SVB FINANCIAL GROUP Page Number
Forward-Looking Statements 53
Management's Overview of Performance 54
Critical Accounting Policies and Estimates 57
Results of Operations 57
Net Interest Income and Margin 57
Average Balances, Yields and Rates Paid 59
Provision for Credit Losses 61
Noninterest Income 62
Noninterest Expense 68
Net Income Attributable to Noncontrolling Interests 69
Income Taxes 70
Operating Segment Results 70
Consolidated Financial Condition 72
Cash and Cash Equivalents 72
Investment Securities 72
Loans 76
Accrued Interest Receivable and Other Assets 80
Deposits 82
Long-Term Debt 82
Other Liabilities 82
Noncontrolling Interests 83
Capital Resources 83
SVBFG Stockholders' Equity 83
Capital Ratios 84
Off-Balance Sheet Arrangements 85
Commitments to Invest in Venture Capital and Private Equity
Funds 85
Liquidity 86
52--------------------------------------------------------------------------------
Table of Contents
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 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, net interest margin, noninterest income, EPS, noninterest expenses (including professional services, compliance, compensation and other costs), cash flows, balance sheet positions, capital expenditures, deposit growth, liquidity and capitalization, effective tax rate or other financial items; •Descriptions of our strategic initiatives, plans or objectives for future operations, including pending sales or acquisitions, such as the continuing integration of Boston Private and the expansion ofSVB Securities into the technology investment banking sector; •Forecasts of private equity and venture capital funding, investment level and exit activity; •Forecasts of future interest rates, economic performance, and income from investments; •Forecasts of expected levels of provisions for credit losses, net loan charge-offs, nonperforming loans, loan growth, loan mix, loan yields and client funds; •The outlook on our clients' performance; •The potential effects of the COVID-19 pandemic; 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," and 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 our forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may not prove to be correct. 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 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 inflation trends, interest rate volatility, the general condition of the capital and equity markets, private equity and venture capital investment, IPO, secondary offering, SPAC fundraising, M&A and other financing activity levels) and the associated impact on us (including effects on client demand for our commercial and investment banking and other financial services, as well as on the valuations of our investments); •disruptions to the financial markets as a result of the current or anticipated impact of military conflict, including the ongoing military conflict betweenRussia andUkraine , terrorism and other geopolitical events; •the COVID-19 pandemic, including COVID-19 variants and their effects on the economic and business environments in which we operate, and the effects of the COVID-19 pandemic on our operations; •the impact of changes from the Biden-Harris administration and theU.S. Congress on the economic environment, capital markets and regulatory landscape, including monetary, tax and other trade policies, as well as changes in personnel at the bank regulatory agencies; •changes in the volume and credit quality of our loans as well as volatility of our levels of nonperforming assets and charge-offs; •the impact of changes in interest rates or market levels or factors affecting or affected by them, especially on our loan and investment portfolios; •the adequacy of our ACL and the need to make provisions for credit losses for any period; •the sufficiency of our capital and liquidity positions; •changes in the levels of our loans, deposits and client investment fund balances; •changes in the performance or equity valuations of funds or companies in which we have invested or hold derivative instruments or equity warrant assets; •variations from our expectations as to factors impacting our cost structure; •our ability to attract and retain the appropriate talent to support our growth; •changes in our assessment of the creditworthiness or liquidity of our clients or unanticipated effects of credit concentration risks which create or exacerbate deterioration of such creditworthiness or liquidity; 53
--------------------------------------------------------------------------------
Table of Contents
•variations from our expectations as to factors impacting the timing and level of employee share-based transactions; •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; •the expansion of our business internationally, and the impact of geopolitical events and international market and economic events on us; •the effectiveness of our risk management framework and quantitative models; •the impact of governmental policy, legal requirements and regulations including regulations promulgated by theBoard of Governors of theFederal Reserve System , and other regulatory requirements; •our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives, including through the continuing integration of Boston Private, the expansion of SVB Private and the growth and expansion ofSVB Securities ; •greater than expected costs or other difficulties related to the continuing integration of our business and that of Boston Private; •variations from our expectations as to the amount and timing of business opportunities, growth prospects and cost savings associated with the acquisition of Boston Private; •the inability to retain existing Boston Private clients and employees following the Boston Private acquisition; •unfavorable resolution of legal proceedings or claims, as well as legal or regulatory proceedings or governmental actions; •variations from our expectations as to factors impacting our estimate of our full-year effective tax rate; •changes in applicable accounting standards and tax laws; •regulatory or legal changes and their impact on us; and •other factors as discussed in "Risk Factors" under Part I, Item 1A in our 2021 Form 10-K and under Part II, Item 1A of this report. We urge investors to consider all of these factors, among others, 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 2021 Form 10-K.
Management's Overview of First Quarter 2022 Performance
Strong execution and higher rates drove robust earnings and profitability in the first quarter of 2022 even as market volatility slowed client liquidity growth and pressured valuations and investment banking income. Net interest income exceeded$1.0 billion in a single quarter for the first time in our history as a result of strong balance sheet growth and improved yields on fixed income securities. Core fee income remained strong across all categories and was driven by a significant increase in client investment fees as a result of theMarch 2022 rate hike. Growth in our net interest income and core fee income more than offset the moderation inSVB Securities revenue and warrant and investment gains. Credit quality continued to be excellent with low net loan charge-offs and declining nonperforming loans.
Reference Rate Reform
The publication of the British Pound Sterling, Euro, Swiss Franc and Japanese Yen LIBOR settings and one-week and two-monthU.S. dollar LIBOR settings terminated at the end ofDecember 2021 , leaving the remainingU.S. dollar LIBOR settings (i.e., overnight, one month, three month, six month and 12 month) in place, which are expected to terminate at the end ofJune 2023 . Therefore, existing contracts referencing all otherU.S. dollar LIBOR settings must be remediated no later thanJune 30, 2023 . We hold instruments that may be impacted by the discontinuance of LIBOR, including loans, investments, and derivative products that use LIBOR as a benchmark rate. Our LIBOR Transition Program consists of dedicated leadership and staff, and continues to engage with relevant business lines and support groups. As part of this program, we continue to identify, assess, and monitor risks associated with the discontinuation of LIBOR, including monitoring the population of loans and contracts that are impacted and how LIBOR reference rates are reflected in our measurement of sensitivity to changes in interest rates until publication of LIBOR rates are fully phased out. We completed a review across all business lines and confirmed that language to facilitate a transition to an 54
--------------------------------------------------------------------------------
Table of Contents
alternative reference rate is included in our existing deals that carry LIBOR exposure. Migration of legacy LIBOR contracts has commenced based on regulatory timelines, with proactive remediation conducted for existing LIBOR facilities that contained currencies tied to LIBOR rates that ceased publication as ofDecember 31, 2021 . A communications and training plan supports the delivery of new Alternative Reference Rate ("ARR") products and assists with the transition away from LIBOR. We have adopted SOFR as our preferred replacement index forU.S. dollar LIBOR and received Term SOFR licensing from theChicago Mercantile Exchange in the fourth quarter of 2021. We currently offer products based on Alternative Reference Rates across multiple currencies including theU.S. Dollar, British Pound Sterling, and Euro.
A summary of our performance for the three months ended
BALANCE SHEET EARNINGS
Assets.
Net Income. Consolidated net income available to
Loans. $67.1 billion in average total loan balances common stockholders of $472 million (down
(up 44.9%). $68.7 billion in period-end total loan 11.3%).
balances (up 44.0%). -Net interest income of $1.1 billion (up 63.9%).
Total Client Funds. (on-balance sheet deposits and -Net interest margin of 2.13% (down 16 bps).
off-balance sheet client investment funds). $396.9 -Noninterest income of $517 million (down
billion in average total client fund balances (up 30.5%), non-GAAP core fee income+ of $230
51.4%). $397.4 billion in period-end total client million (up 44.7%) and non-GAAP SVB Securities
fund balances (up 38.0%). revenue++ of $118 million (down 28.9%).
AFS/HTM Fixed Income Investments. $125.6 billion in -Noninterest expense of $873 million (up 37.3%).
average fixed income investment securities (up
134.6%). $124.7 billion in period-end fixed income Return on Average Equity. Return on average
investment securities (up 85.7%). equity (annualized) performance of 15.28%.
Operating Efficiency Ratio. Operating efficiency
ratio of 54.60%.
CAPITAL CREDIT QUALITY
Capital+++. Active capital management, with all Credit Quality. Stable credit trends.
capital ratios considered "well-capitalized" under -ACL for loans of 0.61% as a percentage of
banking regulations. SVB Financial and Bank capital period-end total loans.
ratios, respectively, were: -Provision for loans was 0.05% as a percentage
-CET1 risk-based capital ratio of 12.10% and of period-end total loans (annualized).
14.89%. -Net loan charge-offs of 0.05% as a percentage
-Tier 1 risk-based capital ratio of 15.88% and of average total loans (annualized).
14.89%.
-Total risk-based capital ratio of 16.39% and
15.41%.
-Tier 1 leverage ratio of 7.70% and 7.09%.
+ Consists of fee income for deposit services, letters of credit and standby
letters of credit, credit cards, client investments, wealth management and
trust, foreign exchange and lending-related activities. This is a non-GAAP
financial measure. (See the non-GAAP reconciliation under "Results of
Operations-Noninterest Income")
++ Consists of investment banking revenue and commissions. This is a non-GAAP
financial measure. (See the non-GAAP reconciliation under "Results of
Operations-Noninterest Income").
+++ In March 2020 , the federal banking agencies provided transitional relief to
banking organizations with respect to the impact of CECL on regulatory capital.
Under the 2020 CECL Transition Rule, banking organizations may delay the
estimated impact of CECL on regulatory capital for two years, followed by a
three-year period to phase out the aggregate capital benefit provided during the
initial two-year delay. We have elected to use this five-year transition option.
For additional details, see "Capital Resources" within "Consolidated Financial
Condition" under Part 1, Item 2 of this report.
55--------------------------------------------------------------------------------
Table of Contents
A summary of our performance for the three months ended
Three months ended March 31 ,
(Dollars in millions, except per share data, employees and ratios)
2022 2021 % Change
Income Statement:
Diluted EPS $ 7.92 $ 10.03 (21.0) %
Net income available to common stockholders 472 532 (11.3)
Net interest income 1,082 660 63.9
Net interest margin 2.13 % 2.29 % (16) bps
Provision for credit losses (1) 11 19 (42.1) %
Noninterest income 517 744 (30.5)
Noninterest expense 873 636 37.3
Non-GAAP core fee income (2) 230 159 44.7
Non-GAAP core fee income, plus SVB Securities revenue (2) 348 325 7.1
Balance Sheet:
Average AFS securities $ 26,946 $ 28,248 (4.6) %
Average HTM securities 98,677 25,295 NM
Average loans, amortized cost 67,070 46,281 44.9
Average noninterest-bearing demand deposits 125,568 73,233 71.5
Average interest-bearing deposits 65,150 37,375 74.3
Average total deposits 190,718 110,608 72.4
Earnings Ratios:
Return on average assets (annualized) (3) 0.89 % 1.73 % (48.6) %
Return on average SVBFG stockholders' equity (annualized) (4) 15.28 27.04 (43.5)
Asset Quality Ratios:
ACL for loans as a % of total period-end loans 0.61 % 0.82 % (21) bps
ACL for performing loans as a % of total performing loans 0.58 0.74 (16)
Gross loan charge-offs as a % of average total loans (annualized)
0.11 0.83 (72)
Net loan charge-offs as a % of average total loans (annualized) 0.05 0.79 (74)
Capital Ratios:
SVBFG CET1 risk-based capital ratio 12.10 % 12.18 % (8) bps
SVBFG tier 1 risk-based capital ratio 15.88 14.01 187
SVBFG total risk-based capital ratio 16.39 14.62 177
SVBFG tier 1 leverage ratio 7.70 8.01 (31)
SVBFG tangible common equity to tangible assets (5) 5.38 6.06 (68)
SVBFG tangible common equity to risk-weighted assets (5) 11.30 12.12 (82)
Bank CET1 risk-based capital ratio 14.89 12.93 196
Bank tier 1 risk-based capital ratio 14.89 12.93 196
Bank total risk-based capital ratio 15.41 13.56 185
Bank tier 1 leverage ratio 7.09 7.20 (11)
Bank tangible common equity to tangible assets (5) 6.57 6.25 32
Bank tangible common equity to risk-weighted assets (5) 14.07 12.88 119
Other Ratios:
Operating efficiency ratio (6) 54.60 % 45.31 % 20.5 % Total costs of deposits (annualized) (7)
0.05 0.04 25.0
Book value per common share (8) $ 209.62 $ 163.25 28.4
Tangible book value per common share (9) 201.07 159.50 26.1
Other Statistics:
Average full-time equivalent employees 6,975 4,601 51.6 %
Period-end full-time equivalent employees 7,149 4,656 53.5
(1)This metric for the three months ended March 31, 2021 includes the impact of
an $80 million charge-off related to fraudulent activity discussed in previous
filings.
(2)See "Results of Operations-Noninterest Income" for a description and
reconciliation of non-GAAP core fee income and non-GAAP core fee income plus
investment banking revenue and commissions.
(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)Ratio represents annualized total cost of deposits and is calculated by
dividing interest expense from deposits by average total deposits.
(8)Book value per common share is calculated by dividing total SVBFG common
stockholders' equity by total outstanding common shares at period-end.
(9)Tangible book value per common share is calculated by dividing tangible
common equity by total outstanding common shares at period-end. Tangible common
equity is a non-GAAP measure defined under the section "Capital
Resources-Capital Ratios."
56--------------------------------------------------------------------------------
Table of Contents
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
Our accounting policies are fundamental to understanding our financial condition and results of operations. We have identified one policy as being critical because it requires us to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain, and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. We evaluate our estimates and assumptions on an ongoing basis and we base these 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 endedMarch 31, 2022 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 2021 Form 10-K.
Recent Accounting Pronouncements
InMarch 2022 , the FASB issued Accounting Standard Update No. 2022-01, Derivatives and Hedging (Topic 815), which allows multiple hedged layers to be designated in a single closed portfolio of financial assets. As a result, an entity can achieve hedge accounting for hedges of a greater proportion of the interest rate risk inherent in the assets included in the closed portfolio, further aligning hedge accounting with our risk management strategies. The update allows for a one-time transfer of certain debt securities from HTM to AFS upon adoption. This update is effective for fiscal years beginning afterDecember 15, 2022 , and interim periods within those fiscal years. We are assessing the effect of this update on our consolidated financial statements and related disclosures. InMarch 2022 , the FASB issued Accounting Standard Update No. 2022-02, Financial Instruments - Credit Losses (Topic 326), which eliminates the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. The update also requires disclosure of current-period gross write-offs by year of origination for financing receivables. The update is effective for fiscal years beginning afterDecember 15, 2022 , and interim periods within those fiscal years. We are assessing the effect of this update on our consolidated financial statements and related disclosures.
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 investments in our AFS and HTM securities portfolios and short-term investment securities and (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 applicable federal statutory tax rate.
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.
57--------------------------------------------------------------------------------
Table of Contents
2022 Compared to 2021
Three months ended March 31, increase
(decrease) due to change in
(Dollars in millions) Volume Rate Total
Interest income:
$ (1) $ 4 $ 3 Fixed income investment portfolio (taxable) 320 (34) 286 Fixed income investment portfolio (non-taxable) 21 (3) 18 Loans, amortized cost 177 (37) 140 Increase (decrease) in interest income, net 517 (70) 447 Interest expense: Money market deposits 8 2 10 Time deposits 2 - 2 Total increase in deposits expense 10 2 12 Short-term borrowings 1 - 1 Long term debt 8 - 8 Total increase in borrowings expense 9 - 9 Increase in interest expense, net 19 2 21 Increase (decrease) in net interest income
Net Interest Income (Fully Taxable Equivalent Basis)
NII increased by$426 million to$1.1 billion for the three months endedMarch 31, 2022 , compared to$665 million for the comparable 2021 period. Overall, our NII increased primarily from increases in average balances of our fixed income investment securities and loans. The increase in NII was partially offset by lower yields on fixed income investment securities and loans. Upon the completion of the Boston Private acquisition inJuly 2021 , a$104 million fair market value adjustment was made on the acquired loans that will be amortized into loan interest income over the contractual terms of the underlying loans using the constant effective yield method. The adjustment will be approximately 90 percent amortized by the end of fiscal year 2023. For the three months endedMarch 31, 2022 ,$14 million of this premium amortization partially offset the overall increase in NII.
The main factors affecting interest income and interest expense for the three
months ended
•Interest income for the three months ended
•A$304 million increase in interest income from our fixed income investment securities due primarily to an increase of$72.1 billion in average fixed income investment securities driven by exceptional average deposit growth. The increase in interest income from growth of our average fixed income investment securities was partially offset by declines in yields earned on these investments reflective of the lower rate environment in 2021, and •A$140 million increase in interest income on loans due primarily to an increase in average loan balances of$20.8 billion , partially offset by a decrease in overall loan yields of 32 bps to 3.45 percent from 3.77 percent. Gross loan yields, excluding loan interest recoveries and loan fees, decreased 12 bps to 3.15 percent from 3.27 percent, driven by growth in our lower yielding Global Fund Banking portfolio as well as the addition of lower yieldingBoston Private loans.
•Interest expense for the three months ended
•A$12 million increase in interest expense on deposits due primarily to an increase in average interest-bearing money market deposits balance partially driven by the addition of Boston Private deposits, and
•A
Net Interest Margin (Fully Taxable Equivalent Basis)
•Our net interest margin decreased by 16 bps to 2.13 percent for the three months endedMarch 31, 2022 , compared to 2.29 percent for the comparable 2021 period. The lower margin for the three months endedMarch 31, 2022 was due primarily to higher growth in our lower-yielding cash and investment securities portfolio relative to the growth in our loan portfolio driven by significant growth in our average deposits, as well as a decrease in 58
--------------------------------------------------------------------------------
Table of Contents
yields on loans as discussed above. Average loans represented 32.3 percent of
average interest earnings assets for the three months ended
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, preferred stock, 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 endedMarch 31, 2022 and 2021: 59
--------------------------------------------------------------------------------
Table of Contents
Average Balances, Rates and Yields for the Three Months EndedMarch 31, 2022 and 2021 Three months ended March 31, 2022 2021 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in millions) Balance Expense Rate Balance Expense Rate Interest-earning assets:Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)$ 14,800 $ 6 0.16 %$ 18,174 $ 3 0.07 % Investment securities: (2) AFS securities: Taxable 26,946 86 1.30 28,248 125 1.79 HTM securities: Taxable 91,758 425 1.88 21,590 100 1.87 Non-taxable (3) 6,919 44 2.57 3,705 26 2.90 Total loans, amortized cost (4) (5) 67,070 570 3.45 46,281 430
3.77
Total interest-earning assets 207,493 1,131 2.21 117,998 684 2.35 Cash and due from banks 3,475 1,547 ACL (432) (484) Other assets (6) 5,532 5,754 Total assets$ 216,068 $ 124,815 Funding sources: Interest-bearing liabilities: Interest bearing checking and savings accounts$ 6,059 $ 1 0.07 %$ 3,662 $ 1 0.10 % Money market deposits 55,163 19 0.14 30,959 9 0.11 Money market deposits in foreign offices 776 - 0.03 873 - 0.06 Time deposits 2,116 2 0.39 658 - 0.39 Sweep deposits in foreign offices 1,036 - 0.01 1,223 -
0.02
Total interest-bearing deposits 65,150 22 0.14 37,375 10 0.11 Short-term borrowings 3,136 1 0.18 12 - 0.07 Long-term debt 2,570 17 2.55 1,162 9 3.05 Total interest-bearing liabilities 70,856 40 0.23 38,549 19
0.20
Portion of noninterest-bearing funding sources 136,637 79,449 Total funding sources 207,493 40 0.08 117,998 19
0.06
Noninterest-bearing funding sources: Demand deposits 125,568 73,233 Other liabilities 3,100 4,021 Preferred stock 3,646 817 SVBFG common stockholders' equity 12,530 7,984 Noncontrolling interests 368 211 Portion used to fund interest-earning assets (136,637) (79,449)
Total liabilities, noncontrolling interest, and SVBFG stockholders' equity
$ 216,068 $ 124,815 Net interest income and margin$ 1,091 2.13 %$ 665 2.29 % Total deposits$ 190,718 $ 110,608 Average SVBFG common stockholders' equity as a percentage of average assets 5.80 % 6.40 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (9) (5) Net interest income, as reported$ 1,082 $ 660 (1)Includes average interest-earning deposits in other financial institutions of$5.2 billion and$1.6 billion for the three months endedMarch 31, 2022 and 2021, respectively. For the three months endedMarch 31, 2022 and 2021, balances also include$9.2 billion and$14.8 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$50 million and$58 million for the three months endedMarch 31, 2022 and 2021, respectively. (6)Average investment securities of$2.1 billion and$3.4 billion for the three months endedMarch 31, 2022 and 2021, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other equity securities. 60
--------------------------------------------------------------------------------
Table of Contents
Provision for Credit Losses
The provision for credit losses is the combination of (i) the provision for loans, (ii) the provision for unfunded credit commitments and (iii) the provision for HTM securities. Our allowance for credit losses reflects our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date.
The following table summarizes our ACL for loans, unfunded credit commitments
and HTM securities for the three months ended
Three months ended March 31,
(Dollars in millions) 2022 2021
ACL, beginning balance $ 422 $ 448
Provision for loans (1) 8 34
Gross loan charge-offs (1) (18) (95)
Loan recoveries 10 5
Foreign currency translation adjustments (1) -
ACL, ending balance $ 421 $ 392
ACL for unfunded credit commitments, beginning balance 171 121
Provision (reduction) for unfunded credit commitments 4 (16)
ACL for unfunded credit commitments, ending balance (2) $ 175 $ 105
ACL for HTM securities, beginning balance 7 -
(Reduction) provision for HTM securities (1) 1
ACL for HTM securities, ending balance (3) $ 6 $ 1 Ratios and other information: Provision for loans as a percentage of period-end total loans (annualized) (1)
0.05 % 0.29 %
Gross loan charge-offs as a percentage of average total loans (annualized) (1)
0.11 0.83
Net loan charge-offs as a percentage of average total loans (annualized) (1)
0.05 0.79
ACL for loans as a percentage of period-end total loans 0.61 0.82
Provision for credit losses $ 11 $ 19
Period-end total loans 68,665 47,675
Average total loans 67,070 46,281
Allowance for loan losses for nonaccrual loans 20 42
Nonaccrual loans 70 90
(1)Metrics for the three months ended March 31, 2021 includes the impact of an
$80 million charge-off related to fraudulent activity as disclosed in previous
filings.
(2)The "ACL for unfunded credit commitments" is included as a component of
"Other liabilities" on our consolidated balance sheets.
(3)The "ACL for HTM securities" is included as a component of "HTM securities"
and presented net in our consolidated financial statements.
Provision for Loans
We had a provision for credit losses for loans of$8 million for the three months endedMarch 31, 2022 compared to a provision of$34 million for the three months endedMarch 31, 2021 . The provision for loans of$8 million for the three months endedMarch 31, 2022 was driven primarily by a$15 million provision for loan growth and an increase of$16 million for charge-offs not previously reserved for atDecember 31, 2021 . These increases were partially offset by a$10 million reduction for recoveries and a$15 million decrease in reserves for nonaccrual loans. The provision for loans of$34 million for the three months endedMarch 31, 2021 was driven primarily by$86 million in charge-offs not specifically reserved for atDecember 31, 2020 , of which$80 million was related to the fraudulent activity as disclosed in previous filings, and a$18 million increase for loan growth. These increases were partially offset by$5 million of recoveries and a$62 million reduction in performing reserves a result of the ongoing improvement of economic scenarios in our forecast models.
Provision for Unfunded Credit Commitments
We recorded a provision for unfunded credit commitments of$4 million for the three months endedMarch 31, 2022 , compared to a reduction of$16 million for the three months endedMarch 31, 2021 . The provision of$4 million for the three months endedMarch 31, 2022 was driven primarily by a$6 million provision for commitment growth, partially offset by a reduction of$2 million due to changes in our unfunded portfolio composition that resulted in a shorter portfolio lifetime and improved credit quality. 61
--------------------------------------------------------------------------------
Table of Contents
We recorded a reduction of our credit loss estimate for unfunded credit
commitments of
Gross Loan Charge-Offs
Gross loan charge-offs were$18 million for the three months endedMarch 31, 2022 , of which$16 million was not specifically reserved for atDecember 31, 2021 . Gross loan charge-offs were primarily driven by our Investor Dependent portfolios, the largest drivers being one Investor Dependent - Early Stage client and two Investor Dependent - Growth Stage clients which together accounted for$13 million in charge-offs. Gross loan charge-offs were$95 million for the first quarter of 2021, of which$80 million relates to the fraudulent Global Fund Banking activity as disclosed in previous filings, and an additional$6 million that was not specifically reserved for atDecember 31, 2020 . The remaining$15 million gross loan charge-offs were driven primarily by our Investor Dependent loan portfolio. See "Consolidated Financial Condition-Credit Quality and Allowance for Credit Losses for Loans and for Unfunded Credit Commitments" below and Note 6 - "Loans and Allowance for Credit Losses: Loans and 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 ACL for loans and unfunded credit commitments.
Provision for
We recorded a reduction of our credit loss estimate for HTM securities of$1 million for the three months endedMarch 31, 2022 . Our provision release for HTM securities for the first quarter ofMarch 31, 2022 was driven primarily by improved HTM bond portfolio demographics. Our HTM portfolio as ofMarch 31, 2022 was entirely made up of A3 or better rated bonds, all considered investment grade. We recorded a provision for credit losses for HTM securities of$1 million for the three months endedMarch 31, 2021 . Our provision for HTM securities of$1 million for the first quarter of 2021 was driven primarily by the purchase of corporate bonds during the first quarter of 2021. Our HTM portfolio as ofMarch 31, 2021 was entirely made up of A1 or better rated bonds, all considered investment grade.
See Note 5 - "
Noninterest Income
For the three months endedMarch 31, 2022 , noninterest income was$517 million compared to$744 million for the comparable 2021 period. For the three months endedMarch 31, 2022 , non-GAAP core fee income plusSVB Securities revenue was$348 million compared to$325 million for the comparable 2021 period. For the three months endedMarch 31, 2022 , non-GAAP core fee income was$230 million compared to$159 million for the comparable 2021 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 SVB Securities revenue, non-GAAP core fee income plus non-GAAP SVB Securities revenue, non-GAAP net gains on investment securities, net of noncontrolling interests and non-GAAP financial ratios). 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 (i) excluding items that represent income attributable to investors other than us and our subsidiaries and (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, 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
62--------------------------------------------------------------------------------
Table of Contents
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 (i)SVB Securities revenue, (ii) 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, and (iii) other noninterest income. Core fee income represents client investment fees, wealth management and trust fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees.SVB Securities revenue is a non-GAAP financial measure, which represents noninterest income but excludes (i) Core fee income, and (ii) 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, and other noninterest income.SVB Securities revenue represents investment banking revenue and commissions. Core fee income plusSVB Securities revenue 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, primarily our net gains (losses) on investment securities and equity warrant assets, and other noninterest income. Core fee income plusSVB Securities revenue represents core fee income plus investment banking revenue and commissions.
The following table provides a reconciliation of GAAP noninterest income to
non-GAAP core fee income for the three months ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
GAAP noninterest income $ 517 $ 744 (30.5) %
Less: gains on investment securities, net 85 167 (49.1)
Less: gains on equity warrant assets, net 63 222 (71.6)
Less: other noninterest income 21 30 (30.0)
Non-GAAP core fee income plus SVB Securities revenue (1) $ 348 $ 325 7.1
Investment banking revenue 93 142 (34.5)
Commissions 25 24 4.2
Non-GAAP SVB Securities revenue (2) $ 118 $ 166 (28.9)
Non-GAAP core fee income (3) $ 230 $ 159 44.7
(1)Non-GAAP core fee income plus SVB Securities revenue represents noninterest
income, but excludes certain line items where performance is typically subject
to market or other conditions beyond our control and other noninterest income.
Core fee income plus SVB Securities revenue is non-GAAP core fee income (as
defined in footnote (3) below) with the addition of investment banking revenue
and commissions.
(2)Non-GAAP SVB Securities revenue represents investment banking revenue and
commissions, but excludes certain line items where performance is typically
subject to market or other conditions beyond our control and other noninterest
income.
(3)Non-GAAP core fee income represents noninterest income, but excludes (i)
certain line items where performance is typically subject to market or other
conditions beyond our control, (ii) our investment banking revenue and
commissions and (iii) other noninterest income. Non-GAAP core fee income
includes client investment fees, wealth management and trust fees, foreign
exchange fees, credit card fees, deposit service charges, lending related fees
and letters of credit and standby letters of credit fees.
Gains on
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-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
63--------------------------------------------------------------------------------
Table of Contents
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. 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. 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 endedMarch 31, 2022 and 2021: Managed Managed Direct Strategic Funds of Venture Managed Credit Public Equity Debt Sales of AFS Debt and Other (Dollars in millions) Funds Funds Funds Securities Funds Securities InvestmentsSVB Securities Total Three months endedMarch 31, 2022 Total gains (losses) on investment securities, net$ 46 $ 15 $ 6 $ (32) $ - $ 49 $ 2 $ (1)$ 85 Less: income attributable to noncontrolling interests, including carried interest allocation 15 2 1 - - - - - 18 Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests$ 31 $ 13 $ 5 $ (32) $ - $ 49 $ 2 $ (1)$ 67 Three months endedMarch 31, 2021 Total gains on investment securities, net$ 31 $ 18 $ 7 $ 76$ 1 $ - $ 30 $ 4$ 167 Less: income attributable to noncontrolling interests, including carried interest allocation 13 9 1 - - - - 2 25 Non-GAAP net gains on investment securities, net of noncontrolling interests$ 18 $ 9 $ 6 $ 76$ 1 $ - $ 30 $ 2$ 142
Non-GAAP net gains on investment securities, net of noncontrolling interests, of
•Gains of
•Gains of
Gains on Equity Warrant Assets, Net
A summary of gains on equity warrant assets, net, for the three months ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Equity warrant assets (1):
Gains on exercises, net $ 12 $ 160 (92.5) %
Terminations (1) - NM
Changes in fair value, net 52 62 (16.1)
Total gains on equity warrant assets, net $ 63 $ 222 (71.6)
(1) At March 31, 2022 , we held warrants in 2,873 companies, compared to 2,670
companies at March 31, 2021 . The total fair value of our warrant portfolio was
$323 million at March 31, 2022 and $244 million at March 31, 2021 . Warrants in
54 companies each had fair values greater than $1 million and collectively
represented $175 million , or 54.3 percent, of the fair value of the total
warrant portfolio at March 31, 2022 . Warrants in 42
64--------------------------------------------------------------------------------
Table of Contents
companies each had fair values greater than
Net gains on equity warrant assets for the three months endedMarch 31, 2022 were driven by$52 million in net valuation increases reflective of private company valuation updates as well as pending SPAC and M&A activity. Net gains on equity warrant assets for the three months endedMarch 31, 2021 included$115.8 million in valuation gains related to Coinbase Global, Inc.'s ("Coinbase") announcement in the first quarter of 2021 to enter the public markets via a direct listing. Non-GAAP Core Fee Income Three months ended March 31, (Dollars in millions) 2022 2021 % Change Non-GAAP core fee income (1): Client investment fees $ 35$ 20 75.0 % Wealth management and trust fees 22 - - Foreign exchange fees 73 57 28.1 Credit card fees 37 28 32.1 Deposit service charges 30 25 20.0 Lending related fees 19 16 18.8 Letters of credit and standby letters of credit fees 14 13 7.7 Total non-GAAP core fee income (1) $ 230$ 159 44.7 Investment banking revenue 93 142 (34.5) Commissions 25 24 4.2 Total non-GAAP Securities revenue (2) $ 118$ 166 (28.9) Total non-GAAP core fee income plus SVB Securities revenue (3) $ 348$ 325 7.1 (1)This non-GAAP measure represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. See "Use of Non-GAAP Measures" above. (2)Non-GAAP SVB Securities revenue represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) non-GAAP core fee income, and (iii) other noninterest income. See "Use of Non-GAAP Measures" above. (3)Non-GAAP core fee income plusSVB Securities revenue represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, and (ii) other noninterest income. See "Use of Non-GAAP Measures" above.
Client Investment Fees
Client investment fees was$35 million for the three months endedMarch 31, 2022 , compared to$20 million for the comparable 2021 period. The increase was reflective of improved fee margins resulting from higher short-term interest rates driven by the March Federal Funds Rate hike.
A summary of client investment fees by instrument type for the three months
ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Client investment fees by type:
Sweep money market fees $ 24 $ 10 140.0 %
Asset management fees 10 9 11.1
Repurchase agreement fees 1 1 -
Total client investment fees $ 35 $ 20 75.0
The following table summarizes average client investment funds for the three
months ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Sweep money market funds $ 109,116 $ 67,138 62.5 %
Managed client investment funds (1) 84,467 72,478 16.5
Repurchase agreements 12,557 11,963 5.0
Total average client investment funds (2) $ 206,140 $ 151,579 36.0
(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.
65--------------------------------------------------------------------------------
Table of Contents
The following table summarizes period-end client investment funds atMarch 31, 2022 andDecember 31, 2021 : December 31, (Dollars in millions) March 31, 2022 2021 % Change Sweep money market funds$ 102,550 $ 109,241 (6.1) % Managed client investment funds (1) 83,988 85,475 (1.7) Repurchase agreements 12,678 15,370 (17.5) Total period-end client investment funds (2)$ 199,216 $ 210,086 (5.2) (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.
Wealth Management and Trust Fees
Wealth management and trust fees was$22 million three months endedMarch 31, 2022 . A summary of wealth management and fees by instrument type for the three months endedMarch 31, 2022 and 2021 is as follows: Three months ended March 31 (Dollars in millions) 2022 2021 % Change Wealth management and trust fees by type: Wealth management fees $ 20 $ - - % Trust fees 2 - - Total wealth management and trust fees $ 22 $ - - The following table summarizes the activity relating to AUM for the three months endedMarch 31, 2022 : Three months ended March 31, (Dollars in millions) 2022 Beginning balance $ 19,646 Net flows 264 Market returns (902) Ending balance $ 19,008 Foreign Exchange Fees Foreign exchange fees was$73 million for the three months endedMarch 31, 2022 , compared to$57 million for the comparable 2021 period. The increase in foreign exchange fees were driven primarily by increases in spot contract commissions primarily driven by increased trading in technology and life science/healthcare industries for the three months endedMarch 31, 2022 compared to the 2021 period.
A summary of foreign exchange fee income by instrument type for the three months
ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Foreign exchange fees by instrument type:
Spot contract commissions $ 66 $ 55 20.0 %
Forward contract commissions 6 2 200.0
Option premium fees 1 - -
Total foreign exchange fees $ 73 $ 57 28.1
Credit Card Fees
Credit card fees was $37 million for the three months ended March 31, 2022 ,
compared to $28 million for the comparable 2021 period. Credit card fees
increased due to higher transaction volumes reflective of increased spending and
client growth, as well as higher travel spending, compared to the comparable
2021 period.
A summary of credit card fees by instrument type for the three months ended
66--------------------------------------------------------------------------------
Table of Contents
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Credit card fees by instrument type:
Card interchange fees, net $ 30 $ 23 30.4 %
Merchant service fees 5 4 25.0
Card service fees 2 1 100.0
Total credit card fees $ 37 $ 28 32.1
Deposit Service Charges
Deposit service charges was $30 million for the three months ended March 31,
2022 , compared to $25 million for the comparable 2021 period. Deposit service
charges increased primarily driven by higher volumes of our transaction-based
fee products.
Lending Related Fees
Lending related fees were $19 million for the three months ended March 31, 2022 ,
compared to $16 million for the comparable 2021 period. The increase was
primarily due to increases in fees earned from unused lines of credit reflective
primarily from growth in our unfunded credit commitments from the first quarter
of 2021.
A summary of lending related fees by type for the three months ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Lending related fees by instrument type:
Unused commitment fees $ 15 $ 12 25.0 %
Other 4 4 -
Total lending related fees $ 19 $ 16 18.8
Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees was$14 million for the three months endedMarch 31, 2022 , compared to$13 million for the comparable 2021 period. The increase was driven primarily by an increase in deferred fee income reflective of larger letter of credit issuances.
Investment Banking Revenue
Investment banking revenue was$93 million for the three months endedMarch 31, 2022 , compared to$142 million for the comparable 2021 period. The decrease was attributable to a decrease in equity capital markets transactions as a result of the recent public markets volatility partially offset by an increase in advisory fees.
A summary of investment banking revenue by type for the three and three months
ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Investment banking revenue:
Underwriting fees $ 32 $ 125 (74.4)
Advisory fees 54 4 NM
Private placements and other 7 13 (46.2)
Total investment banking revenue $ 93 $ 142 (34.5)
Commissions
Commissions for the three months ended March 31, 2022 were $25 million , compared
to $24 million for the comparable 2021 period. Commissions include commissions
received from clients for the execution of agency-based brokerage transactions
in listed and over-the-counter equities. The Company also earns subscription
fees for market intelligence services that are recognized over the period in
which they are delivered. Fees received before the subscription period ends is
initially recorded as deferred revenue (a contract liability) in other
liabilities in our consolidated balance sheet. The slight increase in
commissions was driven by subscription fees, which were new to core fee income
due to the acquisition of MoffettNathanson in December 2021 , partially offset by
a decrease in fees from brokerage transactions due to a slowdown in trading
activity as a result of the recent public markets volatility.
67--------------------------------------------------------------------------------
Table of Contents
Other
Other noninterest income for the three months ended
Noninterest Expense
A summary of noninterest expense for the three months endedMarch 31, 2022 and 2021 is as follows: Three months ended March 31, (Dollars in millions) 2022 2021 % Change Compensation and benefits $ 584$ 445 31.2 % Professional services 106 81 30.9 Premises and equipment 58 33 75.8 Net occupancy 23 18 27.8 Business development and travel 14 4 NM FDIC and state assessments 16 10 60.0 Merger-related charges 16 - - Other 56 45 24.4 Total noninterest expense $ 873$ 636 37.3
Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense
for the three months ended
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Compensation and benefits:
Salaries and wages $ 236 $ 163 44.8 %
Incentive compensation plans 194 150 29.3
Other employee incentives and benefits (1) 154 132 16.7
Total compensation and benefits $ 584 $ 445 31.2
Period-end full-time employees 7,149 4,656 53.5
Average full-time employees 6,975 4,601 51.6
(1)Other employee incentives and benefits includes employer payroll taxes, group
health and life insurance, share-based compensation, 401(k), ESOP, warrant and
other incentive plans, retention plans, agency fees and other employee-related
expenses.
Compensation and benefits expense was $584 million for the three months ended
March 31, 2022 , compared to $445 million for the comparable 2021 period. The key
factors affecting changes in compensation and benefits expense were as follows:
•An increase of $73 million salaries and wages expense due primarily to an
increase in FTEs, as we continue to invest in our revenue-generating lines of
business and support functions as well as the impact of annual merit increases
during the first quarter of 2022,
•An increase of $44 million in incentive compensation plans expense related
primarily to an increase in the number of plan participants along with higher
targets due to annual merit increases and promotions, and
•An increase of $22 million in other employee incentives and benefits driven
primarily by an increase in stock compensation expenses due to higher grant
volume and new retirement provisions and increased seasonal expenses relating to
additional 401(k) matching contributions and employer-related payroll taxes
driven by our increased headcount, partially offset by lower warrant incentive
compensation due to public warrant valuation changes.
Our variable compensation plans consist primarily of our Incentive Compensation
Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant
Incentive Plan, Deferred Compensation Plan, 401(k) and ESOP Plan, SVB Securities
Incentive Compensation Plan, SVB Securities Retention Award, EHOP, 2006
Incentive Plan and ESPP (see descriptions in our 2021 Form 10-K). Total costs
incurred under these plans were $222 million for the three months ended March
31, 2022 , compared to $202 million for the comparable 2021 period. These amounts
are included in total compensation and benefits expense discussed above.
68--------------------------------------------------------------------------------
Table of Contents
Professional Services
Professional services expense was$106 million for the three months endedMarch 31, 2022 , compared to$81 million for the comparable 2021 period. The increase was driven by higher consulting fees associated with our initiatives related to our regulatory programs as well as continued investments in our infrastructure and operating projects to support our presence both domestically and internationally.
Premises and Equipment
Premises and equipment expense was$58 million for the three months endedMarch 31, 2022 , compared to$33 million for the comparable 2021 period. The increase was primarily related to higher software support and maintenance fees driven by premises and equipment held by Boston Private as well as an increase in software project depreciation. Net Occupancy
Net occupancy expense was
Business Development and Travel
Business development and travel was$14 million for the three months endedMarch 31, 2022 , compared to$4 million for the comparable 2021 period. The increase was primarily due to the continued easing of COVID-19 restrictions on in-person meetings and travel.FDIC and State AssessmentsFDIC and state assessments expense was$16 million for the three months endedMarch 31, 2022 , compared to$10 million for the comparable 2021 period. The increase was due primarily to the increase in our average deposits as well as the acquisition of Boston Private deposits.
Merger-Related Charges
Merger-related charges was a new noninterest expense line item for the second quarter of 2021 as a result of the Boston Private acquisition. A summary of merger-related charges, which includes direct acquisition costs for the three months endedMarch 31, 2022 are as follows: Three months ended (Dollars in millions) March 31, 2022 Personnel-related $ 1 Occupancy and facilities 3 Professional services 6 Systems integration and related charges 6 Total merger-related charges $ 16 Other Noninterest Expense Other noninterest expense was$56 million for the three months endedMarch 31, 2022 , compared to$45 million for the comparable 2021 period. This increase was driven by expenses primarily related to increased lending, deposit and other client-related processing costs as well as higher advertising and promotional expenses. Operating Efficiency Ratio Our operating efficiency ratio increased to 54.60 percent for the three months endedMarch 31, 2022 , compared to 45.31 percent for the comparable 2021 period. This increase was driven by lower noninterest income from market-driven revenue reflective of the current public market volatility, partially offset by higher net interest income, and higher noninterest expense as we continue to invest and support long-term growth.
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. A summary of net income
attributable to noncontrolling interests for the three months ended
69--------------------------------------------------------------------------------
Table of Contents
Three months ended March 31,
(Dollars in millions) 2022 2021 % Change
Noninterest income (1) $ (1) $ (16) (93.8)
Carried interest allocation (2) (17) (9) 88.9
Net income attributable to noncontrolling interests $ (18) $ (25) (28.0)
(1)Represents noncontrolling interests' share in noninterest income or loss.
(2)Represents the preferred allocation of income (or change in income) earned by
us as the general partner of certain consolidated funds.
Net income attributable to noncontrolling interests was $18 million for the
three months ended March 31, 2022 , compared to net income of $25 million for the
comparable 2021 period. Net income attributable to noncontrolling interests for
the three months ended March 31, 2022 was driven primarily by net gains on
investment securities (including carried interest allocation) from unrealized
valuation increases of our managed funds of funds portfolio and our SVB
Securities funds. See "Results of Operations-Noninterest Income-Gains on
Investment Securities , Net."
Income Taxes
Our effective tax rate was 26.1 percent for the three months endedMarch 31, 2022 , compared to 25.9 percent for the comparable 2021 period. The increase in our effective tax rate for the three months endedMarch 31, 2022 was primarily due to an increase in state tax rates. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests.
Operating Segment Results
We have four segments for which we report our financial information:Silicon Valley Bank , SVB Private,SVB Capital andSVB Securities . 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 10 - "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 endedMarch 31, 2022 and 2021:Silicon Valley Bank Three months ended March 31, (Dollars in millions) 2022 2021 % Change Net interest income $ 854$ 611 39.8 % Provision for credit losses (7) (45) (84.4) Noninterest income 212 159 33.3 Noninterest expense (397) (276) 43.8 Income before income tax expense $ 662$ 449 47.4 Total average loans, amortized cost$ 52,234 $ 38,221 36.7 Total average assets 177,944 107,859 65.0 Total average deposits 175,424 106,016 65.5 Income before income tax expense fromSilicon Valley Bank increased to$662 million for the three months endedMarch 31, 2022 , compared to$449 million for the comparable 2021 period. The key components ofSilicon Valley Bank's performance for the three months endedMarch 31, 2022 compared to the comparable 2021 period are discussed below. Net interest income fromSilicon Valley Bank increased by$243 million for the three months endedMarch 31, 2022 , due primarily to an increase in loan interest income resulting primarily from higher average loan balances, partially offset by a decrease in loan yields. Gross loan yields, excluding loan interest recoveries and loan fees, decreased driven by growth in our lower yielding Global Fund Banking portfolio. A provision of credit losses of$7 million for the three months endedMarch 31, 2022 , compared to a provision of credit losses of$45 million for the comparable 2021 period. The provision of$7 million for the three months endedMarch 31, 2022 was driven primarily by an increase in provision for loan growth and higher charge-offs not specifically reserved for atDecember 31, 2021 , partially offset by recoveries and lower net new nonaccrual loans. The provision for credit losses of$45 million for the three months endedMarch 31, 2021 was driven primarily by an increase in charge-offs not specifically reserved for atDecember 31, 2020 and an increase in provision related to loan growth, partially offset by a reduction in reserves for our performing loans based on our forecast models of the economic environment, lower net new nonaccrual loans and recoveries. 70
--------------------------------------------------------------------------------
Table of Contents
Noninterest income increased by$53 million for the three months endedMarch 31, 2022 related primarily to an overall increase in our non-GAAP core fee income. The overall increase was due primarily to higher client investment fees driven by improved fee margins resulting from higher short-term interest rates driven by the March Federal Funds Rate hike, higher foreign exchange fees primarily due to increases in spot contract commissions primarily driven by increased trading in technology and life science/healthcare industries, and credit card fees driven by higher transaction volumes reflective of increased spending and client growth, as well as higher travel spending compared to the first quarter of 2021. Noninterest expense increased by$121 million for the three months endedMarch 31, 2022 , due primarily to compensation and benefits expense, professional services expense and premises and equipment expense. Compensation and benefits expense increased as a result of higher incentive compensation expense and higher salaries and wages expenses. Incentive compensation expense and salaries and wages expense increased primarily due to an increase in FTEs as we continue to invest in our business as well as the impact of annual merit increases and promotions. Professional services expense increased due to higher consulting fees related to new project initiatives that align with our continued growth during the quarter. Premises and equipment expense increased due to higher software support and maintenance fees as well as an increase in software depreciation. SVB Private Three months ended March 31, (Dollars in millions) 2022 2021 % Change Net interest income$ 81 $ 35 131.4 % (Provision for) reduction of credit losses (1) 9 (111.1) Noninterest income 25 1 NM Noninterest expense (94) (15) NM (Loss) income before income tax expense$ 11 $ 30 (63.3) Total average loans, amortized cost$ 14,298 $ 6,043 136.6 Total average assets 15,987 6,097 162.2 Total average deposits 14,416 3,545 NM Net interest income from our SVB Private increased by$46 million from the comparable 2021 first quarter, as average loans increased driven primarily by the acquisition of Boston Private and strong organic loan growth. This increase was partially offset by decreases in loan yields as a result of purchase accounting amortization of fair value mark ups on the acquired Boston Private loans.
The provision for credit losses of
Noninterest income increased by$24 million for the three months endedMarch 31, 2022 primarily due to wealth management and trust fees which is a new financial statement line item for the third quarter of 2021 as a result of theBoston Private acquisition. Noninterest expense increased by$79 million for the three months endedMarch 31, 2022 , related primarily to compensation and benefits expense. Compensation and benefits expense increased as a result of an increase in average number of FTEs primarily due to the acquisition of Boston Private.SVB Capital Three months ended March 31, (Dollars in millions) 2022 2021 % Change Noninterest income $ 65$ 69 (5.8) Noninterest expense (20) (16) 25.0 Income before income tax expense $ 45$ 53 (15.1) Total average assets $ 892$ 577 54.6SVB 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
71--------------------------------------------------------------------------------
Table of Contents
SVB Capital had noninterest income of$65 million for the three months endedMarch 31, 2022 , compared to$69 million for the comparable 2021 period. The decrease in noninterest income was due primarily to a decrease in net gains on investment securities for the three months endedMarch 31, 2022 , compared to the comparable 2021 period.SVB Capital's components of noninterest income primarily include the following: •Net gains on investment securities, net of noncontrolling interests, of$49 million for the three months endedMarch 31, 2022 , compared to$54 million for the comparable 2021 period. The net gains on investment securities, net of noncontrolling interests, of$49 million were driven primarily by unrealized valuation gains from private and public companies held by our managed funds of funds.SVB Securities Three months ended March 31, (Dollars in millions) 2022 2021 % Change Noninterest income$ 121 $ 170 (28.8) Noninterest expense (134) (136) (1.5) (Loss) income before income tax expense$ (13) $ 34 (138.2) Total average assets$ 993 $ 767 29.5
SVB Securities had noninterest income of$121 million for the three months endedMarch 31, 2022 , compared to$170 million for the comparableMarch 31, 2021 period. The$49 million decrease in noninterest income was due primarily to a decrease in equity capital markets transactions as a result of the recent public markets volatility partially offset by an increase in advisory fees.SVB Securities had noninterest expense of$134 million for the three months endedMarch 31, 2022 , compared to$136 million for the comparable 2021 period. The$2 million decrease in noninterest expense was driven primarily by a decrease in incentive compensation plan expense driven by lower deal activity during the first quarter of 2022, offset by salaries and wages expense due to strategic hires throughout the prior year.
Consolidated Financial Condition
Our total assets, and total liabilities and stockholders' equity, were$220.4 billion atMarch 31, 2022 compared to$211.5 billion atDecember 31, 2021 , an increase of$8.9 billion , or 4.2 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$20.6 billion atMarch 31, 2022 , an increase of$6.0 billion , or 41.0 percent, compared to$14.6 billion atDecember 31, 2021 . The increase was driven by the growth in deposits of$8.9 billion . As ofMarch 31, 2022 ,$13.2 billion of our cash and due from banks was deposited at theFederal Reserve Bank and was earning interest at the Federal Funds target rate and interest-earning deposits in other financial institutions were$5.1 billion . As ofDecember 31, 2021 ,$5.7 billion of our cash and due from banks was deposited at theFederal Reserve Bank and was earning interest at the Federal Funds target rate and interest-earning deposits in other financial institutions were$5.8 billion .
Investment securities totaled$127.3 billion atMarch 31, 2022 , a decrease of$656 million , or 0.5 percent, compared to$128.0 billion atDecember 31, 2021 . Our investment securities portfolio is comprised of: (i) an AFS securities portfolio and a HTM 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, investments in qualified affordable housing projects, as well as public equity securities held as a result of equity warrant assets exercised. 72
--------------------------------------------------------------------------------
Table of Contents
Period-end AFS securities were$26.0 billion atMarch 31, 2022 , compared to$27.2 billion atDecember 31, 2021 , a decrease of$1.2 billion , or 4.5 percent. The decrease in period-end AFS securities balances fromDecember 31, 2021 toMarch 31, 2022 , was driven by a$1.0 billion decrease in the fair value of our AFS securities portfolio, reflective of higher interest rates, as well as paydowns and maturities of AFS securities of$462 million during the quarter. In addition, asset liability management repositioning drove a$5.1 billion sale of AFS securities and termination of related swaps, resulting in a net pre-tax realized gain of$49 million , with reinvestment of proceeds from the sale at higher yields. The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as AFS as ofMarch 31, 2022 . The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. ForU.S. Treasury securities,U.S. agency debentures and foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. Expected maturities for MBS may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. MBS classified as AFS typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. March 31, 2022 One Year After One Year to After Five Years to After Total or Less Five Years Ten Years Ten Years Weighted Weighted Weighted Weighted Weighted Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average (Dollars in millions) Value Yield Value Yield Value Yield Value Yield Value YieldU.S. Treasury securities$ 16,639 1.29 %$ 25 0.10 %$ 16,614 1.29 % $ - - % $ - - %U.S. agency debentures 151 2.07 41 0.75 35 2.41 75 2.56 - - Foreign government debt securities 59 (0.81) 59 (0.81) - - - - - - Residential MBS: Agency-issued MBS 6,846 1.31 - - - - - - 6,846 1.31 Agency-issued CMO-fixed rate 860 1.37 - - - - - - 860 1.37 Agency-issued CMBS 1,436 1.76 - - 105 1.21 1,331 1.81 - - Total$ 25,991 1.32$ 125 (0.12)$ 16,754 1.29$ 1,406 1.85$ 7,706 1.31 HTM Securities Period-end HTM securities were$98.7 billion atMarch 31, 2022 , compared to$98.2 billion atDecember 31, 2021 , an increase of$512 million , or 0.5 percent. The$512 million increase in period-end HTM securities balances fromDecember 31, 2021 toMarch 31, 2022 was driven by purchases of$4.6 billion , partially offset by$4.0 billion in paydowns and maturities. Securities classified as HTM are accounted for at cost with no adjustments for changes in fair value. For securities re-designated as HTM from AFS, the net unrealized gains or losses 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 net of ACL and fully taxable equivalent yields on fixed income investment securities classified as HTM as ofMarch 31, 2022 . 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. ForU.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certainU.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 MBS may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. MBS classified as HTM 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 expected yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. 73
--------------------------------------------------------------------------------
Table of Contents
March 31, 2022
One Year After One Year to After Five Years to After
Total or Less Five Years Ten Years Ten Years
Net Carry Weighted Net Carry Weighted Net Carry Weighted Net Carry Weighted Net Carry Weighted
(Dollars in millions) Value Average Yield Value Average Yield Value Average Yield Value Average Yield Value Average Yield
U.S. agency debentures $ 536 1.97 % $ 4 2.34 % $ 109 2.50 % $ 423 1.83 % $ - - %
Residential MBS:
Agency-issued MBS 63,517 1.54 - 1.49 6 2.34 1,181 1.37 62,330 1.54
Agency-issued CMO-fixed rate 11,231 1.18 - - 31 1.62 266 1.62 10,934 1.16
Agency-issued CMO-variable
rate 93 0.74 - - - - - - 93 0.74
Agency-issued CMBS 15,141 1.64 32 0.36 178 0.82 970 1.93 13,961 1.63
Municipal bonds and notes 7,483 2.82 37 2.60 187 2.44 1,231 2.74 6,028 2.85
Corporate bonds 706 1.86 - - 52 1.70 654 1.87 - -
Total $ 98,707 1.61 $ 73 1.60 $ 563 1.82 $ 4,725 2.12 $ 93,346 1.59
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 4.9 and 4.0 years at March
31, 2022 and December 31, 2021 , respectively. The weighted-average duration of
our total fixed income securities portfolio including the impact of our fair
value swaps was 4.8 years at March 31, 2022 . The weighted-average duration of
our AFS securities portfolio was 3.7 years at March 31, 2022 and 3.5 years at
December 31, 2021 . The weighted-average duration of our AFS securities portfolio
including the impact of our fair value swaps was 3.1 years at March 31, 2022 .
The weighted-average duration of our HTM securities portfolio was 5.2 years at
March 31, 2022 and 4.1 years at December 31, 2021 . We continue to invest excess
on-balance sheet liquidity in high-quality securities (agency MBS/CMO/CMBS,
municipal and corporate securities).
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, 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$2.6 billion ($2.2 billion net of noncontrolling interest) atMarch 31, 2022 compared to$2.5 billion ($2.2 billion net of noncontrolling interest) atDecember 31, 2021 , an increase of$62 million , or 2.4 percent. 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) atMarch 31, 2022 andDecember 31, 2021 :March 31, 2022 December 31, 2021 Amount Amount Carrying
value (as attributable to Carrying value (as attributable to (Dollars in millions)
reported) SVBFG reported) SVBFG
Non-marketable and other equity securities: Non-marketable securities (fair value accounting): Consolidated venture capital and private equity fund investments (1)
$ 196 $ 102 $ 130 $ 36
Unconsolidated venture capital and private equity fund investments (2)
210 210 208 208
Other investments without a readily determinable fair value (3)
169 169 164 164
Other equity securities in public companies (fair value accounting (4)
55 55 117 117
Non-marketable securities (equity method accounting) (5): Venture capital and private equity fund investments
721 426 671 397
Debt funds 5 5 5 5
Other investments 292 292 294 294
Investments in qualified affordable housing projects, net 957 957 954 954
Total non-marketable and other equity securities $ 2,605 $ 2,216 $ 2,543 $ 2,175
74--------------------------------------------------------------------------------
Table of Contents
(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 atMarch 31, 2022 andDecember 31, 2021 : March 31, 2022 December 31, 2021 Carrying value (as Amount attributable Carrying value (as Amount attributable (Dollars in millions) reported) to SVBFG reported) to SVBFG Strategic Investors Fund, LP $ 3 $ - $ 2 $ - Capital Preferred Return Fund, LP 61 13 61 13 Growth Partners, LP 65 22 67 23 Redwood Evergreen Fund, LP 67 67 - - Total consolidated venture capital and private equity fund investments $ 196 $ 102 $ 130 $ 36 (2)The carrying value represents investments in 150 and 150 funds (primarily venture capital funds) atMarch 31, 2022 andDecember 31, 2021 , 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 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 exampleDecember 31st for ourMarch 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 5 - "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 atMarch 31, 2022 andDecember 31, 2021 (equity method accounting): March 31, 2022 December 31, 2021 Carrying value
(as Amount attributable Carrying value (as Amount attributable (Dollars in millions)
reported) to SVBFG reported) to SVBFG
Venture capital and private equity fund investments: Strategic Investors Fund II, LP $ 3 $ 3 $ 3 $
3
Strategic Investors Fund III, LP 22 18 25
21
Strategic Investors Fund IV, LP 34 28 36
30
Strategic Investors Fund V, LP 90 48 87 45 CP II, LP (1) 2 1 2 1 Other venture capital and private equity fund investments 570 328 518
298
Total venture capital and private equity fund investments $ 721 $ 426 $ 671 $
398
Debt funds: Gold Hill Capital 2008, LP (2) $ 4 $ 4 $ 4 $ 4 Other debt funds 1 1 1 1 Total debt funds $ 5 $ 5 $ 5 $ 5 Other investments: SPD Silicon Valley Bank Co., Ltd. $ 156 $ 156 $ 154 $ 154 Other investments 136 136 140 140 Total other investments $ 292 $ 292 $ 294 $ 294 (1)Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments inStrategic Investors Fund II, LP . (2)Our ownership includes direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment inGold Hill Capital 2008, LLC of 4.0 percent. Volcker Rule The Volcker Rule prohibits, subject to certain exceptions, a banking entity, such as the Company, from sponsoring, investing in, or having certain relationships with covered funds. Under the currently effective regulations implementing the Volcker Rule, covered funds are defined to include many venture capital and private equity funds. 75
--------------------------------------------------------------------------------
Table of Contents
InJune 2017 , we received notice that theFederal Reserve approved the Company's application for an extension of the permitted conformance period for the Company's investments in "illiquid" covered funds ("Restricted Volcker Investments"). 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 by 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. There have been various amendments to the Volcker Rule in recent years. In particular, certain amendments that became effectiveOctober 1, 2020 , provide for, among other things, the adoption of new exclusions from the definition of "covered fund" for venture capital funds and credit funds that meet certain criteria. As a result of these amendments, we believe that none of the Restricted Volcker Investments will be required to be disposed of or will otherwise conform to the Volcker Rule requirements. We expect that all of our Restricted Volcker Investments will (i) qualify for these new exclusions; (ii) otherwise be excluded from the definition of "covered fund"; or (iii) be subject to a liquidation or dissolution process (For more information about the Volcker Rule, see "Business-Supervision and Regulation" under Part 1, Item 1 of our 2021 Form 10-K.) Loans Loans at amortized cost basis increased by$2.4 billion to$68.7 billion atMarch 31, 2022 , compared to$66.3 billion atDecember 31, 2021 . Unearned income was$207 million atMarch 31, 2022 and$250 million atDecember 31, 2021 . The increase in period-end loans was driven primarily by our Global Fund Banking portfolio, with continued growth in our Technology andLife Science/Healthcare and Private Bank loan portfolios.
The breakdown of total loans and loans as a percentage of total loans by class of financing receivable is as follows:
March 31, 2022 December 31, 2021
(Dollars in millions) Amount Percentage Amount Percentage
Global fund banking $ 39,344 57.3 % $ 37,958 57.3 %
Investor dependent:
Early stage 1,707 2.5 1,593 2.4
Growth stage 4,032 5.9 3,951 5.9
Total investor dependent 5,739 8.4 5,544 8.3
Cash flow dependent- SLBO 1,826 2.6 1,798 2.7
Innovation C&I 7,260 10.6 6,673 10.1
Private bank 9,235 13.4 8,743 13.2
CRE 2,595 3.8 2,670 4.0
Premium wine 997 1.4 985 1.5
Other C&I 1,175 1.7 1,257 1.9
Other 319 0.5 317 0.5
PPP 175 0.3 331 0.5
Total loans $ 68,665 100.0 % $ 66,276 100.0 %
For additional details on our loan classes, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Loans" under Part
II, Item 7 of our 2021 Form 10-K.
76--------------------------------------------------------------------------------
Table of Contents
Loan Concentration
The following table provides a summary of total loans by size and class of
financing receivable. The breakout below is based on total client balances
(individually or in the aggregate) as of
March 31, 2022
Less than Five to Ten Ten to Twenty Twenty to
(Dollars in millions) Five Million Million Million Thirty Million Thirty Million or More Total
Global fund banking $ 1,117 $ 1,555 $ 3,385 $ 3,457 $ 29,835 $ 39,349
Investor dependent:
Early stage 1,317 334 144 - - 1,795
Growth stage 858 1,109 1,084 363 626 4,040
Total Investor Dependent $
2,175
$ 626 $ 5,835
Cash flow dependent - SLBO 6 29 235 530 1,026 1,826
Innovation C&I 433 412 979 887 4,580 7,291
Private bank 6,862 1,106 875 186 206 9,235
CRE 816 658 777 274 70 2,595
Premium wine 213 289 229 140 134 1,005
Other C&I 366 173 230 278 166 1,213
Other 89 94 113 20 - 316
Total loans (1) $ 12,077 $ 5,759 $ 8,051 $ 6,135 $ 36,643 $ 68,665
(1)Included in total loans at amortized cost is approximately $175 million in
PPP loans. The PPP loans consist of loans across all of our classes of financing
receivables.
At March 31, 2022 , loans equal to or greater than $20 million to any single
client (individually or in the aggregate) totaled $42.8 billion , of our total
loan portfolio. These loans represented 775 clients, and of these loans, $21
million were on nonaccrual status as of March 31, 2022 .
The following table provides a summary of loans by size and class of financing
receivable. The breakout below is based on total client balances (individually
or in the aggregate) as of December 31, 2021 :
December 31, 2021
Twenty to
Less than Five to Ten Ten to Twenty Thirty Thirty Million
(Dollars in millions) Five Million Million Million Million or More Total
Global fund banking $ 996 $ 1,494 $ 2,905 $ 3,163 $ 29,405 $ 37,963
Investor dependent:
Early stage 1,392 219 124 - - 1,735
Growth stage 855 1,068 1,122 374 551 3,970
Total investor dependent 2,247 1,287 1,246 374 551 5,705
Cash flow dependent - SLBO 7 31 287 508 965 1,798
Innovation C&I 462 432 920 912 4,018 6,744
Private bank 6,674 950 735 217 167 8,743
CRE 823 652 869 246 80 2,670
Premium wine 215 267 269 124 120 995
Other C&I 444 169 262 217 249 1,341
Other 93 123 101 - - 317
Total loans (1) $ 11,961 $ 5,405 $ 7,594 $ 5,761 $
35,555 $ 66,276 (1)Included in total loans at amortized cost is approximately
AtDecember 31, 2021 , loans equal to or greater than$20 million to any single client (individually or in the aggregate) totaled$41.3 billion , or 62 percent of our total loan portfolio. These loans represented 768 clients, and of these loans,$21 million were on nonaccrual status as ofDecember 31, 2021 .
State Concentrations
Approximately 29 percent of our outstanding total loan balances as ofMarch 31, 2022 were to borrowers based inCalifornia , compared to 30 percent as ofDecember 31, 2021 . Borrowers inNew York increased to 11 percent atMarch 31, 2022 , compared to 10 percent as ofDecember 31, 2021 , and borrowers inMassachusetts represented approximately 12 percent of total loan balances at bothMarch 31, 2022 andDecember 31, 2021 . Other thanCalifornia ,New York , and 77
--------------------------------------------------------------------------------
Table of Contents
See generally "Risk Factors-Credit Risks" set forth under Part I, Item 1A in our 2021 Form 10-K and "Risk Factors" under Part II, Item 1A of this report.
Paycheck Protection Program
We accepted applications under the PPP administered by the SBA under the CARES Act and originated loans to qualified small businesses until the loan origination phase of the PPP ended onJune 30, 2021 , set forth under the PPP Extension Act of 2021. Under the terms of the program, loans funded through the PPP are eligible to be forgiven if certain requirements are met, including using the funds for certain costs relating to payroll, healthcare and qualifying mortgage interest, rent and utility payments. We continued to participate in the forgiveness stage of the PPP through the first quarter of 2022.
As of
Loan Deferral Programs
InApril 2020 , we implemented three loan payment deferral programs targeted to assist borrowers who were the most impacted by the COVID-19 pandemic. As ofMarch 31, 2022 , no loan modifications remained active under these programs. As ofDecember 31, 2021 , loans modified under these programs had outstanding balances of$10 million , which consisted entirely of venture-backed borrowers who lengthened their existing interest-only payment period under the deferral program.
For additional details on our PPP and loan deferral programs, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Loans" under Part II, Item 7 of our 2021 Form 10-K.
Credit Quality Indicators
Our total criticized loans and nonaccrual loans represented 3 percent of our total loans as of bothMarch 31, 2022 andDecember 31, 2021 . Criticized and nonaccrual loans to early-stage clients represented 13 percent of our total criticized and nonaccrual loan balances at bothMarch 31, 2022 andDecember 31, 2021 . Loans to early-stage investor dependent clients represent a relatively small percentage of our overall portfolio at 2 percent of total loans atMarch 31, 2022 and 2 percent atDecember 31, 2021 . 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. As ofMarch 31, 2022 , we have identified the following risks to credit quality: (i) increased COVID-19 exposure from CRE loans and (ii) larger Growth Stage and Innovation C&I loan sizes. (i) Increased COVID-19 exposure from CRE loans - Commercial real estate is generally more impacted by restrictions to reduce the spread of COVID-19 and transitions to hybrid work environments. This risk is mitigated by the reserves held for this loan class and our limited overall exposure, with commercial real estate representing only 4 percent of total loans atMarch 31, 2022 .
(ii) Larger Growth Stage and Innovation C&I loan sizes - The growth of our balance sheet and our clients continues to increase the number of large loans, which may introduce greater volatility in credit metrics.
Additionally, we have identified the following factors that could have a positive impact on credit quality: (i) recovering business activity, (ii) strong positioning of Technology and Life Science/Healthcare clients and (iii) an improved risk profile of our loan portfolio.
(i) Recovering business activity - As COVID-19 restrictions ease, borrowers continue to benefit from resuming business activities.
(ii) Strong positioning of Technology and Life Science/Healthcare clients - Record venture capital investment over the past two years has extended clients' runway, and we continue to see significant dry powder available in the market.
(iii) Improved risk profile of loan portfolio - As described above, our Investor Dependent - Early Stage class, which historically has been the most vulnerable loan class with the most losses, is now only 2 percent of total loans. Furthermore, 71 percent of total loans are now in ourGlobal Fund Banking andPrivate Bank classes, which have low credit loss experience. 78
--------------------------------------------------------------------------------
Table of Contents
Additionally, we have minimal direct exposure to
We continue to monitor the current environment to evaluate the impact of the above on our portfolio's credit quality and to identify the emergence of additional factors.
Credit Quality, Allowance for Credit Losses and Nonperforming Assets
Nonperforming assets consist of loans on nonaccrual status, loans past due 90 days or more still accruing interest and 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 ACL for loans and unfunded credit commitments: (Dollars in millions) March 31, 2022 December 31, 2021 Nonperforming, past due, and restructured loans: Nonaccrual loans $ 70 $ 84 Loans past due 90 days or more still accruing interest 2 7 Total nonperforming loans 72 91 OREO and other foreclosed assets 1 1 Total nonperforming assets $ 73 $ 92 Performing TDRs $ 36 $ 40 Nonaccrual loans as a percentage of total loans 0.10 % 0.13 % Nonperforming loans as a percentage of total loans 0.10 % 0.14 Nonperforming assets as a percentage of total assets 0.03 0.04 ACL for loans (1) $ 421 $ 422 As a percentage of total loans 0.61 % 0.64 % As a percentage of total nonperforming loans 584.72 463.74 ACL for nonaccrual loans (1) $ 20 $ 35 As a percentage of total loans 0.03 % 0.05 % As a percentage of total nonperforming loans 27.78 38.46 ACL for total performing loans (1) $ 401 $ 387 As a percentage of total loans 0.58 % 0.58 % As a percentage of total performing loans 0.58 0.58 Total loans$ 68,665 $ 66,276 Total performing loans 68,593 66,185 ACL for unfunded credit commitments (2) 175 171 As a percentage of total unfunded credit commitments 0.39 % 0.39 % Total unfunded credit commitments (3)$ 44,685 $ 44,016 (1)The "ACL for loans" atDecember 31, 2021 includes an initial allowance of$66 million related to acquired Boston Private loans, of which$2 million was related to nonaccrual loans. See "Provision for Credit Losses" for a detailed discussion of the changes to the allowance. (2)The "ACL 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. AtDecember 31, 2021 , this includes an initial allowance of$2 million related to acquired Boston Private commitments. See "Provision for Credit Losses" for a detailed discussion of the changes to the allowance. (3)Includes unfunded loan commitments and letters of credit. To determine the ACL for performing loans as ofMarch 31, 2022 andDecember 31, 2021 , we utilized three scenarios, on a weighted basis, from Moody's AnalyticsMarch 2022 andDecember 2021 forecasts, respectively, in our expected lifetime loss estimate. The baseline scenario, which carries the highest weighting of 40 percent in both periods, reflected an unemployment rate of 3.9 percent and a housing price index growth rate of 8.5 percent as ofMarch 31, 2022 , compared to 4.3 percent and 5.9 percent as ofDecember 31, 2021 , respectively. The baseline scenario's GDP growth rate dropped to 0.7 percent as ofMarch 31, 2022 , compared to 6.8 percent atDecember 31, 2021 , reflecting the impact of current geopolitical conditions and increased energy prices. In addition to the baseline, we also utilized a more favorable (Moody's S1, Upside) and less favorable (Moody's S3, Downside) economic forecast scenario, each weighted at 30 percent at bothMarch 31, 2022 andDecember 31, 2021 . To the extent we identified credit risk considerations that were not captured by the Moody's Analytics scenarios, we addressed the risk through management's qualitative adjustments to our ACL for performing loans. Our ACL for loans as a percentage of total loans decreased 3 basis points to 0.61 percent atMarch 31, 2022 , compared to 0.64 percent atDecember 31, 2021 . The 3 basis points decrease was due primarily to a 2 basis point decrease for our 79
--------------------------------------------------------------------------------
Table of Contents
nonaccrual individually assessed loans as a percentage of total loans. The decreases were due primarily to repayments and credit upgrades within our nonaccrual loans portfolio. These reductions were partially offset by additional reserves for nonaccrual loans, driven primarily by ourInvestor Dependent and Private Bank portfolios. For a detailed discussion of changes in the current period's reserve, see "Provision for Credit Losses." Our ACL for performing loans was$401 million atMarch 31, 2022 , compared to$387 million atDecember 31, 2021 . The$14 million increase was driven primarily by loan growth. For a detailed discussion of changes in the current period's allowance, see "Provision for Credit Losses."
The following table presents a summary of changes in nonaccrual loans for the
three months ended
Three months ended March 31,
(Dollars in millions) 2022 2021
Balance, beginning of period $ 84 $ 104
Additions 5 5
Paydowns and other reductions (16) (9)
Charge-offs (3) (10)
Balance, end of period $ 70 $ 90
Our nonaccrual loan balance decreased by $14 million to $70 million at March 31,
2022 , compared to $84 million at December 31, 2021 . The decrease was due
primarily to $16 million in repayments and credit upgrades, which were partially
offset by $5 million of new nonaccrual loans. Of the $16 million in reductions,
$9 million was driven by clients in our Technology and Life Science/Healthcare
portfolios, including $2 million from one Investor Dependent - Early Stage
client. The $5 million of new nonaccrual loans was driven primarily by clients
in our Investor Dependent - Early Stage portfolio. As of March 31, 2022 , we have
specifically reserved $20 million for our nonaccrual loans.
Average nonaccrual loans for the three months ended March 31, 2022 were
$75 million compared to $130 million for the three months ended March 31, 2021 .
The decrease in average nonaccrual loans for the three months ended March 31,
2022 compared to March 31, 2021 was driven primarily by lower nonaccrual
balances overall.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at
(Dollars in millions) March 31, 2022 December 31, 2021 % Change Derivative assets (1) $ 560 $ 565 (0.9) % Foreign exchange spot contract assets, gross 878 119 NM Accrued interest receivable 480 470 2.1 FHLB and Federal Reserve Bank stock 304 107 184.1 Net deferred tax assets 274 24 NM Accounts receivable 53 54 (1.9) Other assets 539 589 (8.5) Total accrued interest receivable and other assets$ 3,088 $ 1,928 60.2
(1)See "Derivatives" section above.
Foreign Exchange Spot Contract Assets
Foreign exchange spot contract assets represent unsettled client trades at the end of the period. The increase of$759 million was due primarily to a increase in the number of unsettled spot trades with large notional balances atMarch 31, 2022 as compared toDecember 31, 2021 .
The increase of
Net Deferred Tax Assets
Net deferred tax assets increased
80--------------------------------------------------------------------------------
Table of Contents
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
(Dollars in millions) March 31, 2022 December 31, 2021 % Change
Assets:
Equity warrant assets $ 323 $ 277 16.6 % Contingent conversion rights 7 - 100.0 Foreign exchange forward, swap and option contracts 179 171 4.7 Client interest rate derivatives 51 99 (48.5) Interest rate swaps - 18 (100.0) Total derivative assets $ 560 $ 565 (0.9) Liabilities: Foreign exchange forward, swap and option contracts $ 167 $ 137 21.9 Total return swaps 8 - 100.0 Client interest rate derivatives 109 101 7.9 Total derivative liabilities $ 284 $ 238 19.3 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. AtMarch 31, 2022 , we held warrants in 2,873 companies, compared to 2,831 companies atDecember 31, 2021 . Warrants in 54 companies each had fair values greater than$1 million and collectively represented$175 million , or 54.3 percent, of the fair value of the total warrant portfolio atMarch 31, 2022 . 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
Three months ended (Dollars in millions) 2022 2021 Balance, beginning of period $ 277$ 203 New equity warrant assets 6 7 Non-cash changes in fair value, net 52 62 Exercised equity warrant assets (11) (28) Terminated equity warrant assets (1) - Balance, end of period $ 323$ 244
Foreign Exchange Forward, Swaps and Foreign Currency Option Contracts
We enter into foreign exchange forward and swap 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, swap or option contract entered into with our clients, we enter into an opposite way forward, swap 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 swaps and foreign currency option contracts, net of cash collateral, was$5 million atMarch 31, 2022 and zero atDecember 31, 2021 . For additional information on our foreign exchange forward and swap contracts and foreign currency option contracts, see Note 8 - "Derivative Financial Instruments" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report. 81
--------------------------------------------------------------------------------
Table of Contents
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 zero atMarch 31, 2022 and$47 million atDecember 31, 2021 . For additional information on our client interest rate derivatives, see Note 8 - "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 AFS securities portfolio, we enter into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of the securities resulting from changes in interest rates. We designate these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815 and record them in other assets and other liabilities. We had zero net exposure for interest rate swaps atMarch 31, 2022 . Our net exposure for interest rate swaps was$5 million atDecember 31, 2021 . Refer to Note 8 - "Derivative Financial Instruments" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report for additional information.
Deposits
Deposits were$198.1 billion atMarch 31, 2022 , an increase of$8.9 billion , or 4.7 percent, compared to$189.2 billion atDecember 31, 2021 . The increase in deposits was driven by our Technology portfolio and reflective of strong early-stage investment and client acquisition as well as flexible liquidity solutions that shifted off-balance sheet client funds on-balance sheet.
Long-Term Debt
Our long-term debt was$2.6 billion atMarch 31, 2022 andDecember 31, 2021 . As ofMarch 31, 2022 , long-term debt was comprised of our 3.50% Senior Notes due 2025, 3.125% Senior Notes due 2030, 1.800% Senior Notes due 2031, 2.100% Senior Notes due 2028, 1.800% Senior Notes due 2026 and junior subordinated debentures.
On
Other Liabilities
A summary of other liabilities at
(Dollars in millions) March 31, 2022 December 31, 2021 % Change Foreign exchange spot contract liabilities, gross$ 1,062 $ 160 NM Accrued compensation 336 896 (62.5) Allowance for unfunded credit commitments 175 171 2.3 Derivative liabilities (1) 284 238 19.3 Other liabilities 960 1,122 (14.4) Total other liabilities$ 2,817 $ 2,587 8.9
(1)See "Derivatives" section above.
Foreign Exchange Spot Contract Liabilities
Foreign exchange spot contract liabilities represent unsettled client trades at the end of the period. The increase of$902 million was due primarily to a increase in the number of unsettled spot trades with large notional balances atMarch 31, 2022 as compared toDecember 31, 2021 .
Accrued Compensation
Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, ESOP, SVB Securities Incentive Compensation Plan, SVB Securities Retention Award and other compensation arrangements. The decrease of$560 million was primarily a result of the payout of our 2021 incentive compensation plans during the first quarter of 2022. 82
--------------------------------------------------------------------------------
Table of Contents
Noncontrolling Interests
Noncontrolling interests totaled$380 million and$373 million atMarch 31, 2022 andDecember 31, 2021 , respectively. The$7 million increase was due primarily to net income attributable to noncontrolling interests of$18 million , partially offset by$11 million in distributions for the three months endedMarch 31, 2022 .
Capital Resources
We maintain an adequate capital base to support anticipated asset growth, operating needs, and credit and other business risks, and to provide forSVB Financial and the Bank to be in compliance with applicable regulatory capital guidelines, including the joint agency rules implementing the "Basel III" capital rules (the "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. Under the oversight of theFinance Committee of our Board of Directors, management engages in regular capital planning processes in an effort to optimize the use of the 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$16.0 billion atMarch 31, 2022 , a decrease of$256 million , or 1.6 percent, compared to$16.2 billion atDecember 31, 2021 . The decrease was primarily driven by other comprehensive income as unrealized losses recorded on AFS securities increased due to an increase in market rates. The decrease from unrealized losses on AFS was partially offset by an increase in the fair value of hedging instruments.
Funds generated through retained earnings are a significant source of capital and liquidity and are expected to continue to be so in the future.
83--------------------------------------------------------------------------------
Table of Contents
Capital Ratios
BothSVB Financial and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. The following table represents the capital components forSVB Financial and the Bank used in calculating CET1, Tier 1 capital and total capital as ofMarch 31, 2022 andDecember 31, 2021 : SVB Financial Bank December 31, December 31, March 31, 2022 2021 March 31, 2022 2021 Common stock plus related surplus, net of treasury stock $ 5,180$ 5,157 $ 9,276$ 9,265 Retained earnings 7,914 7,442 6,051 5,537 AOCI (760) (9) (756) (7) CET1 capital before adjustments and deductions 12,334 12,590 14,571 14,795 Less:Goodwill (net of associated deferred tax liabilities) 369 369 200 200 Intangibles (net of associated deferred tax liabilities) 128 133 68 70 AOCI opt-out election related adjustments (764) (18) (760) (17) Add: CECL transition provision 60 80 60 80 Total adjustments and deductions from CET1 capital (327) 404 (552) 173 CET1 Capital 12,661 12,186 15,123 14,622 Add: Qualifying Preferred stock 3,646 3,646 - - Minority interest 380 373 - - Less: Additional tier 1 capital deductions 67 - - - Additional tier 1 capital 3,959 4,019 - - Tier 1 Capital 16,620 16,205 15,123 14,622 Allowance for credit losses included in Tier 2 capital 602 600 602 600 CECL transition provision for allowance for credit losses (69) (93) (69) (93) Tier 2 Capital 533 507 533 507 Total capital$ 17,153 $
16,712
$ 104,678 $
100,812
$ 215,968 $ 204,380 $ 213,458 $ 201,880 (1)Average quarterly total assets as defined by theFederal Reserve less: (i) goodwill net of associated deferred tax liabilities, (ii) disallowed intangible assets net of associated deferred tax liabilities and deferred tax assets and (iii) other deductions from assets for leverage capital purposes. Regulatory capital ratios forSVB Financial and the Bank exceeded minimum federal regulatory guidelines under the Capital Rules as well as for a "well capitalized" bank holding company and insured depository institution, respectively, as ofMarch 31, 2022 andDecember 31, 2021 . Capital ratios forSVB Financial and the Bank, compared to the minimum capital ratios, are set forth below: Required Minimum + Capital Conservation Well Capitalized March 31, 2022 December 31, 2021 Required Minimum Buffer (1) Minimum SVB Financial: CET1 risk-based capital ratio (2)(3) 12.10 % 12.09 % 4.5 % 7.0 % N/A Tier 1 risk-based capital ratio (3) 15.88 16.08 6.0 8.5
6.0
Total risk-based capital ratio (3) 16.39 16.58 8.0 10.5
10.0
Tier 1 leverage ratio (2)(3) 7.70 7.93 4.0 N/A
N/A
Tangible common equity to tangible assets ratio (4)(5) 5.38 5.73 N/A N/A
N/A
Tangible common equity to risk-weighted assets ratio (4)(5) 11.30 11.98 N/A N/A N/A Bank: CET1 risk-based capital ratio (3) 14.89 % 14.89 % 4.5 % 7.0 % 6.5 % Tier 1 risk-based capital ratio (3) 14.89 14.89 6.0 8.5
8.0
Total risk-based capital ratio (3) 15.41 15.40 8.0 10.5
10.0
Tier 1 leverage ratio (3) 7.09 7.24 4.0 N/A
5.0
Tangible common equity to tangible assets ratio (4)(5) 6.57 7.09 N/A N/A
N/A
Tangible common equity to
risk-weighted assets ratio
(4)(5) 14.07 15.06 N/A N/A N/A
84--------------------------------------------------------------------------------
Table of Contents
(1)Percentages represent the minimum capital ratios plus, as applicable, the fully phased-in 2.5% CET1 capital conservation buffer under the Capital Rules. (2)"Well Capitalized Minimum" CET1 risk-based capital and Tier 1 leverage ratios are not formally defined under applicable banking regulations for bank holding companies. (3)Capital ratios include regulatory capital phase-in of the ACL under the 2021 CECL Transition Rule. (4)See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. (5)TheFederal Reserve has not issued any minimum guidelines for the tangible common equity to tangible assets ratio or the tangible common equity to risk-weighted assets ratio, however, we believe these ratios provide meaningful supplemental information regarding our capital levels and are therefore provided above. As ofMarch 31, 2022 , Tier 1 and total risk-based capital ratios forSVB Financial decreased reflective of increases in risk-weighted assets outpacing increases in regulatory capital. The increase in risk-weighted assets was driven primarily by the shift in our balance sheet growth from cash into our investment securities and loans portfolio. The increase in regulatory capital was driven primarily by net income, partially offset by Tier 1 capital deductions, including deductions from covered funds under the Volcker rule and preferred stock dividends. The decrease in our Tier 1 leverage ratios forSVB Financial and the Bank are reflective of the growth in our average assets outpacing our growth in regulatory capital. The increase in regulatory capital for the Bank was driven primarily by net income. The increase in average assets for bothSVB Financial and the Bank was driven primarily by growth in our investment securities and loans portfolios. The tangible common equity, or tangible book value, 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 forSVB Financial and the Bank for the periods endedMarch 31, 2022 andDecember 31, 2021 : SVB Financial Bank December 31, December 31, (Dollars in millions) March 31, 2022 2021 March 31, 2022 2021 GAAP stockholders' equity$ 15,980
3,646 3,646 - -
Less: intangible assets 529 535 295 -
Plus: net deferred taxes on intangible
assets 26 26 23 -
Tangible common equity $ 11,831 $ 12,081 $ 14,299 $ 14,795
GAAP total assets $ 220,355 $ 211,478 $ 217,802 $ 208,576
Less: intangible assets 529 535 295 -
Plus: net deferred taxes on intangible
assets 26 26 23 -
Tangible assets $ 219,852 $ 210,969 $ 217,530 $ 208,576
Risk-weighted assets $ 104,678
5.38 % 5.73 % 6.57 % 7.09 %
Non-GAAP tangible common equity to
risk-weighted assets 11.30 11.98 14.07 15.06
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 11 - "Off-Balance Sheet Arrangements, Guarantees and Other Commitments" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report.
Commitments to Invest in Venture Capital and Private Equity Funds
Subject to applicable regulatory requirements, including the Volcker Rule, we
make 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
85--------------------------------------------------------------------------------
Table of Contents
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 11 - "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, the availability of funds for both anticipated and unanticipated funding uses 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 range of business-as-usual and potential stress scenarios based on 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 ALCO, which is a management committee, provides oversight to the liquidity management process and recommends policy guidelines for the approval of theFinance Committee andRisk 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 client deposits base is, and historically has been our primary source of liquidity funding. 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. AtMarch 31, 2022 , our period-end total deposit balances were$198.1 billion , compared to$189.2 billion atDecember 31, 2021 . We maintain a liquidity risk management and monitoring process designed to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stress environments, subject to the regular supervisory review process. 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, AFS 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 ofSan 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 ofMarch 31, 2022 , collateral pledged to the FHLB ofSan Francisco was comprised primarily of fixed income investment securities and loans and had a carrying value of$8.4 billion , of which$7.0 billion was available to support additional borrowings. As ofMarch 31, 2022 , collateral pledged to the discount window at the FRB was comprised of fixed income investment securities and had a carrying value of$515 million , 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$2.0 billion atMarch 31, 2022 . Our total unused and available secured borrowing capacity under our master repurchase agreements with various financial institutions totaled$8.0 billion atMarch 31, 2022 .
Additionally, interim final capital rules issued by federal bank regulatory agencies have neutralized the regulatory capital effects of participating in the PPP, in that loans outstanding are assessed a zero percent risk weight for regulatory capital purposes.
As a banking organization, our liquidity is subject to supervision by our banking regulators. Because we are a Category IV firm with less than$250 billion in average total consolidated assets, less than$50 billion in average weighted short-term wholesale funding and less than$75 billion in cross-jurisdictional activity, we currently are not subject to theFederal Reserve's LCR or NSFR requirements, either on a full or reduced basis. It is possible that, as a result of further growth, we may exceed one or more of those thresholds and therefore become subject to LCR and NSFR requirements or other heightened liquidity requirements in the future, which would require us to maintain high-quality liquid assets in accordance with specific quantitative requirements and increase the use of long-term debt as a funding source. In addition, if we were to exceed$75 86
--------------------------------------------------------------------------------
Table of Contents
billion in cross-jurisdictional activity, as a Category II firm, we could no longer opt out of excluding AOCI in calculating regulatory capital ratios and would become subject to the advance approaches framework as well as more stringent liquidity reporting requirements.
On a stand-alone basis,
© Edgar Online, source
