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 credit losses, nonperforming loans, loan growth and client funds; •The potential effects of the COVID-19 pandemic; and •Descriptions of assumptions underlying or relating to any of the foregoing. You can identify these and other forward-looking statements by the use of words such as "becoming," "may," "will," "should," "could," "would," "predict," "potential," "continue," "anticipate," "believe," "estimate," "assume," "seek," "expect," "plan," "intend," 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 COVID-19 pandemic and its effects on the economic and business environments in which we operate; •The impact of the upcomingU.S. elections on the economic environment, capital markets and regulatory landscape, including monetary, tax and other trade policies; •The adequacy of our allowance for credit losses and the need to make provisions for credit 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; •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 regulations promulgated by theBoard of Governors of theFederal Reserve System (the "Federal Reserve"), and other regulatory requirements; •The impact of lawsuits and claims, as well as legal or regulatory proceedings; 75 -------------------------------------------------------------------------------- Table of Contents •The impact of changes in accounting standards and tax laws; •The levels of equity capital available to our client or portfolio companies; •The effectiveness of our risk management framework and quantitative models; •Our ability to maintain or increase our market share, including through successfully implementing our business strategy and undertaking new business initiatives, including through the integration of SVB Leerink; and •Other factors as discussed in "Risk Factors" under Part I, Item 1A in our 2019 Form 10-K and under Part II, Item 1A of this report. 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 2019 Form 10-K. Reclassifications Certain prior period amounts primarily related to the adoption of ASU 2016-13, CECL, have been reclassified to conform to current period presentations. 76 -------------------------------------------------------------------------------- Table of Contents Management's Overview of Third Quarter 2020 Performance Our third quarter 2020 performance reflected the resilience of our markets and our ability to execute effectively. We had an outstanding quarter driven by outstanding balance sheet growth, higher core fee income, strong investment banking revenue, outsized gains related to client IPO activity and solid credit from improved model economic scenarios and strong performance in ourPrivate Bank portfolio segment resulting in a reduction of reserves. During the third quarter of 2020, we continued to manage through the COVID-19 pandemic, utilizing our business continuity plans to maintain client service while most of our employees and partners continue to work from home. We continue to support and engage with clients virtually, including the hosting of remote events designed to facilitate our response to the business needs of our clients within the innovation ecosystem. We also continued to successfully administer client support initiatives, such as those which allowed temporary payment deferrals and other relief provided through the PPP. We continue to provide employees extended benefits, as well as practical support for working from home. Additionally, we continue to commit financial support for local, regional and global activities focused on health security, food security and shelter, and small business owner relief during this unprecedented time. Recent Developments - COVID-19 The current global health crisis created by the COVID-19 pandemic has resulted in unprecedented challenges and volatility in economic, market and business conditions. It has caused significant economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition and results of operations. We cannot predict at this time the scope and duration of the pandemic, as COVID-19 has not yet been contained and the number of cases continues to increase in many locations, including inthe United States and other international locations in which we operate. Moreover, the impact of COVID-19 on economic, market and business conditions is likely to be exacerbated if uncontained for a prolonged period of time, and even if it is contained, there may be a seasonal or other resurgence of the pandemic as we have seen domestically and internationally. While there have been varying governmental and other responses to slow or control the spread of COVID-19 and to mitigate the adverse impact of COVID-19, such as stay at home orders, restrictions on business activities, economic relief for individuals and businesses, and monetary policy measures, such responses have met varying degrees of success, and it remains uncertain whether these actions will be successful as the pandemic continues. The global spread of COVID-19 accelerated inMarch 2020 at which time it was declared a pandemic by theWorld Health Organization . Since then, we have been focused on our business and human response to the crisis --- managing and operating our business as seamlessly as possible, and supporting our clients, employees and communities as we weather the crisis together. During this volatile time, we remain focused on our capital and liquidity. We are "well-capitalized," remaining above all applicable regulatory capital requirements. We have a liquid and high-quality balance sheet, with approximately half of our assets as ofSeptember 30, 2020 held in cash and marketable securities, primarily agency-backed mortgage securities andU.S. Treasuries. We also have access to other funding sources, as necessary. Moreover, we temporarily paused our stock repurchase program, and the program expired onOctober 29, 2020 . In addition, we have also elected to use a phase-in transitional approach for the estimated impact of CECL on our regulatory capital, as permitted by the 2020 CECL Transition Rule. The uncertainties of the duration and severity of the effect of COVID-19 on economic, market and business conditions have made it more difficult to forecast our operating results and the macroeconomic conditions to which our business is subject. Some notable negative effects emerged late in the first quarter and continued through the third quarter, as discussed in this Management Discussion and Analysis section, but any longer-term effects or trends remain subject to significant uncertainty. Moreover, we are subject to heightened business, operational (including fraud), market, credit and other risks related to the COVID-19 pandemic, which may have an adverse effect on our business, financial condition and results of operations. (See "Risk Factors" under Part II, Item 1A of this report) We continue to serve our clients during this difficult time, while managing our credit risk. During the third quarter, we continued to provide special debt relief assistance to support certain clientswho are experiencing financial hardships related to the COVID-19 pandemic, including offering certain venture-backed companies,Private Bank , Wine and other clients the opportunity to temporarily defer their scheduled loan principal payments. We continue to engage with our clients to understand client needs, and we may implement additional assistance or other relief to support clients across various sectors and life stages. Additionally, we participated as a lender in the PPP under the CARES Act and theU.K. Coronavirus Business Interruption Loan Scheme ("CBILS") and Coronavirus Large Business Interruption Loan Scheme ("CLBILS"), and may participate in other government relief programs in theU.S. or internationally. These government programs are complex and our participation in any of these programs may lead to governmental, regulatory and other scrutiny, litigation, negative publicity and reputation damage for us and our customerswho participate. For example, like many other participating banks inthe United States , we have been named in various lawsuits regarding the right to agent fees under the PPP. Overall, these relief 77 -------------------------------------------------------------------------------- Table of Contents measures, whether our own programs or our participation in government programs, are new programs for us and we may not be successful in implementing or administering the programs as intended. Further, the extent to which these programs are successful in assisting our clients is uncertain. These relief programs are temporary in nature, such as the PPP, which as currently designed, provides one-time relief, and our loan payment deferral programs, which expire during the second half of the year (certain of our programs ended in the third quarter with the remaining ending by year end). Our clients may experience financial difficulties without the continued support from these programs. If these relief measures are not effective, or if they are effective for only a limited period and our clients experience delayed financial hardship, there may be an adverse effect on our revenue and results of operations, including increased provisions in our allowance for credit losses, higher rates of default and increased credit losses in future periods. We are also prioritizing the safety and well-being of our employees. InMarch 2020 , we activated our business continuity and pandemic plans globally, moving to a work-from-home plan, prohibiting all business travel, postponing or moving online all SVB-hosted events, and enabling remote access to our systems. We have implemented various programs to provide work, life and health-related support for our employees, ranging from expanded time-off, counseling and medical benefits for employees directly impacted by COVID-19, to providing reimbursements and practical support for working from home. In addition, we are also developing a plan for employees to eventually return to work in our offices, which will be subject to a variety of complex considerations. While much of our workforce continues to work from home through the crisis (currently expected untilJanuary 2021 , subject to further extensions or other changes) and perhaps to some extent beyond the crisis, in the event that we allow an increase in remote working practices even after the pandemic subsides, we will need to continue to provide support to our employees to work effectively in a remote environment, taking into consideration needs relating to technology, physical working conditions, work/life balance, and continued team collaboration. Moreover, consistent with our tradition of supporting and giving back to our communities, we have also committed$5.5 million to local, regional and global COVID-19 relief activities in variousU.S. and international locations where we have offices. This includes corporate contributions to global, national and regional charities, direct community-based giving, and a 3:1 match for employees' donations to relevant causes. We also announced our intention to donate PPP loan origination fees, net of costs incurred, received from theSmall Business Administration for COVID-19 relief efforts. We expect to make a donation in the fourth quarter of 2020 in the estimated amount of$20 million , irrespective of when forgiveness amounts are actually received from the SBA. Although the effects of the pandemic remain uncertain, for the fourth quarter of 2020, we currently expect growth in average on-balance sheet deposits and average loans and lower core fees. While credit metrics have been stable to date, we continue to monitor our portfolio vigilantly, in light of continued economic uncertainty, fading government stimulus and expiring deferral programs. Additionally, volatile equity markets, IPO and M&A activity may impact investment banking and market-sensitive revenues. Even after the pandemic subsides, it is possible that theU.S. and other major economies will continue to experience a prolonged recession, which we expect would materially and adversely affect our business, financial condition, liquidity, capital and results of operations. 78 -------------------------------------------------------------------------------- Table of Contents A summary of our performance for the three months endedSeptember 30, 2020 (compared to the three months endedSeptember 30, 2019 , where applicable) is as follows: BALANCE SHEET
EARNINGS
Assets.
Net Income. Consolidated net income available Loans.$37.3 billion in average total loan balances to common stockholders of$441.7 million (up (up 25.1%).$38.4 billion in period-end total loan 65.3%). balances (up 23.7%). - Net interest income of$527.7 million (up Total Client Funds. (on-balance sheet deposits and 1.4%). off-balance sheet client investment funds).$201.2 -Net interest margin of 2.53% (down 81 bps). billion in average total client fund balances (up -Noninterest income of$547.6 million (up 34.1%).$211.6 billion in period-end total client 86.3%), non-GAAP core fee income+ of$146.3 fund balances (up 35.6%). million (down 9.8%) and non-GAAP core fee AFS/HTM Fixed Income Investments.$32.6 billion in income plus investment banking revenue and average fixed income investment securities (up commissions++ of$254.8 million (up 19.6%). 29.6%).$38.9 billion in period-end fixed income -Noninterest expense of$491.0 million (up investment securities (up 42.6%). 25.5%). ROE. Return on average equity (annualized) ("ROE") performance of 24.19%. Operating Efficiency Ratio. Operating efficiency ratio
of 45.66% with a non-GAAP core
operating
efficiency ratio of 56.86%+++.
CAPITAL CREDIT QUALITY Capital++++. Continued strong capital, with all Credit Quality. Improved model economic capital ratios considered "well-capitalized" under scenarios and continued strongPrivate Bank banking regulations.SVB Financial and Bank capital performance drive reserve release. ratios, respectively, were: - Allowance for credit losses for loans of - CET 1 risk-based capital ratio of 12.31% and 1.34% as a percentage of period-end total 10.75%. loans. - Tier 1 risk-based capital ratio of 13.25% and - Provision for loans was a net benefit of 10.75%. 0.56% as a percentage of period-end total loans - Total risk-based capital ratio of 14.19% and (annualized). 11.75%. - Net loan charge-offs of 0.26% as a percentage - Tier 1 leverage ratio of 8.26% and 6.45%. of average total
loans (annualized).
+ Consists of fee income for deposit services, letters of credit and standby letters of credit, credit cards, client investments, foreign exchange and lending-related activities. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under "Results of Operations-Noninterest Income") ++ Consists of non-GAAP core fee income plus investment banking revenue and commissions. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under "Results of Operations-Noninterest Income"). +++ This ratio excludes certain financial line items where performance is typically subject to market or other conditions beyond our control and excludes SVB Leerink revenue and expenses. It is calculated by dividing noninterest expense after adjusting for noninterest expense attributable to SVB Leerink by total revenue after adjusting for noninterest income attributable to SVB Leerink, net gains or losses on investment securities and equity warrant assets, investment banking revenue and commissions. Additionally, noninterest expense and total revenue are adjusted for income or losses and expenses attributable to noncontrolling interests and adjustments to net interest income for a taxable equivalent basis. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under "Results of Operations-Noninterest Expense"). ++++ InMarch 2020 , the federal banking agencies provided transitional relief to banking organizations with respect to the impact of CECL on regulatory capital. Under the 2020 CECL Transition Rule, banking organizations may delay the estimated impact of CECL on regulatory capital for two years, followed by a three-year period to phase out the aggregate capital benefit provided during the initial two-year delay. We have elected to use this five-year transition option. For additional details, see "Capital Resources" within "Consolidated Financial Condition" under Part 1, Item 2 of this report. 79 -------------------------------------------------------------------------------- Table of Contents A summary of our performance for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands, except per share data, employees and ratios) 2020 2019 % Change 2020 2019 % Change Income Statement: Diluted earnings per share $ 8.47$ 5.15 64.5 % $ 15.46$ 16.67 (7.3) % Net income available to common stockholders 441,713 267,281 65.3 802,901 874,000 (8.1) Net interest income 527,740 520,644 1.4 1,564,804 1,562,933 0.1 Net interest margin 2.53 % 3.34 % (81) bps 2.79 % 3.60 % (81) bps (Reduction) provision for credit losses$ (52,018) $ 36,536 (242.4) %$ 257,943 $ 89,033 189.7 % Noninterest income 547,583 294,009 86.2 1,218,365 908,135 34.2 Noninterest expense 491,021 391,324 25.5 1,370,242 1,140,510 20.1 Non-GAAP core fee income (1) 146,320 162,177 (9.8) 447,303 473,757 (5.6) Non-GAAP core fee income, plus investment banking revenue and commissions (1) 254,758 212,968 19.6 777,051 651,574 19.3
Non-GAAP noninterest income, net of noncontrolling interests (1)
519,721 279,441 86.0 1,177,972 871,583 35.2
Non-GAAP noninterest expense, net of noncontrolling interests (2)
490,907 391,179 25.5 1,369,858 1,139,818 20.2 Balance Sheet: Average available-for-sale securities$ 20,026,864 $ 10,600,449 88.9 %$ 15,475,686 $ 8,572,314 80.5 % Average held-to-maturity securities 12,553,196 14,534,505 (13.6) 13,054,393 14,891,158 (12.3) Average loans, amortized cost 37,318,600 29,822,426 25.1 35,835,927 29,210,960 22.7 Average noninterest-bearing demand deposits 51,543,903 39,146,184 31.7 46,341,335 38,498,971 20.4 Average interest-bearing deposits 26,136,113 18,088,785 44.5 22,824,729 14,832,373 53.9 Average total deposits 77,680,016 57,234,969 35.7 69,166,064 53,331,344 29.7 Earnings Ratios: Return on average assets (annualized) (3) 1.99 % 1.62 % 22.8 % 1.34 % 1.91 % (29.8) % Return on average SVBFG stockholders' equity (annualized) (4) 24.19 18.27 32.4 15.56 21.16 (26.5)
Asset Quality Ratios: Allowance for credit losses for loans as a % of total period-end loans (5)
1.34 % 0.97 % 37 bps 1.34 % 0.97 % 37 bps
Allowance for credit losses for performing loans as a % of total performing loans (5)
1.17 0.81 36 1.17 0.81 36
Gross loan charge-offs as a % of average total loans (annualized) (5)
0.30 0.49 (19) 0.30 0.33 (3)
Net loan charge-offs as a % of average total loans (annualized) (5)
0.26 0.44 (18) 0.24 0.26 (2) Capital Ratios: SVBFG CET 1 risk-based capital ratio 12.31 % 12.71 % (40) bps 12.31 % 12.71 % (40) bps SVBFG tier 1 risk-based capital ratio 13.25 12.86 39 13.25 12.86 39 SVBFG total risk-based capital ratio 14.19 13.70 49 14.19 13.70 49 SVBFG tier 1 leverage ratio 8.26 8.64 (38) 8.26 8.64 (38) SVBFG tangible common equity to tangible assets (6) 7.52 8.38 (86) 7.52 8.38 (86)
SVBFG tangible common equity to risk-weighted assets (6)
13.28 13.04 24 13.28 13.04 24 Bank CET 1 risk-based capital ratio 10.75 11.48 (73) 10.75 11.48 (73) Bank tier 1 risk-based capital ratio 10.75 11.48 (73) 10.75 11.48 (73) Bank total risk-based capital ratio 11.75 12.36 (61) 11.75 12.36 (61) Bank tier 1 leverage ratio 6.45 7.48 (103) 6.45 7.48 (103) Bank tangible common equity to tangible assets (6) 6.42 7.36 (94) 6.42 7.36 (94)
Bank tangible common equity to risk-weighted assets (6)
11.79 11.82 (3) 11.79 11.82 (3) Other Ratios: Operating efficiency ratio (7) 45.66 % 48.04 % (5.0) % 49.23 % 46.15 % 6.7 % Non-GAAP core operating efficiency ratio (2) 56.86 48.05 18.3 53.41 46.09 15.9 Total costs of deposits (annualized) (8) 0.04 0.38 (89.5) 0.10 0.33 (69.7) Book value per common share (9) $ 143.91$ 114.26 25.9 $ 143.91$ 114.26 25.9 Other Statistics: Average full-time equivalent employees 4,216 3,413 23.5 % 3,914 3,309 18.3 % Period-end full-time equivalent employees 4,336 3,460 25.3 4,336 3,460 25.3 80
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(1)See "Results of Operations-Noninterest Income" for a description and reconciliation of non-GAAP core fee income and non-GAAP core fee income plus investment banking revenue and commissions. (2)See "Results of Operations-Noninterest Expense" for a description and reconciliation of non-GAAP noninterest expense and non-GAAP core operating efficiency ratio. (3)Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average assets. (4)Ratio represents annualized consolidated net income available to common stockholders divided by quarterly average SVBFG stockholders' equity. (5)For the three and nine months endedSeptember 30, 2020 , the ratios are calculated using the amortized cost basis for total loans as a result of the adoption of CECL. Prior period ratios were calculated using total gross loans in accordance with previous methodology. (6)See "Capital Resources-Capital Ratios" for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. (7)The operating efficiency ratio is calculated by dividing total noninterest expense by total net interest income plus noninterest income. (8)Ratio represents annualized total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits. (9)Book value per common share is calculated by dividing total SVBFG common stockholders' equity by total outstanding common shares at period-end. 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. Except as set forth below, there have been no significant changes during the nine months endedSeptember 30, 2020 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 2019 Form 10-K. We disclose our method and approach for the allowance for credit losses for loans, unfunded credit commitments and HTM securities critical accounting policy in Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item 1 of this report. Allowance for Credit Losses We consider this accounting policy to be critical as estimation of expected credit losses involves material management estimates and is susceptible to significant changes in the near-term. Determining the allowance for credit losses for loans, unfunded credit commitments and HTM securities requires us to make forecasts that are highly uncertain and require a high degree of judgment. A committee comprised of senior management evaluates the adequacy of the allowance for credit losses for loans, which includes review of loan portfolio segmentation, quantitative models, internal and external data inputs, economic forecasts, credit risk ratings and qualitative adjustments. Expected Credit Losses Estimate for Loans The methodology for estimating the amount of ECL reported in the allowance for credit losses is the sum of two main components: (1) ECL assessed on a collective basis for pools of loans that share similar risk characteristics which includes a qualitative adjustment based on our assessment of the risks that may lead to a future loan loss experience different from our historical loan loss experience and (2) ECL assessed for individual loans that do not share similar risk characteristics with other loans. We derive an estimated ECL assumption from a non-discounted cash flow approach based on our portfolio segments discussed above. This approach incorporates a calculation of three predictive metrics: (1) probability of default ("PD"), (2) loss given default ("LGD") and (3) exposure at default ("EAD"), over the estimated life of the exposure. PD and LGD assumptions are developed based on quantitative models and inherent risk of credit loss, both of which involve significant judgment. Renewals and extensions within our control are not considered in the estimated contractual term of a loan. However, we include potential extensions if management has a reasonable expectation that we will execute a TDR with the borrower. The quantitative models are based on historical credit loss experience, adjusted for probability-weighted economic scenarios. These scenarios are used to support a reasonable and supportable forecast period of three-years for all portfolio segments. To the extent the remaining contractual lives of loans in the portfolio extend beyond this three-year period, we revert to historical averages using an autoregressive model of mean reversion that will continue to gradually trend towards the mean historical loss over the remaining contractual lives, adjusted for prepayments. The macroeconomic scenarios are reviewed on a quarterly basis. 81 -------------------------------------------------------------------------------- Table of Contents We also apply a qualitative factor adjustment to the results obtained through our quantitative ECL models to consider model imprecision, emerging risk assessments, trends and other subjective factors that may not be adequately represented in the quantitative ECL models. These adjustments reflect our assessment of the extent that current conditions and reasonable and supportable forecasts differ from conditions that existed during the period over which historical information was evaluated. These adjustments are aggregated to become our qualitative allocation. Based on our qualitative assessment and prediction or estimate of changing risks in the lending environment, the qualitative allocation may vary significantly from period to period. Refer to Note 1 - "Basis of Presentation" of the "Notes to Interim Consolidated Financial Statements" under Part I, Item I of this report for a summary of the factors we consider for its qualitative adjustments as part of our estimate of the changing risks in the lending environment. We monitor our loan pools to ensure all assets therein continue to share similar risk characteristics with other financial assets inside the pool. Changes in credit risk, borrower circumstances, or the recognition of write-offs may indicate that a loan's risk profile has changed, and the asset should be removed from its current pool. For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on the net realizable value, that is, the difference between the discounted value of the expected future cash flows and the amortized cost basis of the loan. When a loan is collateral-dependent and the repayment is expected to be provided substantially through the operation or sale of the collateral, the ECL is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral will be determined by the most recent appraisal, as adjusted to reflect a reasonable marketing period for the sale of the asset(s) and an estimate of reasonable selling expenses. Collateral-dependent loans will have independent appraisals completed and accepted at least annually. Expected Credit Losses Estimate for Unfunded Credit Commitments We maintain a separate allowance for credit losses for unfunded credit commitments which is included in other liabilities and the related ECL in our provision for credit losses. We estimate the amount of expected losses by using historical trends to calculate a probability of an unfunded credit commitment being funded and derive historical lifetime expected loss factors for each portfolio segment similar to our funded loan ECL. The collectively assessed ECL for unfunded credit commitments also includes the same qualitative allocations applied for our funded loan ECL. For unfunded credit commitments related to loans that do not share similar risk characteristics with other loans, where applicable, a separate estimate of ECL will be included in our total allowance for credit losses on unfunded credit commitments. Loan commitments that are determined to be unconditionally cancellable by the Bank do not require an allowance for credit losses. Expected Credit Losses Estimate for Held-to-Maturity Investments We measure ECL on held-to-maturity securities on a collective basis by major security type and standard credit rating. Our held-to-maturity securities portfolio, with the exception of our municipal bond portfolio, are either explicitly or implicitly guaranteed by theU.S. government, are highly rated by major rating agencies and have a long history of no credit losses. With respect to these securities, we consider the risk of credit loss to be zero and, therefore, we do not record an ECL. The estimate of ECL on our municipal bond portfolio considers historical credit loss information and severity of loss in the event of default and leverages external data adjusted for current conditions. A reasonable and supportable forecast period of one year is applied to our municipal bond portfolio, with immediate reversion to long-term average historical loss rates when remaining contractual lives of securities exceed one year. Recent Accounting Pronouncements InDecember 2019 , the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is part of the FASB's initiative to reduce cost and complexity related to accounting for income taxes. The ASU eliminates certain exceptions to the general principles of ASC 740, Income Taxes, and simplifies income tax accounting in several areas. The amendments are effective for fiscal years (and interim periods within those fiscal years) beginning afterDecember 15, 2020 , with early adoption permitted. The ASU allows entities to adopt this provision on a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We do not anticipate a material impact from this ASU on our financial position, results of operations, cash flows and disclosures. InMarch 2020 , the FASB issued a new Accounting Standard Update (ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting). This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. For instance, entities can (1) elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination; (2) elect various optional expedients that 82 -------------------------------------------------------------------------------- Table of Contents would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met; and (3) make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. This guidance became effective onMarch 12, 2020 and an entity may elect to prospectively apply each category of exemption independently, either in the interim period that includesMarch 12, 2020 , or in a subsequent period throughDecember 31, 2022 . We have implemented a process to assess the population of contracts that will be impacted by this ASU and to evaluate expedients we will use and when we might apply them. We are currently evaluating the impact this guidance will have on our financial position, results of operations, cash flows and disclosures. Results of Operations Net Interest Income and Margin (Fully Taxable Equivalent Basis) Net interest income is defined as the difference between: (i) interest earned on loans, fixed income investments in our available-for-sale and held-to-maturity securities portfolios and short-term investment securities and (ii) interest paid on funding sources. Net interest margin is defined as annualized net interest income, on a fully taxable equivalent basis, as a percentage of average interest-earning assets. Net interest income and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the applicable federal statutory tax rate. Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable Equivalent Basis) Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as "volume change." Net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as "rate change." The following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities. The table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the periods indicated. For this table, changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate. 2020 Compared to 2019 2020 Compared to 2019 Three months ended September 30, increase (decrease) Nine months ended September 30, increase (decrease) due to change in due to change in (Dollars in thousands) Volume Rate Total Volume Rate Total Interest income:Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities$ 1,306
$ (51,704) Fixed income investment portfolio (taxable) 23,710 (16,849) 6,861 57,830 (16,149)
41,681
Fixed income investment portfolio (non-taxable) 5,452 (656) 4,796 13,220 (1,562)
11,658
Loans, amortized cost 73,886 (99,151) (25,265) 206,671 (292,478)
(85,807)
Increase (decrease) in interest income, net 104,354 (144,112) (39,758) 288,707 (372,879)
(84,172)
Interest expense: Interest bearing checking and savings accounts 2,705 231 2,936 3,792 686 4,478 Money market deposits 935 (45,510) (44,575) 12,998 (84,069) (71,071) Money market deposits in foreign offices 12 (3) 9 34 (6) 28 Time deposits 270 (401) (131) 755 (310) 445 Sweep deposits in foreign offices (14) (5,113) (5,127) 167 (12,900)
(12,733)
Total increase (decrease) in deposits expense 3,908 (50,796) (46,888) 17,746 (96,599) (78,853) Short-term borrowings - (115) (115) 2,147 (2,356) (209) 3.125% Senior Notes 4,012 - 4,012 5,171 - 5,171 3.50% Senior Notes 3 - 3 10 - 10 5.375% Senior Notes (4,873) - (4,873) (14,611) - (14,611) Total decrease in borrowings expense (858) (115) (973) (7,283) (2,356)
(9,639)
Increase (decrease) in interest expense, net 3,050 (50,911) (47,861) 10,463 (98,955)
(88,492)
Increase (decrease) in net interest income$ 101,304 $ (93,201) $ 8,103 $ 278,244 $ (273,924) $ 4,320 83
-------------------------------------------------------------------------------- Table of Contents Net Interest Income (Fully Taxable Equivalent Basis) Three months endedSeptember 30, 2020 and 2019 Net interest income increased by$8.1 million to$531.7 million for the three months endedSeptember 30, 2020 , compared to$523.6 million for the comparable 2019 period. Overall, our net interest income increased primarily from an increase in interest earned on interest earning assets from average growth in our fixed income securities of$7.4 billion and loan balances of$7.5 billion , driven by growth in our deposit balances of$20.4 billion . In addition, the increase was reflective of decreases in interest paid on deposits due to market interest rate decreases. These increases were offset by lower cash and cash equivalents, investment and loan yields reflective of the three 25 basis point Federal Funds rate decreases in the latter half of 2019 as well as the aggregate 150 basis point decrease inMarch 2020 . The main factors affecting interest income and interest expense for the three months endedSeptember 30, 2020 , compared to the comparable 2019 period are discussed below: •Interest income for the three months endedSeptember 30, 2020 decreased by$39.8 million due primarily to: •A$26.2 million decrease in interest income from our interest earning cash and short-term investment securities. The decrease was due primarily to the decrease in Federal Funds rates as discussed above. •A$25.3 million decrease in interest income on loans to$369.0 million for the three months endedSeptember 30, 2020 , compared to$394.2 million for the comparable 2019 period. The decrease was reflective of a decrease in the overall loan yields of 131 basis points to 3.93 percent from 5.24 percent partially offset by an increase in average loan balances of$7.5 billion . Gross loan yields, excluding loan interest recoveries and loan fees, decreased 131 basis points to 3.41 percent from 4.72 percent, reflective primarily of the impact of the decreases in Federal Funds rates as discussed above, partially offset by an increase reflective of the impact of the reclassification of unrealized gains on interest rate swap cash flow hedges that were terminated in the first quarter of 2020 and effective loan floors, partially offset by •An$11.7 million increase in interest income from our fixed income investment securities due primarily to the increase of$7.4 billion in average fixed income investment securities. The increase in interest income from growth of our average fixed income investment securities was partially offset by declines in yields earned on these investments reflective of the lower interest rate market environment. •Interest expense for the three months endedSeptember 30, 2020 decreased by$47.9 million due primarily to: •A$46.9 million decrease in interest expense on deposits due primarily to a decrease in interest paid on our interest-bearing money market deposits due to the decreases in market rates, and •A$1.0 million decrease in interest expense on borrowings due primarily to the extinguishment of our 5.375% Senior Notes inDecember 2019 , partially offset by interest expense on our 3.125% Senior Notes issued inJune 2020 . Nine months endedSeptember 30, 2020 and 2019 The main factors affecting interest income and interest expense for the nine months endedSeptember 30, 2020 , compared to the comparable 2019 period are discussed below: •Interest income for the nine months endedSeptember 30, 2020 decreased by$84.2 million due primarily to: •A$85.8 million decrease in interest income on loans to$1.1 billion for the nine months endedSeptember 30, 2020 , compared to$1.2 billion for the comparable 2019 period. The decrease was reflective of a decrease in the overall loan yields of 134 basis points to 4.16 percent from 5.50 percent partially offset by an increase in average loan balances of$6.6 billion . Gross loan yields, excluding loan interest recoveries and loan fees, decreased 129 basis points to 3.66 percent from 4.95 percent, reflective primarily of the impact of the decreases in Federal Funds rates as discussed above, partially offset by an increase reflective of the impact of the reclassification of unrealized gains on interest rate swap cash flow hedges that were terminated in the first quarter of 2020 and effective loan floors, and •A$51.7 million decrease in interest income from our interest earning cash and short-term investment securities. The decrease was due primarily to the decrease in Federal Funds interest rates as discussed above, partially offset by growth in average balances of$5.3 billion . These decreases were offset by the following: 84 -------------------------------------------------------------------------------- Table of Contents •A$53.3 million increase in interest income from our fixed income investment securities. The increase was due primarily to the increase of$5.1 billion in average fixed income investment securities, partially offset by declines in yields earned on these investments reflective of the lower interest rate market environment. •Interest expense for the nine months endedSeptember 30, 2020 decreased by$88.5 million primarily due to: •A$78.9 million decrease in interest expense on deposits due primarily to a decrease in interest paid on our interest-bearing money market and on-balance sheet sweep deposits reflective of the decreases in market rates. These decreases were partially offset by interest income earned from$5.8 billion of growth in average balances for our interest-bearing money markets deposits. •A$9.6 million decrease in interest expense on borrowings due primarily to the extinguishment of our 5.375% Senior Notes, partially offset by interest expense for our 3.125% Senior Notes issued towards the end of the second quarter of 2020. Net Interest Margin (Fully Taxable Equivalent Basis) Three months endedSeptember 30, 2020 and 2019 •Our net interest margin decreased by 81 basis points to 2.53 percent for the three months endedSeptember 30, 2020 , compared to 3.34 percent for the comparable 2019 period. The lower margin for the three months endedSeptember 30, 2020 was due primarily to a decrease in yields on loans reflective of the Federal Funds rate decreases as discussed above, as well as a shift in the mix of the growth in our interest-earning assets to lower-yielding short-term investment securities portfolio relative to the growth in our loan portfolio. The decrease in our net interest margin was partially offset by increases from our interest rate swap cash flow hedges which were terminated in the first quarter of 2020 and effective loan floors. Average loans represented 44.6 percent of average interest earnings assets for the three months endedSeptember 30, 2020 , compared to 48.0 percent for the comparable 2019 period. Nine months endedSeptember 30, 2020 and 2019 •Our net interest margin decreased by 81 basis points to 2.79 percent for the nine months endedSeptember 30, 2020 , compared to 3.60 percent for the comparable 2019 period. The lower margin for the nine months endedSeptember 30, 2020 was reflective primarily of the decreases in the Federal Funds as discussed above, as well as a shift in the mix of the growth in our interest-earning assets to lower-yielding short-term investment securities portfolio relative to the growth in our loan portfolio, partially offset by increases from our interest rate swap cash flow hedges which were terminated in the first quarter of 2020 and effective loan floors. Average loans represented 47.5 percent of year-to-date average interest earnings assets, compared to 50.0 percent for the comparable 2019 period. Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis) The average yield earned on interest-earning assets is the amount of annualized fully taxable equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is the amount of annualized interest expense expressed as a percentage of average funding sources. The following tables set forth average assets, liabilities, noncontrolling interests, preferred stock, and SVBFG stockholders' equity, interest income, interest expense, annualized yields and rates, and the composition of our annualized net interest margin for the three and nine months endedSeptember 30, 2020 and 2019: 85 -------------------------------------------------------------------------------- Table of Contents Average Balances, Rates and Yields for the Three Months EndedSeptember 30, 2020 and 2019 Three months ended September 30, 2020 2019 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Interest-earning assets:Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)$ 13,817,353 $ 2,717 0.08 %$ 7,193,195 $ 28,867 1.59 % Investment securities: (2) Available-for-sale securities: Taxable 20,026,864 87,792 1.74 10,600,449 62,121 2.32 Held-to-maturity securities: Taxable 10,286,332 68,725 2.66 12,922,438 87,535 2.69 Non-taxable (3) 2,266,864 18,876 3.31 1,612,067 14,080 3.47 Total loans, amortized cost (4) (5) 37,318,600 368,981 3.93 29,822,426 394,246 5.24 Total interest-earning assets 83,716,013 547,091 2.60 62,150,575 586,849 3.74 Cash and due from banks 1,162,156 590,391 Allowance for credit losses for loans (610,212) (308,609) Other assets (6) 4,080,409 2,895,391 Total assets$ 88,348,366 $ 65,327,748 Funding sources: Interest-bearing liabilities: Interest bearing checking and savings accounts$ 4,297,874 $ 3,038 0.28 %$ 470,601 $ 102 0.09 % Money market deposits 19,829,441 4,594 0.09 15,805,507 49,169 1.23 Money market deposits in foreign offices 261,903 21 0.03 115,590 12 0.04 Time deposits 380,560 459 0.48 157,218 590 1.49 Sweep deposits in foreign offices 1,366,335 106 0.03 1,539,869 5,233 1.35 Total interest-bearing deposits 26,136,113 8,218 0.13 18,088,785 55,106 1.21 Short-term borrowings 15,335 4 0.10 22,045 119 2.14 3.125% Senior Notes 495,095 4,012 3.22 - - - 3.50% Senior Notes 348,197 3,153 3.60 347,841 3,150 3.59 5.375% Senior Notes - - - 349,216 4,873 5.54 Total interest-bearing liabilities 26,994,740 15,387 0.23 18,807,887 63,248 1.33 Portion of noninterest-bearing funding sources 56,721,273 43,342,688 Total funding sources 83,716,013 15,387 0.07 62,150,575 63,248 0.40 Noninterest-bearing funding sources: Demand deposits 51,543,903 39,146,184 Other liabilities 2,055,599 1,417,659 Preferred stock 340,138 - SVBFG common stockholders' equity 7,265,863 5,802,907 Noncontrolling interests 148,123 153,111 Portion used to fund interest-earning assets (56,721,273) (43,342,688)
Total liabilities, noncontrolling interest, and SVBFG stockholders' equity
$ 88,348,366 $ 65,327,748 Net interest income and margin$ 531,704 2.53 %$ 523,601 3.34 % Total deposits$ 77,680,016 $ 57,234,969 Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (3,964)
(2,957)
Net interest income, as reported$ 527,740 $ 520,644 (1)Includes average interest-earning deposits in other financial institutions of$1.0 billion and$1.1 billion for the three months endedSeptember 30, 2020 and 2019, respectively. For the three months endedSeptember 30, 2020 and 2019, balances also include$11.3 billion and$5.1 billion , respectively, deposited at the FRB, earning interest at the Federal Funds target rate. (2)Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. (3)Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent for all periods presented. (4)Nonaccrual loans are reflected in the average balances of loans. (5)Interest income includes loan fees of$49.5 million and$39.4 million for the three months endedSeptember 30, 2020 and 2019, respectively. (6)Average investment securities of$2.1 billion and$1.2 billion for the three months endedSeptember 30, 2020 and 2019, respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other equity securities. 86 -------------------------------------------------------------------------------- Table of Contents Average Balances, Rates and Yields for the Nine Months EndedSeptember 30, 2020 and 2019 Nine months ended September 30, 2020 2019 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Interest-earning assets:Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)$ 11,025,519 $ 22,743 0.28 %$ 5,696,501 $ 74,447 1.75 % Investment securities: (2) Available-for-sale securities: Taxable 15,475,686 234,066 2.02 8,572,314 142,891 2.23 Held-to-maturity securities: Taxable 10,947,145 218,383 2.66 13,305,424 267,877 2.69 Non-taxable (3) 2,107,248 53,418 3.39 1,585,734 41,760 3.52 Total loans, amortized cost (4) (5) 35,835,927 1,116,660 4.16 29,210,960 1,202,467 5.50 Total interest-earning assets 75,391,525 1,645,270 2.91 58,370,933 1,729,442 3.96 Cash and due from banks 952,118 553,523 Allowance for credit losses for loans (499,962) (303,154) Other assets (6) 3,916,969 2,592,830 Total assets$ 79,760,650 $ 61,214,132 Funding sources: Interest-bearing liabilities: Interest bearing checking and savings accounts$ 2,347,019 $ 4,796 0.27 %$ 491,663 $ 318 0.09 % Money market deposits 18,330,106 41,178 0.30 12,540,843 112,249 1.20 Money market deposits in foreign offices 272,940 71 0.03 142,053 43 0.04 Time deposits 244,099 1,235 0.68 94,934 790 1.11 Sweep deposits in foreign offices 1,630,565 4,030 0.33 1,562,880 16,763 1.43 Total interest-bearing deposits 22,824,729 51,310 0.30 14,832,373 130,163 1.17 Short-term borrowings 532,549 3,310 0.83 186,930 3,519 2.52 3.125% Senior Notes 213,234 5,171 3.24 - - - 3.50% Senior Notes 348,108 9,457 3.63 347,756 9,447 3.63 5.375% Senior Notes - - - 349,050 14,611 5.60 Total interest-bearing liabilities 23,918,620 69,248 0.39 15,716,109 157,740 1.34 Portion of noninterest-bearing funding sources 51,472,905 42,654,824 Total funding sources 75,391,525 69,248 0.12 58,370,933 157,740 0.36 Noninterest-bearing funding sources: Demand deposits 46,341,335 38,498,971 Other liabilities 2,118,690 1,327,040 Preferred stock 340,148 - SVBFG common stockholders' equity 6,892,301 5,523,196 Noncontrolling interests 149,556 148,816 Portion used to fund interest-earning assets (51,472,905) (42,654,824)
Total liabilities, noncontrolling interest, and SVBFG stockholders' equity
$ 79,760,650 $ 61,214,132 Net interest income and margin$ 1,576,022 2.79 %$ 1,571,702 3.60 % Total deposits$ 69,166,064 $ 53,331,344 Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (11,218)
(8,769)
Net interest income, as reported$ 1,564,804 $ 1,562,933 (1)Includes average interest-earning deposits in other financial institutions of$0.9 billion and$0.9 billion for the nine months endedSeptember 30, 2020 and 2019, respectively. The balance also includes$8.9 billion and$3.9 billion deposited at the FRB, earning interest at the Federal Funds target rate for the nine months endedSeptember 30, 2020 and 2019, respectively. (2)Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income. (3)Interest income on non-taxable available-for-sale securities is presented on a fully taxable-equivalent basis using the federal statutory tax rate of 21.0 percent for all periods presented. (4)Nonaccrual loans are reflected in the average balances of loans. (5)Interest income includes loan fees of$135.8 million and$120.2 million for the nine months endedSeptember 30, 2020 and 2019, respectively. (6)Average investment securities of$1.9 billion and$1.1 billion for the nine months endedSeptember 30, 2020 and 2019, respectively, were classified as other assets as they were noninterest-earning assets. These investments consisted primarily of non-marketable and other equity securities. 87 -------------------------------------------------------------------------------- Table of Contents (Reduction) Provision for Credit Losses The (reduction) provision for credit losses is the combination of (i) the provision for loans, (ii) the provision for unfunded credit commitments and (iii) the provision for HTM securities. Our (reduction) provision for credit losses equals our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date. The following table summarizes our allowance for credit losses for loans, unfunded credit commitments and HTM securities for the three and nine months endedSeptember 30, 2020 and 2019: Three months ended September 30, Nine months ended September 30, (Dollars in thousands, except ratios) 2020 2019 2020 2019 Allowance for credit losses for loans, beginning balance$ 589,828 $ 301,888 $ 304,924 $ 280,903 Day one impact of adopting ASC 326 - - 25,464 - (Reduction) provision for loans (54,106) 35,985 246,694 80,954 Gross loan charge-offs (28,449) (36,820) (80,400) (72,255) Loan recoveries 4,354 3,888 16,182 15,133 Foreign currency translation adjustments 1,331 (531) 94 (325) Allowance for credit losses for loans, ending balance$ 512,958 $ 304,410 $ 512,958 $ 304,410 Allowance for credit losses for unfunded credit commitments, beginning balance 99,294 62,664 67,656 55,183 Day one impact of adopting ASC 326 - - 22,826 - Provision for unfunded credit commitments 2,019 551 11,132 8,079 Foreign currency translation adjustments 202 (107) (99) (154) Allowance for credit losses for unfunded credit commitments, ending balance (1)$ 101,515 $ 63,108 $ 101,515 $ 63,108 Allowance for credit losses for HTM securities, beginning balance 222 - - - Day one impact of adopting ASC 326 - - 174 - Provision for HTM securities 69 - 117 - Allowance for credit losses for HTM securities, ending balance (2) $ 291 $ - $ 291 $ - Ratios and other information: (Reduction) provision for loans as a percentage of period-end total loans (annualized) (3) (0.56) % 0.46 % 0.86 % 0.35 % Gross loan charge-offs as a percentage of average total loans (annualized) 0.30 0.49 0.30 0.33 Net loan charge-offs as a percentage of average total loans (annualized) 0.26 0.44 0.24 0.26 Allowance for credit losses for loans as a percentage of period-end total loans (3) 1.34 0.97 1.34 0.97 (Reduction) provision for credit losses$ (52,018) $ 36,536 $ 257,943 $ 89,033 Period-end total loans (3) 38,413,891 31,229,003 38,413,891 31,229,003 Average total loans (3) 37,318,600 29,979,522 35,835,927 29,373,264 Allowance for loan losses for nonaccrual loans 64,479 53,728 64,479 53,728 Nonaccrual loans 105,711 104,045 105,711 104,045 (1)The "allowance for credit losses for unfunded credit commitments" is included as a component of "Other liabilities" on our consolidated balance sheets. (2)The "allowance for credit losses for HTM securities" is included as a component of HTM securities and presented net in our consolidated financial statements. (3)For the three and nine months endedSeptember 30, 2020 , loan amounts are disclosed, and ratios are calculated, using the amortized cost basis as a result of the adoption of CECL. Prior period loan amounts are disclosed, and ratios are calculated, using the gross basis. 88 -------------------------------------------------------------------------------- Table of Contents Three months endedSeptember 30, 2020 and 2019 The reduction of our expected credit losses was$52.0 million for the three months endedSeptember 30, 2020 , consisting of a reduction of our expected credit losses for loans of$54.1 million , a provision for credit losses for unfunded credit commitments of$2.0 million and a provision for our credit losses for our HTM securities of$69 thousand . Our provision for credit losses was$36.5 million for the three months endedSeptember 30, 2019 , consisting of a provision for loans of$36.0 million and a provision for unfunded credit commitments of$0.5 million . The reduction of our expected credit losses for loans of$54.1 million for the three months endedSeptember 30, 2020 was driven primarily by an$82.4 million reduction in reserves for our performing loans reflective of improved economic scenarios in our forecast models, as well as a qualitative adjustment reflective of strong credit performance from ourPrivate Bank portfolio segment, a$4.6 million decrease related to changes in loan composition within our portfolio segments and$4.4 million of recoveries. These decreases were partially offset by$23.3 million for net new nonaccrual loans and$15.2 million for charge-offs not specifically reserved for atJune 30, 2020 . The reduction related to improved economic scenarios in our forecast models was driven primarily by our Investor Dependent Early-Stage portfolio segment which is more sensitive to the underlying macro-economic forecasts utilized in our CECL model as compared to the remaining portfolio segments as well as a decrease in balances in that portfolio segment. A provision for credit losses for unfunded credit commitments of$2.0 million was driven primarily by the forecast models of the current economic environment as well as changes in the unfunded credit commitments composition within our portfolio segments. The provision for loan losses of$36.0 million for the three months endedSeptember 30, 2019 reflects an increase of$19.1 million for net new nonaccrual loans,$18.3 million for charge-offs not specifically reserved for and$15.2 million in additional reserves for period-end loan growth, partially offset by a decrease of$13.0 million for the qualitative component of our performing loans and$3.9 million of recoveries. The provision for unfunded credit commitments of$0.5 million was driven primarily by the growth in unfunded credit commitments of$1.3 billion for the three months endedSeptember 30, 2019 , offset by a decrease related to the continued shift in the mix of our unfunded credit facilities to our large, higher credit quality private equity/venture capital clients. Gross loan charge-offs were$28.4 million for the third quarter of 2020, of which$15.2 million was not specifically reserved for atJune 30, 2020 . Gross loan charge-offs were primarily driven by$28.3 million for our Investor Dependent clients. Gross loan charge-offs were$36.8 million for the three months endedSeptember 30, 2019 , of which$18.3 million was not specifically reserved for in prior quarters. Gross loan charge-offs were primarily driven by a$9.4 million charge-off for one mid-stage life science/healthcare portfolio client and$7.6 million for one later-stage software client, both of which were previously included in our nonaccrual loan portfolio. The remaining charge-offs came primarily from our early-stage clients. Nine Months EndedSeptember 30, 2020 and 2019 Our provision for credit losses was$257.9 million for the nine months endedSeptember 30, 2020 , consisting of a provision for loan losses of$246.7 million , a provision for unfunded credit commitments of$11.1 million and a provision for HTM securities of$117 thousand . Our provision for credit losses was$89.0 million for the nine months endedSeptember 30, 2019 , consisting of a provision for loan losses of$81.0 million and a provision for unfunded credit commitments of$8.0 million . The provision for credit losses for loans of$246.7 million was driven primarily by$134.5 million in additional reserves for our performing loans based on our forecast models of the current economic environment under the CECL methodology adoptedJanuary 1, 2020 , including the impact of the COVID-19 pandemic, as well as changes in loan composition within our portfolio segments,$58.1 million in net new nonaccrual loans,$38.8 million for charge-offs not specifically reserved for atDecember 31, 2019 and$31.5 million in additional reserves for period-end loan growth, partially offset by$16.2 million of recoveries. A provision for credit losses for unfunded credit commitments of$11.1 million was driven primarily by the forecast models of the current economic environment under the CECL methodology adoptedJanuary 1, 2020 , including the impact of the COVID-19 pandemic, as well as changes in the unfunded credit commitments composition within our portfolio segments. The provision for loan losses of$81.0 million for the nine months endedSeptember 30, 2019 was reflective primarily of$57.5 million in net new specific reserves for nonaccrual loans,$30.5 million for charge-offs not specifically reserved for in prior quarters and$22.4 million from period-end loan growth, partially offset by a decrease of$14.3 million for our performing loans and$15.1 million of recoveries. 89 -------------------------------------------------------------------------------- Table of Contents The provision for unfunded credit commitments of$8.0 million for nine months endedSeptember 30, 2019 was driven primarily by growth in unfunded credit commitments of$3.4 billion . Gross loan charge-offs were$80.4 million for the nine months endedSeptember 30, 2020 , of which$38.8 million was not specifically reserved for in prior quarters. Gross loan charge-offs were primarily driven by$67.2 million for our Investor Dependent clients and a$4.9 million charge-off from one Balance Sheet Dependent client. The remaining charge-offs came primarily from our Cash Flow Dependent risk-based segments. Gross loan charge-offs were$72.3 million for the nine months endedSeptember 30, 2019 , of which$30.5 million was not specifically reserved for in prior quarters. Gross loan charge-offs included$26.9 million from our life science/healthcare loan portfolio and$38.3 million from our software/internet loan portfolio. Gross loan charge-offs for our life science/healthcare portfolio were driven primarily by$22.5 million from one mid-stage client. Gross loan charge-offs for our software/internet loan portfolio were driven primarily by our early-stage clients. See "Consolidated Financial Condition-Credit Quality and Allowance for Credit Losses for Loans and for Unfunded Credit Commitments" below and Note 7 - "Loans and Allowance for Credit Losses: Loans and Unfunded Credit Commitments" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report for further details on our allowance for credit losses for loans and unfunded credit commitments. Noninterest Income For the three and nine months endedSeptember 30, 2020 , noninterest income was$547.6 million and$1.2 billion , respectively, compared to$294.0 million and$908.1 million for the comparable 2019 periods. For the three and nine months endedSeptember 30, 2020 , non-GAAP noninterest income, net of noncontrolling interests was$519.7 million and$1.2 billion , respectively, compared to$279.4 million and$871.6 million for the comparable 2019 periods. For the three and nine months endedSeptember 30, 2020 , non-GAAP core fee income plus investment banking revenue and commissions was$254.8 million and$777.1 million , respectively compared to$213.0 million and$651.6 million for the comparable 2019 periods. For the three and nine months endedSeptember 30, 2020 , non-GAAP core fee income was$146.3 million and$447.3 million , respectively, compared to$162.2 million and$473.8 million for the comparable 2019 periods. (See reconciliations of non-GAAP measures used below under "Use of Non-GAAP Financial Measures".) Included in results for three and nine months endedSeptember 30, 2020 are revenues related to our investments in BigCommerce comprised of: (i)$108.4 million from unrealized gains on investment securities; (ii)$10.8 million from gains on equity warrant assets; and (iii)$30.0 million in gains included in other noninterest income as discussed further below. Use of Non-GAAP Financial Measures To supplement our unaudited interim consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP core fee income plus investment banking revenue and commissions, non-GAAP noninterest income, and non-GAAP net gains on investment securities). These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding items that represent income attributable to investors other than us and our subsidiaries. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, and not as a substitute for or preferable to, financial measures prepared in accordance with GAAP. Included in net income is income and expense attributable to noncontrolling interests. We recognize, as part of our investment funds management business throughSVB Capital and SVB Leerink, 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. 90 -------------------------------------------------------------------------------- Table of Contents Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes (i) 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, (ii) our investment banking revenue and commissions, and (iii) other noninterest income. Core fee income includes client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees. Core fee income plus investment banking revenue and commissions is a non-GAAP measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets, and other noninterest income. Core fee income plus investment banking revenue and commissions includes core fee income plus investment banking revenue and commissions. The following table provides a reconciliation of GAAP noninterest income to non-GAAP noninterest income, net of noncontrolling interests, for the three and nine months endedSeptember 30, 2020 and 2019: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change GAAP noninterest income$ 547,583 $ 294,009 86.2 %$ 1,218,365 $ 908,135 34.2 % Less: income attributable to noncontrolling interests, including carried interest allocation 27,862 14,568 91.3 40,393 36,552 10.5 Non-GAAP noninterest income, net of noncontrolling interests$ 519,721 $ 279,441 86.0$ 1,177,972 $ 871,583 35.2 The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for the three and nine months endedSeptember 30, 2020 and 2019: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change GAAP noninterest income$ 547,583 $ 294,009 86.2 %$ 1,218,365 $ 908,135 34.2 % Less: gains on investment securities, net 189,837 29,849 NM 270,760 106,575 154.1 Less: gains on equity warrant assets, net 53,766 37,561 43.1 93,667 107,213 (12.6) Less: other noninterest income 49,222 13,631 NM 76,887 42,773 79.8 Non-GAAP core fee income plus investment banking revenue and commissions (1)$ 254,758 $ 212,968 19.6 $ 777,051$ 651,574 19.3 Less: investment banking revenue 92,181 38,516 139.3 280,551 137,005 104.8 Less: commissions 16,257 12,275 32.4 49,197 40,812 20.5 Non-GAAP core fee income (2)$ 146,320 $ 162,177 (9.8) $ 447,303$ 473,757 (5.6) NM-Not meaningful (1)Non-GAAP core fee income plus investment banking revenue and commissions represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, and other noninterest income. Core fee income plus investment banking revenue and commissions is Non-GAAP core fee income (as defined in the subsequent footnote) with the addition of investment banking revenue and commissions. (2)Non-GAAP core fee income represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. Non-GAAP core fee income includes client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees. Gains onInvestment Securities ,Net Net gains on investment securities include gains and losses from our non-marketable and other equity securities, which include public equity securities held as a result of exercised equity warrant assets, as well as gains and losses from sales of our AFS debt securities portfolio, when applicable. Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds,SPD Silicon Valley Bank Co., Ltd. (the Bank's joint venture inChina ("SPD-SVB")), debt funds, private and public portfolio companies and qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, which results in net gains or losses on investment securities 91 -------------------------------------------------------------------------------- Table of Contents (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains and losses from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains or losses from non-marketable and other equity securities for any single period are typically driven by valuation changes, and are therefore subject to potential increases or decreases in future periods. Such variability may lead to volatility in the gains or losses from investment securities. As such, our results for a particular period are not necessarily indicative of our expected performance in a future period. The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (e.g. lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, and the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes. Our AFS securities portfolio is a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk. Three months endedSeptember 30, 2020 and 2019 For the three months endedSeptember 30, 2020 , we had net gains on investment securities of$189.8 million , compared to$29.8 million for the comparable 2019 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, were$162.1 million for the three months endedSeptember 30, 2020 , compared to non-GAAP net gains, net of controlling interest of$15.2 million for the comparable 2019 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, of$162.1 million for the three months endedSeptember 30, 2020 were driven by the following: •Gains of$108.4 million from our public equity securities investments, primarily driven by our previously announced investments in BigCommerce, which completed its IPO inAugust 2020 , •Gains of$23.1 million from our managed funds of funds portfolio related primarily to unrealized valuation gains, and •Gains of$18.4 million from our strategic and other investments, primarily driven by net unrealized valuation increases in our strategic venture capital funds. Nine months endedSeptember 30, 2020 and 2019 For the nine months endedSeptember 30, 2020 , we had net gains on investment securities of$270.8 million , compared to$106.6 million for the comparable 2019 period. Non-GAAP net gains on investment securities, net of noncontrolling interests, were$230.2 million for the nine months endedSeptember 30, 2020 , compared to$69.9 million for the comparable 2019 period. Non-GAAP net gains, net of noncontrolling interests, of$230.2 million for the nine months endedSeptember 30, 2020 were driven primarily by the following: •Gains of$112.7 million from our public equity securities investments, primarily driven by our previously announced investments in BigCommerce, which completed its IPO inAugust 2020 , •Gains of$61.2 million from our AFS debt securities portfolio, resulting from the sale of$2.6 billion ofU.S. Treasury securities, and •Gains of$27.4 million from our managed funds of funds portfolio related primarily to unrealized valuation gains. 92 -------------------------------------------------------------------------------- Table of Contents The following tables provide a reconciliation of GAAP total gains (losses) on investment securities, net, to non-GAAP net gains (losses) on investment securities, net of noncontrolling interests, for the three and nine months endedSeptember 30, 2020 and 2019: Managed Managed Direct Strategic Funds of Venture Public Equity Debt Sales of AFS and Other (Dollars in thousands) Funds Funds Securities Funds Securities Investments SVB Leerink Total Three months ended September 30, 2020 Total gains on investment securities, net$ 42,885 $ 14,775 $ 108,417 $ 15 $ -$ 18,426 $ 5,319 $ 189,837 Less: income attributable to noncontrolling interests, including carried interest allocation 19,832 7,492 - - - - 461 27,785 Non-GAAP net gains on investment securities, net of noncontrolling interests$ 23,053 $ 7,283 $
108,417
Three months endedSeptember 30, 2019 Total gains (losses) on investment securities, net$ 22,223 $ 9,668 $ (11,488) $ 187 $ -$ 8,035 $ 1,224 $ 29,849 Less: income attributable to noncontrolling interests, including carried interest allocation 9,676 4,138 - - - - 826$ 14,640 Non-GAAP net gains (loss) on investment securities, net of noncontrolling interests$ 12,547 $ 5,530 $
(11,488)
Nine months endedSeptember 30, 2020 Total gains (losses) on investment securities, net$ 53,768 $ 27,246 $
112,744
$ 6,600 $ 270,760 Less: income attributable to noncontrolling interests, including carried interest allocation 26,344 13,741 - - - - 493 40,578 Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests$ 27,424 $ 13,505 $
112,744
Nine months endedSeptember 30, 2019 Total gains (losses) on investment securities, net$ 60,787 $ 13,135 $
(1,408)
$ 6,089 $ 106,575 Less: income attributable to noncontrolling interests, including carried interest allocation 30,273 5,540 - - - - 861 36,674 Non-GAAP net gains (losses) on investment securities, net of noncontrolling interests$ 30,514 $ 7,595 $ (1,408) $ 1,529 $ (3,905) $ 30,348 $ 5,228 $ 69,901 Gains on Equity Warrant Assets, Net Three months endedSeptember 30, 2020 and 2019 Net gains on equity warrant assets were$53.8 million for the three months endedSeptember 30, 2020 , compared to net gains of$37.6 million for the comparable 2019 period. Net gains on equity warrant assets for the three months endedSeptember 30, 2020 consisted of: •Net gains of$30.2 million from warrant valuations increases, driven by valuation increases in our private company warrant portfolio, and •Net gains of$23.9 million from the exercise of equity warrant assets driven by IPO and M&A activity, which included$10.8 million from our exercised warrant position in BigCommerce. 93
-------------------------------------------------------------------------------- Table of Contents Nine months endedSeptember 30, 2020 and 2019 Net gains on equity warrant assets were$93.7 million for the nine months endedSeptember 30, 2020 , compared to net gains of$107.2 million for the comparable 2019 period. Net gains on equity warrant assets for the nine months endedSeptember 30, 2020 consisted of: •Net gains of$59.4 million from the exercise of equity warrant assets, driven by IPO and M&A activity, which, included$10.8 million from our exercised warrant position in BigCommerce, and •Net gains of$35.6 million from warrant valuation increases, driven primarily by valuation increases in our private company warrant portfolio during the nine months endedSeptember 30, 2020 . A summary of gains on equity warrant assets, net, for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Equity warrant assets (1): Gains on exercises, net$ 23,940
$ 30,047 (20.3) %$ 59,370 $ 90,357 (34.3) % Terminations (361) (481) (24.9) % (1,332) (2,931) (54.6) Changes in fair value, net 30,187 7,995 NM 35,629 19,787
80.1
Total gains on equity warrant assets, net$ 53,766 $ 37,561 43.1$ 93,667 $ 107,213 (12.6) NM-Not meaningful (1) AtSeptember 30, 2020 , we held warrants in 2,503 companies, compared to 2,227 companies atSeptember 30, 2019 . The total fair value of our warrant portfolio was$202.2 million atSeptember 30, 2020 and$149.1 million atSeptember 30, 2019 . Warrants in 28 companies each had fair values greater than$1.0 million and collectively represented$83.0 million , or 41.1 percent, of the fair value of the total warrant portfolio atSeptember 30, 2020 . Warrants in 15 companies each had fair values greater than$1.0 million and collectively represented$43.7 million , or 29.3 percent, of the fair value of the total warrant portfolio atSeptember 30, 2019 . Investment in Root, Inc. As ofSeptember 30, 2020 , we held investments in Root, Inc. ("Root"), consisting of: (i) approximately 600,000 shares related to warrants held by SVBFG, and (ii) approximately 15.6 million shares directly held by two of ourSVB Capital funds (in which SVBFG holds certain carried interests), of which we estimated to be entitled to approximately$24.1 million before taxes in the form of carried interest subject to the fund's performance and assuming the fund exceeds certain performance targets. In lateOctober 2020 , Root completed its initial public offering. As part of the IPO which priced at$27 per share: (i) SVBFG sold all of our warrant shares, which resulted in a pre-tax gain of$5.5 million ; and (ii) ourSVB Capital funds sold approximately 1.6 million shares, of which SVBFG would be entitled to approximately$3.7 million before taxes in the form of carried interest, assuming the fund exceeds certain performance targets.SVB Capital currently holds approximately 14.0 million shares, which based on the closing price of Root's common stock of$23.03 as ofNovember 4, 2020 , we currently estimate SVBFG to be entitled to approximately$29.8 million before taxes in the form of carried interest, assuming the fund exceeds certain performance targets. Carried interest may be subject to change to the extent fund performance levels fluctuate. Gains (or losses) related to our equity securities in public companies such as Root, Inc are based on valuation changes or the sale of any securities, and are subject to such companies' stock price, which are subject to market conditions and various other factors. Additionally, the public equity investment expected gains and losses, and the extent to which such gains or (losses) will become realized is subject to a variety of factors, including among other factors, changes in prevailing market prices and the timing of any sales of securities, which are subject to our securities sales and governance process, as well as certain sales restrictions (e.g. lock-up agreements). The lock up agreement for common stock shares held in Root, Inc, is scheduled to expire duringApril 2021 . 94 --------------------------------------------------------------------------------
Table of Contents Non-GAAP Core Fee Income Three months endedSeptember 30 , Nine months endedSeptember 30 , (Dollars in thousands) 2020
2019 % Change 2020 2019 % Change Non-GAAP core fee income (1): Client investment fees$ 31,914 $ 46,679 (31.6) %$ 107,192 $ 136,905 (21.7) % Foreign exchange fees 43,881 40,309 8.9 127,642 116,863 9.2 Credit card fees 22,756 30,158 (24.5) 72,348 86,431 (16.3) Deposit service charges 22,015 22,482 (2.1) 67,115 65,496 2.5 Lending related fees 13,562 11,707 15.8 37,851 36,857 2.7 Letters of credit and standby letters of credit fees 12,192 10,842 12.5 35,155 31,205 12.7 Total non-GAAP core fee income (1)$ 146,320 $ 162,177 (9.8)$ 447,303 $ 473,757 (5.6) Investment banking revenue 92,181 38,516 139.3 280,551 137,005 104.8 Commissions 16,257 12,275 32.4 49,197 40,812 20.5 Total non-GAAP core fee income plus investment banking revenue and commissions (2)$ 254,758 $ 212,968 19.6$ 777,051 $ 651,574 19.3 (1)This non-GAAP measure represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. See "Use of Non-GAAP Measures" above. (2)Non-GAAP core fee income plus investment banking revenue and commissions represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control and other noninterest income. See "Use of Non-GAAP Measures" above. Client Investment Fees Client investment fees were$31.9 million and$107.2 million for the three and nine months endedSeptember 30, 2020 , compared to$46.7 million and$136.9 million for the comparable 2019 periods. The decreases were reflective of lower spreads due to decreases in market interest rates, offset by large increases in average off-balance sheet client investment funds. Given our expectations of a continued low rate environment, we generally expect client investment fees in 2020 to be lower than 2019. A summary of client investment fees by instrument type for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Client investment fees by type: Sweep money market fees$ 18,155 $ 26,202 (30.7) %$ 60,617 $ 79,698 (23.9) % Asset management fees 12,172 7,256 67.8 32,905 20,883 57.6 Repurchase agreement fees 1,587 13,221 (88.0) 13,670 36,324
(62.4)
Total client investment fees$ 31,914 $ 46,679 (31.6)$ 107,192 $ 136,905
(21.7)
The following table summarizes average client investment funds for the three and
nine months ended
Three months ended September 30, Nine months ended September 30, (Dollars in millions) 2020 2019 % Change 2020 2019 % Change Sweep money market funds$ 54,495 $ 40,321 35.2 %$ 48,367 $ 40,048 20.8 % Client investment assets under management (1) 59,338 42,834 38.5 53,928 40,969 31.6 Repurchase agreements 9,731 9,670 0.6 9,809 8,947 9.6 Total average client investment funds (2)$ 123,564 $ 92,825 33.1$ 112,104 $ 89,964 24.6
(1)These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management.
95 -------------------------------------------------------------------------------- Table of Contents (2)Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet. The following table summarizes period-end client investment funds atSeptember 30, 2020 andDecember 31, 2019 : September 30, December 31, (Dollars in millions) 2020 2019 % Change Sweep money market funds$ 56,395 $ 43,226 30.5 % Client investment assets under management (1) 60,773 46,904 29.6 Repurchase agreements 9,613 9,062 6.1 Total period-end client investment funds (2)$ 126,781 $ 99,192 27.8 (1)These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. (2)Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet. Foreign Exchange Fees Foreign exchange fees were$43.9 million and$127.6 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$40.3 million and$116.9 million for the comparable 2019 periods. The increase for the three months endedSeptember 30, 2020 , compared to the comparable period endingSeptember 30, 2019 , was driven by increased trade volumes reflective primarily by private equity deal activity coupled with quarterly hedging activity. The increase for the nine months endedSeptember 30, 2020 compared toSeptember 30, 2019 , is due primarily to the overall increase in the number of clients executing spot contracts resulting in higher trade volumes from the previous year reflective of our global expansion initiative and increased client engagement efforts. Foreign exchange fees have been, and may further be, impacted by effects of the COVID-19 pandemic. A summary of foreign exchange fee income by instrument type for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Foreign exchange fees by instrument type: Spot contract commissions$ 38,794 $ 36,836 5.3 %$ 112,821 $ 106,561 5.9 % Forward contract commissions 4,613 3,371 36.8 14,004 10,144 38.1 Option premium fees 474 102 NM 817 158 NM Total foreign exchange fees$ 43,881
$ 40,309 8.9$ 127,642 $ 116,863 9.2 NM-Not meaningful Credit Card Fees Credit card fees were$22.8 million and$72.3 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$30.2 million and$86.4 million for the comparable 2019 periods. The decreases were primarily due to lower transaction volumes starting in March of 2020 reflective of the COVID-19 pandemic interrupting normal business activity. Credit card fees have been, and may further be, impacted by the effects of the COVID-19 pandemic. A summary of credit card fees by instrument type for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Credit card fees by instrument type: Card interchange fees, net$ 18,168 $ 24,560 (26.0) %$ 55,257 $ 68,808 (19.7) % Merchant service fees 3,670 3,943 (6.9) 13,727 12,763 7.6 Card service fees 918 1,655 (44.5) 3,364 4,860 (30.8) Total credit card fees$ 22,756 $ 30,158 (24.5)$ 72,348 $ 86,431 (16.3) 96
-------------------------------------------------------------------------------- Table of Contents Deposit Service Charges Deposit service charges were$22.0 million and$67.1 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$22.5 million and$65.5 million for the comparable 2019 periods. The decrease in deposit service charges for the three months endedSeptember 30, 2020 , compared to the comparable period endingSeptember 30, 2019 , was reflective of the decrease in client activity including the impact of a slower macro-economic environment resulting from the COVID-19 pandemic as well as increased earnings credits reflective of growth in deposit demand accounts from clients conserving cash resulting in qualifying balances to offset service charges. The increase for the nine months endedSeptember 30, 2020 compared to the comparable period endingSeptember 30, 2019 , was reflective of higher deposit client counts as well as higher volumes of our transaction-based fee products from the previous year. Lending Related Fees Lending related fees were$13.6 million and$37.9 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$11.7 million and$36.9 million for the comparable 2019 periods. The increases were primarily due to increases in fees earned from unused lines of credit. A summary of lending related fees by type for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Lending related fees by instrument type: Unused commitment fees$ 9,872 $ 8,339 18.4 %$ 26,602 $ 25,060 6.2 % Other 3,690 3,368 9.6 11,249 11,797 (4.6) Total lending related fees$ 13,562 $ 11,707 15.8$ 37,851 $ 36,857
2.7
Letters of Credit and Standby Letters of Credit Fees Letters of credit and standby letters of credit fees were$12.2 million and$35.2 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$10.8 million and$31.2 million for the comparable 2019 periods. The increases were primarily driven by an increase in deferred fee income reflective of larger letter of credit issuances. Investment Banking Revenue Investment banking revenue was$92.2 million and$280.6 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to$38.5 million and$137.0 million for the comparable 2019 periods. The increases were attributable to higher levels of funding activity in the life science/healthcare secondary markets and by the increase in public equity underwriting fees. A summary of investment banking revenue by type for the nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Investment banking revenue: Underwriting fees$ 85,009 $ 31,016 174.1$ 247,384 $ 109,371 126.2 % Advisory fees 1,761 5,200 (66.1) 26,170 22,789 14.8 Private placements and other 5,411 2,300 135.3 6,997 4,845 44.4 Total investment banking revenue$ 92,181 $ 38,516 139.3$ 280,551 $ 137,005 104.8 Commissions Commissions for the three and nine months endedSeptember 30, 2020 were$16.3 million and$49.2 million , respectively, compared to$12.3 million and$40.8 million for the comparable 2019 periods. The increases were driven by client trading activity, consistent with market volumes. Commissions include commissions received from clients for the execution of agency-based brokerage transactions in listed and over-the-counter equities. 97 -------------------------------------------------------------------------------- Table of Contents Other Other noninterest income for the three and nine months endedSeptember 30, 2020 were$49.2 million and$76.9 million , respectively, compared to$13.6 million and$42.8 million for the comparable 2019 periods. The increases were primarily driven by a$30.0 million recognized gain upon the exercise and conversion of our convertible debt option for BigCommerce during the third quarter of 2020. Noninterest Expense A summary of noninterest expense for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Compensation and benefits$ 327,369 $ 233,840 40.0 %$ 902,752 $ 715,073 26.2 % Professional services 67,215 55,202 21.8 169,748 133,018 27.6 Premises and equipment 30,772 26,775 14.9 85,420 72,386 18.0 Net occupancy 18,965 16,981 11.7 56,156 49,716 13.0 Business development and travel 2,214 19,539 (88.7) 19,277 51,915 (62.9) FDIC and state assessments 6,933 4,881 42.0 18,986 13,343 42.3 Other 37,553 34,106 10.1 117,903 105,059 12.2
Total noninterest expense$ 491,021 $ 391,324 25.5$ 1,370,242 $ 1,140,510 20.1 Included in noninterest expense is expense attributable to noncontrolling interests. See below for a description and reconciliation of non-GAAP noninterest expense and non-GAAP core operating efficiency ratio, both of which exclude noncontrolling interests. Non-GAAP Noninterest Expense We use and report non-GAAP noninterest expense, non-GAAP taxable equivalent revenue and non-GAAP core operating efficiency ratio, which excludes noncontrolling interests and SVB Leerink. 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. 98 -------------------------------------------------------------------------------- Table of Contents The table below provides a summary of non-GAAP noninterest expense and non-GAAP core operating efficiency ratio for the three and nine months endedSeptember 30, 2020 and 2019: Three months ended September 30, Nine months ended September 30, Non-GAAP core operating efficiency ratio (Dollars in thousands, except ratios) 2020 2019 % Change 2020 2019 % Change GAAP noninterest expense$ 491,021 $ 391,324 25.5 %$ 1,370,242 $ 1,140,510 20.1 % Less: expense attributable to noncontrolling interests 114 145 (21.4) 384 692 (44.5) Non-GAAP noninterest expense, net of noncontrolling interests 490,907 391,179 25.5 1,369,858 1,139,818 20.2 Less: expense attributable to SVB Leerink 77,567 55,200 40.5 248,254 177,675 39.7 Non-GAAP noninterest expense, net of noncontrolling interests and SVB Leerink$ 413,340 $ 335,979 23.0$ 1,121,604 $ 962,143 16.6 GAAP net interest income$ 527,740 $ 520,644 1.4$ 1,564,804 $ 1,562,933 0.1 Adjustments for taxable equivalent basis 3,964 2,957 34.1 11,218 8,769 27.9 Non-GAAP taxable equivalent net interest income 531,704 523,601 1.5 1,576,022 1,571,702 0.3 Less: income attributable to noncontrolling interests - 14 (100.0) 26 41 (36.6) Non-GAAP taxable equivalent net interest income, net of noncontrolling interests 531,704 523,587 1.6 1,575,996 1,571,661 0.3 Less: net interest income attributable to SVB Leerink 175 277 (36.8) 373 961 (61.2) Non-GAAP taxable equivalent net interest income, net of noncontrolling interests and SVB Leerink$ 531,529 $ 523,310 1.6$ 1,575,623 $ 1,570,700 0.3 GAAP noninterest income$ 547,583 $ 294,009 86.2$ 1,218,365 $ 908,135 34.2 Less: income attributable to noncontrolling interests, including carried interest allocation 27,862 14,568 91.3 40,393 36,552 10.5 Non-GAAP noninterest income, net of noncontrolling interests 519,721 279,441 86.0 1,177,972 871,583 35.2 Less: non-GAAP net gains on investment securities, net of noncontrolling interests 162,052 15,209 NM 230,182 69,901 NM Less: net gains on equity warrant assets 53,766 37,561 43.1 93,667 107,213 (12.6) Less: investment banking revenue 92,181 38,516 139.3 280,551 137,005 104.8 Less: commissions 16,257 12,275 32.4 49,197 40,812 20.5 Non-GAAP noninterest income, net of noncontrolling interests and net of net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions$ 195,465 $ 175,880 11.1$ 524,375 $ 516,652 1.5 GAAP total revenue$ 1,075,323 $ 814,653 32.0$ 2,783,169 $ 2,471,068 12.6 Non-GAAP taxable equivalent revenue, net of noncontrolling interests and SVB Leerink, net gains on investment securities, net gains on equity warrant assets, investment banking revenue and commissions$ 726,994 $ 699,190 4.0$ 2,099,998 $ 2,087,352 0.6 Operating efficiency ratio 45.66 % 48.04 % (5.0) 49.23 % 46.15 % 6.7 Non-GAAP core operating efficiency ratio (1) 56.86 48.05 18.3 53.41 46.09 15.9 99
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NM-Not meaningful (1)The non-GAAP core operating efficiency ratio is calculated by dividing noninterest expense after adjusting for noninterest expense attributable to SVB Leerink by total revenue after adjusting for net interest income attributable to SVB Leerink, net gains or losses on investment securities and equity warrant assets, investment banking revenue and commissions. Additionally, noninterest expense and total revenue are adjusted for income or losses and expenses attributable to noncontrolling interests and adjustments to net interest income for a taxable equivalent basis. Compensation and Benefits Expense The following table provides a summary of our compensation and benefits expense for the three and nine months endedSeptember 30, 2020 and 2019: Three months ended September 30, Nine months ended September 30, (Dollars in thousands, except employees) 2020 2019 % Change 2020 2019
% Change Compensation and benefits: Salaries and wages$ 135,705 $ 109,473 24.0 %$ 375,844 $ 316,472 18.8 % Incentive compensation plans 103,898 59,602 74.3 291,101 200,483 45.2 Other employee incentives and benefits (1) 87,766 64,765 35.5 235,807 198,118 19.0 Total compensation and benefits$ 327,369 $ 233,840 40.0$ 902,752 $ 715,073 26.2 Period-end full-time equivalent employees 4,336 3,460 25.3 4,336 3,460 25.3 Average full-time equivalent employees 4,216 3,413 23.5 3,914 3,309 18.3 (1)Other employee incentives and benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), ESOP, warrant incentive and retention plans, agency fees and other employee-related expenses. Compensation and benefits expense was$327.4 million for the three months endedSeptember 30, 2020 , compared to$233.8 million for the comparable 2019 period. The key changes in factors affecting compensation and benefits expense were as follows: •An increase of$26.2 million in salaries and wages reflective primarily of the increase in the number of average FTE to 4,216 for the third quarter of 2020 compared to 3,413 for the second quarter of 2019, driven by strong hiring for in-sourcing, product development and revenue growth, as well as annual pay raises, •An increase of$44.3 million in incentive compensation plans expense attributable primarily to an increase in SVB Leerink incentive compensation expense as a result of a strong third quarter performance as compared to the same period in 2019, •An increase of$23.0 million in other employee incentives and benefits primarily driven by an increase in warrant incentive plan of$5.7 million , an increase in payroll taxes of$2.7 million and an increase of$2.6 million in share-based compensation expense due to the increased restricted stock awards granted during 2020. Compensation and benefits expense was$902.8 million for the nine months endedSeptember 30, 2020 , compared to$715.1 million for the comparable 2019 period. The key changes in factors affecting compensation and benefits expense were as follows: •An increase of$59.4 million in salaries and wages reflective primarily of the increase in the number of average FTE to 3,914 for the nine months endedSeptember 30, 2020 from 3,309 for the nine months endedSeptember 30, 2019 , as well as annual pay raises, •An increase of$90.6 million in incentive compensation reflective primarily of the Leerink incentive compensation for the nine months endedSeptember 30, 2020 , and •An increase of$37.7 million in other employee incentives and benefits primarily driven by an increase in agency fees of$10.6 million and an increase of$10.2 million in share-based compensation expense due to the increased restricted stock awards granted during 2020. 100 -------------------------------------------------------------------------------- Table of Contents Our variable compensation plans consist primarily of our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, Deferred Compensation Plan, 401(k) and ESOP Plan, SVB Leerink Incentive Compensation Plan and SVB Leerink Retention Award (see descriptions in our 2019 Form 10-K). Total costs incurred under these plans were$127.2 million and$345.1 million for the three and nine months endedSeptember 30, 2020 compared to$74.5 million and$249.1 million for the comparable 2019 periods. These amounts are included in total compensation and benefits expense discussed above. We anticipate higher incentive compensation expenses in 2020, compared to 2019, primarily due to strong SVB Leerink performance. Professional Services Professional services expense was$67.2 million and$169.7 million for the three and nine months endedSeptember 30, 2020 , compared to$55.2 million and$133.0 million for the comparable 2019 periods. The increases were primarily related to costs to support the PPP during the second and third quarters of 2020 as well as our continued effort towards investments in our infrastructure, initiatives, and operating projects to support our presence both domestically and globally. Premises and Equipment Premises and equipment expense was$30.8 million and$85.4 million for the three and nine months endedSeptember 30, 2020 , compared to$26.8 million and$72.4 million for the comparable 2019 periods. The increases were related to investments in projects, systems and technology to support our revenue growth and related initiatives as well as other operating costs. Net Occupancy Net occupancy expense was$19.0 million and$56.2 million for the three and nine months endedSeptember 30, 2020 , compared to$17.0 million and$49.7 million for the comparable 2019 periods. The increases were primarily due to the expansion of certain offices to support our growth and lease renewals at higher costs, reflective of market conditions. Business Development and Travel Business development and travel expense was$2.2 million and$19.3 million for the three and nine months endedSeptember 30, 2020 , compared to$19.5 million and$51.9 million for the comparable 2019 periods. The decreases were primarily due to the impact of COVID-19 on the global economy and our restrictions placed on domestic and international travel beginningMarch 2020 . In light of the economic impact of COVID-19 and the continuing travel restrictions, we expect our business development and travel expense to continue to remain lower for the remainder of 2020 compared to 2019.FDIC and State AssessmentsFDIC and state assessments expense was$6.9 million and$19.0 million for the three and nine months endedSeptember 30, 2020 , compared to$4.9 million and$13.3 million for the comparable 2019 periods. The increases were due primarily to the increase in our average assets. Other Noninterest Expense Total other noninterest expense was$37.6 million and$117.9 million for the three and nine months endedSeptember 30, 2020 , compared to$34.1 million and$105.1 million for the comparable 2019 periods. The increases were driven primarily by the increase in investment banking expenses due to the strong investment banking activity. A summary of other noninterest expense for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: 101
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Table of Contents Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019
% Change
Lending and other client related processing costs
(4.1) %$ 23,155 $ 21,442 8.0 % Correspondent bank fees 3,581 3,657 (2.1) 11,400 10,970 3.9 Investment banking activities 2,835 1,864 52.1 13,633 9,918 37.5 Trade order execution costs 2,806 2,615 7.3 8,165 7,959 2.6 Data processing services 3,984 3,066 29.9 10,945 8,624 26.9 Telephone 2,342 2,466 (5.0) 6,458 7,629 (15.3) Dues and publications 1,159 1,055 9.9 3,199 3,439 (7.0) Postage and supplies 538 720 (25.3) 2,117 2,168 (2.4) Other 13,114 11,161 17.5 38,831 32,910 18.0 Total other noninterest expense$ 37,553 $ 34,106 10.1$ 117,903 $ 105,059 12.2 Net Income Attributable to Noncontrolling Interests Included in net income is income and expense attributable to noncontrolling interests. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under "net income attributable to noncontrolling interests" on our statements of income. In the table below, noninterest income consists primarily of net investment gains and losses from our consolidated funds. Noninterest expense is primarily related to management fees paid by our managed funds toSVB Financial's subsidiaries as the managed funds' general partners. A summary of net income attributable to noncontrolling interests for the three and nine months endedSeptember 30, 2020 and 2019 is as follows: Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Net interest income (1) $ -$ (14) (100.0) %$ (26) $ (41) (36.6) % Noninterest income (1) (8,620) (4,910) 75.6 (12,033) (19,586) (38.6) Noninterest expense (1) 114 145 (21.4) 384 692 (44.5) Carried interest allocation (2) (19,242) (9,658) 99.2 (28,360) (16,966)
67.2
Net income attributable to noncontrolling interests$ (27,748) $ (14,437) 92.2$ (40,035) $ (35,901) 11.5
(1)Represents noncontrolling interests' share in net interest income, noninterest income or loss and noninterest expense. (2)Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.
Three months endedSeptember 30, 2020 and 2019 Net income attributable to noncontrolling interests was$27.7 million for the three months endedSeptember 30, 2020 , compared to net income of$14.4 million for the comparable 2019 period. Net income attributable to noncontrolling interests of$27.7 million for the three months endedSeptember 30, 2020 was primarily driven by net gains on investments securities (including carried interest allocation) from our managed funds of funds and our managed direct venture funds portfolios reflective of the overall market performance during the third quarter of 2020. See "Results of Operations-Noninterest Income-Gains onInvestment Securities , Net". Nine months endedSeptember 30, 2020 and 2019 Net income attributable to noncontrolling interests was$40.0 million for the nine months endedSeptember 30, 2020 , compared to net income of$35.9 million for the comparable 2019 period. Net income attributable to noncontrolling interests of$40.0 million for the nine months endedSeptember 30, 2020 was primarily a result of net gains on investment securities (including carried interest allocation) from our managed funds of funds and our managed direct funds portfolios related primarily to net unrealized valuation increases. See "Results of Operations-Noninterest Income-Gains onInvestment Securities , Net". 102 -------------------------------------------------------------------------------- Table of Contents Income Taxes Our effective income tax rate was 26.7 percent and 26.9 percent for the three and nine months endedSeptember 30, 2020 , respectively, compared to 28.2 percent and 27.5 percent for the comparable 2019 periods. The effective tax rates are consistent year over year as tax adjustments impacting the effective tax rate have been proportional to changes in pre-tax income. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests. Operating Segment Results We have four segments for which we report our financial information:Global Commercial Bank ,SVB Private Bank ,SVB Capital and SVB Leerink. We report segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 14 - "Segment Reporting" of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report for additional details. The following is our reportable segment information for the three and nine months endedSeptember 30, 2020 and 2019:Global Commercial Bank Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Net interest income $ 512,963$ 455,161 12.7 %$ 1,461,768 $ 1,360,997 7.4 % Reduction (provision for) credit losses 37,847 (34,075) NM (200,020) (79,175) 152.6 Noninterest income 147,594 161,029 (8.3) 447,902 471,492 (5.0) Noninterest expense (258,035) (213,786) 20.7 (724,233) (617,933) 17.2 Income before income tax expense $ 440,369$ 368,329 19.6$ 985,417 $ 1,135,381 (13.2) Total average loans, amortized cost$ 30,763,715 $ 25,839,647 19.1$ 30,126,870 $ 25,457,997 18.3 Total average assets 77,802,730 58,384,473 33.3 69,212,733 54,196,976 27.7 Total average deposits 74,825,725 55,250,154 35.4 66,408,359 51,352,644 29.3 NM-Not meaningful Three months endedSeptember 30, 2020 and 2019 Income before income tax expense from ourGlobal Commercial Bank ("GCB") increased to$440.4 million for the three months endedSeptember 30, 2020 , compared to$368.3 million for the comparable 2019 period. The key components of GCB's performance for the three months endedSeptember 30, 2020 compared to the comparable 2019 period are discussed below. Net interest income from GCB increased by$57.8 million for the three months endedSeptember 30, 2020 , due primarily to an increase in loan interest income resulting mainly from higher average loan balances, partially offset by a decrease in loan yields as a result of rate decreases. GCB had a reduction of credit losses of$37.8 million for the three months endedSeptember 30, 2020 , compared to a provision of$34.1 million for the comparable 2019 period. The reduction of$37.8 million for the three months endedSeptember 30, 2020 was driven primarily by a$57.7 million reduction in reserves for our performing loans based on our forecast models of the current economic environment under the CECL methodology adoptedJanuary 1, 2020 , a$15.1 million decrease related to changes in loan composition within our portfolio segments and$4.4 million of recoveries, partially offset by$25.4 million for net new nonaccrual loans and$15.2 million for charge-offs not specifically reserved for atJune 30, 2020 . The provision of$34.1 million for the three months endedSeptember 30, 2019 primarily reflects an increase of$19.1 million for net new nonaccrual loans,$18.3 million for charge-offs not specifically reserved for and$15.2 million in additional reserves for period-end loan growth, partially offset by a decrease of$13.0 million for the qualitative component of our performing loans and$3.9 million of recoveries. 103 -------------------------------------------------------------------------------- Table of Contents Noninterest income decreased by$13.4 million for the three months endedSeptember 30, 2020 related primarily to an overall decrease in our non-GAAP core fee income (lower client investment fees and credit card fees). These decreases were due primarily to the impact of the federal rate cuts on yield rates affecting client investment fees as well as a decrease in transactional volume for credit cards. Noninterest expense increased by$44.2 million for the three months endedSeptember 30, 2020 , due primarily to compensation and benefits expense and professional services expense, partially offset by a decrease in business development and travel expense. Compensation and benefits expense increased$41.5 million as a result of higher salaries and wages expenses and higher incentive compensation expense. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased to 3,102 FTEs for the three months endedSeptember 30, 2020 , from 2,364 FTEs for the comparable 2019 period. Incentive compensation expense increased due primarily to an increase in our 2020 full-year projected financial performance. Professional services expense increased due to higher expenses primarily related to our continued effort towards investments in our infrastructure, initiatives and operating projects to support our presence both domestically and globally. Business development and travel expense decreased primarily due to the impact of COVID-19 on the global economy and our restrictions placed on domestic and international travel beginningMarch 2020 . Nine Months EndedSeptember 30, 2020 and 2019 Net interest income from our GCB increased by$100.8 million for the nine months endedSeptember 30, 2020 , due primarily to an increase in loan interest income resulting mainly from higher average loan balances, partially offset by a decrease in loan yields as a result of rate decreases. GCB had a provision for credit losses of$200.0 million for the nine months endedSeptember 30, 2020 , compared to a provision of$79.2 million for the comparable 2019 period. The provision of$200.0 million for the nine months endedSeptember 30, 2020 was reflective primarily of$108.8 million in additional reserves for our performing loans based on our forecast models of the current economic environment under the CECL methodology adoptedJanuary 1, 2020 , including the impact of the COVID-19 pandemic, as well as changes in loan composition within our portfolio segments,$12.2 million in additional reserves for period-end loan growth,$38.8 million for charge-offs not specifically reserved for atDecember 31, 2019 and$58.3 million in net new nonaccrual loans, partially offset by$16.2 million of recoveries. The provision of$79.2 million for the nine months endedSeptember 30, 2019 was reflective primarily of$57.5 million in net new specific reserves for nonaccrual loans,$30.5 million for charge-offs not specifically reserved for in prior quarters, and$22.4 million for period-end loan growth, partially offset by a decrease of$14.3 million for our performing loans and$15.1 million of recoveries. Noninterest income decreased by$23.6 million for the nine months endedSeptember 30, 2020 , related primarily to an overall decrease in our non-GAAP core fee income (lower client investment fees and credit card fees partially offset by an increase in foreign exchange fees). The decreases were due primarily to the impact of the federal rate cuts on yield rates affecting client investment fees as well as a decrease in transactional volume on credit cards. The increase in foreign exchange fees was driven primarily by private equity deal activity coupled with quarterly hedging activity. Noninterest expense increased by$106.3 million for the nine months endedSeptember 30, 2020 , due primarily to increased expenses for compensation and benefits expense and professional services expense, partially offset by a decrease in business development and travel expense. Compensation and benefits expense increased by$78.2 million primarily as a result of increased salaries and wages. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased to 2,872 FTEs for the nine months endedSeptember 30, 2020 from 2,283 FTEs for the comparable 2019 period. Professional services expense increased$24.1 million due to higher expenses primarily related to our continued effort towards investments in our infrastructure, initiatives and operating projects to support our presence both domestically and globally. Business development and travel expense decreased by$21.3 million primarily due to the impact of COVID-19 on the global economy and our restrictions placed on domestic and international travel beginningMarch 2020 . 104 --------------------------------------------------------------------------------
Table of ContentsSVB Private Bank Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Net interest income $ 19,145$ 12,772 49.9 % $ 52,952$ 37,200 42.3 % Reduction (provision for) credit losses 14,881 (1,910) NM (44,194) (1,779) NM Noninterest income 916 634 44.5 2,486 1,829 35.9 Noninterest expense (12,293) (11,638) 5.6 (32,547) (30,015) 8.4 Income (loss) before income tax expense $ 22,649$ (142) NM$ (21,303) $ 7,235 NM Total average loans, amortized cost$ 4,263,324 $ 3,400,889 25.4$ 4,053,018 $ 3,235,943 25.2 Total average assets 4,297,011 3,431,313 25.2 4,087,786 3,264,071 25.2 Total average deposits 2,163,903 1,497,303 44.5 2,069,196 1,461,170 41.6 NM-Not meaningful Three months endedSeptember 30, 2020 and 2019 Net interest income from ourSVB Private Bank increased by$6.4 million for the three months endedSeptember 30, 2020 , due primarily to the increase in average loans for the three months endedSeptember 30, 2020 as compared to the 2019 comparable period, partially offset by decreases in loan yields as a result of overall market rate decreases. The reduction of credit losses of$14.9 million for the three months endedSeptember 30, 2020 , was reflective primarily of improved economic scenarios in our forecast models as well as a qualitative adjustment reflective of strong credit performance, partially offset by loan growth. Nine Months EndedSeptember 30, 2020 and 2019 Net interest income from ourSVB Private Bank increased by$15.8 million for the nine months endedSeptember 30, 2020 , due primarily to the increase in average loans for the nine months endedSeptember 30, 2020 as compared to the 2019 comparable period, partially offset by decreases in loan yields as a result of overall market rate decreases. The provision for credit losses increased by$42.4 million for the nine months endedSeptember 30, 2020 , due primarily to a$24.9 million increase in additional reserves for our performing loans and a$17.6 million increase due to loan growth. The increase for our performing loans is reflective of the increases in reserves required for longer duration mortgage loans as well as the additional reserves for our performing loans based on our forecast models of the current economic environment under the CECL methodology adoptedJanuary 1, 2020 , including the impact of the COVID-19 pandemic.SVB Capital Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Net interest income$ 2 $ 9 (77.8) %$ 28 $ 20 40.0 % Noninterest income 60,380 34,955 72.7 86,748 99,860 (13.1) Noninterest expense (11,198) (8,129) 37.8 (28,040) (21,794) 28.7 Income before income tax expense$ 49,184 $ 26,835 83.3$ 58,736 $ 78,086 (24.8) Total average assets$ 413,882 $ 396,031 4.5$ 430,391 $ 382,707 12.5SVB Capital's components of noninterest income primarily include net gains and losses on non-marketable and other equity securities, carried interest and fund management fees. All components of income before income tax expense discussed below are net of noncontrolling interests. We experience variability in the performance ofSVB 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. The performance of these securities has been, and may further be, impacted by the effects of the COVID-19 pandemic. 105 -------------------------------------------------------------------------------- Table of Contents Three months endedSeptember 30, 2020 and 2019SVB Capital had noninterest income of$60.4 million for the three months endedSeptember 30, 2020 , compared to$35.0 million for the comparable 2019 period. The increase in noninterest income was due primarily to an increase in net gains on investment securities for the three months endedSeptember 30, 2020 , compared to net gains for the comparable 2019 period.SVB Capital's components of noninterest income primarily include the following: •Net gains on investment securities of$47.5 million for the three months endedSeptember 30, 2020 , compared to net gains of$26.0 million for the comparable 2019 period. The net gains on investment securities of$47.5 million were primarily driven by unrealized net valuation increases from private company investments held in our strategic venture capital funds as well as in our managed funds of funds portfolio.
Nine Months Ended
SVB Capital had noninterest income of$86.7 million for the nine months endedSeptember 30, 2020 , compared to$99.9 million for the comparable 2019 period. The decrease in noninterest income was due primarily to a decrease in net gains on investment securities for the nine months endedSeptember 30, 2020 , compared to the comparable 2019 period.SVB Capital's components of noninterest income primarily include the following: •Net gains on investment securities of$53.6 million for the nine months endedSeptember 30, 2020 , compared to net gains of$70.0 million for the comparable 2019 period. The net gains on investment securities of$53.6 million were primarily driven by unrealized net valuation increases from private company investments held in our managed funds of funds portfolio as well as in our managed direct venture fund portfolio. SVB Leerink Three months ended September 30, Nine months ended September 30, (Dollars in thousands) 2020 2019 % Change 2020 2019 % Change Net interest income$ 175 $ 277 (36.8) %$ 373 $ 961 (61.2) % Noninterest income 113,651 52,947 114.7 340,145 188,064 80.9 Noninterest expense (77,567) (55,200) 40.5 (248,254) (177,675) 39.7 Income (loss) before income tax expense$ 36,259 $ (1,976) NM$ 92,264 $ 11,350 NM Total average assets$ 605,263 $ 428,848 41.1$ 514,836 $ 380,290 35.4 NM-Not meaningful SVB Leerink's components of noninterest income primarily include investment banking revenue, commissions and net gains and losses on non-marketable and other equity securities, carried interest and fund management fees. All components of income before income tax expense discussed below are net of noncontrolling interests. Three months endedSeptember 30, 2020 and 2019 SVB Leerink had noninterest income of$113.7 million for the three months endedSeptember 30, 2020 , compared to$52.9 million for the comparable 2019 period. The$60.8 million increase in noninterest income was primarily due to a$53.7 million increase in investment banking revenues attributable to higher levels of funding activity in the life science/healthcare secondary markets and by the increase in public equity underwriting fees. SVB Leerink had noninterest expense of$77.6 million for the three months endedSeptember 30, 2020 , compared to$55.2 million for the comparable 2019 period. The$22.4 million increase in noninterest expense was primarily driven by an increase of$26.2 million in compensation and benefit expense due to an increase in incentive plan expense as a result of a strong performance in the third quarter of 2020. Nine Months EndedSeptember 30, 2020 and 2019 SVB Leerink had noninterest income of$340.1 million for the nine months endedSeptember 30, 2020 , compared to$188.1 million for the comparable 2019 period. The$152.0 million increase was primarily driven by a$143.5 million increase investment banking revenues attributable to higher levels of funding activity in the life science/healthcare secondary markets and by the increase in public equity underwriting fees. 106 -------------------------------------------------------------------------------- Table of Contents SVB Leerink had noninterest expense of$248.3 million for the nine months endedSeptember 30, 2020 , compared to$177.7 million for the comparable 2019 period. The$70.6 million increase was primarily driven by an increase of$76.8 million in compensation and benefit expense due to an increase in incentive plan expense as a result of a strong performance during 2020, partially offset by a$6.6 million decrease in business travel expense due to the impact of travel restrictions put in place in response to the COVID-19 pandemic towards the end of the first quarter of 2020. Consolidated Financial Condition Our total assets, and total liabilities and stockholders' equity, were$96.9 billion atSeptember 30, 2020 compared to$71.0 billion atDecember 31, 2019 , an increase of$25.9 billion , or 36.5 percent. Refer below to a summary of the individual components driving the changes in total assets, total liabilities and stockholders' equity. Cash and Cash Equivalents Cash and cash equivalents totaled$15.7 billion atSeptember 30, 2020 , an increase of$8.9 billion , or 131.3 percent, compared to$6.8 billion atDecember 31, 2019 . The increase was driven by the significant growth in deposits of$23.0 billion . We have also raised our cash target level to between$7.0 billion and$9.0 billion in response to the current economic environment. As ofSeptember 30, 2020 ,$11.9 billion of our cash and due from banks was deposited at theFederal Reserve Bank and was earning interest at the Federal Funds target rate and interest-earning deposits in other financial institutions were$2.7 billion . As ofDecember 31, 2019 ,$3.7 billion of our cash and due from banks was deposited at theFederal Reserve Bank and was earning interest at the Federal Funds target rate and interest-earning deposits in other financial institutions were$2.1 billion . 107 -------------------------------------------------------------------------------- Table of ContentsInvestment Securities Investment securities totaled$40.4 billion atSeptember 30, 2020 , an increase of$11.3 billion , or 39.1 percent, compared to$29.1 billion atDecember 31, 2019 . Our investment securities portfolio is comprised of: (i) an available-for-sale securities portfolio and a held-to-maturity securities portfolio, both of which represent interest earning fixed income investment securities; and (ii) a non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business, investments in qualified affordable housing projects, as well as public equity securities held as a result of equity warrant assets exercised.Available-for-Sale Securities Period-end available-for-sale securities were$25.9 billion atSeptember 30, 2020 , compared to$14.0 billion atDecember 31, 2019 , an increase of$11.9 billion , or 84.8 percent. The$11.9 billion increase in period-end AFS securities balances fromDecember 31, 2019 toSeptember 30, 2020 , was primarily driven by the purchase of$16.6 billion of securities and a$0.5 billion increase in our AFS portfolio reflective of the 150 basis point decrease in Federal Funds interest rates, partially offset by the sale of$2.6 billion of securities and$2.6 billion of portfolio cash flows. Securities classified as available-for-sale are carried at fair value with changes in fair value recorded as unrealized gains or losses in a separate component of stockholders' equity. The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as available-for-sale as ofSeptember 30, 2020 . The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. ForU.S. Treasury securities,U.S. agency debentures and foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as available-for-sale typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. September 30, 2020 One Year After One Year to After Five Years to After Total or Less Five Years Ten Years Ten Years Weighted Weighted Weighted Weighted Weighted Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average (Dollars in thousands) Value Yield Value Yield Value Yield Value Yield Value YieldU.S. Treasury securities$ 4,547,294 1.86 %$ 60,221 1.57 %$ 2,989,181 1.84 %$ 1,497,892 1.91 % $ - - %U.S. agency debentures 152,526 1.52 - - - - 152,526 1.52 - - Foreign government debt securities 23,449 (0.82) 23,449 (0.82) - - - - - - Residential mortgage-backed securities: Agency-issued mortgage-backed securities 9,770,313 1.84 - - - - - - 9,770,313 1.84 Agency-issued collateralized mortgage obligations-fixed rate 7,315,973 1.32 - - - - - - 7,315,973 1.32 Agency-issued commercial mortgage-backed securities 4,094,769 1.80 - - - - 1,431,547 1.81 2,663,222 1.80 Total$ 25,904,324 1.69$ 83,670 0.90$ 2,989,181 1.84$ 3,081,965 1.84$ 19,749,508 1.64Held-to-Maturity Securities Period-end held-to-maturity securities were$13.0 billion atSeptember 30, 2020 , compared to$13.8 billion atDecember 31, 2019 , a decrease of$0.8 billion , or 6.2 percent. The$0.8 billion decrease in period-end HTM security balances fromDecember 31, 2019 toSeptember 30, 2020 was due primarily to pay downs and maturities of$2.8 billion , partially offset by the purchase of$2.0 billion of securities. 108 -------------------------------------------------------------------------------- Table of Contents 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 ofSeptember 30, 2020 . Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent. The weighted average yield is computed using the amortized cost of fixed income investment securities. ForU.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certainU.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for mortgage-backed securities may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. Mortgage-backed securities classified as held-to-maturity typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The weighted average yield on mortgage-backed securities is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. September 30, 2020 One Year After One Year to After Five Years to After Total or Less Five Years Ten Years Ten Years Weighted- Weighted- Weighted- Weighted- Weighted- Average Amortized Average Amortized Average Average Average (Dollars in thousands) Amortized Cost Yield Cost Yield Cost Yield Amortized Cost Yield Amortized Cost YieldU.S. agency debentures$ 402,346 2.61 %$ 4,675 3.22 %$ 148,559 2.59 %$ 249,112 2.67 % $ - - % Residential mortgage-backed securities: Agency-issued mortgage-backed securities 5,363,541 2.86 7,113 2.39 28,722 1.89 588,606 2.47 4,739,100 2.92 Agency-issued collateralized mortgage obligations-fixed rate 1,909,965 1.50 - - - - 551,213 1.62 1,358,752 1.45 Agency-issued collateralized mortgage obligations-variable rate 147,714 0.74 - - - - - - 147,714 0.74 Agency-issued commercial mortgage-backed securities 2,229,811 3.08 - - - - 102,428 3.56 2,127,383 3.06 Municipal bonds and notes 2,929,137 3.21 44,340 2.52 134,029 2.63 540,308 3.20 2,210,460 3.26 Total$ 12,982,514 2.75$ 56,128 2.56$ 311,310 2.54$ 2,031,667 2.51$ 10,583,409 2.80 Portfolio duration is a standard measure used to approximate changes in the market value of fixed income instruments due to a change in market interest rates. The measure is an estimate based on the level of current market interest rates, expectations for changes in the path of forward rates and the effect of forward rates on mortgage prepayment speed assumptions. As such, portfolio duration will fluctuate with changes in market interest rates. Changes in portfolio duration are also impacted by changes in the mix of longer versus shorter term-to-maturity securities. The estimated weighted-average duration of our fixed income investment securities portfolio was 4.1 years and 3.9 years atSeptember 30, 2020 andDecember 31, 2019 , respectively. 109 -------------------------------------------------------------------------------- Table of ContentsNon-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 inChina ("SPD-SVB")), debt funds, private and public portfolio companies, including public equity securities held as a result of equity warrant assets exercised, and qualified affordable housing projects. Included in our non-marketable and other equity securities carried under fair value accounting are amounts that are attributable to noncontrolling interests. We are required under GAAP to consolidate 100% of these investments that we are deemed to control, even though we may own less than 100% of such entities. See below for a summary of the carrying value (as reported) of non-marketable and other equity securities compared to the amounts attributable to SVBFG. Period-end non-marketable and other equity securities were$1.5 billion ($1.4 billion net of noncontrolling interest) atSeptember 30, 2020 compared to$1.2 billion ($1.1 billion net of noncontrolling interest) atDecember 31, 2019 , an increase of$0.3 billion , or 27.5 percent. The increase in period end non-marketable and other equity securities of$0.3 billion was primarily attributable to the increase in other equity securities in public companies of$0.2 billion , driven by our investment in BigCommerce, private equity fund investments driven by an increase in valuations, and new investments within our qualified housing projects portfolio. The following table summarizes the carrying value (as reported) of non-marketable and other equity securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) atSeptember 30, 2020 andDecember 31, 2019 : September 30, 2020 December 31, 2019 Amount Amount
Carrying value (as attributable to Carrying value (as attributable to (Dollars in thousands)
reported) SVBFG reported)
SVBFG
Non-marketable and other equity securities: Non-marketable securities (fair value accounting): Consolidated venture capital and private equity fund investments (1)
$
74,293
152,367 152,367 178,217
178,217
Other investments without a readily determinable fair value (3)
56,008 56,008 55,255
55,255
Other equity securities in public companies (fair value accounting (4)
229,297 229,151 59,200
59,056
Non-marketable securities (equity method accounting) (5): Venture capital and private equity fund investments
274,721 161,699 215,367 131,403 Debt funds 6,918 6,918 7,271 7,271 Other investments 192,776 192,776 152,863 152,863 Investments in qualified affordable housing projects, net 560,983 560,983 458,476
458,476
Total non-marketable and other equity securities$ 1,547,363 $ 1,379,034 $ 1,213,829 $ 1,065,023 (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 atSeptember 30, 2020 andDecember 31, 2019 : September 30, 2020 December 31, 2019 Amount Amount Carrying value (as attributable to Carrying value (as attributable to (Dollars in thousands) reported) SVBFG reported) SVBFG Strategic Investors Fund, LP $ 4,646 $ 584 $ 5,729 $ 720 Capital Preferred Return Fund, LP 39,246 8,458 45,341 9,772 Growth Partners, LP 30,267 10,076 35,976 11,976 CP I, LP 134 14 134 14 Total consolidated venture capital and private equity fund investments $ 74,293$ 19,132 $ 87,180$ 22,482 (2)The carrying value represents investments in 179 and 205 funds (primarily venture capital funds) atSeptember 30, 2020 andDecember 31, 2019 , 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 110 -------------------------------------------------------------------------------- Table of Contents activities and financial policies. Our unconsolidated venture capital and private equity fund investments are carried at fair value based on the fund investments' net asset values per share as obtained from the general partners of the funds. For each fund investment, we adjust the net asset value per share for differences between our measurement date and the date of the fund investment's net asset value by using the most recently available financial information from the investee general partner, for exampleJune 30th for ourSeptember 30th consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period. (3)Investments classified as "Other investments without a readily determinable fair value" include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. For further details on the carrying value of these investments refer to Note 6 - "Investment Securities " of the "Notes to Interim Consolidated Financial Statements (unaudited)" under Part I, Item 1 of this report. (4)Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets and direct equity investments in public companies held by our consolidated funds. Changes in the fair value recognized through net income. (5)The following table shows the carrying value and our ownership percentage of each investment atSeptember 30, 2020 andDecember 31, 2019 (equity method accounting): September 30, 2020 December 31, 2019 Amount Amount Carrying value (as attributable to Carrying value (as attributable to (Dollars in thousands) reported) SVBFG reported) SVBFG Venture capital and private equity fund investments: Strategic Investors Fund II, LP $ 3,519 $ 3,271 $ 3,612 $ 3,387 Strategic Investors Fund III, LP 14,984 12,113 15,668 12,701 Strategic Investors Fund IV, LP 25,451 21,399 27,064 22,780 Strategic Investors Fund V, LP 52,575 27,602 46,830 24,586 CP II, LP (i) 4,773 2,871 5,907 3,567 Other venture capital and private equity fund investments 173,419 94,443 116,286 64,382 Total venture capital and private equity fund investments $ 274,721
$ 5,317 $ 5,317 $ 5,525 $ 5,525 Other debt funds 1,601 1,601 1,746 1,746 Total debt funds $ 6,918 $ 6,918 $ 7,271 $ 7,271 Other investments: SPD Silicon Valley Bank Co., Ltd. $ 107,969$ 107,969 $ 74,190$ 74,190 Other investments 84,807 84,807 78,673 78,673 Total other investments $ 192,776$ 192,776 $ 152,863$ 152,863 (i)Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments inStrategic Investors Fund II, LP . (ii)Our ownership includes direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment inGold Hill Capital 2008, LLC of 4.0 percent. Volcker Rule The Volcker Rule prohibits, subject to certain exceptions, a banking entity, such as the Company, from sponsoring, investing in, or having certain relationships with covered funds. Under the currently effective regulations implementing the Volcker Rule, covered funds are defined to include many venture capital and private equity funds. 111 -------------------------------------------------------------------------------- Table of Contents OnJune 6, 2017 , we received notice that theFederal Reserve approved the Company's application for an extension of the permitted conformance period for the Company's investments in "illiquid" covered funds. The Company must sell, divest, restructure or otherwise conform such investments to the provisions of the Volcker Rule by the earlier of (i)July 21, 2022 , or (ii) the date by which each fund matures by its terms or is otherwise conformed to the Volcker Rule. As ofSeptember 30, 2020 , such investments had an estimated aggregate carrying value and fair value of approximately$185 million . (For more information about the Volcker Rule, see "Business-Supervision and Regulation" under Part 1, Item 1 of our 2019 Form 10-K.) OnJune 25, 2020 , theFederal Reserve and other agencies finalized revisions to the regulations implementing the Volcker Rule ("2020 Volcker Amendments"), which became effective onOctober 1, 2020 . The amendments include, among other things, new exclusions for credit funds, venture capital funds, family wealth management vehicles and customer facilitation vehicles; revisions to existing exclusions for foreign public funds, loan securitizations and public welfare and small business funds; and modifications to the Super 23A provisions of the Volcker Rule. We believe that certain venture capital funds and credit funds in which we have investments qualify for these new exclusions, and, as a result, we will not be required to sell or otherwise conform such portion of "illiquid" fund holdings that are subject to the extension from theFederal Reserve as discussed above. We are continuing to assess the impact of the 2020 Volcker Amendments on the Company's existing fund investments and our future funds business. Investment in BigCommerce Holdings, Inc. As ofSeptember 30, 2020 we held approximately 2.8 million shares of common stock in BigCommerce comprised of: (i) common stock issued pursuant to our exercise of certain warrants, and (ii) common stock acquired through debt conversion. With respect to these securities and transactions, during the three months endingSeptember 30, 2020 , we recognized a$30.0 million gain upon the exercise and conversion of the convertible debt option (included in other noninterest income), a$10.8 million warrant gain from the exercise and conversion of our warrants, and a$108.4 million unrealized investment gain on the quarter-end valuation of equity shares at a price of$83.30 . Gains (or losses) related to our equity securities in public companies such as BigCommerce are based on valuation changes or the sale of any securities, and are subject to such companies' stock price, which are subject to market conditions and various other factors. Additionally, the public equity investment expected gains and losses, and the extent to which such gains (or losses) will become realized is subject to a variety of factors, including among other factors, changes in prevailing market prices and the timing of any sales of securities, which are subject to our securities sales and governance process as well as certain sales restrictions (e.g. lock-up agreements). The lock-up agreement for common stock shares held in BigCommerce is scheduled to expire duringFebruary 2021 .
Loans
Loans, amortized cost basis, increased by$5.2 billion to$38.4 billion atSeptember 30, 2020 , compared to$33.2 billion atDecember 31, 2019 . Unearned income was$222 million atSeptember 30, 2020 and$163 million atDecember 31, 2019 . Period-end loans increased compared toDecember 31, 2019 , driven primarily by our Global Fund Banking, SBA, Investor Dependent and Balance Sheet Dependent risk-based segments. The increase in risk-based segments was primarily driven by participation in the Paycheck Protection Program and increased credit line utilization. The breakdown of total loans and loans as a percentage of total loans by risk-based segment is as follows: 112
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