Edgar Filing: SVB FINANCIAL GROUP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-15637

SVB FINANCIAL GROUP

(Exact name of registrant as specified in its charter)



Delaware		91-1962278
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



3003 Tasman Drive, Santa Clara, California		95054-1191
(Address of principal executive offices)		(Zip Code)

(408) 654-7400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)

Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

At April 30, 2018, 52,973,918 shares of the registrant’s common stock ($0.001 par value) were outstanding.

Table of Contents

TABLE OF CONTENTS



		Page
PART I - FINANCIAL INFORMATION		4

Item 1.	Interim Consolidated Financial Statements	4

	Interim Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (Unaudited)	4

	Interim Consolidated Statements of Income for the three months ended March 31, 2018 and 2017 (Unaudited)	5

	Interim Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (Unaudited)	6

	Interim Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2018 and 2017 (Unaudited)	7

	Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited)	8

	Notes to Interim Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	55

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	94

Item 4.	Controls and Procedures	96

PART II - OTHER INFORMATION		97

Item 1.	Legal Proceedings	98

Item 1A.	Risk Factors	98

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98

Item 3.	Defaults Upon Senior Securities	98

Item 4.	Mine Safety Disclosures	98

Item 5.	Other Information	98

Item 6.	Exhibits	98

SIGNATURES		99

Table of Contents

Glossary of Acronyms that may be used in this Report

AFS— Available-for-Sale

APIC— Additional Paid-in Capital

ASC— Accounting Standards Codification

ASU— Accounting Standards Update

CET— Common Equity Tier

EHOP— Employee Home Ownership Program of the Company

EPS— Earnings Per Share

ERI— Energy and Resource Innovation

ESOP— Employee Stock Ownership Plan of the Company

ESPP— 1999 Employee Stock Purchase Plan of the Company

FASB— Financial Accounting Standards Board

FDIC— Federal Deposit Insurance Corporation

FHLB— Federal Home Loan Bank

FRB— Federal Reserve Bank

FTE— Full-Time Employee

FTP— Funds Transfer Pricing

GAAP— Accounting principles generally accepted in the United States of America

HTM— Held-to-Maturity

IASB— International Accounting Standards Board

IPO— Initial Public Offering

IRS— Internal Revenue Service

IT— Information Technology

LIBOR— London Interbank Offered Rate

M&A— Merger and Acquisition

OTTI— Other Than Temporary Impairment

SEC— Securities and Exchange Commission

SPD-SVB— SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China)

TDR— Troubled Debt Restructuring

UK— United Kingdom

VIE— Variable Interest Entity

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)



(Dollars in thousands, except par value and share data)	March 31, 2018			December 31, 2017
Assets
Cash and cash equivalents	$	2,619,384		$	2,923,075
Available-for-sale securities, at fair value (cost of $10,189,071 and $11,131,008, respectively)	10,080,384			11,120,664
Held-to-maturity securities, at cost (fair value of $14,229,439 and $12,548,280, respectively)	14,548,856			12,663,455
Non-marketable and other equity securities	824,936			651,053
Total investment securities	25,454,176			24,435,172
Loans, net of unearned income	24,587,944			23,106,316
Allowance for loan losses	(274,294		)	(255,024		)
Net loans	24,313,650			22,851,292
Premises and equipment, net of accumulated depreciation and amortization	127,054			128,682
Accrued interest receivable and other assets	986,523			876,246
Total assets	$	53,500,787		$	51,214,467
Liabilities and total equity
Liabilities:
Noninterest-bearing demand deposits	$	37,515,355		$	36,655,497
Interest-bearing deposits	8,421,177			7,598,578
Total deposits	45,936,532			44,254,075
Short-term borrowings	1,102,140			1,033,730
Other liabilities	1,206,660			911,755
Long-term debt	695,731			695,492
Total liabilities	48,941,063			46,895,052
Commitments and contingencies (Note 13 and Note 16)
SVBFG stockholders’ equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $0.001 par value, 150,000,000 shares authorized; 52,922,219 shares and 52,835,188 shares outstanding, respectively	53			53
Additional paid-in capital	1,326,998			1,314,377
Retained earnings	3,160,081			2,866,837
Accumulated other comprehensive loss	(71,686		)	(1,472		)
Total SVBFG stockholders’ equity	4,415,446			4,179,795
Noncontrolling interests	144,278			139,620
Total equity	4,559,724			4,319,415
Total liabilities and total equity	$	53,500,787		$	51,214,467

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

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



	Three months ended March 31,
(Dollars in thousands, except per share amounts)	2018			2017
Interest income:
Loans	$	297,073		$	227,341
Investment securities:
Taxable	124,477			89,803
Non-taxable	5,092			646
Federal funds sold, securities purchased under agreements to resell and other short-term investment securities	5,756			3,136
Total interest income	432,398			320,926
Interest expense:
Deposits	4,097			1,717
Borrowings	8,438			9,216
Total interest expense	12,535			10,933
Net interest income	419,863			309,993
Provision for credit losses	27,972			30,734
Net interest income after provision for credit losses	391,891			279,259
Noninterest income:
Gains on investment securities, net	9,058			15,970
Gains on equity warrant assets, net	19,191			6,690
Foreign exchange fees	33,827			26,247
Credit card fees	21,692			17,730
Deposit service charges	17,699			13,975
Client investment fees	22,875			9,026
Lending related fees	10,735			8,961
Letters of credit and standby letters of credit fees	8,182			6,639
Other	12,259			12,421
Total noninterest income	155,518			117,659
Noninterest expense:
Compensation and benefits	165,806			147,176
Professional services	28,725			25,419
Premises and equipment	18,545			15,858
Net occupancy	13,616			11,651
Business development and travel	11,191			9,195
FDIC and state assessments	9,430			8,682
Correspondent bank fees	3,410			3,445
Other	14,694			16,207
Total noninterest expense	265,417			237,633
Income before income tax expense	281,992			159,285
Income tax expense	73,966			51,405
Net income before noncontrolling interests	208,026			107,880
Net income attributable to noncontrolling interests	(13,065		)	(6,397		)
Net income available to common stockholders	$	194,961		$	101,483
Earnings per common share—basic	$	3.69		$	1.94
Earnings per common share—diluted	3.63			1.91

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

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Net income before noncontrolling interests	$	208,026		$	107,880
Other comprehensive loss, net of tax:
Change in foreign currency cumulative translation gains and losses:
Foreign currency translation gains	3,106			957
Related tax expense	(856		)	(390		)
Change in unrealized gains and losses on available-for-sale securities:
Unrealized holding losses	(58,027		)	(7,757		)
Related tax benefit	15,926			3,136
Reclassification adjustment for gains included in net income	—			(608		)
Related tax expense	—			248
Reclassification of unrealized gains on equity securities to retained earnings for ASU 2016-01 (1)	(40,316		)	—
Related tax expense (1)	11,145			—
Amortization of unrealized holding gains on securities transferred from available-for-sale to held-to-maturity	(1,206		)	(1,771		)
Related tax benefit	333			713
Reclassification of stranded tax effect to retained earnings for ASU 2018-02 (1)	(319		)	—
Other comprehensive loss, net of tax	(70,214		)	(5,472		)
Comprehensive income	137,812			102,408
Comprehensive income attributable to noncontrolling interests	(13,065		)	(6,397		)
Comprehensive income attributable to SVBFG	$	124,747		$	96,011


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

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

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total SVBFG Stockholders’ Equity			Noncontrolling Interests			Total Equity
(Dollars in thousands)	Shares	Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total SVBFG Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at December 31, 2016	52,254,074	$	52	$	1,242,741		$	2,376,331		$	23,430		$	3,642,554		$	134,483		$	3,777,037
Common stock issued under employee benefit plans, net of restricted stock cancellations	162,797	—		6,743			—			—			6,743			—			6,743
Common stock issued under ESOP	10,838	—		2,094			—			—			2,094			—			2,094
Net income	—	—		—			101,483			—			101,483			6,397			107,880
Capital calls and distributions, net	—	—		—			—			—			—			(1,755		)	(1,755		)
Net change in unrealized gains and losses on AFS securities, net of tax	—	—		—			—			(4,981		)	(4,981		)	—			(4,981		)
Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax	—	—		—			—			(1,058		)	(1,058		)	—			(1,058		)
Foreign currency translation adjustments, net of tax	—	—		—			—			567			567			—			567
Share-based compensation, net	—	—		16,929			—			—			16,929			—			16,929
Balance at March 31, 2017	52,427,709	$	52	$	1,268,507		$	2,477,814		$	17,958		$	3,764,331		$	139,125		$	3,903,456
Balance at December 31, 2017	52,835,188	$	53	$	1,314,377		$	2,866,837		$	(1,472	)	$	4,179,795		$	139,620		$	4,319,415
Cumulative adjustment for ASU 2014-09, net of tax (1)	—	—		—			(5,802		)	—			(5,802		)	—			(5,802		)
Cumulative adjustment for ASU 2016-01, net of tax (1)	—	—		—			103,766			(29,171		)	74,595			—			74,595
Reclassification of stranded tax effect for ASU 2018-02 (1)	—	—		—			319			(319		)	—			—			—
Common stock issued under employee benefit plans, net of restricted stock cancellations	77,359	—		(479		)	—			—			(479		)	—			(479		)
Common stock issued under ESOP	9,672	—		2,577			—			—			2,577			—			2,577
Net income	—	—		—			194,961			—			194,961			13,065			208,026
Capital calls and distributions, net	—	—		—			—			—			—			(8,407		)	(8,407		)
Net change in unrealized gains and losses on AFS securities, net of tax	—	—		—			—			(42,101		)	(42,101		)	—			(42,101		)
Amortization of unrealized holding gains on securities transferred from AFS to HTM, net of tax	—	—		—			—			(873		)	(873		)	—			(873		)
Foreign currency translation adjustments, net of tax	—	—		—			—			2,250			2,250			—			2,250
Share-based compensation, net	—	—		10,523			—			—			10,523			—			10,523
Balance at March 31, 2018	52,922,219	$	53	$	1,326,998		$	3,160,081		$	(71,686	)	$	4,415,446		$	144,278		$	4,559,724


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

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

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Cash flows from operating activities:
Net income before noncontrolling interests	$	208,026		$	107,880
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	27,972			30,734
Changes in fair values of equity warrant assets, net of proceeds from exercises	(17,508		)	(1,545		)
Changes in fair values of derivatives, net	3,928			3,887
Gains on investment securities, net (1)	(9,058		)	(8,942		)
Distributions of earnings from non-marketable and other equity securities (1)	11,385			12,159
Depreciation and amortization	14,377			12,391
Amortization of premiums and discounts on investment securities, net	(1,125		)	400
Amortization of share-based compensation	10,523			9,203
Amortization of deferred loan fees	(29,133		)	(23,650		)
Deferred income tax benefit	(8,834		)	(15,386		)
Excess tax benefit from exercise of stock options and vesting of restricted shares	(2,543		)	(6,063		)
Other gains	—			(3,981		)
Changes in other assets and liabilities:
Accrued interest receivable and payable, net	(18,365		)	(6,750		)
Accounts receivable and payable, net	(7,277		)	(1,976		)
Income tax receivable and payable, net	69,869			65,524
Accrued compensation	(106,356		)	(89,653		)
Foreign exchange spot contracts, net	134,638			30,995
Other, net	67,885			(3,290		)
Net cash provided by operating activities	348,404			111,937
Cash flows from investing activities:
Purchases of available-for-sale securities	—			(595,543		)
Proceeds from sales of available-for-sale securities	—			2,078
Proceeds from maturities and pay downs of available-for-sale securities	911,839			824,551
Purchases of held-to-maturity securities	(2,295,985		)	(589,855		)
Proceeds from maturities and pay downs of held-to-maturity securities	470,232			416,206
Purchases of non-marketable and other securities	(20,401		)	(545		)
Proceeds from sales and distributions of capital of non-marketable and other securities (1)	9,377			11,744
Net increase in loans	(1,463,998		)	(519,454		)
Purchases of premises and equipment	(7,717		)	(10,599		)
Net cash used for investing activities	(2,396,653		)	(461,417		)
Cash flows from financing activities:
Net increase in deposits	1,682,457			2,099,832
Net increase (decrease) in short-term borrowings	68,410			(507,505		)
(Distributions to noncontrolling interests), net of contributions from noncontrolling interests	(8,407		)	(1,755		)
Proceeds from issuance of common stock, ESPP and ESOP	2,098			8,837
Net cash provided by financing activities	1,744,558			1,599,409
Net (decrease) increase in cash and cash equivalents	(303,691		)	1,249,929
Cash and cash equivalents at beginning of period	2,923,075			2,545,750
Cash and cash equivalents at end of period	$	2,619,384		$	3,795,679
Supplemental disclosures:
Cash paid during the period for:
Interest	$	20,411		$	17,956
Income taxes	9,385			3,304
Noncash items during the period:
Changes in unrealized gains and losses on available-for-sale securities, net of tax	$	(42,101	)	$	(4,981	)
Distributions of stock from investments	2,282			357

(1)

During the first quarter of 2018 we adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance was adopted on a retrospective basis and impacted the presentation between investing and operating activities related to distributions and net gains from our nonmarketable and other securities portfolio. See Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.

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

Table of Contents

SVB FINANCIAL GROUP AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.	Basis of Presentation

SVB Financial Group is a diversified financial services company, as well as a bank holding company and a financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services to support our clients of all sizes and stages throughout their life cycles. In these notes to our consolidated financial statements, when we refer to “SVB Financial Group,” “SVBFG”, the “Company,” “we,” “our,” “us” or use similar words, we mean SVB Financial Group and all of its subsidiaries collectively, including Silicon Valley Bank (the “Bank”), unless the context requires otherwise. When we refer to “SVB Financial” or the “Parent” we are referring only to the parent company, SVB Financial Group (not including subsidiaries).

The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature that are, in the opinion of management, necessary to fairly present our financial position, results of operations and cash flows in accordance with GAAP. Such unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of results to be expected for any future periods. These unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”).

The accompanying unaudited interim consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Consolidated Financial Statements and Supplementary Data—Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2017 Form 10-K.

The preparation of unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates may change as new information is obtained. Significant items that are subject to such estimates include measurements of fair value, the valuation of non-marketable and other equity securities, the valuation of equity warrant assets, the adequacy of the allowance for loan losses and allowance for unfunded credit commitments, and the recognition and measurement of income tax assets and liabilities.

Principles of Consolidation and Presentation

Our consolidated financial statements include the accounts of SVB Financial Group and consolidated entities. We consolidate voting entities in which we have control through voting interests or entities through which we have a controlling financial interest in a variable interest entity (“VIE”). We determine whether we have a controlling financial interest in a VIE by determining if we have: (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses, or (c) the right to receive the expected returns of the entity. Generally, we have significant variable interests if our commitments to a limited partnership investment represent a significant amount of the total commitments to the entity. We also evaluate the impact of related parties on our determination of variable interests in our consolidation conclusions. We consolidate VIEs in which we are the primary beneficiary based on a controlling financial interest. If we are not the primary beneficiary of a VIE, we record our pro-rata interests based on our ownership percentage.

VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. We assess VIEs to determine if we are the primary beneficiary of a VIE. A primary beneficiary is defined as a variable interest holder that has a controlling financial interest. A controlling financial interest requires both: (a) power to direct the activities that most significantly impact the VIE’s economic performance, and (b) obligation to absorb losses or receive benefits of a VIE that could potentially be significant to a VIE. Under this analysis, we also evaluate kick-out rights and other participating rights which could provide us a controlling financial interest. The primary beneficiary of a VIE is required to consolidate the VIE.

We also evaluate fees paid to managers of our limited partnership investments. We exclude those fee arrangements that are not deemed to be variable interests from the analysis of our interests in our investments in VIEs and the determination of a primary beneficiary, if any. Fee arrangements based on terms that are customary and commensurate with the services provided are deemed not to be variable interests and are, therefore, excluded.

Table of Contents

All significant intercompany accounts and transactions with consolidated entities have been eliminated. We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide.

Adoption of New Accounting Standards

In May 2014, the FASB issued a new accounting standard update (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. The guidance requires that revenue from contracts with customers be recognized when transfer of control over goods or services is passed to customers in the amount of consideration expected to be received. Subsequent Accounting Standard Updates have been issued clarifying the original pronouncement (ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20).

On January 1, 2018, we adopted the new accounting standard ASU 2014-09, Revenue from Contracts with Customers and all the related amendments ("new revenue standard", "ASC 606" or "ASU 2014-09") using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We elected to apply the practical expedient which allows us to expense costs related to obtaining contracts as incurred because the amortization period would have been one year or less. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

We completed a comprehensive scoping exercise to determine the revenue streams that are within the scope of this guidance. The scope of this guidance explicitly excludes net interest income, including interest income earned from our loan and fixed income securities portfolios, as well as certain other noninterest income earned from our lending-, investment- and derivative-related activities. Based on our completed assessment, we did not identify any material changes to the timing or the amounts of our revenue recognition, however, we identified a change in the timing of recognizing fund management fees in other noninterest income for a portion of our SVB Capital funds. Fund management fees for these certain SVB Capital funds will now be recognized at the time of distribution which typically occurs later in the life of the fund than had been previously recognized. The cumulative adjustment to retained earnings associated with this change was $5.8 million, net of tax, with an immaterial impact to our net income on an ongoing basis.

The timing of revenue recognition may differ from the timing of cash settlements or invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, and unearned revenue when revenue is recognized subsequent to receipt of consideration. These assets and liabilities are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. During the three months ended March 31, 2018, changes in our contract assets, contract liabilities and receivables were not material. Additionally, revenues recognized during the three months ended March 31, 2018 that were included in the corresponding contract liability balance at the beginning of the period were not material.

The cumulative effect of the changes to our consolidated balance sheets at January 1, 2018, for the adoption of the new revenue standard were as follows:



(Dollars in thousands)	Balance at December 31, 2017		Adjustments Due to Adoption of ASC 606			Balance at January 1, 2018
Accrued interest receivable and other assets:
Accounts receivable	$	55,946	$	(34,340	)	$	21,606
Other liabilities:
Deferred revenue	27,057		(26,321		)	736
Current taxes payable	4,675		(2,217		)	2,458
Stockholders' Equity:
Retained earnings	2,866,837		(5,802		)	2,861,035

Table of Contents

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated balance sheets and statements of income at and for the three months ended March 31, 2018, were as follows:



	March 31, 2018
(Dollars in thousands)	As Reported		Balances Without Adoption of ASC 606		Effect of Change Higher/(Lower)
Accrued interest receivable and other assets:
Accounts receivable	$	47,978	$	85,077	$	(37,099	)
Other liabilities:
Deferred fees	734		28,685		(27,951		)
Current taxes payable	67,001		65,023		1,978
Stockholders' Equity:
Retained earnings	3,160,081		3,166,514		(6,433		)



	Three months ended March 31, 2018
(Dollars in thousands)	As Reported		Balances Without Adoption of ASC 606		Effect of Change Higher/(Lower)
Other noninterest income:
Fund management fees	$	5,736	$	6,606	$	(870	)
Income tax expense	73,966		74,205		(239		)

Net Income available to common stockholders	194,961		195,592		(631		)
Diluted earnings per share	3.63		3.64		(0.01		)

In February 2018, the FASB issued a new accounting standard update (ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU "2018-02")) to address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from H.R.1, known as the Tax Cuts and Jobs Act (the "TCJ Act"). ASU 2018-02 changed current accounting whereby an entity may elect to reclassify the stranded tax effect from AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJ Act (or portion thereof) is recorded. ASU 2018-02 is effective for periods beginning after December 15, 2018 and early adoption is permitted. We have elected to early adopt ASU 2018-02 and reclassified approximately $0.3 million from accumulated other comprehensive income to retained earnings within our consolidated statements of stockholders' equity for the three months ended March 31, 2018.

On January 1, 2018, we adopted the new accounting standard update ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. We adopted this guidance using the modified retrospective method and our equity investments carried at cost with readily determinable fair values were re-measured at fair value and the difference between cost and fair value was recorded as a cumulative-effect adjustment to opening retained earnings as of January 1, 2018. The adjustment to opening retained earnings for these investments was $74.6 million, net of tax, with subsequent changes in the fair value of these equity securities recorded as unrealized gains or losses in our consolidated statements of income. Additionally, in accordance with this guidance, net unrealized gains of $29.2 million, net of tax, included in accumulated other comprehensive income on January 1, 2018, related to our previously reported available-for-sale equity securities, were reclassified as an adjustment to retained earnings. Subsequent changes in the fair value of these equity securities were recorded as unrealized gains or losses in our consolidated statements of income. Furthermore, for purposes of disclosing the fair value of loans carried at amortized cost, our valuation methodology was updated to conform to an “exit price” concept as required by the standard update, resulting in an immaterial change in the fair value.

In August 2016, the FASB issued a new accounting standard update (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments), which clarifies the guidance on eight specific cash flow issues. We adopted the new accounting standard, specifically as it relates to distributions from our equity method investments, on January 1, 2018. We elected to adopt the nature of distribution approach and applied the guidance retrospectively. The new guidance had an immaterial impact on the presentation between investing and operating activities within our statements of cash flows related to distributions and net gains from our nonmarketable and other securities portfolio.

Table of Contents

In November 2016, the FASB issued a new accounting standard update (ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash), which requires that a statement of cash flows explains the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. Previous to the update, there had been some diversity in practice. Given that we had already classified restricted cash such as cash reserves at the Federal Reserve as part of cash and cash equivalents on the cash flow statement, the update had no impact on how we were already reporting and presenting our statement of cash flows.

Recent Accounting Pronouncements

In February 2016, the FASB issued a new accounting standard update (ASU 2016-02, Leases (Topic 842)), which will require for all operating leases the recognition of a right-of-use asset and a corresponding lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance will be effective on January 1, 2019, on a modified retrospective basis, with early adoption permitted. We plan to adopt the lease accounting guidance in the first quarter of 2019 and are currently evaluating the impact this guidance will have on our consolidated financial statements by reviewing our existing lease contracts and service contracts that may include embedded leases. While we are continuing to assess potential impacts of the standard, we currently expect to recognize right-of-use assets and related lease liabilities associated predominantly with noncancelable operating leases, as included in the table of minimum future payments, in the amount of $226 million as disclosed in Note 19 of our 2017 Form 10-K.

In June 2016, the FASB issued a new accounting standard update (ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments), which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance will be effective January 1, 2020, on a modified retrospective approach, with early adoption permitted, but not before January 1, 2019. We currently have a project team in place and subject matter experts to assist with our review of key interpretive issues and the assessment of our existing credit loss forecasting models and processes against the new guidance to determine what modifications may be required. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.

Reclassifications

Certain prior period amounts, primarily related to the adoption of new accounting guidance, have been reclassified to conform to current period presentations.


2.	Stockholders' Equity and EPS

Accumulated Other Comprehensive Income

The following table summarizes the items reclassified out of accumulated other comprehensive income into the Consolidated Statements of Income (unaudited) for the three months ended March 31, 2018 and 2017:



		Three months ended March 31,
(Dollars in thousands)	Income Statement Location	2018		2017
Reclassification adjustment for gains included in net income	Gains on investment securities, net	$	—	$	(608	)
Related tax expense	Income tax expense	—		248
Total reclassification adjustment for gains included in net income, net of tax		$	—	$	(360	)

Table of Contents

EPS

Basic EPS is the amount of earnings available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issuable for stock options and restricted stock units outstanding under our 2006 Equity Incentive Plan and our ESPP. Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive. The following is a reconciliation of basic EPS to diluted EPS for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars and shares in thousands, except per share amounts)	2018		2017
Numerator:
Net income available to common stockholders	$	194,961	$	101,483
Denominator:
Weighted average common shares outstanding—basic	52,883		52,344
Weighted average effect of dilutive securities:
Stock options and ESPP	420		440
Restricted stock units	382		395
Weighted average common shares outstanding—diluted	53,685		53,179
Earnings per common share:
Basic	$	3.69	$	1.94
Diluted	3.63		1.91

The following table summarizes the weighted-average common shares excluded from the diluted EPS calculation due to the antidilutive effect for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Shares in thousands)	2018	2017
Stock options	4	—
Restricted stock units	—	21
Total	4	21


3.	Share-Based Compensation

For the three months ended March 31, 2018 and 2017, we recorded share-based compensation and related tax benefits as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Share-based compensation expense	$	10,523		$	9,203
Income tax benefit related to share-based compensation expense	(2,317		)	(3,015		)

Unrecognized Compensation Expense

As of March 31, 2018, unrecognized share-based compensation expense was as follows:



(Dollars in thousands)	Unrecognized Expense		Weighted Average Expected Recognition Period - in Years
Stock options	$	8,290	2.48
Restricted stock units	46,036		2.48
Total unrecognized share-based compensation expense	$	54,326

Table of Contents

Share-Based Payment Award Activity

The table below provides stock option information related to the 2006 Equity Incentive Plan for the three months ended March 31, 2018:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life - in Years	Aggregate Intrinsic Value of In-The- Money Options
Outstanding at December 31, 2017	808,049		$	105.68
Granted	471		260.72
Exercised	(51,271	)	68.05
Forfeited	(1,926	)	130.69
Outstanding at March 31, 2018	755,323		108.26		3.61	$	99,521,692
Vested and expected to vest at March 31, 2018	738,585		107.43		3.57	97,934,520
Exercisable at March 31, 2018	416,281		87.28		2.50	63,585,697

The aggregate intrinsic value of outstanding options shown in the table above represents the pre-tax intrinsic value based on our closing stock price of $240.01 as of March 31, 2018. The total intrinsic value of options exercised during the three months ended March 31, 2018 was $9.4 million, compared to $16.5 million for the comparable 2017 period.

The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the three months ended March 31, 2018:



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017	637,667		$	135.86
Granted	10,699		237.94
Vested	(42,171	)	126.23
Forfeited	(13,332	)	132.87
Nonvested at March 31, 2018	592,863		138.46


4.	Variable Interest Entities

Our involvement with VIEs includes our investments in venture capital and private equity funds, debt funds, private and public portfolio companies and our investments in qualified affordable housing projects.

Table of Contents

The following table presents the carrying amounts and classification of significant variable interests in consolidated and unconsolidated VIEs as of March 31, 2018 and December 31, 2017:



(Dollars in thousands)	Consolidated VIEs		Unconsolidated VIEs		Maximum Exposure to Loss in Unconsolidated VIEs
March 31, 2018:
Assets:
Cash and cash equivalents	$	5,040	$	—	$	—
Non-marketable and other equity securities (1)	200,246		501,810		501,810
Accrued interest receivable and other assets	466		—		—
Total assets	$	205,752	$	501,810	$	501,810
Liabilities:
Other liabilities (1)	717		137,783		—
Total liabilities	$	717	$	137,783	$	—
December 31, 2017:
Assets:
Cash and cash equivalents	$	6,674	$	—	$	—
Non-marketable and other equity securities (1)	190,562		346,097		346,097
Accrued interest receivable and other assets	365		—		—
Total assets	$	197,601	$	346,097	$	346,097
Liabilities:
Other liabilities (1)	990		100,891		—
Total liabilities	$	990	$	100,891	$	—


(1)	Included in our unconsolidated non-marketable and other equity securities portfolio at March 31, 2018 and December 31, 2017 are investments in qualified affordable housing projects of $225.8 million and $174.2 million, respectively, and related other liabilities consisting of unfunded credit commitments of $137.8 million and $100.9 million, respectively.

Non-marketable and other equity securities

Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies and investments in qualified affordable housing projects. A majority of these investments are through third- party funds held by SVB Financial in which we do not have controlling or significant variable interests. These investments represent our unconsolidated VIEs in the table above. Our non-marketable and other equity securities portfolio also includes investments from SVB Capital. SVB Capital is the funds management business of SVB Financial Group, which focuses primarily on venture capital investments. The SVB Capital family of funds is comprised of direct venture funds that invest in companies and funds of funds that invest in other venture capital funds. We have a controlling and significant variable interest in four of these SVB Capital funds and consolidate these funds for financial reporting purposes.

All investments are generally nonredeemable and distributions are expected to be received through the liquidation of the underlying investments throughout the life of the investment fund. Investments may only be sold or transferred subject to the notice and approval provisions of the underlying investment agreement. Subject to applicable regulatory requirements, including the Volcker Rule, we also make commitments to invest in venture capital and private equity funds. For additional details, see Note 13—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

The Bank also has variable interests in low income housing tax credit funds, in connection with fulfilling its responsibilities under the Community Reinvestment Act (“CRA”), that are designed to generate a return primarily through the realization of federal tax credits. These investments are typically limited partnerships in which the general partner, other than the Bank, holds the power over significant activities of the VIE; therefore, these investments are not consolidated. For additional information on our investments in qualified affordable housing projects see Note 6—“Investment Securities" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Table of Contents

As of March 31, 2018, our exposure to loss with respect to the consolidated VIEs is limited to our net assets of $205.0 million and our exposure to loss for our unconsolidated VIEs is equal to our investment in these assets of $501.8 million.


5.	Cash and Cash Equivalents

The following table details our cash and cash equivalents at March 31, 2018 and December 31, 2017:



(Dollars in thousands)	March 31, 2018		December 31, 2017
Cash and due from banks (1)	$	2,241,287	$	2,672,290
Securities purchased under agreements to resell (2)	375,180		247,876
Other short-term investment securities	2,917		2,909
Total cash and cash equivalents	$	2,619,384	$	2,923,075


(1)	At March 31, 2018 and December 31, 2017, $378.2 million and $624.0 million, respectively, of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were both $1.1 billion at March 31, 2018 and December 31, 2017.


(2)	At March 31, 2018 and December 31, 2017, securities purchased under agreements to resell were collateralized by U.S. Treasury securities and U.S. agency securities with aggregate fair values of $382.7 million and $252.8 million, respectively. None of these securities were sold or repledged as of March 31, 2018 and December 31, 2017.


6.	Investment Securities

Our investment securities portfolio consists of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest-earning investment securities, and, (ii) a non-marketable and other equity securities portfolio, which primarily represents investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised.

Available-for-Sale Securities

The components of our available-for-sale investment securities portfolio at March 31, 2018 and December 31, 2017 are as follows:



	March 31, 2018
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Carrying Value
Available-for-sale securities, at fair value:
U.S. Treasury securities	$	6,066,397	$	—	$	(49,520	)	$	6,016,877
U.S. agency debentures	1,569,943		321		(8,430		)	1,561,834
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	2,198,479		97		(52,403		)	2,146,173
Agency-issued collateralized mortgage obligations—variable rate	354,252		1,375		(127		)	355,500
Total available-for-sale securities	$	10,189,071	$	1,793	$	(110,480	)	$	10,080,384



	December 31, 2017
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Carrying Value
Available-for-sale securities, at fair value:
U.S. Treasury securities	$	6,865,068	$	1,113	$	(25,679	)	$	6,840,502
U.S. agency debentures	1,569,195		3,569		(5,636		)	1,567,128
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	2,292,311		258		(25,534		)	2,267,035
Agency-issued collateralized mortgage obligations—variable rate	372,481		1,375		(126		)	373,730
Equity securities	31,953		40,525		(209		)	72,269
Total available-for-sale securities	$	11,131,008	$	46,840	$	(57,184	)	$	11,120,664

Table of Contents

The following table summarizes sale activity of available-for-sale securities during the three months ended March 31, 2018 and 2017 as recorded in the line item “Gains on investment securities, net”, a component of noninterest income:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Sales proceeds	$	—	$	2,078
Net realized gains and losses:
Gross realized gains	—		675
Gross realized losses	—		(67		)
Net realized gains and losses	$	—	$	608

The following tables summarize our unrealized losses on our available-for-sale securities portfolio into categories of less than 12 months, or 12 months or longer as of March 31, 2018 and December 31, 2017:



	March 31, 2018
	Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses
Available-for-sale securities:
U.S. Treasury securities	$	5,319,620	$	(45,520	)	$	697,257	$	(4,000	)	$	6,016,877	$	(49,520	)
U.S. agency debentures	1,079,618		(4,168		)	335,109		(4,262		)	1,414,727		(8,430		)
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	2,118,967		(52,403		)	—		—			2,118,967		(52,403		)
Agency-issued collateralized mortgage obligations—variable rate	21,511		(7		)	50,004		(120		)	71,515		(127		)
Total temporarily impaired securities (1)	$	8,539,716	$	(102,098	)	$	1,082,370	$	(8,382	)	$	9,622,086	$	(110,480	)

(1)

As of March 31, 2018, we identified a total of 281 investments that were in unrealized loss positions, of which 52 investments totaling $1.1 billion with unrealized losses of $8.4 million have been in an impaired position for a period of time greater than 12 months. As of March 31, 2018, we do not intend to sell any of our impaired securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis. Based on our analysis as of March 31, 2018, we deem all impairments to be temporary, and therefore changes in value for our temporarily impaired securities as of the same date are included in other comprehensive income. Market valuations and impairment analyses on assets in the available-for-sale securities portfolio are reviewed and monitored on a quarterly basis.



	December 31, 2017
	Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses
Available-for-sale securities:
U.S. Treasury securities	$	5,968,914	$	(23,397	)	$	323,966	$	(2,282	)	$	6,292,880	$	(25,679	)
U.S. agency debentures	736,541		(2,289		)	336,196		(3,347		)	1,072,737		(5,636		)
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	2,193,277		(25,534		)	—		—			2,193,277		(25,534		)
Agency-issued collateralized mortgage obligations—variable rate	13,843		(3		)	53,186		(123		)	67,029		(126		)
Equity securities	624		(209		)	—		—			624		(209		)
Total temporarily impaired securities (1)	$	8,913,199	$	(51,432	)	$	713,348	$	(5,752	)	$	9,626,547	$	(57,184	)

Table of Contents


(1)	As of December 31, 2017, we identified a total of 268 investments that were in unrealized loss positions, of which 46 investments totaling $713.3 million with unrealized losses of $5.8 million have been in an impaired position for a period of time greater than 12 months.

The following table summarizes the fixed income securities, carried at fair value, classified as available-for-sale as of March 31, 2018 by the remaining contractual principal maturities. For U.S. Treasury securities and U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments.



	March 31, 2018
(Dollars in thousands)	Total		One Year or Less		After One Year to Five Years		After Five Years to Ten Years		After Ten Years
U.S. Treasury securities	$	6,016,877	$	2,213,143	$	3,803,734	$	—	$	—
U.S. agency debentures	1,561,834		506,280		1,055,554		—		—
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	2,146,173		—		—		66,459		2,079,714
Agency-issued collateralized mortgage obligations—variable rate	355,500		—		—		—		355,500
Total	$	10,080,384	$	2,719,423	$	4,859,288	$	66,459	$	2,435,214

Held-to-Maturity Securities

The components of our held-to-maturity investment securities portfolio at March 31, 2018 and December 31, 2017 are as follows:



	March 31, 2018
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Held-to-maturity securities, at cost:
U.S. agency debentures (1)	$	714,008	$	466	$	(6,900	)	$	707,574
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	8,043,443		6,683		(160,250		)	7,889,876
Agency-issued collateralized mortgage obligations—fixed rate	2,665,485		24		(81,612		)	2,583,897
Agency-issued collateralized mortgage obligations—variable rate	243,749		718		(29		)	244,438
Agency-issued commercial mortgage-backed securities	1,833,961		—		(52,121		)	1,781,840
Municipal bonds and notes	1,048,210		691		(27,087		)	1,021,814
Total held-to-maturity securities	$	14,548,856	$	8,582	$	(327,999	)	$	14,229,439


(1)	Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.

Table of Contents



	December 31, 2017
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Held-to-maturity securities, at cost:
U.S. agency debentures (1)	$	659,979	$	3,167	$	(1,601	)	$	661,545
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	6,304,969		4,854		(43,528		)	6,266,295
Agency-issued collateralized mortgage obligations—fixed rate	2,829,979		23		(54,372		)	2,775,630
Agency-issued collateralized mortgage obligations—variable rate	255,782		733		(34		)	256,481
Agency-issued commercial mortgage-backed securities	1,868,985		694		(25,563		)	1,844,116
Municipal bonds and notes	743,761		3,452		(3,000		)	744,213
Total held-to-maturity securities	$	12,663,455	$	12,923	$	(128,098	)	$	12,548,280


(1)	Consists of pools of Small Business Investment Company debentures issued and guaranteed by the U.S. Small Business Administration, an independent agency of the United States.

The following tables summarize our unrealized losses on our held-to-maturity securities portfolio into categories of less than 12 months and 12 months or longer as of March 31, 2018 and December 31, 2017:



	March 31, 2018
	Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses
Held-to-maturity securities:
U.S. agency debentures	$	624,806	$	(6,900	)	$	—	$	—		$	624,806	$	(6,900	)
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	5,974,994		(144,458		)	380,892		(15,792		)	6,355,886		(160,250		)
Agency-issued collateralized mortgage obligations—fixed rate	938,137		(23,922		)	1,645,496		(57,690		)	2,583,633		(81,612		)
Agency-issued collateralized mortgage obligations—variable rate	—		—			9,317		(29		)	9,317		(29		)
Agency-issued commercial mortgage-backed securities	1,042,701		(30,719		)	739,139		(21,402		)	1,781,840		(52,121		)
Municipal bonds and notes	803,271		(26,367		)	20,264		(720		)	823,535		(27,087		)
Total temporarily impaired securities (1)	$	9,383,909	$	(232,366	)	$	2,795,108	$	(95,633	)	$	12,179,017	$	(327,999	)

(1)

As of March 31, 2018, we identified a total of 1,115 investments that were in unrealized loss positions, of which 223 investments totaling $2.8 billion with unrealized losses of $95.6 million have been in an impaired position for a period of time greater than 12 months. As of March 31, 2018, we do not intend to sell any of our impaired securities prior to recovery of our adjusted cost basis, and it is more likely than not that we will not be required to sell any of our securities prior to recovery of our adjusted cost basis, which is consistent with our classification of these securities. Based on our analysis as of March 31, 2018, we deem all impairments to be temporary. Market valuations and impairment analyses on assets in the held-to-maturity securities portfolio are reviewed and monitored on a quarterly basis.

Table of Contents



	December 31, 2017
	Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses			Fair Value of Investments		Unrealized Losses
Held-to-maturity securities:
U.S. agency debentures	$	104,688	$	(1,601	)	$	—	$	—		$	104,688	$	(1,601	)
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	4,270,377		(34,092		)	408,913		(9,436		)	4,679,290		(43,528		)
Agency-issued collateralized mortgage obligations—fixed rate	1,011,709		(13,631		)	1,741,614		(40,741		)	2,753,323		(54,372		)
Agency-issued collateralized mortgage obligations—variable rate	—		—			9,812		(34		)	9,812		(34		)
Agency-issued commercial mortgage-backed securities	979,361		(11,566		)	773,712		(13,997		)	1,753,073		(25,563		)
Municipal bonds and notes	344,796		(2,103		)	32,844		(897		)	377,640		(3,000		)
Total temporarily impaired securities (1)	$	6,710,931	$	(62,993	)	$	2,966,895	$	(65,105	)	$	9,677,826	$	(128,098	)


(1)	As of December 31, 2017, we identified a total of 753 investments that were in unrealized loss positions, of which 237 investments totaling $3.0 billion with unrealized losses of $65.1 million have been in an impaired position for a period of time greater than 12 months.

Table of Contents

The following table summarizes the remaining contractual principal maturities on fixed income investment securities classified as held-to-maturity as of March 31, 2018. For U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as held-to-maturity typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments.



	March 31, 2018
	Total				One Year or Less				After One Year to Five Years				After Five Years to Ten Years				After Ten Years
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. agency debentures	$	714,008	$	707,574	$	—	$	—	$	122,092	$	121,289	$	591,916	$	586,285	$	—	$	—
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	8,043,443		7,889,876		718		715		198,545		194,426		273,432		266,194		7,570,748		7,428,541
Agency-issued collateralized mortgage obligations—fixed rate	2,665,485		2,583,897		—		—		—		—		438,437		422,211		2,227,048		2,161,686
Agency-issued collateralized mortgage obligations—variable rate	243,749		244,438		—		—		—		—		—		—		243,749		244,438
Agency-issued commercial mortgage-backed securities	1,833,961		1,781,840		—		—		—		—		—		—		1,833,961		1,781,840
Municipal bonds and notes	1,048,210		1,021,814		8,185		8,157		73,912		72,861		237,606		229,079		728,507		711,717
Total	$	14,548,856	$	14,229,439	$	8,903	$	8,872	$	394,549	$	388,576	$	1,541,391	$	1,503,769	$	12,604,013	$	12,328,222

Table of Contents

Non-marketable and Other Equity Securities

The components of our non-marketable and other equity securities portfolio at March 31, 2018 and December 31, 2017 are as follows:



(Dollars in thousands)	March 31, 2018		December 31, 2017
Non-marketable and other equity securities:
Non-marketable securities (fair value accounting):
Consolidated venture capital and private equity fund investments (1)	$	130,015	$	128,111
Unconsolidated venture capital and private equity fund investments (2)	205,651		98,548
Other investments without a readily determinable fair value (3)	29,825		27,680
Other equity securities in public companies (fair value accounting) (4)	4,694		310
Non-marketable securities (equity method accounting) (5):
Venture capital and private equity fund investments	97,929		89,809
Debt funds	18,884		21,183
Other investments	112,115		111,198
Investments in qualified affordable housing projects, net (6)	225,823		174,214
Total non-marketable and other equity securities	$	824,936	$	651,053


(1)	The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and our ownership percentage of each fund at March 31, 2018 and December 31, 2017 (fair value accounting):



	March 31, 2018				December 31, 2017
(Dollars in thousands)	Amount		Ownership %		Amount		Ownership %
Strategic Investors Fund, LP	$	14,767	12.6	%	$	14,673	12.6	%
Capital Preferred Return Fund, LP	56,541		20.0		54,147		20.0
Growth Partners, LP	57,706		33.0		58,372		33.0
CP I, LP	1,001		10.7		919		10.7
Total consolidated venture capital and private equity fund investments	$	130,015			$	128,111

Table of Contents

(2)

The carrying value represents investments in 229 and 235 funds (primarily venture capital funds) at March 31, 2018 and December 31, 2017, respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships operating activities and financial policies. Effective January 1, 2018 we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we will carry our unconsolidated venture capital and private equity fund investments at fair value based on the fund investments' net asset values per share as obtained from the general partners of the investments. We adjust the net asset value per share for differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example December 31^st, for our March 31^st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. We recorded a cumulative adjustment to opening retained earnings on January 1, 2018 for the difference between fair value and cost for these fund investments. The estimated fair value and carrying value of these venture capital and private equity fund investments was $205.7 million as of March 31, 2018. As of December 31, 2017, these investments were carried at cost and had a carrying value of $98.5 million.

(3)

Effective January 1, 2018 we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we will report our other investments in the line item "Other investments without a readily determinable fair value". These investments include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. The following table shows the changes to the carrying amount of other investments without a readily determinable fair value for the three months ended March 31, 2018:



(Dollars in thousands)	Other Investments
Carrying value as of December 31, 2017	$	27,680
Downward adjustments	(2,069		)
Upward adjustments	4,214
Carrying value as of March 31, 2018	$	29,825

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

Table of Contents


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



	March 31, 2018				December 31, 2017
(Dollars in thousands)	Amount		Ownership %		Amount		Ownership %
Venture capital and private equity fund investments:
Strategic Investors Fund II, LP	$	5,653	8.6	%	$	6,342	8.6	%
Strategic Investors Fund III, LP	18,480		5.9		18,758		5.9
Strategic Investors Fund IV, LP	27,408		5.0		25,551		5.0
Strategic Investors Fund V funds	20,497		Various		16,856		Various
CP II, LP (i)	6,797		5.1		6,700		5.1
Other venture capital and private equity fund investments	19,094		Various		15,602		Various
Total venture capital and private equity fund investments	$	97,929			$	89,809
Debt funds:
Gold Hill Capital 2008, LP (ii)	$	15,978	15.5	%	$	18,690	15.5	%
Other debt funds	2,906		Various		2,493		Various
Total debt funds	$	18,884			$	21,183
Other investments:
SPD Silicon Valley Bank Co., Ltd.	$	76,384	50.0	%	$	75,337	50.0	%
Other investments	35,731		Various		35,861		Various
Total other investments	$	112,115			$	111,198


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


(ii)	Our ownership includes direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent.


(6)	The following table presents the balances of our investments in qualified affordable housing projects and related unfunded commitments included as a component of “other liabilities” on our consolidated balance sheets at March 31, 2018 and December 31, 2017:



(Dollars in thousands)	March 31, 2018		December 31, 2017
Investments in qualified affordable housing projects, net	$	225,823	$	174,214
Other liabilities	137,783		100,891

The following table presents other information relating to our investments in qualified affordable housing projects for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Tax credits and other tax benefits recognized	$	5,422	$	4,692
Amortization expense included in provision for income taxes (i)	4,792		3,236


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

Table of Contents

The following table presents the net gains and losses on non-marketable and other equity securities for the three months ended March 31, 2018 as recorded in the line item “Gains on investment securities, net”, a component of noninterest income:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Net gains (losses) on non-marketable and other equity securities:
Non-marketable securities (fair value accounting):
Consolidated venture capital and private equity fund investments	$	11,647		$	6,463
Unconsolidated venture capital and private equity fund investments (1)	11,719			3,047
Other investments without a readily determinable fair value (1)	1,741			3,373
Other equity securities in public companies (fair value accounting) (1)	(22,282		)	(82		)
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments	9,569			3,734
Debt funds	(2,299		)	(431		)
Other investments	(1,037		)	(742		)
Total net gains on non-marketable and other securities	$	9,058		$	15,362
Less: Net (losses) gains on investment securities sold	(22,490		)	3,373
Unrealized net gains on investment securities still held	$	31,548		$	11,989


(1)	Prior period amounts are not determined in a manner consistent with the current period presentation due to the adoption of accounting standard update (ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)).


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

We serve a variety of commercial clients in the technology, life science/healthcare, private equity/venture capital and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications, data, storage, and electronics), software/internet (such as infrastructure software, applications, software services, digital content and advertising technology), and energy and resource innovation (“ERI”). Because of the diverse nature of ERI products and services, for our loan-related reporting purposes, ERI-related loans are reported under our hardware, software/internet, life science/healthcare and other commercial loan categories, as applicable. Our life science/healthcare clients primarily tend to be in the industries of biotechnology, medical devices, healthcare information technology and healthcare services. Loans made to private equity/venture capital firm clients typically enable them to fund investments prior to their receipt of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.

In addition to commercial loans, we make consumer loans through SVB Private Bank and provide real estate secured loans to eligible employees through our EHOP. Our private banking clients are primarily private equity/venture capital professionals and executive leaders in the innovation companies they support. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit.

We also provide community development loans made as part of our responsibilities under the Community Reinvestment Act. These loans are included within “Construction loans” below and are primarily secured by real estate.

The composition of loans, net of unearned income of $158 million and $148 million at March 31, 2018 and December 31, 2017, respectively, is presented in the following table:

Table of Contents



(Dollars in thousands)	March 31, 2018		December 31, 2017
Commercial loans:
Software/internet	$	6,209,084	$	6,172,531
Hardware	1,336,000		1,193,599
Private equity/venture capital	11,211,816		9,952,377
Life science/healthcare	1,932,608		1,808,827
Premium wine	188,943		204,105
Other	219,467		365,724
Total commercial loans	21,097,918		19,697,163
Real estate secured loans:
Premium wine (1)	676,081		669,053
Consumer loans (2)	2,362,340		2,300,506
Other	41,646		42,068
Total real estate secured loans	3,080,067		3,011,627
Construction loans	59,012		68,546
Consumer loans	350,947		328,980
Total loans, net of unearned income (3)	$	24,587,944	$	23,106,316


(1)	Included in our premium wine portfolio are gross construction loans of $101 million and $100 million at March 31, 2018 and December 31, 2017, respectively.


(2)	Consumer loans secured by real estate at March 31, 2018 and December 31, 2017 were comprised of the following:



(Dollars in thousands)	March 31, 2018		December 31, 2017
Loans for personal residence	$	2,048,676	$	1,995,840
Loans to eligible employees	249,050		243,118
Home equity lines of credit	64,614		61,548
Consumer loans secured by real estate	$	2,362,340	$	2,300,506


(3)	Included within our total loan portfolio are credit card loans of $307 million and $270 million at March 31, 2018 and December 31, 2017, respectively.

Credit Quality

The composition of loans, net of unearned income of $158 million and $148 million at March 31, 2018 and December 31, 2017, respectively, broken out by portfolio segment and class of financing receivable, is as follows:



(Dollars in thousands)	March 31, 2018		December 31, 2017
Commercial loans:
Software/internet	$	6,209,084	$	6,172,531
Hardware	1,336,000		1,193,599
Private equity/venture capital	11,211,816		9,952,377
Life science/healthcare	1,932,608		1,808,827
Premium wine	865,024		873,158
Other	320,125		476,338
Total commercial loans	21,874,657		20,476,830
Consumer loans:
Real estate secured loans	2,362,340		2,300,506
Other consumer loans	350,947		328,980
Total consumer loans	2,713,287		2,629,486
Total loans, net of unearned income	$	24,587,944	$	23,106,316

Table of Contents

The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of March 31, 2018 and December 31, 2017:



(Dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Loans Past Due 90 Days or More Still Accruing Interest
March 31, 2018:
Commercial loans:
Software/internet	$	30,557	$	10,670	$	3	$	41,230	$	6,113,585	$	3
Hardware	5,502		45		—		5,547		1,306,873		—
Private equity/venture capital	357,936		49,207		—		407,143		10,814,598		—
Life science/healthcare	4,193		49		4		4,246		1,972,241		4
Premium wine	708		—		—		708		862,530		—
Other	—		—		—		—		328,847		—
Total commercial loans	398,896		59,971		7		458,874		21,398,674		7
Consumer loans:
Real estate secured loans	599		—		—		599		2,354,108		—
Other consumer loans	557		—		—		557		349,301		—
Total consumer loans	1,156		—		—		1,156		2,703,409		—
Total gross loans excluding impaired loans	400,052		59,971		7		460,030		24,102,083		7
Impaired loans	8,113		1,246		33,209		42,568		141,071		—
Total gross loans	$	408,165	$	61,217	$	33,216	$	502,598	$	24,243,154	$	7
December 31, 2017:
Commercial loans:
Software/internet	$	14,257	$	6,526	$	141	$	20,924	$	6,101,147	$	141
Hardware	1,145		77		50		1,272		1,163,278		50
Private equity/venture capital	86,566		38,580		—		125,146		9,835,317		—
Life science/healthcare	4,390		191		—		4,581		1,841,692		—
Premium wine	418		—		—		418		871,074		—
Other	445		—		—		445		490,292		—
Total commercial loans	107,221		45,374		191		152,786		20,302,800		191
Consumer loans:
Real estate secured loans	2,164		532		—		2,696		2,292,980		—
Other consumer loans	796		—		—		796		327,234		—
Total consumer loans	2,960		532		—		3,492		2,620,214		—
Total gross loans excluding impaired loans	110,181		45,906		191		156,278		22,923,014		191
Impaired loans	1,344		11,902		30,403		43,649		131,212		—
Total gross loans	$	111,525	$	57,808	$	30,594	$	199,927	$	23,054,226	$	191

Table of Contents

The following table summarizes our impaired loans as they relate to our allowance for loan losses, broken out by portfolio segment and class of financing receivable as of March 31, 2018 and December 31, 2017:



(Dollars in thousands)	Impaired loans for which there is a related allowance for loan losses		Impaired loans for which there is no related allowance for loan losses		Total carrying value of impaired loans		Total unpaid principal of impaired loans
March 31, 2018:
Commercial loans:
Software/internet	$	56,600	$	59,542	$	116,142	$	137,467
Hardware	14,833		21,988		36,821		37,450
Private equity/venture capital	108		—		108		108
Life science/healthcare	19,672		2,617		22,289		26,913
Premium wine	372		2,350		2,722		2,762
Other	14		—		14		94
Total commercial loans	91,599		86,497		178,096		204,794
Consumer loans:
Real estate secured loans	4,164		326		4,490		6,043
Other consumer loans	298		755		1,053		1,074
Total consumer loans	4,462		1,081		5,543		7,117
Total	$	96,061	$	87,578	$	183,639	$	211,911
December 31, 2017:
Commercial loans:
Software/internet	$	49,645	$	61,009	$	110,654	$	129,006
Hardware	15,637		20,713		36,350		41,721
Private equity/venture capital	658		—		658		984
Life science/healthcare	20,521		1,166		21,687		26,360
Premium wine	—		2,877		2,877		2,911
Other	32		—		32		165
Total commercial loans	86,493		85,765		172,258		201,147
Consumer loans:
Real estate secured loans	1,331		850		2,181		3,712
Other consumer loans	422		—		422		436
Total consumer loans	1,753		850		2,603		4,148
Total	$	88,246	$	86,615	$	174,861	$	205,295

Table of Contents

The following tables summarize our average impaired loans and interest income on impaired loans, broken out by portfolio segment and class of financing receivable for the three months ended March 31, 2018 and 2017:



Three months ended March 31,	Average impaired loans				Interest income on impaired loans
(Dollars in thousands)	2018		2017		2018		2017
Commercial loans:
Software/internet	$	108,788	$	109,916	$	532	$	422
Hardware	38,426		34,110		363		572
Private equity/venture capital	302		358		—		2
Life science/healthcare	22,679		38,942		37		150
Premium wine	2,769		3,213		36		38
Other	11		1,061		—		4
Total commercial loans	172,975		187,600		968		1,188
Consumer loans:
Real estate secured loans	3,063		1,488		—		—
Other consumer loans	739		2,148		5		8
Total consumer loans	3,802		3,636		5		8
Total average impaired loans	$	176,777	$	191,236	$	973	$	1,196

The following tables summarize the activity relating to our allowance for loan losses for the three months ended March 31, 2018 and 2017, broken out by portfolio segment:



Three months ended March 31, 2018	Beginning Balance December 31, 2017		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Foreign Currency Translation Adjustments			Ending Balance March 31, 2018
(Dollars in thousands)	Beginning Balance December 31, 2017		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Foreign Currency Translation Adjustments			Ending Balance March 31, 2018
Commercial loans:
Software/internet	$	96,104	$	(6,671	)	$	573	$	12,801		$	488		$	103,295
Hardware	27,614		(2,953		)	588		3,104			119			28,472
Private equity/venture capital	82,468		—			10		8,805			335			91,618
Life science/healthcare	24,924		(864		)	53		1,631			62			25,806
Premium wine	3,532		—			—		(161		)	(6		)	3,365
Other	3,941		(99		)	537		(906		)	9			3,482
Total commercial loans	238,583		(10,587		)	1,761		25,274			1,007			256,038
Total consumer loans	16,441		—			27		1,722			66			18,256
Total allowance for loan losses	$	255,024	$	(10,587	)	$	1,788	$	26,996		$	1,073		$	274,294



Three months ended March 31, 2017	Beginning Balance December 31, 2016		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Foreign Currency Translation Adjustments			Ending Balance March 31, 2017
(Dollars in thousands)	Beginning Balance December 31, 2016		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Foreign Currency Translation Adjustments			Ending Balance March 31, 2017
Commercial loans:
Software/internet	$	97,388	$	(7,980	)	$	1,171	$	18,719		$	204		$	109,502
Hardware	31,166		(4,024		)	267		(4,080		)	(45		)	23,284
Private equity/venture capital	50,299		—			—		6,706			73			57,078
Life science/healthcare	25,446		(1,732		)	36		7,708			84			31,542
Premium wine	4,115		—			—		226			2			4,343
Other	4,768		(294		)	297		(390		)	(4		)	4,377
Total commercial loans	213,182		(14,030		)	1,771		28,889			314			230,126
Total consumer loans	12,184		—			21		790			9			13,004
Total allowance for loan losses	$	225,366	$	(14,030	)	$	1,792	$	29,679		$	323		$	243,130

Table of Contents

The following table summarizes the activity relating to our allowance for unfunded credit commitments for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Beginning balance	$	51,770	$	45,265
Provision for unfunded credit commitments	976		1,055
Foreign currency translation adjustments	77		15
Ending balance (1)	$	52,823	$	46,335


(1)	See Note 13—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional disclosures related to our commitments to extend credit.

The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of March 31, 2018 and December 31, 2017, broken out by portfolio segment:



	March 31, 2018								December 31, 2017
	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Collectively Evaluated for Impairment
(Dollars in thousands)	Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans
Commercial loans:
Software/internet	$	27,379	$	116,142	$	75,916	$	6,092,942	$	23,088	$	110,654	$	73,016	$	6,061,877
Hardware	7,087		36,821		21,385		1,299,179		8,450		36,350		19,164		1,157,249
Private equity/venture capital	108		108		91,510		11,211,708		330		658		82,138		9,951,719
Life science/healthcare	8,149		22,289		17,657		1,910,319		9,315		21,687		15,609		1,787,140
Premium wine	—		2,722		3,365		862,302		—		2,877		3,532		870,281
Other	14		14		3,468		320,111		32		32		3,909		476,306
Total commercial loans	42,737		178,096		213,301		21,696,561		41,215		172,258		197,368		20,304,572
Total consumer loans	1,524		5,543		16,732		2,707,744		578		2,603		15,863		2,626,883
Total	$	44,261	$	183,639	$	230,033	$	24,404,305	$	41,793	$	174,861	$	213,231	$	22,931,455

Table of Contents

Credit Quality Indicators

For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of “Pass”, with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans, however, we consider them as demonstrating higher risk, which requires more frequent review of the individual exposures; these translate to an internal rating of “Performing (Criticized)”. When full repayment of a criticized loan has been deemed improbable under the original contractual terms but full repayment remains probable overall, the loan is considered to be a “Performing Impaired (Criticized)” loan. All of our nonaccrual loans are risk-rated 8 or 9 and are classified under the nonperforming impaired category. (For further description of nonaccrual loans, refer to Note 2—“Summary of Significant Accounting Policies” under Part II, Item 8 of our 2017 Form 10-K). Loans rated 10 are charged-off and are not included as part of our loan portfolio balance. We review our credit quality indicators for performance and appropriateness of risk ratings as part of our evaluation process for our allowance for loan losses.

The following table summarizes the credit quality indicators, broken out by portfolio segment and class of financing receivables as of March 31, 2018 and December 31, 2017:



(Dollars in thousands)	Pass		Performing (Criticized)		Performing Impaired (Criticized)		Nonperforming Impaired (Nonaccrual)		Total
March 31, 2018:
Commercial loans:
Software/internet	$	5,622,167	$	532,648	$	39,691	$	76,451	$	6,270,957
Hardware	1,201,029		111,391		21,988		14,833		1,349,241
Private equity/venture capital	11,217,832		3,909		—		108		11,221,849
Life science/healthcare	1,787,185		189,302		2,617		19,672		1,998,776
Premium wine	825,892		37,346		2,350		372		865,960
Other	325,122		3,725		—		14		328,861
Total commercial loans	20,979,227		878,321		66,646		111,450		22,035,644
Consumer loans:
Real estate secured loans	2,346,069		8,638		326		4,164		2,359,197
Other consumer loans	349,459		399		—		1,053		350,911
Total consumer loans	2,695,528		9,037		326		5,217		2,710,108
Total gross loans	$	23,674,755	$	887,358	$	66,972	$	116,667	$	24,745,752
December 31, 2017:
Commercial loans:
Software/internet	$	5,655,739	$	466,332	$	31,794	$	78,860	$	6,232,725
Hardware	1,112,574		51,976		20,165		16,185		1,200,900
Private equity/venture capital	9,955,082		5,381		—		658		9,961,121
Life science/healthcare	1,720,613		125,660		1,167		20,520		1,867,960
Premium wine	834,537		36,955		2,476		401		874,369
Other	469,721		21,016		—		32		490,769
Total commercial loans	19,748,266		707,320		55,602		116,656		20,627,844
Consumer loans:
Real estate secured loans	2,282,375		13,301		—		2,181		2,297,857
Other consumer loans	326,851		1,179		—		422		328,452
Total consumer loans	2,609,226		14,480		—		2,603		2,626,309
Total gross loans	$	22,357,492	$	721,800	$	55,602	$	119,259	$	23,254,153

Table of Contents

Troubled Debt Restructurings

As of March 31, 2018 we had 21 TDRs with a total carrying value of $141.0 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were $0.4 million of unfunded commitments available for funding to the clients associated with these TDRs as of March 31, 2018.

The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at March 31, 2018 and December 31, 2017:



(Dollars in thousands)	March 31, 2018		December 31, 2017
Loans modified in TDRs:
Commercial loans:
Software/internet	$	67,205	$	73,455
Hardware	50,030		51,132
Private equity/venture capital	—		350
Life science/healthcare	20,037		19,235
Premium wine	3,137		3,198
Total commercial loans	140,409		147,370
Consumer loans:
Other consumer loans	577		423
Total	$	140,986	$	147,793

The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Loans modified in TDRs during the period:
Commercial loans:
Software/internet	$	756	$	6,309
Hardware	1,559		—
Life science/healthcare	1,239		—
Total commercial loans	3,554		6,309
Consumer loans:
Other consumer loans	326		—
Total loans modified in TDRs during the period (1)	$	3,880	$	6,309


(1)	There were no partial charge-offs during the three months ended March 31, 2018 and $6.2 million of partial charge-offs during the three months ended March 31, 2017, respectively.

During the three months ended March 31, 2018 all new TDRs of $3.9 million were modified through payment deferrals granted to our clients. During the three months ended March 31, 2017, all new TDRs of $6.3 million were modified through payment deferrals granted to our clients.

The related allowance for loan losses for the majority of our TDRs is determined on an individual basis by comparing the carrying value of the loan to the present value of the estimated future cash flows, discounted at the pre-modification contractual interest rate. For certain TDRs, the related allowance for loan losses is determined based on the fair value of the collateral if the loan is collateral dependent.

Table of Contents

The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
TDRs modified within the previous 12 months that defaulted during the period:
Commercial loans:
Software/internet	$	3,032	$	—
Hardware	—		3,105
Total commercial loans	3,032		3,105
Consumer loans:
Other consumer loans	—		536
Total TDRs modified within the previous 12 months that defaulted in the period	$	3,032	$	3,641

Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology was necessary to determine the allowance for loan losses as of March 31, 2018.


8.	Short-Term Borrowings and Long-Term Debt

The following table represents outstanding short-term borrowings and long-term debt at March 31, 2018 and December 31, 2017:



				Carrying Value
(Dollars in thousands)	Maturity	Principal value at March 31, 2018		March 31, 2018		December 31, 2017
Short-term borrowings:
Short-term FHLB advances	April 2, 2018	$	700,000	$	700,000	$	700,000
Federal funds purchased	April 2, 2018	395,000		395,000		330,000
Other short-term borrowings	(1)	7,140		7,140		3,730
Total short-term borrowings				$	1,102,140	$	1,033,730
Long-term debt:
3.50% Senior Notes	January 29, 2025	$	350,000	$	347,386	$	347,303
5.375% Senior Notes	September 15, 2020	350,000		348,345		348,189
Total long-term debt				$	695,731	$	695,492


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

Interest expense related to short-term borrowings and long-term debt was $0.4 million and $8.0 million for the three months ended March 31, 2018, respectively. The weighted average interest rate associated with our short-term borrowings was 1.82 percent as of March 31, 2018 and 1.39 percent as of December 31, 2017.

Available Lines of Credit

We have certain facilities in place to enable us to access short-term borrowings on a secured (using loans and AFS securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. As of March 31, 2018, we had borrowings of $395.0 million outstanding against our uncommitted federal funds lines. We also pledge securities to the FHLB of San Francisco and the discount window at the FRB. The fair value of collateral pledged to the FHLB of San Francisco (comprised primarily of loans and U.S. Treasury securities) at March 31, 2018 totaled $3.8 billion, of which $3.1 billion was unused and available to support additional borrowings. The fair value of collateral pledged at the discount window of the FRB (comprised primarily of U.S. Treasury securities and U.S. agency debentures) at March 31, 2018 totaled $1.0 billion, all of which was unused and available to support additional borrowings.

Table of Contents


9.	Derivative Financial Instruments

We primarily use derivative financial instruments to manage currency exchange rate risk and to assist customers with their risk management objectives, which may include currency exchange rate risks and interest rate risks. Also, in connection with negotiating credit facilities and certain other services, we often obtain equity warrant assets giving us the right to acquire stock in private, venture-backed companies in the technology and life science/healthcare industries.

Currency Exchange Risk

We enter into foreign exchange forward contracts to economically reduce our foreign exchange exposure risk associated with the net difference between foreign currency denominated assets and liabilities. We do not designate any foreign exchange forward contracts as derivative instruments that qualify for hedge accounting. Gains or losses from changes in currency rates on foreign currency denominated instruments are recorded in the line item “other” as part of noninterest income, a component of consolidated net income. We may experience ineffectiveness in the economic hedging relationship, because the instruments are revalued based upon changes in the currency’s spot rate on the principal value, while the forwards are revalued on a discounted cash flow basis. We record forward agreements in gain positions in other assets and loss positions in other liabilities, while net changes in fair value are recorded in the line item “other” as part of noninterest income, a component of consolidated net income.

Other Derivative Instruments

Also included in our derivative instruments are equity warrant assets and client forward and option contracts, and client interest rate contracts. For further description of these other derivative instruments, refer to Note 2-“Summary of Significant Accounting Policies" under Part II, Item 8 of our 2017 Form 10-K.

Counterparty Credit Risk

We are exposed to credit risk if counterparties to our derivative contracts do not perform as expected. We mitigate counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral, as appropriate. With respect to measuring counterparty credit risk for derivative instruments, we measure the fair value of a group of financial assets and financial liabilities on a net risk basis by counterparty portfolio.

The total notional or contractual amounts and fair value of our derivative financial instruments at March 31, 2018 and December 31, 2017 were as follows:



	March 31, 2018						December 31, 2017
	Notional or Contractual Amount		Fair Value				Notional or Contractual Amount		Fair Value
(Dollars in thousands)	Notional or Contractual Amount		Derivative Assets (1)		Derivative Liabilities (1)		Notional or Contractual Amount		Derivative Assets (1)		Derivative Liabilities (1)
Derivatives not designated as hedging instruments:
Currency exchange risks:
Foreign exchange forwards	$	490,255	$	6,713	$	—	$	50,889	$	414	$	—
Foreign exchange forwards	393,082		—		10,244		425,055		—		5,201
Other derivative instruments:
Equity warrant assets	222,373		135,669		—		211,253		123,763		—
Client foreign exchange forwards	2,159,827		99,905		—		2,203,643		95,035		—
Client foreign exchange forwards	2,077,802		—		92,195		2,092,207		—		90,253
Client foreign currency options	146,954		1,886		—		102,678		1,187		—
Client foreign currency options	146,954		—		1,886		102,678		—		1,187
Client interest rate derivatives (2)	287,489		5,070		—		726,984		11,753		—
Client interest rate derivatives	770,653		—		13,369		782,586		—		11,940
Total Derivatives not designated as hedging instruments			$	249,243	$	117,694			$	232,152	$	108,581


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

(2)

The amount reported for March 31, 2018 reflects rule changes implemented by two central clearing houses that allow entities to elect to treat derivative assets, liabilities and the related variation margin as settlement of the related derivative fair values for legal and accounting purposes, as opposed to presenting gross derivative assets and liabilities. As a result, client interest rate derivatives at March 31, 2018, reflect reductions of approximately $8.6 million of derivative assets that previously would have been reported on a gross basis and approximately $433.6 million in related notional amounts for these derivative assets cleared through central clearing houses.

Table of Contents

A summary of our derivative activity and the related impact on our consolidated statements of income for the three months ended March 31, 2018 and 2017 is as follows:



		Three months ended March 31,
(Dollars in thousands)	Statement of income location	2018			2017
Derivatives designated as hedging instruments:
Interest rate risks:
Net cash benefit associated with interest rate swaps	Interest expense—borrowings	$	—		$	554
Changes in fair value of interest rate swaps	Other noninterest income	—			(1		)
Net gains associated with interest rate risk derivatives		$	—		$	553
Derivatives not designated as hedging instruments:
Currency exchange risks:
Gains on revaluations of internal foreign currency instruments, net	Other noninterest income	$	2,926		$	4,108
Losses on internal foreign exchange forward contracts, net	Other noninterest income	(3,512		)	(3,245		)
Net (losses) gains associated with internal currency risk		$	(586	)	$	863
Other derivative instruments:
Gains on revaluations of client foreign currency instruments, net	Other noninterest income	$	7,653		$	2,754
Losses on client foreign exchange forward contracts, net	Other noninterest income	(7,114		)	(2,289		)
Net gains associated with client currency risk		$	539		$	465
Net gains on equity warrant assets	Gains on equity warrant assets, net	$	19,191		$	6,690
Net gains (losses) on other derivatives	Other noninterest income	$	431		$	(276	)

Balance Sheet Offsetting

Certain of our derivative and other financial instruments are subject to enforceable master netting arrangements with our counterparties. These agreements provide for the net settlement of multiple contracts with a single counterparty through a single payment, in a single currency, in the event of default on or termination of any one contract.

The following table summarizes our assets subject to enforceable master netting arrangements as of March 31, 2018 and December 31, 2017:



	Gross Amounts of Recognized Assets		Gross Amounts offset in the Statement of Financial Position		Net Amounts of Assets Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements						Net Amount
(Dollars in thousands)	Gross Amounts of Recognized Assets		Gross Amounts offset in the Statement of Financial Position				Financial Instruments			Cash Collateral Received (1)			Net Amount
March 31, 2018
Derivative Assets:
Foreign exchange forwards	$	106,618	$	—	$	106,618	$	(17,027	)	$	(5,264	)	$	84,327
Foreign currency options	1,886		—		1,886		(574		)	—			1,312
Client interest rate derivatives	5,070		—		5,070		(3,194		)	(1,876		)	—
Total derivative assets	113,574		—		113,574		(20,795		)	(7,140		)	85,639
Reverse repurchase, securities borrowing, and similar arrangements	375,180		—		375,180		(375,180		)	—			—
Total	$	488,754	$	—	$	488,754	$	(395,975	)	$	(7,140	)	$	85,639
December 31, 2017
Derivative Assets:
Foreign exchange forwards	$	95,449	$	—	$	95,449	$	(14,570	)	$	(3,616	)	$	77,263
Foreign currency options	1,187		—		1,187		(557		)	—			630
Client interest rate derivatives	11,753		—		11,753		(11,627		)	(114		)	12
Total derivative assets	108,389		—		108,389		(26,754		)	(3,730		)	77,905
Reverse repurchase, securities borrowing, and similar arrangements	247,876		—		247,876		(247,876		)	—			—
Total	$	356,265	$	—	$	356,265	$	(274,630	)	$	(3,730	)	$	77,905


(1)	Cash collateral received from our counterparties in relation to market value exposures of derivative contracts in our favor is recorded as a component of “short-term borrowings” on our consolidated balance sheets.

Table of Contents

The following table summarizes our liabilities subject to enforceable master netting arrangements as of March 31, 2018 and December 31, 2017:



	Gross Amounts of Recognized Liabilities		Gross Amounts offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position But Subject to Master Netting Arrangements						Net Amount
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts offset in the Statement of Financial Position				Financial Instruments			Cash Collateral Pledged (1)			Net Amount
March 31, 2018
Derivative Liabilities:
Foreign exchange forwards	$	102,439	$	—	$	102,439	$	(6,624	)	$	(82,502	)	$	13,313
Foreign currency options	1,886		—		1,886		(962		)	(434		)	490
Client interest rate derivatives	13,369		—		13,369		—			(13,278		)	91
Total derivative liabilities	117,694		—		117,694		(7,586		)	(96,214		)	13,894
Repurchase, securities lending, and similar arrangements	—		—		—		—			—			—
Total	$	117,694	$	—	$	117,694	$	(7,586	)	$	(96,214	)	$	13,894
December 31, 2017
Derivative Liabilities:
Foreign exchange forwards	$	95,454	$	—	$	95,454	$	(10,997	)	$	(69,110	)	$	15,347
Foreign currency options	1,187		—		1,187		(501		)	(130		)	556
Client interest rate derivatives	11,940		—		11,940		—			(11,924		)	16
Total derivative liabilities	108,581		—		108,581		(11,498		)	(81,164		)	15,919
Repurchase, securities lending, and similar arrangements	—		—		—		—			—			—
Total	$	108,581	$	—	$	108,581	$	(11,498	)	$	(81,164	)	$	15,919


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


10.	Noninterest Income

For the three months ended March 31, 2018, noninterest income was $155.5 million, compared to $117.7 million for the comparable 2017 period. On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our previous accounting methodology under Topic 605. A summary of noninterest income for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Noninterest income:
Gains on investment securities, net	$	9,058	$	15,970
Gains on equity warrant assets, net	19,191		6,690
Foreign exchange fees	33,827		26,247
Credit card fees	21,692		17,730
Deposit service charges	17,699		13,975
Client investment fees	22,875		9,026
Lending related fees	10,735		8,961
Letters of credit and standby letters of credit fees	8,182		6,639
Other	12,259		12,421
Total noninterest income	$	155,518	$	117,659

Table of Contents

Gains on investment securities, net

Net gains on investment securities include both gains and losses from our non-marketable and other equity securities, including carried interest, as well as gains and losses from sales of our available-for-sale securities portfolio, when applicable.

Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, our China Joint Venture, debt funds, private and public portfolio companies and investments in qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains from non-marketable and other equity securities for any single period are typically driven by valuation changes, 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 (i.e. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes.

Carried interest is comprised of preferential allocations of profits recognizable when the return on assets of our individual managed fund of funds and direct venture funds exceeds certain performance targets and is payable to us, as the general partners of the managed funds. The carried interest we earn is often shared with employees, who are also members of the general partner entities. We record carried interest on a quarterly basis by measuring fund performance to date versus the performance target. For our unconsolidated managed funds, carried interest is recorded as gains on investment securities, net. For our consolidated managed funds, it is recorded as a component of net income attributable to noncontrolling interests. Carried interest allocated to others is recorded as a component of net income attributable to noncontrolling interests. Any carried interest paid to us (or our employees) may be subject to reversal to the extent fund performance declines to a level where inception to date carried interest is lower than actual payments made by the funds. The limited partnership agreements for our funds provide that carried interest is generally not paid to the general partners until the funds have provided a full return of contributed capital to the limited partners. Accrued, but unpaid carried interest may be subject to reversal to the extent that the fund performance declines to a level where inception-to-date carried interest is less than prior amounts recognized. Carried interest income is accounted for under an ownership model based on ASC 323 — Equity Method of Accounting and ASC 810 — Consolidation.

Our available-for-sale securities portfolio is a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. These sales are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are also conducted pursuant to the guidelines of our investment policy.

Gains on investment securities are outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our investment-related activities. A summary of gains and losses on investment securities for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Gains on non-marketable and other equity securities, net	$	9,058	$	15,362
Gains on sales of available-for-sale securities, net	—		608
Gains on investment securities, net	$	9,058	$	15,970

Table of Contents

Gains on equity warrant assets, net

In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. Any changes in fair value from the grant date fair value of equity warrant assets will be recognized as increases or decreases to other assets on our balance sheet and as net gains or losses on equity warrant assets, in noninterest income, a component of consolidated net income. Gains on equity warrant assets are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of net gains on equity warrant assets for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Equity warrant assets:
Gains on exercises, net	$	9,927		$	7,956
Cancellations and expirations	(922		)	(634		)
Changes in fair value, net	10,186			(632		)
Net gains on equity warrant assets	$	19,191		$	6,690

Foreign exchange fees

Foreign exchange fees represent the income differential between purchases and sales of foreign currency on behalf of our clients, primarily from spot contracts. Foreign exchange spot contract fees are recognized upon the completion of the single performance obligation, the execution of a spot trade in exchange for a fee. In line with customary business practice, the legal right transfers to the client upon execution of a foreign exchange contract on the trade date, and as such, we currently recognize our fees based on the trade date and are typically settled within two business days.

Forward contract and option premium fees are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our derivative-related activities. A summary of foreign exchange fee income by instrument type for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Foreign exchange fees by instrument type:
Spot contract commissions	$	31,202	$	22,424
Forward contract commissions	2,485		3,601
Option premium fees	140		222
Total foreign exchange fees	$	33,827	$	26,247

Credit card fees

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

Annual card service fees are recognized on a straight-line basis over a 12-month period and continue to be accounted for under ASC 310 - Receivables.

Table of Contents

A summary of credit card fees by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Credit card fees by instrument type:
Card interchange fees, net	$	17,560	$	13,971
Merchant service fees	2,906		2,740
Card service fees	1,226		1,019
Total credit card fees	$	21,692	$	17,730

Deposit service charges

Deposit service charges include fees earned from performing cash management activities and other deposit account services. Deposit services include, but are not limited to the following: receivables services, which include merchant services, remote capture, lockbox, electronic deposit capture, and fraud control services. Payment and cash management products and services include wire transfer and automated clearing house payment services to enable clients to transfer funds more quickly, as well as business bill pay, business credit and debit cards, account analysis, and disbursement services. Deposit service charges are recognized over the period in which the related performance obligation is provided, generally on a monthly basis.

Client investment fees

Client investment fees include fees earned from discretionary investment management services for substantially all clients, managing clients’ portfolios based on their investment policies, strategies and objectives and receives investment advisory fees. Revenue is recognized on a monthly basis upon completion of our performance obligation and consideration is typically received in the subsequent month. Included in our sweep money market fees are Rule 12(b)-1 fees, revenue sharing and from customer transactional based fees. Rule 12(b)-1 fees and revenue sharing are recognized as earned based on client funds that are invested in the period, typically monthly. Transactional based fees are earned and recognized on fixed income securities when the transaction is executed on the clients' behalf. Amounts paid to third-party service providers are predominantly expensed, such that client investment fees are recorded gross of payments made to third parties. A summary of client investment fees by instrument type for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Client investment fees by type:
Sweep money market fees	$	12,322	$	4,396
Asset management fees (1)	5,358		3,378
Repurchase agreement fees	5,195		1,252
Total client investment fees (2)	$	22,875	$	9,026


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


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

Table of Contents

Lending related fees

Unused commitment fees, minimum finance fees and unused line fees are recognized as earned on a monthly basis. Fees that qualify for syndication treatment are recognized at the completion of the syndicated loan deal for which the fees were received. Lending related fees are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our lending-related activities. A summary of lending related fees by instrument type for the three months ended March 31, 2018 and 2017, is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Lending related fees by instrument type:
Unused commitment fees	$	8,757	$	6,567
Other	1,978		2,394
Total lending related fees	$	10,735	$	8,961

Letters of credit and standby letters of credit fees

Commercial and standby letters of credit represent conditional commitments issued by us on behalf of a client to guarantee the performance of the client to a third party when certain specified future events have occurred. Fees generated from letters of credit and standby letters of credit are deferred as a component of other liabilities and recognized in noninterest income over the commitment period using the straight-line method, based on the likelihood that the commitment being drawn down will be remote. Letters of credit and standby letters of credit fees are recognized outside of the scope of the new revenue standard as it explicitly excludes noninterest income earned from our lending-related activities.

Other

Other noninterest income primarily includes income from fund management fees and service revenue. Fund management fees are comprised of fees charged directly to our managed funds of funds and direct venture funds. Fund management fees are based upon the contractual terms of the limited partnership agreements and are generally recognized as earned over the specified contract period, which is generally equal to the life of the individual fund. Fund management fees are calculated as a percentage of committed capital and collected in advance and are received quarterly. Fund management fees for certain of our limited partnership agreements are calculated as a percentage of distributions made by the funds and revenue is recorded only at the time of a distribution event. As distribution events are not predetermined for these certain funds, management fees are considered variable and constrained under the new revenue standard.

Other noninterest income primarily consists of dividend income on FHLB/FRB stock, correspondent bank rebate income, incentive fees related to carried interest and other fee income. We recognize revenue when our performance obligations are met and record revenues on a daily/monthly basis, quarterly, semi-annually or annual basis. For event driven revenue sources, we recognize revenue when: (i) persuasive evidence of an arrangement exists, (ii) we have performed the service, provided we have no other remaining obligations to the customer, (iii) the fee is fixed or determinable and (iv) collectability is probable.

A summary of other noninterest income by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Other noninterest income by instrument type:
Fund management fees	$	5,736		$	5,169
Net (losses) gains on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1)	(47		)	1,328
Other service revenue	6,570			5,924
Total other noninterest income	$	12,259		$	12,421


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

Table of Contents

Disaggregation of Revenue from Contracts with Customers

The following table presents our revenues from contracts with customers disaggregated by revenue source and segment for the three months ended March 31, 2018:



(Dollars in thousands)	Global Commercial Bank		SVB Private Bank			SVB Capital		Other Income		Total
Revenue from contracts with customers:
Spot contract commissions	$	30,972	$	179		$	—	$	51	$	31,202
Card interchange fees, gross	29,449		—			—		99		29,548
Merchant service fees	2,906		—			—		—		2,906
Deposit service charges	17,040		28			—		631		17,699
Client investment fees	10,250		302			—		12,323		22,875
Fund management fees	—		—			5,736		—		5,736
Correspondent bank rebates	1,396		—			—		—		1,396
Total revenue from contracts with customers	$	92,013	$	509		$	5,736	$	13,104	$	111,362

Revenues outside the scope of ASC 606 (1)	7,333		(2		)	23,174		13,651		44,156
Total noninterest income	$	99,346	$	507		$	28,910	$	26,755	$	155,518


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


11.	Other Noninterest Expense

A summary of other noninterest expense for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Lending and other client related processing costs	$	3,201	$	5,539
Data processing services	2,492		2,582
Telephone	2,377		2,703
Dues and publications	850		795
Postage and supplies	667		749
Other	5,107		3,839
Total other noninterest expense	$	14,694	$	16,207


12.	Segment Reporting

We have three reportable segments for management reporting purposes: Global Commercial Bank, SVB Private Bank and SVB Capital. The results of our operating segments are based on our internal management reporting process.

Our Global Commercial Bank and SVB Private Bank segments' primary source of revenue is from net interest income, which is primarily the difference between interest earned on loans, net of funds transfer pricing (“FTP”), and interest paid on deposits, net of FTP. Accordingly, these segments are reported using net interest income, net of FTP. FTP is an internal measurement framework designed to assess the financial impact of a financial institution’s sources and uses of funds. It is the mechanism by which a funding credit is given for deposits raised, and a funding charge is made for loans funded. FTP is calculated at an instrument level based on account characteristics.

We also evaluate performance based on provision for credit losses, noninterest income and noninterest expense, which are presented as components of segment operating profit or loss. In calculating each operating segment’s noninterest expense, we consider the direct costs incurred by the operating segment as well as certain allocated direct costs. As part of this review, we allocate certain corporate overhead costs to a corporate account. We do not allocate income taxes or the provision for unfunded credit commitments (included in provision for credit losses) to our segments. Additionally, our management reporting model is predicated on average asset balances; therefore, period-end asset balances are not presented for segment reporting purposes. Changes in an individual client’s primary relationship designation have resulted, and in the future may result, in the inclusion of certain clients in different segments in different periods.

Table of Contents

Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, our internal management reporting process is highly subjective, as there is no comprehensive, authoritative guidance for management reporting. Our management reporting process measures the performance of our operating segments based on our internal operating structure, which is subject to change from time to time, and is not necessarily comparable with similar information for other financial services companies.

For reporting purposes, SVB Financial Group has three operating segments for which we report our financial information:


•	Global Commercial Bank is comprised of results from the following:

◦

Our Commercial Bank products and services are provided by the Bank and its subsidiaries to commercial clients in the technology, life science/healthcare and private equity/venture capital industries. The Bank provides solutions to the financial needs of commercial clients, through credit, global treasury management, foreign exchange, global trade finance, and other services. It serves clients within the United States, as well as non-U.S. clients in key international innovation markets. In addition, the Bank and its subsidiaries offer a variety of investment services and solutions to its clients that enable them to effectively manage their assets.


◦	Our Private Equity Division provides banking products and services primarily to our private equity and venture capital clients.


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


◦	SVB Analytics previously provided equity valuation services and currently provides research for investors and companies in the global innovation economy. In September 2017, SVB Analytics sold its equity valuation services business.


◦	Debt Fund Investments is comprised of our investments in certain debt funds in which we are a strategic investor.

•

SVB Private Bank is the private banking division of the Bank, which provides a range of personal financial solutions for consumers. Our clients are primarily private equity/venture capital professionals and executive leaders of the innovation companies they support. We offer a customized suite of private banking services, including mortgages, home equity lines of credit, restricted stock purchase loans, capital call lines of credit and other secured and unsecured lending, as well as cash and wealth management services.

•

SVB Capital is the funds management business of SVBFG, which focuses primarily on venture capital investments. SVB Capital manages funds (primarily venture capital funds) on behalf of third-party limited partners and, on a more limited basis, SVB Financial Group. The SVB Capital family of funds is comprised of direct venture funds that invest in companies and funds of funds that invest in other venture capital funds. SVB Capital generates income for the Company primarily from investment returns (including carried interest allocations) and management fees.

Table of Contents

The summary financial results of our operating segments are presented along with a reconciliation to our consolidated interim results.

Our segment information for the three months ended March 31, 2018 and 2017 is as follows:



(Dollars in thousands)	Global Commercial Bank (1)			SVB Private Bank			SVB Capital (1)			Other Items (2)			Total
Three months ended March 31, 2018
Net interest income	$	369,867		$	16,247		$	7		$	33,742		$	419,863
Provision for credit losses	(25,274		)	(1,722		)	—			(976		)	(27,972		)
Noninterest income	99,346			507			28,910			26,755			155,518
Noninterest expense (3)	(184,751		)	(6,043		)	(5,046		)	(69,577		)	(265,417		)
Income (loss) before income tax expense (4)	$	259,188		$	8,989		$	23,871		$	(10,056	)	$	281,992
Total average loans, net of unearned income	$	20,679,202		$	2,666,658		$	—		$	461,352		$	23,807,212
Total average assets (5)	49,953,950			2,590,476			373,322			(550,506		)	52,367,242
Total average deposits	44,041,634			1,572,424			—			492,023			46,106,081
Three months ended March 31, 2017
Net interest income	$	275,878		$	13,610		$	10		$	20,495		$	309,993
Provision for credit losses	(28,889		)	(790		)	—			(1,055		)	(30,734		)
Noninterest income	79,519			718			16,775			20,647			117,659
Noninterest expense (3)	(172,916		)	(3,919		)	(3,472		)	(57,326		)	(237,633		)
Income (loss) before income tax expense (4)	$	153,592		$	9,619		$	13,313		$	(17,239	)	$	159,285
Total average loans, net of unearned income	$	17,647,055		$	2,245,317		$	—		$	176,942		$	20,069,314
Total average assets (5)	42,888,126			2,272,825			372,876			(232,793		)	45,301,034
Total average deposits	38,296,563			1,336,849			—			325,123			39,958,535


(1)	Global Commercial Bank’s and SVB Capital’s components of net interest income, noninterest income, noninterest expense and total average assets are shown net of noncontrolling interests for all periods presented. Noncontrolling interest is included within “Other Items”.

(2)

The “Other Items” column reflects the adjustments necessary to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP. Net interest income consists primarily of interest earned from our fixed income investment portfolio, net of FTP. Noninterest income consists primarily of gains on equity warrant assets and gains or losses on the sale of fixed income investments and equity securities from exercised warrant assets. Noninterest expense consists primarily of expenses associated with corporate support functions such as finance, human resources, marketing, legal and other expenses.


(3)	The Global Commercial Bank segment includes direct depreciation and amortization of $5.5 million and $6.1 million for the three months ended March 31, 2018 and 2017, respectively.


(4)	The internal reporting model used by management to assess segment performance does not calculate income tax expense by segment. Our effective tax rate is a reasonable approximation of the segment rates.


(5)	Total average assets equal the greater of total average assets or the sum of total average liabilities and total average stockholders’ equity for each segment to reconcile the results to the consolidated financial statements prepared in conformity with GAAP.


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

Table of Contents

Commitments to Extend Credit

The following table summarizes information related to our commitments to extend credit at March 31, 2018 and December 31, 2017:



(Dollars in thousands)	March 31, 2018		December 31, 2017
Loan commitments available for funding: (1)
Fixed interest rate commitments	$	1,513,974	$	1,478,157
Variable interest rate commitments	13,665,905		14,034,169
Total loan commitments available for funding	15,179,879		15,512,326
Commercial and standby letters of credit (2)	1,990,923		1,950,211
Total unfunded credit commitments	$	17,170,802	$	17,462,537
Commitments unavailable for funding (3)	$	2,602,796	$	2,117,057
Allowance for unfunded credit commitments (4)	52,823		51,770


(1)	Represents commitments which are available for funding, due to clients meeting all collateral, compliance and financial covenants required under loan commitment agreements.


(2)	See below for additional information on our commercial and standby letters of credit.


(3)	Represents commitments which are currently unavailable for funding, due to clients failing to meet all collateral, compliance and financial covenants under loan commitment agreements.


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

Commercial and Standby Letters of Credit

The table below summarizes our commercial and standby letters of credit at March 31, 2018. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.



(Dollars in thousands)	Expires In One Year or Less		Expires After One Year		Total Amount Outstanding		Maximum Amount of Future Payments
Financial standby letters of credit	$	1,828,990	$	42,039	$	1,871,029	$	1,871,029
Performance standby letters of credit	107,170		2,935		110,105		110,105
Commercial letters of credit	9,364		425		9,789		9,789
Total	$	1,945,524	$	45,399	$	1,990,923	$	1,990,923

Deferred fees related to financial and performance standby letters of credit were $10.8 million at March 31, 2018 and $12.4 million at December 31, 2017. At March 31, 2018, collateral in the form of cash of $962.9 million was available to us to reimburse losses, if any, under financial and performance standby letters of credit.

Table of Contents

Commitments to Invest in Venture Capital and Private Equity Funds

Subject to applicable regulatory requirements, including the Volcker Rule, we make commitments to invest in venture capital and private equity funds, which generally makes investments in privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to call most of the capital commitments over 5 to 7 years, and in certain cases, the funds may not call 100% of committed capital. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate. The following table details our total capital commitments, unfunded capital commitments, and our ownership percentage in each fund at March 31, 2018:



(Dollars in thousands)	SVBFG Capital Commitments		SVBFG Unfunded Commitments		SVBFG Ownership of each Fund (3)
CP I, LP	$	6,000	$	270	10.7	%
CP II, LP (1)	1,200		162		5.1
Shanghai Yangpu Venture Capital Fund (LP)	924		—		6.8
Strategic Investors Fund, LP	15,300		688		12.6
Strategic Investors Fund II, LP	15,000		1,050		8.6
Strategic Investors Fund III, LP	15,000		1,275		5.9
Strategic Investors Fund IV, LP	12,239		2,325		5.0
Strategic Investors Fund V funds	515		131		Various
Capital Preferred Return Fund, LP	12,688		—		20.0
Growth Partners, LP	23,330		1,340		33.0
Debt funds (equity method accounting)	58,493		—		Various
Other fund investments (2)	301,673		8,772		Various
Total	$	462,362	$	16,013


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


(2)	Represents commitments to 229 funds (primarily venture capital funds) where our ownership interest is generally less than five percent of the voting interests of each such fund.


(3)	We are subject to the Volcker Rule, which restricts or limits us from sponsoring or having ownership interests in “covered” funds including venture capital and private equity funds. See “Business - Supervision and Regulation” under Part 1, Item 1 of our 2017 Form 10-K.

The following table details the amounts of remaining unfunded commitments to venture capital and private equity funds by our consolidated managed funds of funds (including our interest and the noncontrolling interests) at March 31, 2018:



(Dollars in thousands)	Unfunded Commitments
Strategic Investors Fund, LP	$	1,338
Capital Preferred Return Fund, LP	1,911
Growth Partners, LP	2,680
Total	$	5,929


14.	Income Taxes

We are subject to income tax in the U.S. federal jurisdiction and various state and foreign jurisdictions and have identified our federal tax and California tax returns as major tax filings. Our U.S. federal tax returns for 2014 and subsequent tax years remain open to full examination. Our California tax returns for 2013 and subsequent tax years remain open to full examination.

At March 31, 2018, our unrecognized tax benefit was $12.8 million, the recognition of which would reduce our income tax expense by $9.9 million. We do not expect that our unrecognized tax benefit will materially change in the next 12 months.

Table of Contents

We recognize interest and penalties related to income tax matters as part of income before income taxes. Interest and penalties were not material for the three months ended March 31, 2018.


15.	Fair Value of Financial Instruments

Fair Value Measurements

Our available-for-sale securities, derivative instruments and certain non-marketable and other equity securities are financial instruments recorded at fair value on a recurring basis. We make estimates regarding valuation of assets and liabilities measured at fair value in preparing our interim consolidated financial statements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable and the significance of those inputs in the fair value measurement. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data and views of market participants. The three levels for measuring fair value are based on the reliability of inputs and are as follows:

Level 1

Fair value measurements based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. Assets utilizing Level 1 inputs include U.S. Treasury securities, exchange-traded equity securities and certain marketable securities accounted for under fair value accounting.

Level 2

Fair value measurements based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Valuations for the available-for-sale securities are provided by independent pricing service providers who have experience in valuing these securities and by comparison to and/or average of quoted market prices obtained from independent brokers. We perform a monthly analysis on the values received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and ongoing review of third-party pricing methodologies, review of pricing trends and monitoring of trading volumes. Additional corroboration, such as obtaining a non-binding price from a broker, may be obtained depending on the frequency of trades of the security and the level of liquidity or depth of the market. We ensure prices received from independent brokers represent a reasonable estimate of the fair value through the use of observable market inputs including comparable trades, yield curve, spreads and, when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. Below is a summary of the significant inputs used for each class of Level 2 assets and liabilities:

U.S. agency debentures: Fair value measurements of U.S. agency debentures are based on the characteristics specific to bonds held, such as issuer name, coupon rate, maturity date and any applicable issuer call option features. Valuations are based on market spreads relative to similar term benchmark market interest rates, generally U.S. Treasury securities.

Agency-issued mortgage-backed securities: Agency-issued mortgage-backed securities are pools of individual conventional mortgage loans underwritten to U.S. agency standards with similar coupon rates, tenor, and other attributes such as geographic location, loan size and origination vintage. Fair value measurements of these securities are based on observable price adjustments relative to benchmark market interest rates taking into consideration estimated loan prepayment speeds.

Agency-issued collateralized mortgage obligations: Agency-issued collateralized mortgage obligations are structured into classes or tranches with defined cash flow characteristics and are collateralized by U.S. agency-issued mortgage pass-through securities. Fair value measurements of these securities incorporate similar characteristics of mortgage pass-through securities such as coupon rate, tenor, geographic location, loan size and origination vintage, in addition to incorporating the effect of estimated prepayment speeds on the cash flow structure of the class or tranche. These measurements incorporate observable market spreads over an estimated average life after considering the inputs listed above.

Agency-issued commercial mortgage-backed securities: Fair value measurements of these securities are based on spreads to benchmark market interest rates (usually U.S. Treasury rates or rates observable in the swaps market), prepayment speeds, loan default rate assumptions and loan loss severity assumptions on underlying loans.

Municipal bonds and notes: Bonds issued by municipal governments generally have stated coupon rates, final maturity dates and are subject to being called ahead of the final maturity date at the option of the issuer. Fair value measurements

Table of Contents

of these securities are priced based on spreads to other municipal benchmark bonds with similar characteristics; or, relative to market rates on U.S. Treasury bonds of similar maturity.

Interest rate derivative assets and liabilities: Fair value measurements of interest rate derivatives are priced considering the coupon rate of the fixed leg of the contract and the variable coupon on the floating leg of the contract. Valuation is based on both spot and forward rates on the swap yield curve and the credit worthiness of the contract counterparty.

Foreign exchange forward and option contract assets and liabilities: Fair value measurements of these assets and liabilities are priced based on spot and forward foreign currency rates and option volatility assumptions.

Level 3

The fair value measurement is derived from valuation techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions we believe market participants would use in pricing the asset. Below is a summary of the valuation techniques used for each class of Level 3 assets:

Venture capital and private equity fund investments not measured at net asset value: Fair value measurements are based on consideration of a range of factors including, but not limited to, the price at which the investment was acquired, the term and nature of the investment, local market conditions, values for comparable securities, and as it relates to the private company, the current and projected operating performance, exit strategies and financing transactions subsequent to the acquisition of the investment. The significant unobservable inputs used in the fair value measurement include the information about each portfolio company, including actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Significant changes to any one of these inputs in isolation could result in a significant change in the fair value measurement, however, we generally consider all factors available through ongoing communication with the portfolio companies and venture capital fund managers to determine whether there are changes to the portfolio company or the environment that indicate a change in the fair value measurement.

Equity warrant assets (public portfolio): Fair value measurements of equity warrant assets of publicly-traded portfolio companies are valued based on the Black-Scholes option pricing model. The model uses the price of publicly-traded companies (underlying stock price), stated strike prices, warrant expiration dates, the risk-free interest rate and market-observable option volatility assumptions. Modeled asset values are further adjusted by applying a discount of up to 20 percent for certain warrants that have lock-up restrictions or other features that indicate a discount to fair value is warranted. As a lock-up term nears, and other sale restrictions are lifted, discounts are adjusted downward to zero percent once all restrictions expire or are removed.

Equity warrant assets (private portfolio): Fair value measurements of equity warrant assets of private portfolio companies are priced based on a Black-Scholes option pricing model to estimate the asset value by using stated strike prices, option expiration dates, risk-free interest rates and option volatility assumptions. Option volatility assumptions used in the model are based on public market indices whose members operate in similar industries as companies in our private company portfolio. Option expiration dates are modified to account for estimates to actual life relative to stated expiration. Overall model asset values are further adjusted for a general lack of liquidity due to the private nature of the associated underlying company. There is a direct correlation between changes in the volatility and remaining life assumptions in isolation and the fair value measurement while there is an inverse correlation between changes in the liquidity discount assumption and the fair value measurement.

It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon valuation techniques that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, prepayment speeds, option volatilities and currency rates. Substantially all of our financial instruments use the foregoing methodologies, and are categorized as a Level 1 or Level 2 measurement in the fair value hierarchy. However, in certain cases, when market observable inputs for our valuation techniques may not be readily available, we are required to make judgments about assumptions we believe market participants would use in estimating the fair value of the financial instrument, and based on the significance of those judgments, the measurement may be determined to be a Level 3 fair value measurement.

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When

Table of Contents

observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. For inactive markets, there is little information, if any, to evaluate if individual transactions are orderly. Accordingly, we are required to estimate, based upon all available facts and circumstances, the degree to which orderly transactions are occurring and provide more weighting to price quotes that are based upon orderly transactions. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Accordingly, the degree of judgment exercised by management in determining fair value is greater for financial assets and liabilities categorized as Level 3.

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2018:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at March 31, 2018
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	6,016,877	$	—	$	—	$	6,016,877
U.S. agency debentures	—		1,561,834		—		1,561,834
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		2,146,173		—		2,146,173
Agency-issued collateralized mortgage obligations—variable rate	—		355,500		—		355,500
Total available-for-sale securities	6,016,877		4,063,507		—		10,080,384
Non-marketable and other equity securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		334,665
Venture capital and private equity fund investments not measured at net asset value (1)	—		—		1,001		1,001
Other equity securities in public companies	31		4,663		—		4,694
Total non-marketable and other securities (fair value accounting)	31		4,663		1,001		340,360
Other assets:
Foreign exchange forward and option contracts	—		108,504		—		108,504
Equity warrant assets	—		4,163		131,506		135,669
Client interest rate derivatives	—		5,070		—		5,070
Total assets	$	6,016,908	$	4,185,907	$	132,507	$	10,669,987
Liabilities:
Foreign exchange forward and option contracts	$	—	$	104,325	$	—	$	104,325
Client interest rate derivatives	—		13,369		—		13,369
Total liabilities	$	—	$	117,694	$	—	$	117,694


(1)	Included in Level 3 assets is $0.9 million attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

Table of Contents

The following fair value hierarchy table presents information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2017:



(Dollars in thousands)	Level 1		Level 2		Level 3		Balance at December 31, 2017
Assets:
Available-for-sale securities:
U.S. Treasury securities	$	6,840,502	$	—	$	—	$	6,840,502
U.S. agency debentures	—		1,567,128		—		1,567,128
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	—		2,267,035		—		2,267,035
Agency-issued collateralized mortgage obligations—variable rate	—		373,730		—		373,730
Equity securities	158		72,111		—		72,269
Total available-for-sale securities	6,840,660		4,280,004		—		11,120,664
Non-marketable and other securities (fair value accounting):
Non-marketable securities:
Venture capital and private equity fund investments measured at net asset value	—		—		—		127,192
Venture capital and private equity fund investments not measured at net asset value (1)	—		—		919		919
Other equity securities in public companies (1)	310		—		—		310
Total non-marketable and other securities (fair value accounting)	310		—		919		128,421
Other assets:
Foreign exchange forward and option contracts	—		96,636		—		96,636
Equity warrant assets	—		2,432		121,331		123,763
Client interest rate derivatives	—		11,753		—		11,753
Total assets	$	6,840,970	$	4,390,825	$	122,250	$	11,481,237
Liabilities:
Foreign exchange forward and option contracts	$	—	$	96,641	$	—	$	96,641
Client interest rate derivatives	—		11,940		—		11,940
Total liabilities	$	—	$	108,581	$	—	$	108,581


(1)	Included in Level 1 and Level 3 assets are $0.2 million and $0.8 million, respectively, attributable to noncontrolling interests calculated based on the ownership percentages of the noncontrolling interests.

Table of Contents

The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2018 and 2017:



(Dollars in thousands)	Beginning Balance		Total Realized and Unrealized Gains Included in Income		Sales			Issuances		Distributions and Other Settlements		Transfers Out of Level 3			Ending Balance
Three months ended March 31, 2018
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value(1)	$	919	$	82	$	—		$	—	$	—	$	—		$	1,001
Other assets:
Equity warrant assets (2)	121,331		18,611		(12,128		)	4,899		—		(1,207		)	131,506
Total assets	$	122,250	$	18,693	$	(12,128	)	$	4,899	$	—	$	(1,207	)	$	132,507
Three months ended March 31, 2017
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value(1)	$	2,040	$	—	$	—		$	—	$	—	$	—		$	2,040
Other assets:
Equity warrant assets (2)	128,813		6,609		(17,086		)	4,030		—		(167		)	122,199
Total assets	$	130,853	$	6,609	$	(17,086	)	$	4,030	$	—	$	(167	)	$	124,239


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


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

Table of Contents

The following table presents the amount of net unrealized gains and losses included in earnings (which is inclusive of noncontrolling interest) attributable to Level 3 assets still held at March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017
Non-marketable and other securities (fair value accounting):
Venture capital and private equity fund investments not measured at net asset value (1)	$	82	$	—
Other assets:
Equity warrant assets (2)	9,573		(347		)
Total unrealized gains (losses), net	$	9,655	$	(347	)
Unrealized gains attributable to noncontrolling interests (1)	$	73	$	—


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


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

The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of current sales restrictions to which these securities are subject, the actual sales of securities and the timing of such actual sales.

The following table presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurements at March 31, 2018 and December 31, 2017. We have not included in this table our venture capital and private equity fund investments (fair value accounting) as we use net asset value per share (as obtained from the general partners of the investments) as a practical expedient to determine fair value.



(Dollars in thousands)	Fair value		Valuation Technique	Significant Unobservable Inputs	Weighted Average
March 31, 2018:
Venture capital and private equity fund investments (fair value accounting)	$	1,001	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,641		Black-Scholes option pricing model	Volatility	46.3	%
				Risk-Free interest rate	2.7
				Sales restrictions discount (2)	13.7
Equity warrant assets (private portfolio)	129,865		Black-Scholes option pricing model	Volatility	37.0
				Risk-Free interest rate	2.2
				Marketability discount (3)	16.4
				Remaining life assumption (4)	45.0
December 31, 2017:
Venture capital and private equity fund investments (fair value accounting)	$	919	Private company equity pricing	(1)	(1	)
Equity warrant assets (public portfolio)	1,936		Black-Scholes option pricing model	Volatility	47.9	%
				Risk-Free interest rate	2.1
				Sales restrictions discount (2)	15.5
Equity warrant assets (private portfolio)	119,395		Black-Scholes option pricing model	Volatility	36.7
				Risk-Free interest rate	1.8
				Marketability discount (3)	16.4
				Remaining life assumption (4)	45.0

(1)

In determining the fair value of our venture capital and private equity fund investment portfolio (not measured at net asset value), we evaluate a variety of factors related to each underlying private portfolio company including, but not limited to, actual and forecasted results, cash position, recent or planned transactions and market comparable companies. Additionally, we have ongoing communication with the portfolio companies and venture capital fund managers, to determine whether there is a material change in fair value. We use company provided valuation reports, if available, to support our valuation assumptions. These factors are specific to each portfolio company and a weighted average or range of values of the unobservable inputs is not meaningful.

Table of Contents


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


(3)	Our marketability discount is applied to all private company warrants to account for a general lack of liquidity due to the private nature of the associated underlying company. The quantitative measure used is based upon various option-pricing models. On a quarterly basis, a sensitivity analysis is performed on our marketability discount.

(4)

We adjust the contractual remaining term of private company warrants based on our estimate of the actual remaining life, which we determine by utilizing historical data on cancellations and exercises. At March 31, 2018, the weighted average contractual remaining term was 6.0 years, compared to our estimated remaining life of 2.7 years. On a quarterly basis, a sensitivity analysis is performed on our remaining life assumption.

For the three months ended March 31, 2018 and 2017, we did not have any transfers between Level 2 and Level 1 or transfers between Level 3 and Level 1. All transfers from Level 3 to Level 2 for the three months ended March 31, 2018 and 2017 were due to the transfer of equity warrant assets from our private portfolio to our public portfolio (see our Level 3 reconciliation above). All amounts reported as transfers represent the fair value as of the date of the change in circumstances that caused the transfer.

Table of Contents

Financial Instruments not Carried at Fair Value

FASB guidance over financial instruments requires that we disclose estimated fair values for our financial instruments not carried at fair value. The following fair value hierarchy table presents the estimated fair values of our financial instruments that are not carried at fair value at March 31, 2018 and December 31, 2017:



			Estimated Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3
March 31, 2018:
Financial assets:
Cash and cash equivalents	$	2,619,384	$	2,619,384	$	2,619,384	$	—	$	—
Held-to-maturity securities	14,548,856		14,229,439		—		14,229,439		—
Non-marketable securities not measured at net asset value	123,811		123,811		—		—		123,811
Non-marketable securities measured at net asset value	134,942		134,942		—		—		—
Net commercial loans	21,618,619		21,810,467		—		—		21,810,467
Net consumer loans	2,695,031		2,695,873		—		—		2,695,873
FHLB and Federal Reserve Bank stock	60,514		60,514		—		—		60,514
Financial liabilities:
Other short-term borrowings	1,102,140		1,102,140		1,102,140		—		—
Non-maturity deposits (1)	45,895,018		45,895,018		45,895,018		—		—
Time deposits	41,514		41,239		—		41,239		—
3.50% Senior Notes	347,386		343,676		—		343,676		—
5.375% Senior Notes	348,345		369,005		—		369,005		—
Off-balance sheet financial assets:
Commitments to extend credit	—		21,507		—		—		21,507
December 31, 2017:
Financial assets:
Cash and cash equivalents	$	2,923,075	$	2,923,075	$	2,923,075	$	—	$	—
Held-to-maturity securities	12,663,455		12,548,280		—		12,548,280		—
Non-marketable securities (cost and equity method accounting) not measured at net asset value	120,019		126,345		—		—		126,345
Non-marketable securities (cost and equity method accounting) measured at net asset value	228,399		331,496		—		—		—
Net commercial loans	20,238,247		20,520,623		—		—		20,520,623
Net consumer loans	2,613,045		2,593,538		—		—		2,593,538
FHLB and Federal Reserve Bank stock	60,020		60,020		—		—		60,020
Financial liabilities:
Short-term FHLB advances	700,000		700,000		700,000		—		—
Federal funds purchased	330,000		330,000		330,000		—		—
Other short-term borrowings	3,730		3,730		3,730		—		—
Non-maturity deposits (1)	44,206,929		44,206,929		44,206,929		—		—
Time deposits	47,146		46,885		—		46,885		—
3.50% Senior Notes	347,303		352,058		—		352,058		—
5.375% Senior Notes	348,189		374,483		—		374,483		—
Off-balance sheet financial assets:
Commitments to extend credit	—		22,208		—		—		22,208


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

Table of Contents

Investments in Entities that Calculate Net Asset Value Per Share

FASB guidance over certain fund investments requires that we disclose the fair value of funds, significant investment strategies of the investees, redemption features of the investees, restrictions on the ability to sell investments, estimate of the period of time over which the underlying assets are expected to be liquidated by the investee, and unfunded commitments related to the investments.

Our investments in debt funds and venture capital and private equity fund investments generally cannot be redeemed. Alternatively, we expect distributions, if any, to be received primarily through IPO and M&A activity of the underlying assets of the fund. Subject to applicable requirements under the Volcker Rule, we do not have any plans to sell any of these fund investments. If we decide to sell these investments in the future, the investee fund’s management must approve of the buyer before the sale of the investments can be completed. The fair values of the fund investments have been estimated using the net asset value per share of the investments, adjusted for any differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example December 31^st, for our March 31^st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.

The following table is a summary of the estimated fair values of these investments and remaining unfunded commitments for each major category of these investments as of March 31, 2018:



(Dollars in thousands)	Carrying Amount		Fair Value		Unfunded Commitments
Non-marketable securities (fair value accounting):
Venture capital and private equity fund investments (1)	$	334,665	$	334,665	$	13,817
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments (2)	97,929		97,929		4,943
Debt funds (2)	18,884		18,884		—
Other investments (2)	18,129		18,129		886
Total	$	469,607	$	469,607	$	19,646

(1)

Venture capital and private equity fund investments within non-marketable securities (fair value accounting) include investments made by our managed funds of funds and one of our direct venture funds (consolidated VIEs) and investments in venture capital and private equity fund investments (unconsolidated VIEs). Collectively, these investments in venture capital and private equity funds are primarily in U.S. and global technology and life science/healthcare companies. Included in the fair value and unfunded commitments of fund investments under fair value accounting are $95.8 million and $4.5 million, respectively, attributable to noncontrolling interests. It is estimated that we will receive distributions from the fund investments over the next 10 to 13 years, depending on the age of the funds and any potential extensions of terms of the funds.

(2)

Venture capital and private equity fund investments, debt funds, and other fund investments within non-marketable securities (equity method accounting) include funds that invest in or lend money to primarily U.S. and global technology and life science/healthcare companies. It is estimated that we will receive distributions from the funds over the next 5 to 8 years, depending on the age of the funds and any potential extensions of the terms of the funds.


16.	Legal Matters

Certain lawsuits and claims arising in the ordinary course of business have been filed or are pending against us and/or our affiliates, and we may from time to time be involved in other legal or regulatory proceedings. In accordance with applicable accounting guidance, we establish accruals for all such matters, including expected settlements, when we believe it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. When a loss contingency is not both probable and estimable, we do not establish an accrual. Any such loss estimates are inherently uncertain, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherent subjectivity of these estimates and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate resolution of such matters.

To the extent we believe any potential loss relating to such matters may have a material impact on our liquidity, consolidated financial position, results of operations, and/or our business as a whole and is reasonably possible but not probable, we aim to disclose information relating to such potential loss. We also aim to disclose information relating to any material potential loss that is probable but not reasonably estimable. In such cases, where reasonably practicable, we aim to provide an estimate of loss or range of potential loss. No disclosures are generally made for any loss contingencies that are deemed to be remote.

Table of Contents

Based upon information available to us, our review of lawsuits and claims filed or pending against us to date and consultation with our outside legal counsel, we have not recognized a material accrual liability for any such matters, nor do we currently expect that these matters will result in a material liability to the Company. However, the outcome of litigation and other legal and regulatory matters is inherently uncertain, and it is possible that one or more of such matters currently pending or threatened could have an unanticipated material adverse effect on our liquidity, consolidated financial position, results of operations, and/or our business as a whole, in the future.


17.	Related Parties

We have no material related party transactions requiring disclosure. In the ordinary course of business, the Bank may extend credit to related parties, including executive officers, directors, principal shareholders and their related interests. Additionally, we provide real estate secured loans to eligible employees through our EHOP. For additional details, see Note 17—“Employee Compensation and Benefit Plans" under Part II, Item 8 of our 2017 Form 10-K.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including in particular “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part I, Item 2 of this report, contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, management has in the past and might in the future make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements are statements that are not historical facts. Broadly speaking, forward-looking statements include, but are not limited to, the following:


•	Financial projections, including with respect to our net interest income, noninterest income, earnings per share, noninterest expenses (including professional services, compliance, compensation and other costs), cash flows, balance sheet positions, capital expenditures, liquidity and capitalization or other financial items;


•	Descriptions of our strategic initiatives, plans or objectives for future operations, including pending sales or acquisitions;


•	Forecasts of private equity/venture capital funding and investment levels;


•	Forecasts of future interest rates, economic performance, and income from investments;


•	Forecasts of expected levels of provisions for loan losses, nonperforming loans, loan growth and client funds; and


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

You can identify these and other forward-looking statements by the use of words such as “becoming,” “may,” “will,” “should,” "could," "would," “predict,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “assume,” “seek,” “expect,” “plan,” “intend,” the negative of such words, or comparable terminology. Forward-looking statements are neither historical facts nor assurances of future performance. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we have based these expectations on our current beliefs as well as our assumptions, and such expectations may prove to be incorrect. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-looking statements. Important factors that could cause our actual results and financial condition to differ from the expectations stated in the forward-looking statements include, among others:


•	Market and economic conditions, including the interest rate environment, and the associated impact on us;


•	The credit profile and credit quality of our loan portfolio and volatility of our levels of nonperforming assets and charge-offs;


•	The adequacy of our allowance for loan losses and the need to make provisions for loan losses for any period;


•	The borrowing needs of our clients;


•	The sufficiency of our capital and liquidity positions;


•	The levels of loans, deposits and client investment fund balances;


•	The performance of our portfolio investments; the general condition of the public and private equity and mergers and acquisitions markets and their impact on our investments, including equity warrant assets, venture capital and private equity funds and direct equity investments;


•	Our overall investment plans and strategies; the realization, timing, valuation and performance of our equity or other investments;


•	The levels of public offerings, mergers and acquisitions and venture capital investment activity of our clients that may impact the borrowing needs of our clients;

Table of Contents


•	The occurrence of fraudulent activity, including breaches of our information security or cyber security-related incidents;


•	Business disruptions and interruptions due to natural disasters and other external events;


•	The impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties;


•	Expansion of our business internationally, and the impact of international market and economic events on us;


•	The impact of governmental policy, legal requirements and regulations, including the Dodd-Frank Act, promulgated by the Federal Reserve and other regulatory requirements;


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


•	The impact of changes in accounting standards and tax laws, including the impact of the Tax Cuts and Jobs Act;


•	The levels of equity capital available to our client or portfolio companies;


•	The effectiveness of our risk management framework and quantitative models;


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


•	Other factors as discussed in “Risk Factors” under Part I, Item 1A in our 2017 Form 10-K.

We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this filing are made only as of the date of this filing. We assume no obligation and do not intend to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q, except as required by law.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and accompanying notes as presented in Part I, Item 1 of this report and in conjunction with our 2017 Form 10-K.

Reclassifications

Certain prior period amounts, primarily related to the adoption of new accounting guidance, have been reclassified to conform to current period presentations.

Management’s Overview of First Quarter 2018 Performance

Overall, we had an outstanding first quarter in 2018, which was marked by higher net interest and core fee income, increased warrant gains, strong total client funds growth, healthy loan growth and stable credit quality. Additionally, we saw higher noninterest expense, primarily from increased compensation and benefits expenses reflective of increased expenses to support our increasing regulatory, risk and compliance initiatives to support our domestic and global expansion. Our core business continued to perform well as a result of our ongoing focus on innovation companies and their investors and continued efforts to secure client relationships. We saw continued success in working with private equity/venture capital firms and technology clients as well as clients in our private banking division.

Table of Contents

A summary of our performance for the three months ended March 31, 2018 (compared to the three months ended March 31, 2017, where applicable) is as follows:



BALANCE SHEET		EARNINGS
Assets. $52.4 billion in average total assets (up 15.6%). $53.5 billion in period-end total assets (up 15.3%). Loans. $23.8 billion in average total loan balances, net of unearned income (up 18.6%). $24.6 billion in period-end total loan balances, net of unearned income (up 20.4%). Total Client Funds. (on-balance sheet deposits and off-balance sheet client investment funds). $110.5 billion in average total client fund balances (up 28.3%). $113.7 billion in period-end total client fund balances (up 29.9%). Fixed Income Investments. $24.0 billion in average fixed income investment securities (up 13.4%). $24.6 billion in period-end fixed income investment securities (up 17.3%).		EPS. Earnings per diluted share of $3.63 (up 90.1%). Net Income. Consolidated net income available to common stockholders of $195.0 million (up 92.1%). - Net interest income of $419.9 million (up 35.4%). - Net interest margin of 3.38% (up 50 bps). - Noninterest income of $155.5 million (up 32.2%), with non-GAAP core fee income⁺ of $115.0 million (up 39.3%). - Noninterest expense of $265.4 million (up 11.7%). ROE. Return on average equity (annualized) (“ROE”) performance of 18.12%. Operating Efficiency Ratio. Operating efficiency ratio of 46.13%.

CAPITAL		CREDIT QUALITY
Capital. Continued strong capital levels, with all capital ratios considered “well-capitalized” under banking regulations. SVBFG and SVB capital ratios, respectively, were: - CET 1 risk-based capital ratio of 12.87% and 11.90%. - Tier 1 risk-based capital ratio of 13.06% and 11.90%. - Total risk-based capital ratio of 13.99% and 12.88%. - Tier 1 leverage ratio of 8.67% and 7.69%.		Credit Quality. Continued disciplined underwriting. - Allowance for loan losses of 1.11% as a percentage of period-end total gross loans. - Provision for loan losses of 0.44% as a percentage of period-end total gross loans (annualized). - Net loan charge-offs of 0.15% as a percentage of average total gross loans (annualized).

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

Table of Contents

A summary of our performance for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands, except per share data, employees and ratios)	2018			2017			% Change

Diluted earnings per common share	$	3.63		$	1.91		90.1		%
Net income available to common stockholders	194,961			101,483			92.1
Net interest income	419,863			309,993			35.4
Net interest margin	3.38		%	2.88		%	50		bps
Provision for credit losses	$	27,972		$	30,734		(9.0	)	%
Noninterest income	155,518			117,659			32.2
Noninterest expense	265,417			237,633			11.7
Non-GAAP core fee income (1)	115,010			82,578			39.3
Non-GAAP noninterest income, net of noncontrolling interests (1)	142,494			111,100			28.3
Non-GAAP noninterest expense, net of noncontrolling interests(2)	265,449			237,464			11.8
Balance Sheet:
Average available-for-sale securities	$	10,748,512		$	12,550,264		(14.4	)	%
Average held-to-maturity securities	13,234,326			8,600,176			53.9
Average loans, net of unearned income	23,807,212			20,069,314			18.6
Average noninterest-bearing demand deposits	37,950,787			32,709,423			16.0
Average interest-bearing deposits	8,155,294			7,249,112			12.5
Average total deposits	46,106,081			39,958,535			15.4
Earnings Ratios:
Return on average assets (annualized) (3)	1.51		%	0.91		%	65.9		%
Return on average SVBFG stockholders’ equity (annualized) (4)	18.12			11.03			64.3
Asset Quality Ratios:
Allowance for loan losses as a % of total period-end gross loans	1.11		%	1.18		%	(7	)	bps
Allowance for loan losses for performing loans as a % of total gross performing loans	0.93			0.94			(1	)
Gross loan charge-offs as a % of average total gross loans (annualized)	0.18			0.28			(10	)
Net loan charge-offs as a % of average total gross loans (annualized)	0.15			0.25			(10	)
Capital Ratios:
CET 1 risk-based capital ratio	12.87		%	13.05		%	(18	)	bps
Tier 1 risk-based capital ratio	13.06			13.44			(38	)
Total risk-based capital ratio	13.99			14.45			(46	)
Tier 1 leverage ratio	8.67			8.51			16
Tangible common equity to tangible assets (5)	8.25			8.11			14
Tangible common equity to risk-weighted assets (5)	12.65			13.12			(47	)
Bank CET 1 risk-based capital ratio	11.90			12.75			(85	)
Bank tier 1 risk-based capital ratio	11.90			12.75			(85	)
Bank total risk-based capital ratio	12.88			13.80			(92	)
Bank tier 1 leverage ratio	7.69			7.81			(12	)
Bank tangible common equity to tangible assets (5)	7.41			7.66			(25	)
Bank tangible common equity to risk-weighted assets (5)	11.68			12.82			(114	)
Other Ratios:
GAAP operating efficiency ratio (6)	46.13		%	55.57		%	(17.0	)	%
Non-GAAP operating efficiency ratio (2)	47.09			56.35			(16.4	)
Book value per common share (7)	$	83.43		$	71.80		16.2
Other Statistics:
Average full-time equivalent employees	2,498			2,345			6.5		%
Period-end full-time equivalent employees	2,512			2,347			7.0


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


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


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


(4)	Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders’ equity.

Table of Contents


(5)	See “Capital Resources–Capital Ratios” for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.


(6)	The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income.


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

For more information with respect to our capital ratios, please refer to “Capital Ratios” under “Consolidated Financial Condition-Capital Ratios” below.

Critical Accounting Policies and Estimates

The accompanying management’s discussion and analysis of results of operations and financial condition is based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. Management evaluates estimates and assumptions on an ongoing basis. Management bases its estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.

There have been no significant changes during the three months ended March 31, 2018 to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of our 2017 Form 10-K.

Results of Operations

Net Interest Income and Margin (Fully Taxable Equivalent Basis)

Net interest income is defined as the difference between interest earned on loans, fixed income investment portfolio (available-for-sale and held-to-maturity securities), short-term investment securities and interest paid on funding sources. Net interest income is our principal source of revenue. Net interest margin is defined as the amount of annualized net interest income, on a fully taxable equivalent basis, expressed as a percentage of average interest-earning assets. Net interest income and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the federal statutory tax rate of 21.0 percent for the three months ended March 31, 2018 and 35.0 percent for the three months ended March 31, 2017.

Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable Equivalent Basis)

Net interest income is affected by changes in the amount and composition of interest-earning assets and interest-bearing liabilities, referred to as “volume change.” Net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as “rate change.” The following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities. The table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the periods indicated. For this table, changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate.

Table of Contents



	2018 Compared to 2017
	Three months ended March 31, increase (decrease) due to change in
(Dollars in thousands)	Volume			Rate			Total
Interest income:
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell, trade receivables purchased and other short-term investment securities	$	448		$	2,172		$	2,620
Fixed income investment portfolio (taxable)	19,150			15,524			34,674
Fixed income investment portfolio (non-taxable)	5,623			(171		)	5,452
Loans, net of unearned income	46,643			23,089			69,732
Increase in interest income, net	71,864			40,614			112,478
Interest expense:
Interest bearing checking and savings accounts	41			—			41
Money market deposits	494			1,863			2,357
Money market deposits in foreign offices	3			(1		)	2
Time deposits	(2		)	(2		)	(4		)
Sweep deposits in foreign offices	(13		)	(3		)	(16		)
Total increase in deposits expense	523			1,857			2,380
Short-term borrowings	173			141			314
3.50% Senior Notes	3			—			3
5.375% Senior Notes	8			—			8
Junior Subordinated Debentures	(832		)	—			(832		)
6.05% Subordinated Notes	(271		)	—			(271		)
Total (decrease) increase in borrowings expense	(919		)	141			(778		)
(Decrease) increase in interest expense, net	(396		)	1,998			1,602
Increase in net interest income	$	72,260		$	38,616		$	110,876

Net Interest Income (Fully Taxable Equivalent Basis)

Three months ended March 31, 2018 and 2017

Net interest income increased by $110.9 million to $421.2 million for the three months ended March 31, 2018, compared to $310.3 million for the comparable 2017 period. Overall, our net interest income increased primarily from interest earned on loans, reflective of higher average loan balances driven by strong loan growth from our private equity/venture capital and software/internet loan portfolios and rate increases subsequent to March 31, 2017. In addition, we saw an increase in interest earned on our fixed income investment securities portfolio reflective of higher average fixed income investment securities balances driven by higher average deposit balances as well as an increase in yield from rate increases.

The main factors affecting interest income for the three months ended March 31, 2018, compared to the comparable 2017 period are discussed below:


•	Interest income for the three months ended March 31, 2018 increased by $112.5 million due primarily to:

◦

A $69.7 million increase in interest income on loans to $297.1 million for the three months ended March 31, 2018, compared to $227.3 million for the comparable 2017 period. The increase was reflective of an increase in average loan balances of $3.7 billion and an increase in the overall loan yield of 47 basis points to 5.06 percent from 4.59 percent. Gross loan yields, excluding loan interest recoveries and loan fees, increased 49 basis points to 4.52 percent from 4.03 percent, reflective primarily of the benefit of interest rate increases. Loan fee yields were down four basis points to 51 basis points for the three months ended March 31, 2018.

◦

A $40.1 million increase in interest income on fixed income investment securities to $130.9 million for the three months ended March 31, 2018, compared to $90.8 million for the comparable 2017 period. The increase was reflective of an increase in average fixed income investments of $2.8 billion due to growth in average deposit balances and an increase in our fixed income investment securities yield of 47 basis points to 2.21 percent from 1.74 percent resulting primarily from higher reinvestment yields on maturing fixed income investments as well as higher yields on new purchases due to interest rate increases.


◦	A $2.6 million increase in interest income from our interest earning cash and short-term investment securities. The increase was due primarily to higher yields as a result of increases in the Federal Funds target rate.

Table of Contents


•	Interest expense for the three months ended March 31, 2018 increased by $1.6 million due primarily to:


◦	A $2.4 million increase in deposits interest expense, due primarily to an increase in interest paid on our interest-bearing money market deposits as a result of market rate adjustments.


◦	A $0.8 million decrease in borrowings interest expense, due mostly to the repayment of our 6.05% Subordinated Notes and the redemption of our Junior Subordinated Debentures in 2017.

Net Interest Margin (Fully Taxable Equivalent Basis)

Three months ended March 31, 2018 and 2017

•

Our net interest margin increased by 50 basis points to 3.38 percent for the three months ended March 31, 2018, compared to 2.88 percent for the comparable 2017 period. The higher margin during the first quarter of 2018 was reflective primarily of the increases in the Federal Funds target rate since the first quarter of 2017 as well as a shift in the mix of interest-earning assets to higher-yielding loans from our fixed income investment securities.

Table of Contents

Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis)

The average yield earned on interest-earning assets is the amount of annualized fully taxable equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is the amount of annualized interest expense expressed as a percentage of average funding sources. The following tables set forth average assets, liabilities, noncontrolling interests and SVBFG stockholders’ equity, interest income, interest expense, annualized yields and rates, and the composition of our annualized net interest margin for the three months ended March 31, 2018 and 2017:

Table of Contents

Average Balances, Rates and Yields for the Three Months Ended March 31, 2018 and 2017



	Three months ended March 31,
	2018								2017
(Dollars in thousands)	Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate
Interest-earning assets:
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)	$	2,713,976		$	5,756		0.86	%	$	2,502,930		$	3,136		0.51	%
Investment securities: (2)
Available-for-sale securities:
Taxable	10,748,512			47,976			1.81		12,550,264			45,707			1.48
Held-to-maturity securities:
Taxable	12,415,508			76,501			2.50		8,495,674			44,096			2.10
Non-taxable (3)	818,818			6,446			3.19		104,502			994			3.86
Total loans, net of unearned income (4) (5)	23,807,212			297,073			5.06		20,069,314			227,341			4.59
Total interest-earning assets	50,504,026			433,752			3.48		43,722,684			321,274			2.98
Cash and due from banks	400,256								354,684
Allowance for loan losses	(263,086		)						(234,274		)
Other assets (6)	1,726,046								1,457,940
Total assets	$	52,367,242							$	45,301,034
Funding sources:
Interest-bearing liabilities:
Interest bearing checking and savings accounts	$	608,686		$	116		0.08	%	$	394,928		$	75		0.08	%
Money market deposits	6,337,944			3,855			0.25		5,525,682			1,498			0.11
Money market deposits in foreign offices	181,294			18			0.04		151,474			16			0.04
Time deposits	47,029			13			0.11		53,811			17			0.13
Sweep deposits in foreign offices	980,341			95			0.04		1,123,217			111			0.04
Total interest-bearing deposits	8,155,294			4,097			0.20		7,249,112			1,717			0.10
Short-term borrowings	112,063			434			1.57		67,471			120			0.72
3.50% Senior Notes	347,332			3,145			3.67		347,008			3,142			3.67
5.375% Senior Notes	348,242			4,859			5.66		347,636			4,851			5.66
Junior Subordinated Debentures	—			—			—		54,478			832			6.19
6.05% Subordinated Notes	—			—			—		46,498			271			2.36
Total interest-bearing liabilities	8,962,931			12,535			0.57		8,112,203			10,933			0.55
Portion of noninterest-bearing funding sources	41,541,095								35,610,481
Total funding sources	50,504,026			12,535			0.10		43,722,684			10,933			0.10
Noninterest-bearing funding sources:
Demand deposits	37,950,787								32,709,423
Other liabilities	952,032								612,800
SVBFG stockholders’ equity	4,364,667								3,732,134
Noncontrolling interests	136,825								134,474
Portion used to fund interest-earning assets	(41,541,095		)						(35,610,481		)
Total liabilities, noncontrolling interest, and SVBFG stockholders’ equity	$	52,367,242							$	45,301,034
Net interest income and margin				$	421,217		3.38	%				$	310,341		2.88	%
Total deposits	$	46,106,081							$	39,958,535
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis				(1,354		)						(348		)
Net interest income, as reported				$	419,863							$	309,993


(1)	Includes average interest-earning deposits in other financial institutions of $1.2 billion and $0.8 billion for the three months ended March 31, 2018 and 2017, respectively. For the three months ended March 31, 2018 and 2017, balances also include $1.4 billion and $1.6 billion, respectively, deposited at the FRB, earning interest at the Federal Funds target rate.


(2)	Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income.


(3)	Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent for the three months ended March 31, 2018 and 35.0 percent for the three months ended March 31, 2017.


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


(5)	Interest income includes loan fees of $29.9 million and $27.2 million for the three months ended March 31, 2018 and 2017, respectively.


(6)	Average investment securities of $787 million and $658 million for the three months ended March 31, 2018 and 2017, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable and other securities.

Table of Contents

Provision for Credit Losses

The provision for credit losses is the combination of both the provision for loan losses and the provision for unfunded credit commitments. Our provision for loan losses is a function of our reserve methodology, which is used to determine an appropriate allowance for loan losses for the period. Our reserve methodology is based on our evaluation of the existing allowance for loan losses in relation to total gross loans using historical and other objective information, and on our qualitative assessment of the inherent and identified credit risk of the loan portfolio. Our provision for unfunded credit commitments is determined using a methodology that is similar to the methodology used for calculating the allowance for loan losses, adjusted for factors specific to binding commitments, including the probability of funding and exposure at funding. Our provision for credit losses equals our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date.

The following table summarizes our allowance for loan losses and the allowance for unfunded credit commitments for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands, except ratios)	2018			2017
Allowance for loan losses, beginning balance	$	255,024		$	225,366
Provision for loan losses	26,996			29,679
Gross loan charge-offs	(10,587		)	(14,030		)
Loan recoveries	1,788			1,792
Foreign currency translation adjustments	1,073			323
Allowance for loan losses, ending balance	$	274,294		$	243,130
Allowance for unfunded credit commitments, beginning balance	51,770			45,265
Provision for unfunded credit commitments	976			1,055
Foreign currency translation adjustments	77			15
Allowance for unfunded credit commitments, ending balance (1)	$	52,823		$	46,335
Ratios and other information:
Provision for loan losses as a percentage of period-end total gross loans (annualized)	0.44		%	0.59		%
Gross loan charge-offs as a percentage of average total gross loans (annualized)	0.18			0.28
Net loan charge-offs as a percentage of average total gross loans (annualized)	0.15			0.25
Allowance for loan losses as a percentage of period-end total gross loans	1.11			1.18
Provision for credit losses	$	27,972		$	30,734
Period-end total gross loans	24,745,752			20,548,651
Average total gross loans	23,956,784			20,189,562


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

Three months ended March 31, 2018 and 2017

Our provision for credit losses was $28.0 million for the three months ended March 31, 2018, consisting of a provision for loan losses of $27.0 million and a provision for unfunded credit commitments of $1.0 million. Our provision for credit losses was $30.7 million for the three months ended March 31, 2017, consisting of a provision for loan losses of $29.7 million and a provision for unfunded credit commitments of $1.1 million.

The provision for loan losses of $27.0 million for the three months ended March 31, 2018 primarily reflects a $14.0 million increase in reserves for period-end loan growth and $11.3 million in specific reserves for net new nonaccrual loans.

Gross loan charge-offs were $10.6 million for the three months ended March 31, 2018, of which $3.4 million was not specifically previously reserved for at December 31, 2017. Gross loan charge-offs included $6.1 million from early-stage client loans, mostly in our software/internet and hardware portfolios and $3.2 million from a late-stage client loan in our software/internet portfolio.

Gross loan charge-offs of $14.0 million for the three months ended March 31, 2017, of which $5.4 million was not specifically previously reserved for at December 31, 2016. Our early-stage client portfolio included $12.4 million of gross loan charge-offs, primarily from our software/internet portfolio.

Table of Contents

See “Consolidated Financial Condition—Credit Quality and Allowance for Loan Losses” below and Note 7—“Loans, Allowance for Loan Losses and Allowance for Unfunded Credit Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for further details on our allowance for loan losses.

Noninterest Income

For the three months ended March 31, 2018, noninterest income was $155.5 million, compared to $117.7 million for the comparable 2017 period. For the three months ended March 31, 2018, non-GAAP noninterest income, net of noncontrolling interests was $142.5 million, compared to $111.1 million for the comparable 2017 period. For the three months ended March 31, 2018, non-GAAP core fee income was $115.0 million, compared to $82.6 million for the comparable 2017 period. (See reconciliations of non-GAAP measures used below under “Use of Non-GAAP Financial Measures”.)

Use of Non-GAAP Financial Measures

To supplement our unaudited interim consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP noninterest income, non-GAAP net gains on investment securities). These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding items that represent income attributable to investors other than us and our subsidiaries and other certain non-recurring items. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.

Included in net income is income and expense attributable to noncontrolling interests. We recognize, as part of our investment funds management business through SVB Capital, the entire income or loss from funds consolidated in accordance with ASC Topic 810 as discussed in Note 1—“Basis of Presentation” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report. We are required under GAAP to consolidate 100% of the results of these entities, even though we may own less than 100% of such entities. The relevant amounts attributable to investors other than us are reflected under “Net Income Attributable to Noncontrolling Interests” on our statements of income. Where applicable, the tables below for noninterest income and net gains on investment securities exclude noncontrolling interests.

Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets. Core fee income includes foreign exchange fees, credit card fees, deposit service charges, lending related fees, client investment fees and letters of credit and standby letters of credit fees.

The following table provides a reconciliation of GAAP noninterest income to non-GAAP noninterest income, net of noncontrolling interests, for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
GAAP noninterest income	$	155,518	$	117,659	32.2	%
Less: income attributable to noncontrolling interests, including carried interest allocation	13,024		6,559		98.6
Non-GAAP noninterest income, net of noncontrolling interests	$	142,494	$	111,100	28.3

Table of Contents

The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
GAAP noninterest income	$	155,518	$	117,659	32.2	%
Less: gains on investment securities, net	9,058		15,970		(43.3	)
Less: gains on equity warrant assets, net	19,191		6,690		186.9
Less: other noninterest income	12,259		12,421		(1.3	)
Non-GAAP core fee income (1)	$	115,010	$	82,578	39.3


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

Gains on Investment Securities, Net

Net gains and losses on investment securities include gains and losses from our non-marketable and other equity securities, as well as gains and losses from sales of our AFS securities portfolio, when applicable.

Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies and investments in 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.

Our AFS securities portfolio represents primarily interest-earning fixed income investment securities and is managed to earn an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and addressing our asset/liability management objectives. Sales of equity securities held as a result of our exercised warrants, result in net gains or losses on investment securities. These sales are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk. Though infrequent, sales of investment securities in our AFS securities portfolio may result in net gains or losses and are also conducted pursuant to the guidelines of our investment policy.

Three months ended March 31, 2018 and 2017

For the three months ended March 31, 2018, we had net gains on investment securities of $9.1 million, compared to $16.0 million for the comparable 2017 period. Non-GAAP net losses on investment securities, net of noncontrolling interests, were $3.8 million for the three months ended March 31, 2018, compared to non-GAAP net gains, net of noncontrolling interests of $9.5 million for the comparable 2017 period.

Non-GAAP net losses on investment securities, net of noncontrolling interests, of $3.8 million for the three months ended March 31, 2018 were driven by the following:


•	Losses of $22.3 million from our public equity securities portfolio primarily reflective of net losses on sales of shares, from exercised warrants of Roku 2017, which were sold in the first quarter of 2018,


•	Gains of $12.6 million from our strategic and other investments, comprised primarily of net unrealized valuation increases in public company investments held in our strategic venture capital funds, and

Table of Contents


•	Gains of $6.9 million from our managed funds of funds portfolio related primarily to net unrealized valuation increases in the investments held by the funds.

The following table provides a reconciliation of GAAP total gains (losses) on investment securities, net, to non-GAAP net (losses) gains on investment securities, net of noncontrolling interests, for the three months ended March 31, 2018 and 2017:



(Dollars in thousands)	Managed Funds of Funds		Managed Direct Venture Funds		Public Equity Securities (1)			Debt Funds			Sales of AFS Securities (1)		Strategic and Other Investments		Total
Three months ended March 31, 2018
Total gains (losses) on investment securities, net	$	19,073	$	1,919	$	(22,282	)	$	(2,299	)	$	—	$	12,647	$	9,058
Less: income attributable to noncontrolling interests, including carried interest allocation	12,197		708		—			—			—		—		12,905
Non-GAAP net (losses) gains on investment securities, net of noncontrolling interests	$	6,876	$	1,211	$	(22,282	)	$	(2,299	)	$	—	$	12,647	$	(3,847	)

(1)

Effective January 1, 2018, we adopted Accounting Standard update ("ASU") 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, resulting in the reclassification of public equity securities out of our AFS securities portfolio into our non-marketable and other equity securities portfolio as reported at March 31, 2018. This guidance was adopted using the modified retrospective method with a cumulative adjustment to opening retained earnings. As such, prior period amounts have not been restated.



(Dollars in thousands)	Managed Funds of Funds		Managed Direct Venture Funds		Debt Funds			Sales of AFS Securities		Strategic and Other Investments		Total
Three months ended March 31, 2017
Total gains (losses) on investment securities, net	$	10,033	$	96	$	(431	)	$	608	$	5,664	$	15,970
Less: income attributable to noncontrolling interests, including carried interest allocation	6,420		42		—			—		—		6,462
Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests	$	3,613	$	54	$	(431	)	$	608	$	5,664	$	9,508

Gains on Equity Warrant Assets, Net

Three months ended March 31, 2018 and 2017

Net gains on equity warrant assets were $19.2 million for the three months ended March 31, 2018, compared to net gains of $6.7 million for the comparable 2017 period. Net gains on equity warrant assets for the three months ended March 31, 2018 consisted of:


•	Net gains of $10.2 million from changes in warrant valuation increases for the three months ended March 31, 2018, compared to net losses of $0.6 million for the comparable 2017 period, driven by our private company warrant portfolio, and


•	Net gains of $9.9 million from the exercise of equity warrant assets during the three months ended March 31, 2018, compared to net gains of $8.0 million for the comparable 2017 period, primarily driven by M&A activity.

A summary of gains on equity warrant assets, net, for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017			% Change
Equity warrant assets (1)
Gains on exercises, net	$	9,927		$	7,956		24.8	%
Cancellations and expirations	(922		)	(634		)	45.4
Changes in fair value, net	10,186			(632		)	NM
Gains on equity warrant assets, net	$	19,191		$	6,690		186.9

Table of Contents

NM—Not meaningful

(1)

At March 31, 2018, we held warrants in 1,929 companies, compared to 1,762 companies at March 31, 2017. The total fair value of our warrant portfolio was $135.7 million at March 31, 2018 and $124.2 million at March 31, 2017. Warrants in 13 companies each had fair values greater than $1.0 million and collectively represented $31.0 million, or 22.8 percent, of the fair value of the total warrant portfolio at March 31, 2018.

Non-GAAP Core Fee Income



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
Non-GAAP core fee income (1):
Foreign exchange fees	$	33,827	$	26,247	28.9	%
Credit card fees	21,692		17,730		22.3
Deposit service charges	17,699		13,975		26.6
Client investment fees	22,875		9,026		153.4
Lending related fees	10,735		8,961		19.8
Letters of credit and standby letters of credit fees	8,182		6,639		23.2
Total non-GAAP core fee income (1)	$	115,010	$	82,578	39.3


(1)	This non-GAAP measure represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control. See “Use of Non-GAAP Measures” above.

Foreign Exchange Fees

Foreign exchange fees were $33.8 million for the three months ended March 31, 2018, compared to $26.2 million for the comparable 2017 period. The increase in foreign exchange fees was driven primarily by increases in spot contract commissions driven by increased volume of trades for the three months ended March 31, 2018 compared to the 2017 period. The volume of trades for spot contracts increased 31.1 percent for the three months ended March 31, 2018 compared to the comparable 2017 period. A summary of foreign exchange fee income by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
Foreign exchange fees by instrument type:
Spot contract commissions	$	31,202	$	22,424	39.1	%
Forward contract commissions	2,485		3,601		(31.0	)
Option premium fees	140		222		(36.9	)
Total foreign exchange fees	$	33,827	$	26,247	28.9

Table of Contents

Credit Card Fees

Credit card fees were $21.7 million for the three months ended March 31, 2018, compared to $17.7 million for the comparable 2017 period. The increase was primarily due to higher interchange fee income driven by an increase in transaction volume reflective of higher spend by our commercial clients and our focus on our credit card business as a key area targeted for growth. The increases in interchange fee income were partially offset by increases in rebate/rewards expense for the three months ended March 31, 2018. A summary of credit card fees by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
Credit card fees by instrument type:
Card interchange fees, net	$	17,560	$	13,971	25.7	%
Merchant service fees	2,906		2,740		6.1
Card service fees	1,226		1,019		20.3
Total credit card fees	$	21,692	$	17,730	22.3

Deposit Service Charges

Deposit service charges were $17.7 million for the three months ended March 31, 2018, compared to $14.0 million for the comparable 2017 period. The increase was reflective of higher deposit client counts, as well as higher volumes of our transaction-based fee products, during the three months ended March 31, 2018.

Client Investment Fees

Client investment fees were $22.9 million for the three months ended March 31, 2018, compared to $9.0 million for the comparable 2017 period. The increase was reflective of the large increase in average client investment funds driven by our clients’ increased utilization of our off-balance sheet sweep money market funds and products managed by SVB Asset Management. Client investment fees also benefited from improved spreads on our client investment funds due to increases in general market rates and the reintroduction of fees that had been previously waived due to the low rate environment. A summary of client investment fees by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
Client investment fees by type:
Sweep money market fees	$	12,322	$	4,396	180.3	%
Asset management fees	5,358		3,378		58.6
Repurchase agreement fees	5,195		1,252		NM
Total client investment fees	$	22,875	$	9,026	153.4

NM—Not meaningful

The following table summarizes average client investment funds for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in millions)	2018		2017		% Change
Sweep money market funds	$	26,132	$	17,719	47.5	%
Client investment assets under management (1)	30,699		23,047		33.2
Repurchase agreements	7,546		5,364		40.7
Total average client investment funds (2)	$	64,377	$	46,130	39.6


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


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

Table of Contents

The following table summarizes period-end client investment funds at March 31, 2018 and December 31, 2017:



(Dollars in millions)	March 31, 2018		December 31, 2017		% Change
Sweep money market funds	$	29,421	$	23,911	23.0	%
Client investment assets under management (1)	31,423		29,344		7.1
Repurchase agreements	6,895		7,074		(2.5	)
Total period-end client investment funds (2)	$	67,739	$	60,329	12.3


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


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

Lending Related Fees

Lending related fees were $10.7 million for the three months ended March 31, 2018, compared to $9.0 million for the comparable 2017 period. The increase was due primarily to an increase in fees earned from unused lines of credit for the three months ended March 31, 2018. Unused loan commitments were $15.2 billion at March 31, 2018 and $14.4 billion at March 31, 2017. A summary of lending related fees by instrument type for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
Lending related fees by instrument type:
Unused commitment fees	$	8,757	$	6,567	33.3	%
Other	1,978		2,394		(17.4	)
Total lending related fees	$	10,735	$	8,961	19.8

Letters of Credit and Standby Letters of Credit Fees

Letters of credit and standby letters of credit fees were $8.2 million or the three months ended March 31, 2018, compared to $6.6 million for the comparable 2017 period. The increase was primarily driven by increases in deferred fee income reflective of larger letter of credit issuances.

Other Noninterest Income

Total other noninterest income was $12.3 million for the three months ended March 31, 2018, compared to $12.4 million for the comparable 2017 period. The decrease of $0.1 million was due primarily to a decrease of in valuation fee income due to the sale of our equity valuation services business during the third quarter of 2017 partially offset by increases in other noninterest income.

A summary of other noninterest income for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017		% Change
Fund management fees	$	5,736		$	5,169	11.0	%
Net (losses) gains on revaluation of foreign currency instruments, net of foreign exchange forward contracts (1)	(47		)	1,328		(103.5	)
Other service revenue (2)	6,570			5,924		10.9
Total other noninterest income	$	12,259		$	12,421	(1.3	)


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


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

Table of Contents

Noninterest Expense

A summary of noninterest expense for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
Compensation and benefits	$	165,806	$	147,176	12.7	%
Professional services	28,725		25,419		13.0
Premises and equipment	18,545		15,858		16.9
Net occupancy	13,616		11,651		16.9
Business development and travel	11,191		9,195		21.7
FDIC and state assessments	9,430		8,682		8.6
Correspondent bank fees	3,410		3,445		(1.0	)
Other	14,694		16,207		(9.3	)
Total noninterest expense	$	265,417	$	237,633	11.7

Included in noninterest expense is expense attributable to noncontrolling interests. See below for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both of which exclude noncontrolling interests.

Non-GAAP Noninterest Expense

We use and report non-GAAP noninterest expense, non-GAAP taxable equivalent revenue and non-GAAP operating efficiency ratio, which excludes noncontrolling interests. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by: (i) excluding certain items that represent expenses attributable to investors other than us and our subsidiaries, or certain items that do not occur every reporting period; or (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.

The table below provides a summary of non-GAAP noninterest expense and non-GAAP operating efficiency ratio, both net of noncontrolling interests for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands, except ratios)	2018			2017			% Change
GAAP noninterest expense	$	265,417		$	237,633		11.7	%
Less: amounts attributable to noncontrolling interests	(32		)	169			(118.9	)
Non-GAAP noninterest expense, net of noncontrolling interests	$	265,449		$	237,464		11.8

GAAP net interest income	$	419,863		$	309,993		35.4
Adjustments for taxable equivalent basis	1,354			348			NM
Non-GAAP taxable equivalent net interest income	$	421,217		$	310,341		35.7
Less: income attributable to noncontrolling interests	9			7			28.6
Non-GAAP taxable equivalent net interest income, net of noncontrolling interests	$	421,208		$	310,334		35.7

GAAP noninterest income	$	155,518		$	117,659		32.2
Less: income attributable to noncontrolling interests	13,024			6,559			98.6
Non-GAAP noninterest income, net of noncontrolling interests	$	142,494		$	111,100		28.3

GAAP total revenue	$	575,381		$	427,652		34.5
Non-GAAP taxable equivalent revenue, net of noncontrolling interests	$	563,702		$	421,434		33.8
GAAP operating efficiency ratio	46.13		%	55.57		%	(17.0	)
Non-GAAP operating efficiency ratio (1)	47.09			56.35			(16.4	)

Table of Contents

NM—Not meaningful


(1)	The non-GAAP operating efficiency ratio is calculated by dividing non-GAAP noninterest expense, net of noncontrolling interests, by non-GAAP taxable-equivalent revenue, net of noncontrolling interests.

Compensation and Benefits Expense

The following table provides a summary of our compensation and benefits expense for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands, except employees)	2018		2017		% Change
Compensation and benefits:
Salaries and wages	$	73,039	$	66,859	9.2
Incentive compensation & ESOP	43,633		33,819		29.0
Other employee incentives and benefits (1)	49,134		46,498		5.7
Total compensation and benefits	$	165,806	$	147,176	12.7
Period-end full-time equivalent employees	2,512		2,347		7.0
Average full-time equivalent employees	2,498		2,345		6.5


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

Compensation and benefits expense was $165.8 million for the three months ended March 31, 2018, compared to $147.2 million for the comparable 2017 period. The key changes in factors affecting compensation and benefits expense were as follows:


•	An increase of $9.8 million in expenses related to incentive compensation plans and ESOP. Our incentive compensation expense is higher in the first quarter of 2018 due to our expected full year performance for 2018 being higher than expectations of our performance for both our internal targets and as compared to selected peer banks' ROE during the same period in 2017,


•	An increase of $6.2 million in salaries and wages, reflective primarily of an increase in the number of average FTE by 153 to 2,498 FTEs for the first quarter of 2018 compared to the same period in 2017, and annual pay raises. The increase in headcount was primarily to support our growth initiatives, and

•

An increase of $2.6 million in total other employee incentives and benefits, particularly seasonal expenses relating to additional 401(k) matching contributions as a result of the 2017 annual incentive compensation plan payments and increased employer payroll taxes reflective of our increased headcount since the first quarter of 2017. The increase in other employee incentives and benefits also included an increase of $1.3 million in share-based compensation expense, primarily due to our current vesting expectations for our outstanding performance-based restricted stock awards as compared to our estimate for the first quarter of 2017, reflective of the increase in our stock price relative to our peers.

Professional Services

Professional services expense was $28.7 million for the three months ended March 31, 2018, compared to $25.4 million for the comparable 2017 period. The increase was primarily related to enhancements in our regulatory, risk and compliance infrastructure to support our momentum as we continue to grow both domestically and globally as well as investments made in projects, systems and technology to support our revenue growth and related initiatives and other operating costs.

Premises and Equipment

Premises and equipment was $18.5 million for the three months ended March 31, 2018, compared to $15.9 million for the comparable 2017 period. The increase related to investments in projects, systems and technology to support our revenue growth and related initiatives as well as other operating costs.

Table of Contents

Net Occupancy

Net occupancy expense was $13.6 million for the three months ended March 31, 2018, compared to $11.7 million for the comparable 2017 period. The increase was primarily due to lease renewals at higher costs, reflective of market conditions, and the expansion of certain offices to support our growth.

Business Development and Travel

Business development and travel expense was $11.2 million for the three months ended March 31, 2018, compared to $9.2 million for the comparable 2017 period. The increase was to support expansion initiatives as we continue to grow both domestically and globally.

Other Noninterest Expense

Total other noninterest expense was $14.7 million for the three months ended March 31, 2018, compared to $16.2 million for the comparable 2017 period. The decrease of $1.5 million was driven primarily by certain reimbursement incentives received associated with a new vendor agreement signed during the first quarter 2018.

A summary of other noninterest expense for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018		2017		% Change
Lending and other client related processing costs	$	3,201	$	5,539	(42.2	)%
Data processing services	2,492		2,582		(3.5	)
Telephone	2,377		2,703		(12.1	)
Dues and publications	850		795		6.9
Postage and supplies	667		749		(10.9	)
Other	5,107		3,839		33.0
Total other noninterest expense	$	14,694	$	16,207	(9.3	)

Net Income Attributable to Noncontrolling Interests

Included in net income is income and expense attributable to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “Net income attributable to noncontrolling interests” on our statements of income.

In the table below, noninterest income consists primarily of net investment gains and losses from our consolidated funds. Noninterest expense is primarily related to management fees paid by our managed funds to SVB Financial’s subsidiaries as the funds’ general partners. A summary of net income attributable to noncontrolling interests for the three months ended March 31, 2018 and 2017 is as follows:



	Three months ended March 31,
(Dollars in thousands)	2018			2017			% Change
Net interest income (1)	$	(9	)	$	(7	)	28.6	%
Noninterest income (1)	(9,522		)	(5,454		)	74.6
Noninterest expense (1)	(32		)	169			(118.9	)
Carried interest allocation (2)	(3,502		)	(1,105		)	NM
Net income attributable to noncontrolling interests	$	(13,065	)	$	(6,397	)	104.2

NM—Not meaningful


(1)	Represents noncontrolling interests’ share in net interest income, noninterest income or loss and noninterest expense.

Table of Contents


(2)	Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.

Three months ended March 31, 2018 and 2017

Net income attributable to noncontrolling interests was $13.1 million for the three months ended March 31, 2018, compared to $6.4 million for the comparable 2017 period. Net income attributable to noncontrolling interests of $13.1 million for the three months ended March 31, 2018 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds portfolio related to net unrealized valuation increases in the investments held by the funds during the first quarter of 2018. See “Results of Operations—Noninterest Income—Gains on Investment Securities, Net”.

Income Taxes

On December 22, 2017, the TCJ Act was signed into law. The TCJ Act amends the Internal Revenue Code to, among other things, reduce tax rates, and make changes to credits and deductions for individuals and businesses. For businesses, the TCJ Act permanently lowers the Federal corporate tax rate to 21 percent from the prior maximum rate of 35 percent, effective for tax years including or commencing January 1, 2018.

The Company has also considered the provisions of the TCJ Act related to non-U.S. operations which would potentially impact the Company’s income tax provision. Such provisions include the one-time transition tax (“TT”) on foreign earnings and the new base erosion anti-avoidance tax (“BEAT”). Based on analyses performed by the Company as of March 31, 2018, the impact of both of these provisions will have an immaterial impact on the Company’s income tax provision.

Our effective income tax expense rate was 27.5 percent for the three months ended March 31, 2018, compared to 33.6 percent for the three months ended March 31, 2017. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests.

The reduction in the effective tax rate for the three months ended March 31, 2018 is primarily due to the lower Federal corporate tax rate as a result of the TCJ Act effective January 1, 2018, partially offset by the period-over-period reduction in tax benefits associated with employee stock transactions and a one-time benefit of $4.7 million recorded in the period ended March 31, 2017, for the return of tax funds related to a prior year's tax return. The effective tax rate for the three months ended March 31, 2018, and March 31, 2017, also included the recognition of tax benefits of $2.5 million and $6.1 million, respectively, due to the adoption and implementation of ASU 2016-09 in the first quarter of 2017.

The Company has considered the provisions of the TCJ Act and analyzed for potential impact to its income tax provision for the fiscal year ending December 31, 2018. Aside from the items noted above, the Company is not aware of any further items which could materially impact its financial statements for the quarter ended March 31, 2018.

Table of Contents

Operating Segment Results

We have three segments for which we report our financial information: Global Commercial Bank, SVB Private Bank and SVB Capital.

We report segment information based on the “management” approach, which designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 12—“Segment Reporting” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for additional details.

The following is our reportable segment information for the three months ended March 31, 2018 and 2017:

Global Commercial Bank



	Three months ended March 31,
(Dollars in thousands)	2018			2017			% Change
Net interest income	$	369,867		$	275,878		34.1	%
Provision for credit losses	(25,274		)	(28,889		)	(12.5	)
Noninterest income	99,346			79,519			24.9
Noninterest expense	(184,751		)	(172,916		)	6.8
Income before income tax expense	$	259,188		$	153,592		68.8
Total average loans, net of unearned income	$	20,679,202		$	17,647,055		17.2
Total average assets	49,953,950			42,888,126			16.5
Total average deposits	44,041,634			38,296,563			15.0

Three months ended March 31, 2018 and 2017

Income before income tax expense from our Global Commercial Bank (“GCB”) increased to $259.2 million for the three months ended March 31, 2018, compared to $153.6 million for the comparable 2017 period, which reflected the continued acquisition of new clients and growth of our core commercial business. The key components of GCB's performance for the three months ended March 31, 2018 compared to the comparable 2017 period are discussed below.

Net interest income from GCB increased by $94.0 million for the three months ended March 31, 2018, due primarily to an increase in loan interest income resulting mainly from higher average loan balances, as well as from an increase in loan yields as a result of rate increases.

GCB had a provision for credit losses of $25.3 million for the three months ended March 31, 2018, compared to $28.9 million for the comparable 2017 period. The provision of $25.3 million for the three months ended March 31, 2018 primarily reflected $11.3 million in net new specific reserves for nonaccrual loans and a $14.0 million increase in reserves for period-end loan growth.

The provision of $28.9 million for the three months ended March 31, 2017 primarily reflected $25.4 million in specific reserves for net new accrual loans and a $5.0 million increase in reserves for period-end loan growth.

Noninterest income increased by $19.8 million for the three months ended March 31, 2018, related primarily to an increase across our non-GAAP core fee income (higher foreign exchange fees, client investment fees and credit card fees). This increase was due primarily to the continued growth of our client base and work with larger global companies reflective of investments in our platform, capabilities and global reach.

Noninterest expense increased by $11.8 million for the three months ended March 31, 2018, due primarily to increased professional services expense and compensation and benefits expense. Professional services expenses were higher due to enhancements in our risk and compliance infrastructure to support our momentum as we continue to grow both domestically and globally as well as investments made in projects, systems and technology to support our revenue growth and related initiatives and other operating costs. Compensation and benefits expense increased as a result of increased salaries and wages and other employee benefits. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased by 83 to 1,929 FTEs for the three months ended March 31, 2018, compared to 1,846 FTEs for the comparable 2017 period. The increase in total other employee benefits was related to various expenses, particularly personnel contracting expenses, to support our growth both domestically and globally, and employer payroll taxes reflective of our increased headcount since the first quarter 2017.

Table of Contents

SVB Private Bank



	Three months ended March 31,
(Dollars in thousands)	2018			2017			% Change
Net interest income	$	16,247		$	13,610		19.4	%
Provision for credit losses	(1,722		)	(790		)	118.0
Noninterest income	507			718			(29.4	)
Noninterest expense	(6,043		)	(3,919		)	54.2
Income before income tax expense	$	8,989		$	9,619		(6.5	)
Total average loans, net of unearned income	$	2,666,658		$	2,245,317		18.8
Total average assets	2,590,476			2,272,825			14.0
Total average deposits	1,572,424			1,336,849			17.6

Three months ended March 31, 2018 and 2017

Net interest income from our SVB Private Bank increased by $2.6 million for the three months ended March 31, 2018, due primarily to higher interest income due to loan growth, partially offset by a higher funding charge for loans funded as loan growth exceeded deposit growth.

Noninterest expense increased by $2.1 million for the three months ended March 31, 2018, due primarily to increased compensation and benefits expense. Compensation and benefits expense increased as a result of increased salaries and wages, reflective primarily of annual pay raises, and higher incentive compensation expenses.

SVB Capital



	Three months ended March 31,
(Dollars in thousands)	2018			2017			% Change
Net interest income	$	7		$	10		(30.0	)%
Noninterest income	28,910			16,775			72.3
Noninterest expense	(5,046		)	(3,472		)	45.3
Income before income tax expense	$	23,871		$	13,313		79.3
Total average assets	$	373,322		$	372,876		0.1

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 and average assets discussed below are net of noncontrolling interests.

We experience variability in the performance of SVB Capital from quarter to quarter due to a number of factors, including changes in the values of our funds’ underlying investments, changes in the amount of distributions and general economic and market conditions. Such variability may lead to volatility in the gains and losses from investment securities and cause our results to differ from period to period.

Three months ended March 31, 2018 and 2017

SVB Capital had noninterest income of $28.9 million for the three months ended March 31, 2018, compared to $16.8 million for the comparable 2017 period. The increase in noninterest income was due primarily to higher net gains on investment securities compared to the comparable 2017 period. Net gains on investment securities of $22.9 million for the three months ended March 31, 2018, compared to net gains of $10.9 million for the comparable 2017 period. The gains on investment securities of $22.9 million for the three months ended March 31, 2018 were primarily related to gains from net unrealized valuation increases in the investments held by the funds driven by IPO and M&A activity during the first quarter of 2018.

Consolidated Financial Condition

Our total assets, and total liabilities and stockholders' equity, were $53.5 billion at March 31, 2018 compared to $51.2 billion at December 31, 2017, an increase of $2.3 billion, or 4.5 percent. Refer below to a summary of the individual components driving the changes in total assets, total liabilities and stockholders' equity.

Table of Contents

Cash and Cash Equivalents

Cash and cash equivalents totaled $2.6 billion at March 31, 2018, a decrease of $0.3 billion, or 10.4 percent, compared to $2.9 billion at December 31, 2017. The slight decrease in period-end cash balances related primarily to the reinvestment of maturing fixed income securities during the three months ended March 31, 2018.

As of March 31, 2018, $0.4 billion of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $1.1 billion. As of December 31, 2017, $0.6 billion of our cash and due from banks was deposited at the Federal Reserve Bank and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $1.1 billion.

Investment Securities

Investment securities totaled $25.5 billion at March 31, 2018, an increase of $1.1 billion, or 4.2 percent, compared to $24.4 billion at December 31, 2017. Our investment securities portfolio consists of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest earning fixed income investment securities; and (ii) a non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business as well as public equity securities held as a result of equity warrant assets exercised.

Table of Contents

Available-for-Sale Securities

Period-end available-for-sale securities were $10.1 billion at March 31, 2018 compared to $11.1 billion at December 31, 2017, a decrease of $1.0 billion, or 9.4 percent. The $1.0 billion decrease in period-end AFS securities balances from the fourth quarter of 2017 to the first quarter of 2018 was due primarily to $0.9 billion in portfolio paydowns and maturities. Securities classified as available-for-sale are carried at fair value with changes in fair value recorded as unrealized gains or losses in a separate component of stockholders' equity. During the first quarter of 2018 the AFS portfolio had unrealized losses of $58.0 million ($42.1 million net of tax), primarily driven by increases in period-end market interest rates.

The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as available-for-sale as of March 31, 2018. The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. For U.S. Treasury securities and U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.



	March 31, 2018
	Total				One Year or Less				After One Year to Five Years				After Five Years to Ten Years				After Ten Years
(Dollars in thousands)	Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield
U.S. Treasury securities	$	6,016,877	1.54	%	$	2,213,143	1.34	%	$	3,803,734	1.65	%	$	—	—	%	$	—	—	%
U.S. agency debentures	1,561,834		2.50		506,280		1.51		1,055,554		2.98		—		—		—		—
Residential mortgage-backed securities:
Agency-issued collateralized mortgage obligations—fixed rate	2,146,173		2.56		—		—		—		—		66,459		2.63		2,079,714		2.58
Agency-issued collateralized mortgage obligations—variable rate	355,500		0.71		—		—		—		—		—		—		355,500		0.71
Total	$	10,080,384	1.88		$	2,719,423	1.37		$	4,859,288	1.94		$	66,459	2.63		$	2,435,214	2.31

Held-to-Maturity Securities

Period-end held-to-maturity securities were $14.5 billion at March 31, 2018 compared to $12.7 billion at December 31, 2017, an increase of $1.8 billion, or 14.9 percent. The $1.8 billion increase in period-end HTM security balances from December 31, 2017 to March 31, 2018 was due to new purchases of $2.4 billion, with $1.9 billion of agency backed mortgage securities purchases and $0.3 billion of municipal bond purchases, partially offset by $0.5 billion in portfolio paydowns and maturities.

Securities classified as held-to-maturity are accounted for at cost with no adjustments for changes in fair value. For securities previously re-designated as held-to-maturity from available-for-sale, the net unrealized gains at the date of transfer will continue to be reported as a separate component of shareholders' equity and amortized over the life of the securities in a manner consistent with the amortization of a premium or discount.

The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income investment securities classified as held-to-maturity as of March 31, 2018. 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 percent. The weighted average yield is computed using the amortized cost of fixed income investment securities. For U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected maturities for mortgage-backed securities may differ significantly from their

Table of Contents

contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as held-to-maturity typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.



	March 31, 2018
	Total				One Year or Less				After One Year to Five Years				After Five Years to Ten Years				After Ten Years
(Dollars in thousands)	Amortized Cost		Weighted- Average Yield		Amortized Cost		Weighted- Average Yield		Amortized Cost		Weighted- Average Yield		Amortized Cost		Weighted- Average Yield		Amortized Cost		Weighted- Average Yield
U.S. agency debentures	$	714,008	2.67	%	$	—	—	%	$	122,092	2.61	%	$	591,916	2.68	%	$	—	—	%
Residential mortgage-backed securities:
Agency-issued mortgage-backed securities	8,043,443		2.79		718		7.52		198,545		2.18		273,432		2.32		7,570,748		2.83
Agency-issued collateralized mortgage obligations—fixed rate	2,665,485		1.78		—		—		—		—		438,437		1.48		2,227,048		1.84
Agency-issued collateralized mortgage obligations—variable rate	243,749		0.74		—		—		—		—		—		—		243,749		0.74
Agency-issued commercial mortgage-backed securities	1,833,961		2.50		—		—		—		—		—		—		1,833,961		2.50
Municipal bonds and notes	1,048,210		3.27		8,185		3.19		73,912		2.23		237,606		2.11		728,507		3.75
Total	$	14,548,856	2.56		$	8,903	3.54		$	394,549	2.32		$	1,541,391	2.19		$	12,604,013	2.62

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. Our estimated fixed income investment securities portfolio duration was 3.4 years and 3.0 years at March 31, 2018 and December 31, 2017, respectively.

Table of Contents

Non-Marketable and Other Equity Securities

Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture bank in China (“SPD-SVB”)), debt funds, private and public portfolio companies, including public equity securities held as a result of equity warrant assets exercised, and investments in qualified affordable housing projects. Included in our non-marketable and other equity securities carried under fair value accounting are amounts that are attributable to noncontrolling interests. We are required under GAAP to consolidate 100% of these investments that we are deemed to control, even though we may own less than 100% of such entities. See below for a summary of the carrying value (as reported) of non-marketable and other securities compared to the amounts attributable to SVBFG.

Period-end non-marketable and other equity securities were $824.9 million at March 31, 2018 compared to $651.1 million at December 31, 2017, an increase of $173.8 million, or 26.7 percent. Non-marketable and other equity securities, net of noncontrolling interests were $699.4 million at March 31, 2018, compared to $530.6 million at December 31, 2017. The increase was mostly attributable to accounting changes related to the adoption of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value and eliminated the cost method of accounting. As part of this adoption we recorded an adjustment to opening retained earnings for cost method investments measured at NAV and increased the carrying value of our unconsolidated venture capital and private equity fund investments. We also increased our investment in qualified affordable housing projects by $51.6 million for additional tax benefits as part of our strategy to reduce our effective tax rate. The following table summarizes the carrying value (as reported) of non-marketable and other securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at March 31, 2018 and December 31, 2017:



	March 31, 2018				December 31, 2017
(Dollars in thousands)	Carrying value (as reported)		Amount attributable to SVBFG		Carrying value (as reported)		Amount attributable to SVBFG
Non-marketable and other equity securities (fair value accounting):
Consolidated venture capital and private equity fund investments (1)	$	130,015	$	33,358	$	128,111	$	33,044
Unconsolidated venture capital and private equity fund investments (2)	205,651		205,651		98,548		98,548
Other investments without a readily determinable fair value (3)	29,825		29,825		27,680		27,680
Other equity securities in public companies (4)	4,694		4,694		310		103
Non-marketable securities (equity method accounting) (5):
Venture capital and private equity fund investments	97,929		69,018		89,809		64,675
Debt funds	18,884		18,884		21,183		21,183
Other investments	112,115		112,115		111,198		111,198
Investments in qualified affordable housing projects, net	225,823		225,823		174,214		174,214
Total non-marketable and other equity securities	$	824,936	$	699,368	$	651,053	$	530,645


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



	March 31, 2018				December 31, 2017
(Dollars in thousands)	Carrying value (as reported)		Amount attributable to SVBFG		Carrying value (as reported)		Amount attributable to SVBFG
Strategic Investors Fund, LP	$	14,767	$	1,855	$	14,673	$	1,843
Capital Preferred Return Fund, LP	56,541		12,186		54,147		11,670
Growth Partners, LP	57,706		19,210		58,372		19,432
CP I, LP	1,001		107		919		99
Total consolidated venture capital and private equity fund investments	$	130,015	$	33,358	$	128,111	$	33,044

Table of Contents

(2)

The carrying value represents investments in 229 and 235 funds (primarily venture capital funds) at March 31, 2018 and December 31, 2017, respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships' operating activities and financial policies. Effective January 1, 2018, we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we will carry our unconsolidated venture capital and private equity fund investments at fair value based on the fund investments' net asset values per share as obtained from the general partners of the funds. We will adjust the net asset value per share for differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example, December 31^st, for our March 31^st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. We recorded a cumulative adjustment to opening retained earnings on January 1, 2018 for the difference between fair value and cost for these fund investments. The estimated fair value and carrying value of these venture capital and private equity fund investments was $205.7 million as of March 31, 2018. As of December 31, 2017, these investments were carried at cost and had a carrying value of $98.5 million.

(3)

Effective January 1, 2018, we adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities which eliminated the concept of cost method accounting. On a prospective basis we will report our other investments in the line item "Other investments without a readily determinable fair value". These investments include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. For further details on the carrying value of these investments refer to Note 6—“Investment Securities" of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

(4)

Table of Contents


(5)	The following table shows the carrying value and amount attributable to SVBFG of each investment at March 31, 2018 and December 31, 2017 (equity method accounting):



	March 31, 2018				December 31, 2017
(Dollars in thousands)	Carrying value (as reported)		Amount attributable to SVBFG		Carrying value (as reported)		Amount attributable to SVBFG
Venture capital and private equity fund investments:
Strategic Investors Fund II, LP	$	5,653	$	5,321	$	6,342	$	5,971
Strategic Investors Fund III, LP	18,480		14,974		18,758		15,211
Strategic Investors Fund IV, LP	27,408		23,244		25,551		21,739
Strategic Investors Fund V, LP	20,497		10,761		16,856		8,849
CP II, LP (i)	6,797		4,114		6,700		4,056
Other venture capital and private equity fund investments	19,094		10,604		15,602		8,849
Total venture capital and private equity fund investments	$	97,929	$	69,018	$	89,809	$	64,675
Debt funds:
Gold Hill Capital 2008, LP (ii)	$	15,978	$	15,978	$	18,690	$	18,690
Other debt funds	2,906		2,906		2,493		2,493
Total debt funds	$	18,884	$	18,884	$	21,183	$	21,183
Other investments:
SPD Silicon Valley Bank Co., Ltd.	$	76,384	$	76,384	$	75,337	$	75,337
Other investments	35,731		35,731		35,861		35,861
Total other investments	$	112,115	$	112,115	$	111,198	$	111,198


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


(ii)	Our ownership includes direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent.

Volcker Rule

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

As implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker Rule prohibits, subject to certain exceptions, a banking entity, such as the Company, from sponsoring or investing in covered funds, defined to include many venture capital and private equity funds. As noted above, the Company currently maintains certain investments deemed to be prohibited investments in “illiquid” covered funds, which are now covered under the approved extension. As of March 31, 2018, such prohibited investments had an estimated aggregate carrying value and fair value of approximately $250 million. (For more information about the Volcker Rule, see “Business—Supervision and Regulation” under Part 1, Item 1 of our 2017 Form 10-K.)

Loans

Loans, net of unearned income increased by $1.5 billion to $24.6 billion at March 31, 2018, compared to $23.1 billion at December 31, 2017. Unearned income was $158 million at March 31, 2018 and $148 million at December 31, 2017. Total gross loans were $24.7 billion at March 31, 2018, an increase of $1.4 billion, compared to $23.3 billion at December 31, 2017. Period-end loans increased compared to December 31, 2017, driven primarily by loan growth in our private equity/venture capital portfolio as well as from our hardware and life science/healthcare portfolios.

Table of Contents

The breakdown of total gross loans and total loans as a percentage of total gross loans by industry sector is as follows:



	March 31, 2018				December 31, 2017
(Dollars in thousands)	Amount		Percentage		Amount		Percentage
Commercial loans:
Software/internet	$	6,270,957	25.3	%	$	6,232,725	26.8	%
Hardware	1,349,241		5.5		1,200,900		5.2
Private equity/venture capital	11,221,849		45.4		9,961,121		42.8
Life science/healthcare	1,998,776		8.1		1,867,960		8.0
Premium wine	188,982		0.8		204,257		0.9
Other	227,301		0.9		379,431		1.6
Total commercial loans	21,257,106		86.0		19,846,394		85.3
Real estate secured loans:
Premium wine	676,978		2.7		670,112		2.9
Consumer	2,359,197		9.5		2,297,857		9.9
Other	41,832		0.2		42,230		0.2
Total real estate secured loans	3,078,007		12.4		3,010,199		13.0
Construction loans	59,728		0.2		69,108		0.3
Consumer loans	350,911		1.4		328,452		1.4
Total gross loans	$	24,745,752	100.0		$	23,254,153	100.0

Loan Concentration

The following table provides a summary of gross loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of March 31, 2018:



	March 31, 2018
(Dollars in thousands)	Less than Five Million		Five to Ten Million		Ten to Twenty Million		Twenty to Thirty Million		Thirty Million or More		Total
Commercial loans:
Software/internet	$	1,549,358	$	926,800	$	1,530,738	$	1,352,229	$	911,832	$	6,270,957
Hardware	262,451		170,572		224,410		332,792		359,016		1,349,241
Private equity/venture capital	740,731		1,008,422		1,789,050		1,155,793		6,527,853		11,221,849
Life science/healthcare	314,739		472,583		568,110		386,707		256,637		1,998,776
Premium wine	63,851		33,517		57,169		34,445		—		188,982
Other	147,506		13,433		31,634		—		34,728		227,301
Commercial loans	3,078,636		2,625,327		4,201,111		3,261,966		8,090,066		21,257,106
Real estate secured loans:
Premium wine	153,162		188,354		224,008		111,454		—		676,978
Consumer	2,044,570		240,575		74,052		—		—		2,359,197
Other	7,700		—		13,999		20,133		—		41,832
Real estate secured loans	2,205,432		428,929		312,059		131,587		—		3,078,007
Construction loans	17,947		31,376		10,405		—		—		59,728
Consumer loans	139,078		34,757		62,207		78,474		36,395		350,911
Total gross loans	$	5,441,093	$	3,120,389	$	4,585,782	$	3,472,027	$	8,126,461	$	24,745,752

At March 31, 2018, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $11.6 billion, or 47.2 percent of our portfolio. These loans represented 295 clients, and of these loans, $31.1 million were on nonaccrual status as of March 31, 2018.

Table of Contents

The following table provides a summary of gross loans by size and category. The breakout of the categories is based on total client balances (individually or in the aggregate) as of December 31, 2017:



	December 31, 2017
(Dollars in thousands)	Less than Five Million		Five to Ten Million		Ten to Twenty Million		Twenty to Thirty Million		Thirty Million or More		Total
Commercial loans:
Software/internet	$	1,558,717	$	974,959	$	1,545,194	$	1,190,247	$	963,608	$	6,232,725
Hardware	258,586		138,254		253,978		217,425		332,657		1,200,900
Private equity/venture capital	697,427		807,596		1,617,121		1,142,818		5,696,159		9,961,121
Life science/healthcare	321,738		450,445		576,926		313,656		205,195		1,867,960
Premium wine	60,663		37,845		64,062		32,423		9,264		204,257
Other	149,825		23,096		103,989		25,599		76,922		379,431
Commercial loans	3,046,956		2,432,195		4,161,270		2,922,168		7,283,805		19,846,394
Real estate secured loans:
Premium wine	150,563		187,272		220,062		89,561		22,654		670,112
Consumer loans	1,989,973		224,825		83,059		—		—		2,297,857
Other	7,763		—		14,134		20,333		—		42,230
Real estate secured loans	2,148,299		412,097		317,255		109,894		22,654		3,010,199
Construction loans	12,178		34,029		—		22,901		—		69,108
Consumer loans	146,395		49,921		17,120		78,742		36,274		328,452
Total gross loans	$	5,353,828	$	2,928,242	$	4,495,645	$	3,133,705	$	7,342,733	$	23,254,153

At December 31, 2017, gross loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $10.5 billion, or 45.3 percent of our portfolio. These loans represented 277 clients, and of these loans, $52.1 million were on nonaccrual status as of December 31, 2017.

The credit profile of our loan portfolio clients varies based on the nature of the lending we do for different market segments. Our three main market segments include (i) technology (software/internet and hardware) and life science/healthcare, (ii) private equity/venture capital, and (iii) SVB Private Bank.

(i) Technology and Life Science/Healthcare

Our technology and life science/healthcare loan portfolios include loans to clients at all stages of their life cycles and represent the largest segments of our loan portfolio. The primary underwriting method for our technology and life science/healthcare portfolios are classified as investor dependent, balance sheet dependent or cash flow dependent.

Investor dependent loans represent a relatively small percentage of our overall portfolio at 11 percent of total gross loans at both March 31, 2018 and December 31, 2017. These loans are made to companies in both our Accelerator (early-stage) and Growth practices. Investor dependent loans typically have modest or negative cash flows and no established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or others, or in some cases, a successful sale to a third party or an IPO. Venture capital firms may provide financing selectively, at reduced amounts, or on less favorable terms, which may have an adverse effect on our borrowers' ability to repay their loans to us. When repayment is dependent upon the next round of venture investment and there is an indication that further investment is unlikely or will not occur, it is often likely that the company would need to be sold to repay debt in full. If reasonable efforts have not yielded a likely buyer willing to repay all debt at the close of the sale or on commercially viable terms, the account will most likely be deemed to be impaired.

Balance sheet dependent loans, which includes asset-based loans, represented 9 percent of total gross loans at March 31, 2018 compared to 10 percent at December 31, 2017. Balance sheet dependent loans are structured to require constant current asset coverage (i.e. cash, cash equivalents, accounts receivable and, to a much lesser extent, inventory) in an amount that exceeds the outstanding debt. These loans are generally made to companies in our Growth and Corporate Finance practices. Our asset-based lending, which includes working capital lines and accounts receivable financing, both represented two percent of total gross loans as of March 31, 2018, and both represented three percent of total gross loans at December 31, 2017. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.

Cash flow dependent loans, which include sponsored buyout lending, represented 19 percent of total gross loans at both March 31, 2018 and December 31, 2017. Cash flow dependent loans require the borrower to maintain cash flow from operations that is sufficient to service all debt. Borrowers must demonstrate normalized cash flow in excess of all fixed

Table of Contents

charges associated with operating the business. Sponsored buyout loans represented nine percent of total gross loans at both March 31, 2018 and December 31, 2017. These loans are typically used to assist a select group of experienced private equity sponsors with the acquisition of businesses, are larger in size, and repayment is generally dependent upon the cash flows of the acquired company. The acquired companies are typically established, later-stage businesses of scale and characterized by reasonable levels of leverage and loan structures that include meaningful financial covenants. The sponsor's equity contribution is often 50 percent or more of the acquisition price.

(ii) Private Equity/Venture Capital

We also provide financial services to clients in the private equity/venture capital community. At March 31, 2018, our lending to private equity/venture capital firms and funds represented 45 percent of total gross loans, compared to 43 percent of total gross loans at December 31, 2017. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds' remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are often secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.

(iii) SVB Private Bank

Our SVB Private Bank clients are primarily private equity/venture capital professionals and executive leaders of the innovation companies they support. Our lending to SVB Private Bank clients represented 11 percent of total gross loans at both March 31, 2018 and December 31, 2017. Many of these clients have mortgages, which represented 87 percent of this portfolio at March 31, 2018; the balance of this portfolio consisted of home equity lines of credit, restricted stock purchase loans, capital call lines of credit, and other secured and unsecured lending.

State Concentrations

Approximately 30 percent and 10 percent of our outstanding total gross loan balances as of March 31, 2018 were to borrowers based in California and New York, respectively, compared to 31 percent and 10 percent as of December 31, 2017. Other than California and New York, there are no states with gross loan balances greater than 10 percent.

See generally “Risk Factors–Credit Risks” set forth under Part I, Item 1A in our 2017 Form 10-K.

Credit Quality Indicators

As of March 31, 2018 and December 31, 2017, our total criticized loans and impaired loans both represented four percent of our total gross loans. Criticized and impaired loans to early-stage clients represented 20 percent and 22 percent of our total criticized and impaired loan balances at March 31, 2018 and December 31, 2017, respectively. Loans to early-stage clients represent a relatively small percentage of our overall portfolio at six percent of total gross loans at March 31, 2018. It is common for an early-stage client’s remaining liquidity to fall temporarily below the threshold for a pass-rated credit during its capital-raising period for a new round of funding. Based on our experience, for most early-stage clients, this situation typically lasts one to two quarters and generally resolves itself with a subsequent round of venture funding, though there are exceptions, from time to time. As a result, we expect that each of our early-stage clients will reside in our criticized portfolio during a portion of their life cycle.

Table of Contents

Credit Quality and Allowance for Loan Losses

Nonperforming assets consist of loans on nonaccrual status, loans past due 90 days or more still accruing interest, and Other Real Estate Owned (“OREO”) and other foreclosed assets. We measure all loans placed on nonaccrual status for impairment based on the fair value of the underlying collateral or the net present value of the expected cash flows. The table below sets forth certain data and ratios between nonperforming loans, nonperforming assets and the allowance for loan losses:



(Dollars in thousands)	March 31, 2018			December 31, 2017
Gross nonaccrual, past due, and restructured loans:
Nonaccrual loans	$	116,667		$	119,259
Loans past due 90 days or more still accruing interest	7			191
Total nonperforming loans	116,674			119,450
OREO and other foreclosed assets	—			—
Total nonperforming assets	$	116,674		$	119,450
Performing TDRs	$	68,462		$	71,468
Nonperforming loans as a percentage of total gross loans	0.47		%	0.51		%
Nonperforming assets as a percentage of total assets	0.22			0.23
Allowance for loan losses	$	274,294		$	255,024
As a percentage of total gross loans	1.11		%	1.10		%
As a percentage of total gross nonperforming loans	235.09			213.50
Allowance for loan losses for nonaccrual loans	$	44,261		$	41,793
As a percentage of total gross loans	0.18		%	0.18		%
As a percentage of total gross nonperforming loans	37.94			34.99
Allowance for loan losses for total gross performing loans	$	230,033		$	213,231
As a percentage of total gross loans	0.93		%	0.92		%
As a percentage of total gross performing loans	0.93			0.92
Total gross loans	$	24,745,752		$	23,254,153
Total gross performing loans	24,629,078			23,134,703
Allowance for unfunded credit commitments (1)	52,823			51,770
As a percentage of total unfunded credit commitments	0.31		%	0.30		%
Total unfunded credit commitments (2)	$	17,170,802		$	17,462,537


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


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

Our allowance for loan losses as a percentage of total gross loans increased one basis point to 1.11 percent at March 31, 2018, compared to 1.10 percent at December 31, 2017. The increase of one basis point was reflective primarily of the increase in our allowance for performing loans as a percentage of total gross loans which increased by one basis point to 0.93 percent at March 31, 2018. The one basis point increase was reflective primarily of higher qualitative reserves for our performing loan portfolio.

Our allowance for loan losses for nonaccrual loans was $44.3 million at March 31, 2018, compared to $41.8 million at December 31, 2017. The $2.5 million increase in the allowance for nonaccrual loans included $11.5 million of new nonaccrual loan reserves, partially offset by $9.0 million of charge-offs and reserve releases. New nonaccrual loan reserves of $11.5 million were mostly attributable to our software/internet loan portfolio.

Table of Contents

The following table presents a summary of changes in nonaccrual loans for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Balance, beginning of period	$	119,259		$	118,979
Additions	21,803			34,324
Paydowns	(17,248		)	(4,327		)
Charge-offs	(7,112		)	(10,211		)
Other reductions	(35		)	(1		)
Balance, end of period	$	116,667		$	138,764

Our nonaccrual loans as of March 31, 2018 included $92.7 million from five clients (three software/internet clients represent $62.6 million, one life science/healthcare client represents $18.8 million and one hardware client represents $11.3 million). Two of these loans are sponsored buyout loans that were added to our nonaccrual portfolio in 2015, another is a Corporate Finance client that was added during 2016, and the remaining two are loans from our Growth practice (one added during 2017 and the other added during the first quarter of 2018). The total credit exposure for these five largest nonaccrual loans is $93.0 million, for which we have specifically reserved $30.9 million.

Average nonaccrual loans for the three months ended March 31, 2018 were $111.6 million compared to $125.4 million for the comparable 2017 period. The $13.8 million decrease in average nonaccrual loans for the three months ended March 31, 2018 compared to March 31, 2017 was primarily from our software/internet and life science/healthcare loan portfolios, partially offset by an increase in our hardware loan portfolio. If the nonaccrual loans had not been impaired, $1.9 million in interest income would have been recorded for the three months ended March 31, 2018 compared to $1.8 million for the comparable 2017 period.

Accrued Interest Receivable and Other Assets

A summary of accrued interest receivable and other assets at March 31, 2018 and December 31, 2017 is as follows:



(Dollars in thousands)	March 31, 2018		December 31, 2017		% Change
Foreign exchange spot contract assets, gross	$	255,779	$	208,738	22.5	%
Derivative assets, gross (1)	249,243		232,152		7.4
Accrued interest receivable	152,261		141,773		7.4
FHLB and Federal Reserve Bank stock	60,514		60,020		0.8
Net deferred tax assets	59,581		63,845		(6.7	)
Accounts receivable	47,977		55,946		(14.2	)
Other assets	161,168		113,772		41.7
Total accrued interest receivable and other assets	$	986,523	$	876,246	12.6


(1)	See “Derivatives” section below.

Foreign Exchange Spot Contract Assets

Foreign exchange spot contract assets represent unsettled client trades at the end of the period. The increase of $47.0 million was due primarily to an overall increase in activity at period-end as compared to December 31, 2017.

Accrued Interest Receivable

The increase of $10.5 million in accrued interest was primarily reflective of the strong growth of our loans. Period-end loan balances were $24.6 billion, an increase of $1.5 billion, or 6.4 percent, as compared to March 31, 2017.

Other

Other includes various asset amounts for other operational transactions. The increase of $47.4 million was primarily due to a $45.2 million increase in warrant receivables related to the sale of our Roku shares during the three months ended March 31, 2018.

Table of Contents

Derivatives

Derivative instruments are recorded as a component of other assets and other liabilities on the balance sheet. The following table provides a summary of derivative assets and liabilities, net at March 31, 2018 and December 31, 2017:



(Dollars in thousands)	March 31, 2018		December 31, 2017		% Change
Assets:
Equity warrant assets	$	135,669	$	123,763	9.6	%
Foreign exchange forward and option contracts	108,504		96,636		12.3
Client interest rate derivatives	5,070		11,753		(56.9	)
Total derivative assets	$	249,243	$	232,152	7.4
Liabilities:
Foreign exchange forward and option contracts	$	104,325	$	96,641	8.0
Client interest rate derivatives	13,369		11,940		12.0
Total derivative liabilities	$	117,694	$	108,581	8.4

Equity Warrant Assets

In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. At March 31, 2018, we held warrants in 1,929 companies, compared to 1,868 companies at December 31, 2017. Warrants in 13 companies each had values greater than $1.0 million and collectively represented $31.0 million, or 22.9 percent, of the fair value of the total warrant portfolio at March 31, 2018. The change in fair value of equity warrant assets is recorded in gains on equity warrant assets, net, in noninterest income, a component of consolidated net income. The following table provides a summary of transactions and valuation changes for equity warrant assets for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Balance, beginning of period	$	123,763		$	131,123
New equity warrant assets	5,099			4,073
Non-cash changes in fair value, net	10,186			(632		)
Exercised equity warrant assets	(2,457		)	(9,697		)
Terminated equity warrant assets	(922		)	(634		)
Balance, end of period	$	135,669		$	124,233

Foreign Exchange Forward and Foreign Currency Option Contracts

We enter into foreign exchange forward contracts and foreign currency option contracts with clients involved in foreign activities, either as the purchaser or seller, depending upon the clients’ needs. For each forward or option contract entered into with our clients, we enter into an opposite way forward or option contract with a correspondent bank, which mitigates the risk of fluctuations in currency rates. We also enter into forward contracts with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments. Net gains and losses on the revaluation of foreign currency denominated instruments are recorded in the line item “Other” as part of noninterest income, a component of consolidated net income. We have not experienced nonperformance by any of our counterparties and therefore have not incurred any related losses. Further, we anticipate performance by all counterparties. Our net exposure for foreign exchange forward and foreign currency option contracts was $4.2 million at March 31, 2018 and zero at December 31, 2017. For additional information on our foreign exchange forward contracts and foreign currency option contracts, see Note 9—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Client Interest Rate Derivatives

We sell interest rate contracts to clients who wish to mitigate their interest rate exposure. We economically reduce the interest rate risk from this business by entering into opposite way contracts with correspondent banks. Our net exposure for client interest rate derivative contracts was zero at both March 31, 2018 and December 31, 2017. For additional information on

Table of Contents

our client interest rate derivatives, see Note 9—“Derivative Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Deposits

Deposits were $45.9 billion at March 31, 2018, an increase of $1.6 billion, or 3.8 percent, compared to $44.3 billion at December 31, 2017. The increase in deposits was driven primarily by funds coming from both new and existing clients in our technology early-stage and our life sciences portfolios during the three months ended March 31, 2018 due to a healthy equity funding environment across a majority of our segments with robust activities in the IPO and secondary public offering markets and strong new client acquisition.

At March 31, 2018, the aggregate balance of time deposit accounts individually equal to or greater than $100,000 totaled $35 million, compared to $41 million at December 31, 2017. At March 31, 2018, all of the time deposit accounts individually equal to or greater than $100,000 were scheduled to mature within one year. No material portion of our deposits has been obtained from a single depositor and the loss of any one depositor would not materially affect our business. Approximately 14 percent of our total deposits at both March 31, 2018 and December 31, 2017 were from our clients in Asia.

Short-Term Borrowings

We had $1.1 billion in short-term borrowings at March 31, 2018, compared to $1.0 billion at December 31, 2017. On March 30, 2018, we borrowed a total of $1.1 billion from our overnight credit facilities to support the short-term liquidity needs of Silicon Valley Bank (the "Bank"). These borrowings were repaid, subsequent to quarter-end, on April 2, 2018.

Long-Term Debt

Our long-term debt was $695.7 million at March 31, 2018 and $695.5 million at December 31, 2017. As of March 31, 2018, long-term debt included our 3.50% Senior Notes and 5.375% Senior Notes. For more information on our long-term debt, see Note 8—“Short-Term Borrowings and Long-Term Debt” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Other Liabilities

A summary of other liabilities at March 31, 2018 and December 31, 2017 is as follows:



(Dollars in thousands)	March 31, 2018		December 31, 2017		% Change
Foreign exchange spot contract liabilities, gross	$	384,486	$	202,807	89.6
Accrued compensation	61,175		167,531		(63.5	)
Allowance for unfunded credit commitments	52,823		51,770		2.0
Derivative liabilities, gross (1)	117,694		108,581		8.4
Other	590,482		381,066		55.0
Total other liabilities	$	1,206,660	$	911,755	32.3


(1)	See “Derivatives” section above.

Foreign Exchange Spot Contract Liabilities

Foreign exchange spot contract liabilities represent unsettled client trades at the end of the period. The increase of $181.7 million was due primarily to increased client trade activity at period-end as compared to December 31, 2017.

Accrued Compensation

Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, ESOP and other compensation arrangements. The decrease of $106.4 million was primarily the result of the payout of our 2017 incentive compensation plans during the first quarter of 2018, partially offset by higher accruals for the three months ended March 31, 2018 primarily due to the increase in the number of average FTEs for the first quarter of 2018.

Table of Contents

Other

Other includes various accrued liability amounts for other operational transactions. The increase of $209.4 million was reflective primarily of a $98.5 million increase in unsettled investment securities purchases, a $62.3 million increase in current taxes payable and a $55.8 million increase in FX trade liability at March 31, 2018 as compared to December 31, 2017.

Noncontrolling Interests

Noncontrolling interests totaled $144.3 million and $139.6 million at March 31, 2018 and December 31, 2017, respectively. The $4.7 million increase was due primarily to income attributable to noncontrolling interests of $13.1 million, partially offset by net distributions of $8.4 million to limited partners from various managed funds of funds for the three months ended March 31, 2018.

Fair Value Measurements

The following table summarizes our financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017:



	March 31, 2018						December 31, 2017
(Dollars in thousands)	Total Balance			Level 3			Total Balance			Level 3
Assets carried at fair value	$	10,669,987		$	132,507		$	11,481,237		$	122,250
As a percentage of total assets	19.9		%	0.2		%	22.4		%	0.2		%
Liabilities carried at fair value	$	117,694		$	—		$	108,581		$	—
As a percentage of total liabilities	0.2		%	—		%	0.2		%	—		%
As a percentage of assets carried at fair value				1.2		%				1.1		%

Financial assets valued using Level 3 measurements consist of our non-marketable investment securities in shares of private company stock and equity warrant assets (rights to shares of private and public company capital stock). The valuation methodologies of our non-marketable securities carried under fair value accounting and equity warrant assets involve a significant degree of management judgment. Refer to Note 15—“Fair Value of Financial Instruments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report for a summary of the valuation techniques and significant inputs used for each class of Level 3 assets.

The inherent uncertainty in the process of valuing securities for which a ready market does not exist may cause our estimated values of these securities to differ significantly from the values that would have been derived had a ready market for the securities existed, and those differences could be material. The timing and amount of changes in fair value, if any, of these financial instruments depend upon factors beyond our control, including the performance of the underlying companies, fluctuations in the market prices of the preferred or common stock of the underlying companies, general volatility and interest rate market factors, and legal and contractual restrictions. The timing and amount of actual net proceeds, if any, from the disposition of these financial instruments depend upon factors beyond our control, including investor demand for IPOs, levels of M&A activity, legal and contractual restrictions on our ability to sell, and the perceived and actual performance of portfolio companies. All of these factors are difficult to predict and there can be no assurances that we will realize the full value of these securities, which could result in significant losses. See “Risk Factors” set forth in our 2017 Form 10-K.

During the three months ended March 31, 2018, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $18.7 million primarily due to realized and unrealized net gains on equity warrant assets due primarily to M&A and IPO activity. During the three months ended March 31, 2017, the Level 3 assets that are measured at fair value on a recurring basis experienced net realized and unrealized gains of $6.6 million primarily due to valuation increases from our public and private company warrant portfolios and net gains realized on exercised warrant assets due to IPO and M&A activity.

Table of Contents

Capital Resources

We maintain an adequate capital base to support anticipated asset growth, operating needs and credit and other business risks, and to provide for SVB Financial and the Bank to be in compliance with all regulatory capital guidelines. Our primary sources of new capital include retained earnings and proceeds from the sale and issuance of our capital stock or other securities. In consultation with the Finance Committee of our Board of Directors, management engages in regular capital planning processes in an effort to optimize the use of capital available to us and to appropriately plan for our future capital needs. The capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments. In addition, we conduct capital stress tests as part of our annual capital planning process. The capital stress tests allow us to assess the impact of adverse changes in the economy and interest rates on our capital adequacy position.

SVBFG Stockholders’ Equity

SVBFG stockholders’ equity totaled $4.4 billion at March 31, 2018, an increase of $236 million, or 5.6 percent, compared to $4.2 billion at December 31, 2017. This increase was due primarily to net income of $195 million for the three months ended March 31, 2018 and a net increase to equity of $68.8 million related to the adoption of new accounting guidance partially offset by a decrease in the fair value of our AFS securities portfolio of $42.1 million, net of tax, driven by increases in period-end market interest rates.

Funds generated through retained earnings are a significant source of capital and liquidity and are expected to continue to be so in the future.

Capital Ratios

Both SVB Financial and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies.

Regulatory capital ratios for SVB Financial and the Bank exceeded minimum federal regulatory guidelines for a well-capitalized depository institution as of March 31, 2018 and December 31, 2017. Capital ratios for SVB Financial and the Bank, compared to the minimum regulatory ratios applicable to bank holding companies and banks to be considered “well capitalized” and “adequately capitalized”, are set forth below:



					Minimum Ratios under Applicable Regulatory Capital Adequacy Requirements
	March 31, 2018		December 31, 2017		“Well Capitalized”		“Adequately Capitalized”
SVB Financial:
CET 1 risk-based capital ratio	12.87	%	12.78	%	6.5	%	4.5	%
Tier 1 risk-based capital ratio	13.06		12.97		8.0		6.0
Total risk-based capital ratio	13.99		13.96		10.0		8.0
Tier 1 leverage ratio	8.67		8.34		N/A		4.0
Tangible common equity to tangible assets ratio (1)	8.25		8.16		N/A		N/A
Tangible common equity to risk-weighted assets ratio (1)	12.65		12.77		N/A		N/A
Bank:
CET 1 risk-based capital ratio	11.90	%	12.06	%	6.5	%	4.5	%
Tier 1 risk-based capital ratio	11.90		12.06		8.0		6.0
Total risk-based capital ratio	12.88		13.04		10.0		8.0
Tier 1 leverage ratio	7.69		7.56		5.0		4.0
Tangible common equity to tangible assets ratio (1)	7.41		7.47		N/A		N/A
Tangible common equity to risk-weighted assets ratio (1)	11.68		11.98		N/A		N/A


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

Capital ratios (CET 1, tier 1, and total risk-based capital) for SVB Financial increased as of March 31, 2018, compared to the same ratios as of December 31, 2017 primarily as a result of the adoption of new accounting guidance that resulted in a net increase in capital of $68.8 million. This increase in capital in addition to net income of $195.0 million, more than offset the increases in risk-weighted assets primarily attributable to our robust loan growth for the first quarter of 2018. Overall, excluding

Table of Contents

the impact of the adoption of new accounting guidance, SVB Financial Group's risk-based capital ratios would have decreased as of March 31, 2018, compared to the same ratios as of December 31, 2017.

Capital ratios (CET 1, tier 1, and total risk-based capital) for the Bank decreased as of March 31, 2018, compared to the same ratios as of December 31, 2017. The decrease in the Bank's capital ratios reflected $25.0 million of cash dividends paid by the Bank to our bank holding company, SVB Financial, during the three months ended March 31, 2018.

Both SVB Financial and the Bank's tier 1 leverage ratios increased as of March 31, 2018, compared to December 31, 2017, due to proportionally higher capital from net income to average assets growth during the first quarter of 2018. All of our reported capital ratios remain above the levels considered to be “well capitalized” under applicable banking regulations.

The tangible common equity to tangible assets ratio and the tangible common equity to risk-weighted assets ratios are not required by GAAP or applicable bank regulatory requirements. However, we believe these ratios provide meaningful supplemental information regarding our capital levels. Our management uses, and believes that investors benefit from referring to, these ratios in evaluating the adequacy of the Company’s capital levels; however, these financial measures should be considered in addition to, not as a substitute for or preferable to, comparable financial measures prepared in accordance with GAAP. These ratios are calculated by dividing total SVBFG stockholders' equity, by total period-end assets and risk-weighted assets, after reducing both amounts by acquired intangibles, if any. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies.

The following table provides a reconciliation of non-GAAP financial measures with financial measures defined by GAAP for SVB Financial and the Bank for the periods ended March 31, 2018 and December 31, 2017:



	SVB Financial						Bank
Non-GAAP tangible common equity and tangible assets (Dollars in thousands, except ratios)	March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017
GAAP SVBFG stockholders’ equity	$	4,415,446		$	4,179,795		$	3,900,094		$	3,762,542
Tangible common equity	$	4,415,446		$	4,179,795		$	3,900,094		$	3,762,542
GAAP total assets	$	53,500,787		$	51,214,467		$	52,622,450		$	50,383,774
Tangible assets	$	53,500,787		$	51,214,467		$	52,622,450		$	50,383,774
Risk-weighted assets	$	34,903,720		$	32,736,959		$	33,396,675		$	31,403,489
Tangible common equity to tangible assets	8.25		%	8.16		%	7.41		%	7.47		%
Tangible common equity to risk-weighted assets	12.65			12.77			11.68			11.98

The tangible common equity to tangible assets ratio decreased for the Bank primarily as a result of the $25.0 million in cash dividends paid by the Bank to our bank holding company, SVB Financial Group, during the first quarter of 2018. The tangible common equity to risk-weighted assets ratio decreased for both SVB Financial and the Bank. The decrease was a result of the proportionally higher increase in risk-weighted assets relative to the increase in tangible common equity. The growth in period-end risk-weighted assets was primarily due to period-end loan growth and higher investment balances driven by increases in deposits.

Off-Balance Sheet Arrangements

In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve, to varying degrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract. For details of our commitments to extend credit, and commercial and standby letters of credit, please refer to Note 13—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Commitments to Invest in Venture Capital and Private Equity Funds

Subject to applicable regulatory requirements, including the Volcker Rule, we make investments. We make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over 5 to 7 years; however in certain cases, the funds may not call 100% of committed capital over the life of the

Table of Contents

fund. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate.

For further details on our commitments to invest in venture capital and private equity funds, refer to Note 13—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

Liquidity

The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations, including, as necessary, paying creditors, meeting depositors’ needs, accommodating loan demand and growth, funding investments, repurchasing securities and other operating or capital needs, without incurring undue cost or risk, or causing a disruption to normal operating conditions.

We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Our Asset/Liability Committee (“ALCO”), which is a management committee, provides oversight to the liquidity management process and recommends policy guidelines for the approval of the Finance Committee of our Board of Directors, and courses of action to address our actual and projected liquidity needs. Additionally, we routinely conduct liquidity stress testing as part of our liquidity management practices.

Our deposit base is, and historically has been, our primary source of liquidity. Our deposit levels and cost of deposits may fluctuate from time to time due to a variety of factors, including market conditions, prevailing interest rates, changes in client deposit behaviors, availability of insurance protection, and our offering of deposit products. We may also offer more investment alternatives for our off-balance sheet products which may impact deposit levels. At March 31, 2018, our period-end total deposit balances were $45.9 billion, compared to $44.3 billion at December 31, 2017.

Our liquidity requirements can also be met through the use of our portfolio of liquid assets. Our definition of liquid assets includes cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, short-term investment securities maturing within one year, available-for-sale securities eligible and available for financing or pledging purposes with a maturity in excess of one year and anticipated near-term cash flows from investments.

We have certain facilities in place to enable us to access short-term borrowings on a secured (using loans and AFS securities as collateral) and an unsecured basis. These include repurchase agreements and uncommitted federal funds lines with various financial institutions. We also pledge securities to the FHLB of San Francisco and the discount window at the Federal Reserve Bank. The fair value of collateral pledged to the FHLB of San Francisco (comprised primarily of loans and U.S. Treasury securities) at March 31, 2018 totaled $3.8 billion, of which $3.1 billion was unused and available to support additional borrowings. The fair value of collateral pledged at the discount window of the FRB (comprised primarily of U.S. Treasury securities and U.S. agency debentures) at March 31, 2018 totaled $1.0 billion, all of which was unused and available to support additional borrowings.

On a stand-alone basis, SVB Financial’s primary liquidity channels include dividends from the Bank, its portfolio of liquid assets, and its ability to raise debt and capital. Consistent with recent prior quarters, the Bank has paid a quarterly dividend to SVB Financial. For the three months ended March 31, 2018, the dividend amount paid was $25.0 million. The ability of the Bank to pay dividends is subject to certain regulations described in “Business—Supervision and Regulation—Restriction on Dividends” under Part I, Item 1 of our 2017 Form 10-K.

Consolidated Summary of Cash Flows

Below is a summary of our average cash position and statement of cash flows for the three months ended March 31, 2018 and 2017. For further details, see our “Interim Consolidated Statements of Cash Flows (Unaudited)” under Part I, Item 1 of this report.



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Average cash and cash equivalents	$	3,114,232		$	2,857,614
Percentage of total average assets	5.9		%	6.3		%
Net cash provided by operating activities	$	348,404		$	111,937
Net cash used for investing activities	(2,396,653		)	(461,417		)
Net cash provided by financing activities	1,744,558			1,599,409
Net (decrease) increase in cash and cash equivalents	$	(303,691	)	$	1,249,929

Table of Contents

Average cash and cash equivalents increased by $0.2 billion, or 9.0 percent, to $3.1 billion for the three months ended March 31, 2018, compared to $2.9 billion for the comparable 2017 period.

Cash provided by operating activities was $348.4 million for the three months ended March 31, 2018, reflective primarily of net income before noncontrolling interests of $208.0 million.

Cash used for investing activities of $2.4 billion for the three months ended March 31, 2018 was driven by $2.3 billion in purchases of fixed income investment securities, partially offset by $1.4 billion of proceeds from maturities and principal paydowns from our fixed income investment securities portfolio. Additionally, $1.5 billion in cash outflows were used to fund loan growth during the three months ended March 31, 2018.

Cash provided by financing activities was $1.7 billion for the three months ended March 31, 2018, reflective primarily of a net increase of $1.7 billion in deposits.

Cash and cash equivalents were $2.6 billion and $3.8 billion, respectively, at March 31, 2018 and March 31, 2017.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management

Market risk is defined as the risk of adverse fluctuations in the market value of financial instruments due to changes in market interest rates. Interest rate risk is our primary market risk and can result from timing and volume differences in the repricing of our rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of the benchmark LIBOR/SWAP yield curve. Additionally, changes in interest rates can influence the rate of principal prepayments on mortgage securities, which affects the rate of amortization of purchase premiums and discounts. Other market risks include foreign currency exchange risk, equity price risk, including the effect of competition on product pricing. While all of these risks are important considerations, all are inherently difficult to predict, and it is equally difficult to assess the impact of each on the overall simulation results. Consequently, simulations used to analyze sensitivity of net interest income to interest rate risk will differ from actual results due to differences in the timing, frequency, and magnitude of changes in market rates, the impact of competition, fluctuating business conditions, and the impact of strategies taken by management to mitigate these risks.

Interest rate risk is managed by our ALCO. ALCO reviews the sensitivity of the market valuation on earning assets and funding liabilities and 12-month forward looking net interest income from changes in interest rates, structural changes in investment and funding portfolios, loan and deposit activity and current market conditions. Adherence with relevant metrics included in our Interest Rate Risk Policy, which is approved by the Finance Committee of our Board of Directors, is monitored on an ongoing basis.

Management of interest rate risk is carried out primarily through strategies involving our fixed income securities portfolio, available funding channels and capital market activities. In addition, our policies permit the use of off-balance sheet derivatives to assist in managing interest rate risk.

We utilize a simulation model to perform sensitivity analysis on the economic value of our equity and our net interest income under a variety of interest rate scenarios, balance sheet forecasts and business strategies. The simulation model provides a dynamic assessment of interest rate sensitivity embedded within our balance sheet which measures the potential variability in economic value and net interest income relating solely to changes in market interest rates over time. We review our interest rate risk position and sensitivity to market rates on a quarterly basis at a minimum.

Table of Contents

Model Simulation and Sensitivity Analysis

A specific application of our simulation model involves measurement of the impact of changes in market interest rates on our economic value of equity (“EVE”). EVE is defined as the market value of assets, less the market value of liabilities, adjusted for any off-balance sheet items, if any. Another application of the simulation model measures the impact of changes in market interest rates on our net interest income (“NII”) assuming a static balance sheet as of the period-end reporting date. Meaning, the size and composition of earning assets and funding liabilities are held constant over the simulation horizon. Simulated cash flows during the scenario horizon are assumed to be replaced as they occur, which restores the balance sheet to its original size and composition. More specifically, with respect to earning assets, loan maturities, principal maturities, paydowns and calls on investments are added back as replacement balances as they occur during the simulation horizon. Yield and spread assumptions on cash and investment balances reflect current market rates. Yield and spread assumptions on loans reflect recent market impacts on product pricing. Similarly, we make certain deposit decay rate assumptions on demand deposits and interest bearing deposits, which are replenished to hold the level and mix of funding liabilities constant. Changes in market interest rates that affect us are principally short-term interest rates and include the following benchmark indexes: (i) National and SVB Prime rates, (ii) 1-month and 3-month LIBOR, and (iii) the Federal Funds target rate. Changes in these short-term rates impact interest earned on our variable rate loans, variable rate investment securities and balances held as cash and cash equivalents. Additionally, simulated changes in deposit pricing relative to changes in market rates, commonly referred to as deposit beta, generally follow overall changes in short-term interest rates, although actual changes may lag in terms of timing and magnitude. Overall, the assumed weighted deposit beta on interest bearing deposits is approximately 35.0 percent, which means deposit repricing is assumed to be approximately 35.0 percent of a given change in short-term interest rates. This repricing is reflected as a change in interest expense on interest bearing deposit balances.

The following table presents our EVE and NII sensitivity exposure related to an instantaneous and sustained parallel shift in market interest rates of 100 and 200 basis points at March 31, 2018 and at December 31, 2017:



Change in interest rates (basis points) (Dollars in thousands)	Estimated		Estimated Increase/(Decrease) in EVE					Estimated		Estimated Increase/(Decrease) in NII
	EVE		Amount			Percent		NII		Amount			Percent
March 31, 2018:
200	$	8,471,867	$	640,102		8.2	%	$	2,072,326	$	423,341		25.7	%
100	8,172,790		341,025			4.4		1,858,116		209,131			12.7
—	7,831,765		—			—		1,648,985		—			—
-100	7,435,646		(396,119		)	(5.1	)	1,418,070		(230,915		)	(14.0	)
-200	6,685,390		(1,146,375		)	(14.6	)	1,225,008		(423,977		)	(25.7	)

December 31, 2017:
200	$	8,091,107	$	805,624		11.1	%	$	1,885,885	$	400,127		26.9	%
100	7,716,066		430,583			5.9		1,683,742		197,984			13.3
—	7,285,483		—			—		1,485,758		—			—
-100	6,637,588		(647,895		)	(8.9	)	1,252,063		(233,695		)	(15.7	)
-200	5,718,401		(1,567,082		)	(21.5	)	1,108,712		(377,046		)	(25.4	)

Economic Value of Equity

The estimated EVE in the preceding table is based on a combination of valuation methodologies including a discounted cash flow analysis and a multi-path lattice based valuation. Both methodologies use publicly available market interest rates to determine discounting factors on projected cash flows. The model simulations and calculations are highly assumption-dependent and will change regularly as the composition of earning assets and funding liabilities change (including the impact of changes in the value of interest rate derivatives, if any), as interest rate environments evolve, and as we change our assumptions in response to relevant market conditions, competition or business circumstances. These calculations do not reflect forecast changes in our balance sheet or changes we may make to reduce our EVE exposure as a part of our overall interest rate risk management strategy.

As with any method of measuring interest rate risk, certain limitations are inherent in the method of analysis presented in the preceding table. We are exposed to yield curve risk, prepayment risk, basis risk, and yield spread compression, which cannot be fully modeled and expressed using the above methodology. Accordingly, the results in the preceding table should not be relied upon as a precise indicator of actual results in the event of changing market interest rates. Additionally, the resulting EVE and NII estimates are not intended to represent, and should not be construed to represent our estimate of the underlying value of equity or forecast of NII.

Table of Contents

Our base case EVE as of March 31, 2018 increased from December 31, 2017 by $546 million, driven by changes in balance sheet composition as well as rising interest rates. At March 31, 2018, as compared to December 31, 2017, total loan balances increased by $1.5 billion primarily in Prime-based variable rate loans. Total fixed income securities also increased by $0.8 billion due to purchases of fixed rate long maturity instruments such as pass-through mortgage-backed securities and municipal debt securities combined with run-off of shorter maturity U.S. Treasury securities. Additionally, total deposits increased by $1.6 billion.

Marginally higher LIBOR/swap rates in the 3- to 24-month tenors continue to drive a relatively flat yield curve compared to December 31, 2017. These higher rates contributed $349 million of the $546 million total change in base EVE, mainly impacting the market value of deposits. Increased holdings of 30-year pass-through mortgage-backed securities and municipal securities resulted in a $90 million decrease in EVE sensitivity in the +100 bps rate shock scenario. Compared to December 31, 2017, EVE in the -100 and -200 bps rate shock scenarios increased $252 million and $421 million, respectively. This represents a decrease in the sensitivity, primarily due to changes in the investment portfolio composition described above.

12-Month Net Interest Income Simulation

Our estimated 12-month NII forecast at March 31, 2018 increased from December 31, 2017 by $163 million, primarily due to increased balances of higher yielding loans and investments as described in the EVE section above. As rates rise, the proportionately greater amounts of variable rate loans are expected to benefit our base 12-month NII projections. In addition, the 12-month NII simulations include repricing assumptions on our interest bearing deposit products which are applied at our discretion based on client needs and our overall funding mix. Repricing of interest bearing deposits impacts estimated interest expense. As noted previously, repricing deposit rates are generally assumed to be less than one-half of the amount of simulated changes in short-term market interest rates.

NII sensitivity at March 31, 2018 in the +100 and +200 bps interest rate shock scenarios increased $11 million and $23 million, respectively, as compared to December 31, 2017. These changes are due primarily to the changing composition of the balance sheet as noted above. Specifically, a relative increase in variable rate loans, coupled with a higher proportion of non-interest bearing deposit balances is expected to result in an increased NII in a rising rate environment.

The simulation model used in the above analysis incorporates embedded floors on loans in our interest rate scenarios, which prevent model benchmark rates from moving below zero percent in the down rate scenarios. The embedded floors are also a factor in the up rate scenarios to the extent a simulated increase in rates is needed before floored rates are cleared. In addition, we assume different deposit balance decay rates for each interest rate scenario based on a historical deposit study of our clients. These assumptions may change in future periods based on changes in client behavior and at management's discretion. Actual changes in our deposit pricing strategies may differ from our current model assumptions and may have an impact on our actual sensitivity overall.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, among other things, processes, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of our most recently completed fiscal quarter, pursuant to Exchange Act Rule 13a-15(b). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Table of Contents

Changes in Internal Control

Except as set forth below, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Beginning January 1, 2018, we implemented ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is expected to have an immaterial impact on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements, and gathering of information provided for disclosures.

Table of Contents

PART II–OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to Note 16—“Legal Matters” of the “Notes to Interim Consolidated Financial Statements (unaudited)” under Part I, Item 1 of this report.

ITEM 1A. RISK FACTORS

There are no material changes to the risk factors set forth in our 2017 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit

Number

Exhibit Description

Incorporated by Reference

Filed

Herewith

Form

File No.

Exhibit

Filing Date

*10.1

2006 Equity Incentive Plan**

10-Q

000-15637

10.1

5/10/2016

31.1

Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a) / 15(d)-14(a) Certification of Principal Financial Officer

32.1

Section 1350 Certifications

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document


*	Denotes management contract or any compensatory plan, contract or arrangement


**	The 2006 Equity Incentive Plan is listed as an exhibit to this report to correct an inadvertent error in the hyperlink included in the 2017 Form 10-K exhibit list.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		SVB Financial Group

Date: May 8, 2018		/s/ DANIEL BECK
		Daniel Beck
		Chief Financial Officer
		(Principal Financial Officer)

		SVB Financial Group

Date: May 8, 2018		/s/ KAMRAN HUSAIN
		Kamran Husain
		Chief Accounting Officer
		(Principal Accounting Officer)