Page Number
Overview of Company Operations 42
Management's Overview of December 31, 2022 Financial Performance 42
Critical Accounting Policies and Estimates 45
Allowance for Credit Losses 45
Results of Operations 46
Net Interest Income and Margin (Fully Taxable Equivalent Basis) 46
Average Balances, Yields and Rates Paid (Fully Taxable
Equivalent
Basis) 48
Provision for Credit Losses 50
Noninterest Income 51
Noninterest Expense 59
Income Taxes 60
Net Income Attributable to Noncontrolling Interests 61
Operating Segment Results 61
Silicon Valley Bank 62
SVB Private 62
SVB Capital 63
SVB Securities 63
Consolidated Financial Condition 63
Cash and Cash Equivalents 64
Investment Securities 64
Loans 69
Accrued Interest Receivable and Other Assets 78
Derivatives 79
Deposits 80
Short-Term Borrowings 81
Long-Term Debt 82
Other Liabilities 82
Noncontrolling Interests 82
Capital Resources 83
SVBFG Stockholders' Equity 83
Capital Ratios 83
Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations 85
Liquidity 86
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The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited consolidated financial
statements and supplementary data as presented under Part II, Item 8 of this
report. Certain prior period amounts have been reclassified to conform to
current period presentations. For a comparison of 2021 results to 2020 results
and other 2020 information not included herein, refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
Part II, Item 7 of our 2021 Form 10-K filed with the SEC on February 25, 2022.
The following discussion and analysis of our financial condition and results of
operations contains forward-looking statements. These statements are based on
current expectations and assumptions, which are subject to risks and
uncertainties. See our cautionary language at the beginning of this report under
"Forward-Looking Statements". Actual results could differ materially because of
various factors, including but not limited to those discussed in "Risk Factors,"
under Part I, Item 1A of this report.
Our fiscal year ends December 31st and, unless otherwise noted, references to
years or fiscal years are for fiscal years ended December 31st.
Overview of Company Operations
SVB Financial is a diversified financial services company, as well as a bank
holding company and a financial holding company. SVB Financial was incorporated
in the state of Delaware in March 1999. Through our various subsidiaries and
divisions, we offer a variety of banking and financial products and services.
For 40 years, we have been dedicated to helping innovative companies and their
investors succeed, especially in the technology, life science/healthcare,
private equity/venture capital and premium wine industries. We provide our
clients of all sizes and stages with a diverse set of products and services to
support them through all stages of their life cycles, and key innovation markets
around the world.
We offer commercial and private banking products and services through our
principal subsidiary, the Bank, which is a California-state chartered bank
founded in 1983 and a member of the Federal Reserve System. Through its
subsidiaries, the Bank also offers asset management, private wealth management
and other investment services. In addition, through SVB Financial's other
subsidiaries and divisions, we also offer investment banking services and
non-banking products and services, such as funds management, M&A advisory
services and venture capital and private equity investment.
Management's Overview of 2022 Financial Performance
2022 was a challenging year as prolonged market volatility slowed public and
private fundraising activity, which pressured our balance sheet growth and
valuations of our private fund investments. Despite these challenging market
conditions, we continued to deliver healthy results during 2022. Annual net
interest income grew by 41%, driven by higher interest rates and average fixed
income investment securities balances as well as strong loan growth even while
funding costs increased as a result of the imbalance between client liquidity
inflows from fundraising activities and declines from client cash burn. 2022 was
a record for core fee income (a non-GAAP measure) as higher interest rates drove
improved client investment fee margins. Despite pressured public markets, SVB
Securities revenue continued to deliver solid results supported by our past
investments to expand our investment banking capabilities and expertise. Credit
quality remained healthy overall in 2022. While nonperforming loans and net
charge offs did increase towards the end of the year as a result of current
market challenges, they still remain at relatively low levels.
Reference Rate Reform
The publication of the British Pound Sterling, Euro, Swiss Franc and Japanese
Yen LIBOR settings and one-week and two-month U.S. dollar LIBOR settings
terminated at the end of December 2021, leaving the remaining U.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 of June 2023. We hold
instruments that may be impacted by the discontinuance of LIBOR, including
loans, investments, debt and derivative products that use LIBOR as a benchmark
rate.
SVB has launched alternative reference rates in line with industry standards
across USD (SOFR), GBP (SONIA) and EUR (€STR). For USD, SVB supports Term SOFR
(one month, three month and six month tenors) and Daily Simple SOFR conventions.
We have made significant progress on legacy contract migration away from LIBOR
to alternate reference rates. SVB does not expect any material changes in net
interest income or net interest expense from product spread adjustments as a
result of offering alternative reference rates.
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Results for the fiscal year ended, and as of, December 31, 2022, (compared to
the fiscal year ended, and as of, December 31, 2021, where applicable):
BALANCE SHEET
EARNINGS
Assets. $216.1 billion in average total assets (up EPS. Earnings per diluted share of $25.35 (down
30.2%). $211.8 billion in period-end total assets 18.9%).
(up 0.2%).
Net Income. Consolidated net income available
Loans. $70.3 billion in average total loan to common stockholders of $1.5 billion (down
balances, amortized cost (up 28.9%). $74.3 billion 14.7%).
in period-end total loan balances, amortized cost - NII of $4.5 billion (up 41.1%).
(up 12.0%). - Net interest margin of 2.16% (up 14 bps).
Total Client Funds. (on-balance sheet deposits and - Noninterest income of $1.7 billion (down
off-balance sheet client investment funds). $374.9 36.9%), non-GAAP core fee income+ of $1.2
billion in average total client fund balances (up billion (up 57.3%) and non-GAAP SVB Securities
13.9%). $341.5 billion in period-end total client revenue++ of $518 million (down 3.7%).
fund balances (down 14.5%). - Noninterest expense of $3.6 billion (up
AFS/HTM Fixed Income Investments. $124.2 billion in 17.9%).
average fixed income investment securities (up
49.6%). $117.4 billion in period-end fixed income Return on Average Equity. Return on average
investment securities (down 6.4%). equity performance of 12.14%.
Operating Efficiency Ratio. Operating
efficiency ratio of 58.28%.
CAPITAL CREDIT QUALITY
Capital+++. Continued strong capital, with all Credit Quality. Healthy credit in an evolving
capital ratios considered "well-capitalized" under credit environment.
banking regulations. SVBFG and SVB capital ratios, - ACL of 0.86% as a percentage of period-end
respectively, were: total loans.
- CET1 risk-based capital ratio of 12.05% and - Allowance for unfunded credit commitments of
15.26%. 0.48% as a percentage of total unfunded credit
- Tier 1 risk-based capital ratio of 15.40% and commitments.
15.26%. - Provision for loans of 0.39% as a percentage
- Total risk-based capital ratio of 16.18% and of period-end
total loans.
16.05%. - Tier 1 leverage ratio of 8.11% and 7.96%. - Net loan charge-offs of 0.10% as a percentage
of average total
loans.
+ Consists of fee income for deposit services, letters of credit and standby
letters of credit, credit cards, client investments, wealth management and
trust, foreign exchange and lending-related activities. This is a non-GAAP
financial measure. (See the non-GAAP reconciliation under "Results of
Operations-Noninterest Income")
++ Consists of investment banking revenue and commissions. This is a non-GAAP
financial measure. (See the non-GAAP reconciliation under "Results of
Operations-Noninterest Income").
+++ In March 2020, the federal banking agencies provided transitional relief to
banking organizations with respect to the impact of CECL on regulatory capital.
Under the 2020 CECL Transition Rule, banking organizations may delay the
estimated impact of CECL on regulatory capital for two years, followed by a
three-year period to phase out the aggregate capital benefit provided during the
initial two-year delay. We have elected to use this five-year transition option.
For additional details, see "Capital Resources" within "Consolidated Financial
Condition" under Part 2, Item 7 of this report.
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A summary of our performance in 2022 compared to 2021 is as follows:
Year ended December 31,
(Dollars in millions, except per share data, employees and
ratios) 2022 2021 % Change
Income Statement:
Diluted EPS $ 25.35 $ 31.25 (18.9) %
Net income available to common stockholders 1,509 1,770 (14.7)
Net interest income 4,485 3,179 41.1
Net interest margin 2.16 % 2.02 % 14 bps
Provision for credit losses (1) (2) $ 420 $ 123 NM %
Noninterest income 1,728 2,738 (36.9)
Noninterest expense 3,621 3,070 17.9
Non-GAAP core fee income (3) 1,181 751 57.3
Non-GAAP core fee income, plus SVB Securities Revenue (3) 1,699 1,289 31.8
Balance Sheet:
Average AFS securities $ 28,795 $ 24,996 15.2 %
Average HTM securities 95,394 58,030 64.4
Average loans, amortized cost 70,289 54,547 28.9
Average noninterest-bearing demand deposits 109,748 99,461 10.3
Average interest-bearing deposits 76,013 48,486 56.8
Average total deposits 185,761 147,947 25.6
Earnings Ratios:
Return on average assets (4) 0.70 % 0.84 % (16.7) %
Return on average SVBFG common stockholders' equity (5) 12.14 17.10 (29.0)
Asset Quality Ratios:
ACL for loans as a % of total period-end loans 0.86 % 0.64 % 22 bps
ACL for performing loans as a % of total performing loans 0.79 0.58 21
Gross loan charge-offs as a % of average total loans (2) 0.15 0.25 (10)
Net loan charge-offs as a % of average total loans (2) 0.10 0.21 (11)
Capital Ratios:
SVBFG CET1 risk-based capital ratio 12.05 % 12.09 % (4) bps
SVBFG tier 1 risk-based capital ratio 15.40 16.08 (68)
SVBFG total risk-based capital ratio 16.18 16.58 (40)
SVBFG tier 1 leverage ratio 8.11 7.93 18
SVBFG tangible common equity to tangible assets (6) 5.62 5.73 (11)
SVBFG tangible common equity to risk-weighted assets (6) 10.46 11.98 (152)
Bank CET1 risk-based capital ratio 15.26 14.89 37
Bank tier 1 risk-based capital ratio 15.26 14.89 37
Bank total risk-based capital ratio 16.05 15.40 65
Bank tier 1 leverage ratio 7.96 7.24 72
Bank tangible common equity to tangible assets (6) 7.28 7.10 18
Bank tangible common equity to risk-weighted assets (6) 13.65 15.06 (141)
Other Ratios:
Operating efficiency ratio (7) 58.28 % 51.88 % 12.3 %
Total costs of deposits (8) 0.46 0.04 NM
Book value per common share (9) $ 208.85 $ 214.30 (2.5)
Tangible book value per common share (10) 200.77 205.64 (2.4)
Other Statistics:
Average full-time equivalent employees 7,817 5,466 43.0 %
Period-end full-time equivalent employees 8,553 6,567 30.2
(1)This metric for the year ended December 31, 2021, includes a post-combination
provision of $46 million to record the ACL for non-PCD loans and unfunded credit
commitments acquired from Boston Private.
(2)This metric for the year ended December 31, 2021, includes the impact of an
$80 million charge-off related to fraudulent activity discussed in previous
filings.
(3)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.
(4)Ratio represents consolidated net income available to common stockholders
divided by average assets.
(5)Ratio represents consolidated net income available to common stockholders
divided by average SVBFG stockholders' equity.
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(6)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.
(7)The operating efficiency ratio is calculated by dividing total noninterest
expense by total NII plus noninterest income.
(8)Ratio represents total cost of deposits and is calculated by dividing
interest expense from deposits by average total deposits.
(9)Book value per common share is calculated by dividing total SVBFG common
stockholders' equity by total outstanding common shares at period-end.
(10)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.
Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding our financial condition
and results of operations and are discussed in Note 2-"Summary of Significant
Accounting Policies" of the "Notes to the Consolidated Financial Statements"
under Part II, Item 8 of this report. 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.
This critical accounting policy addresses the adequacy of the ACL for loans and
unfunded credit commitments. Our senior management has discussed and reviewed
the development, selection, application and disclosure of this critical
accounting policy with the Audit Committee of our Board of Directors. The
following is a brief discussion of our critical accounting estimate and related
policy.
Allowance for Credit Losses
We consider this accounting policy to be critical as estimation of ECL involves
material management estimates and is susceptible to significant changes in the
near-term. Determining the ACL for loans and unfunded credit commitments
requires us to make forecasts that are highly uncertain and require a high
degree of judgment. A committee comprised of senior management evaluates the
adequacy of the ACL for loans, which includes review of loan portfolio
segmentation, quantitative models, internal and external data inputs, economic
forecasts, credit risk ratings and qualitative adjustments.
Expected Credit Losses Estimate for Loans and Unfunded Credit Commitments
The methodology for estimating the amount of ECL reported in the ACL is the sum
of two main components: (i) ECL assessed on a collective basis for pools of
loans and unfunded credit commitments that share similar risk characteristics
and (ii) ECL assessed for individual loans and unfunded credit commitments that
do not share similar risk characteristics with other loans. Estimating the
amount of ECL involves significant judgment on various matters including the
assessment of risk characteristics, assignment of risk ratings, development and
weighting of macroeconomic forecasts and incorporation of historical loss
experience.
We derive an estimate of ECL using three predictive metrics: (i) probability of
default ("PD"), (ii) loss given default ("LGD") and (iii) exposure at default
("EAD"), over the estimated life of the exposure. PD and LGD assumptions are
developed based on quantitative models and inherent risk of credit loss, both of
which involve significant judgment.
One of the most significant areas of judgment involved in estimating the ACL
relates to the macroeconomic forecasts used to estimate credit losses. To the
extent the remaining contractual lives of loans in the portfolio extend beyond
the forecast period, we revert to historical averages using a method that will
gradually trend towards the mean historical loss over the remaining contractual
lives of loans, adjusted for prepayments. The macroeconomic scenarios are
reviewed on a quarterly basis.
The selection of variables used in our econometric models varies by loan
portfolio, but typically includes real gross domestic product ("GDP") growth,
unemployment rates, Housing Price Index ("HPI") changes and BBB corporate bond
spread.
Changes in management's assumptions and macroeconomic forecasts could
significantly affect the estimate of ECL and alternative assumptions could have
a significant impact on the ECL. However, changing one assumption without
reassessing other assumptions used in the quantitative or qualitative process
could yield results that are not reasonable or appropriate. Our ECL models were
designed to capture the correlation between economic conditions and historical
portfolio changes. As such, evaluating shifts in individual variables in
isolation may not be indicative of past or future performance.
Given the range of the most significant macroeconomic variables in the upside,
or stronger near-term growth, and downside, or moderate recession, scenarios of
our forecast used to develop the ECL as of December 31, 2022, our portfolio
reserve coverage ranges from 0.71 percent to 1.10 percent, with a funded reserve
rate of 0.86 percent as of December 31,
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2022. This range demonstrates the sensitivity of the ECL to key quantitative
assumptions; however, it is not intended to estimate changes in the overall ECL
as it does not reflect qualitative factor adjustments which are important
considerations to ensure the allowance reflects our best estimate of current
expected credit losses.
We apply certain qualitative factor adjustments to the results obtained through
our quantitative ECL models to consider model imprecision, emerging risk
assessments, trends and other subjective factors that may not be adequately
represented in the quantitative ECL models. These adjustments to historical loss
information are for asset-specific risk characteristics and also reflect our
assessment of the extent that current conditions and reasonable and supportable
forecasts differ from conditions that existed during the period over which
historical information was evaluated. Given the current processes and risk
monitoring by the Bank, management believes the combination of the quantitative
model results and the qualitative factor adjustment represents a reasonable and
appropriate estimate of ECL.
Recent Accounting Pronouncements
In March 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 after
December 15, 2022, and interim periods within those fiscal years. We adopted
this standard on January 1, 2023 and did not transfer any securities to the AFS
portfolio. The adoption of this standard did not have a material impact on our
financial statements.
In March 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 after December
15, 2022, and interim periods within those fiscal years. We adopted this
standard on January 1, 2023. The adoption of this standard did not have a
material impact on our financial statements.
In June 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 after December 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)
NII is defined as the difference between: (i) interest earned on loans, fixed
income investments in our AFS and HTM securities portfolios and cash and cash
equivalents and (ii) interest paid on funding sources. Net interest margin is
defined as NII, on a fully taxable equivalent basis, as a percentage of average
interest-earning assets. NII 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)
NII is affected by changes in the amount and mix of interest-earning assets and
interest-bearing liabilities, referred to as "volume change." NII 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 years 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 2021 compared to 2020
Change due to Change due to
(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 $ (87)
$ 281 $ 194 $ 7 $ (15) $ (8)
Fixed income investment portfolio (taxable)
695 219 914 774 (210)
564
Fixed income investment portfolio (non-taxable) 48 (5) 43 71 (14) 57
Loans, amortized cost (1) 670 572 1,242 623 (177) 446
Increase (decrease) in interest income, net 1,326 1,067 2,393 1,475 (416)
1,059
Interest expense:
Interest-bearing checking and savings accounts 273 82 355 1 (3) (2)
Money market deposits 100 269 369 28 (21) 7
Money market deposits in foreign offices - 1 1 - - -
Time deposits 58 17 75 2 (1) 1
Sweep deposits in foreign offices - - - - (4)
(4)
Total increase (decrease) in deposits expense 431 369 800 31 (29) 2
Short-term borrowings 214 2 216 - (3) (3)
Long term debt 60 2 62 26 - 26
Total increase (decrease) in borrowings expense 274 4 278 26 (3)
23
Increase (decrease) in interest expense, net 705 373 1,078 57 (32)
25
Increase (decrease) in net interest income $ 621 $ 694 $ 1,315 $ 1,418 $ (384) $ 1,034
(1)Upon the completion of the Boston Private acquisition in July 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 year
ended December 31, 2022, $40 million of this premium amortization partially
offset the overall increase in NII. At December 31, 2022, $24 million of
unamortized fair market value adjustment was included in the line item "loans,
amortized cost" on the consolidated balance sheet.
Net Interest Income (Fully Taxable Equivalent Basis)
NII increased by $1.3 billion to $4.5 billion in 2022, compared to $3.2 billion
in 2021. Overall, our NII increased primarily from higher yields as well as
increases in average balances of our fixed income investment securities and
loans. The increase in NII was partially offset by higher rates on deposits as
well as increases in average balances of interest-bearing deposits and increases
in average balances of short-term borrowings.
The main factors affecting interest income and interest expense for 2022,
compared to 2021, are discussed below:
•Interest income for 2022 increased by $2.4 billion primarily due to:
•A $1.2 billion increase in interest income on loans to $3.2 billion in 2022,
compared to $2.0 billion for the comparable 2021 period. The increase in
interest income on loans was due primarily to an increase in average loan
balances of $15.7 billion as well as higher loan interest yields driven by the
increase in market rates,
•A $957 million increase in interest income from our fixed income investment
securities due primarily to an increase of $41.2 billion in average fixed income
investment securities and an increase in yields earned on these investments
reflective of lower premium amortization as a result of higher rates reducing
estimated prepayment speeds and
•A $194 million increase in interest income from increased market yields on
interest-earning cash, partially offset by a $6.1 billion decrease in average
cash balances.
•Interest expense for 2022 increased by $1.1 billion primarily due to:
•A $800 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
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•A $278 million increase in interest expense on borrowings due primarily to an
increase in average short-term borrowings driven by declines in deposits from
client cash burn as well as full year interest expense on our 1.800% Senior
Notes issued in October 2021 as well as interest expense on our 4.345% and
4.570% Senior Fixed Rate/Floating Rate Notes issued in April 2022 and long-term
FHLB advances issued in the fourth quarter of 2022.
Net Interest Margin (Fully Taxable Equivalent Basis)
Our net interest margin increased by 14 bps to 2.16 percent in 2022, compared to
2.02 percent in 2021.
•The higher margin for the year ended December 31, 2022, was due primarily to
improved yields reflective of a higher rate environment and the decrease in
premium amortization mentioned above, partially offset by 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 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 interest expense expressed as a percentage of average funding sources. The
following tables set forth average assets, liabilities, NCI, preferred stock and
SVBFG stockholders' equity, interest income, interest expense, yields and rates
and the composition of our net interest margin in 2022, 2021 and 2020:
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Average Balances, Yields and Rates Paid for the Years Ended December 31, 2022,
2021 and 2020
Year ended December 31,
2022 2021 2020
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense Rate 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) $ 14,742 $ 212 1.44 % $ 20,800 $ 18 0.08 % $ 12,252 $ 26 0.21 %
Investment Securities: (2)
AFS securities:
Taxable (3) 28,795 458 1.59 24,996 334 1.34 18,653 337 1.81
HTM securities:
Taxable 88,403 1,655 1.87 52,937 865 1.63 10,728 298 2.78
Non-taxable (4) 6,991 177 2.54 5,093 134 2.63 2,385 77 3.24
Total loans, amortized cost (5) (6) 70,289 3,208 4.56 54,547 1,966 3.60 37,266 1,520 4.08
Total interest-earning assets 209,220 5,710 2.73 158,373 3,317 2.09 81,284 2,258 2.77
Cash and due from banks 2,367 2,241 1,021
ACL: loans (503) (441) (509)
Other assets (3) (7) 5,019 5,838 3,996
Total assets $ 216,103 $ 166,011 $ 85,792
Funding sources:
Interest-bearing liabilities:
Interest-bearing checking and savings
accounts $ 16,229 $ 360 2.22 % $ 3,924 $ 5 0.12 % $ 2,874 $ 7 0.24 %
Money market deposits 54,493 423 0.78 41,481 54 0.13 19,741 47 0.24
Money market deposits in foreign offices 530 1 0.15 918 - 0.02 330 - 0.09
Time deposits 3,787 78 2.06 994 3 0.31 336 2 0.56
Sweep deposits in foreign offices 974 - 0.04 1,169 - 0.01 1,542 4 0.27
Total interest-bearing deposits 76,013 862 1.13 48,486 62 0.13 24,823 60 0.24
Short-term borrowings 7,398 216 2.92 74 - 0.16 401 3 0.83
Long term debt 3,521 110 3.12 1,775 48 2.70 632 22 3.45
Total interest-bearing liabilities 86,932 1,188 1.37 50,335 110 0.22 25,856 85 0.33
Portion of noninterest-bearing funding
sources 122,288 108,038 55,428
Total funding sources 209,220 1,188 0.57 158,373 110 0.07 81,284 85 0.10
Noninterest-bearing funding sources:
Demand deposits 109,748 99,461 50,193
Other liabilities 2,998 3,660 2,168
Preferred stock 3,646 1,925 340
SVBFG common stockholders' equity 12,429 10,353 7,080
Noncontrolling interests 350 277 155
Portion used to fund interest-earning
assets (122,288) (108,038)
(55,428)
Total liabilities, noncontrolling interest
and SVBFG stockholders' equity $ 216,103 $ 166,011 $ 85,792
Net interest income and margin $ 4,522 2.16 % $ 3,207 2.02 % $ 2,173 2.67 %
Total deposits $ 185,761 $ 147,947 $ 75,016
Average SVBFG common stockholders' equity
as a percentage of average assets 5.75 % 6.24 % 8.25 %
Reconciliation to reported net interest
income:
Adjustments for taxable equivalent basis (37) (28) (16)
Net interest income, as reported $ 4,485 $ 3,179 $ 2,157
(1)Includes average interest-earning deposits in other financial institutions of
$5.3 billion, $4.6 billion and $1.1 billion in the years ended December 31,
2022, December 31, 2021, and December 31, 2020, respectively. For December 31,
2022, December 31, 2021, and December 31, 2020, balances also include $9.2
billion, $15.9 billion and $9.9 billion, respectively, deposited at the FRB,
earning interest at the Federal Funds target rate.
(2)Yields on interest-earning investment securities do not give effect to
changes in fair value that are reflected in other comprehensive income.
(3)Average unrealized losses on AFS securities of $1.7 billion and average
unrealized gains of $163 million and $562 million for the year ended December
31, 2022, December 31, 2021 and December 31, 2020, respectively, were
reclassified out of AFS securities into other assets.
(4)Interest income on non-taxable investment securities is presented on a fully
taxable equivalent basis using the federal statutory income tax rate of 21.0
percent for all periods presented.
(5)Nonaccrual loans are reflected in the average balances of loans.
(6)Interest income includes loan fees of $207 million, $217 million and $191
million in the years ended December 31, 2022, December 31, 2021, and December
31, 2020, respectively.
(7)Average nonmarketable and other equity securities of $2.6 billion, $3.0
billion and $1.4 billion in the years ended December 31, 2022, December 31,
2021, and December 31, 2020, respectively, were classified as other assets as
they are noninterest-earning assets.
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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 and provision for credit losses for
loans, unfunded credit commitments and HTM securities for 2022, 2021 and 2020,
respectively:
Year ended December 31,
(Dollars in millions) 2022 2021 2020
ACL, beginning balance $ 422 $ 448 $ 305
Day one impact of adopting ASC 326 - - 25
Initial allowance on PCD loans - 22 -
Provision for loans (1) (2) 288 66 190
Gross loan charge-offs (2) (103) (138) (103)
Loan recoveries 32 24 29
Foreign currency translation adjustments (3) - 2
ACL, ending balance $ 636 $ 422 $ 448
ACL for unfunded credit commitments, beginning balance 171 121 68
Day one impact of adopting ASC 326 - - 23
Provision for unfunded credit commitments (1) 133 50 30
Foreign currency translation adjustments (1) - -
ACL for unfunded credit commitments, ending balance (3) $ 303
$ 171 $ 121
ACL for HTM securities, beginning balance 7 - -
Provision (reduction in ACL) for HTM securities (1) 7 -
ACL for HTM securities, ending balance (4) $ 6 $ 7 $ -
Ratios and other information:
Provision for loans as a percentage of period-end total
loans (2)
0.39 % 0.10 % 0.42 %
Gross loan charge-offs as a percentage of average total
loans (2)
0.15 0.25 0.28
Net loan charge-offs as a percentage of average total
loans (2)
0.10 0.21 0.20
ACL for loans as a percentage of period-end total loans 0.86 0.64 0.99
Provision for credit losses $ 420 $ 123 $ 220
Period-end total loans 74,250 66,276 45,181
Average total loans 70,289 54,547 37,266
Allowance for loan losses for nonaccrual loans 51 35 54
Nonaccrual loans 132 84 104
(1)The provision for credit losses for the year ended December 31, 2021 includes
$46 million recognized as a result of the Boston Private acquisition, which
consists of a $44 million initial provision for loans related to non-PCD loans
and a $2 million initial provision for unfunded commitments.
(2)Metrics for the year ended December 31, 2021 includes the impact of an $80
million charge-off related to fraudulent activity on one loan as disclosed in
previous filings.
(3)The "ACL for unfunded credit commitments" is included as a component of
"Other liabilities" on our consolidated balance sheets.
(4)The "ACL for HTM securities" is included as a component of "HTM securities"
and presented net in our consolidated financial statements.
For a more detailed discussion of credit quality and the ACL, see "Critical
Accounting Policies and Estimates" above, "Consolidated Financial
Condition-Credit Quality and the Allowance for Credit Losses for Loans and for
Unfunded Credit Commitments" below and Note 10-"Loans and Allowance for Credit
Losses: Loans and Unfunded Credit Commitments" of the "Notes to the Consolidated
Financial Statements" under Part II, Item 8 of this report for further details
on our ACL.
Provision for Loans
We had a provision for credit losses for loans of $288 million in 2022, compared
to a provision of $66 million in 2021. The provision for loans of $288 million
in 2022 was driven primarily by the deterioration in projected financial
conditions which accounted for $129 million, of which $89 million was taken in
the second quarter. Other major drivers of the provision
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were $82 million in charge-offs not previously specifically reserved for and $74
million due to loan growth. The largest offset was $32 million in recoveries.
We had a provision for loans of $66 million in 2021, driven primarily by a $64
million increase for organic growth in our loan portfolio, $44 million initial
provision from acquired Boston Private non-PCD loans and $113 million of
charge-offs not previously specifically reserved for, of which $80 million was
related to a single instance of fraudulent activity on one loan as disclosed in
previous filings. These increases in the provision were partially offset by $24
million of recoveries, a $62 million reduction in performing reserves as a
result of the ongoing improvement of economic scenarios in our forecast models
and a $69 million reduction in provision due to enhancements made in the model.
We had a provision for loans of $190 million in 2020, driven primarily by $60
million in net new nonaccrual loans and $57 million in additional reserves for
our performing loans based on the forecast models of the economic environment at
the time, including the impact of the COVID-19 pandemic, as well as changes in
loan composition within our portfolio segments. The provision was also driven by
$55 million in additional reserves for period-end loan growth and $49 million
for charge-offs not specifically reserved for, partially offset by $29 million
of recoveries.
Provision for Unfunded Credit Commitments
We recorded a provision for unfunded credit commitments of $133 million in 2022,
compared to a provision of $50 million in 2021. Our provision for unfunded
credit commitments in 2022 was driven primarily by the deterioration in economic
forecasts described above which accounted for $67 million. Growth in our
unfunded commitments contributed to an additional $61 million in provision.
We recorded a provision for unfunded credit commitments of $50 million in 2021.
Our provision for unfunded credit commitments in 2021 was driven primarily by
growth in our outstanding commitments and changes in the unfunded portfolio
composition, as well as an increase in the expected future commitments for
milestone tranches of Investor Dependent loans, which are tied to company
performance or additional funding rounds, resulting in a longer weighted average
life of these higher risk segments. These increases were partially offset by
improved economic scenarios in our forecast models.
We recorded a provision for unfunded credit commitments of $30 million in 2020,
driven primarily by the forecast models of the economic environment at the time,
including the impact of the COVID-19 pandemic, as well as growth in unfunded
credit commitments.
Provision for HTM Securities
We recorded a reduction in the allowance for credit losses for HTM securities of
$1 million in 2022. This reflects a release of reserves driven primarily by the
ongoing stability of our HTM securities portfolio during the year. Our HTM
portfolio as of December 31, 2022, was entirely made up of A3 or better rated
bonds, all considered investment grade.
We recorded a provision for HTM securities of $7 million in 2021. Our provision
for HTM securities was driven primarily by the creation of our corporate bond
portfolio, which had a balance of $712 million at December 31, 2021. Our HTM
portfolio as of December 31, 2021, was entirely made up of A3 or better rated
bonds, all considered investment grade.
We recorded a provision for HTM securities of less than $1 million in 2020. The
nominal provision for HTM securities was driven primarily by the forecast models
of the economic environment at the time. Our HTM portfolio as of December 31,
2020, was entirely made up of Aa2 or better rated bonds, all considered high
quality.
See Note 10-"Loans and Allowance for Credit Losses: Loans and Unfunded Credit
Commitments" of the "Notes to the Consolidated Financial Statements" under Part
II, Item 8 of this report for further details on our gross loan charge-offs and
our ACL for loans and unfunded credit commitments.
Noninterest Income
For the year ended December 31, 2022, noninterest income was $1.7 billion,
compared to $2.7 billion for the comparable 2021 period. For the year ended
December 31, 2022, non-GAAP core fee income was $1.2 billion, compared to $751
million for the comparable 2021 period. For the year ended December 31, 2022,
non-GAAP SVB Securities revenue was $518 million, compared to $538 million for
the comparable 2021 period. (See reconciliations of non-GAAP measures used below
under "Use of Non-GAAP Financial Measures".)
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Use of Non-GAAP Financial Measures
To supplement our audited 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 (losses) on investment securities, net of NCI 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 NCI. We recognize,
as part of our investment funds management business through SVB Capital and SVB
Securities, the entire income or loss from funds consolidated in accordance with
ASC Topic 810 as discussed in Note 2-"Summary of Significant Accounting
Policies" of the "Notes to the Consolidated Financial Statements" under Part II,
Item 8 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 (losses) on investment securities exclude NCI.
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 plus SVB 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 plus SVB Securities
revenue represents core fee income plus investment banking revenue and
commissions.
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The following table provides a reconciliation of GAAP noninterest income to
non-GAAP core fee income for 2022, 2021 and 2020, respectively:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
GAAP noninterest income $ 1,728 $ 2,738 (36.9) % $ 1,840 48.8 %
Less: gains (losses) on investment securities, net (285) 761 (137.5) 421 80.8
Less: gains on equity warrant assets, net 148 560 (73.6) 237 136.3
Less: other noninterest income 166 128 29.7 98 30.6
Non-GAAP core fee income plus SVB Securities
revenue (1) $ 1,699 $ 1,289 31.8 $ 1,084 18.9
Investment banking revenue 420 459 (8.5) 414 10.9
Commissions 98 79 24.1 67 17.9
Non-GAAP SVB Securities revenue (2) $ 518 $ 538 (3.7) $ 481 11.9
Non-GAAP core fee income (3) $ 1,181 $ 751 57.3 $ 603 24.5
(1)Non-GAAP core fee income plus SVB Securities revenue represents noninterest
income, but excludes certain line items where performance is typically subject
to market or other conditions beyond our control and other noninterest income.
Core fee income plus SVB Securities revenue is non-GAAP core fee income (as
defined in footnote (3) below) with the addition of investment banking revenue
and commissions.
(2)Non-GAAP SVB Securities revenue represents investment banking revenue and
commissions, but excludes certain line items where performance is typically
subject to market or other conditions beyond our control and other noninterest
income.
(3)Non-GAAP core fee income represents noninterest income, but excludes (i)
certain line items where performance is typically subject to market or other
conditions beyond our control, (ii) our investment banking revenue and
commissions and (iii) other noninterest income. Non-GAAP core fee income
includes client investment fees, wealth management and trust fees, foreign
exchange fees, credit card fees, deposit service charges, lending related fees
and letters of credit and standby letters of credit fees.
Gains (losses) on Investment Securities, Net
Net gains (losses) 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.
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The following tables provide a reconciliation of GAAP total gains (losses) on
investment securities, net, to non-GAAP net gains (losses) on investment
securities, net of NCI, for 2022, 2021 and 2020:
Managed
Managed Direct Strategic
Funds of Venture Managed Public Equity Sales of AFS Debt Debt and Other
(Dollars in millions) Funds Funds Credit Funds Securities Securities Funds Investments SVB Securities Total
Year ended December 31,
2022
GAAP gains (losses) on
investment securities, net $ (125) $ 7 $
8 $ (46) $ 21 $ - $ (119) $ (31) $ (285)
Less: (losses) gains
attributable to NCI,
including carried interest
allocation (59) 1 3 - - - - (7) (62)
Non-GAAP net gains
(losses) on investment
securities, net of NCI $ (66) $ 6 $ 5 $ (46) $ 21 $ - $ (119) $ (24) $ (223)
Year ended December 31,
2021
GAAP gains (losses) on
investment securities, net $ 353 $ 44 $ 22 $ 17 $ 31 $ 2 $ 170 $ 122 $ 761
Less: gains attributable
to NCI, including carried
interest allocation 158 17 4 - - - - 61 240
Non-GAAP net gains
(losses) on investment
securities, net of NCI $ 195 $ 27 $ 18 $ 17 $ 31 $ 2 $ 170 $ 61 $ 521
Year ended December 31,
2020
GAAP gains (losses) on
investment securities, net $ 116 $ 56 $ 19 $ 95 $ 61 $ - $ 66 $ 8 $ 421
Less: gains attributable
to NCI, including carried
interest allocation 55 27 3 - - - - 1 86
Non-GAAP net gains
(losses) on investment
securities, net of NCI $ 61 $ 29 $ 16 $ 95 $ 61 $ - $ 66 $ 7 $ 335
In 2022, we had net losses on investment securities of $285 million, compared to
net gains of $761 million in 2021. Non-GAAP net losses on investment securities,
net of NCI were $223 million in 2022, compared to net gains of $521 million in
2021. Net losses on investment securities, net of NCI of $223 million in 2022
were driven by the following:
•Total net loss of $275 million ($209 million, net of NCI) in our managed funds
of funds, SVB Securities and strategic and other investment portfolios were
driven primarily by valuation declines reflective of adverse market conditions,
partially offset by
•Net gains of $21 million on the sale of $9.5 billion of AFS debt securities,
inclusive of the gains from the termination of AFS fair value swaps.
•Net losses in our managed funds of funds portfolio are also partially offset by
gains of $40 million, included in other noninterest income, for the change in
fair value of hedge instruments for certain funds.
In 2021, we had net gains on investment securities of $761 million, compared to
$421 million in 2020. Non-GAAP net gains on investment securities, net of NCI
were $521 million in 2021, compared to $335 million in 2020, respectively. Net
gains on investment securities, net of NCI of $521 million in 2021 were driven
by the following:
•Gains of $195 million from our managed fund of funds portfolio driven by
unrealized valuations increases of private and public positions as well as fund
distributions driven primarily by realized gains from one public company
position,
•Gains of $170 million from our strategic and other investments driven primarily
by net unrealized valuation increases,
•Gains of $61 million from SVB Securities driven primarily by unrealized
valuation gains from the SVB Securities funds and
•Gains of $31 million from our AFS debt securities portfolio, resulting from the
sale of $1.6 billion of mortgage-backed securities.
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Gains on Equity Warrant Assets, Net
A summary of gains on equity warrant assets, net, for 2022, 2021 and 2020 is as
follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Equity warrant assets (1):
Gains on exercises, net $ 45 $ 446 (89.9) % $ 179 149.2 %
Terminations (4) (2) 100.0 (2) -
Changes in fair value, net 107 116 (7.8) 60 93.3
Total gains on equity warrant assets, net $ 148 $ 560 (73.6) $ 237 136.3
(1)At December 31, 2022, we held warrants in 3,234 companies, compared to 2,831
companies at December 31, 2021. The total fair value of our warrant portfolio
was $383 million at December 31, 2022 and $277 million at December 31, 2021.
Warrants in 65 companies each had fair values greater than $1 million and
collectively represented $199 million, or 51.9 percent, of the fair value of the
total warrant portfolio at December 31, 2022.
Gains on equity warrant assets, net, were $148 million in 2022, compared to $560
million in 2021. Net gains on equity warrant assets of $148 million in 2022 were
primarily due to the following:
•Net gains on equity warrant assets were driven by $107 million in net valuation
increases reflective of private company valuation updates and inclusive of a
downward valuation adjustment of $8 million for illiquid investments during the
second quarter of 2022, reflective of market volatility and
•Net gains on warrant exercises of $45 million driven primarily by M&A activity.
Gains on equity warrant assets, net, were $560 million in 2021, compared to $237
million in 2020. Net gains on equity warrant assets of $560 million in 2021 were
primarily due to the following:
•Net gains on warrant exercises of $446 million reflective of $116 million in
gains related to Coinbase's direct listing, with the remaining gains driven
primarily by IPO activity and
•Net gains of $116 million from warrant valuations increases, driven by our
private company portfolio reflective of pricing updates and pending exit
activity.
Overall, net gains on investment securities and net gains on equity warrant
assets were exceptionally strong for 2021. Combined, they totaled $1.3 billion
($1.1 billion net of NCI) for the year ended December 31, 2021.
Gains (or losses) related to our equity securities in public companies are based
on valuation changes or the sale of any securities, and are subject to such
companies' stock price, which are subject to market conditions and various other
factors. Additionally, the public equity investment expected gains and losses,
and the extent to which such gains (or losses) will become realized is subject
to a variety of factors, including among other factors, changes in prevailing
market prices and the timing of any sales of securities, which are subject to
our securities sales and governance process as well as certain sales
restrictions (e.g., lock-up agreements).
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Non-GAAP Core Fee Income and Non-GAAP SVB Securities Revenue
Year ended December 31,
% Change
(Dollars in millions) 2022 2021 % Change 2022/2021 2020 2021/2020
Non-GAAP core fee income (1):
Client investment fees $ 386 $ 75 NM $ 132 (43.2) %
Wealth management and trust fees 83 44 88.6 - -
Foreign exchange fees 285 262 8.8 179 46.4
Credit card fees 150 131 14.5 98 33.7
Deposit service charges 126 112 12.5 90 24.4
Lending related fees 94 76 23.7 57 33.3
Letters of credit and standby letters of credit
fees 57 51 11.8 47
8.5
Total non-GAAP core fee income (1) $ 1,181 $ 751 57.3 $ 603
24.5
Investment banking revenue 420 459 (8.5) 414 10.9
Commissions 98 79 24.1 67 17.9
Total non-GAAP SVB Securities revenue (2) $ 518 $ 538 (3.7) $ 481
11.9
Total non-GAAP core fee income plus SVB Securities
revenue (3) $ 1,699 $ 1,289 31.8 $ 1,084 18.9
(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.
(3)Non-GAAP core fee income plus 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 and (ii) other
noninterest income. See "Use of Non-GAAP Measures" above.
Client Investment Fees
We offer a variety of investment products on which we earn fees. These products
include money market mutual funds, overnight repurchase agreements and sweep
money market funds available through the Bank and fixed income management
services offered through SVB Asset Management, our investment advisory
subsidiary.
Client investment fees were $386 million in 2022, compared to $75 million in
2021. The increase was reflective of improved fee margins resulting from higher
short-term interest rates driven by the 2022 Federal Funds rate increases. A
summary of client investment fees by type for 2022 , 2021 and 2020 is as
follows:
Year ended December 31,
% Change
(Dollars in millions) 2022 2021 % Change 2022/2021 2020
2021/2020
Client investment fees by type:
Sweep money market fees $ 215 $ 43 NM $ 74 (41.9) %
Asset management fees 57 31 83.9 43 (27.9)
Repurchase agreement fees 114 1 NM 15 (93.3)
Total client investment fees $ 386 $ 75 NM $ 132 (43.2)
The following table summarizes average client investment funds for 2022, 2021
and 2020:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Sweep money market funds $ 89,305 $ 88,913 0.4 % $ 50,828 74.9 %
Managed client investment funds (1) 85,922 78,450 9.5 56,473 38.9
Repurchase agreements 13,888 13,830 0.4 10,079 37.2
Total average client investment funds
(2) $ 189,115 $ 181,193 4.4 $ 117,380 54.4
(1)These funds represent investments in third-party money market mutual funds
and fixed-income securities managed by SVB Asset Management.
(2)Client investment funds are maintained at third-party financial institutions
and are not recorded on our balance sheet.
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The following table summarizes period-end client investment funds at December
31, 2022, 2021 and 2020:
December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Sweep money market funds $ 64,262 $ 109,241 (41.2) % $ 59,844 82.5 %
Managed client investment funds (1) 89,392 85,475 4.6 70,671 20.9
Repurchase agreements 14,723 15,370 (4.2) 10,538 45.9
Total period-end client investment
funds (2) $ 168,377 $ 210,086 (19.9) $ 141,053 48.9
(1)These funds represent investments in third-party money market mutual funds
and fixed-income securities managed by SVB Asset Management.
(2)Client investment funds are maintained at third-party financial institutions
and are not recorded on our balance sheet.
Wealth Management and Trust Fees
Wealth management and trust fees was a new core fee income line item for the
year ended 2021 reflective of the acquisition of Boston Private. Wealth
management and trust fees were $83 million in 2022 as compared to $44 million in
2021. The increase was due to the acquisition of Boston Private occurring in the
third quarter of 2021. A summary of wealth management and trust fees for 2022,
2021 and 2020 is as follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Wealth management and trust fees by type:
Wealth management fees $ 75 $ 40 87.5 % $ - - %
Trust fees 8 4 100.0 - -
Total wealth management and trust fees $ 83 $ 44 88.6 $ - -
The following table summarizes the activity and balances relating to SVB Private
AUM and AUA for the years ended December 31, 2022 and December 31, 2021.
Year ended December 31,
(Dollars in millions) 2022 2021
Beginning balance AUM / AUA (1) $ 19,646 $ 1,667
AUM / AUA acquired (2) - 17,980
Net flows 329 (922)
Market returns (2,681) 921
Ending balance AUM / AUA (3) 17,294 19,646
(1)Represents SVB Private AUM previously reported in off-balance sheet managed
client investment funds for the year ended December 31, 2020.
(2)Represents $15.9 billion of AUM and $2.1 billion of AUA acquired from the
acquisition of Boston Private on July 1, 2021.
(3)Includes approximately $14.8 billion and $16.8 billion of AUM at December 31,
2022 and 2021, respectively.
Foreign Exchange Fees
Foreign exchange fees were $285 million in 2022, compared to $262 million in
2021. The increase in foreign exchange fees was driven primarily by increases in
forward and spot contract commissions reflective of the increased volume of
client trades. A summary of foreign exchange fees by instrument type for 2022,
2021 and 2020 is as follows:
Year ended December 31,
% Change
(Dollars in millions) 2022 2021 2022/2021 2020 % Change
2021/2020
Foreign exchange fees by instrument type:
Foreign exchange contract commissions $ 282 $ 260 8.5 % $ 178 46.1
Option premium fees 3 2 50.0 1 100.0
Total foreign exchange fees $ 285 $ 262 8.8 $ 179 46.4
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Credit Card Fees
Credit card fees were $150 million in 2022, compared to $131 million in 2021.
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 when travel was down due to the impact
of COVID-19. A summary of credit card fees by instrument type for 2022, 2021 and
2020 is as follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Credit card fees by instrument type:
Card interchange fees, net $ 117 $ 108 8.3 % $ 76 42.1 %
Merchant service fees 26 18 44.4 18 -
Card service fees 7 5 40.0 4 25.0
Total credit card fees $ 150 $ 131 14.5 $ 98 33.7
Deposit Service Charges
Deposit service charges were $126 million in 2022, compared to $112 million in
2021. Deposit service charges increased primarily driven by higher volumes of
our transaction-based fee products.
Lending Related Fees
Lending related fees were $94 million in 2022, compared to $76 million in 2021.
The increase was primarily due to an increase in unused commitment fees
associated with an increase in unfunded credit commitments. A summary of lending
related fees by type for 2022, 2021 and 2020 is as follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Lending related fees by instrument type:
Unused commitment fees $ 70 $ 59 18.6 % $ 42 40.5 %
Other 24 17 41.2 15 13.3
Total lending related fees $ 94 $ 76 23.7 $ 57 33.3
Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees were $57 million in 2022,
compared to $51 million in 2021. The increase was primarily driven by growth in
commitment balances.
Investment Banking Revenue
Investment banking revenue was $420 million in 2022, compared to $459 million in
2021. The decrease was primarily driven by the slowdown in public markets, which
limited underwriting fees, partially offset by increased advisory fees
reflective of past hiring and investment to expand our investment banking
capabilities. A summary of investment banking revenue by type for 2022, 2021 and
2020 is as follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Investment banking revenue:
Underwriting fees $ 163 $ 304 (46.4) % $ 353 (13.9) %
Advisory fees 214 90 137.8 40 125.0
Private placements and other 43 65 (33.8) 21 NM
Total investment banking revenue $ 420 $ 459 (8.5) $ 414 10.9
Commissions
Commissions were $98 million in 2022, compared to $79 million in 2021.
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.
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Fees received before the subscription period ends are initially recorded as
deferred revenue (a contract liability) in other liabilities in our consolidated
balance sheet. The increase in commissions was driven by subscription fees,
which are new to core fee income due to the acquisition of MoffettNathanson in
December 2021.
Other Noninterest Income
Other noninterest income in 2022 was $166 million, compared to $128 million in
2021. The increase was primarily due to the $40 million increase in fair value
of the instrument hedging of certain funds within our managed fund of funds
portfolio.
Noninterest Expense
A summary of noninterest expense for 2022, 2021 and 2020 is as follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Compensation and benefits $ 2,293 $ 2,015 13.8 % $ 1,318 52.9 %
Professional services 480 392 22.4 247 58.7
Premises and equipment 269 178 51.1 127 40.2
Net occupancy 101 83 21.7 101 (17.8)
Business development and travel 85 24 NM 24 -
FDIC and state assessments 75 48 56.3 28 71.4
Merger-related charges 50 129 (61.2) - -
Other 268 201 33.3 190 5.8
Total noninterest expense $ 3,621 $ 3,070 17.9 $ 2,035 50.9
Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense:
Year ended December 31,
% Change % Change
(Dollars in millions, except employees) 2022 2021 2022/2021 2020 2021/2020
Compensation and benefits:
Salaries and wages $ 1,080 $ 721 49.8 % $ 516 39.7 %
Incentive compensation plans 668 784 (14.8) 464 69.0
Other employee incentives and benefits (1) 545 510 6.9 338 50.9
Total compensation and benefits $ 2,293 $ 2,015 13.8 $ 1,318 52.9
Period-end FTEs 8,553 6,567 30.2 4,461 47.2
Average FTEs 7,817 5,466 43.0 4,040 35.3
(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 $2.3 billion in 2022, compared to $2.0
billion in 2021. The key factors driving the increase in compensation and
benefits expense in 2022 were as follows:
•An increase of $359 million in salaries and wages expense and an increase of
$35 million in other employee incentives and benefits were primarily due to an
increase in FTE employees, as we continue to invest in our revenue-generating
lines of business, support and risk management functions as well as the impact
of annual merit increases, partially offset by
•A decrease of $116 million in incentive compensation plans expense related
primarily to a decrease in our incentive compensation plan accrual as a result
of our 2022 results, partially offset by an increase in the number of plan
participants along with higher incentive compensation targets driven by annual
salary increases and promotions.
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Professional Services
Professional services expense was $480 million in 2022, compared to $392 million
in 2021. The increase was driven by higher consulting fees associated with our
initiatives related to our regulatory programs as well as continued investments
in our infrastructure and operating projects to support our presence both
domestically and internationally.
Premises and Equipment
Premises and equipment expense was $269 million in 2022, compared to $178
million in 2021. The increase was primarily related to higher computer software
support and maintenance fees driven by new contracts and the renewal of existing
contracts as well as an increase in software project depreciation.
Net Occupancy
Net occupancy expense was $101 million in 2022, compared to $83 million in 2021.
The increase was driven by increased amortization expenses on new leases and
extensions, a full year impact of the Boston Private acquisition and expansion
of the SVB Securities team to support individuals hired throughout 2021.
Business Development and Travel
Business development and travel expense was $85 million in 2022, compared to $24
million in 2021. The increase was primarily due to the continued easing of
COVID-19 restrictions on in-person meetings and travel that were previously in
place.
FDIC and State Assessments
FDIC and state assessments expense was $75 million in 2022, compared to $48
million in 2021. The increase was due primarily to the increase in our average
deposits as well as the acquisition of Boston Private deposits in 2021.
Merger-related Charges
Merger-related charges was a new noninterest expense line item for 2021 as a
result of the Boston Private acquisition. A summary of merger-related charges,
which includes direct acquisition costs for the years ended 2022 and 2021 is as
follows:
Year ended December 31,
(Dollars in millions) 2022 2021
Personnel-related $ 7 $ 17
Occupancy and facilities 4 39
Professional services 18 56
Systems integration and related charges 21 17
Total merger-related charges $ 50 $ 129
Other Noninterest Expense
Other noninterest expense was $268 million in 2022, compared to $201 million in
2021. This increase was driven by higher amortization expense of intangible
assets primarily related to Boston Private, higher expenses related to increased
lending, deposit and other client-related processing costs and higher
advertising and promotional expenses.
Operating Efficiency Ratio
Our operating efficiency ratio increased to 58.28 percent for the year ended
December 31, 2022, compared to 51.88 percent for the year ended December 31,
2021. This increase was driven by lower noninterest income driven by net losses
on investment securities as well as lower net gains on equity warrant assets and
higher noninterest expense driven by increased compensation and benefits
expense. These changes were partially offset by higher net interest income
driven by higher yields as well as increases in average balances of our fixed
income investment securities and loans.
Income Taxes
Our effective income tax rate was 25.2 percent in 2022, compared to 26.2 percent
in 2021. The decrease in our effective tax rate for the year ended December 31,
2022, was attributable to increased state tax and tax-exempt interest benefits.
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 NCI. The
components of our effective tax rates for 2022 and 2021 are discussed in Note
18-"Income Taxes" of the "Notes to the Consolidated Financial Statements" under
Part II, Item 8 of this report.
The Inflation Reduction Act (IRA) of 2022 was signed into law in August 2022.
Among other things, the IRA introduced a new corporate alternative minimum tax
(CAMT) on public corporations with financial profits over $1 billion. The CAMT
will apply to tax years beginning after December 31, 2022, and we are evaluating
its impact on the Company.
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Net Loss (Income) Attributable to NCI
Included in net loss (income) is loss (income) and expense attributable to NCI.
The relevant amounts allocated to investors in our consolidated subsidiaries,
other than us, are reflected under "net loss (income) attributable to
noncontrolling interests" on our consolidated statements of income.
In the table below, noninterest loss (income) consists primarily of net
investment gains and losses from our consolidated funds. Noninterest expense is
primarily related to management fees paid by our managed funds to SVB
Financial's subsidiaries as the managed funds' general partners. A summary of
net loss (income) attributable to NCI for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions) 2022 2021 % Change 2022/2021 2020 % Change 2021/2020
Noninterest loss (income) (1) $ 64 $ (124) (151.6) $ (29) NM
Noninterest expense (1) 1 1 - - -
Carried interest allocation (2) (2) (117) (98.3) (57) 105.3
Net loss (income) attributable to
noncontrolling interests $ 63 $ (240) (126.3) $ (86) 179.1
(1)Represents NCI's 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 loss attributable to NCI was $63 million in 2022, compared to net income
attributable to NCI of $240 million in 2021. Net loss attributable to NCI of $63
million for the year ended December 31, 2022, was driven primarily by net losses
on investment securities (including carried interest allocation) from unrealized
valuation decreases of our managed funds of funds portfolio and our SVB
Securities funds.
Net income attributable to NCI was $240 million in 2021, compared to $86 million
in 2020. Net income attributable to NCI of $240 million for the year ended
December 31, 2021 was driven primarily by net gains on investment securities
(including carried interest allocation) from unrealized valuation of our managed
funds of funds and our SVB Securities funds.
Operating Segment Results
We have four segments for which we report our financial information: Silicon
Valley Bank, SVB Private, SVB Capital and SVB 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 24-"Segment Reporting" of the "Notes to the Consolidated
Financial Statements" under Part II, Item 8 of this report for additional
details.
Our Silicon Valley Bank and SVB Private segments' primary source of revenue is
from net interest income, which is primarily the difference between interest
earned on loans, net of FTP and interest paid on deposits, net of FTP.
Accordingly, these segments are reported using net interest income, net of FTP.
FTP is the mechanism by which a funding credit is given for deposits raised, and
a funding charge is made for funded loans.
The following is our reportable segment information for 2022, 2021 and 2020:
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Silicon Valley Bank
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Net interest income $ 4,118 $ 2,914 41.3 % $ 1,990 46.4 %
Provision for credit losses (277) (55) NM (166) (66.9)
Noninterest income 1,107 706 56.8 604 16.9
Noninterest expense (1,557) (1,266) 23.0 (1,011) 25.2
Income before income tax expense $ 3,391 $ 2,299 47.5 $ 1,417 62.2
Total average loans, amortized cost $ 54,647 $ 43,145 26.7 $ 30,116 43.3
Total average assets 175,221 140,362 24.8 73,929 89.9
Total average deposits 172,106 138,057 24.7 71,911 92.0
Income before income tax expense from Silicon Valley Bank increased to $3.4
billion in 2022, compared to $2.3 billion in 2021. The key components of Silicon
Valley Bank's performance are discussed below.
NII from Silicon Valley Bank increased by $1.2 billion in 2022, due primarily
from increases in deposit funding credits, yields and average loans, partially
offset by higher interest rates on deposits as well as increases in average
balances of interest-bearing deposits.
The provision for credit losses was $277 million for 2022, compared to a
provision of $55 million for 2021. The provision for 2022 was driven by a
deterioration in projected economic conditions, as well as growth in funded
loans and unfunded commitments.
Noninterest income increased by $401 million in 2022, related primarily to an
overall increase in our non-GAAP core fee income. The overall increase was
primarily due to higher client investment fees driven by improved fee margins
resulting from higher short-term interest rates as a result of the 2022 Federal
Funds rate hikes, higher foreign exchange fees primarily due to increases in
spot contract commissions reflective of the increased volume of client trades,
credit card fees driven by higher transaction volumes reflective of increased
spending and client growth, as well as higher travel spending compared to 2021
when COVID-19 restrictions where in place.
Noninterest expense increased by $291 million in 2022, primarily due to
compensation and benefits expense, business development and travel expenses 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. Premises
and equipment expense increased due to higher software support and maintenance
fees as well as an increase in software depreciation. Business development and
travel expense increased due to the easing of COVID-19 restrictions on in-person
meetings and travel that were previously in place.
SVB Private
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Net interest income $ 407 $ 226 80.1 % $ 112 101.8 %
Provision for credit losses (10) (14) (28.6) (21) (33.3)
Noninterest income 96 58 65.5 5 NM
Noninterest expense (361) (223) 61.9 (55) NM
Income before income tax expense $ 132 $ 47 180.9 $ 41 14.6
Total average loans, amortized cost $ 14,934 $ 9,986 49.5 $ 5,298 88.5
Total average assets 16,637 11,171 48.9 5,335 109.4
Total average deposits 12,884 8,924 44.4 2,388 NM
Income before income tax expense from SVB Private increased to $132 million in
2022, compared to $47 million in 2021. The key drivers of SVB Private's
performance are discussed below:
NII increased by $181 million in 2022, from the comparable 2021 period, as
average loans increased driven primarily by the acquisition of Boston Private,
as well as strong loan growth, higher yields and higher deposit funding credits,
partially offset by higher rates on deposits, average balances of
interest-bearing deposits and loan funding charges.
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The provision for credit losses was $10 million for 2022 driven primarily by a
deterioration in projected economic conditions and loan growth.
Noninterest income increased by $38 million in 2022 primarily due to wealth
management and trust fees, which was a new financial statement line item for the
third quarter of 2021 as a result of the Boston Private acquisition.
Noninterest expense increased $138 million in 2022 related primarily due 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
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Noninterest (loss) income $ (110) $ 487 (122.6) % $ 226 115.5 %
Noninterest expense (70) (71) (1.4) (51) 39.2
(Loss) income before income tax expense $ (180) $ 416 (143.3) $ 175 137.7
Total average assets $ 942 $ 700 34.6 $ 437 60.2
SVB Capital's components of noninterest income primarily include net gains and
losses on non-marketable and other equity securities, carried interest and fund
management fees. All components of income before income tax expense discussed
below are net of NCI.
We experience variability in the performance of SVB Capital from period to
period due to a number of factors, including changes in the values of our funds'
underlying investments, changes in the amount of distributions and general
economic and market conditions. Such variability may lead to volatility in the
gains and losses from investment securities and cause our results to differ from
period to period.
SVB Capital had a noninterest loss of $110 million in 2022, compared to
noninterest income of $487 million in 2021. The decrease in noninterest income
was primarily due to reduced valuations reflecting adverse market conditions
during 2022 which drove net losses on investment securities, net of NCI, of $175
million for 2022, compared to net gains on investment securities, net of NCI, of
$398 million for 2021.
SVB Securities
Year ended December 31,
% Change % Change
(Dollars in millions) 2022 2021 2022/2021 2020 2021/2020
Net interest income $ 3 $ 1 200.0 % $ 1 - %
Noninterest income 505 608 (16.9) 497 22.3
Noninterest expense (603) (561) 7.5 (379) 48.0
(Loss) income before income tax expense $ (95) $ 48 NM $ 119 (59.7)
Total average assets $ 936 $ 830 12.8 $ 557 49.0
SVB Securities' components of noninterest income primarily include investment
banking revenue, commissions and net gains and losses on non-marketable and
other equity securities, carried interest and fund management fees. All
components of income before income tax expense discussed below are net of NCI.
Noninterest income decreased $103 million to $505 million in 2022. The $103
million decrease in noninterest income was driven primarily by lower investment
banking revenue during 2022 due to the slowdown in capital market transactions
as a result of market volatility, partially offset by an increase in commissions
driven by subscription fees related to the acquisition of MoffettNathanson in
December 2021 and an increase in advisory fees reflective of hiring during 2021.
SVB Securities also includes fund investments which also negatively impacted
noninterest income in 2022.
Noninterest expense increased $42 million to $603 million in 2022. The $42
million increase in noninterest expense was driven primarily by an increase in
compensation and benefits expense due to an increase in strategic hires during
2021 to support the continued expansion of SVB Securities.
Consolidated Financial Condition
Our total assets, and total liabilities and stockholders' equity were $211.8
billion at December 31, 2022, and $211.3 billion at December 31, 2021. Please
refer below to a summary of the individual components driving the changes in
total assets, total liabilities and stockholders' equity.
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Cash and Cash Equivalents
Cash and cash equivalents totaled $13.8 billion at December 31, 2022, a decrease
of $783 million, or 5.4 percent, compared to $14.6 billion at December 31, 2021.
The decrease was primarily driven by a decrease in interest-earning deposits in
other financial institutions. As of December 31, 2022, $7.8 billion of our cash
and due from banks was deposited at the FRB and was earning interest at the
Federal Funds target rate, and interest-earning deposits in other financial
institutions were $4.0 billion. As of December 31, 2021, $5.7 billion, of our
cash and due from banks was deposited at the FRB and was earning interest at the
Federal Funds target rate and interest-earning deposits in other financial
institutions were $5.8 billion.
Investment Securities
Investment securities totaled $120.1 billion at December 31, 2022, a decrease of
$7.9 billion, or 6.2 percent, compared to $128.0 billion at December 31, 2021.
Our investment securities portfolio is comprised of: (i) an AFS securities
portfolio and a HTM securities portfolio, both of which represents
interest-earning fixed income investment securities and (ii) a non-marketable
and other equity securities portfolio, which primarily represents 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. The major components of the change in
investment securities are explained below.
The following table presents a profile of our investment securities portfolio at
December 31, 2022 and December 31, 2021:
December 31,
(Dollars in millions) 2022 2021
AFS securities, at fair value:
U.S. Treasury securities $ 16,135 $ 15,850
U.S. agency debentures 101 196
Foreign government debt securities 1,088 61
Residential MBS:
Agency-issued MBS 6,603 8,589
Agency-issued CMO-fixed rate 678 982
Agency-issued CMBS 1,464 1,543
Total AFS securities 26,069 27,221
HTM securities, at net carry value:
U.S. agency debentures 486 609
Residential MBS:
Agency-issued MBS 57,705 64,439
Agency-issued CMO-fixed rate 10,461 10,226
Agency-issued CMO-variable rate 79 100
Agency-issued CMBS 14,471 14,959
Municipal bonds and notes 7,416 7,156
Corporate bonds 703 706
Total HTM securities 91,321 98,195
Non-marketable and other equity securities:
Non-marketable securities (fair value accounting):
Consolidated venture capital and private equity fund investments
147 130
Unconsolidated venture capital and private equity fund investments
110 208
Other investments without a readily determinable fair value 183 164
Other equity securities in public companies (fair value accounting)
32 117
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments
605 671
Debt funds 5 5
Other investments 276 294
Investments in qualified affordable housing projects, net 1,306 954
Total non-marketable and other equity securities 2,664 2,543
Total investment securities $ 120,054 $ 127,959
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Available-for-Sale Securities
Period-end AFS securities were $26.1 billion at December 31, 2022, a decrease of
$1.1 billion, or 4.2 percent, compared to $27.2 billion at December 31, 2021.
The $1.1 billion decrease in period-end AFS securities balances from December
31, 2021, to December 31, 2022, was driven by a the sale of $9.5 billion of AFS
securities and a $2.4 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 $1.5 billion, partially offset by $12.7 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 of December 31, 2022. The weighted average yield is
computed using the amortized cost of fixed income investment securities. For
U.S. Treasury securities, U.S. agency debentures and foreign government debt
securities, the expected maturity is the actual contractual maturity of the
notes. Expected remaining maturities for certain U.S. agency debentures may
occur earlier than their contractual maturities because the note issuers have
the right to call outstanding amounts ahead of their contractual maturity.
Expected maturities for 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 expected
yield on MBS is based on prepayment assumptions at the purchase date. Actual
yields earned may differ significantly based upon actual prepayments.
December 31, 2022
One Year After One Year to After Five Years to After
Total or Less Five Years Ten Years Ten Years
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
(Dollars in millions) Value Yield Value Yield Value Yield Value Yield Value Yield
U.S. Treasury securities $ 16,135 1.49 % $ 983 1.16 % $ 14,373 1.43 % $ 779 2.96 % $ - - %
U.S. agency debentures 101 4.15 - - 33 4.47 68 4.02 - -
Foreign government debt
securities 1,088 2.12 101 1.06 52 2.29 935 2.21 - -
Residential MBS:
Agency-issued MBS 6,603 1.54 - - - - 43 2.86 6,560 1.53
Agency-issued CMO - fixed rate 678 1.33 - - - - - - 678 1.33
Agency-issued CMBS 1,464 1.89 - - 326 2.21 1,138 1.84 - -
Total $ 26,069 1.56 $ 1,084 1.15 $ 14,784 1.46 $ 2,963 2.32 $ 7,238 1.51
Held-to-Maturity Securities
Period-end HTM securities were $91.3 billion as of December 31, 2022, a decrease
of $6.9 billion, or 7.0 percent, compared to $98.2 billion as of December 31,
2021. The $6.9 billion decrease in period-end HTM securities balances from
December 31, 2021, to December 31, 2022, was driven by $11.5 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
based on net carry value, which is the amortized cost net of ACL of $6 million,
and fully taxable equivalent yields on fixed income investment securities
classified as HTM as of December 31, 2022. Interest income on certain municipal
bonds and notes (non-taxable investments) are presented on a fully taxable
equivalent basis using the federal statutory tax rate of 21.0 percent. The
weighted average yield is computed using the amortized cost of fixed income
investment securities. For U.S. agency debentures, 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 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 MBS is based on prepayment
assumptions at the purchase date. Actual yields earned may differ significantly
based upon actual prepayments.
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December 31, 2022
One Year After One Year to After Five Years to After
Total or Less Five Years Ten Years Ten Years
Weighted Weighted Weighted Weighted Weighted
Net Carry Average Net Carry Average Net Carry Average Net Carry Average Net Carry Average
(Dollars in millions) Value Yield Value Yield Value Yield Value Yield Value Yield
U.S. agency debentures $ 486 1.91 % $ 1 2.39 % $ 118 2.50 % $ 367 1.72 % $ - - %
Residential MBS:
Agency-issued MBS 57,705 1.56 - 1.65 25 2.38 1,066 2.32 56,614 1.54
Agency-issued CMO - fixed
rate 10,461 1.48 - - 90 1.47 129 1.71 10,242 1.48
Agency-issued CMO - variable
rate 79 0.74 - - - - - - 79 0.74
Agency-issued CMBS 14,471 1.63 39 0.45 153 0.86 966 1.93 13,313 1.62
Municipal bonds and notes 7,416 2.82 29 2.26 235 2.48 1,362 2.74 5,790 2.85
Corporate bonds 703 1.86 - - 115 1.72 588 1.88 - -
Total $ 91,321 1.66 $ 69 1.25 $ 736 1.90 $ 4,478 2.43 $ 86,038 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 5.7 and 4.0 years at
December 31, 2022, and December 31, 2021, respectively. The weighted-average
duration of our total fixed income securities portfolio including the impact of
our fair value swaps was 5.6 years at December 31, 2022, and 3.7 years December
31, 2021. The weighted-average duration of our AFS securities portfolio was 3.6
years at December 31, 2022, and 3.5 years at December 31, 2021. The
weighted-average duration of our AFS securities portfolio including the impact
of our fair value swaps was 3.6 years and 2.4 year at December 31, 2022, and
December 31, 2021, respectively. The weighted-average duration of our HTM
securities portfolio was 6.2 years at December 31, 2022, and 4.1 years at
December 31, 2021.
Non-Marketable and Other Equity Securities
Our non-marketable and other equity securities portfolio primarily represents
investments in venture capital and private equity funds, SPD-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 NCI. 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.
Non-marketable and other equity securities were $2.7 billion ($2.4 billion net
of NCI) at December 31, 2022, an increase of $121 million, or 4.8 percent,
compared to $2.5 billion ($2.2 billion net of NCI) at December 31, 2021.
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The following table summarizes the carrying value (as reported) of
non-marketable and other equity securities compared to the amounts attributable
to SVBFG (which generally represents the carrying value times our ownership
percentage) at December 31, 2022, and December 31, 2021:
December 31,
2022 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) $
147 $ 107 $ 130 $ 36
Unconsolidated venture capital and private equity fund investments
(2)
110 110 208 208
Other investments without a readily determinable fair value (3) 183 183 164 164
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
605 353 671 397
Debt funds 5 5 5 5
Other investments 276 276 294 294
Investments in qualified affordable housing projects, net 1,306 1,306 954 954
Total non-marketable and other equity securities $ 2,664 $ 2,372 $ 2,543 $ 2,175
(1)The following table shows the amounts of venture capital and private equity
fund investments held by the following consolidated funds and amounts
attributable to SVBFG for each fund at December 31, 2022, and December 31, 2021:
December 31,
2022 2021
Carrying value (as Amount Carrying value (as Amount attributable to
(Dollars in millions) reported) attributable to SVBFG reported) SVBFG
Strategic Investors Fund, LP $ 2 $ - $ 2 $ -
Capital Preferred Return Fund, LP 28 6 61 13
Growth Partners, LP 24 8 67 23
Redwood Evergreen Fund, LP 93 93 - -
Total consolidated venture capital and private equity
fund investments $ 147 $ 107 $ 130 $ 36
(2)The carrying value represents investments in 136 and 150 funds (primarily
venture capital funds) at December 31, 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 September 30th, for our December 31st consolidated
financial statements, adjusted for any contributions paid, distributions
received from the investment, and significant fund transactions or market events
during the reporting period.
(3)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 9-"Investment
Securities" of the "Notes to the Consolidated Financial Statements" under Part
II, Item 8 of this report.
(4)Investments classified as other equity securities (fair value accounting)
represent shares held in public companies as a result of exercising public
equity warrant assets and direct equity investments in public companies held by
our consolidated funds. Changes in the fair value recognized through net income.
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(5)The following table shows the carrying value and our ownership percentage of
each investment at December 31, 2022, and December 31, 2021, (equity method
accounting):
December 31, 2022 December 31, 2021
Carrying value (as Amount Carrying value (as Amount
(Dollars in millions) reported) attributable to SVBFG reported)
attributable to SVBFG
Venture capital and private equity fund investments:
Strategic Investors Fund II, LP
$ 2 $ 1 $ 3 $ 3
Strategic Investors Fund III, LP 12 10 25
21
Strategic Investors Fund IV, LP 21 18 36
30
Strategic Investors Fund V funds 58 30 87 45
CP II, LP (i) 1 1 2 1
Other venture capital and private equity fund
investments 511 293 518
298
Total venture capital and private equity fund
investments $ 605 $ 353 $ 671 $
398
Debt funds:
Gold Hill Capital 2008, LP (ii) $ 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 130 130 140 140
Total other investments $ 276 $ 276 $ 294 $ 294
(i)Our ownership includes direct ownership interest of 1.3 percent and indirect
ownership interest of 3.8 percent through our investments in Strategic Investors
Fund II, LP.
(ii)Our ownership includes direct ownership interest of 11.5 percent in the fund
and an indirect interest in the fund through our investment in Gold Hill Capital
2008, LLC of 4.0 percent.
Volcker Rule
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.
In 2017, we received notice that the Federal 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 extended the deadline by which the Company must
sell, divest, restructure or otherwise conform Restricted Volcker Investments by
July 2022. As a result of various subsequent amendments to the Volcker Rule, we
believe that substantially all of our Restricted Volcker Investments (i) qualify
for new exclusions under the amended rules, (ii) otherwise are excluded from the
definition of "covered fund" or (iii) commenced or completed a liquidation or
dissolution process prior to July 2022 (For more information about the Volcker
Rule, see "Business - Supervision and Regulation" under Part 1, Item 1 of our
2022 Form 10-K).
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Loans
Loans at amortized cost increased by $8.0 billion to $74.3 billion at December
31, 2022, compared to $66.3 billion at December 31, 2021. Unearned income,
deferred fees and costs and net unamortized premiums and discounts was $283
million at December 31, 2022, and $250 million at December 31, 2021. The
increase in period-end loans was driven primarily by our Global Fund Banking,
Technology and Life Science/Healthcare and Private Bank loan portfolios.
Loan Concentration
Loan concentrations may exist when there are borrowers engaged in similar
activities or types of loans extended to a diverse group of borrowers that could
cause those borrowers or portfolios to be similarly impacted by economic or
other conditions. A substantial percentage of our loans are commercial in
nature. The breakdown of total loans and loans as a percentage of total loans by
class of financing receivables is as follows:
December 31,
2022 2021
(Dollars in millions) Amount Percentage Amount Percentage
Global fund banking $ 41,269 55.6 % $ 37,958 57.3 %
Investor dependent:
Early stage 1,950 2.6 1,593 2.4
Growth stage 4,763 6.4 3,951 5.9
Total investor dependent 6,713 9.0 5,544 8.3
Cash flow dependent - SLBO 1,966 2.6 1,798 2.7
Innovation C&I 8,609 11.6 6,673 10.1
Private bank 10,477 14.1 8,743 13.2
CRE 2,583 3.5 2,670 4.0
Premium wine 1,158 1.6 985 1.5
Other C&I 1,019 1.4 1,257 1.9
Other 433 0.6 317 0.5
PPP 23 - 331 0.5
Total loans $ 74,250 100.0 % $ 66,276 100.0 %
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The table below details loans that are secured by real estate, at amortized cost
as of December 31, 2022, and December 31, 2021.
December 31,
(Dollars in millions) 2022 2021
Private bank:
Loans for personal residence $ 8,271 $ 6,939
Loans to eligible employees 584 455
Home equity lines of credit 138 130
Other 131 135
Total private bank loans secured by real estate $ 9,124 $ 7,659
CRE:
Multifamily and residential investment $ 896 $ 1,021
Retail 445 524
Office and medical 519 499
Manufacturing, industrial and warehouse 475 336
Hospitality 116 142
Other 132 148
Total CRE loans secured by real estate $ 2,583 $ 2,670
Premium wine 911 793
Other 510 334
Total real estate secured loans $ 13,128 $
11,456
Our portfolio is focused on three main markets: (i) Global Fund Banking, (ii)
Technology and Life Science/Healthcare and (iii) Private Banking. The remainder
of the portfolio is made up of various loans including commercial real estate,
commercial and industrial and premium wine which collectively may be referred to
as (iv) non-technology other.
(i) Global Fund Banking
Our Global Fund Banking loan portfolio includes loans to clients in the private
equity/venture capital community. Our lending to private equity/venture capital
firms and funds represented 56 percent and 57 percent of total loans at December
31, 2022 and December 31, 2021, respectively. The vast majority of this
portfolio consists of capital call lines of credit, the repayment of which is
dependent on the payment of capital calls by the underlying limited partner
investors in the funds managed by these firms. These facilities are generally
governed by meaningful financial covenants oriented towards ensuring that the
funds' remaining callable capital is sufficient to repay the loan, and larger
commitments (typically provided to larger private equity funds) are typically
secured by an assignment of the general partner's right to call capital from the
fund's limited partner investors.
(ii) Technology and Life Science/Healthcare
Our Technology and Life Science/Healthcare loan portfolios include loans to
clients at the various stages of their life cycles. The classes of financing
receivables for our technology and life science/healthcare market segments are
classified as Investor Dependent, Cash Flow Dependent - SLBO or Innovation C&I
for reporting purposes.
Investor Dependent loans represented nine percent of total loans at December 31,
2022, and eight percent at December 31, 2021. Repayment of these loans may be
dependent upon receipt by borrowers of additional equity financing from venture
capital firms or other investors, or in some cases a successful sale to a third
party or an IPO. These loans are made to companies in both our Early Stage and
Growth Stage practices.
Cash Flow Dependent loans for SLBO lending represented three percent of total
loans at both December 31, 2022, and December 31, 2021. These loans are
typically used to assist a select group of private equity sponsors with the
acquisition of businesses, and repayment is generally dependent upon the cash
flows of the combined entities.
Innovation C&I loans represented 12 percent of total loans at December 31, 2022,
and 10 percent at December 31, 2021. These loans are dependent on either the
borrower's cash flows or balance sheet for repayment. Cash flow dependent loans
require the borrower to maintain cash flow from operations that is sufficient to
service all debt. Balance sheet dependent loans, which include asset-based
loans, are structured to require constant current asset coverage in an
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amount that exceeds the outstanding debt. Working capital lines and accounts
receivable financing, both part of our asset-based lending, each represented
approximately two percent and less than one percent of total loans,
respectively, at December 31, 2022, and one percent and less than one percent of
total loans, respectively, at December 31, 2021.
(iii) Private Banking
Our SVB Private clients are primarily executive leaders and senior investment
professionals in the innovation economy, as well as high net worth clients that
were primarily acquired as part of the Boston Private acquisition. Our lending
to Private Bank clients represented 14 percent of total loans at December 31,
2022, and 13 percent at December 31, 2021. Many of our Private Bank products are
secured by real estate, which represented 87 percent of this portfolio at
December 31, 2022, and 88 percent at December 31, 2021. These products include
mortgage loans, owner-occupied commercial mortgage loans, home equity lines of
credit and other secured lending products such as real estate secured loans to
eligible employees through our EHOP. The remaining balance of our Private Bank
portfolio consists of personal capital call lines of credit, restricted and
private stock loans and other secured and unsecured lending products.
(iv) Non-technology Other
In addition to the focus markets above, we have loans to various other clients.
This category includes our CRE, Premium Wine, Other C&I and Other classes of
financing receivable. CRE loans are generally acquisition financing for
commercial properties, such as office buildings, retail properties, apartment
buildings and industrial/warehouse space. Premium wine loans are to wine
producers, vineyards and wine industry or hospitality businesses across the
Western United States. All CRE products and a large portion of premium wine
loans are secured by real estate collateral. Other C&I loans include tax-exempt
commercial loans to non-for-profit private schools, college, public charter
schools and other not-for-profit organizations as well as commercial loans to
clients that are not in technology and life sciences/healthcare industries. Our
Other class of loans is primarily comprised of construction and land loans for
financing new developments or financing improvements to existing buildings, as
well as loans made as part of our responsibilities under the CRA.
The following table provides a summary of total loans by size and class of
financing receivables. The breakout below is based on total client balances
(individually or in the aggregate) as of December 31, 2022:
December 31, 2022
Less than Five to Ten Ten to Twenty Twenty to Thirty Million
(Dollars in millions) Five Million Million Million Thirty Million or More Total
Global fund banking $ 1,202 $ 1,743 $ 3,489 $ 3,125 $ 31,710 $ 41,269
Investor dependent:
Early stage 1,232 440 179 20 86 1,957
Growth stage 858 1,128 1,384 614 781 4,765
Total investor dependent 2,090 1,568 1,563 634 867 6,722
Cash flow dependent - SLBO 9 36 230 501 1,190 1,966
Innovation C&I 425 343 1,007 1,066 5,776 8,617
Private bank 7,757 1,153 936 274 358 10,478
CRE 733 533 739 328 250 2,583
Premium wine 208 293 355 122 181 1,159
Other C&I 298 98 274 224 130 1,024
Other 96 69 176 91 - 432
Total Loans (1) $ 12,818 $ 5,836 $ 8,769 $ 6,365 $ 40,462 $ 74,250
(1)Included in total loans at amortized cost is approximately $23 million in PPP
loans. The PPP loans consist of loans across all of our classes of financing
receivables.
At December 31, 2022, loans equal to or greater than $20 million to any single
client (individually or in the aggregate) totaled $46.8 billion, or 63% of our
total loan portfolio. These loans represented 863 clients, and of these loans,
none were on nonaccrual status as of December 31, 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 of December 31, 2021:
December 31, 2021
Twenty to
Less than Five to Ten Ten to Twenty Thirty Thirty Million
(Dollars in millions) Five Million Million Million Million or More Total
Global fund banking $ 996 $ 1,494 $ 2,905 $ 3,163 $ 29,405 $ 37,963
Investor dependent:
Early stage 1,392 219 124 - - 1,735
Growth stage 855 1,068 1,122 374 551 3,970
Total investor dependent 2,247 1,287 1,246 374 551 5,705
Cash flow dependent - SLBO 7 31 287 508 965 1,798
Innovation C&I 462 432 920 912 4,018 6,744
Private bank 6,674 950 735 217 167 8,743
CRE 823 652 869 246 80 2,670
Premium wine 215 267 269 124 120 995
Other C&I 444 169 262 217 249 1,341
Other 93 123 101 - - 317
Total loans (1) $ 11,961 $ 5,405 $ 7,594 $ 5,761 $ 35,555 $ 66,276
(1)Included in total loans at amortized cost is approximately $331 million in
PPP loans. The PPP loans consist of loans across all of our classes of financing
receivables.
At December 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 of December 31, 2021.
State Concentrations
Approximately 27 percent of our outstanding total loan balances as of December
31, 2022, were to borrowers based in California, compared to 30 percent as of
December 31, 2021. Additionally, borrowers in Massachusetts increased to 13
percent as of December 31, 2022, compared to 12 percent as of December 31, 2021.
Borrowers in New York represented approximately 12 percent of total loan
balances as of December 31, 2022, compared to 10 percent as of December 31,
2021. Other than California, Massachusetts and New York, there are no additional
states with loan balances greater than or equal to 10 percent of total loans as
of December 31, 2022.
See generally "Risk Factors-Credit Risks" set forth under Part I, Item 1A of
this report.
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As of December 31, 2022, 92 percent, or $68.4 billion, of our outstanding total
loans were variable-rate loans that adjust at a prescribed measurement date upon
a change in our prime-lending rate or other variable indices, compared to 91
percent, or $60.4 billion, as of December 31, 2021. The following table sets
forth the remaining contractual maturity distribution of our total loans by
class of financing receivables as of December 31, 2022, for fixed and variable
rate loans:
Remaining Contractual Maturity of Loans
After
One Year After Five Years
One Year or and Through Through Fifteen After Fifteen
(Dollars in millions) Less Five Years Years Years Total
Fixed-rate loans:
Global fund banking $ 563 $ 8 $ - $ - $ 571
Investor dependent:
Early stage 5 34 - - 39
Growth stage 1 73 38 - 112
Total investor dependent 6 107 38 - 151
Cash flow dependent - SLBO - 12 - - 12
Innovation C&I 71 120 11 - 202
Private bank 20 64 238 1,934 2,256
CRE 150 551 407 46 1,154
Premium wine 36 158 545 55 794
Other C&I 7 91 116 289 503
Other 58 62 10 96 226
PPP 7 16 - - 23
Total fixed-rate loans $ 918 $ 1,189 $ 1,365 $ 2,420 $ 5,892
Variable-rate loans:
Global fund banking $ 38,343 $ 2,211 $ 144 $ - $ 40,698
Investor dependent:
Early stage 274 1,575 62 - 1,911
Growth stage 505 3,953 193 - 4,651
Total investor dependent 779 5,528 255 - 6,562
Cash flow dependent - SLBO 292 1,591 71 - 1,954
Innovation C&I 1,732 6,309 366 - 8,407
Private bank 359 263 813 6,786 8,221
CRE 124 840 451 14 1,429
Premium wine 156 134 74 - 364
Other C&I 175 91 72 178 516
Other 35 95 18 59 207
Total variable-rate loans $ 41,995 $ 17,062 $ 2,264 $ 7,037 $ 68,358
Total loans $ 42,913 $ 18,251 $ 3,629 $ 9,457 $ 74,250
Upon maturity, loans satisfying our credit quality standards may be eligible for
renewal. Such renewals are subject to the normal underwriting and credit
administration practices associated with new loans. We do not grant loans with
unconditional extension terms.
Paycheck Protection Program
We accepted applications under the PPP administered by the SBA under the
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), as amended
by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
(the "Economic Aid Act"), and originated loans to qualified small businesses
through June 30, 2021. As of December 31, 2022, we have outstanding PPP loans in
the amount of $23 million compared to $331 million as of December 31, 2021. This
funded amount reflects repayments received as of such date.
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Loan Deferral Programs
In April 2020, we implemented three loan payment deferral programs targeted to
assist borrowers who were the most impacted by the COVID-19 pandemic. As of
December 31, 2022, no loan modifications remained active under these programs.
As of December 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.
Loan Administration
The Risk Committee of our Board of Directors oversees our credit risks and
strategies, as well as our key credit policies and lending practices. Subject to
the oversight of the Risk Committee, lending authority is delegated to our Chief
Credit Officer and other senior members of our lending management based on
certain size and underwriting criteria.
Credit Quality Indicators
As of December 31, 2022, and December 31, 2021, our total criticized loans and
nonaccrual loans collectively represented three percent of our total loans.
Criticized loans and nonaccrual loans to early-stage investor dependent clients
represented 13 percent of our total criticized loans and nonaccrual loan
balances as of December 31, 2022, and December 31, 2021. Loans to early-stage
clients represent a relatively small percentage of our overall portfolio at
three percent and two percent of total loans as of December 31, 2022, and
December 31, 2021, respectively. 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 December 31, 2022, we have identified the following risks to credit
quality: (i) pressured public and private markets, (ii) larger Growth Stage,
Innovation C&I and Cash Flow Dependent - SLBO loan sizes and (iii) exposure from
CRE loans.
(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, Innovation C&I and Cash Flow Dependent - SLBO 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) Exposure from CRE loans - We acquired these loans from Boston Private in
2021. The exposure is mitigated by the well-margined collateral on these loans
and our limited overall exposure, with CRE making up only three percent of total
loans at December 31, 2022.
Additionally, we have identified the following factors that could have a
positive impact on credit quality: (i) a high quality loan mix and (ii) stronger
client balance sheets than in previous cycles.
(i) High quality loan mix - As described above, our Investor Dependent - Early
Stage class, which historically has been the most vulnerable loan class with the
most losses, is only three percent of total loans. Furthermore, 70 percent of
total loans are now in our Global Fund Banking and Private Bank classes, which
have low credit loss experience.
(ii) Stronger client balance sheets than in previous cycles - Record venture
capital investment throughout 2020-2021 has generally extended clients' runways,
bolstered by clients taking steps to reduce cash burn. These factors place our
clients in stronger positions than in previous economic downturns.
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.
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ACL for Loans and for Unfunded Credit Commitments
The following table summarizes the allocation of the ACL for loans for our
portfolio segments:
December 31,
2022 2021
Percent of Total Percent of Total
(Dollars in millions) ACL Amount Loans (1) ACL Amount Loans (1)
Global fund banking $ 110 55.6 % $ 67 57.3 %
Investor dependent 273 9.0 146 8.3
Cash flow dependent and innovation C&I 155 14.2 118 12.8
Private bank 50 14.1 33 13.2
CRE 25 3.5 36 4.0
Other C&I 13 1.4 14 1.9
Premium wine and other 10 2.2 8 2.0
PPP - - - 0.5
Total $ 636 100.0 % $ 422 100.0 %
(1)Represents loan balances as a percentage of total loans at each respective
year-end.
To determine the ACL for performing loans as of December 31, 2022, and December
31, 2021, we utilized three scenarios, on a weighted basis, from Moody's
Analytics' December 2022 and December 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.
December 31, 2022 December 31, 2021
Key economic factors from Moody's baseline forecasts
Gross domestic product projected growth rate
0.9 % 6.8 %
Projected unemployment rate 3.7 % 4.3 %
Housing price index projected growth rate (2.2) % 5.9 %
Weightings applied to different Moody's economic
scenarios
Upward outlook (Moody's S1) 30 % 30 %
Baseline (Moody's B) 40 40
Downward outlook (Moody's S3) 30 30
Total 100 % 100 %
Gross Loan Charge-Offs
Gross loan charge-offs were $103 million for the year ended December 31, 2022,
for which $82 million was not previously specifically reserved. Gross loan
charge-offs not previously specifically reserved for were primarily driven by
our Investor Dependent loan portfolio, reflective of the pressured markets our
Technology and Life Science/Healthcare clients are operating in. Despite the
challenging conditions, charge-offs remained low overall.
Gross loan charge-offs were $138 million for the year ended December 31, 2021,
of which $113 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 fraudulent activity on one loan
disclosed in previous filings. The remaining $33 million of gross loan
charge-offs not previously specifically reserved for came primarily from our
Investor Dependent and Innovation C&I loan portfolios.
Net Charge-offs to Average Loans Outstanding
The following table summarizes our net charge-offs to average outstanding loans
by classes of financing receivables for the years ended December 31, 2022, and
December 31, 2021:
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December 31, 2022 December 31, 2021
Net Charge-offs (Net Average Loan Net Charge-offs Average Loan
(Dollars in millions) Recoveries) Balance Percentage (Net Recoveries) Balance Percentage
Global fund banking (1) $ (7) $ 39,417 (0.02) % $ 80 $ 30,358 0.26 %
Investor dependent:
Early stage 36 1,999 1.80 28 2,131 1.31
Growth stage 23 4,050 0.57 - 3,546 -
Total investor dependent 59 6,049 0.98 28 5,677 0.49
Cash flow dependent- SLBO 4 1,823 0.22 5 1,685 0.30
Innovation C&I 14 8,065 0.17 (3) 6,600 (0.05)
Private bank (2) 9,665 (0.02) 3 6,704 0.04
CRE - 2,626 - - 1,366 -
Premium wine (1) 1,056 (0.09) - 1,047 -
Other C&I 3 1,157 0.26 - 628 -
Other 1 352 0.28 1 155 0.65
PPP - 79 - - 327 -
Total $ 71 $ 70,289 0.10 % $ 114 $ 54,547 0.21 %
(1)Global fund banking net charge-offs for the year ended December 31, 2021,
includes the impact of an $80 million charge-off related to fraudulent activity
on one loan as disclosed in previous filings.
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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:
December 31,
(Dollars in millions) 2022 2021
Nonperforming, past due and restructured loans:
Nonaccrual loans $ 132 $ 84
Loans past due 90 days or more still accruing interest 5
7
Total nonperforming loans 137
91
OREO and other foreclosed assets - 1
Total nonperforming assets $ 137 $ 92
Performing TDRs $ 33 $ 40
Nonaccrual loans as a percentage of total loans 0.18 % 0.13 %
Nonperforming loans as a percentage of total loans 0.18
0.14
Nonperforming assets as a percentage of total assets 0.06
0.04
ACL for loans (1) $ 636 $ 422
As a percentage of total loans 0.86 % 0.64 %
As a percentage of total nonperforming loans 464.23
463.74
ACL for nonaccrual loans (1) $ 51 $ 35
As a percentage of total loans 0.07 % 0.05 %
As a percentage of total nonperforming loans 37.23
38.46
ACL for total performing loans (1) $ 585 $ 387
As a percentage of total loans 0.79 % 0.58 %
As a percentage of total performing loans 0.79 0.58
Total loans $ 74,250 $ 66,276
Total performing loans 74,113 66,185
ACL for unfunded credit commitments (2) 303
171
As a percentage of total unfunded credit commitments 0.48 % 0.39 %
Total unfunded credit commitments (3) $ 62,541 $ 44,016
(1)The "ACL for loans" at December 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. At December 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.
Our ACL for loans as a percentage of total loans increased 22 bps to 0.86
percent at December 31, 2022, compared to 0.64 percent at December 31, 2021. The
22 bps increase was primarily due to the increase in our performing loans
reserve rate, which was a result of the deterioration of current and forecasted
economic conditions, as well as continued loan growth. These same factors also
contributed to an increase in our nonaccrual reserve rate. For a detailed
discussion of changes in the current period's reserve, see "Provision for Credit
Losses."
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Nonaccrual Loans
The following table presents a summary of changes in nonaccrual loans for the
years ended December 31, 2022 and 2021:
Year ended December 31,
(Dollars in millions) 2022 2021
Balance, beginning of period $ 84 $ 104
Additions 186 98
Paydowns and other reductions (94) (91)
Charge-offs (44) (27)
Balance, end of period $ 132 $ 84
Average nonaccrual loans $ 93 $ 105
Our nonaccrual loan balance increased $48 million to $132 million as of December
31, 2022, compared to $84 million as of December 31, 2021. The increase was due
primarily to new nonaccrual loans, reflective of current economic conditions,
offset by paydowns and charge-offs. We specifically reserved $51 million and $35
million for our nonaccrual loans as of December 31, 2022, and December 31, 2021,
respectively.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at December 31, 2022
and December 31, 2021 is as follows:
December 31,
(Dollars in millions) 2022 2021 % Change
Derivative assets (1) $ 552 $ 428 29.0 %
AIR 722 470 53.6
FHLB and FRB stock 720 107 NM
Deferred tax assets 179 24 NM
Accounts receivable 66 54 22.2
Other assets 843 708 19.1
Total AIR and other assets $ 3,082 $ 1,791 72.1
(1)See "Derivatives" section below.
Accrued interest receivable
The increase of $252 million in AIR was driven by the purchase of treasury notes
as well as the increase in the period-end balance of our loans at December 31,
2022, as compared to December 31, 2021.
FHLB and Federal Reserve Bank stock
The increase of $613 million in FHLB and Federal Reserve Bank stock is primarily
due to purchases of additional shares as required by the Federal Reserve.
Net deferred tax assets
Net deferred tax assets increased $155 million primarily due to an increase in
unrealized losses on AFS securities attributable to an increase in market rates.
Other Assets
Other assets include various asset amounts for other operational transactions.
The increase of $135 million was primarily due to higher tax receivables.
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Derivatives
Derivative instruments are recorded as a component of other assets and other
liabilities on the balance sheet. The following table provides a summary of
derivative assets and liabilities at December 31, 2022, and December 31, 2021:
December 31,
(Dollars in millions) 2022 2021 % Change
Assets:
Equity warrant assets $ 383 $ 277 38.3 %
Contingent conversion rights 12 - -
Foreign exchange contracts 340 171 98.8
Total return swaps 40 - -
Client interest rate derivatives 128 99 29.3
Interest rate swaps - 18 (100.0)
Total gross derivative assets 903 565 59.8
Less: netting adjustments (1) (351) (137) 156.2
Total derivative assets $ 552 $ 428 29.0
Liabilities:
Foreign exchange contracts $ 361 $ 137 163.5
Client interest rate derivatives 195 101 93.1
Total gross derivative liabilities 556 238 133.6
Less: netting adjustments (1)
(223) (120) 85.8
Total derivative liabilities $ 333 $ 118 182.2
(1)During the third quarter of 2022, we changed our accounting policy to report
the fair values of our derivative assets and liabilities subject to ISDA master
netting arrangements on a net basis where a right of setoff exists. The net
derivative fair values have been further adjusted for cash collateral
received/pledged. The change in accounting policy was applied retrospectively,
and prior periods have been revised to conform with current period presentation.
Equity Warrant Assets
In connection with negotiating credit facilities and certain other services, we
often obtain rights to acquire stock in the form of equity warrant assets in
primarily private, venture-backed companies in the technology and life
science/healthcare industries. At December 31, 2022, we held warrants in 3,234
companies, compared to 2,831 companies at December 31, 2021. Warrants in 65
companies each had fair values greater than $1 million and collectively
represented $199 million, or 51.9 percent, of the fair value of the total
warrant portfolio at December 31, 2022. The change in fair value of equity
warrant assets is recorded in "Gains on equity warrant assets, net" in
noninterest income, a component of consolidated net income. The following table
provides a summary of transactions and valuation changes for the years ended
December 31, 2022, and December 31, 2021:
Year ended December 31,
(Dollars in millions) 2022 2021
Balance, beginning of period $ 277 $ 203
New equity warrant assets 31 25
Non-cash changes in fair value, net 107
116
Exercised equity warrant assets (28)
(65)
Terminated equity warrant assets (4) (2)
Balance, end of period $ 383 $ 277
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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. To manage our exposure to variability on the foreign currency
translation of net investments in non-U.S. subsidiaries, we enter into certain
foreign exchange contracts to hedge against the foreign currency risk of a net
investment in foreign operations. We designate these foreign exchange contracts
as net investment hedges that qualify for hedge accounting under ASC 815. 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. For additional information on our foreign exchange contracts,
see Note 16-"Derivative Financial Instruments" of the "Notes to the Consolidated
Financial Statements" under Part II, Item 8 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. For additional
information on our client interest rate derivatives, refer to Note
16-"Derivative Financial Instruments" of the "Notes to the Consolidated
Financial Statements" under Part II, Item 8 of this report.
Interest Rate Swaps
To manage interest rate risk on our AFS securities portfolio, we enter into
pay-fixed, receive-floating interest rate swap contracts to hedge against
exposure to changes in the fair value of the securities resulting from changes
in interest rates. We designate these interest rate swap contracts as fair value
hedges that qualify for hedge accounting under ASC 815 and record them in other
assets and other liabilities. Refer to Note 16-"Derivative Financial
Instruments" of the "Notes to the Consolidated Financial Statements" under Part
II, Item 8 of this report for additional information.
Deposits
The following table presents the composition of our deposits as of December 31,
2022, and December 31, 2021:
December 31,
(Dollars in millions) 2022 2021
Noninterest-bearing demand $ 80,753
$ 125,851
Interest-bearing checking and savings accounts 32,916
5,106
Money market 52,032
54,842
Money market deposits in foreign offices 51 696
Sweep deposits in foreign offices 664 969
Time 6,693 1,739
Total deposits $ 173,109 $ 189,203
The decrease in deposits of $16.1 billion compared to December 31, 2021, was
primarily driven by slowdown in public and private fundraising and exits as well
as increased client cash burn, partially offset by flexible liquidity solutions
that shifted off-balance sheet client funds on-balance sheet, all of which
reduced the proportion of noninterest-bearing deposits. Noninterest-bearing
demand deposits to total deposits decreased by 20 percentage points to 47
percent as of December 31, 2022, compared to December 31, 2021. Approximately
seven percent and nine percent of our total deposits as of December 31, 2022,
and December 31, 2021, respectively, were from our clients in Asia.
As of December 31, 2022, 53 percent of our total deposits were interest-bearing
deposits, compared to 33 percent as of December 31, 2021.
Uninsured Deposits in U.S. Offices
As of December 31, 2022, and December 31, 2021, the amount of estimated
uninsured deposits in U.S. offices that exceed the FDIC insurance limit were
$151.5 billion and $166.0 billion, respectively. As of December 31, 2022, and
December 31, 2021, foreign deposits of $13.9 billion and $16.1 billion,
respectively, were not subject to any U.S. federal or state deposit
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insurance regime. The amounts disclosed above are derived using the same
methodologies and assumptions used for regulatory reporting requirements.
Time Deposits
The maturity profile of our time deposits as of December 31, 2022, is as
follows:
December 31, 2022
More than More than six
Three months three months months to More than
(Dollars in millions) or less to six months twelve months twelve months
Total
U.S. time deposits in excess of the FDIC
insured amount $ 902 $ 283 $ 127 $ 4 $
1,316
Non-U.S. time deposits in excess of insured
amount 4,525 244 336 - 5,105
Remaining time deposits 159 56 50 7 272
Total time deposits $ 5,586 $ 583 $ 513 $ 11 $ 6,693
Short-Term Borrowings
The following table summarizes our short-term borrowings that mature in one year
or less:
December 31,
2022 2021
(Dollars in millions) Amount Rate Amount Rate
Securities sold under agreement to repurchase $ 525 3.48 % $ 61 0.05 %
Other short-term borrowings (1) 40 4.43 10 0.07
Short-term FHLB advances 13,000 4.33 - -
Total short-term borrowings $ 13,565 4.39 $ 71 0.05
(1)During the third quarter of 2022, we changed our accounting policy to report
the fair values of our derivative assets and liabilities subject to ISDA master
netting arrangements on a net basis where a right of setoff exists. The net
derivative fair values have been further adjusted for cash collateral
received/pledged. The change in accounting policy was applied retrospectively,
and prior periods have been revised to conform with current period presentation.
We had $13.6 billion in short-term borrowings at December 31, 2022, compared to
$71 million at December 31, 2021. For more information on our short-term debt,
see Note 15-"Short-Term Borrowings and Long-Term Debt" of the "Notes to the
Consolidated Financial Statements" under Part II, Item 8 of this report.
Average daily balances for our short-term borrowings in 2022, 2021 and 2020 were
as follows:
Year ended December 31,
(Dollars in millions) 2022 2021 2020
Average daily balances:
Short-term FHLB advances $ 4,069 $ - $ 296
Federal Funds purchased (1) 198
1 13
Securities sold under agreements to repurchase 3,085
41 65
Other short-term borrowings (2) 46
32 27
Total average short-term borrowings $ 7,398
$ 74 $ 401
Weighted average interest rate during the year:
Short-term FHLB advances 3.72 %
- % 0.62 %
Federal Funds purchased 0.97
0.13 0.73
Securities sold under agreements to repurchase 1.86
0.05 1.74
Other short-term borrowings 3.73
0.30 0.28
(1)As part of our liquidity risk management practices, we periodically test
availability and access to overnight borrowings in the Federal Funds market.
These balances represent short-term borrowings.
(2)Represents cash collateral received from certain counterparties in excess of
net derivative receivables balances.
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Long-Term Debt
The following table represents outstanding long-term debt at December 31, 2022,
and December 31, 2021:
Principal value at December 31,
(Dollars in millions) December 31, 2022 2022 2021
3.50% Senior Notes due 2025 $ 350 $ 349 $ 349
3.125% Senior Notes due 2030 500 496 496
1.800% Senior Notes due 2031 500 495 494
2.100% Senior Notes due 2028 500 497 496
1.800% Senior Notes due 2026 650 646 645
4.345% Senior Fixed Rate/Floating Rate Notes due 2028 350 348 -
4.570% Senior Fixed Rate/Floating Rate Notes due 2033 450 448 -
Junior subordinated debentures 100 91 90
FHLB advances 2,000 2,000 -
Total long-term debt $ 5,400 $ 5,370 $ 2,570
The increase in our long-term debt was due to issuances of FHLB advances and our
4.345% Senior Fixed Rate/Floating Rate Notes due 2028 and 4.570% Senior Fixed
Rate/Floating Rate Notes due 2033. For more information on our long-term debt
outstanding as of December 31, 2022, refer to Note 15-"Short-Term Borrowings and
Long-Term Debt" of the "Notes to the Consolidated Financial Statements" under
Part II, Item 8 of this report.
Other Liabilities
A summary of other liabilities at December 31, 2022, and December 31, 2021 is as
follows:
December 31,
(Dollars in millions) 2022 2021 % Change
Accrued compensation $ 848 $ 896 (5.4)
Allowance for unfunded credit commitments 303 171 77.2
Derivative liabilities (1) 333 118 182.2
Deferred tax liabilities 26 - -
Other liabilities 1,531 1,282 19.4
Total other liabilities $ 3,041 $ 2,467 23.3
(1)See "Derivatives" section above.
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 $132
million was primarily attributable to projected economic conditions and higher
unfunded credit commitment balances.
Other Liabilities
Other liabilities include various accrued liability amounts for other
operational transactions. The increase of $249 million was driven primarily by
an increase in investments payable related to investments in qualified
affordable housing projects.
NCI
NCI totaled $291 million and $373 million at December 31, 2022, and December 31,
2021, respectively. The decrease was due to net loss attributable to NCI of $63
million and net capital distributions of $19 million for the year ended December
31, 2022. For more information, refer to Note 2-"Summary of Significant
Accounting Policies" of the "Notes to the Consolidated Financial Statements"
under Part II, Item 8 of this report.
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Capital Resources
We maintain an adequate capital base to support anticipated asset growth,
operating needs, credit and other business risks and to provide for SVB
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 the Finance Committee of our Board
of Directors, management engages in regular capital planning processes in an
effort to optimize the use of the capital available to us and to appropriately
plan for our future capital needs. The capital plan considers capital needs for
the foreseeable future and allocates capital to both existing and future
business activities. Expected future use or activities for which capital may be
set aside include balance sheet growth and associated relative increases in
market or credit exposure, investment activity, potential product and business
expansions, acquisitions and strategic or infrastructure investments. In
addition, we conduct capital stress tests as part of our annual capital planning
process. The capital stress tests allow us to assess the impact of adverse
changes in the economy and interest rates on our capital adequacy position.
SVBFG Stockholders' Equity
SVBFG stockholders' equity totaled $16.0 billion as of December 31, 2022, a
decrease of $232 million, or 1.4 percent, compared to $16.2 billion as of
December 31, 2021. The decrease was driven primarily by losses recorded on AFS
securities included in AOCI, reflective of an increase in market rates. The
decrease was partially offset by an increase in retained earnings driven by net
income for the year ended December 31, 2022.
Funds generated through retained earnings are a significant source of capital
and liquidity and are expected to continue to be so in the future.
Capital Ratios
Both SVB Financial and the Bank are subject to various regulatory capital
requirements administered by state and federal banking agencies. The following
table represents the capital components for SVB Financial and the Bank used in
calculating CET1, Tier 1 capital and total capital as of December 31, 2022, and
December 31, 2021. See Note 23-"Regulatory Matters" of the "Notes to the
Consolidated Financial Statements" under Part II, Item 8 of this report for
further information.
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SVB Financial Bank
December 31, December 31, December 31, December 31,
2022 2021 2022 2021
Common stock plus related surplus,
net of treasury stock $ 5,318 $ 5,157 $ 10,092 $ 9,265
Retained earnings 8,951 7,442 7,267 5,537
AOCI (1,911) (9) (1,903) (7)
CET1 capital before adjustments and
deductions 12,358 12,590 15,456 14,795
Less: Goodwill (net of associated
deferred tax liabilities) 365 369 199 200
Intangibles (net of associated
deferred tax liabilities) 113 133 61 70
Deferred tax assets that arise from
net operating losses and tax credit
carryforwards, net of any related
valuation allowances and net of
deferred tax liabilities 123 - 136 -
AOCI opt-out election related
adjustments (1,880) (18) (1,875) (17)
Add: CECL transition provision 60 80 60 80
Total adjustments and deductions from
CET1 capital (1,339) 404 (1,539) 173
CET1 Capital 13,697 12,186 16,995 14,622
Add: Qualifying Preferred stock 3,646 3,646 - -
Minority interest 291 373 - -
Less: Additional tier 1 capital
deductions 130 - - -
Additional tier 1 capital 3,807 4,019 - -
Tier 1 Capital 17,504 16,205 16,995 14,622
Allowance for credit losses included
in Tier 2 capital 946 600 946 600
CECL transition provision for
allowance for credit losses (70) (93) (70) (93)
Tier 2 Capital 876 507 876 507
Total capital $ 18,380 $ 16,712 $ 17,871 $ 15,129
Total risk-weighted assets $ 113,628 $
100,812 $ 111,353 $ 98,214
Average quarterly total assets (1) $ 215,740 $ 204,380 $ 213,436 $ 201,880
(1)Average quarterly total assets as defined by the Federal 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 SVB Financial and the Bank exceeded minimum
federal regulatory guidelines under the Capital Rules as well as for a "well
capitalized" bank holding company and insured depository institution,
respectively, as of December 31, 2022, and December 31, 2021. Capital ratios for
SVB Financial and the Bank, compared to the minimum capital ratios, are set
forth below:
Required Minimum +
December 31, Capital
Conservation Buffer Well Capitalized
2022 2021 Required Minimum (1)
Minimum
SVB Financial:
CET1 risk-based capital ratio (2) (3) 12.05 % 12.09 % 4.5 % 7.0 % N/A
Tier 1 risk-based capital ratio (3) 15.40 16.08 6.0 8.5 6.0
Total risk-based capital ratio (3) 16.18 16.58 8.0 10.5 10.0
Tier 1 leverage ratio (2) (3) 8.11 7.93 4.0 N/A N/A
Tangible common equity to tangible
assets ratio (4) (5) 5.62 5.73 N/A N/A N/A
Tangible common equity to
risk-weighted assets ratio (4) (5) 10.46 11.98 N/A N/A N/A
Bank:
CET1 risk-based capital ratio (3) 15.26 % 14.89 % 4.5 % 7.0 % 6.5 %
Tier 1 risk-based capital ratio (3) 15.26 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) 7.96 7.24 4.0 N/A 5.0
Tangible common equity to tangible
assets ratio (4) (5) 7.28 7.10 N/A N/A N/A
Tangible common equity to
risk-weighted assets ratio (4) (5) 13.65 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)The Federal 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.
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As of December 31, 2022, the CET1 risk-based, Tier 1 risk-based and total
risk-based capital ratios decreased from December 31, 2021, reflective of the
growth in risk-weighted assets outpacing the growth in regulatory capital. The
increase in risk-weighted assets was driven by an increase in cash and other
assets and loan growth partially offset by a decrease in our investment security
portfolio. 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 and preferred stock dividends.
The increase in our Tier 1 leverage ratio for SVB Financial is reflective of the
growth in our regulatory capital outpacing our growth in average assets. The
increase in average assets for SVB Financial was driven by an increase in cash
and loan growth partially offset by a decrease in our investment security
portfolio.
Non-GAAP Tangible Common Equity to Tangible Assets and Non-GAAP Tangible Common
Equity to Risk-weighted Assets
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 preferred stock and acquired intangibles, if any. The
manner in which this ratio is calculated varies among companies. Accordingly,
our ratio is not necessarily comparable to similar measures of other companies.
The following table provides a reconciliation of non-GAAP financial measures
with financial measures defined by GAAP:
Non-GAAP tangible common equity
and tangible assets SVB Financial
(Dollars in millions, except December 31, December 31,
December 31, December 31, December 31,
ratios)
2022 2021 2020 2019 2018
GAAP SVBFG stockholders' equity $ 16,004 $ 16,236
$ 8,220 $ 6,470 $ 5,116
Less: preferred stock
3,646 3,646 340 340 -
Less: intangible assets 511 535 204 187 -
Plus: net deferred taxes on
intangible assets 33 26 - - -
Tangible common equity $ 11,880 $ 12,081
$ 7,676 $ 5,943 $ 5,116
GAAP total assets
$ 211,793 $ 211,308
$ 115,351 $ 70,907 $ 56,864
Less: intangible assets
511 535 204 187 -
Plus: net deferred taxes on
intangible assets 33 26 - - -
Tangible assets $ 211,315 $ 210,799 $ 115,147 $ 70,720 $ 56,864
Risk-weighted assets $ 113,628 $ 100,812
$ 64,681 $ 46,577 $ 38,528
Non-GAAP tangible common equity
to tangible assets
5.62 % 5.73 % 6.67 % 8.40 % 9.00 %
Non-GAAP tangible common equity
to risk-weighted assets 10.46 11.98 11.87 12.76 13.28
Non-GAAP tangible common equity
and tangible assets
Bank
(Dollars in millions, except December 31, December 31,
December 31, December 31, December 31,
ratios)
2022 2021 2020 2019 2018
Tangible common equity $ 15,196 $ 14,795 $ 7,069 $ 5,034 $ 4,555
Tangible assets $ 208,777 $ 208,406 $ 113,143 $ 69,446 $ 55,983
Risk-weighted assets $ 111,353 $ 98,214
$ 61,023 $ 44,502 $ 37,104
Non-GAAP tangible common equity
to tangible assets
7.28 % 7.10 % 6.25 % 7.25 % 8.14 %
Non-GAAP tangible common equity
to risk-weighted assets 13.65 15.06 11.58 11.31 12.28
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
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. The actual liquidity needs and the credit risk that we
have experienced have historically been lower than the contractual amount of
these commitments because a
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significant portion of these commitments expire without being drawn upon. For
details of our commitments to extend credit and commercial and standby letters
of credit, please refer to the discussion of our off-balance sheet arrangements
in Note 21-"Off-Balance Sheet Arrangements, Guarantees and Other Commitments" of
the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of
this report.
The following table summarizes our unfunded commercial commitments as of
December 31, 2022:
Amount of Commitments Expiring per Period
Less than 1
(Dollars in millions) Total year 1-3 years 4-5 years After 5 years
Commercial commitments:
Loan commitments available for funding $ 58,891 $ 45,028 $ 9,420 $ 3,640 $ 803
Standby letters of credit 3,567 3,443 95 24 5
Commercial letters of credit 83 66 17 - -
Total unfunded credit commitments $ 62,541
$ 48,537 $ 9,532 $ 3,664 $ 808
The following table summarizes our contractual obligations to make future
payments as of December 31, 2022:
Payments Due By Period
Less than 1 After 5
(Dollars in millions) Total year 1-3 years 4-5 years years
SVBFG contractual obligations:
Deposits (1) (2) $ 173,109 $
173,098 $ 11 $ - $ -
Borrowings (2)
18,935 15,565 995 845 1,530
Non-cancelable operating leases 459 85 140 88 146
Commitments to qualified affordable housing
projects 754 294 404 17 39
Total obligations attributable to SVBFG $ 193,257 $ 189,042 $ 1,550 $ 950 $ 1,715
(1)Includes time deposits and deposits with no defined maturity, such as
noninterest-bearing demand, interest-bearing checking, savings, money market and
sweep accounts.
(2)Amounts exclude contractual interest.
Excluded from the tables above are unfunded commitment obligations of $164
million to our managed funds of funds and other fund investments for which
neither the payment, timing, nor eventual obligation is certain. Subject to
applicable regulatory requirements, including the Volcker Rule (see "Business -
Supervision and Regulation" under Part I, Item 1 of this report), 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. Additionally, our consolidated managed funds of funds
have $3 million of remaining unfunded commitments to venture capital and private
equity funds. See Note 9-"Investment Securities" of the "Notes to the
Consolidated Financial Statements" under Part II, Item 8 of this report for
further disclosure related to non-marketable and other equity securities.
Additional discussion of our off-balance sheet arrangements for these fund
investments is included in Note 21-"Off-Balance Sheet Arrangements, Guarantees
and Other Commitments" of the "Notes to the Consolidated Financial Statements"
under Part II, Item 8 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.
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ALCO provides oversight to the liquidity management process and recommends
policy guidelines for the approval of the Finance Committee and Risk Committee
of our Board of Directors, and courses of action to address our actual and
projected liquidity needs. Additionally, we routinely conduct liquidity stress
testing as part of our liquidity management practices.
Our client deposits base is, and historically has been, our primary source of
liquidity funding. Our deposit levels and cost of deposits may fluctuate from
time to time due to a variety of factors, including market conditions,
prevailing interest rates, changes in client deposit behaviors, availability of
insurance protection and our offering of deposit products. We may also offer
more investment alternatives for our off-balance sheet products which may impact
deposit levels. At December 31, 2022, our period-end total deposit balances
decreased to $173.1 billion, compared to $189.2 billion at December 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- and long-term
borrowings on a secured and unsecured basis. Our secured facilities include
collateral pledged to the FHLB of San Francisco and the discount window at the
FRB (using both fixed income securities and loans as collateral). Our unsecured
facility consists of our uncommitted federal funds lines. As of December 31,
2022, collateral pledged to the FHLB of San Francisco was comprised primarily of
fixed income investment securities and loans and had a carrying value of
$44.9 billion, of which $25.9 billion was available to support additional
borrowings. As of December 31, 2022, collateral pledged to the discount window
at the FRB was comprised of fixed income investment securities and had a
carrying value of $5.3 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 $3.2 billion as of December 31, 2022.
Our total unused and available secured borrowing capacity under our master
repurchase agreements with various financial institutions totaled $35.0 billion
as of December 31, 2022.
As a banking organization, our liquidity is subject to supervision by our
banking regulators. Because we are a Category IV organization 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 the Federal
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 organization, 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, SVB Financial's primary liquidity channels include
dividends from the Bank, its portfolio of liquid assets and its ability to raise
debt and capital. The ability of the Bank to pay dividends is subject to certain
regulations described in "Business-Supervision and Regulation-Restriction on
Dividends" under Part I, Item 1 of this report.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for
2022 and 2021, respectively: (For further details, see our Consolidated
Statements of Cash Flows under "Consolidated Financial Statements and
Supplementary Data" under Part II, Item 8 of this report.)
Year ended December 31,
(Dollars in millions) 2022
2021
Average cash and cash equivalents $ 17,109 $ 23,041
Percentage of total average assets 7.9 % 13.9 %
Net cash provided by operating activities $ 2,864 $ 1,868
Net cash used for investing activities (3,638)
(90,336)
Net cash (used for) provided by financing activities (9)
85,432
Net (decrease) increase in cash and cash equivalents $ (783)
$ (3,036)
Average cash and cash equivalents decreased to $17.1 billion in 2022, compared
to $23.0 billion for 2021. Average deposits increased $37.8 billion which
enabled us to grow our average loan portfolio by $15.7 billion in 2022.
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December 31, 2022
Cash provided by operating activities of $2.9 billion in 2022 included net
income before NCI of $1.6 billion and $2.0 billion of adjustments to reconcile
net income to net cash, partially offset by $749 million from changes in other
assets and liabilities.
Cash used for investing activities of $3.6 billion in 2022 was driven by $17.7
billion in purchases of fixed income investment securities and a $7.9 billion
increase in loan balances, partially offset by $22.4 billion in proceeds from
sales, maturities and principal pay downs from our fixed income investment
securities portfolio.
Cash used for financing activities of $9 million in 2022 was reflective of a
$16.1 billion decrease in deposits, offset partially by a $13.5 billion increase
in short-term borrowings and $2.8 billion increase from the issuance of
long-term debt.
Cash and cash equivalents at December 31, 2022 were $13.8 billion, compared to
$14.6 billion at December 31, 2021.
December 31, 2021
Cash provided by operating activities of $1.9 billion in 2021 included net
income before NCI of $2.1 billion and $49 million from changes from adjustments
to reconcile net income to net cash, partially offset by $254 million from
changes in other assets and liabilities.
Cash used for investing activities of $90.3 billion in 2021 was driven by $97.7
billion in purchases of fixed income investment securities and a $13.7 billion
increase in loan balances, partially offset by $19.8 billion in proceeds from
sales, maturities and principal pay downs from our fixed income investment
securities portfolio and $1.1 billion in proceeds from the acquisition of Boston
Private.
Cash provided by financing activities of $85.4 billion in 2021 was reflective of
a $78.2 billion increase in deposits, $5.7 billion in capital raised by our
preferred and common stock issuances and $1.6 billion increase from the issuance
of long-term debt.
Cash and cash equivalents at December 31, 2021, were $14.6 billion, compared to
$17.6 billion at December 31, 2020.
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