“GCB”) increased to $346.7 million for the three months ended March 31, 2019, compared to $256.5 million for the comparable 2018 period, which reflected the continued acquisition of new clients and growth of our core commercial business. The key components of GCB's performance for the three months ended March 31, 2019 compared to the comparable 2018 period are discussed below.
Net interest income from GCB increased by $76.0 million for the three months ended March 31, 2019, due primarily to an increase in loan interest income resulting mainly from higher average loan balances, as well as from an increase in loan yields as a result of rate increases.
GCB had a provision for credit losses of $26.8 million for the three months ended March 31, 2019, compared to $25.3 million for the comparable 2018 period. The provision of $26.8 million for the three months ended March 31, 2019 reflects primarily $27.4 million in net new specific reserves for nonaccrual loans, $4.1 million in additional reserves for period-end loan

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growth and $4.9 million for charge-offs not specifically reserved for, partially offset by a decrease in the qualitative component of our performing loan reserves of $5.3 million reflective of the continued growth of larger, higher credit quality private equity/venture capital loans as a percentage of total gross loans.
The provision of $25.3 million for the three months ended March 31, 2018 primarily reflected $11.3 million in net new specific reserves for nonaccrual loans and a $14.0 million increase in reserves for period-end loan growth.
Noninterest income increased by $27.5 million for the three months ended March 31, 2019 related primarily to an overall increase in our non-GAAP core fee income (higher client investment fees, credit card fees and foreign exchange fees). These increases were 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 $11.8 million for the three months ended March 31, 2019, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of higher salaries and wages expenses and higher other employee compensation and benefits. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased by 351 to 2,252 FTEs for the three months ended March 31, 2019, compared to 1,901 FTEs for the comparable 2018 period.
SVB Private Bank
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Net interest income
 
$
11,981

 
$
16,247

 
(26.3
)%
Reduction of (provision for) credit losses
 
984

 
(1,722
)
 
(157.1
)
Noninterest income
 
510

 
507

 
0.6

Noninterest expense
 
(7,414
)
 
(6,593
)
 
12.5

Income before income tax expense
 
$
6,061

 
$
8,439

 
(28.2
)
Total average loans, net of unearned income
 
$
3,085,883

 
$
2,666,658

 
15.7

Total average assets
 
2,507,131

 
2,590,476

 
(3.2
)
Total average deposits
 
1,491,234

 
1,572,424

 
(5.2
)
 
Three months ended March 31, 2019 and 2018
Net interest income from our SVB Private Bank decreased by $4.3 million for the three months ended March 31, 2019, due primarily to higher interest paid on interest-bearing deposits due to market rate adjustments for the three months ended March 31, 2019 as compared to the 2018 comparable period.
Noninterest expense increased by $0.8 million for the three months ended March 31, 2019, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of increased salaries and wages, reflective of the increase in number of average FTE since the first quarter of 2018, and higher incentive compensation expenses, reflective primarily of our strong 2019 full-year expected performance as compared to 2018.
SVB Capital
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Net interest income
 
$
6

 
$
7

 
(14.3
)%
Noninterest income
 
24,845

 
28,910

 
(14.1
)
Noninterest expense
 
(5,782
)
 
(5,046
)
 
14.6

Income before income tax expense
 
$
19,069

 
$
23,871

 
(20.1
)
Total average assets
 
$
378,732

 
$
373,322

 
1.4

 
 SVB Capital’s components of noninterest income primarily include net gains and losses on non-marketable and other equity securities, carried interest and fund management fees. All components of income before income tax expense 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

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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 March 31, 2019 and 2018
SVB Capital had noninterest income of $24.8 million for the three months ended March 31, 2019, compared to $28.9 million for the comparable 2018 period. The decrease in noninterest income was due primarily to lower net gains on investment securities compared to the comparable 2018 period. SVB Capital’s components of noninterest income primarily include the following:
Net gains on investment securities of $15.9 million for the three months ended March 31, 2019, compared to net gains of $22.9 million for the comparable 2018 period. The net gains on investment securities of $15.9 million were related primarily to gains from our strategic venture capital fund investments reflective of net unrealized valuation increases in public company securities held in our strategic venture capital funds, and
Fund management fees of $6.7 million for the three months ended March 31, 2019, compared to $5.7 million for the comparable 2018 period.
SVB Leerink
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
 
% Change
Net interest income
 
$
442

 
$

 
%
Noninterest income
 
68,117

 

 

Noninterest expense
 
(60,540
)
 

 

Income before income tax expense
 
$
8,019

 
$

 

Total average assets
 
$
300,332

 
$

 

 SVB Leerink’s components of noninterest income primarily include investment banking revenue, commissions and net gains and losses on non-marketable and other equity securities, carried interest and fund management fees. All components of income before income tax expense discussed below are net of noncontrolling interests.
Three months ended March 31, 2019
SVB Leerink had noninterest income of $68.1 million for the three months ended March 31, 2019, primarily driven by $49.8 million of investment banking revenue, $14.1 million of commissions and $1.4 million in fund management fees.
SVB Leerink had noninterest expense $60.5 million for the three months ended March 31, 2019, primarily driven by $42.9 million in compensation and benefits expense and $10.9 million in other noninterest expense, driven by investment banking and trade order execution costs as well as amortization of intangible assets recorded as part of the acquisition.
Consolidated Financial Condition
Our total assets, and total liabilities and stockholders' equity, were $60.2 billion at March 31, 2019 compared to $56.9 billion at December 31, 2018, an increase of $3.3 billion, or 5.7 percent. Refer below to 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 $7.1 billion at March 31, 2019, an increase of $3.5 billion, or 97.9 percent, compared to $3.6 billion at December 31, 2018. As of March 31, 2019, $4.7 billion 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 $1.4 billion. As of December 31, 2018, $1.7 billion 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 $1.2 billion.


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Investment Securities
Investment securities totaled $22.8 billion at March 31, 2019, a decrease of $1.4 billion, or 5.9 percent, compared to $24.2 billion at December 31, 2018. Our investment securities portfolio is comprised of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest earning fixed income investment securities; and (ii) a non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised.
Available-for-Sale Securities
Period-end available-for-sale securities were $6.8 billion at March 31, 2019 compared to $7.8 billion at December 31, 2018, a decrease of $1.0 billion, or 13.3 percent. The $1.0 billion decrease in period-end AFS securities balances from December 31, 2018 to March 31, 2019, was due primarily to the sale of $1.2 billion of AFS securities comprised of U.S. Treasury notes, partially offset by purchases of $0.2 billion. Securities classified as available-for-sale are carried at fair value with changes in fair value recorded as unrealized gains or losses in a separate component of stockholders' equity. During the first quarter of 2019, the AFS portfolio had unrealized gains of $46.8 million ($33.8 million net of tax), driven primarily by decreases in market interest rates.
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as available-for-sale as of March 31, 2019. 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, U.S. agency debentures and foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest 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.
 
 
March 31, 2019
 
 
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
 
$
3,767,410

 
1.95
 %
 
$
1,165,910

 
1.58
%
 
$
2,194,840

 
2.00
 %
 
$
406,660

 
2.81
%
 
$

 
%
U.S. agency debentures
 
1,063,713

 
1.84

 
643,279

 
1.50

 
420,434

 
2.36

 

 

 

 

Foreign government debt securities
 
5,685

 
(0.65
)
 

 

 
5,685

 
(0.65
)
 

 

 

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued collateralized mortgage obligations—fixed rate
 
1,839,883

 
2.58

 

 

 

 

 
8,654

 
2.88

 
1,831,229

 
2.58

Agency-issued collateralized mortgage obligationsvariable rate
 
78,403

 
0.73

 

 

 

 

 

 

 
78,403

 
0.73

Total
 
$
6,755,094

 
2.09

 
$
1,809,189

 
1.55

 
$
2,620,959

 
2.05

 
$
415,314

 
2.81

 
$
1,909,632

 
2.51

Held-to-Maturity Securities
Period-end held-to-maturity securities were $15.1 billion at March 31, 2019 compared to $15.5 billion at December 31, 2018, a decrease of $0.4 billion, or 2.8 percent. The $0.4 billion decrease in period-end HTM security balances from December 31, 2018 to March 31, 2019 was due primarily to pay downs and maturities.

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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.
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 March 31, 2019. 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 21.0 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 interest 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.
 
 
March 31, 2019
 
 
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
 
$
585,892

 
2.65
%
 
$

 
%
 
$
101,464

 
2.70
%
 
$
484,428

 
2.63
%
 
$

 
%
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency-issued mortgage-backed securities
 
7,887,579

 
2.89

 

 

 
133,021

 
2.03

 
868,170

 
2.48

 
6,886,388

 
2.96

Agency-issued collateralized mortgage obligationsfixed rate
 
2,058,789

 
1.78

 

 

 

 

 
515,013

 
1.61

 
1,543,776

 
1.84

Agency-issued collateralized mortgage obligationsvariable rate
 
206,421

 
0.74

 

 

 

 

 

 

 
206,421

 
0.74

Agency-issued commercial mortgage-backed securities
 
2,745,662

 
2.99

 

 

 

 

 

 

 
2,745,662

 
2.99

Municipal bonds and notes
 
1,570,912

 
3.61

 
13,230

 
2.52

 
80,710

 
2.12

 
318,981

 
2.78

 
1,157,991

 
3.95

Total
 
$
15,055,255

 
2.79

 
$
13,230

 
2.52

 
$
315,195

 
2.27

 
$
2,186,592

 
2.35

 
$
12,540,238

 
2.88

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 in the mix of longer versus shorter term-to-maturity securities. The estimated weighted-average duration of our fixed income investment securities portfolio was 3.7 years and 3.8 years at March 31, 2019 and December 31, 2018, respectively.

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Non-Marketable and Other Equity Securities
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies, including public equity securities held as a result of equity warrant assets exercised, and qualified affordable housing projects. Included in our non-marketable and other equity 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 equity securities compared to the amounts attributable to SVBFG.
Period-end non-marketable and other equity securities were $975.0 million at March 31, 2019 compared to $941.1 million at December 31, 2018, an increase of $33.9 million, or 3.6 percent. Non-marketable and other equity securities, net of noncontrolling interests were $840.8 million at March 31, 2019, compared to $806.1 million at December 31, 2018. The increase was primarily attributable to $31.6 million in additional non-marketable and other equity securities reflective of the inclusion of SVB Leerink in our financial results beginning on January 4, 2019. The following table summarizes the carrying value (as reported) of non-marketable and other equity securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
 
Carrying value (as reported)
 
Amount attributable to SVBFG
 
Carrying value (as reported)
 
Amount attributable to SVBFG
Non-marketable and other equity securities:
 
 
 
 
 
 
 
 
Non-marketable securities (fair value accounting):
 
 
 
 
 
 
 
 
Consolidated venture capital and private equity fund investments (1)
 
$
108,404

 
$
28,055

 
$
118,333

 
$
30,235

Unconsolidated venture capital and private equity fund investments (2)
 
196,049

 
196,049

 
201,098

 
201,098

Other investments without a readily determinable fair value (3)
 
37,796

 
37,796

 
25,668

 
25,668

Other equity securities in public companies (fair value accounting (4)
 
11,644

 
10,736

 
20,398

 
20,098

Non-marketable securities (equity method accounting) (5):
 
 
 
 
 
 
 
 
Venture capital and private equity fund investments
 
148,096

 
95,223

 
129,485

 
82,921

Debt funds
 
5,826

 
5,826

 
5,826

 
5,826

Other investments
 
127,264

 
127,264

 
121,721

 
121,721

Investments in qualified affordable housing projects, net
 
339,900

 
339,900

 
318,575

 
318,575

Total non-marketable and other equity securities
 
$
974,979

 
$
840,849

 
$
941,104

 
$
806,142

 
(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 March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
 
Carrying value (as reported)
 
Amount attributable to SVBFG
 
Carrying value (as reported)
 
Amount attributable to SVBFG
Strategic Investors Fund, LP
 
$
8,618

 
$
1,082

 
$
12,452

 
$
1,564

Capital Preferred Return Fund, LP
 
51,219

 
11,039

 
53,957

 
11,629

Growth Partners, LP
 
47,532

 
15,823

 
50,845

 
16,927

CP I, LP
 
1,035

 
111

 
1,079

 
115

Total consolidated venture capital and private equity fund investments
 
$
108,404

 
$
28,055

 
$
118,333

 
$
30,235


(2)
The carrying value represents investments in 212 and 213 funds (primarily venture capital funds) at March 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. Our unconsolidated venture capital and private equity fund investments are carried at fair value based on the fund investments' net asset values per share as obtained from the general partners of the funds. For each fund

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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, December 31st, for our March 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)
Investments classified as "Other investments without a readily determinable fair value" 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 7—“Investment Securities" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 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. Changes in the fair value recognized through net income.

(5)
The following table shows the carrying value and our ownership percentage of each investment at March 31, 2019 and December 31, 2018 (equity method accounting):
 
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
 
Carrying value (as reported)
 
Amount attributable to SVBFG
 
Carrying value (as reported)
 
Amount attributable to SVBFG
Venture capital and private equity fund investments:
 
 
 
 
 
 
 
 
Strategic Investors Fund II, LP
 
$
4,648

 
$
4,344

 
$
4,670

 
$
4,366

Strategic Investors Fund III, LP
 
17,485

 
14,064

 
17,396

 
14,059

Strategic Investors Fund IV, LP
 
28,785

 
24,049

 
28,974

 
24,388

Strategic Investors Fund V, LP
 
28,953

 
15,200

 
28,189

 
14,799

CP II, LP (i)
 
7,454

 
4,509

 
7,122

 
4,308

Other venture capital and private equity fund investments
 
60,771

 
33,057

 
43,134

 
21,001

Total venture capital and private equity fund investments
 
$
148,096

 
$
95,223

 
$
129,485

 
$
82,921

Debt funds:
 
 
 
 
 
 
 
 
Gold Hill Capital 2008, LP (ii)
 
$
3,901

 
$
3,901

 
$
3,901

 
$
3,901

Other debt funds
 
1,925

 
1,925

 
1,925

 
1,925

Total debt funds
 
$
5,826

 
$
5,826

 
$
5,826

 
$
5,826

Other investments:
 
 
 
 
 
 
 
 
SPD Silicon Valley Bank Co., Ltd.
 
$
79,415

 
$
79,415

 
$
76,412

 
$
76,412

Other investments
 
47,849

 
47,849

 
45,309

 
45,309

Total other investments
 
$
127,264

 
$
127,264

 
$
121,721

 
$
121,721

 
(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.

Volcker Rule
On June 6, 2017, we received notice that the Board of Governors of the Federal Reserve System approved the Company’s application for an extension of the permitted conformance period for the Company’s investments in “illiquid” covered funds. The approval extends the deadline by which the Company must sell, divest, restructure or otherwise conform such investments to the provisions of the Volcker Rule until the earlier of (i) July 21, 2022, or (ii) the date by which each fund matures by its terms or is otherwise conformed to the Volcker Rule.

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As implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker Rule prohibits, subject to certain exceptions, a banking entity, such as the Company, from sponsoring or investing in covered funds, defined to include many venture capital and private equity funds.  As noted above, the Company currently maintains certain investments deemed to be prohibited investments in “illiquid” covered funds, which are now covered under the approved extension. As of March 31, 2019, such prohibited investments had an estimated aggregate carrying value and fair value of approximately $224.7 million. (For more information about the Volcker Rule, see “Business—Supervision and Regulation” under Part 1, Item 1 of our 2018 Form 10-K.)
Loans
Loans, net of unearned income, increased by $0.5 billion to $28.9 billion at March 31, 2019, compared to $28.3 billion at December 31, 2018. Unearned income was $170 million at March 31, 2019 and $173 million at December 31, 2018. Total gross loans were $29.0 billion at March 31, 2019, an increase of $0.5 billion, compared to $28.5 billion at December 31, 2018. Period-end loans increased compared to December 31, 2018, driven primarily by loan growth in our private equity/venture capital portfolio as well as from our life science/healthcare, private bank and premium wine portfolios.

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The breakdown of total gross loans and total loans as a percentage of total gross loans by industry sector is as follows:
 
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
 
Amount
 
Percentage 
 
Amount
 
Percentage 
Commercial loans:
 
 
 
 
 
 
 
 
Software/internet
 
$
6,287,367

 
21.7
%
 
$
6,209,978

 
21.8
%
Hardware
 
1,266,082

 
4.4

 
1,245,800

 
4.4

Private equity/venture capital
 
14,315,660

 
49.3

 
14,118,132

 
49.5

Life science/healthcare
 
2,593,914

 
8.9

 
2,461,076

 
8.6

Premium wine
 
256,084

 
0.9

 
249,316

 
0.9

Other
 
292,546

 
1.0

 
346,747

 
1.2

Commercial loans
 
25,011,653

 
86.2

 
24,631,049

 
86.4

Real estate secured loans:
 
 
 
 
 
 
 
 
Premium wine
 
759,620

 
2.6

 
711,237

 
2.5

Consumer
 
2,675,719

 
9.2

 
2,609,645

 
9.2

Other
 
40,223

 
0.2

 
40,627

 
0.1

Real estate secured loans
 
3,475,562

 
12.0

 
3,361,509

 
11.8

Construction loans
 
112,643

 
0.4

 
98,034

 
0.3

Consumer loans
 
420,661

 
1.4

 
420,720

 
1.5

Total gross loans
 
$
29,020,519

 
100.0

 
$
28,511,312

 
100.0

Loan Concentration
The following table provides a summary of gross loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of March 31, 2019:
 
 
March 31, 2019
(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/internet
 
$
1,611,511

 
$
894,185

 
$
1,567,580

 
$
1,081,518

 
$
1,132,573

 
$
6,287,367

Hardware
 
311,431

 
125,100

 
229,399

 
347,827

 
252,325

 
1,266,082

Private equity/venture capital
 
907,485

 
1,143,496

 
1,911,640

 
1,822,316

 
8,530,723

 
14,315,660

Life science/healthcare
 
299,738

 
471,720

 
650,155

 
359,584

 
812,717

 
2,593,914

Premium wine
 
75,071

 
45,122

 
48,305

 
52,026

 
35,560

 
256,084

Other
 
211,819

 
18,471

 
10,972

 
51,284

 

 
292,546

Commercial loans
 
3,417,055

 
2,698,094

 
4,418,051

 
3,714,555

 
10,763,898

 
25,011,653

Real estate secured loans:
 
 
 
 
 
 
 
 
 
 
 
 
Premium wine
 
173,085

 
176,862

 
275,228

 
95,975

 
38,470

 
759,620

Consumer
 
2,347,175

 
217,281

 
111,263

 

 

 
2,675,719

Other
 
7,442

 

 
32,781

 

 

 
40,223

Real estate secured loans
 
2,527,702

 
394,143

 
419,272

 
95,975

 
38,470

 
3,475,562

Construction loans
 
10,724

 
15,833

 
86,086

 

 

 
112,643

Consumer loans
 
163,865

 
37,202

 
63,706

 
91,226

 
64,662

 
420,661

Total gross loans
 
$
6,119,346

 
$
3,145,272

 
$
4,987,115

 
$
3,901,756

 
$
10,867,030

 
$
29,020,519

At March 31, 2019, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $14.8 billion, or 50.9 percent of our total gross loan portfolio. These loans represented 356 clients, and of these loans, $76.4 million were on nonaccrual status as of March 31, 2019.

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The following table provides a summary of gross 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, 2018:
 
 
December 31, 2018
(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/internet
 
$
1,515,096

 
$
918,647

 
$
1,520,634

 
$
1,221,250

 
$
1,034,351

 
$
6,209,978

Hardware
 
292,022

 
152,061

 
196,763

 
386,288

 
218,666

 
1,245,800

Private equity/venture capital
 
836,894

 
1,012,605

 
2,120,918

 
2,135,279

 
8,012,436

 
14,118,132

Life science/healthcare
 
273,075

 
477,046

 
645,895

 
410,127

 
654,933

 
2,461,076

Premium wine
 
70,573

 
55,852

 
48,656

 
65,035

 
9,200

 
249,316

Other
 
246,011

 
18,921

 
10,911

 
70,904

 

 
346,747

Commercial loans
 
3,233,671

 
2,635,132

 
4,543,777

 
4,288,883

 
9,929,586

 
24,631,049

Real estate secured loans:
 
 
 
 
 
 
 
 
 
 
 
 
Premium wine
 
168,130

 
173,882

 
263,093

 
83,945

 
22,187

 
711,237

Consumer loans
 
2,258,479

 
239,400

 
111,766

 

 

 
2,609,645

Other
 
7,506

 

 
33,121

 

 

 
40,627

Real estate secured loans
 
2,434,115

 
413,282

 
407,980

 
83,945

 
22,187

 
3,361,509

Construction loans
 
7,076

 
15,064

 
75,894

 

 

 
98,034

Consumer loans
 
148,391

 
55,401

 
51,409

 
93,690

 
71,829

 
420,720

Total gross loans
 
$
5,823,253

 
$
3,118,879

 
$
5,079,060

 
$
4,466,518

 
$
10,023,602

 
$
28,511,312

At December 31, 2018, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $14.5 billion, or 50.8 percent of our total gross loan portfolio. These loans represented 361 clients, and of these loans, $27.5 million were on nonaccrual status as of December 31, 2018.
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/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 the various 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 11 percent of total gross loans at both March 31, 2019 and December 31, 2018. These loans are made to companies in both our Accelerator (early-stage) and Growth practices. 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 the 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 nine percent and eight percent of total gross loans at March 31, 2019 and December 31, 2018, respectively. 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 financing, represented two and one percent of total gross loans at both March 31, 2019 and December 31, 2018. 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, represented 15 percent of total gross loans at March 31, 2019, compared to 16 percent at December 31, 2018. 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

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of all fixed charges associated with operating the business. Sponsored buyout loans represented seven percent of total gross loans at March 31, 2019 compared to eight percent at December 31, 2018. 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 March 31, 2019, our lending to private equity/venture capital firms and funds represented 49 percent of total gross loans, compared to 50 percent of total gross loans at December 31, 2018. 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.

(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 March 31, 2019 and December 31, 2018. Many of these clients have mortgages, which represented 86 percent of this portfolio at March 31, 2019; 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 28 percent and 11 percent of our outstanding total gross loan balances as of March 31, 2019 were to borrowers based in California and New York, respectively, compared to 28 percent and 10 percent as of December 31, 2018. Other than California and New York, there are no states with gross loan balances greater than or equal to 10 percent.

See generally “Risk Factors–Credit Risks” set forth under Part I, Item 1A in our 2018 Form 10-K.

Credit Quality Indicators
As of March 31, 2019 and December 31, 2018, our total criticized loans and impaired loans both represented four percent of our total gross loans. Criticized and impaired loans to early-stage clients represented 19 percent of our total criticized and impaired loan balances at both March 31, 2019 and December 31, 2018. Loans to early-stage clients represent a relatively small percentage of our overall portfolio at six percent of total gross loans at both March 31, 2019 and December 31, 2018. It is common for an 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.

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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:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Gross nonperforming, past due, and restructured loans:
 
 
 
 
Nonaccrual loans
 
$
133,623

 
$
94,142

Loans past due 90 days or more still accruing interest
 
2,148

 
1,964

Total nonperforming loans
 
135,771

 
96,106

OREO and other foreclosed assets
 

 

Total nonperforming assets
 
$
135,771

 
$
96,106

Performing TDRs
 
$
28,954

 
$
31,639

Nonperforming loans as a percentage of total gross loans
 
0.47
%
 
0.34
%
Nonperforming assets as a percentage of total assets
 
0.23

 
0.17

Allowance for loan losses
 
$
300,151

 
$
280,903

As a percentage of total gross loans
 
1.03
%
 
0.99
%
As a percentage of total gross nonperforming loans
 
221.07

 
292.28

Allowance for loan losses for nonaccrual loans
 
$
61,225

 
$
37,941

As a percentage of total gross loans
 
0.21
%
 
0.13
%
As a percentage of total gross nonperforming loans
 
45.09

 
39.48

Allowance for loan losses for total gross performing loans
 
$
238,926

 
$
242,962

As a percentage of total gross loans
 
0.82
%
 
0.85
%
As a percentage of total gross performing loans
 
0.83

 
0.86

Total gross loans
 
$
29,020,519

 
$
28,511,312

Total gross performing loans
 
28,884,748

 
28,415,206

Allowance for unfunded credit commitments (1)
 
57,970

 
55,183

As a percentage of total unfunded credit commitments
 
0.29
%
 
0.29
%
Total unfunded credit commitments (2)
 
$
20,267,529

 
$
18,913,021

 
 
 
(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.

Our allowance for loan losses as a percentage of total gross loans increased 4 basis points to 1.03 percent at March 31, 2019, compared to 0.99 percent at December 31, 2018 reflective of an increase in reserves for nonaccrual loans of 8 basis points offset by a decrease in the reserves for gross performing loans of 4 basis points.
Our allowance for loan losses for performing loans was $238.9 million at March 31, 2019, compared to $243.0 million at December 31, 2018. The $4.1 million decrease in reserves for performing loans was driven primarily by an $8.2 million decrease reflective of the continued growth in our private equity/venture capital loans, which tend to be of higher credit quality, partially offset by $4.1 million in additional reserves for period-end loan growth.
Our allowance for loan losses for nonaccrual loans was $61.2 million at March 31, 2019, compared to $37.9 million at December 31, 2018. The $23.3 million increase in the reserves for nonaccrual loans was due to new nonaccrual loan reserves of $33.4 million driven primarily by two clients in our life science/healthcare loan portfolio, partially offset by $10.1 million of repayments and charge-offs.

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The following table presents a summary of changes in nonaccrual loans for the three months ended March 31, 2019 and 2018
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Balance, beginning of period
 
$
94,142

 
$
119,259

Additions
 
50,857

 
21,803

Paydowns
 
(6,430
)
 
(17,248
)
Charge-offs
 
(4,895
)
 
(7,112
)
Other reductions
 
(51
)
 
(35
)
Balance, end of period
 
$
133,623

 
$
116,667

Our nonaccrual loans as of March 31, 2019 included $102.6 million from six clients (three software/internet clients represented $54.6 million and three life science/healthcare clients represented $48.0 million). Two of these loans are sponsored buyout loans that were added to our nonaccrual portfolio in 2015, another is a Corporate Finance client that was added during 2016, one is a Growth client that was added during 2018 and two are new nonaccrual loans added during 2019 from our Growth practice. The total credit exposure for these six largest nonaccrual loans was $104.1 million as of March 31, 2019, for which we have specifically reserved $47.5 million.
Average nonaccrual loans for the three months ended March 31, 2019 were $106.4 million compared to $111.6 million for the comparable 2018 period. The $5.2 million decrease in average nonaccrual loans for the three months ended March 31, 2019 compared to March 31, 2018 was primarily from our software/internet and hardware loan portfolios partially offset by increases in the average nonaccrual loans in our life science/healthcare and private equity/venture capital loan portfolios. If the nonaccrual loans had not been nonperforming, $1.7 million in interest income would have been recorded for the three months ended March 31, 2019 compared to $1.9 million for the comparable 2018 period.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at March 31, 2019 and December 31, 2018 is as follows:
(Dollars in thousands)
 
March 31, 2019

December 31, 2018
 
% Change      
Derivative assets (1)
 
$
267,747

 
$
258,139

 
3.7
 %
Foreign exchange spot contract assets, gross
 
375,607

 
152,268

 
146.7

Accrued interest receivable
 
192,868

 
197,927

 
(2.6
)
FHLB and Federal Reserve Bank stock
 
59,508

 
58,878

 
1.1

Net deferred tax assets
 
72,451

 
65,433

 
10.7

Accounts receivable
 
64,429

 
55,807

 
15.4

Other assets
 
228,289

 
162,809

 
40.2

Total accrued interest receivable and other assets
 
$
1,260,899

 
$
951,261

 
32.6

 
 
(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 increase of $223.3 million was primarily due to an overall increase in activity at period-end as compared to December 31, 2018.
Other Assets
Other assets includes various asset amounts for other operational transactions. The increase of $65.5 million was primarily due to $33.3 million in other assets attributable to the inclusion of SVB Leerink in our financial results beginning January 4, 2019. Prepaid assets increased $16.0 million primarily due to the annual timing of prepaid software agreement renewals and merchant card receivable increased $16.8 million due to the timing of settlement.

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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 at March 31, 2019 and December 31, 2018:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
 
% Change 
Assets:
 
 
 
 
 
 
Equity warrant assets
 
$
162,215

 
$
149,238

 
8.7
 %
Foreign exchange forward and option contracts
 
92,361

 
100,402

 
(8.0
)
Client interest rate derivatives
 
11,763

 
8,499

 
38.4

Interest rate swaps
 
1,408

 

 

Total derivative assets
 
$
267,747

 
$
258,139

 
3.7

Liabilities:
 
 
 
 
 
 
Foreign exchange forward and option contracts
 
$
82,468

 
$
88,559

 
(6.9
)
Client interest rate derivatives
 
8,841

 
9,491

 
(6.8
)
Interest rate swaps
 
303

 

 

Total derivative liabilities
 
$
91,612

 
$
98,050

 
(6.6
)
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 March 31, 2019, we held warrants in 2,149 companies, compared to 2,095 companies at December 31, 2018. Warrants in 26 companies each had values greater than $1.0 million and collectively represented $56.8 million, or 35.0 percent, of the fair value of the total warrant portfolio at March 31, 2019. The change in fair value of equity warrant assets is recorded in "Gains on equity warrant assets, 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 months ended March 31, 2019 and 2018
 
 
Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Balance, beginning of period
 
$
149,238

 
$
123,763

New equity warrant assets
 
4,471

 
5,099

Non-cash changes in fair value, net
 
16,238

 
10,186

Exercised equity warrant assets
 
(7,317
)
 
(2,457
)
Terminated equity warrant assets
 
(415
)
 
(922
)
Balance, end of period
 
$
162,215

 
$
135,669


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’ needs. 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, net of cash collateral, was $28.5 million at March 31, 2019 and $20.7 million at December 31, 2018. For additional information on our foreign exchange forward contracts and foreign currency option contracts, see Note 12—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.


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Client Interest Rate Derivatives
We sell interest rate contracts to clients who wish to mitigate their interest rate exposure. We economically reduce the interest rate risk from this business by entering into opposite way contracts with correspondent banks. Our net exposure for client interest rate derivative contracts, net of cash collateral, was $11.6 million at March 31, 2019 and $8.7 million at December 31, 2018. For additional information on our client interest rate derivatives, see Note 12—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Interest Rate Swaps
To manage interest rate risk on our variable-interest rate loan portfolio, we enter into interest rate swap contracts to hedge against future changes in interest rates by using hedging instruments to lock in future cash inflows that would otherwise be impacted by movements in the market interest rates. We designate these interest rate swap contracts as cash flow hedges that qualify for hedge accounting under ASC 815 and record them in other assets and other liabilities. For additional information on our interest rate swaps, see Note 12—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” and "Quantitative and Qualitative Disclosures about Market Risk" under Part I, Item 1 of this report.
Deposits
Deposits were $52.3 billion at March 31, 2019, an increase of $3.0 billion, or 6.1 percent, compared to $49.3 billion at December 31, 2018. The increase in deposits was driven primarily by growth across a majority of our portfolio segments. The leading contributors were our Technology and Life Science client portfolios, attributable primarily to a healthy equity funding environment, tempered growth in the IPO and secondary public offering markets as well as continued healthy new client acquisition.
At March 31, 2019, the aggregate balance of time deposit accounts individually equal to or greater than $100,000 totaled $44 million, compared to $46 million at December 31, 2018. At March 31, 2019, all the time deposit accounts individually equal to or greater than $100,000 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. Approximately 15 percent and 16 percent of our total deposits at March 31, 2019 and December 31, 2018, respectively, were from our clients in Asia.
Short-Term Borrowings
As of March 31, 2019, we had no overnight borrowings and $14.5 million in other short-term borrowings consisting of cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor. As of December 31, 2018, we had $0.6 billion in short-term borrowings, consisting of $0.3 billion in advances from the FHLB and $0.3 billion in securities sold under an agreement to repurchase. For more information on our short-term debt, see Note 11—“Short-Term Borrowings and Long-Term Debt” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Long-Term Debt
Our long-term debt was $696.7 million at March 31, 2019 and $696.5 million at December 31, 2018. As of March 31, 2019, long-term debt included our 3.50% Senior Notes and 5.375% Senior Notes. For more information on our long-term debt, see Note 11—“Short-Term Borrowings and Long-Term Debt” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.
Other Liabilities
A summary of other liabilities at March 31, 2019 and December 31, 2018 is as follows:
(Dollars in thousands)
 
March 31, 2019
 
December 31, 2018
 
% Change  
Foreign exchange spot contract liabilities, gross
 
$
562,773

 
$
170,355

 
NM

Accrued compensation
 
115,876

 
224,405

 
(48.4
)
Allowance for unfunded credit commitments
 
57,970

 
55,183

 
5.1

Derivative liabilities (1)
 
91,612

 
98,050

 
(6.6
)
Other liabilities
 
604,697

 
458,366

 
31.9

Total other liabilities
 
$
1,432,928

 
$
1,006,359

 
42.4

 
 
NM—Not meaningful

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(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 increase of $392.4 million was due primarily to increased client trade activity at period-end as compared to December 31, 2018.
Accrued Compensation
Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, ESOP and other compensation arrangements. The decrease of $108.5 million was primarily the result of the payout of our 2018 incentive compensation plans during the first quarter of 2019, partially offset by higher accruals for the three months ended March 31, 2019 primarily due to the increase in the number of average FTEs for the first quarter of 2019.
Other Liabilities
Other liabilities includes various accrued liability amounts for other operational transactions. The increase of $146.3 million was reflective primarily of a $64.3 million increase in current taxes payable, an increase in accrued accounts payable for $39.7 million and a $17.5 million increase in new commitments for our qualified affordable tax credit funds at March 31, 2019 as compared to December 31, 2018. In addition, an increase of $29.9 million in other liabilities was attributable to the inclusion of SVB Leerink in our financial results effective January 4, 2019.
Noncontrolling Interests
Noncontrolling interests totaled $141.1 million and $148.6 million at March 31, 2019 and December 31, 2018, respectively. The $7.5 million decrease was due primarily to net distributions of $15.7 million to limited partners from various managed funds of funds, offset by income attributable to noncontrolling interests of $2.9 million as well as an additional $5.3 million attributable to the inclusion of SVB Leerink in our financial results for the three months ended March 31, 2019.
Fair Value Measurements
The following table summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
 
Total Balance  
 
Level 3     
 
Total Balance  
 
Level 3     
Assets carried at fair value
 
$
7,338,938

 
$
157,784

 
$
8,388,011

 
$
146,278

As a percentage of total assets
 
12.2
%
 
0.3
%
 
14.7
%
 
0.3
%
Liabilities carried at fair value
 
$
91,612

 
$

 
$
98,050

 
$

As a percentage of total liabilities
 
0.2
%
 
%
 
0.2
%
 
%
As a percentage of assets carried at fair value
 
 
 
2.1
%
 
 
 
1.7
%
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 18—“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 2018 Form 10-K.

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During the three months ended March 31, 2019, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $19.1 million, primarily reflective of valuation increases from our private company warrant portfolio driven by healthy funding rounds and net gains realized on exercised warrant assets due to IPO activity. During the three months ended March 31, 2018, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $18.7 million, attributable primarily to net gains from exercises of equity warrant assets driven by M&A activity and valuation increases in our private company warrant portfolio.
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, including the joint agency rules implementing the "Basel III" capital rules. 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 in an effort to optimize the use of capital 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 capital 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 $5.3 billion at March 31, 2019, an increase of $226.6 million, or 4.4 percent, compared to $5.1 billion at December 31, 2018. This increase was due primarily to net income of $288.7 million and a decrease in accumulated other comprehensive loss reflective primarily of a $46.8 million ($33.8 million net of tax) increase in the fair value of our AFS securities portfolio driven by decreases in period-end market interest rates. The increases were partially offset by a $116.0 million decrease in SVBFG stockholders' equity related to the repurchase of our outstanding common stock.
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 March 31, 2019 and December 31, 2018. 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
 
 
March 31,
2019
 
December 31, 2018
 
“Well
Capitalized”
 
“Adequately 
Capitalized” 
SVB Financial:
 
 
 
 
 
 
 
 
CET 1 risk-based capital ratio
 
12.89
%
 
13.41
%
 
6.5
%
 
4.5
%
Tier 1 risk-based capital ratio
 
13.04

 
13.58

 
8.0

 
6.0

Total risk-based capital ratio
 
13.94

 
14.45

 
10.0

 
8.0

Tier 1 leverage ratio
 
9.10

 
9.06

 
N/A  

 
4.0

Tangible common equity to tangible assets ratio (1)
 
8.59

 
8.99

 
N/A  

 
N/A  

Tangible common equity to risk-weighted assets ratio (1)
 
12.86

 
13.28

 
N/A  

 
N/A  

Bank:
 
 
 
 
 
 
 
 
CET 1 risk-based capital ratio
 
12.35
%
 
12.41
%
 
6.5
%
 
4.5
%
Tier 1 risk-based capital ratio
 
12.35

 
12.41

 
8.0

 
6.0

Total risk-based capital ratio
 
13.29

 
13.32

 
10.0

 
8.0

Tier 1 leverage ratio
 
8.38

 
8.10

 
5.0

 
4.0

Tangible common equity to tangible assets ratio (1)
 
7.99

 
8.13

 
N/A  

 
N/A  

Tangible common equity to risk-weighted assets ratio (1)
 
12.32

 
12.28

 
N/A  

 
N/A  

 

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

Risk-based capital ratios (CET 1, tier 1, and total risk-based capital) for SVB Financial decreased as of March 31, 2019, compared to the same ratios as of December 31, 2018 as a result of an increase in risk-weighted assets, primarily driven by increases in funded loans and loan commitments.
Risk-based capital ratios (CET 1, tier 1, and total risk-based capital) for the Bank decreased as of March 31, 2019, compared to the same ratios as of December 31, 2018. The decrease in the Bank's capital ratios reflected $167.0 million of cash dividends paid by the Bank to our bank holding company, SVB Financial, during the three months ended March 31, 2019.
Both SVB Financial and the Bank's tier 1 leverage ratios increased as of March 31, 2019, compared to December 31, 2018, due to proportionally higher capital from net income as well as a decrease in average assets during the first quarter of 2019. 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.
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 March 31, 2019 and December 31, 2018:
 
 
SVB Financial
 
Bank
Non-GAAP tangible common equity and tangible assets
   (Dollars in thousands, except ratios)
 
March 31,
2019
 
December 31,
2018
 
March 31,
2019
 
December 31,
2018
GAAP SVBFG stockholders’ equity
 
$
5,342,773

 
$
5,116,209

 
$
4,696,564

 
$
4,554,814

Less: intangible assets
 
193,219

 

 

 

Tangible common equity
 
$
5,149,554

 
$
5,116,209

 
$
4,696,564

 
$
4,554,814

GAAP total assets
 
$
60,160,285

 
$
56,927,979

 
$
58,774,326

 
$
56,047,134

Less: intangible assets
 
193,219

 

 

 

Tangible assets
 
$
59,967,066

 
$
56,927,979

 
$
58,774,326

 
$
56,047,134

Risk-weighted assets
 
$
40,048,892

 
$
38,527,853

 
$
38,132,316

 
$
37,104,080

Non-GAAP tangible common equity to tangible assets
 
8.59
%
 
8.99
%
 
7.99
%
 
8.13
%
Non-GAAP tangible common equity to risk-weighted assets
 
12.86

 
13.28

 
12.32

 
12.28

The tangible common equity to tangible assets ratio decreased for the Bank primarily as a result of the $167.0 million in cash dividends paid by the Bank to our bank holding company, SVB Financial Group, during the three months ended March 31, 2019. The tangible common equity to risk-weighted assets ratio decreased for the Bank as a result of the proportionally higher increase in risk-weighted assets relative to the increase in tangible common equity. The growth in period-end risk-weighted assets was primarily due to increases in cash and cash equivalents and period-end loan growth.
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 16—“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.

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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 16—“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.
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 for our off-balance sheet products which may impact deposit levels. At March 31, 2019, our period-end total deposit balances were $52.3 billion, compared to $49.3 billion at December 31, 2018.
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.
We have certain facilities in place to enable us to access short-term borrowings on a secured and unsecured basis. Our secured facilities include collateral pledged to the FHLB of San Francisco and the discount window at the FRB (using both fixed income securities and loans as collateral). Our unsecured facility consists of our uncommitted federal funds lines. As of March 31, 2019, collateral pledged to the FHLB of San Francisco was comprised primarily of fixed income investment securities and loans and had a carrying value of $4.5 billion, of which $4.0 billion was available to support additional borrowings. As of March 31, 2019, collateral pledged to the discount window at the FRB was comprised of fixed income investment securities and had a carrying value of $0.9 billion, all of which was unused and available to support additional borrowings. Our total unused and available borrowing capacity for our uncommitted federal funds lines totaled $1.9 billion at March 31, 2019. Our total unused and available borrowing capacity under our master repurchase agreements with various financial institutions totaled $3.3 billion at March 31, 2019.
On a stand-alone basis, SVB Financial’s primary liquidity channels include dividends from the Bank, its portfolio of liquid assets, and its ability to raise debt and capital. Consistent with recent prior quarters, the Bank has paid a quarterly dividend to SVB Financial. For the three months ended March 31, 2019, the dividend amount paid was $167.0 million. 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 2018 Form 10-K.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for the three months ended March 31, 2019 and 2018. For further details, see our “Interim Consolidated Statements of Cash Flows (Unaudited)” under Part I, Item 1 of this report.

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Three months ended March 31,
(Dollars in thousands)
 
2019
 
2018
Average cash and cash equivalents
 
$
4,987,487

 
$
3,114,232

Percentage of total average assets
 
8.7
%
 
5.9
%
Net cash provided by operating activities
 
$
340,750

 
$
348,404

Net cash provided by (used for) investing activities
 
904,427

 
(2,396,653
)
Net cash provided by financing activities
 
2,250,167

 
1,744,558

Net increase (decrease) in cash and cash equivalents
 
$
3,495,344

 
$
(303,691
)
Average cash and cash equivalents increased by $1.9 billion, or 60.2 percent, to $5.0 billion for the three months ended March 31, 2019, compared to $3.1 billion for the comparable 2018 period.
Cash provided by operating activities was $340.8 million for the three months ended March 31, 2019, reflective primarily of net income before noncontrolling interests of $291.6 million and $49.1 million net increase in adjustments to reconcile net income to net cash.
Cash provided by investing activities of $0.9 billion for the three months ended March 31, 2019 was driven by net cash flows of $1.5 billion driven by sales and maturities from our fixed income securities portfolio, partially offset by a $0.5 billion increase in loans and a net cash outflow, adjusted for cash acquired, of $100.0 million for the purchase of SVB Leerink.
Cash provided by financing activities was $2.3 billion for the three months ended March 31, 2019, reflective primarily of a net increase of $3.0 billion in deposits, partially offset by $0.6 billion in paydowns of our short-term overnight borrowings and a $0.1 billion outflow related to repurchases of our outstanding common stock.
Cash and cash equivalents were $7.1 billion and $2.6 billion, respectively, at March 31, 2019 and 2018.
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, equity price risk, including the effect of competition on product pricing. While all of these risks are important considerations, all are inherently difficult to predict, and it is equally difficult to assess the impact of each on the overall simulation results. Consequently, simulations used to analyze sensitivity of net interest income to interest rate risk will differ from actual results due to differences in the timing, frequency, and magnitude of changes in market rates, the impact of competition, fluctuating business conditions, and the impact of strategies taken by management to mitigate these risks.
Interest rate risk is managed by our ALCO. ALCO reviews the sensitivity of the market valuation on earning assets and funding liabilities and 12-month forward looking net interest income from changes in interest rates, structural changes in investment and funding portfolios, loan and deposit activity and current market conditions. Adherence with relevant metrics included in our Interest Rate Risk Policy, which is 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 derivatives to assist in managing interest rate risk.
We utilize a simulation model to perform sensitivity analysis on the economic value of our equity and our net interest income under a variety of interest rate scenarios, balance sheet forecasts and business strategies. The simulation model provides a dynamic assessment of interest rate sensitivity embedded within our balance sheet which measures the potential variability in economic value and net interest income relating solely to changes in market interest rates over time. We review our interest rate risk position and sensitivity to market rates on a quarterly basis at a minimum.    

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Model Simulation and Sensitivity Analysis
A specific application of our 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. Another 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. For the NII simulation, market rates as well as the size and composition of the balance sheet are held constant over the simulation horizon. Simulated cash flows during the scenario horizon are assumed to be replaced as they occur, which maintains the balance sheet at its current size and composition. Yield and spread assumptions on cash and investment balances reflect current market rates. Yield and spread assumptions on loans reflect recent market impacts on product pricing. Similarly, we make certain deposit decay rate assumptions on demand deposits and interest bearing deposits, which are replenished to hold the level and mix of funding liabilities constant. Changes in market interest rates that affect us are principally short-term interest rates and include the following benchmark indexes: (i) National Prime rates, (ii) 1-month and 3-month LIBOR, and (iii) the 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, simulated changes in deposit pricing relative to changes in market rates, commonly referred to as deposit beta, generally follow overall changes in short-term interest rates, although actual changes may lag in terms of timing and magnitude. Overall, the assumed weighted deposit beta on interest bearing deposits is approximately 35 percent, which means deposit repricing is assumed to be approximately 35 percent of a given change in short-term interest rates. This repricing is reflected as a change in interest expense on interest bearing deposit balances.
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 ("bps") at March 31, 2019 and December 31, 2018:
Change in interest rates (bps)
(Dollars in thousands)
 
Estimated
 
Estimated Increase/(Decrease) in EVE
 
Estimated
 
Estimated Increase/(Decrease) in NII
 
EVE
 
Amount
 
Percent
 
NII
 
Amount
 
Percent
March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
+200
 
$
9,310,281

 
$
477,553

 
5.4
 %
 
$
2,620,077

 
$
583,537

 
28.7
 %
+100
 
9,068,464

 
235,736

 
2.7

 
2,328,593

 
292,053

 
14.3

 
8,832,728

 

 

 
2,036,540

 

 

-100
 
8,411,081

 
(421,647
)
 
(4.8
)
 
1,744,096

 
(292,444
)
 
(14.4
)
-200
 
7,721,543

 
(1,111,185
)
 
(12.6
)
 
1,449,804

 
(586,736
)
 
(28.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
+200
 
$
9,348,408

 
$
504,405

 
5.7
 %
 
$
2,628,279

 
$
543,959

 
26.1
 %
+100
 
9,090,781

 
246,778

 
2.8

 
2,356,447

 
272,127

 
13.1

 
8,844,003

 

 

 
2,084,320

 

 

-100
 
8,470,501

 
(373,502
)
 
(4.2
)
 
1,807,559

 
(276,761
)
 
(13.3
)
-200
 
7,590,973

 
(1,253,030
)
 
(14.2
)
 
1,528,693

 
(555,627
)
 
(26.7
)
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 to determine discounting factors on projected cash flows. The model simulations and calculations are highly assumption-dependent and will change regularly as the composition of earning assets and funding liabilities change (including the impact of changes in the value of interest rate derivatives, if any), as interest rate environments evolve, and as we change our assumptions in response to relevant market conditions, competition or business circumstances. These calculations do not reflect forecast changes in our balance sheet or changes we may make to reduce our EVE exposure 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, basis risk, and yield spread compression, 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 our estimate of the underlying value of equity or forecast of NII.

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Our base EVE as of March 31, 2019 decreased from December 31, 2018 by $11 million, driven by changes in balance sheet composition as well as changes in interest rates, including the shape of the yield curve, which was inverted from the 12-month point to the 10-year point relative to short-term rates. At March 31, 2019, as compared to December 31, 2018, total loan balances increased by $0.5 billion, primarily in Prime and LIBOR indexed variable rate loans. Total fixed income securities decreased by $1.5 billion due primarily to an increase in cash holdings driven by total deposit growth of approximately $3.0 billion during the three months ended March 31, 2019.
Overall balance sheet growth contributed to a $199 million increase in total base EVE, however, this was offset by a decrease of $210 million as a result of lower LIBOR/swap rates across the curve. Due to liquidity needs, approximately $1.2 billion of U.S. Treasury securities were sold during the first quarter of 2019. This caused a $142 million increase in EVE sensitivity in the -200 bps rate shock scenario because the remaining securities have greater prepayment exposure as rates move down. Changes to EVE sensitivity in the other scenarios were relatively small compared to December 31, 2018.
12-Month Net Interest Income Simulation
Our static 12-month NII forecast at March 31, 2019 decreased compared to December 31, 2018 by $48 million, primarily due to changes in our balance sheet composition. Specifically, interest bearing deposit balances increased by $2.8 billion during the three months ended March 31, 2019, resulting in an increase in the simulated 12-month base case interest expense of approximately $86 million. In addition, decreased fixed income securities, as previously mentioned above, combined with increased cash balances at March 31, 2019, translated into simulated 12-month interest income growth of approximately $24 million.
A majority of our loans are indexed to Prime and LIBOR. In the positive parallel simulated rate shock scenarios, interest income on assets that are tied to variable rate indexes, primarily our variable rate loans, are expected to benefit our base 12-month NII projections. The opposite is true for negative rate shock scenarios.
The 12-month NII simulations include repricing assumptions on our interest bearing deposit products which we set at our discretion based on client needs and our overall funding mix. Repricing of interest bearing deposits impacts estimated interest expense. As noted previously, repricing deposit rates are generally assumed to be less than one-half of the amount of simulated changes in short-term market interest rates.
NII sensitivity is measured as the percentage change in projected 12-month net interest income earned in +/- 100 and +/- 200 basis point interest rate shock scenarios compared to a base scenario where balances and interest rates are held constant over the forecast horizon. At March 31, 2019, NII sensitivity was 14.3 percent in the +100 bps interest rate scenario, compared to 13.1 percent at December 31, 2018. Our NII sensitivity in the +200 bps interest rate shock scenario was 28.7 percent compared to 26.1 percent at December 31, 2018. NII sensitivity in the -100 bps scenario of negative 14.4 percent was higher at March 31, 2019 compared to a negative 13.3 percent at December 31, 2018. The -200 bps scenario currently indicates a higher percentage change in NII of negative 28.8 percent at March 31, 2019 compared to negative 26.7 percent at December 31, 2018. At March 31, 2019, NII sensitivity percentages are inclusive of the income or expense associated with interest rate swaps that are part of our hedging initiatives which began during the three months ended March 31, 2019, in an effort to reduce the impact of potential decreasing rates on NII. The changes in NII sensitivity are primarily the result of the changes in balance sheet composition described previously.
The simulation model used in the above analysis incorporates embedded floors on loans, where present, in our interest rate scenarios, which prevent model benchmark rates from moving below zero percent in the down rate scenarios. The embedded floors are also a factor in the up rate scenarios to the extent a simulated increase in rates is needed before floored rates are cleared. In addition, we assume different deposit balance decay rates based on a historical deposit study of our clients. These assumptions may change in future periods based on changes in client behavior and at management's discretion. Actual changes in our deposit pricing strategies may differ from our current model assumptions and may have an impact on our actual sensitivity overall.
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.

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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
Except as set forth below, 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.
Beginning January 1, 2019, we implemented ASC 842, Leases. Although the new lease standard had an immaterial impact on our consolidated financial statements, we did implement changes to our processes related to recognition and the control activities to properly identify and record them.  These included the development of new policies, new controls, new training, ongoing contract review requirements, and gathering of information provided for disclosures.


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PART II–OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to Note 19—“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 to the risk factors set forth in our 2018 Annual Report on 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
Exhibit
Number    
 
Exhibit Description
 
Incorporated by Reference
 
 Filed
 Herewith  
Form
 
File No.
 
Exhibit  
 
Filing Date
 
 
 
 
 
 
 
 
 
 
 
X
 
 
8-K
 
000-15637
 
3.2
 
February 20, 2019
 
 
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
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


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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: May 9, 2019
  
/s/ DANIEL BECK
 
  
Daniel Beck
 
  
Chief Financial Officer
 
  
(Principal Financial Officer)
 
 
 
  
SVB Financial Group
 
 
Date: May 9, 2019
  
/s/ KAMRAN HUSAIN
 
  
Kamran Husain
 
  
Chief Accounting Officer
 
  
(Principal Accounting Officer)

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