SVB FINANCIAL GROUP Page Number
Forward-Looking Statements 54
Management's Overview of Performance 55
Critical Accounting Policies and Estimates 58
Results of Operations 58
Net Interest Income and Margin 58
Average Balances, Yields and Rates Paid 60
Provision for Credit Losses 63
Noninterest Income 65
Noninterest Expense 71
Net Income Attributable to Noncontrolling Interests 73
Income Taxes 73
Operating Segment Results 74
Consolidated Financial Condition 77
Cash and Cash Equivalents 77
Investment Securities 77
Loans 81
Accrued Interest Receivable and Other Assets 86
Deposits 88
Long-Term Debt 88
Other Liabilities 88
Noncontrolling Interests 88
Capital Resources 89
SVBFG Stockholders' Equity 89
Capital Ratios 89
Off-Balance Sheet Arrangements 91
Commitments to Invest in Venture Capital and Private Equity
Funds 91
Liquidity 91
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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; •Forecasts of general or overall market and macroeconomic conditions, including inflation and anyU.S. or global recession; •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 elevated inflation levels, sustained interest rate increases, 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 its effects on our operations, including, as a result of, prolonged work-from-home arrangements; •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; 54
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•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; •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 Second Quarter 2022 Performance
In the second quarter, continued public market volatility slowed public and private fundraising activity, pressuring balance sheet growth and valuations of our warrant and non-marketable and other equity securities positions. Although net charge-offs and nonperforming loans overall remained low, we proactively raised reserves in anticipation of shifting macroeconomic conditions.Despite these headwinds, many parts of our core business performed well. Loan growth and pipelines were healthy; net interest income and client investment funds benefited from higher interest rates;SVB Securities revenue was robust; and client acquisition remained near historic highs. While we have adjusted some of our near-term expectations due to current market conditions, we remain confident in our strategy and the growth opportunity of the innovation economy over the long-term. 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. 55
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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 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. $69.3 billion in average total loan balances common stockholders of $333 million (down
(up 39.0%). $71.0 billion in period-end total loan 33.7%).
balances (up 39.8%). -Net interest income of $1.2 billion (up 60.3%).
Total Client Funds. (on-balance sheet deposits and -Net interest margin of 2.24% (up 18 bps).
off-balance sheet client investment funds). $386.7 -Noninterest income of $362 million (down
billion in average total client fund balances (up 52.4%), non-GAAP core fee income+ of $286
25.5%). $379.2 billion in period-end total client million (up 66.3%) and non-GAAP SVB Securities
fund balances (up 15.3%). revenue++ of $149 million (up 24.2%).
AFS/HTM Fixed Income Investments. $126.7 billion in -Noninterest expense of $848 million (up 29.9%).
average fixed income investment securities (up
75.2%). $122.0 billion in period-end fixed income Return on Average Equity. Return on average
investment securities (up 45.5%). equity (annualized) performance of 10.87%.
Operating Efficiency Ratio. Operating efficiency
ratio of 55.46%.
CAPITAL CREDIT QUALITY
Capital+++. Active capital management, with all Credit Quality. Reserve build due to uncertain
capital ratios considered "well-capitalized" under market environment; net loan charge-offs and
banking regulations. SVB Financial and Bank capital nonperforming loans remained low.
ratios, respectively, were: -ACL for loans of 0.77% as a percentage of
-CET1 risk-based capital ratio of 11.98% and period-end total loans.
15.39%. -Provision for loans was 0.83% as a percentage -Tier 1 risk-based capital ratio of 15.57% and of period-end total loans (annualized). 15.39%. -Net loan charge-offs of 0.12% as a percentage -Total risk-based capital ratio of 16.22% and of average total loans (annualized). 16.05%. -Tier 1 leverage ratio of 7.73% and 7.55%. + 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"). +++ InMarch 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. 56
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A summary of our performance for the three and six months endedJune 30, 2022 and 2021 is as follows: Three months ended June 30, Six months ended June 30, (Dollars in millions, except per share data, employees and ratios) 2022 2021 % Change 2022 2021 % Change Income Statement: Diluted EPS$ 5.60 $ 9.09 (38.4) %$ 13.52 $ 19.10 (29.2) % Net income available to common stockholders 333 502 (33.7) 805 1,034 (22.1) Net interest income 1,167 728 60.3 2,249 1,388 62.0 Net interest margin 2.24 % 2.06 % 18 bps 2.19 % 2.16 % 3 bps Provision for credit losses (1) 196 35 460.0 % 207 54 283.3 % Noninterest income 362 761 (52.4) 879 1,505 (41.6) Noninterest expense 848 653 29.9 1,721 1,289 33.5 Non-GAAP core fee income (2) 286 172 66.3 516 331 55.9 Non-GAAP core fee income, plusSVB Securities revenue (2) 435 292 49.0 783 617 26.9 Balance Sheet: Average AFS securities$ 29,922 $ 24,358 22.8 %$ 28,442 $ 26,292 8.2 % Average HTM securities 96,732 47,914 101.9 97,698 36,667 166.4 Average loans, amortized cost 69,263 49,812 39.0 68,172 48,056 41.9 Average noninterest-bearing demand deposits 120,679 91,530 31.8 123,110 82,432 49.3 Average interest-bearing deposits 71,388 42,230 69.0 68,286 39,816 71.5 Average total deposits 192,067 133,760 43.6 191,396 122,248 56.6 Earnings Ratios: Return on average assets (annualized) (3) 0.61 % 1.34 % (54.5) % 0.75 % 1.51 % (50.3) % Return on average SVBFG stockholders' equity (annualized) (4) 10.87 21.69 (49.9) 13.08 24.14 (45.8) Asset Quality Ratios: ACL for loans as a % of total period-end loans 0.77 % 0.78 % (1) bps 0.77 % 0.78 % (1) bps ACL for performing loans as a % of total performing loans 0.72 0.71 1 0.72 0.71 1 Gross loan charge-offs as a % of average total loans (annualized) (1) 0.13 0.12 1 0.12 0.46 (34) Net loan charge-offs as a % of average total loans (annualized) (1) 0.12 0.10 2 0.08 0.43 (35) Capital Ratios: SVBFG CET1 risk-based capital ratio 11.98 % 11.93 % 5 bps 11.98 % 11.93 % 5 bps SVBFG tier 1 risk-based capital ratio 15.57 14.95 62 15.57 14.95 62 SVBFG total risk-based capital ratio 16.22 15.53 69 16.22 15.53 69 SVBFG tier 1 leverage ratio 7.73 7.77 (4) 7.73 7.77 (4) SVBFG tangible common equity to tangible assets (5) 5.50 5.76 (26) 5.50 5.76 (26) SVBFG tangible common equity to risk-weighted assets (5) 10.84 12.02 (118) 10.84 12.02 (118) Bank CET1 risk-based capital ratio 15.39 13.66 173 15.39 13.66 173 Bank tier 1 risk-based capital ratio 15.39 13.66 173 15.39 13.66 173 Bank total risk-based capital ratio 16.05 14.26 179 16.05 14.26 179 Bank tier 1 leverage ratio 7.55 6.96 59 7.55 6.96 59 Bank tangible common equity to tangible assets (5) 7.15 6.47 68 7.15 6.47 68 Bank tangible common equity to risk-weighted assets (5) 14.23 13.76 47 14.23 13.76 47 Other Ratios: Operating efficiency ratio (6) 55.46 % 43.85 % 26.5 % 55.02 % 44.56 % 23.5 % Total costs of deposits (annualized) (7) 0.16 0.04 300.0 0.10 0.04 150.0 Book value per common share (8)$ 207.71 $ 176.10 18.0$ 207.71 $ 176.10 18.0 Tangible book value per common share (9) 199.27 172.44 15.6 199.27 172.44 15.6 Other Statistics: Average full-time equivalent employees 7,528 4,808 56.6 % 7,251 4,705 54.1 % Period-end full-time equivalent employees 7,743 4,932 57.0 7,743 4,932 57.0 (1)This metric for the six months endedJune 30, 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."
For more information with respect to our capital ratios, please refer to "Capital Ratios" under "Consolidated Financial Condition-Capital Ratios" below.
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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 six months endedJune 30, 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 do not expect the adoption of the update to have a material impact on 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 do not expect the adoption of the update to have a material impact on on our consolidated financial statements and related disclosures. InJune 2022 , the FASB issued Accounting Standard Update No. 2022-03, Fair Value Measurement (Topic 820), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The update is effective for fiscal years beginning afterDecember 15, 2023 , and interim periods within those fiscal years. SVB currently applies a discount on securities covered by contractual restrictions, and these discounts will be removed upon adoption. We do not expect the adoption of the update to have a material impact 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.
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2022 Compared to 2021 2022 Compared to 2021
Three months ended June 30, increase Six months ended June 30, increase (decrease)
(decrease) due to change in due to change in
(Dollars in millions) Volume Rate Total Volume Rate Total
Interest income:
Federal Reserve deposits, federal funds sold,
securities purchased under agreements to resell
and other short-term investment securities $ (10)
256 55 311 541 57 598
Fixed income investment portfolio (non-taxable) 16 (2) 14 36 (4) 32 Loans, amortized cost 154 28 182 309 12 321 Increase in interest income, net 416 110 526 876 97
973
Interest expense: Interest bearing checking and savings accounts 18 5 23 15 8 23 Money market deposits 16 19 35 25 20 45 Money market deposits in foreign offices 1 - 1 - 1 1 Time deposits 5 1 6 7 1 8 Total increase in deposits expense 40 25 65 47 30 77 Short-term borrowings 8 - 8 9 - 9 Long term debt 10 1 11 20 (1) 19 Total increase (decrease) in borrowings expense 18 1 19 29 (1)
28
Increase in interest expense, net 58 26 84 76 29
105
Increase in net interest income$ 358
Net Interest Income (Fully Taxable Equivalent Basis)
NII increased by$442 million to$1.2 billion for the three months endedJune 30, 2022 , compared to$735 million for the comparable 2021 period. Overall, our NII increased primarily from increases in average balances of our fixed income investment securities and loans as well as higher yields. The increase in NII was partially offset by increases in average balances of interest-bearing deposits as well as higher yields on deposits. Upon the completion of theBoston 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 and six months endedJune 30, 2022 , respectively,$11 million and$25 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 endedJune 30, 2022 , compared to the comparable 2021 period are discussed below:
•Interest income for the three months ended
•A$325 million increase in interest income from our fixed income investment securities due primarily to an increase of$54.4 billion in average fixed income investment securities and an increase in yields earned on these investments reflective of the higher rate environment in 2022 and lower premium amortization as a result of higher rates reducing estimated prepayment speeds, and •A$182 million increase in interest income on loans due primarily to an increase in average loan balances of$19.5 billion as well as higher loan interest yields driven by the increase in market rates, partially decreased by lower loan fee yields due to purchase accounting adjustments from the acquisition of Boston Private as mentioned above as well as a reduction of PPP loan fees in 2022 as compared to 2021.
•Interest expense for the three months ended
•A$65 million increase in interest expense on deposits due primarily to an increase in average interest-bearing deposit balances as well as by an increase in interest expense paid on our interest-bearing deposits driven by higher market rates, and •A$19 million increase in interest expense on borrowings due primarily to interest expense on our 1.800% Senior Notes due 2026, issued inOctober 2021 and our 4.345% and 4.570% Senior Fixed Rate/Floating Rate Notes issued inApril 2022 as well as an increase in average short-term borrowings driven by the slow down in deposit growth. 59
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Six months ended
•Interest income for the six months ended
•A$630 million increase in interest income from our fixed income investment securities due primarily to an increase of$63.2 billion in average fixed income investment securities and an increase in yields earned on these investments reflective of the higher rate environment in 2022 and lower premium amortization as a result of higher rates reducing estimated prepayment speeds, and •A$321 million increase in interest income on loans due primarily to an increase in average loan balances of$20.1 billion as well as higher loan interest yields driven by the increase in market rates, partially decreased by lower loan fee yields due to purchase accounting adjustments from the acquisition of Boston Private as mentioned above as well as a reduction of PPP loan fees in 2022 as compared to 2021.
•Interest expense for the six months ended
•A$77 million increase in interest expense on deposits due primarily to an increase in average interest-bearing deposit balances as well as by an increase in interest expense paid on our interest-bearing deposits driven by higher market rates, and •A$28 million increase in interest expense on borrowings due primarily to interest expense on our 2.1% Senior Notes issued inMay 2021 , our 1.800% Senior Notes due 2026, issued inOctober 2021 and our 4.345% and 4.570% Senior Fixed Rate/Floating Rate Notes issued inApril 2022 as well as an increase in average short-term borrowings driven by the slow down in deposit growth.
Net Interest Margin (Fully Taxable Equivalent Basis)
Three months ended
•Our net interest margin increased by 18 bps to 2.24 percent for the three months endedJune 30, 2022 , compared to 2.06 percent for the comparable 2021 period. The higher margin for the three months endedJune 30, 2022 was due primarily to improved yields reflective of a higher rate environment and the decrease in premium amortization mentioned above, partially offset by lower loan fee yields and the increase in interest-bearing deposit expense and borrowing costs mentioned above.
Six months ended
•Our net interest margin increased by 3 bps to 2.19 percent for the six months endedJune 30, 2022 , compared to 2.16 percent for the comparable 2021 period. The higher margin for the six months endedJune 30, 2022 was due primarily to improved yields reflective of a higher rate environment and the decrease in premium amortization mentioned above, partially offset by lower loan fee yields and the increase in interest-bearing deposit expense and borrowing costs mentioned above.
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 and six months endedJune 30, 2022 and 2021: 60
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Average Balances, Rates and Yields for the Three Months EndedJune 30, 2022 and 2021 Three months ended June 30, 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)$ 14,799 $ 23 0.63 %$ 21,069 $ 4 0.08 % Investment securities: (2) AFS securities: Taxable 29,922 122 1.63 24,358 73 1.20 HTM securities: Taxable 89,698 440 1.97 43,352 178 1.65 Non-taxable (3) 7,034 45 2.54 4,562 31 2.73 Total loans, amortized cost (4) (5) 69,263 654 3.78 49,812 472
3.80
Total interest-earning assets 210,716 1,284 2.44 143,153 758 2.12 Cash and due from banks 2,500 2,108 ACL (442) (411) Other assets (6) 5,224 5,867 Total assets$ 217,998 $ 150,717 Funding sources: Interest-bearing liabilities: Interest bearing checking and savings accounts$ 11,928 $ 24 0.79 %$ 3,096 $ 1 0.11 % Money market deposits 54,525 45 0.33 36,452 10 0.11 Money market deposits in foreign offices 1,163 1 0.26 787 - 0.01 Time deposits 2,722 7 1.10 631 1 0.37 Sweep deposits in foreign offices 1,050 - 0.03 1,264 -
0.01
Total interest-bearing deposits 71,388 77 0.43 42,230 12 0.11 Short-term borrowings 3,607 8 0.85 39 - 0.19 Long-term debt 3,122 22 2.91 1,604 11 2.75 Total interest-bearing liabilities 78,117 107 0.55 43,873 23
0.21
Portion of noninterest-bearing funding sources 132,599 99,280 Total funding sources 210,716 107 0.20 143,153 23
0.06
Noninterest-bearing funding sources: Demand deposits 120,679 91,530 Other liabilities 2,894 4,200 Preferred stock 3,646 1,610 SVBFG common stockholders' equity 12,286 9,283 Noncontrolling interests 376 221 Portion used to fund interest-earning assets (132,599) (99,280)
Total liabilities, noncontrolling interest, and SVBFG stockholders' equity
$ 217,998 $ 150,717 Net interest income and margin$ 1,177 2.24 %$ 735 2.06 % Total deposits$ 192,067 $ 133,760 Average SVBFG common stockholders' equity as a percentage of average assets 5.64 % 6.16 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (10) (7) Net interest income, as reported$ 1,167 $ 728 (1)Includes average interest-earning deposits in other financial institutions of$5.1 billion and$1.9 billion for the three months endedJune 30, 2022 and 2021, respectively. For the three months endedJune 30, 2022 and 2021, balances also include$9.3 billion and$16.7 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$48 million and$68 million for the three months endedJune 30, 2022 and 2021, respectively. (6)Average investment securities of$1.0 billion and$3.4 billion for the three months endedJune 30, 2022 and 2021, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other equity securities. 61
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Average Balances, Rates and Yields for the Six months EndedJune 30, 2022 and 2021 Six months ended June 30, 2022 June 30, 2021 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in millions) Balance Expense Rate Balance Expense Rate Interest-earning assets:Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)$ 14,800 $ 29 0.40 %$ 19,635 $ 7 0.07 % Investment securities: (2) AFS securities: Taxable 28,442 208 1.48 26,292 197 1.51 HTM securities: Taxable 90,722 865 1.92 32,531 278 1.72 Non-taxable (3) 6,976 89 2.56 4,136 57 2.78 Total loans, amortized cost (4) (5) 68,172 1,224 3.62 48,056 903
3.79
Total interest-earning assets 209,112 2,415 2.33 130,650 1,442 2.22 Cash and due from banks 2,985 1,823 ACL (437) (448) Other assets (6) 5,378 5,812 Total assets$ 217,038 $ 137,837 Funding sources: Interest-bearing liabilities: Interest bearing checking and savings accounts$ 9,009 $ 25 0.55 %$ 3,377 $ 2 0.10 % Money market deposits 54,842 64 0.23 33,721 19 0.11 Money market deposits in foreign offices 971 1 0.17 830 - 0.04 Time deposits 2,421 9 0.79 644 1 0.35 Sweep deposits in foreign offices 1,043 - 0.02 1,244 -
0.02
Total interest-bearing deposits 68,286 99 0.29 39,816 22 0.11 Short-term borrowings 3,373 9 0.54 26 - 0.16 Long-term debt 2,847 39 2.75 1,384 20 2.91 Total interest-bearing liabilities 74,506 147 0.40 41,226 42
0.21
Portion of noninterest-bearing funding sources 134,606 89,424 Total funding sources 209,112 147 0.14 130,650 42
0.06
Noninterest-bearing funding sources: Demand deposits 123,110 82,432 Other liabilities 2,996 4,111 Preferred stock 3,646 1,216 SVBFG common stockholders' equity 12,408 8,636 Noncontrolling interests 372 216 Portion used to fund interest-earning assets (134,606) (89,424)
Total liabilities, noncontrolling interest, and SVBFG stockholders' equity
$ 217,038 $ 137,837 Net interest income and margin$ 2,268 2.19 %$ 1,400 2.16 % Total deposits$ 191,396 $ 122,248 Average SVBFG common stockholders' equity as a percentage of average assets 5.72 % 6.27 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (19) (12) Net interest income, as reported$ 2,249 $ 1,388 (1)Includes average interest-earning deposits in other financial institutions of$5.2 billion and$1.8 billion for the six months endedJune 30, 2022 and 2021, respectively. The balance also includes$9.3 billion and$15.8 billion deposited at the FRB, earning interest at the Federal Funds target rate for the six months endedJune 30, 2022 and 2021, respectively. (2)Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. (3)Interest income on non-taxable AFS 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$99 million and$126 million for the six months endedJune 30, 2022 and 2021, respectively. (6)Average investment securities of$1.5 billion and$3.4 billion for the six months endedJune 30, 2022 and 2021, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable and other equity securities. 62
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Provision for Credit Losses
The provision for credit losses is the combination of (i) the provision for loans, (ii) the provision for unfunded credit commitments and (iii) the provision for HTM securities. Our allowance for credit losses reflects our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date. The following table summarizes our ACL for loans, unfunded credit commitments and HTM securities for the three and six months endedJune 30, 2022 and 2021: Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 2022 2021 ACL, beginning balance$ 421 $ 392 $ 422 $ 448 Provision for loans (1) 146 16 154 50 Gross loan charge-offs (1) (22) (15) (40) (110) Loan recoveries 2 3 12 8 Foreign currency translation adjustments (2) - (3) - ACL, ending balance$ 545 $ 396 $ 545 $ 396 ACL for unfunded credit commitments, beginning balance 175 105 171 121 Provision (reduction) for unfunded credit commitments 50 15 54 (1) Foreign currency translation adjustments (1) - (1) - ACL for unfunded credit commitments, ending balance (2)$ 224 $ 120 $ 224 $ 120 ACL for HTM securities, beginning balance 6 1 7 - (Reduction) provision for HTM securities - 4 (1) 5 ACL for HTM securities, ending balance (3) $ 6$ 5 $ 6$ 5 Ratios and other information: Provision for loans as a percentage of period-end total loans (annualized) (1) 0.83 % 0.13 % 0.44 % 0.20 % Gross loan charge-offs as a percentage of average total loans (annualized) (1) 0.13 0.12 0.12 0.46 Net loan charge-offs as a percentage of average total loans (annualized) (1) 0.12 0.10 0.08 0.43 ACL for loans as a percentage of period-end total loans 0.77 0.78 0.77 0.78 Provision for credit losses$ 196 $ 35 $ 207 $ 54 Period-end total loans 70,955 50,754 70,955 50,754 Average total loans 69,263 49,812 68,172 48,056 Allowance for loan losses for nonaccrual loans 36 38 36 38 Nonaccrual loans 93 79 93 79 (1)Metrics for the six months endedJune 30, 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$146 million and$154 million for the three and six months endedJune 30, 2022 , respectively, compared to a provision of$16 million and$50 million for the three and six months endedJune 30, 2021 , respectively. The provision for loans of$146 million for the three months endedJune 30, 2022 was driven primarily by a deterioration in projected economic conditions. We assigned a higher weighting to our downturn outlook scenario to reflect our best estimate of those forecasts. The increased weighting applied to the downturn scenario accounted for$60 million of the provision, with an additional$29 million due primarily to higher risk ratings and increased weighted average loan lives. The provision also includes$18 million for loan growth, an additional$16 million in reserves for nonaccrual loans, and$20 million for charge-offs not previously reserved for. The provision for loans of$16 million for the three months endedJune 30, 2021 was driven primarily by a$15 million provision for growth in our performing loans portfolio, as well as$4 million for charge-offs not specifically reserved for atMarch 31, 2021 , and$7 million for new nonperforming loans. These provisions were partially offset by$3 million of recoveries and a$7 million reduction in performing reserves as a result of the improvement of economic scenarios in our forecast models. The provision for credit losses for loans of$154 million for the six months endedJune 30, 2022 , was also driven primarily by the deterioration in forecasted conditions at period end, as it includes the$60 million from increasing the weighting of our downturn scenario and the$29 million from higher risk ratings and increased weighted average loan lives mentioned above. The provision also includes$36 million for charge-offs not previously reserved for and$33 million for loan growth. Recoveries partially offset these amounts by$13 million . 63
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The provision for credit losses for loans of$50 million for the six months endedJune 30, 2021 , was driven primarily by a$33 million increase for growth in our performing loan portfolio and$90 million of charge-offs not specifically reserved for atDecember 31, 2020 , of which$80 million was related to a single instance of potentially fraudulent activity as disclosed in previous filings. These increases in the provision were partially offset by$8 million of recoveries and a$68 million reduction in performing reserves as a result of the improvement of economic scenarios in our forecast models.
Provision for Unfunded Credit Commitments
We recorded a provision for unfunded credit commitments of$50 million and$54 million for the three and six months endedJune 30, 2022 , respectively, compared to a provision of$15 million and a reduction in provision of$1 million for the three and six months endedJune 30, 2021 , respectively. The provision of$50 million for the three months endedJune 30, 2022 was driven primarily by the same economic forecasts described above. The provision includes$24 million from the adjustment in our scenario weightings,$17 million primarily from higher risk ratings and increased weighted average loan lives mentioned previously and an additional$8 million for growth in our unfunded commitments. The provision of$15 million for the three months endedJune 30, 2021 was driven primarily by growth in our outstanding commitments, as well changes in our unfunded portfolio composition that resulted in a longer portfolio lifetime and a corresponding provision. The provision of$54 million for the six months endedJune 30, 2022 was driven primarily by the same economic forecasts described above, as well as growth in our unfunded commitments. The reduction in provision for unfunded credit commitments of$1 million for the six months endedJune 30, 2021 , was driven primarily by improved economic scenarios in our forecast models, partially offset by growth in our outstanding commitments and changes in the unfunded credit commitments composition within our portfolio segments. Gross Loan Charge-Offs Gross loan charge-offs were$22 million for the three months endedJune 30, 2022 , of which$20 million was not specifically reserved for atMarch 31, 2022 . Gross loan charge-offs were primarily driven by clients in our Technology and Life Sciences/Healthcare portfolios, including$13 million of charge-offs from Investor Dependent - Early Stage clients. Of the Early-Stage charge-offs,$6 million related to a single client. Gross loan charge-offs were$15 million for the three months endedJune 30, 2021 , of which$4 million was not specifically reserved for atMarch 31, 2021 . Gross loan charge-offs were partly driven by a$6 million charge-off from one Cash Flow Dependent client. The remaining$9 million gross loan charge-offs were driven primarily by our Investor Dependent and Cash Flow Dependent loan portfolios. Gross loan charge-offs were$40 million for the six months endedJune 30, 2022 , of which$36 million was not specifically reserved for atDecember 31, 2021 . Gross loan charge-offs were primarily driven by our Investor Dependent portfolios. Early Stage clients accounted for$20 million of charge-offs, of which two clients made up about half, and Growth Stage clients accounted for$14 million in charge-offs. Gross loan charge-offs were$110 million for the six months endedJune 30, 2021 , of which$90 million was not specifically reserved for in prior quarters. Gross loan charge-offs not previously reserved for were primarily driven by$80 million related to a single instance of potentially fraudulent activity disclosed in previous filings. The remaining$30 million of gross loan charge-offs came primarily from our Investor Dependent and Cash Flow Dependent loan portfolios. 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 provision for HTM securities of less than$1 million for the three months endedJune 30, 2022 , and a reduction of our credit loss estimate of$1 million for the six months endedJune 30, 2022 . The nominal provision for HTM securities for the second quarter ofJune 30, 2022 was based on ongoing stability within the HTM bond portfolio. Our HTM portfolio as ofJune 30, 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$4 million and$5 million for the three and six months endedJune 30, 2021 , respectively. Our provision for HTM securities for the second quarter ofJune 30, 2021 was driven primarily by the continued expansion of our corporate bond portfolio. Our HTM portfolio as ofJune 30, 2021 was entirely made up of A2 or better rated bonds, all considered investment grade. 64
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See Note 5 - "
Noninterest Income
For the three and six months endedJune 30, 2022 , noninterest income was$362 million and$879 million , respectively, compared to$761 and$1.5 billion for the comparable 2021 periods. For the three and six months endedJune 30, 2022 , non-GAAP core fee income plusSVB Securities revenue was$435 million and$783 million , respectively, compared to$292 million and$617 million for the comparable 2021 periods. For the three and six months endedJune 30, 2022 , non-GAAP core fee income was$286 million and$516 million , respectively compared to$172 million and$331 million for the comparable 2021 periods. (See reconciliations of non-GAAP measures used below under "Use of Non-GAAP Financial Measures.")
Use of Non-GAAP Financial Measures
To supplement our unaudited interim consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP 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 throughSVB Capital andSVB Securities , the entire income or loss from funds consolidated in accordance with ASC Topic 810 as discussed in Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report. We are required under GAAP to consolidate 100% of the results of these entities, even though we may own less than 100% of such entities. The relevant amounts attributable to investors other than us are reflected under "Net Income Attributable to Noncontrolling Interests" on our statements of income. Where applicable, the tables below for noninterest income and net gains on investment securities exclude noncontrolling interests. Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes (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. 65
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The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for the three and six months endedJune 30, 2022 and 2021: Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 % Change 2022 2021 % Change GAAP noninterest income $ 362$ 761 (52.4) %$ 879 $ 1,505 (41.6) % Less: gains (losses) on investment securities, net (157) 305 (151.5) (72) 472
(115.3)
Less: gains on equity warrant assets, net 17 122 (86.1) 80 344
(76.7)
Less: other noninterest income 67 42 59.5 88 72
22.2
Non-GAAP core fee income plusSVB Securities revenue (1) $ 435$ 292 49.0$ 783 $ 617
26.9
Investment banking revenue 125 103 21.4 218 245 (11.0) Commissions 24 17 41.2 49 41 19.5 Non-GAAP SVB Securities revenue (2) $ 149$ 120 24.2$ 267 $ 286
(6.6)
Non-GAAP core fee income (3) $ 286$ 172 66.3$ 516 $ 331 55.9 (1)Non-GAAP core fee income plusSVB 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 plusSVB 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 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 and six months endedJune 30, 2022 and 2021: 66
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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 Investments SVB Securities Total
Three months ended June 30, 2022
Total gains (losses) on investment
securities, net $ (83) $ - $ 3 $ (6) $ - $ (1) $ (46) $ (24) $ (157)
Less: income attributable to
noncontrolling interests, including
carried interest allocation (19) 2 - - - - - (3) (20)
Non-GAAP net gains (losses) on
investment securities, net of
noncontrolling interests $ (64) $ (2) $ 3 $ (6) $ - $ (1) $ (46) $ (21) $ (137)
Three months ended June 30, 2021
Total gains on investment
securities, net $ 197 $ 19 $ 6 $ 16 $ 1 $ - $ 22 $ 44 $ 305
Less: income attributable to
noncontrolling interests, including
carried interest allocation 87 8 1 - - - - 17 113
Non-GAAP net gains on investment
securities, net of noncontrolling
interests $ 110 $ 11 $ 5 $ 16 $ 1 $ - $ 22 $ 27 $ 192
Six months ended June 30, 2022
Total gains (losses) on investment
securities, net $ (37) $ 15 $ 9 $ (38) $ - $ 48 $ (44) $ (25) $ (72)
Less: income attributable to
noncontrolling interests, including
carried interest allocation (4) 4 1 - - - - (3) (2)
Non-GAAP net gains on investment
securities, net of noncontrolling
interests $ (33) $ 11 $ 8 $ (38) $ - $ 48 $ (44) $ (22) $ (70)
Six months ended June 30, 2021
Total gains on investment
securities, net $ 228 $ 37 $ 13 $ 88 $ 2 $ - $ 56 $ 48 $ 472
Less: income attributable to
noncontrolling interests, including
carried interest allocation 100 17 2 - - - - 19 138
Non-GAAP net gains on investment
securities, net of noncontrolling
interests $ 128 $ 20 $ 11 $ 88 $ 2 $ - $ 56 $ 29 $ 334
Non-GAAP net losses on investment securities, net of noncontrolling interests,
of $137 million for the three months ended June 30, 2022 , were driven by
valuation losses in our funds of funds, strategic and other investments and SVB
Securities portfolios.
•Total net losses of $129 million ($110 million , net of noncontrolling
interests) in our managed funds of funds, strategic and other investment
portfolios include a total downward valuation adjustment of $48 million ($32
million , net of noncontrolling interests) for illiquid investments held in the
funds of funds, strategic and other investment portfolios to reflect the current
market environment.
•Net losses in our managed funds of funds portfolio are also partially offset by
gains of $35 million , included in other noninterest income, for the change in
fair value of hedge instruments for certain funds.
Non-GAAP net losses on investment securities, net of noncontrolling interests,
of
•Net gains of$48 million on the sale of$8.7 billion of AFS debt securities, which include the first quarter net gains of$49 million related to the$5.1 billion sale ofU.S. treasury securities and agency-issued MBS and the termination of related swaps, and •Total net losses of$81 million ($77 million , net of noncontrolling interests) in our managed funds of funds, strategic and other investment portfolios include a total downward valuation adjustment of$48 million ($32 million , net of 67
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noncontrolling interests) for illiquid investments held in the funds of funds, strategic and other investments portfolios to reflect the current market environment.
•Net losses in our managed funds of funds portfolio are also partially offset by gains of$35 million , included in other noninterest income, for the change in fair value of hedge instruments for certain funds.
Gains on Equity Warrant Assets, Net
A summary of gains on equity warrant assets, net, for the three and six months
ended
Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Equity warrant assets (1):
Gains on exercises, net $ 9 $ 78 (88.5) % $ 28 $ 251 (88.8) %
Terminations (1) (1) - (2) (1) 100.0
Changes in fair value, net 9
45 (80.0) 54 94 (42.6)
Total gains on equity warrant assets, net $ 17$ 122 (86.1)$ 80 $ 344 (76.7) (1) AtJune 30, 2022 , we held warrants in 2,905 companies, compared to 2,718 companies atJune 30, 2021 . The total fair value of our warrant portfolio was$322 million atJune 30, 2022 and$266 million atJune 30, 2021 . Warrants in 51 companies each had fair values greater than$1 million and collectively represented$166 million , or 51.7 percent, of the fair value of the total warrant portfolio atJune 30, 2022 . Warrants in 53 companies each had fair values greater than$1 million and collectively represented$137 million , or 51.7 percent, of the fair value of the total warrant portfolio atJune 30, 2021 .
Three months ended
Net gains on equity warrant assets were$17 million for the three months endedJune 30, 2022 , compared to net gains of$122 million for the comparableJune 30, 2021 period. Net gains on equity warrant assets were driven by$9 million in net valuation updates. Net gains on equity warrant assets for the second quarter of 2022 include a downward valuation adjustment of$8 million , reflective of current market volatility.
Six months ended
Net gains on equity warrant assets were$80 million for the six months endedJune 30, 2022 , compared to net gains of$344 million for the comparableJune 30, 2021 period. Net gains on equity warrant assets were driven by$54 million in net valuation increases reflective of private company valuation updates, partially offset by the downward valuation adjustment of$8 million , reflective of current market volatility. Non-GAAP Core Fee Income Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 % Change 2022 2021 % Change Non-GAAP core fee income (1): Client investment fees $ 83$ 15 NM $ 118$ 35 NM Wealth management and trust fees 22 - - 44 - - Foreign exchange fees 69 67 3.0 142 124 14.5 Credit card fees 40 31 29.0 77 59 30.5 Deposit service charges 32 28 14.3 62 53 17.0 Lending related fees 26 18 44.4 45 34 32.4 Letters of credit and standby letters of credit fees 14 13 7.7 28 26
7.7
Total non-GAAP core fee income (1) $ 286$ 172 66.3 $ 516$ 331
55.9
Investment banking revenue 125 103 21.4 218 245 (11.0) Commissions 24 17 41.2 49 41 19.5 Total non-GAAP Securities revenue (2) $ 149$ 120 24.2 $ 267$ 286
(6.6)
Total non-GAAP core fee income plusSVB Securities revenue (3) $ 435$ 292 49.0 $ 783$ 617 26.9 (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. 68
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(3)Non-GAAP core fee income plus
Client Investment Fees
Client investment fees was$83 million and$118 million for the three and six months endedJune 30, 2022 , compared to$15 million and$35 million for the comparable 2021 periods. The increases were reflective of improved fee margins resulting from higher short-term interest rates driven by the 2022 Federal Funds rate hikes.
A summary of client investment fees by instrument type for the three and six
months ended
Three months ended June 30 , Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change Client investment fees by type: Sweep money market fees $ 56$ 7 NM$ 80 $ 18 NM Asset management fees 15 8 87.5 25 16 56.3 Repurchase agreement fees 12 - - 13 1
NM
Total client investment fees $ 83$ 15 NM$ 118 $ 35
NM
The following table summarizes average client investment funds for the three and
six months ended
Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Sweep money market funds $ 95,178 $ 82,573 15.3 % $ 102,147 $ 74,856 36.5 %
Managed client investment funds (1) 85,292 77,733 9.7 84,879 75,106 13.0
Repurchase agreements 14,167 14,021 1.0 13,362 12,992 2.8
Total average client investment funds
(2) $ 194,637 $ 174,327 11.7 $ 200,388 $ 162,954 23.0
(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.
The following table summarizes period-end client investment funds at June 30,
2022 and December 31, 2021 :
December 31,
(Dollars in millions) June 30, 2022 2021 % Change
Sweep money market funds $ 89,544 $ 109,241 (18.0) %
Managed client investment funds (1) 86,849 85,475 1.6
Repurchase agreements 14,851 15,370 (3.4)
Total period-end client investment funds (2) $ 191,244 $ 210,086 (9.0)
(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.
Wealth Management and Trust Fees
Wealth management and trust fees were$22 million and$44 million three and six months endedJune 30, 2022 , respectively. A summary of wealth management and fees by instrument type for the three and six months endedJune 30, 2022 and 2021 is as follows: Three months endedJune 30 Six months endedJune 30 , (Dollars in millions) 2022
2021 % Change 2022 2021 % Change
Wealth management and trust fees by type:
Wealth management fees $ 20 $ - - % $ 40 $ - - %
Trust fees 2 - - 4 - -
Total wealth management and trust fees $ 22 $ - - $ 44 $ - -
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The following table summarizes the activity relating to AUM for the three and
six months ended ended
Three months ended Six months ended
(Dollars in millions) June 30, 2022 June 30, 2022
Beginning balance $ 19,008 $ 19,646
Net flows (539) (275)
Market returns (1,957) (2,859)
Ending balance $ 16,512 $ 16,512
Foreign Exchange Fees
Foreign exchange fees were $69 million and $142 million for the three and six
months ended June 30, 2022 , compared to $67 million and $124 million for the
comparable 2021 periods. The increase in foreign exchange fees for the six
months ended June 30, 2022 , compared to the six months ended June 30, 2021 , were
driven primarily by increases in forward and spot contract commissions
reflective of the increased volume of trades for the six months ended June 30,
2022 .
A summary of foreign exchange fee income by instrument type for the three and
six months ended
Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Foreign exchange fees by instrument type:
Foreign exchange contract commissions $ 69 $ 66 4.5 % $ 141 $ 123 14.6 %
Option premium fees - 1 - 1 1 -
Total foreign exchange fees $ 69 $ 67 3.0 $ 142$ 124 14.5 Credit Card Fees Credit card fees was$40 million and$77 million for the three and six months endedJune 30, 2022 , compared to$31 million and$59 million for the comparable 2021 periods. 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 periods.
A summary of credit card fees by instrument type for the three and six months
ended
Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Credit card fees by instrument type:
Card interchange fees, net $ 32 $ 26 23.1 % $ 62 $ 49 26.5 %
Merchant service fees 6 4 50.0 11 8 37.5
Card service fees 2 1 100.0 4 2 100.0
Total credit card fees $ 40 $ 31 29.0 $ 77 $ 59 30.5
Deposit Service Charges
Deposit service charges was $32 million and $62 million for the three and six
months ended June 30, 2022 , compared to $28 million and $53 million for the
comparable 2021 periods. Deposit service charges increased primarily driven by
higher volumes of our transaction-based fee products.
Lending Related Fees
Lending related fees was
A summary of lending related fees by type for the three and six months ended
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Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Lending related fees by instrument type:
Unused commitment fees $ 20 $ 15 33.3 % $ 35 $ 28 25.0 %
Other 6 3 100.0 10 6 66.7
Total lending related fees $ 26 $ 18 44.4 $ 45 $ 34 32.4
Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees was
Investment Banking Revenue
Investment banking revenue was$125 million and$218 million for the three and six months endedJune 30, 2022 , compared to$103 million and$245 million for the comparable 2021 periods. The increase for the three months endedJune 30, 2022 , was primarily driven by improved advisory fees reflective of recent strategic hires. The decrease for the six months endedJune 30, 2022 , was due to the slowdown in public markets which limited underwriting fees.
A summary of investment banking revenue by type for the three and six months
ended
Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Investment banking revenue:
Underwriting fees $ 41 $ 84 (51.2) % $ 73 $ 209 (65.1) %
Advisory fees 69 9 NM 123 13 NM
Private placements and other 15
10 50.0 22 23 (4.3)
Total investment banking revenue $ 125 $ 103 21.4 $ 218 $ 245 (11.0)
Commissions
Commissions for the three and six months ended June 30, 2022 were $24 million
and $49 million , compared to $17 million and $41 million for the comparable 2021
periods. 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
increases in commissions were driven by subscription fees, which are new to core
fee income due to the acquisition of MoffettNathanson in December 2021 .
Other
Other noninterest income was$67 million and$88 million for the three and six months endedJune 30, 2022 , compared to$42 million and$72 million for the comparable 2021 periods. The increases were primarily due to the change in fair value of hedge instruments for certain funds.
Noninterest Expense
A summary of noninterest expense for the three and six months endedJune 30, 2022 and 2021 is as follows: Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 % Change 2022 2021 % Change Compensation and benefits $ 502$ 425 18.1 %$ 1,086 $ 870 24.8 % Professional services 132 97 36.1 238 178 33.7 Premises and equipment 60 37 62.2 118 70 68.6 Net occupancy 26 17 52.9 49 35 40.0 Business development and travel 27 3 NM 41 7
NM
FDIC and state assessments 16 10 60.0 32 20 60.0
Merger-related charges 16 19 (15.8) 32 19 68.4
Other 69 45 53.3 125 90 38.9
Total noninterest expense $ 848 $ 653 29.9 $ 1,721 $ 1,289 33.5
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Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense
for the three and six months ended
Three months ended June 30 , Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change Compensation and benefits: Salaries and wages $ 264$ 146 80.8 %$ 500 $ 309 61.8 % Incentive compensation plans 117 162 (27.8) 311 312
(0.3)
Other employee incentives and benefits (1) 121 117 3.4 275 249
10.4
Total compensation and benefits $ 502$ 425 18.1$ 1,086 $ 870
24.8
Period-end full-time equivalent employees 7,743 4,932 57.0 7,743 4,932
57.0
Average full-time equivalent employees 7,528 4,808 56.6 7,251 4,705 54.1 (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$502 million for the three months endedJune 30, 2022 , compared to$425 million for the comparable 2021 period. The key factors affecting changes in compensation and benefits expense were as follows: •An increase of$118 million in salaries and wages expense primarily due to an increase in FTE employees, as we continue to invest in our revenue-generating lines of business and support functions as well as the impact of annual merit increases, •An increase of$4 million in other employee incentives and benefits driven primarily by the increase in FTE employees, partially offset by •A decrease of$45 million in incentive compensation plans expense attributable to a decrease in our incentive compensation plan accrual as a result of our updated financial outlook.
Compensation and benefits expense was
•An increase of$191 million in salaries and wages expense primarily due to an increase in FTE employees, as we continue to invest in our revenue-generating lines of business and support functions as well as the impact of annual merit increases, •An increase of$26 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 first quarter 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, partially offset by •A decrease of$1 million in incentive compensation plans expense related primarily to a decrease in our incentive compensation plan accrual as a result of our updated financial outlook, partially offset by an increase in the number of plan participants along with higher targets due to annual merit increases and promotions. 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$130 million and$352 million for the three and six months endedJune 30, 2022 , respectively, compared to$191 million and$393 million for the comparable 2021 periods. These amounts are included in total compensation and benefits expense discussed above.
Professional Services
Professional services expense was$132 million and$238 million for the three and six months endedJune 30, 2022 , compared to$97 million and$178 million for the comparable 2021 periods. The increases were 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$60 million and$118 million for the three and six months endedJune 30, 2022 , compared to$37 million and$70 million for the comparable 2021 periods. The increases were primarily related to higher 72
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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$27 million and$41 million for the three and six months endedJune 30, 2022 , compared to$3 million and$7 million for the comparable 2021 periods. The increases were primarily due to the continued easing of COVID-19 restrictions on in-person meetings and travel.
FDIC and state assessments expense was$16 million and$32 million for the three and six months endedJune 30, 2022 , compared to$10 million and$20 million for the comparable 2021 periods. The increases were 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 and six months endedJune 30, 2022 and 2021 are as follows: Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 % Change 2022 2021 % Change Personnel-related $ 4 $ - NM $ 5 $ - NM Occupancy and facilities - - - % 4 - NM Professional services 4 15 (73.3) 10 15 (33.3) % Systems integration and related charges 8 4 100.0 13 4
NM
Total merger-related charges $ 16$ 19 (15.8) $ 32$ 19 68.4 Other Noninterest Expense Other noninterest expense was$69 million and$125 million for the three and six months endedJune 30, 2022 , compared to$45 million and$90 million for the comparable 2021 periods. 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 55.46 and 55.02 percent, respectively, for the three and six months endedJune 30, 2022 , compared to 43.85 and 44.56 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 and higher noninterest expense as we continue to invest and support long-term growth, partially offset by higher net interest income.
Income Taxes
Our effective tax rate was 26.1 percent for both three and six months endedJune 30, 2022 , compared to 25.1 percent and 25.5 percent for the comparable 2021 periods. The increase in our effective tax rate for the three and six months endedJune 30, 2022 was primarily due to lower excess tax benefits from stock compensation in 2022 and tax expense recorded on the surrender of a legacy bank owned life insurance policy. 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.
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 and six months ended
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Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 % Change 2022 2021 % Change
Noninterest income (1) $ 24 $ (36) (166.7) $ 23 $ (52) (144.2)
Carried interest allocation (2) (4) (77) (94.8) (21) (86) (75.6)
Net (income) loss attributable to noncontrolling interests $ 20$ (113) (117.7) $ 2$ (138) (101.4) (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 losses attributable to noncontrolling interests was$20 million and$2 million for the three and six months endedJune 30, 2022 , respectively, compared to net income attributable to noncontrolling interests of$113 million and$138 million , respectively, for the comparable 2021 periods. Net losses attributable to noncontrolling interests for the three and six months ended atJune 30, 2022 , were driven primarily by net losses on investment securities (including carried interest allocation) from unrealized valuation decreases of our managed funds of funds portfolio and ourSVB Securities funds.
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 and six months
ended
Silicon Valley Bank Three months endedJune 30 , Six months endedJune 30 , (Dollars in millions) 2022
2021 % Change 2022 2021 % Change
Net interest income $ 979 $ 707 38.5 % $ 1,886 $ 1,318 43.1 %
Provision for credit losses (136) (11) NM (142) (56) 153.6
Noninterest income 261 173 50.9 473 332 42.5
Noninterest expense (370) (304) 21.7 (767) (580) 32.2
Income before income tax expense $ 734 $ 565 29.9 $ 1,450 $ 1,014 43.0
Total average loans, amortized cost $ 54,121 $ 41,689 29.8 $ 53,183 $ 39,964 33.1
Total average assets 181,087 130,844 38.4 179,524 119,415 50.3
Total average deposits 178,293 128,652 38.6 176,866 117,396 50.7
Three months ended
Income before income tax expense fromSilicon Valley Bank increased to$734 million for the three months endedJune 30, 2022 , compared to$565 million for the comparable 2021 period. The key components ofSilicon Valley Bank's performance for the three months endedJune 30, 2022 compared to the comparable 2021 period are discussed below. Net interest income fromSilicon Valley Bank increased by$272 million for the three months endedJune 30, 2022 , due primarily from increases in deposit funding credits and average loans, partially offset by an increase in yields on deposits. A provision of credit losses of$136 million for the three months endedJune 30, 2022 , compared to a provision of credit losses of$11 million for the comparable 2021 period. The provision of$136 million for the three months endedJune 30, 2022 was driven primarily by a deterioration in projected economic conditions. The provision for credit losses of$11 million for the three months endedJune 30, 2021 was driven primarily by a$13 million increase related to loan growth,$9 million in net new nonaccrual loans and$4 million for charge-offs not specifically reserved for atMarch 31, 2021 , partially offset by a$9 million reduction in reserves for our performing loans based on our forecast models of the economic environment and$3 million of recoveries. Noninterest income increased by$88 million for the three months endedJune 30, 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 2022 Federal Funds rate hikes. Noninterest expense increased by$66 million for the three months endedJune 30, 2022 , due primarily to compensation and benefits expense, business development and travel expense and premises and equipment expense. Compensation and benefits expense increased as a result of higher salaries and wages expenses driven by an increase in FTE employees as we continue to invest in our business as well as from the impact of annual merit increases. Business 74
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development and travel expense increased due to the continued easing of COVID-19 restrictions on in-person meetings and travel. Premises and equipment expense increased due to higher software support and maintenance fees as well as an increase in software depreciation.
Six months ended
Net interest income fromSilicon Valley Bank increased by$568 million for the six months endedJune 30, 2022 , due primarily to increases in deposit funding credits and average loans, partially offset by an increase in yields on deposits. There was a provision of credit losses of$142 million for the six months endedJune 30, 2022 , compared to a provision of credit losses of$56 million for the comparable 2021 period. The provision of$142 million for the six months endedJune 30, 2022 was driven primarily by our best estimate in projected economic conditions. The provision for credit losses of$56 million for the six months endedJune 30, 2021 was driven primarily by$90 million for charge-offs not specifically reserved for atDecember 31, 2020 , of which$80 million was related to the single instance of potentially fraudulent activity discussed in prior filings, a$30 million increase related to loan growth and$3 million in net new nonaccrual loans, partially offset by a$56 million reduction in reserves for our performing loans based on our forecast models of the economic environment and$8 million of recoveries. Noninterest income increased by$141 million for the six months endedJune 30, 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 2022 Federal Funds rate hikes, 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 half of 2021. Noninterest expense increased by$187 million for the six months endedJune 30, 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 salaries and wages expenses. Salaries and wages expense increased primarily due to an increase in FTE employees as we continue to invest in our business, as well as from the impact of annual merit increases. 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 endedJune 30 , Six months endedJune 30 , (Dollars in millions) 2022
2021 % Change 2022 2021 % Change
Net interest income $ 102 $ 37 175.7 % $ 184 $ 72 155.6 %
(Provision for) reduction of credit losses (10) (5) 100.0 (12) 4 NM
Noninterest income 24 2 NM 49 3 NM
Noninterest expense (87) (18) NM (181) (33) NM
Income before income tax expense $ 29 $ 16 81.3 $ 40 $ 46 (13.0)
Total average loans, amortized cost$ 14,644 $ 6,192 136.5$ 14,472 $ 6,118
136.5
Total average assets 16,335 6,240 161.8 16,163 6,169
162.0
Total average deposits 13,151 4,243 NM 13,780 3,895 NM
Three months ended
Net interest income from SVB Private increased by$65 million from the comparable 2021 period, 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$22 million for the three months endedJune 30, 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$69 million for the three months endedJune 30, 2022 , related primarily to compensation and benefits expense. Compensation and benefits expense increased as a result of an increase in average number of FTE employees primarily due to the acquisition of Boston Private. 75
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Six months ended
Net interest income from our SVB Private increased by$112 million from the comparable 2021 period, 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$46 million for the six months endedJune 30, 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$148 million for the six months endedJune 30, 2022 , related primarily to compensation and benefits expense. Compensation and benefits expense increased as a result of an increase in average number of FTE employees primarily due to the acquisition of Boston Private.SVB Capital Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 % Change 2022 2021 % Change Noninterest (losses) income$ (89) $ 175 (150.9) (24) 244 (109.8) Noninterest expense (17) (18) (5.6) (36) (34) 5.9 (Loss) income before income tax expense$ (106) $ 157 (167.5) $ (60)$ 210 (128.6) Total average assets$ 941 $ 613 53.5 $ 917$ 595 54.1SVB 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
Three months ended
SVB Capital had noninterest losses of$89 million for the three months endedJune 30, 2022 , compared to noninterest income of$175 million for the comparable 2021 period. The decrease in noninterest income was due primarily to net losses on investment securities for the three months endedJune 30, 2022 , compared to net gains on investment securities for the comparable 2021 period.SVB Capital's components of noninterest income primarily include the following: •Net losses on investment securities, net of noncontrolling interests, of$102 million for the three months endedJune 30, 2022 , compared to net gains on investment securities, net of noncontrolling interests, of$143 million for the comparable 2021 period. The net losses on investment securities, net of noncontrolling interests, of$102 million were driven primarily by valuation losses reflective of current market conditions.
Six months ended
SVB Capital had noninterest losses of$24 million for the six months endedJune 30, 2022 , compared to noninterest income of$244 million for the comparable 2021 period.The decrease in noninterest income was due primarily to net losses on investment securities for the six months endedJune 30, 2022 , compared to net gains on investment securities for the comparable 2021 period.SVB Capital's components of noninterest income primarily include the following: •Net losses on investment securities, net of noncontrolling interests, of$54 million for the six months endedJune 30, 2022 , compared to net gains on investment securities, net of noncontrolling interests, of$197 million for the comparable 2021 period. The net losses on investment securities, net of noncontrolling interests, of$54 million were driven primarily by valuation losses reflective of current market conditions. 76
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Table of ContentsSVB Securities Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 % Change 2022 2021 % Change Noninterest income $ 131$ 149 (12.1) 252 319 (21.0) Noninterest expense (141) (98) 43.9 (275) (235) 17.0 (Loss) income before income tax expense $ (10)$ 51 (119.6) $ (23)$ 84 (127.4) Total average assets $ 846$ 729 16.0 $ 919$ 748 22.9
Three months ended
SVB Securities had noninterest income of$131 million for the three months endedJune 30, 2022 , compared to$149 million for the comparableJune 30, 2021 period. The$18 million decrease in noninterest income was driven primarily by valuation losses reflective of current market conditions partially offset by higher investment banking revenue driven by improved advisory fees reflective of recent strategic hires.SVB Securities had noninterest expense of$141 million for the three months endedJune 30, 2022 , compared to$98 million for the comparable 2021 period. The$43 million increase in noninterest expense was driven primarily by an increase in compensation and benefits expense due to an increase in strategic hires throughout the past twelve months to support the continued expansion ofSVB Securities .
Six months ended
SVB Securities had noninterest income of$252 million for the six months endedJune 30, 2022 , compared to$319 million for the comparableJune 30, 2021 period. The$67 million decrease in noninterest income was driven primarily by valuation losses reflective of current market conditions and lower investment banking revenue due to the slowdown in public markets which limited underwriting fees.SVB Securities had noninterest expense of$275 million for the six months endedJune 30, 2022 , compared to$235 million for the comparable 2021 period. The$40 million increase in noninterest expense was driven primarily by an increase in compensation and benefits expense due to an increase in strategic hires throughout the past twelve months to support the continued expansion ofSVB Securities .
Consolidated Financial Condition
Our total assets, and total liabilities and stockholders' equity, were$214.4 billion atJune 30, 2022 compared to$211.5 billion atDecember 31, 2021 , an increase of$2.9 billion , or 1.4 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$15.4 billion atJune 30, 2022 , an increase of$779 million , or 5.3 percent, compared to$14.6 billion atDecember 31, 2021 . The increase was primarily driven by growth in deposits at theFederal Reserve Bank , partially offset by a decrease in interest-earning deposits in other financial institutions. As ofJune 30, 2022 ,$7.8 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$124.7 billion atJune 30, 2022 , a decrease of$3.3 billion , or 2.6 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. 77
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Period-end AFS securities were$26.2 billion atJune 30, 2022 , compared to$27.2 billion atDecember 31, 2021 , a decrease of$1.0 billion , or 3.7 percent. The decrease in period-end AFS securities balances fromDecember 31, 2021 toJune 30, 2022 , was driven by a the sale of$8.5 billion of AFS securities and the$1.8 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$853 million , partially offset by$10.4 billion of purchases. The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as AFS as ofJune 30, 2022 . The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. ForU.S. Treasury securities,U.S. agency debentures and foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. Expected maturities for MBS may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. MBS classified as AFS typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. June 30, 2022 One Year After One Year to After Five Years to After Total or Less Five Years Ten Years Ten Years Weighted Weighted Weighted Weighted Weighted Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average (Dollars in millions) Value Yield Value Yield Value Yield Value Yield Value YieldU.S. Treasury securities$ 16,392 1.29 %$ 272 0.22 %$ 16,120 1.31 % $ - - % $ - - %U.S. agency debentures 122 3.04 17 1.79 35 3.01 70 3.31 - - Foreign government debt securities 40 (0.78) 40 (0.78) - - - - - - Residential MBS: Agency-issued MBS 7,340 1.54 - - - - - - 7,340 1.54 Agency-issued CMO-fixed rate 790 1.35 - - - - - - 790 1.35 Agency-issued CMBS 1,539 1.88 - - 104 1.24 1,435 1.94 - - Total$ 26,223 1.40$ 329 0.18$ 16,259 1.31$ 1,505 2.00$ 8,130 1.52 HTM Securities Period-end HTM securities were$95.8 billion atJune 30, 2022 , compared to$98.2 billion atDecember 31, 2021 , a decrease of$2.4 billion , or 2.4 percent. The$2.4 billion decrease in period-end HTM securities balances fromDecember 31, 2021 toJune 30, 2022 was driven by$7.1 billion in paydowns and maturities, partially offset by purchases of$5.0 billion . 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 ofJune 30, 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. 78
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June 30, 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 61,112 1.55 - - 4 2.41 1,102 2.33 60,006 1.54
Agency-issued CMO-fixed rate 11,103 1.48 - - 28 1.62 239 1.61 10,836 1.48
Agency-issued CMO-variable
rate 87 0.74 - - - - - - 87 0.74
Agency-issued CMBS 14,821 1.63 32 0.36 175 0.82 969 1.93 13,645 1.63
Municipal bonds and notes 7,450 2.82 27 2.18 199 2.45 1,294 2.76 5,930 2.85
Corporate bonds 705 1.86 - - 52 1.70 653 1.87 - -
Total $ 95,814 1.66 $ 63 1.27 $ 567 1.85 $ 4,680 2.39 $ 90,504 1.63
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 5.4 years and 4.0 years at
June 30, 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 5.3 years at June 30, 2022 and 3.7 years at December 31, 2021 .
The weighted-average duration of our AFS securities portfolio was 3.8 years at
June 30, 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
3.3 years at June 30, 2022 and 2.4 years at December 31, 2021 . The
weighted-average duration of our HTM securities portfolio was 5.9 years at June
30, 2022 and 4.1 years at December 31, 2021 .
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 ($2.3 billion net of noncontrolling interest) atJune 30, 2022 compared to$2.5 billion ($2.2 billion net of noncontrolling interest) atDecember 31, 2021 , an increase of$102 million , or 4.0 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) atJune 30, 2022 andDecember 31, 2021 :June 30, 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)
$ 174 $ 92 $ 130 $ 36
Unconsolidated venture capital and private equity fund investments (2)
172 172 208 208
Other investments without a readily determinable fair value (3)
188 188 164 164
Other equity securities in public companies (fair value accounting (4)
32 32 117 117
Non-marketable securities (equity method accounting) (5): Venture capital and private equity fund investments
663 387 671 397
Debt funds 5 5 5 5
Other investments 277 277 294 294
Investments in qualified affordable housing projects, net 1,134 1,134 954 954
Total non-marketable and other equity securities $ 2,645 $ 2,287 $ 2,543 $ 2,175
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(1)The following table shows the amounts of venture capital and private equity
fund investments held by the following consolidated funds and amounts
attributable to SVBFG for each fund at
June 30, 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 $ 2 $ - $ 2 $ -
Capital Preferred Return Fund, LP 53 12 61 13
Growth Partners, LP 59 20 67 23
Redwood Evergreen Fund, LP 60 60 - -
Total consolidated venture capital and private
equity fund investments $ 174 $ 92 $ 130 $ 36
(2)The carrying value represents investments in 142 and 150 funds (primarily
venture capital funds) at June 30, 2022 and December 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 example March 31st for our June 30th consolidated financial
statements, adjusted for any contributions paid, distributions received from the
investment, and significant fund transactions or market events during the
reporting period.
(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 at June 30, 2022 and December 31, 2021 (equity method
accounting):
June 30, 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 $ 2 $ 1 $ 3 $
3
Strategic Investors Fund III, LP 16 13 25
21
Strategic Investors Fund IV, LP 28 24 36
30
Strategic Investors Fund V, LP 75 39 87 45 CP II, LP (1) 2 1 2 1 Other venture capital and private equity fund investments 540 309 518
298
Total venture capital and private equity fund investments $ 663 $ 387 $ 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. $ 146 $ 146 $ 154 $ 154 Other investments 131 131 140 140 Total other investments $ 277 $ 277 $ 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. 80
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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$4.7 billion to$71.0 billion atJune 30, 2022 , compared to$66.3 billion atDecember 31, 2021 . Unearned income was$222 million atJune 30, 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:
June 30, 2022 December 31, 2021
(Dollars in millions) Amount Percentage Amount Percentage
Global fund banking $ 40,316 56.8 % $ 37,958 57.3 %
Investor dependent:
Early stage 1,856 2.6 1,593 2.4
Growth stage 4,159 5.9 3,951 5.9
Total investor dependent 6,015 8.5 5,544 8.3
Cash flow dependent- SLBO 1,859 2.6 1,798 2.7
Innovation C&I 7,753 10.9 6,673 10.1
Private bank 9,770 13.8 8,743 13.2
CRE 2,617 3.7 2,670 4.0
Premium wine 1,065 1.5 985 1.5
Other C&I 1,136 1.6 1,257 1.9
Other 365 0.5 317 0.5
PPP 59 0.1 331 0.5
Total loans $ 70,955 100.0 % $ 66,276 100.0 %
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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.
The table below details loans that are secured by real estate, at amortized cost
as of
December 31,
(Dollars in millions) June 30, 2022 2021
Real estate secured loans:
Private bank:
Loans for personal residence $ 7,680 $ 6,939
Loans to eligible employees 501 455
Home equity lines of credit 143 130
Other 138 135
Total private bank loans secured by real estate $ 8,462 $ 7,659
CRE:
Multifamily and residential investment 947 1,021
Retail 516 524
Office and medical 468 499
Manufacturing, industrial and warehouse 403 336
Hospitality 141 142
Other 142 148
Total CRE loans secured by real estate $ 2,617 $ 2,670
Premium wine 846 793
Other 405 334
Total real estate secured loans $ 12,330 $ 11,456
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
June 30, 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 $ 1,116 $ 1,659 $ 3,442 $ 3,219 $ 30,881 $ 40,317
Investor dependent:
Early stage 1,292 375 197 21 - 1,885
Growth stage 864 1,058 1,213 405 621 4,161
Total Investor Dependent $
2,156
$ 621 $ 6,046
Cash flow dependent - SLBO 6 47 327 466 1,013 1,859
Innovation C&I 450 377 987 1,136 4,814 7,764
Private bank 7,267 1,165 882 196 261 9,771
CRE 774 617 781 347 98 2,617
Premium wine 202 296 237 144 188 1,067
Other C&I 350 165 258 251 131 1,155
Other 86 99 131 43 - 359
Total loans (1) $ 12,407 $ 5,858 $ 8,455 $ 6,228 $ 38,007 $ 70,955
(1)Included in total loans at amortized cost is approximately $59 million in PPP
loans. The PPP loans consist of loans across all of our classes of financing
receivables.
At June 30, 2022 , loans equal to or greater than $20 million to any single
client (individually or in the aggregate) totaled $44.2 billion of our total
loan portfolio. These loans represented 811 clients, and of these loans, none
were on nonaccrual status as of June 30, 2022 .
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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 ofDecember 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 27 percent of our outstanding total loan balances as ofJune 30, 2022 were to borrowers based inCalifornia , compared to 30 percent as ofDecember 31, 2021 . Borrowers inNew York increased to 12 percent atJune 30, 2022 , compared to 10 percent as ofDecember 31, 2021 , and borrowers inMassachusetts represented approximately 13 percent of total loan balances atJune 30, 2022 compared to 12 percent as ofDecember 31, 2021 . Other thanCalifornia ,New York , andMassachusetts , there are no additional states with loan balances greater than or equal to 10 percent of total loans as ofJune 30, 2022 .
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 second 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 ofJune 30, 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 at bothJune 30, 2022 andDecember 31, 2021 . Criticized and nonaccrual loans to early-stage clients represented 14 percent of our total criticized and nonaccrual loan balances atJune 30, 2022 compared to 13 percent as ofDecember 31, 2021 . Loans to early-stage investor 83
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dependent clients represent a relatively small percentage of our overall portfolio at 2 percent of total loans atJune 30, 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 of
(i) Pressured public and private markets - Prolonged market volatility may impact the performance of the Technology and Life Science/Healthcare portfolio. This risk particularly applies to Investor Dependent loans, where repayment is dependent on the borrower's ability to fundraise or exit.
(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.
(iii) Increased exposure from CRE loans - We acquired these loans via theBoston Private acquisition in in 2021. The increased exposure is mitigated by the well-margined collateral on these loans and our limited overall exposure, with commercial real estate representing only 4 percent of total loans atJune 30, 2022 .
Additionally, we have identified the following factors that could have a positive impact on credit quality: (i) strong positioning of Technology and Life Science/Healthcare clients and (ii) an improved risk profile of our loan portfolio.
(i) Strong positioning of Technology and Life Science/Healthcare clients - Record venture capital investment over the past two years has generally extended clients' runways.
(ii) 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.
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:
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(Dollars in millions) June 30, 2022 December 31, 2021 Nonperforming, past due, and restructured loans: Nonaccrual loans $ 93 $ 84 Loans past due 90 days or more still accruing interest - 7 Total nonperforming loans 93 91 OREO and other foreclosed assets 1 1 Total nonperforming assets $ 94 $ 92 Performing TDRs $ - $ 40 Nonaccrual loans as a percentage of total loans 0.13 % 0.13 % Nonperforming loans as a percentage of total loans 0.13 % 0.14 Nonperforming assets as a percentage of total assets 0.04 0.04 ACL for loans (1) $ 545 $ 422 As a percentage of total loans 0.77 % 0.64 % As a percentage of total nonperforming loans 586.02 463.74 ACL for nonaccrual loans (1) $ 36 $ 35 As a percentage of total loans 0.05 % 0.05 % As a percentage of total nonperforming loans 38.71 38.46 ACL for total performing loans (1) $ 509 $ 387 As a percentage of total loans 0.72 % 0.58 % As a percentage of total performing loans 0.72 0.58 Total loans$ 70,955 $ 66,276 Total performing loans 70,862 66,185 ACL for unfunded credit commitments (2) 224 171 As a percentage of total unfunded credit commitments 0.44 % 0.39 % Total unfunded credit commitments (3)$ 50,577 $ 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 ofJune 30, 2022 andDecember 31, 2021 , we utilized three scenarios, on a weighted basis, from Moody's AnalyticsJune 2022 andDecember 2021 forecasts, respectively, in our expected lifetime loss estimate. The table below summarizes the key assumptions within each period's baseline forecasts, as well as the weightings we applied to the three economic forecast scenarios in our model. June 30, 2022 December 31, 2021
Key economic factors from Moody's baseline forecasts Gross domestic product projected growth rate (1)
2.6 % 6.8 %
Projected unemployment rate (1) 3.6 % 4.3 %
Housing price index projected growth rate (1) 1.0 % 5.9 %
Weightings applied to different Moody's economic scenarios Upward outlook (Moody's S1)
15.0 % 30.0 %
Baseline (Moody's B) 20.0 % 40.0 %
Downward outlook (Moody's S3) 65.0 % 30.0 %
Total 100.0 % 100.0 %
(1)The June 2022 downturn forecast (Moody's S3), which was weighted 65% in our
Q2 model, included a one-year gross domestic product shrinkage rate of 2.2
percent, peak unemployment rate of 7.9 percent, and a worst case housing price
index shrinkage rate of 18.1 percent (forecast in Q4 2022).
While utilizing the Moody's June 2022 forecast, we determined that a higher
weighting should be applied to the economic downturn scenario to align with our
expectations as of June 30, 2022 , as shown above. After adjusting the weightings
accordingly, we determined the forecast to be a reasonable view of the outlook
for the economy given the available information at current quarter end.
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Our ACL for loans as a percentage of total loans increased 13 basis points to 0.77 percent atJune 30, 2022 , compared to 0.64 percent atDecember 31, 2021 . The 13 basis points increase was due primarily to a 14 basis point increase in our performing loans reserve rate, which was a result of the projected economic forecasts and changes in weightings described above, as well as higher risk ratings and increased weighted average loan lives. For a detailed discussion of changes in the current period's reserve, see "Provision for Credit Losses."
The following table presents a summary of changes in nonaccrual loans for the
three and six months ended
Three months ended June 30, Six months ended June 30,
(Dollars in millions) 2022 2021 2022 2021
Balance, beginning of period $
70
77 9 82 14
Paydowns and other reductions (40) (9) (56) (18)
Charge-offs (14) (11) (17) (21)
Balance, end of period $ 93 $ 79 $ 93 $ 79
Average nonaccrual loans $ 93 $ 84 $ 84 $ 107
Our nonaccrual loan balance increased by $9 million to $93 million at June 30,
2022 , compared to $84 million at December 31, 2021 . The increase was due
primarily to new nonaccrual loans, driven by clients in our Technology and Life
Science/Healthcare portfolios. In the second quarter of 2022, our Investor
Dependent clients accounted for $54 million of the additions, $29 million
specifically coming from Early Stage clients. Offsetting charge-offs and
reductions were largely driven by the same Technology and Life
Science/Healthcare portfolios. Charge-offs of $9 million relate to Investor
Dependent - Early Stage clients, and a reduction of $21 million was from a
single Cash Flow Dependent - SLBO client. As of June 30, 2022 , we have
specifically reserved $36 million for our nonaccrual loans.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at
(Dollars in millions) June 30, 2022 December 31, 2021 % Change Derivative assets (1) $ 705 $ 565 24.8 % Accrued interest receivable 539 470 14.7 FHLB and Federal Reserve Bank stock 373 107 NM Net deferred tax assets 546 24 NM Accounts receivable 60 54 11.1 Other assets 554 708 (21.8) Total accrued interest receivable and other assets$ 2,777 $ 1,928 44.0
(1)See "Derivatives" section above.
The increase of
Net Deferred Tax Assets
Net deferred tax assets increased
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
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Table of Contents (Dollars in millions) June 30, 2022 December 31, 2021 % Change Assets: Equity warrant assets $ 322 $ 277 16.2 % Contingent conversion rights 6 - 100.0 Foreign exchange contracts 280 171 63.7 Total return swaps 27 - 100.0 Client interest rate derivatives 70 99 (29.3) Interest rate swaps - 18 (100.0) Total derivative assets $ 705 $ 565 24.8 Liabilities: Foreign exchange contracts $ 271 $ 137 97.8 Client interest rate derivatives 153 101 51.5 Total derivative liabilities $ 424 $ 238 78.2 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. AtJune 30, 2022 , we held warrants in 2,905 companies, compared to 2,831 companies atDecember 31, 2021 . Warrants in 51 companies each had fair values greater than$1 million and collectively represented$166 million , or 51.7 percent, of the fair value of the total warrant portfolio atJune 30, 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 and six months endedJune 30, 2022 and 2021: Three months ended June 30, Six months ended June 30, (Dollars in millions) 2022 2021 2022 2021 Balance, beginning of period $
323
6 6 12 13
Non-cash changes in fair value, net 9 45 54 94
Exercised equity warrant assets (15) (28) (19) (43)
Terminated equity warrant assets (1) (1) (2) (1)
Balance, end of period $ 322 $ 266 $ 322 $ 266
Foreign Exchange Contracts
We enter into foreign exchange contracts with clients involved in foreign
activities, either as the purchaser or seller, depending upon the clients'
needs. For each contract entered into with our clients, we enter into an
opposite way 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
contracts, net of cash collateral, was zero at both June 30, 2022 and December
31, 2021 . For additional information on our foreign exchange contracts, see Note
8 - "Derivative Financial Instruments" of the "Notes to Interim Consolidated
Financial Statements (unaudited)" under Part I, Item 1 of this report.
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 atJune 30, 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. 87
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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 atJune 30, 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$187.9 billion atJune 30, 2022 , a decrease of$1.3 billion , or 0.7 percent, compared to$189.2 billion atDecember 31, 2021 . The decrease in deposits was primarily driven by slowdown in public and private fundraising and exits as well as increased client cash burn rates, partially offset by flexible liquidity solutions that shifted off-balance sheet client funds on-balance sheet. Approximately 8 percent and 9 percent of our total deposits atJune 30, 2022 andDecember 31, 2021 , respectively, were from our clients inAsia .
Long-Term Debt
Our long-term debt was$3.4 billion atJune 30, 2022 and$2.6 billion atDecember 31, 2021 . The increase in our long-term debt was due to issuances of 4.345% Senior Fixed Rate/Floating Rate Notes due 2028 and 4.570% Senior Fixed Rate/Floating Rate Notes due 2033 in the second quarter of 2022. As ofJune 30, 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, 4.345% Senior Fixed Rate/Floating Rate Notes due 2028, 4.570% Senior Fixed Rate/Floating Rate Notes due 2033 and junior subordinated debentures.
Other Liabilities
A summary of other liabilities at
(Dollars in millions) June 30, 2022 December 31, 2021 % Change Accrued compensation $ 444 $ 896 (50.4) % Allowance for unfunded credit commitments 224 171 31.0 Derivative liabilities (1) 424 238 78.2 Other liabilities 1,629 1,282 27.1 Total other liabilities$ 2,721 $ 2,587 5.2
(1)See "Derivatives" section above.
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$452 million was primarily a result of the payout of our 2021 incentive compensation plans during the first quarter of 2022, partially offset by the accrual for the six months endedJune 30, 2022 related primarily to the increase in the number of average FTE employees for the first half of 2022.
Allowance for Unfunded Credit Commitments
Allowance for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit. The increase of$53 million was primarily attributable to projected economic conditions, a higher weighting assigned to our downturn outlook scenario and higher unfunded credit commitment balances. Noncontrolling Interests Noncontrolling interests totaled$358 million and$373 million atJune 30, 2022 andDecember 31, 2021 , respectively. The decrease of$15 million was primarily due to$13 million in distributions and$2 million in net loss attributable to noncontrolling interests for six months endedJune 30, 2022 . 88
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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$15.9 billion atJune 30, 2022 , a decrease of$318 million , or 2.0 percent, compared to$16.2 billion atDecember 31, 2021 . The decrease was primarily driven by other comprehensive income from unrealized losses recorded on AFS securities, net of tax, reflective of an increase in market rates. The decrease was further offset by an increase in the fair value of hedging instruments and retained earnings.
Funds generated through retained earnings are a significant source of capital and liquidity and are expected to continue to be so in the future.
Capital Ratios
BothSVB Financial and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. The following table represents the capital components forSVB Financial and the Bank used in calculating CET1, Tier 1 capital and total capital as ofJune 30, 2022 andDecember 31, 2021 : SVB Financial Bank December 31, December 31, June 30, 2022 2021 June 30, 2022 2021 Common stock plus related surplus, net of treasury stock$ 5,223 $ 5,157 $ 10,022 $ 9,265 Retained earnings 8,247 7,442 6,555 5,537 AOCI (1,198) (9) (1,191) (7) CET1 capital before adjustments and deductions 12,272 12,590 15,386 14,795 Less:Goodwill (net of associated deferred tax liabilities) 367 369 200 200 Intangibles (net of associated deferred tax liabilities) 132 133 70 70 AOCI opt-out election related adjustments (1,177) (18) (1,173) (17) Add: CECL transition provision 60 80 60 80 Total adjustments and deductions from CET1 capital (738) 404 (963) 173 CET1 Capital 13,010 12,186 16,349 14,622 Add: Qualifying Preferred stock 3,646 3,646 - - Minority interest 358 373 - - Less: Additional tier 1 capital deductions 104 - - - Additional tier 1 capital 3,900 4,019 - - Tier 1 Capital 16,910 16,205 16,349 14,622 Allowance for credit losses included in Tier 2 capital 776 600 776 600 CECL transition provision for allowance for credit losses (70) (93) (70) (93) Tier 2 Capital 706 507 706 507 Total capital$ 17,616 $
16,712
$ 108,599 $
100,812
$ 218,764 $ 204,380 $ 216,538 $ 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 for
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Required Minimum +
Capital Conservation Well Capitalized
June 30, 2022 December 31, 2021 Required Minimum Buffer (1) Minimum
SVB Financial : CET1 risk-based capital ratio (2)(3) 11.98 % 12.09 % 4.5 % 7.0 % N/A Tier 1 risk-based capital ratio (3) 15.57 16.08 6.0 8.5
6.0
Total risk-based capital ratio (3) 16.22 16.58 8.0 10.5
10.0
Tier 1 leverage ratio (2)(3) 7.73 7.93 4.0 N/A
N/A
Tangible common equity to tangible assets ratio (4)(5) 5.50 5.73 N/A N/A
N/A
Tangible common equity to risk-weighted assets ratio (4)(5) 10.84 11.98 N/A N/A N/A Bank: CET1 risk-based capital ratio (3) 15.39 % 14.89 % 4.5 % 7.0 % 6.5 % Tier 1 risk-based capital ratio (3) 15.39 14.89 6.0 8.5
8.0
Total risk-based capital ratio (3) 16.05 15.40 8.0 10.5
10.0
Tier 1 leverage ratio (3) 7.55 7.24 4.0 N/A
5.0
Tangible common equity to tangible assets ratio (4)(5) 7.15 7.09 N/A N/A
N/A
Tangible common equity to risk-weighted assets ratio (4)(5) 14.23 15.06 N/A N/A N/A (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 ofJune 30, 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 portfolios. The increase in regulatory capital was driven primarily by net income and an increase in the allowance for credit losses, 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 ratio forSVB Financial is reflective of the growth in our average assets outpacing our growth in regulatory capital. The increase in average assets forSVB Financial 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. 90
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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 endedJune 30, 2022 andDecember 31, 2021 : SVB Financial Bank December 31, December 31, (Dollars in millions) June 30, 2022 2021 June 30, 2022 2021 GAAP stockholders' equity$ 15,918 $
16,236
3,646 3,646 - -
Less: intangible assets 523 535 291 -
Plus: net deferred taxes on intangible
assets 24 26 22 -
Tangible common equity $ 11,773 $
12,081
$ 214,389 $
211,478
523 535 291 -
Plus: net deferred taxes on intangible
assets 24 26 22 -
Tangible assets $ 213,890 $ 210,969 $ 211,545 $ 208,576
Risk-weighted assets $ 108,599 $
100,812
5.50 % 5.73 % 7.15 % 7.09 %
Non-GAAP tangible common equity to
risk-weighted assets 10.84 11.98 14.23 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 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. 91
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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. AtJune 30, 2022 , our period-end total deposit balances were$187.9 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 and HTM 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 ofJune 30, 2022 , collateral pledged to the FHLB ofSan Francisco was comprised primarily of fixed income investment securities and loans and had a carrying value of$8.5 billion , of which$3.5 billion was available to support borrowings. As ofJune 30, 2022 , collateral pledged to the discount window at the FRB was comprised of fixed income investment securities and had a carrying value of$5.6 billion , all of which was unused and available to support additional borrowings. Our total unused and available borrowing capacity for our uncommitted federal funds lines totaled$3.0 billion atJune 30, 2022 . Our total unused and available secured borrowing capacity under our master repurchase agreements with various financial institutions totaled$29.0 billion atJune 30, 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 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,
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