Page Number
Overview of Company Operations 41 Management's Overview ofDecember 31, 2021 Financial Performance 41 Critical Accounting Policies and Estimates 45 Allowance for Credit Losses 45 Allowance for Loan Losses and Allowance for Unfunded Credit Commitments 46 Results of Operations 46 Net Interest Income and Margin (Fully Taxable Equivalent Basis) 46 Average Balances, Yields and Rates Paid (Fully Taxable
Equivalent
Basis) 48
Provision for Credit Losses 50
Noninterest Income 52
Noninterest Expense 59
Net Income Attributable to Noncontrolling Interests 61
Income Taxes 62
Operating Segment Results 62
Global Commercial Bank 62
SVB Private Bank 63
SVB Capital 64
SVB Securities 64
Consolidated Financial Condition 65
Cash and Cash Equivalents 65
Investment Securities 65
Loans 71
Accrued Interest Receivable and Other Assets 79
Derivatives 80
Deposits 81
Short-Term Borrowings 82
Long-Term Debt 83
Other Liabilities 84
Noncontrolling Interests 84
Capital Resources 85
SVBFG Stockholders' Equity 85
Common Stock 85
Preferred Stock 85
Capital Ratios 86
Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations 87
Liquidity 88
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Table of Contents
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and supplementary data as presented under Part II, Item 8 of this report. Certain prior period amounts have been reclassified to conform to current period presentations. For a comparison of 2020 results to 2019 results and other 2019 information not included herein, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Part II, Item 7 of our 2020 Form 10-K filed with theSEC onMarch 1, 2021 . The following discussion and analysis of our financial condition and results of operations contains forward-looking statements. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties. See our cautionary language at the beginning of this report under "Forward-Looking Statements". Actual results could differ materially because of various factors, including but not limited to those discussed in "Risk Factors," under Part I, Item 1A of this report.
Our fiscal year ends
years or fiscal years are for fiscal years ended
Overview of Company Operations
SVB Financial is a diversified financial services company, as well as a bank holding company and a financial holding company.SVB Financial was incorporated in the state ofDelaware inMarch 1999 . Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services. For nearly 40 years, we have been dedicated to helping innovative companies and their investors succeed, especially in the technology, life science/healthcare, private equity/venture capital and premium wine industries. We provide our clients of all sizes and stages with a diverse set of products and services to support them through all stages of their life cycles, and key innovation markets around the world.
We offer commercial and private banking products and services through our
principal subsidiary, the Bank, which is a
founded in 1983 and a member of the
subsidiaries, the Bank also offers asset management, private wealth management
and other investment services. In addition, through
subsidiaries and divisions, we also offer investment banking services and
non-banking products and services, such as funds management, M&A advisory
services and venture capital and private equity investment.
Management’s Overview of 2021 Financial Performance
2021 was an exceptional year as we delivered record EPS of$31.25 , net income of$1.8 billion and a return on equity of 17 percent. Continuing where we left off in 2020, our balance sheet growth offset pressure from the low rate environment which drove net interest income to a 47 percent increase from 2020. During the year, we also saw higher core fee income, strong investment banking revenue and outsized gains related to robust exit and fundraising activity which drove warrant exercises and improved valuations, all of which helped raise noninterest income by 49 percent from 2020. As a result of our strong results for 2021, compensation and benefits expense increased primarily driven by higher incentive compensation plan expense as we rewarded our historic results for the year. During 2021, we continued to execute on our strategic vision, extending and diversifying our business and geographical footprint to support our clients as they grow to ensure we remain the partner of choice for innovators, enterprises, entrepreneurs and investors around the world. In the third quarter, we completed our acquisition of Boston Private to accelerate the growth and capabilities of our private bank and wealth management strategy. We also announced a joint venture with Nasdaq and a consortium of leading investment banks to create Nasdaq Private Market, an institutional-grade, secondary trading venue for private company stock. Throughout 2021, we hired over 100 investment bankers to expand our Healthcare Services and HealthTech investment banking practices and to launch our new Technology investment banking services. As part of this expansion, we also announced our acquisition ofMoffettNathanson to add technology equity research capabilities. Lastly, we continued to make investments in our infrastructure and regulatory groups to support our tremendous growth as we became a Category IV banking organization and now prepare to potentially become a Category III banking organization. Overall, the investments in our systems, infrastructure and processes are intended to support our continued growth and increased needs of our clients and employees. To support our continued balance sheet growth, we accessed the capital markets several times during 2021. During the year, we issued$3.4 billion of preferred stock,$2.4 billion of common stock (excluding$1.1 billion of shares issued to complete the Boston Private acquisition) and$1.7 billion of long-term debt. These issuances combined with our strong earnings for the year enabled us to further support our already strong capital ratios and maintain our growth momentum in the near term while allowing us to invest for the long-term. 41 -------------------------------------------------------------------------------- Table of Contents Recent Developments - COVID-19 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 or otherwise impacted our business, financial condition and results of operations. During the year ended 2021, the economy continued to generally improve with increased vaccine rates and business activity. However, there still remains much uncertainty around containment of the pandemic and the trajectory of the broader economic recovery, particularly in light of the spread of variants of the COVID-19 virus, including the Omicron variant. Variants have contributed to the significant increase in the number of cases inthe United States and other international locations where we operate. We cannot predict at this time the scope and duration of the pandemic, which will depend on a variety of factors, including but not limited to, the extent and spread of the Omicron variant and other variants of the virus; the availability, adoption and efficacy of vaccines and vaccine booster shots, as well as government and other actions to mitigate the spread of COVID-19, such as stay at home orders, vaccination mandates, restrictions on business activities, health and safety guidelines, economic relief for individuals and businesses, and monetary policy measures. The economic, market and business conditions impacted by COVID-19 may be slow to recover or may worsen if the pandemic continues for a prolonged period of time. Even if the pandemic subsides, there may be additional variants of the virus or a resurgence of the pandemic, as we have seen domestically and internationally. We continue to be subject to heightened business, operational (including fraud), market, credit and other risks related to the COVID-19 pandemic environment, which may have an adverse effect on our business, financial condition and results of operations. (See "Risk Factors" under Part I, Item 1A of this report). Although the effects of the pandemic remain uncertain, for the year ending 2022, we currently expect strong growth in average on-balance sheet deposits, average loans, net interest income, core fees,SVB Securities revenue and an improved outlook for net loan charge-offs to average loans. While credit metrics have been stable to date, we continue to monitor our portfolio vigilantly, in light of continued economic uncertainty, including inflationary trends and interest rate volatility and fading government stimulus. Additionally, volatile equity markets, IPO and M&A activity may impact investment banking and market-sensitive revenues affecting our 2022 outlook. Even after the pandemic subsides, it is possible that theU.S. and other major economies may experience a prolonged recession, which could materially and adversely affect our business, financial condition, liquidity, capital and results of operations.
Reference Rate Reform
The publication of the British Pound Sterling, Euro, Swiss Franc and Japanese Yen LIBOR settings and one-week and two-monthU.S. dollar LIBOR settings terminated at the end ofDecember 2021 , leaving the remainingU.S. dollar LIBOR settings (i.e., overnight, one month, three month, six month and 12 month) in place which are expected to terminate at the end ofJune 2023 . Therefore, existing contracts referencing all otherU.S. dollar LIBOR settings must be remediated no later thanJune 30, 2023 . We hold instruments that may be impacted by the discontinuance of LIBOR, including loans, investments, and derivative products that use LIBOR as a benchmark rate. Our LIBOR Transition Program consists of dedicated leadership and staff, and continues to engage with relevant business lines and support groups. As part of this program, we continue to identify, assess, and monitor risks associated with the discontinuation of LIBOR, including monitoring the population of loans and contracts that are impacted and how LIBOR reference rates are reflected in our measurement of sensitivity to changes in interest rates until publication of LIBOR rates are fully phased out. We ceased offeringU.S. dollar LIBOR-based loans effectiveDecember 31, 2021 . We completed a review across all business lines and confirmed that language to facilitate a transition to an alternative reference rate is included in our existing deals that carry LIBOR exposure. Migration of legacy LIBOR contracts has commenced based on regulatory timelines, with proactive remediation conducted for existing LIBOR facilities that contained currencies tied to LIBOR rates that ceased publication as ofDecember 31, 2021 . A communications and training plan supports the delivery of new Alternative Reference Rate ("ARR") products and assists with the transition away from LIBOR. We have adopted SOFR as our preferred replacement index forU.S. dollar LIBOR and received Term SOFR licensing from theChicago Mercantile Exchange in the fourth quarter of 2021. We currently offer products based on Alternative Reference Rates across multiple currencies including theU.S. Dollar, British Pound Sterling, and Euro. 42
-------------------------------------------------------------------------------- Table of Contents Results for the fiscal year ended, and as of,December 31, 2021 (compared to the fiscal year ended, and as of,December 31, 2020 , where applicable): BALANCE SHEET
EARNINGS
Assets.$166.0 billion in average total assets (up EPS. Earnings per diluted share of$31.25 (up 93.5%).$211.5 billion in period-end total assets 36.6%). Includes merger-related charges of$129 (up 83.1%). million, or$1.68 per diluted common share, as Loans.$54.5 billion in average total loan well as a$46 million day one provision on balances, amortized cost (up 46.4%).$66.3 billion non-PCD loans and unfunded credit commitments in period-end total loan balances, amortized cost acquired from Boston Private, or$0.60 per (up 46.7%). diluted common
share.
Total Client Funds. (on-balance sheet deposits and Net Income. Consolidated net income available to off-balance sheet client investment funds).$329.1 common stockholders of$1.8 billion (up 48.6%). billion in average total client fund balances (up - NII of$3.2 billion (up 47.4%). 71.1%).$399.3 billion in period-end total client - Net interest margin of 2.02% (down 65 bps). fund balances (up 64.3%). - Noninterest income of$2.7 billion (up 48.8%), AFS/HTM Fixed Income Investments.$83.0 billion in non-GAAP core fee income+ of$751 million (up average fixed income investment securities (up 24.5%) and non-GAAP SVB Securities revenue++ of 161.4%).$125.4 billion in period-end fixed income$538 million (up 11.9%). investment securities (up 164.0%). - Noninterest
expense of
Return on Average Equity. Return on average
equity performance of 17.1%.
Operating
Efficiency Ratio. Operating efficiency
ratio of 51.88%.
CAPITAL CREDIT QUALITY
Capital+++. Continued strong capital, with all Credit Quality. Strong credit in an evolving
capital ratios considered "well-capitalized" under credit environment.
banking regulations. SVBFG and SVB capital ratios, - ACL of 0.64% as a percentage of period-end
respectively, were: total loans.
- CET1 risk-based capital ratio of 12.09% and - Allowance for unfunded credit commitments of
14.89%. 0.39% as a percentage of total unfunded credit
- Tier 1 risk-based capital ratio of 16.08% and commitments.
14.89%. - Provision for loans of 0.10% as a percentage of
- Total risk-based capital ratio of 16.58% and period-end total
loans.
15.40%. – Tier 1 leverage ratio of 7.93% and 7.24%. – Net loan charge-offs of 0.21% as a percentage
of average total
loans.
+ Consists of fee income for deposit services, letters of credit and standby letters of credit, credit cards, client investments, wealth management and trust, foreign exchange and lending-related activities. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under "Results of Operations-Noninterest Income") ++ Consists of investment banking revenue and commissions. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under "Results of Operations-Noninterest Income"). +++ 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. 43 -------------------------------------------------------------------------------- Table of Contents A summary of our performance in 2021 compared to 2020 is as follows: Year ended December 31, (Dollars in millions, except per share amounts, employees and ratios) 2021 2020 % Change Income Statement: Diluted EPS$ 31.25 $ 22.87 36.6 % Net income available to common stockholders 1,770 1,191 48.6 Net interest income 3,179 2,157 47.4 Net interest margin 2.02 % 2.67 % (65) bps Provision for credit losses (1) (2)$ 123 $ 220 (44.1) % Noninterest income 2,738 1,840 48.8 Noninterest expense 3,070 2,035 50.9 Non-GAAP core fee income (3) 751 603 24.5 Non-GAAP core fee income, plus SVB Securities Revenue (3) 1,289 1,084 18.9 Non-GAAP SVB Securities revenue (3) 538 481 11.9 Balance Sheet: Average AFS securities$ 24,996 $ 18,653 34.0 % Average HTM securities 58,030 13,113 NM Average loans, amortized cost 54,547 37,266 46.4 Average noninterest-bearing demand deposits 99,461 50,193 98.2 Average interest-bearing deposits 48,486 24,823 95.3 Average total deposits 147,947 75,016 97.2 Earnings Ratios: Return on average assets (4) 0.84 % 1.39 % (39.6) % Return on average SVBFG common stockholders' equity (5) 17.10 16.83 1.6 Asset Quality Ratios: ACL for loans as a percentage of total period-end total loans 0.64 % 0.99 % (35) bps
ACL for performing loans as a percentage of total performing loans
0.58 0.87 (29) Gross loan charge-offs as a percentage of average total loans 0.25 0.28 (3) Net loan charge-offs as a percentage of average total loans 0.21 0.20 1 Capital Ratios: SVBFG CET1 risk-based capital ratio 12.09 % 11.04 % 105 bps SVBFG total risk-based capital ratio 16.58 12.64 394 SVBFG tier 1 risk-based capital ratio 16.08 11.89 419 SVBFG tier 1 leverage ratio 7.93 7.45 48 SVBFG tangible common equity to tangible assets (6) 5.73 6.66 (93) SVBFG tangible common equity to risk-weighted assets (6) 11.98 11.87 11 Bank CET1 risk-based capital ratio 14.89 10.70 419 Bank total risk-based capital ratio 15.40 11.49 391 Bank tier 1 risk-based capital ratio 14.89 10.70 419 Bank tier 1 leverage ratio 7.24 6.43 81 Bank tangible common equity to tangible assets (6) 7.09 6.24 85 Bank tangible common equity to risk-weighted assets (6) 15.06 11.58 348 Other Ratios: GAAP operating efficiency ratio (7) 51.88 % 50.92 % 1.9 % Total costs of deposits (8) 0.04 0.08 (50.0) Book value per common share (9)$ 214.30 $ 151.86 41.1 Tangible book value per common share (10) 205.64 147.92 39.0 Other Statistics: Average FTEs 5,466 4,040 35.3 % Period-end FTEs 6,567 4,461 47.2 (1)This metric for the year endedDecember 31, 2021 includes a post-combination provision of$46 million to record the ACL for non-PCD loans and unfunded credit commitments acquired from Boston Private. (2)This metric for the year endedDecember 31, 2021 includes the impact of an$80 million charge-off related to fraudulent activity discussed in previous filings. 44 -------------------------------------------------------------------------------- Table of Contents (3)See "Results of Operations-Noninterest Income" for a description and reconciliation of non-GAAP core fee income and non-GAAP core fee income plus investment banking revenue and commissions. (4)Ratio represents consolidated net income available to common stockholders divided by average assets. (5)Ratio represents consolidated net income available to common stockholders divided by average SVBFG stockholders' equity. (6)See "Capital Resources-Capital Ratios" for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. (7)The operating efficiency ratio is calculated by dividing total noninterest expense by total NII plus noninterest income. (8)Ratio represents total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits. (9)Book value per common share is calculated by dividing total SVBFG common stockholders' equity by total outstanding common shares at period-end. (10)Tangible book value per common share is calculated by dividing tangible common equity by total outstanding common shares at period-end. Tangible common equity is a non-GAAP measure defined under the section "Capital Resources-Capital Ratios."
Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding our financial condition and results of operations and are discussed in Note 2-"Summary of Significant Accounting Policies" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report. We have identified one policy as being critical because it requires us to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain, and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. We evaluate our estimates and assumptions on an ongoing basis and we base these estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. This critical accounting policy addresses the adequacy of the ACL for loans and unfunded credit commitments. Our senior management has discussed and reviewed the development, selection, application and disclosure of this critical accounting policy with the Audit Committee of our Board of Directors. The following is a brief discussion of our critical accounting estimate and related policy. Allowance for Credit Losses We consider this accounting policy to be critical as estimation of ECL involves material management estimates and is susceptible to significant changes in the near-term. Determining the ACL for loans and unfunded credit commitments requires us to make forecasts that are highly uncertain and require a high degree of judgment. A committee comprised of senior management evaluates the adequacy of the ACL for loans, which includes review of loan portfolio segmentation, quantitative models, internal and external data inputs, economic forecasts, credit risk ratings and qualitative adjustments.
Expected Credit Losses Estimate for Loans and Unfunded Credit Commitments
The methodology for estimating the amount of ECL reported in the ACL is the sum
of two main components: (1) ECL assessed on a collective basis for pools of
loans and unfunded credit commitments that share similar risk characteristics
and (2) ECL assessed for individual loans and unfunded credit commitments that
do not share similar risk characteristics with other loans. Estimating the
amount of ECL involves significant judgment on various matters including the
assessment of risk characteristics, assignment of risk ratings, development and
weighting of macroeconomic forecasts, and incorporation of historical loss
experience.
We derive an estimate of ECL using three predictive metrics: (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.
One of the most significant areas of judgment involved in estimating the ACL
relates to the macroeconomic forecasts used to estimate credit losses. To the
extent the remaining contractual lives of loans in the portfolio extend beyond
our three-year forecast period, we revert to historical averages using primarily
an autoregressive method of mean reversion that will continue to gradually trend
towards the mean historical loss over the remaining contractual lives of loans,
adjusted for prepayments. The macroeconomic scenarios are reviewed on a
quarterly basis.
The selection of variables used in our econometric models varies by loan
portfolio, but typically includes real gross domestic product ("GDP") growth,
unemployment rates, Housing Price Index ("HPI") changes and BBB corporate bond
spread.
Changes in management's assumptions and macroeconomic forecasts could
significantly affect the estimate of ECL. For example, macroeconomic conditions
and forecasts related to the duration and severity of the economic downturn
caused by the COVID-19 pandemic have been rapidly changing and continue to
remain uncertain. Alternative assumptions could have significant impact on the
ECL. However, changing one assumption without reassessing other assumptions used
in the quantitative or qualitative process could yield results that are not
reasonable or appropriate. Our ECL models were designed to capture the
correlation between economic conditions and historical portfolio changes. As
such, evaluating shifts in individual variables in isolation may not be
indicative of past or future performance.
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Given the range of the most significant macroeconomic variables in the upside,
or stronger near-term growth, and downside, or moderate recession, scenarios of
our forecast used to develop the ECL as of December 31, 2021 , our portfolio
reserve coverage ranges from 0.49 percent to 0.76 percent, with a funded reserve
rate of 0.64 percent as of December 31, 2021 . This range demonstrates the
sensitivity of the ECL to key quantitative assumptions; however, it is not
intended to estimate changes in the overall ECL as it does not reflect
qualitative factor adjustments which are important considerations to ensure the
allowance reflects our best estimate of current expected credit losses.
We apply certain qualitative factor adjustments to the results obtained through
our quantitative ECL models to consider model imprecision, emerging risk
assessments, trends and other subjective factors that may not be adequately
represented in the quantitative ECL models. These adjustments to historical loss
information are for asset-specific risk characteristics and also reflect our
assessment of the extent that current conditions and reasonable and supportable
forecasts differ from conditions that existed during the period over which
historical information was evaluated. Given the current processes and risk
monitoring by the Bank, management believes the combination of the quantitative
model results and the qualitative factor adjustment represents a reasonable and
appropriate estimate of ECL.
Allowance for Loan Losses and Allowance for Unfunded Credit Commitments
For our method and approach for our critical accounting policy related to the
allowance for loan losses and allowance for unfunded credit commitments, which
were superseded by accounting standards adopted in 2020, please refer to Note
2-"Summary of Significant Accounting Policies" of the "Notes to the Consolidated
Financial Statements" under Part II, Item 8 of this report.
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
NII is defined as the difference between: (i) interest earned on loans, fixed income investments in our AFS and HTM securities portfolios and short-term investment securities and (ii) interest paid on funding sources. Net interest margin is defined as NII, on a fully taxable equivalent basis, as a percentage of average interest-earning assets. NII and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the applicable federal statutory tax rate.
Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable
Equivalent Basis)
NII is affected by changes in the amount and mix of interest-earning assets and
interest-bearing liabilities, referred to as "volume change." NII is also
affected by changes in yields earned on interest-earning assets and rates paid
on interest-bearing liabilities, referred to as "rate change." The following
table sets forth changes in interest income for each major category of
interest-earning assets and interest expense for each major category of
interest-bearing liabilities. The table also reflects the amount of simultaneous
changes attributable to both volume and rate changes for the years indicated.
For this table, changes that are not solely due to either volume or rate are
allocated in proportion to the percentage changes in average volume and average
rate.
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2021 compared to 2020 2020 compared to 2019
Change due to Change due to
(Dollars in millions) Volume Rate Total Volume Rate Total
Interest income:
Federal Reserve deposits, federal funds sold,
securities purchased under agreements to resell
and other short-term investment securities $ 7 $ (15) $ (8) $ 13 $ (83) $
(70)
Fixed income investment portfolio (taxable) 774 (210) 564 99 (33)
66
Fixed income investment portfolio (non-taxable) 71 (14) 57 24 (4) 20 Loans, amortized cost 623 (177) 446 300 (379) (79) Increase (decrease) in interest income, net 1,475 (416) 1,059 436 (499)
(63)
Interest expense: Interest-bearing checking and savings accounts 1 (3) (2) 6 1 7 Money market deposits 28 (21) 7 14 (120) (106) Time deposits 2 (1) 1 1 - 1 Sweep deposits in foreign offices - (4) (4) (1) (18)
(19)
Total increase (decrease) in deposits expense 31 (29) 2 20 (137) (117) Short-term borrowings - (3) (3) 2 (3) (1) Long term debt 26 - 26 (9) - (9) Total increase (decrease) in borrowings expense 26 (3) 23 (7) (3)
(10)
Increase (decrease) in interest expense, net 57 (32) 25 13 (140)
(127)
Increase (decrease) in net interest income$ 1,418 $ (384) $ 1,034 $ 423 $ (359) $
64
Net Interest Income (Fully Taxable Equivalent Basis)
NII increased by$1.0 billion to$3.2 billion in 2021, compared to$2.2 billion in 2020. Overall, our NII increased primarily from increases in average balances of our fixed income investment securities and loans due to increases in average balances. The increase in NII was partially offset by lower yields on fixed income investment securities and loans. Upon completion of the Boston Private acquisition, a$104 million fair market value adjustment was made on the acquired loans that will be amortized into loan interest income over the contractual terms of the underlying loans using the constant effective yield method. The adjustment will be approximately 90 percent amortized by the end of fiscal year 2023. For the year endedDecember 31, 2021 ,$39 million of this premium amortization partially offset the overall increase in NII.
The main factors affecting interest income and interest expense for 2021,
compared to 2020, are discussed below:
•Interest income for 2021 increased by
•A$621 million increase in interest income from our fixed income investment securities due primarily to an increase of$51.3 billion in average fixed income investment securities driven by exceptional average deposit growth. The increase in interest income from growth of our average fixed income investment securities was partially offset by declines in yields earned on these investments reflective of the lower interest rate market environment, and •A$446 million increase in interest income on loans to$2.0 billion in 2021, compared to$1.5 billion for the comparable 2020 period. The increase was reflective of an increase in average loan balances of$17.3 billion , partially offset by a decrease in overall loan yields of 48 bps to 3.60 percent from 4.08 percent. Gross loan yields, excluding loan interest recoveries and loan fees, decreased 36 bps to 3.21 percent from 3.57 percent, driven by growth in our lower yielding Global Fund Banking portfolio, decreases in Federal Funds rates in the first quarter of 2020 and the addition of lower yielding Boston Private loans.
•Interest expense for 2021 increased by
•A$23 million increase in interest expense on borrowings due primarily to interest expense on our 3.125% Senior Notes issued inJune 2020 , our 1.800% Senior Notes issued inFebruary 2021 , our 2.100% Senior Notes issued inMay 2021 and our 1.800% Senior Notes issued inOctober 2021 . 47 -------------------------------------------------------------------------------- Table of Contents Net Interest Margin (Fully Taxable Equivalent Basis)
Our net interest margin decreased by 65 bps to 2.02 percent in 2021, compared to
2.67 percent in 2020.
The decrease in our net interest margin in 2021 was due primarily to higher growth in our lower-yielding cash and investment securities portfolio relative to the growth in our loan portfolio driven by significant growth in our average deposits, as well as a decrease in yields on loans, as discussed above. For the year endedDecember 31, 2021 , our loan portfolio comprised 34 percent of our average interest-earning assets, a decrease from 46 percent for the year endedDecember 31, 2020 .
Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis)
The average yield earned on interest-earning assets is the amount of fully
taxable equivalent interest income expressed as a percentage of average
interest-earning assets. The average rate paid on funding sources is the amount
of interest expense expressed as a percentage of average funding sources. The
following tables set forth average assets, liabilities, noncontrolling
interests, preferred stock and SVBFG common stockholders' equity, interest
income, interest expense, yields and rates and the composition of our net
interest margin in 2021, 2020 and 2019:
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Average Balances, Yields and Rates Paid for the Years Ended December 31, 2021 ,
2020 and 2019
Year ended December 31,
2021 2020 2019
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-earning assets:
Federal Reserve deposits, federal funds
sold, securities purchased under
agreements to resell and other short-term
investment securities (1) $ 20,800 $ 18 0.08 % $ 12,252 $ 26 0.21 % $ 5,932 $ 96 1.63 %
Investment Securities : (2)
AFS securities:
Taxable 24,996 334 1.34 18,653 337 1.81 9,598 218 2.27
HTM securities:
Taxable 52,937 865 1.63 10,728 298 2.78 13,041 351 2.69
Non-taxable (3) 5,093 134 2.63 2,385 77 3.24 1,631 57 3.49
Total loans, amortized cost (4) (5) 54,547 1,966 3.60 37,266 1,520 4.08 29,916 1,599 5.35
Total interest-earning assets 158,373 3,317 2.09 81,284 2,258 2.77 60,118 2,321 3.86
Cash and due from banks 2,241 1,021 592
ACL: loans (441) (509) (306)
Other assets (6) 5,838 3,996 2,808
Total assets $ 166,011 $ 85,792 $ 63,212
Funding sources:
Interest-bearing liabilities:
Interest-bearing checking and savings
accounts $ 3,924 $ 5 0.12 % $ 2,874 $ 7 0.24 % $ 499 $ - 0.09 %
Money market deposits 41,481 54 0.13 19,741 47 0.24 13,721 153 1.11
Money market deposits in foreign offices 918 - 0.02 330 - 0.09 165 - 0.04
Time deposits 994 3 0.31 336 2 0.56 112 1 1.14
Sweep deposits in foreign offices 1,169 - 0.01 1,542 4 0.27 1,777 23 1.29
Total interest-bearing deposits 48,486 62 0.13 24,823 60 0.24 16,274 177 1.09
Short-term borrowings 74 - 0.16 401 3 0.83 145 4 2.49
Long term debt 1,775 48 2.70 632 22 3.45 685 31 4.60
Total interest-bearing liabilities 50,335 110 0.22 25,856 85 0.33 17,104 212 1.24
Portion of noninterest-bearing funding
sources 108,038 55,428 43,014
Total funding sources 158,373 110 0.07 81,284 85 0.10 60,118 212 0.35
Noninterest-bearing funding sources:
Demand deposits 99,461 50,193 38,783
Other liabilities 3,660 2,168 1,484
Preferred stock 1,925 340 18
SVBFG common stockholders' equity 10,353 7,080 5,675
Noncontrolling interests 277 155 149
Portion used to fund interest-earning
assets (108,038) (55,428)
(43,014)
Total liabilities, noncontrolling interest, and SVBFG stockholders' equity$ 166,011 $ 85,792 $ 63,212 Net interest income and margin$ 3,207 2.02 %$ 2,173 2.67 %$ 2,109 3.51 % Total deposits$ 147,947 $ 75,016 $ 55,057 Average SVBFG common stockholders' equity as a percentage of average assets 6.24 % 8.25 % 8.98 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (28) (16) (13) Net interest income, as reported$ 3,179 $ 2,157 $ 2,096 49
-------------------------------------------------------------------------------- Table of Contents (1)Includes average interest-earning deposits in other financial institutions of$4.6 billion ,$1.1 billion and$929 million in the years endedDecember 31, 2021 ,December 31, 2020 andDecember 31, 2019 , respectively. ForDecember 31, 2021 ,December 31, 2020 andDecember 31, 2019 , balances also include$15.9 billion ,$9.9 billion and$4.1 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 income 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$217 million ,$191 million and$168 million in the years endedDecember 31, 2021 ,December 31, 2020 andDecember 31, 2019 , respectively. (6)Average investment securities of$3.2 billion ,$2.0 billion , and$1.1 billion in the years endedDecember 31, 2021 ,December 31, 2020 andDecember 31, 2019 , respectively, were classified as other assets as they were noninterest-earning assets. These investments primarily consisted of non-marketable and other equity securities. Provision for Credit Losses The provision for credit losses is the combination of (i) the provision for loans, (ii) the provision for unfunded credit commitments and (iii) the provision for HTM securities. Our allowance for credit losses reflects our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date.
The following table summarizes our ACL and provision for credit losses for
loans, unfunded credit commitments and HTM securities for 2021, 2020 and 2019,
respectively:
Year ended December 31,
(Dollars in millions) 2021 2020 2019
ACL, beginning balance $ 448 $ 305 $ 282
Day one impact of adopting ASC 326 - 25 -
Initial allowance on PCD loans 22 - -
Provision for loans (1) (2) 66 190 94
Gross loan charge-offs (2) (138) (103) (93)
Loan recoveries 24 29 21
Foreign currency translation adjustments - 2 1
ACL, ending balance $ 422 $ 448 $ 305
ACL for unfunded credit commitments, beginning balance 121 68 55
Day one impact of adopting ASC 326 - 23 -
Provision for unfunded credit commitments (1) 50 30 13
ACL for unfunded credit commitments, ending balance (3) $ 171 $ 121 $ 68
ACL for HTM securities, beginning balance - - -
Provision for HTM securities 7 - -
ACL for HTM securities, ending balance (4) $ 7 $ - $ -
Ratios and other information:
Provision for loans as a percentage of period-end total loans
(5)
0.10 % 0.42 % 0.28 %
Gross loan charge-offs as a percentage of average total loans
(2) (5)
0.25 0.28 0.31
Net loan charge-offs as a percentage of average total loans (2)
(5)
0.21 0.20 0.24 ACL for loans as a percentage of period-end total loans (5) 0.64 0.99 0.91 Provision for credit losses (1)$ 123 $ 220 $ 107 Period-end total loans (5) 66,276 45,181 33,328 Average total loans (5) 54,547 37,266 30,077 Allowance for credit losses for nonaccrual loans 35 54 45 Nonaccrual loans (5) 84 104 103 (1)The provision for credit losses for the year endedDecember 31, 2021 includes$46 million recognized as a result of the Boston Private acquisition, which consists of a$44 million initial provision for loans related to non-PCD loans and a$2 million initial provision for unfunded commitments. (2)Metrics for the year endedDecember 31, 2021 includes the impact of an$80 million charge-off related to fraudulent activity on one loan as disclosed in previous filings. (3)The "ACL for unfunded credit commitments" is included as a component of "Other liabilities." 50 -------------------------------------------------------------------------------- Table of Contents (4)The "ACL for HTM securities" is included as a component of "HTM securities" and presented net in our consolidated financial statements. (5)For the years endedDecember 31, 2021 andDecember 31, 2020 , loan amounts are disclosed using the amortized cost basis as a result of the adoption of CECL. Loan amounts for the year endedDecember 31, 2019 , are disclosed using the gross basis in accordance with the previous methodology. For a more detailed discussion of credit quality and the ACL, see "Critical Accounting Policies and Estimates" above, "Consolidated Financial Condition-Credit Quality and the Allowance for Credit Losses for Loans and for Unfunded Credit Commitments" below and Note 10-"Loans and Allowance for Credit Losses: Loans and Unfunded Credit Commitments" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report for further details on our ACL. Provision for Loans We had a provision for loans of$66 million in 2021, compared to a provision of$190 million in 2020. The provision for loans of$66 million in 2021 was driven primarily by a$64 million increase for organic growth in our loan portfolio, the$44 million initial provision for Boston Private non-PCD loans, and$113 million of charge-offs not specifically reserved for atDecember 31, 2020 , of which$80 million was related to a single instance of fraudulent activity on one loan as disclosed in previous filings. These increases in the provision were partially offset by$24 million of recoveries, a$62 million reduction in performing reserves as a result of the ongoing improvement of economic scenarios in our forecast models, and a$69 million reduction in provision due to model enhancements. The enhancements to our standard reserving model consisted primarily of (i) more granular prepayment modeling, (ii) the addition of two years of incremental data and (iii) re-selection of certain macroeconomic variables. We refined our prepayment assumptions to be more granular and product-specific, with the largest impact being a lower weighted average life in ourSVB Private Bank portfolio reflective of higher prepayment rates in that segment. The additional two years of portfolio data reflected generally strong credit performance, despite the recently stressed economic environment. The re-selection of variables applied across the entirety of the standard SVB CECL model, though the resulting impact was most relevant to ourSVB Private Bank portfolio. Our model for estimating the probability of default onSVB Private Bank loans previously referenced GDP as a key macroeconomic variable. The COVID-19 pandemic introduced unprecedented volatility in GDP forecasts and modelling outcomes, some of which did not fully align with our expectation of credit losses in thePrivate Bank , given the majority of this portfolio consists of mortgage loans, and credit quality indicators remained strong. Based on our additional historical experience, we now believe the Housing Price Index is a more appropriate macroeconomic variable for this segment, particularly in terms of its performance during the COVID pandemic and our expectation forPrivate Bank losses. We had a provision for loans of$190 million in 2020, compared to a provision of$94 million in 2019. The provision for loans of$190 million in 2020 was driven primarily by$57 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,$60 million in net new nonaccrual loans,$49 million for charge-offs not specifically reserved for atDecember 31, 2019 and$55 million in additional reserves for period-end loan growth, partially offset by$29 million of recoveries.
Provision for Unfunded Credit Commitments
We recorded a provision for unfunded credit commitments of$50 million in 2021, compared to a provision of$30 million in 2020. Our provision for unfunded credit commitments in 2021 was driven primarily by growth in our outstanding commitments and changes in the unfunded portfolio composition, as well as an increase in the expected future commitments for milestone tranches of Investor Dependent loans, which are tied to company performance or additional funding rounds, resulting in a longer weighted average life of these higher risk segments. These increases were partially offset by improved economic scenarios in our forecast models. We recorded a provision for unfunded credit commitments of$30 million in 2020, compared to a provision of$13 million in 2019. Our provision for unfunded credit commitments in 2020 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 growth in unfunded credit commitments. Provision forHTM Securities We recorded a provision for HTM securities of$7 million in 2021. Our provision for HTM securities was driven primarily by the creation of our corporate bond portfolio, which had a balance of$712 million atDecember 31, 2021 . Our HTM portfolio as ofDecember 31, 2021 was entirely made up of A3 or better rated bonds, all considered investment grade. We recorded a provision for credit losses for HTM securities of less than$1 million in 2020 under the CECL methodology adoptedJanuary 1, 2020 , compared to a provision of zero under the previous incurred loss methodology. Our provision for 51 -------------------------------------------------------------------------------- Table of Contents HTM securities was driven primarily by the forecast models of the current economic environment, including the impact of the COVID-19 pandemic. Our HTM portfolio as ofDecember 31, 2020 was entirely made up of Aa2 or better rated bonds, all considered high quality. See Note 10 - "Loans and Allowance for Credit Losses: Loans and Unfunded Credit Commitments" of the "Notes to Consolidated Financial Statements" under Part II, Item 8 of this report for further details on our gross loan charge-offs and our ACL for loans and unfunded credit commitments.
Noninterest Income
For the year endedDecember 31, 2021 , noninterest income was$2.7 billion , compared to$1.8 billion for comparable 2020 period. For the year endedDecember 31, 2021 , non-GAAP core fee income was$751 million , compared to$603 million for the comparable 2020 period. For the year endedDecember 31, 2021 , non-GAAP SVB Securities revenue was$538 million , compared to$481 million for the comparable 2020 period. (See reconciliations of non-GAAP measures used below under "Use of Non-GAAP Financial Measures".)
Use of Non-GAAP Financial Measures
To supplement our audited consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP SVB Securities revenue, non-GAAP core fee income plusSVB Securities revenue, non-GAAP net gains on investment securities and non-GAAP financial ratios). These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by (i) excluding items that represent income attributable to investors other than us and our subsidiaries and (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, and not as a substitute for or preferable to, financial measures prepared in accordance with GAAP. Included in net income is income and expense attributable to noncontrolling interests. We recognize, as part of our investment funds management business throughSVB Capital andSVB Securities , the entire income or loss from funds consolidated in accordance with ASC Topic 810 as discussed in Note 2-"Summary of Significant Accounting Policies" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report. We are required under GAAP to consolidate 100% of the results of these entities, even though we may own less than 100% of such entities. The relevant amounts attributable to investors other than us are reflected under "Net Income Attributable to Noncontrolling Interests" on our statements of income. Where applicable, the tables below for noninterest income and net gains on investment securities exclude noncontrolling interests. Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes (i)SVB Securities revenue, (ii) certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets, and (iii) other noninterest income. Core fee income represents client investment fees, wealth management and trust fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees.SVB Securities revenue is a non-GAAP financial measure, which represents noninterest income but excludes (i) Core fee income, and (ii) certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets, and other noninterest income.SVB Securities revenue represents investment banking revenue and commissions. Core fee income plusSVB Securities revenue is a non-GAAP measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets, and other noninterest income. Core fee income plusSVB Securities revenue represents core fee income plus investment banking revenue and commissions. 52
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The following table provides a reconciliation of GAAP noninterest income to
non-GAAP core fee income for 2021, 2020 and 2019, respectively:
Year ended December 31,
% Change % Change
(Dollars in millions) 2021 2020 2021/2020 2019 2020/2019
GAAP noninterest income $ 2,738 $ 1,840 48.8 % $ 1,221 50.7 %
Less: gains on investment securities, net 761 421 80.8 135 NM
Less: gains on equity warrant assets, net 560 237 136.3 138 71.7
Less: other noninterest income 128 98 30.6 55 78.2
Non-GAAP core fee income plus SVB Securities
revenue (1) $ 1,289 $ 1,084 18.9 $ 893 21.4
Investment banking revenue 459 414 10.9 195 112.3
Commissions 79 67 17.9 56 19.6
Non-GAAP SVB Securities revenue (2) $ 538 $ 481 11.9 $ 251 91.6
Non-GAAP core fee income (3) $ 751 $ 603 24.5 $ 642 (6.1)
(1)Non-GAAP core fee income plus SVB Securities revenue represents noninterest
income, but excludes certain line items where performance is typically subject
to market or other conditions beyond our control and other noninterest income.
Core fee income plus SVB Securities revenue is non-GAAP core fee income (as
defined in footnote (3) below) with the addition of investment banking revenue
and commissions.
(2)Non-GAAP SVB Securities revenue represents investment banking revenue and
commissions, but excludes certain line items where performance is typically
subject to market or other conditions beyond our control and other noninterest
income.
(3)Non-GAAP core fee income represents noninterest income, but excludes (i)
certain line items where performance is typically subject to market or other
conditions beyond our control, (ii) our investment banking revenue and
commissions and (iii) other noninterest income. Non-GAAP core fee income
includes client investment fees, wealth management and trust fees, foreign
exchange fees, credit card fees, deposit service charges, lending related fees
and letters of credit and standby letters of credit fees.
Gains on
Net gains on investment securities include gains and losses from our
non-marketable and other equity securities, which include public equity
securities held as a result of exercised equity warrant assets, as well as gains
and losses from sales of our AFS debt securities portfolio, when applicable.
Our non-marketable and other equity securities portfolio primarily represents
investments in venture capital and private equity funds, SPD-SVB, debt and
credit funds, private and public portfolio companies and qualified affordable
housing projects. We experience variability in the performance of our
non-marketable and other equity securities from period to period, which results
in net gains or losses on investment securities (both realized and unrealized).
This variability is due to a number of factors, including unrealized changes in
the values of our investments, changes in the amount of realized gains and
losses from distributions and sales of public equity securities, changes in
liquidity events and general economic and market conditions. Unrealized gains or
losses from non-marketable and other equity securities for any single period are
typically driven by valuation changes, and are therefore subject to potential
increases or decreases in future periods. Such variability may lead to
volatility in the gains or losses from investment securities. As such, our
results for a particular period are not necessarily indicative of our expected
performance in a future period.
The extent to which any unrealized gains or losses will become realized is
subject to a variety of factors, including, among other things, the expiration
of certain sales restrictions to which these equity securities may be subject to
(e.g. lock-up agreements), changes in prevailing market prices, market
conditions, the actual sales or distributions of securities and the timing of
such actual sales or distributions, which, to the extent such securities are
managed by our managed funds, are subject to our funds' separate discretionary
sales/distributions and governance processes.
Our AFS securities portfolio is a fixed income investment portfolio that is
managed with the objective of earning an appropriate portfolio yield over the
long-term while maintaining sufficient liquidity and credit diversification as
well as addressing our asset/liability management objectives. Though infrequent,
sales of debt securities in our AFS securities portfolio may result in net gains
or losses and are conducted pursuant to the guidelines of our investment policy
related to the management of our liquidity position and interest rate risk.
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The following table provides 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 2021, 2020 and 2019:
Managed
Managed Direct Strategic
Funds of Venture Managed Public Equity Sales of AFS Debt Debt and Other
(Dollars in millions) Funds Funds Credit Funds Securities Securities Funds Investments SVB Securities Total
Year ended December 31, 2021
GAAP gains on investment
securities, net $ 353 $ 44 $ 22 $ 17 $ 31 $ 2 $ 170 $ 122 $ 761
Less: gains attributable to
noncontrolling interests,
including carried interest
allocation 158 17 4 - - - - 61 240
Non-GAAP net gains on
investment securities, net of
noncontrolling interests $ 195 $ 27 $ 18 $ 17 $ 31 $ 2 $ 170 $ 61 $ 521
Year ended December 31, 2020
GAAP gains on investment
securities, net $ 116 $ 56 $ 19 $ 95 $ 61 $ - $ 66 $ 8 $ 421
Less: gains attributable to
noncontrolling interests,
including carried interest
allocation 55 27 3 - - - - 1 86
Non-GAAP net gains on
investment securities, net of
noncontrolling interests $ 61 $ 29 $ 16 $ 95 $ 61 $ - $ 66 $ 7 $ 335
Year ended December 31, 2019
GAAP gains (losses) on
investment securities, net $ 75 $ 18 $ - $ 5 $ (4) $ 2 $ 33 $ 6 $ 135
Less: gains attributable to
noncontrolling interests,
including carried interest
allocation 37 10 - - - - - 1 48
Non-GAAP net gains (losses)
on investment securities, net
of noncontrolling interests $ 38 $ 8 $ - $ 5 $ (4) $ 2 $ 33 $ 5 $ 87
In 2021, we had net gains on investment securities of $761 million , compared to
$421 million in 2020. Non-GAAP net gains on investment securities, net of
noncontrolling interests were $521 million in 2021, compared to $335 million in
2020, respectively. Net gains on investment securities, net of noncontrolling
interests of $521 million in 2021 were driven by the following:
•Gains of $195 million from our managed fund of funds portfolio driven by
unrealized valuations increases of private and public positions as well as fund
distributions driven primarily by realized gains from one public company
position,
•Gains of $170 million from our strategic and other investments driven primarily
by net unrealized valuation increases,
•Gains of $61 million from SVB Securities driven primarily by unrealized
valuation gains from the SVB Securities funds, and
•Gains of $31 million from our AFS debt securities portfolio, resulting from the
sale of $1.6 billion of mortgage-backed securities.
In 2020, we had net gains on investment securities of $421 million , compared to
$135 million in 2019. Non-GAAP net gains on investment securities, net of
noncontrolling interests were $334 million in 2020, compared to $87 million in
2019, respectively. Net gains on investment securities, net of noncontrolling
interests of $334 million in 2020 were driven by the following:
•Gains of $90 million from our managed funds of funds portfolio and managed
direct venture funds, related primarily to net unrealized valuation increases in
investments held by the funds in the portfolio,
•Gains of $66 million from our strategic and other investments portfolio,
primarily driven by net unrealized valuation increases in both private and
public company investments held in our strategic venture capital funds, and
•Gains of $95 million from our public equity securities, primarily driven by $72
million from unrealized gains for the 2.4 million common shares held as of
December 31, 2020 in BigCommerce Holdings, Inc ("BigCommerce") and $15 million
realized gains for the sale of BigCommerce equity shares,
•Gains of $61 million from our AFS debt securities portfolio, resulting from the
sale of $2.6 billion of U.S. Treasury securities during the quarter, and
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•Gains of $16 million from carried interest on our managed credit funds,
acquired from WRG which closed on December 23, 2020 . Performance fees earned
from the arrangement existing prior to the acquisition of the debt fund business
from WRG were previously recorded in other noninterest income and exchanged for
carried interest as part of the acquisition. As a result, we recorded unrealized
gains of $16 million net of noncontrolling interest related to carried interest
on the managed credit funds. These gains were primarily driven by the IPO of
BigCommerce.
Gains on Equity Warrant Assets, Net
A summary of gains on equity warrant assets, net, for 2021, 2020 and 2019 is as
follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2021 2020 2021/2020 2019 2020/2019
Equity warrant assets (1):
Gains on exercises, net $ 446 $ 179 149.2 % $ 107 67.3 %
Terminations (2) (2) - (4) (50.0)
Changes in fair value, net 116 60 93.3 35 71.4
Total gains on equity warrant assets, net $ 560 $ 237 136.3 $ 138 71.7
(1)At December 31, 2021 , we held warrants in 2,831 companies, compared to 2,602
companies at December 31, 2020 . The total value of our warrant portfolio was
$277 million at December 31, 2021 and $203 million at December 31, 2020 .
Warrants in 47 companies each had fair values greater than $1 million and
collectively represented $140.0 million , or 50.5 percent, of the fair value of
the total warrant portfolio at December 31, 2021 .
Gains on equity warrant assets, net, were $560 million in 2021, compared to $237
million in 2020. Net gains on equity warrant assets of $560 million in 2021 were
primarily due to the following:
•Net gains on warrant exercises of $446 million reflective of $116 million in
gains related to Coinbase's direct listing, with the remaining gains driven
primarily by IPO activity, and
•Net gains of $116 million from warrant valuations increases, driven by our
private company portfolio reflective of pricing updates and pending exit
activity.
Gains on equity warrant assets, net, of
to the following:
•Net gains of$180 million from the exercises of equity warrant assets in 2020 driven by robust IPO, SPAC and M&A activity during 2020, including$11 million from our exercised warrant position in BigCommerce, and •Net gains of$60 million from changes in warrant valuations in 2020 driven by valuation increases in our private company warrant portfolio. Overall, net gains on investment securities and net gains on equity warrant assets were exceptionally strong for 2021. Combined, they totaled$1.3 billion ($1.1 billion net of noncontrolling interest) for the year endedDecember 31, 2021 . Gains (or losses) related to our equity securities in public companies are based on valuation changes or the sale of any securities, and are subject to such companies' stock price, which are subject to market conditions and various other factors. Additionally, the public equity investment expected gains and losses, and the extent to which such gains (or losses) will become realized is subject to a variety of factors, including among other factors, changes in prevailing market prices and the timing of any sales of securities, which are subject to our securities sales and governance process as well as certain sales restrictions (e.g. lock-up agreements). 55 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Core Fee Income and Non-GAAP SVB Securities Revenue Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Non-GAAP core fee income (1): Client investment fees$ 75 $ 132 (43.2) %$ 182 (27.5) % Wealth management and trust fees 44 - - - - Foreign exchange fees 262 179 46.4 159 12.6 Credit card fees 131 98 33.7 119 (17.6) Deposit service charges 112 90 24.4 89 1.1 Lending related fees 76 57 33.3 50 14.0 Letters of credit and standby letters of credit fees 51 47 8.5 43 9.3 Total non-GAAP core fee income (1)$ 751 $ 603 24.5$ 642 (6.1) Investment banking revenue 459 414 10.9 195 112.3 Commissions 79 67 17.9 56 19.6 Total non-GAAP SVB Securities revenue (2)$ 538 $ 481 11.9$ 251 91.6 Total non-GAAP core fee income plusSVB Securities revenue (3)$ 1,289 $ 1,084 18.9$ 893 21.4 (1)This non-GAAP measure represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. See "Use of Non-GAAP Measures" above. (2)Non-GAAP SVB Securities revenue represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) non-GAAP core fee income, and (iii) other noninterest income. See "Use of Non-GAAP Measures" above. (3)Non-GAAP core fee income plusSVB Securities revenue represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, and (ii) other noninterest income. See "Use of Non-GAAP Measures" above.
Client Investment Fees
We offer a variety of investment products on which we earn fees. These products include money market mutual funds, overnight repurchase agreements and sweep money market funds available through the Bank, client-directed accounts offered through our broker-dealer, SVB Wealth Advisory, and fixed income management services offered through SVB Asset Management, our investment advisory subsidiary. Client investment fees were$75 million in 2021, compared to$132 million in 2020. The decrease in client investment fees is reflective of a reduction in fee margin resulting from lower short-term market rates, partially offset by large increases in average off-balance sheet client investment funds. Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Client investment fees by type: Sweep money market fees$ 43 $ 74 (41.9) %$ 104 (28.8) % Asset management fees 31 43 (27.9) 29 48.3 Repurchase agreement fees 1 15 (93.3) 49 (69.4) Total client investment fees$ 75 $ 132 (43.2)$ 182 (27.5) 56 -------------------------------------------------------------------------------- Table of Contents The following table summarizes average client investment funds for 2021, 2020 and 2019:
Year ended
% Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Sweep money market funds$ 88,913 $ 50,828 74.9 %$ 40,667 25.0 % Managed client investment funds (1)(2) 78,450 56,473 38.9 41,887 34.8 Repurchase agreements 13,830 10,079 37.2 9,079 11.0 Total average client investment funds (3)$ 181,193 $ 117,380 54.4$ 91,633 28.1 (1)These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. (2)As of the third quarter of 2021, these funds excludePrivate Bank . (3)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 atDecember 31, 2021 , 2020 and 2019: December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Sweep money market funds$ 109,241 $ 59,844 82.5 %$ 43,226 38.4 % Managed client investment funds (1)(2) 85,475 70,671 20.9 46,904 50.7 Repurchase agreements 15,370 10,538 45.9 9,062 16.3 Total period-end client investment funds (3)$ 210,086 $ 141,053 48.9$ 99,192 42.2 (1)These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management. (2)As of the third quarter of 2021, these funds exclude Private Bank AUM. (3)Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet.
Wealth Management and Trust Fees
Wealth management and trust fees was a new core fee income line item for the year ended 2021 reflective of the acquisition of Boston Private. Wealth management and trust fees were$44 million for the year endedDecember 31, 2021 . A summary of wealth management and trust fees for the year endedDecember 31, 2021 and 2020 is as follows: Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Wealth management and trust fees by type: Wealth management fees$ 40 $ - - % $ - - % Trust fees 4 - - - - Total wealth management and trust fees$ 44 $ - - $ - -
The following table summarizes the activity relating to Private Bank AUM for the
year ended
Year ended
(Dollars in millions) December 31, 2021
Beginning balance (1) $ 1,667
Assets acquired (2) 17,980
Net flows (922)
Market returns 921
Ending balance $ 19,646
(1)Represents Private Bank AUM previously reported in off-balance sheet managed
client investment funds above.
(2)Represents Private Bank AUM acquired from the acquisition of Boston Private
on July 1, 2021 .
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Foreign Exchange Fees
Foreign exchange fees were $262 million in 2021, compared to $179 million in
2020. The increases in foreign exchange fees were driven primarily by increases
in spot contract commissions reflective of increased private equity/venture
capital deal activity for the year ended December 31, 2021 compared to 2020.
Year ended December 31,
% Change % Change
(Dollars in millions) 2021 2020 2021/2020 2019 2020/2019
Foreign exchange fees by instrument type:
Spot contract commissions $ 240 $ 158 51.9 % $ 146 8.2 %
Forward contract commissions 20 20 - 13 53.8
Option premium fees 2 1 100.0 - -
Total foreign exchange fees $ 262 $ 179 46.4 $ 159 12.6
Credit Card Fees
Credit card fees were $131 million in 2021, compared to $98 million in 2020.
Credit card fees increased in the year ended December 31, 2021 , due to higher
transaction volumes reflective of increased spending, new client growth and
relationship expansion compared to the comparable 2020 periods, which were
reflective of the slowdown in spending during 2020 due to the height of the
COVID-19 pandemic. A summary of credit card fees by instrument type for 2021,
2020 and 2019 is as follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2021 2020 2021/2020 2019 2020/2019
Credit card fees by instrument type:
Card interchange fees, net $ 108 $ 76 42.1 % $ 94 (19.1) %
Merchant service fees 18 18 - 18 -
Card service fees 5 4 25.0 7 (42.9)
Total credit card fees $ 131 $ 98 33.7 $ 119 (17.6)
Deposit Service Charges
Deposit service charges were $112 million in 2021, compared to $90 million in
2020. Deposit service charges increased due to the increases in product revenues
from strong deposit growth and higher transaction volumes.
Lending Related Fees
Lending related fees were$76 million in 2021, compared to$57 million in 2020. The increase was primarily due to increases in fees earned from unused lines of credit due to strong client liquidity. A summary of lending related fees by type for 2021, 2020 and 2019 is as follows: Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Lending related fees by instrument type: Unused commitment fees$ 59 $ 42 40.5 %$ 35 20.0 % Other 17 15 13.3 15 - Total lending related fees$ 76 $ 57 33.3$ 50 14.0
Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees were$51 million in 2021, compared to$47 million in 2020. The increase was primarily driven by increases in deferred fee income reflective of larger letter of credit issuances. 58 -------------------------------------------------------------------------------- Table of Contents Investment Banking Revenue Investment banking revenue was$459 million in 2021, compared to$414 million in 2020. The increase was due to an increase in the amount of total closed deals during 2021. A summary of investment banking revenue by type for 2021, 2020 and 2019 is as follows: Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Investment banking revenue: Underwriting fees$ 304 $ 353 (13.9) %$ 153 130.7 % Advisory fees 90 40 125.0 38 5.3 Private placements and other 65 21 NM 4 NM Total investment banking revenue$ 459 $ 414 10.9$ 195 112.3 Commissions Commissions were$79 million in 2021, compared to$67 million in 2020. Commissions include commissions received from clients for the execution of agency-based brokerage transactions in listed and over-the-counter equities. The increase was driven by higher trading volumes. The Company also earns subscription fees for market intelligence services that are recognized over the period in which they are delivered. Fees received before the subscription period ends is initially recorded as deferred revenue (a contract liability) in other liabilities in our consolidated balance sheet.
Other Noninterest Income
Other noninterest income in 2021 was$128 million , compared to$98 million in 2020. The increase in 2021 compared to the 2020 period, was primarily due to higher fund management fees due to additional funds managed.
Noninterest Expense
A summary of noninterest expense for 2021, 2020 and 2019 is as follows:
Year ended December 31,
% Change % Change
(Dollars in millions) 2021 2020 2021/2020 2019 2020/2019
Compensation and benefits $ 2,015 $ 1,318 52.9 % $ 990 33.1 %
Professional services 392 247 58.7 205 20.5
Premises and equipment 178 127 40.2 97 30.9
Net occupancy 83 101 (17.8) 69 46.4
Business development and travel 24 24 - 69 (65.2)
FDIC and state assessments 48 28 71.4 18 55.6
Merger-related charges 129 - - - -
Other 201 190 5.8 153 24.2
Total noninterest expense $ 3,070 $ 2,035 50.9 $ 1,601 27.1
59
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Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense:
Year ended December 31,
% Change % Change
(Dollars in millions, except employees) 2021 2020 2021/2020 2019 2020/2019
Compensation and benefits:
Salaries and wages $ 721 $ 516 39.7 % $ 437 18.1 %
Incentive compensation plans 784 464 69.0 288 61.1
Other employee incentives and benefits (1) 510 338 50.9 265 27.5
Total compensation and benefits $ 2,015 $ 1,318 52.9 $ 990 33.1
Period-end FTEs 6,567 4,461 47.2 3,564 25.2
Average FTEs 5,466 4,040 35.3 3,362 20.2
(1)Other employee incentives and benefits includes employer payroll taxes, group
health and life insurance, share-based compensation, 401(k), ESOP, warrant and
other incentive plans, retention plans, agency fees and other employee-related
expenses.
Compensation and benefits expense was
billion
benefits expense in 2021 were as follows:
•An increase of$205 million in salaries and wages expense, reflective primarily of an increase in the number of average FTEs by 1,426 to 5,466 in 2021, compared to 4,040 in 2020, driven by strong hiring for in-sourcing, product development and revenue growth, the Boston Private acquisition and strategic hires made during 2021 to support the expansion ofSVB Securities' Technology, Healthcare Services and HealthTech investment banking activities, •An increase of$320 million in incentive compensation plans expense related primarily to higher incentive compensation plan accruals as a result of stronger than expected performance during throughout 2021 and an increase in the number of average FTEs, and •An increase of$172 million in other employee incentives and benefits expense attributable primarily to increases in share-based compensation expense due to the increased restricted stock awards granted during 2021, the warrant incentive plan driven by a significant increase in gains on equity warrant assets, payroll taxes due to an increase in incentive compensation and group insurance expenses reflective of the increase in FTEs from 2020. Our variable compensation plans include our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, Deferred Compensation Plan, 401(k) and ESOP Plan, SVB Securities Incentive Compensation Plan, SVB Securities Retention Award, EHOP, 2006 Incentive Plan and ESPP. Total costs incurred under these plans were$917 million in 2021, compared to$547 million in 2020. These amounts are included in total compensation and benefits expense discussed above.
Professional Services
Professional services expense was$392 million in 2021, compared to$247 million in 2020. The increase inDecember 31, 2021 was driven primarily by higher consulting fees associated with our initiatives related to our regulatory programs as well as continued investments in our infrastructure and operating projects to support our presence both domestically and internationally.
Premises and Equipment
Premises and equipment expense was$178 million in 2021, compared to$127 million in 2020. The increase was driven primarily by an increase in computer maintenance expenses related to new vendor and project depreciation that began in 2021 and increased software support and maintenance service fees.
Net Occupancy
Net occupancy expense was$83 million in 2021, compared to$101 million in 2020. The decrease was primarily driven by$29 million of impairment and accelerated depreciation of right to use assets and other fixed assets recorded in 2020 related to vacating leased office space in several locations. 60 -------------------------------------------------------------------------------- Table of Contents Business Development and Travel Business development and travel expense was$24 million in 2021, compared to$24 million in 2020. Business development and travel expense was flat compared to 2020 due primarily to the impact of the COVID-19 pandemic on domestic and international travel restrictions during 2020 and early 2021 which started to ease during the latter half of 2021 resulting in continued business development and travel.FDIC and State Assessments
million
average deposits as well as the acquisition of Boston Private deposits.
Merger-related Charges
Merger-related charges was a new noninterest expense line item for 2021 as a
result of the Boston Private acquisition. A summary of merger-related charges,
which includes direct acquisition costs for the year ended 2021 is as follows:
Year ended December 31,
(Dollars in millions) 2021
Personnel-related $ 17
Occupancy and facilities 39
Professional services 56
Systems integration and related charges 17
Total merger-related charges $ 129
Operating Efficiency Ratio
Our operating efficiency ratio increased to 51.88 percent for the year ended
December 31, 2021 compared to 50.92 percent for the year ended December 31,
2020 . This increase was due to growth in noninterest expense slightly outpacing
revenue growth. The increase in noninterest expense was driven by increased
compensation and benefits expense, professional services expense, merger-related
charges and premises and equipment expense. These increases were partially
offset by higher revenue driven by interest income on our loan and investment
security portfolios and net gains on investment securities and equity warrant
assets.
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 consolidated 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 2021, 2020 and 2019 is as follows: Year ended December 31, % Change (Dollars in millions) 2021 2020 % Change 2021/2020 2019 2020/2019 Noninterest income (1)$ (124) $ (29) NM$ (20) 45.0 % Noninterest expense (1) 1 - - 1 (100.0) Carried interest allocation (2) (117) (57) 105.3 (29) 96.6 Net income attributable to noncontrolling interests$ (240) $ (86) 179.1$ (48) 79.2 (1)Represents noncontrolling interests' share in noninterest income or loss. (2)Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds. 61 -------------------------------------------------------------------------------- Table of Contents Net income attributable to noncontrolling interests was$240 million in 2021, compared to$86 million in 2020. Net income attributable to noncontrolling interests of$240 million for the year endedDecember 31, 2021 was driven primarily by net gains on investment securities (including carried interest allocation) from unrealized valuation of our managed funds of funds and ourSVB Securities funds.
Net income attributable to noncontrolling interests was
income attributable to noncontrolling interests of
primarily a result of the following:
•Net gains on investment securities (including carried interest allocation) attributable to noncontrolling interests of$86 million ($29 million excluding carried interest allocation) primarily from our managed funds of funds and our managed direct venture funds portfolios, related primarily to net unrealized valuation increases in both private and public company investments held by the funds in the portfolios, and •Noninterest expense was less than$1 million , primarily related to management fees paid by the noncontrolling interests to our subsidiaries that serve as the general partner. Income Taxes Our effective income tax expense rate was 26.2 percent in 2021, compared to 27.0 percent in 2020. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to noncontrolling interests. The components of our effective tax rates for 2021 and 2020 are discussed in Note 18-"Income Taxes" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report.
The decrease in our effective tax rate for 2021 was driven primarily by an
increase in the recognition of excess tax benefits from share-based
compensation, which is reflective of an increase in our stock price.
Operating Segment Results
We have four segments for which we report our financial information: GCB,
Private Bank
We report segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Refer to Note 24-"Segment Reporting" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report for additional details. The following is our reportable segment information for 2021, 2020 and 2019:Global Commercial Bank Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Net interest income$ 2,946 $ 2,025 45.5 %$ 1,850 9.5 % Provision for credit losses (55) (166) (66.9) (92) 80.4 Noninterest income 708 606 16.8 638 (5.0) Noninterest expense (1,277) (1,020) 25.2 (875) 16.6 Income before income tax expense$ 2,322 $ 1,445 60.7$ 1,521 (5.0) Total average loans, amortized cost$ 44,173 $ 31,218 41.5$ 26,031 19.9 Total average assets 141,393 75,034 88.4 56,043 33.9 Total average deposits 138,336 72,127 91.8 53,054 36.0
Income before income tax expense from our GCB increased to
2021, compared to
are discussed below.
NII from GCB increased by$921 million in 2021, due primarily to an increase in loan interest income resulting from higher average loan balances, partially offset by lower loan yields on loans as a result of growth in our higher credit quality Global Fund Banking portfolio as well as interest rate decreases. In addition, strong deposit growth provided a higher earnings credit and a low-rate environment produced a lower earnings charge for funded loans, creating a benefit of a higher net FTP earnings credit. GCB had a provision for credit losses of$55 million for 2021, compared to a provision of$166 million for 2020. The provision of$55 million for 2021 was driven primarily by an increase of organic growth in our loan portfolio and charge-offs not specifically reserved for atDecember 31, 2020 , of which$80 million was related to the single instance of fraudulent 62 -------------------------------------------------------------------------------- Table of Contents activity on one loan discussed in prior filings, partially offset by a reduction in provision due to model enhancements and a decrease in net new nonaccrual loans and recoveries. The provision for credit losses of$166 million for 2020, compared to a provision of$92 million for the comparable 2019 period. The$74 million increase is primarily due to the$59 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. The provision of$166 million also consisted of$30 million in additional reserves for period-end loan growth,$49 million for charge-offs not specifically reserved for atDecember 31, 2019 and$60 million in net new nonaccrual loans, partially offset by$29 million of recoveries. Noninterest income increased by$102 million in 2021, related primarily to an overall increase in our non-GAAP core fee income, due primarily to higher foreign exchange fees, credit card fees, lending related fees and deposit service charges, partially offset by lower client investment fees. The overall increase was due primarily to higher foreign exchange fees driven by increases in spot contract commissions, credit card fees reflective of increased spending as we attracted new customers and expanded on current relationships and deposit service charges due to increased product revenues from strong deposit growth and higher transaction volumes, partially offset by the impact of the federal funds rate decreases on client investment fee yields. Noninterest expense increased by$257 million in 2021, due primarily to compensation and benefits expense as a result of higher incentive compensation expense and higher salaries and wages expenses. Incentive compensation expense increased due primarily as a result of a strong performance during 2021. The increase in GCB salaries and wages was due primarily to an increase in the average number of FTEs at GCB, which increased to 3,489 FTEs in 2021, from 2,874 FTEs for the 2020 period. SVB Private Bank Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Net interest income$ 194 $ 77 151.9 %$ 51 51.0 % Provision for credit losses (14) (21) (33.3) (2) NM Noninterest income 56 3 NM 4 (25.0) Noninterest expense (212) (46) NM (40) 15.0 Income before income tax expense$ 24 $ 13 84.6$ 13 - Total average loans, amortized cost$ 8,958 $ 4,196 113.5$ 3,341 25.6 Total average assets 10,140 4,230 139.7 3,371 25.5 Total average deposits 8,645 2,172 NM 1,524 42.5 Income before income tax expense fromSVB Private Bank increased to$24 million in 2021, compared to$13 million in 2020. The key drivers ofSVB Private Bank's performance are discussed below: NII increased by$117 million in 2021, due primarily to an increase in average loans primarily due to the acquisition of Boston Private and strong organic loan growth for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . This increase was partially offset by decreases in loan yields as a result of overall market rate decreases and purchase accounting amortizations of fair value mark ups on the acquired Boston Private loans.
The provision for credit losses decreased by
reduction in provision due to previously discussed model enhancements, partially
offset by a day one provision for loans on non-PCD loans and unfunded
commitments of
Noninterest expense increased
primarily to compensation and benefits expense. Compensation and benefits
expense increased as a result of an increase in average number of FTEs due
primarily to the acquisition of Boston Private and higher incentive compensation
and salaries and wages expenses primarily as a result of strong performance
during 2021.
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SVB Capital
Year ended December 31,
% Change % Change
(Dollars in millions) 2021 2020 2021/2020 2019 2020/2019
Noninterest income $ 487 $ 226 115.5 % $ 122 85.2 %
Noninterest expense (71) (51) 39.2 (31) 64.5
Income before income tax expense $ 416 $ 175 137.7 $ 91 92.3
Total average assets $ 700 $ 437 60.2 $ 405 7.9
SVB Capital's components of noninterest income primarily include net gains and
losses on non-marketable and other equity securities, carried interest and fund
management fees. All components of income before income tax expense discussed
below are net of noncontrolling interests.
We experience variability in the performance of SVB Capital from period to
period due to a number of factors, including changes in the values of our funds'
underlying investments, changes in the amount of distributions and general
economic and market conditions. Such variability may lead to volatility in the
gains and losses from investment securities and cause our results to differ from
period to period. The performance of these securities may be impacted by the
effects of the COVID-19 pandemic.
Income before income tax expense from
compared to
are discussed below.
Noninterest income was
•Net gains on investment securities of$398 million , were driven primarily by unrealized net valuation increases of private and public positions as well as fund distributions driven primarily by realized gains from one public company position. •Fund management fees of$77 million , included in other noninterest income, and •Gains on equity warrant assets of$6 million reflective of net valuation increases in equity warrant assets associated with our joint venture bank inChina , included in other noninterest income. Noninterest expense increased to$71 million in 2021 from 2020 due to a$20 million increase in compensation and benefits as a result of higher incentive compensation expense and higher salaries and wages expenses. Incentive compensation expense increased as a result of a strong performance during 2021. The increase in salaries and wages was due to an increase in the average number of FTEs atSVB Capital , which increased to 77 FTEs at year endDecember 31, 2021 , from 47 for 2020.SVB Securities Year ended December 31, % Change % Change (Dollars in millions) 2021 2020 2021/2020 2019 2020/2019 Net interest income$ 1 $ 1 - %$ 1 - % Noninterest income 608 497 22.3 264 88.3 Noninterest expense (561) (379) 48.0 (253) 49.8 Income before income tax expense$ 48 $ 119 (59.7)$ 12 NM Total average assets$ 830 $ 557 49.0$ 398 39.9 OnDecember 10, 2021 we completed the acquisition ofMoffettNathanson LLC . Upon the closing of the acquisition,MoffettNathanson LLC's operations and results were included within theSVB Securities reportable segment. The acquisition enablesSVB Securities to expand its equity research coverage to include companies in both the healthcare and technology industries.
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.
64 -------------------------------------------------------------------------------- Table of Contents Noninterest income increased$111 million to$608 million in 2021, due primarily to an increase in investment banking revenue attributable to a higher number of total closed deals during 2021 and an increase in investment gains driven by a net valuation increase on equity fund investments. Noninterest expense increased$182 million to$561 million in 2021. The$182 million increase was primarily driven by an increase in compensation and benefit expense driven primarily by an increase in incentive compensation expense as a result of a strong performance during 2021, as compared to 2020 and an increase in salaries and wages expense due to strategic hires made during 2021 to support the expansion ofSVB Securities' Technology, Healthcare Services and HealthTech investment banking activities.
Consolidated Financial Condition
Our total assets, and total liabilities and stockholders' equity were$211.5 billion atDecember 31, 2021 and$115.5 billion atDecember 31, 2020 . 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$14.6 billion atDecember 31, 2021 , a decrease of$3.1 billion , or 17.3 percent, compared to$17.7 billion atDecember 31, 2020 . The decrease was driven primarily by investing activities of$90.3 billion consisting primarily of purchases of investment securities, net of maturities and paydowns, and funding of loans, partially offset by financing activities of$85.5 billion consisting primarily of a net increase in deposits. As ofDecember 31, 2021 ,$5.7 billion of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were$5.8 billion . As ofDecember 31, 2020 ,$13.7 billion , of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate and interest-earning deposits in other financial institutions were$3.0 billion .
Investment securities totaled$128.0 billion atDecember 31, 2021 , an increase of$78.7 billion , or 159.5 percent, compared to$49.3 billion atDecember 31, 2020 . Our investment securities portfolio is comprised of: (i) an AFS securities portfolio and a HTM securities portfolio, both of which represents interest-earning fixed income investment securities; and (ii) a non-marketable and other equity securities portfolio, which represents primarily investments managed as part of our funds management business, investments in qualified affordable housing projects, as well as public equity securities held as a result of equity warrant assets exercised. The major components of the change in investment securities are explained below. 65 -------------------------------------------------------------------------------- Table of Contents The following table presents a profile of our investment securities portfolio atDecember 31, 2021 and 2020: December 31, (Dollars in millions) 2021 2020 AFS securities, at fair value: U.S. Treasury securities$ 15,850 $ 4,470 U.S. agency debentures 196 237 Foreign government debt securities 61 24 Residential MBS: Agency-issued MBS 8,589 13,503 Agency-issued CMO-fixed rate 982 8,107 Agency-issued CMBS 1,543 4,572 Total AFS securities 27,221 30,913 HTM securities, at amortized cost: U.S. agency debentures 609 402 Residential MBS: Agency-issued MBS 64,439 7,740 Agency-issued CMO-fixed rate 10,226 1,735 Agency-issued CMO-variable rate 100 137 Agency-issued CMBS 14,959 2,943 Municipal bonds and notes (1) 7,157 3,635 Corporate bonds (1) 712 - Total HTM securities 98,202 16,592
Non-marketable and other equity securities:
Non-marketable securities (fair value accounting):
Consolidated venture capital and private equity fund investments
130 89
Unconsolidated venture capital and private equity fund investments
208 185 Other investments without a readily determinable fair value 164 61
Other equity securities in public companies (fair value accounting)
117 281
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments
671 362 Debt funds 5 5 Other investments 294 203 Investments in qualified affordable housing projects, net 954 616 Total non-marketable and other equity securities 2,543 1,802 Total investment securities$ 127,966 $ 49,307
(1)ACL balance is
than
Period-end AFS securities were$27.2 billion atDecember 31, 2021 , a decrease of$3.7 billion , or 11.9 percent, compared to$30.9 billion atDecember 31, 2020 . The$3.7 billion decrease in period-end AFS securities balances fromDecember 31, 2020 toDecember 31, 2021 was driven primarily by a$8.8 billion re-designation of AFS securities to HTM securities, paydowns and maturities of$4.8 billion , sale of investments of$1.6 billion and a decrease in fair value of$818 million due to the increase in interest rates, partially offset by purchases of$12.1 billion . Securities classified as AFS are carried at fair value with changes in fair value recorded as unrealized gains or losses in a separate component of stockholders' equity. The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as AFS as ofDecember 31, 2021 . The weighted average yield is computed using the amortized cost of fixed income investment securities, which are reported at fair value. ForU.S. Treasury securities,U.S. agency debentures and foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certainU.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual 66 -------------------------------------------------------------------------------- Table of Contents maturity. Expected maturities for MBS may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. MBS classified as AFS typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The expected yield on MBS is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. December 31, 2021 One Year After One Year to After Five Years to After Total or Less Five Years Ten Years Ten Years Weighted Weighted Weighted Weighted Weighted Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average (Dollars in millions) Value Yield Value Yield Value Yield Value Yield Value YieldU.S. Treasury securities$ 15,850 1.05 %$ 247 0.49 %$ 15,091 1.05 %$ 512 1.21 % $ - -
%
U.S. agency debentures 196 0.96 80 0.27 36 1.04 80 1.58 - - Foreign government debt securities 61 (0.81) 61 (0.81) - - - - - - Residential MBS: Agency-issued MBS 8,589 1.28 - - - - - - 8,589 1.28 Agency-issued CMO - fixed rate 982 1.41 - - - - - - 982 1.41 Agency-issued CMBS 1,543 1.76 - - 67 1.13 1,476 1.79 - - Total$ 27,221 1.17$ 388 0.24$ 15,194 1.05$ 2,068 1.64$ 9,571 1.29Held-to-Maturity Securities Period-end HTM securities were$98.2 billion atDecember 31, 2021 , an increase of$81.6 billion , or 491.8 percent, compared to$16.6 billion atDecember 31, 2020 . The$81.6 billion increase in period-end HTM security balances fromDecember 31, 2020 toDecember 31, 2021 was driven by purchases of$85.6 billion , with an additional$982 million of securities assumed with the Boston Private acquisition, and the re-designation of$8.8 billion of AFS securities to HTM securities, partially offset by$13.8 billion in paydowns and maturities. The securities were re-designated for capital management purposes and consisted primarily of agency-issued CMO, CMBS, MBS and US agency debentures with unrealized losses totaling$132 million , which are recorded in AOCI Securities classified as HTM are accounted for at cost with no adjustments for changes in fair value. For securities re-designated as HTM from AFS, the net unrealized gains or losses at the date of transfer will continue to be reported as a separate component of shareholders' equity and amortized over the life of the securities in a manner consistent with the amortization of a premium or discount. The following table summarizes the remaining contractual principal maturities net of ACL and fully taxable equivalent yields on fixed income investment securities classified as HTM as ofDecember 31, 2021 . Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent. The weighted average yield is computed using the amortized cost of fixed income investment securities. ForU.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected maturities for MBS may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. MBS classified as HTM typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The expected yield on MBS is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. December 31, 2021 One Year After One Year to After Five Years to After Total or Less Five Years Ten Years Ten Years Weighted Weighted Weighted Weighted WeightedNet Carry AverageNet Carry AverageNet Carry AverageNet Carry AverageNet Carry Average (Dollars in millions) Value Yield Value Yield Value Yield Value Yield Value YieldU.S. agency debentures$ 609 2.05 %$ 1 2.26 %$ 133 2.43 %$ 475 1.94 % $ - - % Residential MBS: Agency-issued MBS 64,439 1.55 - - 7 2.28 806 2.17 63,626 1.54 Agency-issued CMO - fixed rate 10,226 1.35 - - 14 1.72 316 1.61 9,896 1.35 Agency-issued CMO - variable rate 100 0.74 - - - - - - 100 0.74 Agency-issued CMBS 14,959 1.63 - - 211 0.75 971 1.93 13,777 1.63 Municipal bonds and notes 7,156 2.82 48 2.82 176 2.43 1,152 2.76 5,780 2.85 Corporate bonds 706 1.86 - - 33 1.70 673 1.87 - - Total$ 98,195 1.64$ 49 2.80$ 574 1.75$ 4,393 2.32$ 93,179 1.61 67
-------------------------------------------------------------------------------- Table of Contents 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 4.0 and 3.7 years atDecember 31, 2021 andDecember 31, 2020 , respectively. The weighted-average duration of our total fixed income securities portfolio including the impact of our fair value swaps was 3.7 years atDecember 31, 2021 . We are focused on maintaining AFS portfolio duration to approximately two years to mitigate OCI risk while buying three- to five-year duration HTM securities to support portfolio yields. The weighted-average duration of our AFS securities portfolio was 3.5 years atDecember 31, 2021 and 3.7 years atDecember 31, 2020 . The weighted-average duration of our AFS securities portfolio including the impact of our fair value swaps was 2.4 years atDecember 31, 2021 . The weighted-average duration of our HTM securities portfolio was 4.1 years atDecember 31, 2021 and 3.7 years atDecember 31, 2020 . We continue to invest excess on-balance sheet liquidity in high-quality securities (agency MBS/CMOs/CMBS, municipal and corporate securities), primarily classified as HTM.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD-SVB, debt funds, private and public portfolio companies, including public equity securities held as a result of equity warrant assets exercised, and qualified affordable housing projects. Included in our non-marketable and other equity securities carried under fair value accounting are amounts that are attributable to noncontrolling interests. We are required under GAAP to consolidate 100% of these investments that we are deemed to control, even though we may own less than 100% of such entities. See below for a summary of the carrying value (as reported) of non-marketable and other equity securities compared to the amounts attributable to SVBFG. Non-marketable and other equity securities were$2.5 billion ($2.2 billion net of noncontrolling interest) atDecember 31, 2021 , an increase of$741 million , or 41.1 percent, compared to$1.8 billion ($1.6 billion net of noncontrolling interest) atDecember 31, 2020 . We are required under GAAP to consolidate certainSVB Capital funds, even though we may own less than 100 percent of such entities.
The following table summarizes the carrying value (as reported) of
non-marketable and other equity securities compared to the amounts attributable
to SVBFG (which generally represents the carrying value times our ownership
percentage) at
December 31,
2021 2020
Amount Amount
Carrying value (as attributable to Carrying value (as attributable to
(Dollars in millions) reported) SVBFG reported) SVBFG
Non-marketable and other equity securities:
Non-marketable securities (fair value accounting):
Consolidated venture capital and private equity fund investments (1) $
130 $ 36 $ 89 $ 23
Unconsolidated venture capital and private equity fund investments
(2)
208 208 185 185 Other investments without a readily determinable fair value (3) 164 164 61 61
Other equity securities in public companies (fair value accounting)
(4)
117 117 281 281
Non-marketable securities (equity method accounting) (5):
Venture capital and private equity fund investments
671 397 362 215 Debt funds 5 5 5 5 Other investments 294 294 203 203 Investments in qualified affordable housing projects, net 954 954 616 616 Total non-marketable and other equity securities $ 2,543 $ 2,175 $ 1,802 $ 1,589
(1)The following table shows the amounts of venture capital and private equity
fund investments held by the following consolidated funds and amounts
attributable to SVBFG for each fund at
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December 31,
2021 2020
Carrying value (as Amount attributable to Carrying value (as
Amount attributable to (Dollars in millions) reported) SVBFG reported) SVBFG Strategic Investors Fund, LP $ 2 $ - $ 5 $ 1 Capital Preferred Return Fund, LP 61 13 50 11 Growth Partners, LP 67 23 34 11 Total consolidated venture capital and private equity fund investments $ 130 $ 36 $ 89 $ 23 (2)The carrying value represents investments in 150 and 162 funds (primarily venture capital funds) atDecember 31, 2021 andDecember 31, 2020 , respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships' operating activities and financial policies. Our unconsolidated venture capital and private equity fund investments are carried at fair value based on the fund investments' net asset values per share as obtained from the general partners of the funds. For each fund investment, we adjust the net asset value per share for differences between our measurement date and the date of the fund investment's net asset value by using the most recently available financial information from the investee general partner, for exampleSeptember 30th , for ourDecember 31st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment and significant fund transactions or market events during the reporting period. (3)Investments classified as "Other investments without a readily determinable fair value" include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. For further details on the carrying value of these investments refer to Note 9-"Investment Securities " of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report. (4)Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets and direct equity investments in public companies held by our consolidated funds. Changes in the fair value recognized through net income. 69 -------------------------------------------------------------------------------- Table of Contents (5)The following table shows the carrying value and our ownership percentage of each investment atDecember 31, 2021 and 2020 (equity method accounting): December 31, 2021 December 31, 2020 Carrying value (as Amount Carrying value (as Amount (Dollars in millions) reported) attributable to SVBFG reported)
attributable to SVBFG
Venture capital and private equity fund investments:
$ 3 $ 3 $ 4 $ 3 Strategic Investors Fund III, LP 25 21 16
13
Strategic Investors Fund IV, LP 36 30 25
21
Strategic Investors Fund V funds 87 45 67 35 CP II, LP (i) 2 1 8 5 Other venture capital and private equity fund investments 518 298 242
138
Total venture capital and private equity fund investments $ 671 $ 398 $ 362 $
215
Debt funds: Gold Hill Capital 2008, LP (ii) $ 4 $ 4 $ 4 $ 4 Other debt funds 1 1 1 1 Total debt funds $ 5 $ 5 $ 5 $ 5 Other investments: SPD Silicon Valley Bank Co., Ltd. $ 154 $ 154 $ 115 $ 115 Other investments 140 140 88 88 Total other investments $ 294 $ 294 $ 203 $ 203 (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. InJune 2017 , we received notice that theFederal Reserve approved the Company's application for an extension of the permitted conformance period for the Company's investments in "illiquid" covered funds ("Restricted Volcker Investments"). The approval extends the deadline by which the Company must sell, divest, restructure or otherwise conform such investments to the provisions of the Volcker Rule by the earlier of (i)July 21, 2022 , or (ii) the date by which each fund matures by its terms or is otherwise conformed to the Volcker Rule. There have been various amendments to the Volcker Rule in recent years. In particular, certain amendments that became effectiveOctober 1, 2020 , provide for, among other things, the adoption of new exclusions from the definition of "covered fund" for venture capital funds and credit funds that meet certain criteria. As a result of these amendments, we believe that none of the Restricted Volcker Investments will be required to be disposed of or will otherwise conform to the Volcker Rule requirements. We expect that all of our Restricted Volcker Investments will (i) qualify for these new exclusions; (ii) otherwise be excluded from the definition of "covered fund"; or (iii) be subject to a liquidation or dissolution process (For more information about the Volcker Rule, see "Business-Supervision and Regulation" under Part 1, Item 1 of this report). 70 -------------------------------------------------------------------------------- Table of Contents Loans Upon the completion of the acquisition of Boston Private onJuly 1, 2021 , we have modified our portfolio segments and classes of financing receivables to accommodate Boston Private loans. Refer to Note 2-"Summary of Significant Accounting Policies" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report for additional information on our current portfolio segments and classes of financing receivables. Loans at amortized cost basis increased by$21.1 billion to$66.3 billion atDecember 31, 2021 , compared to$45.2 billion atDecember 31, 2020 . Unearned income was$250 million atDecember 31, 2021 and$226 million atDecember 31, 2020 . The increase in period-end loans was driven primarily by the continued growth in our Global Fund Banking segment as well as the addition ofBoston Private's loan portfolio. This growth was partially offset by a decrease in our PPP loans driven by forgiveness of these loans during 2021.
Loan Concentration
Loan concentrations may exist when there are borrowers engaged in similar
activities or types of loans extended to a diverse group of borrowers that could
cause those borrowers or portfolios to be similarly impacted by economic or
other conditions. A substantial percentage of our loans are commercial in
nature. The breakdown of total loans and loans as a percentage of total loans by
class of financing receivables is as follows:
December 31,
2021 2020
(Dollars in millions) Amount Percentage Amount Percentage
Global fund banking $ 37,958 57.3 % $ 25,543 56.5 %
Investor dependent:
Early stage 1,593 2.4 1,486 3.3
Growth stage 3,951 5.9 3,486 7.7
Total investor dependent 5,544 8.3 4,972 11.0
Cash flow dependent - SLBO 1,798 2.7 1,989 4.4
Innovation C&I 6,673 10.1 5,136 11.3
Private bank 8,743 13.2 4,901 10.9
CRE 2,670 4.0 - -
Premium wine 985 1.5 1,053 2.3
Other C&I 1,257 1.9 - -
Other 317 0.5 28 0.1
PPP 331 0.5 1,559 3.5
Total loans $ 66,276 100.0 $ 45,181 100.0
Our four main market segments include (i) Global Fund Banking, (ii) technology
and life science/healthcare, (iii) SVB Private Bank and, with the acquisition of
Boston Private, we now have (iv) new loans in the commercial real estate sector.
(i) Global Fund Banking
Our Global Fund Banking loan portfolio includes loans to clients in the private equity/venture capital community. Our lending to private equity/venture capital firms and funds represented 57 percent of total loans at bothDecember 31, 2021 andDecember 31, 2020 . The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds' remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are typically secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.
(ii) Technology and Life Science/Healthcare
Our technology and life science/healthcare loan portfolios include loans to
clients at the various stages of their life cycles. The classes of financing
receivables for our technology and life science/healthcare market segments are
classified as Investor Dependent, Cash Flow Dependent - SLBO or Innovation C&I
for reporting purposes.
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Investor dependent loans represented 8 percent of total loans at December 31,
2021 and 11 percent at December 31, 2020 . These loans are made to companies in
both our Early Stage and Growth Stage practices.
Cash flow dependent loans for SLBO lending represented 3 percent of total loans
at
Innovation C&I loans, which include asset-based loans, represented 10 percent of total loans atDecember 31, 2021 and 11 percent atDecember 31, 2020 . Working capital lines and accounts receivable financing, both part of our asset-based lending, each represented approximately one percent and less than one percent of total loans, respectively, at bothDecember 31, 2021 andDecember 31, 2020 .
(iii)
OurSVB Private Bank clients are primarily executive leaders and senior investment professionals in the innovation economy, as well as high net worth clients acquired from Boston Private. Our lending toPrivate Bank clients represented 13 percent of total loans atDecember 31, 2021 and 11 percent atDecember 31, 2020 . Many of ourPrivate Bank products are secured by real estate, which represented 88 percent of this portfolio atDecember 31, 2021 ; these products include mortgage loans, owner-occupied commercial mortgage loans, home equity lines of credit and other secured lending products such as real estate secured loans to eligible employees through our EHOP. The remaining balance of ourPrivate Bank portfolio consists of restricted and private stock loans, personal capital call lines of credit, lines of credit against liquid assets and other secured and unsecured lending products.
(iv)
The CRE loan portfolio acquired from Boston Private is made up of acquisition financing for commercial properties, such as office buildings, retail properties, apartment buildings and industrial/warehouse space. As such, all of these products are secured by real estate. Our lending to commercial real estate clients represented 4 percent of total loans atDecember 31, 2021 .
The following table provides a summary of total loans by size and class of
financing receivables. The breakout below is based on total client balances
(individually or in the aggregate) as of
December 31, 2021
Less than Five to Ten Ten to Twenty Twenty to Thirty Million
(Dollars in millions) Five Million Million Million Thirty Million or More Total
Global fund banking $ 996 $ 1,494 $ 2,905 $ 3,163 $ 29,405 $ 37,963
Investor dependent:
Early stage 1,392 219 124 - - 1,735
Growth stage 855 1,068 1,122 374 551 3,970
Total investor dependent 2,247 1,287 1,246 374 551 5,705
Cash flow dependent - SLBO 7 31 287 508 965 1,798
Innovation C&I 462 432 920 912 4,018 6,744
Private bank 6,674 950 735 217 167 8,743
CRE 823 652 869 246 80 2,670
Premium wine 215 267 269 124 120 995
Other C&I 444 169 262 217 249 1,341
Other 93 123 101 - - 317
Total Loans (1) $ 11,961 $ 5,405 $ 7,594 $ 5,761 $ 35,555 $ 66,276
(1)Included in total loans at amortized cost is approximately
PPP loans. The PPP loans consist of loans from all classes of financing
receivables.
AtDecember 31, 2021 , loans equal to or greater than$20 million to any single client (individually or in the aggregate) totaled$41.3 billion , or 62 percent of our total loan portfolio. These loans represented 768 clients, and of these loans,$21 million were on nonaccrual status as ofDecember 31, 2021 . 72 -------------------------------------------------------------------------------- Table of Contents The following table provides a summary of loans by size and class of financing receivables. The breakout below is based on total client balances (individually or in the aggregate) as ofDecember 31, 2020 : December 31, 2020 Twenty to Less than Five to Ten Ten to Twenty Thirty Thirty Million (Dollars in millions) Five Million Million Million Million or More Total Global fund banking$ 1,052 $ 1,360 $ 2,637 $ 2,777 $ 17,723 $ 25,549 Investor dependent Early stage 1,896 221 101 28 - 2,246 Growth stage 1,096 1,090 971 365 307 3,829 Total investor dependent 2,992 1,311 1,072 393 307 6,075 Cash flow dependent - SLBO 18 67 546 654 714 1,999 Innovation C&I 632 561 997 939 2,412 5,541 Private bank 3,505 597 319 95 385 4,901 Premium wine 242 273 300 121 145 1,081 Other - 19 16 - - 35 Total loans (1)$ 8,441 $ 4,188 $ 5,887 $ 4,979 $ 21,686 $ 45,181
(1)Included in total loans at amortized cost is approximately
PPP loans. The PPP loans consist of loans from all classes of financing
receivables.
AtDecember 31, 2020 , loans equal to or greater than$20 million to any single client (individually or in the aggregate) totaled$26.7 billion , or 59 percent of our total loan portfolio. These loans represented 544 clients, and of these loans,$65 million were on nonaccrual status as ofDecember 31, 2020 .
State Concentrations
Approximately 30 percent of our outstanding total loan balances as ofDecember 31, 2021 were to borrowers based inCalifornia , compared to 26 percent as ofDecember 31, 2020 . Additionally, borrowers inMassachusetts increased to 12 percent atDecember 31, 2021 , compared to 10 percent as ofDecember 31, 2020 . Borrowers inNew York represented approximately 10 percent of total loan balances at bothDecember 31, 2021 andDecember 31, 2020 . Other thanCalifornia ,Massachusetts andNew York , there are no additional states with loan balances greater than or equal to 10 percent of total loans as ofDecember 31, 2021 .
See generally “Risk Factors-Credit Risks” set forth under Part I, Item 1A of
this report.
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As of December 31, 2021 , 91 percent, or $60.4 billion , of our outstanding total
loans were variable-rate loans that adjust at a prescribed measurement date upon
a change in our prime-lending rate or other variable indices, compared to 92
percent, or $41.4 billion , as of December 31, 2020 . The following table sets
forth the remaining contractual maturity distribution of our total loans by
class of financing receivables at December 31, 2021 , for fixed and variable rate
loans:
Remaining Contractual Maturity of Loans
After
One Year After Five Years
One Year or and Through Through Fifteen After Fifteen
(Dollars in millions) Less Five Years Years Years Total
Fixed-rate loans:
Global fund banking $ 496 $ 2 $ 4 $ - $ 502
Investor dependent:
Early stage 143 38 - - 181
Growth stage 56 60 - - 116
Total investor dependent 199 98 - - 297
Cash flow dependent - SLBO 3 46 - - 49
Innovation C&I 263 220 - - 483
Private bank 11 89 177 1,308 1,585
CRE 157 522 449 34 1,162
Premium wine 5 174 446 57 682
Other C&I 8 100 149 310 567
Other 86 39 4 67 196
PPP 74 257 - - 331
Total fixed-rate loans $ 1,302 $ 1,547 $ 1,229 $ 1,776 $ 5,854
Variable-rate loans:
Global fund banking $ 36,218 $ 1,067 $ 171 $ - $ 37,456
Investor dependent:
Early stage 94 1,318 - - 1,412
Growth stage 425 3,161 249 - 3,835
Total investor dependent 519 4,479 249 - 5,247
Cash flow dependent - SLBO 207 1,463 79 - 1,749
Innovation C&I 1,090 4,694 406 - 6,190
Private bank 264 375 596 5,923 7,158
CRE 207 714 552 35 1,508
Premium wine 92 157 54 - 303
Other C&I 304 131 89 166 690
Other 16 51 27 27 121
PPP - - - - -
Total variable-rate loans $ 38,917 $
13,131$ 2,223 $ 6,151 $ 60,422 Total loans$ 40,219 $ 14,678 $ 3,452 $ 7,927 $ 66,276 Upon maturity, loans satisfying our credit quality standards may be eligible for renewal. Such renewals are subject to the normal underwriting and credit administration practices associated with new loans. We do not grant loans with unconditional extension terms.
Paycheck Protection Program
We accepted applications under the PPP administered by the SBA under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), as amended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Economic Aid Act"), and originated loans to qualified small businesses until the loan origination phase of the PPP ended onJune 30, 2021 . Under the terms of the program, loans funded through the PPP are eligible to be forgiven if certain requirements are met, including using the funds for certain costs relating to payroll, healthcare and qualifying mortgage 74 -------------------------------------------------------------------------------- Table of Contents interest, rent and utility payments. Eligible expenses also include covered operations expenditures, covered property damage costs, covered supplier costs and covered worker protection expenditures. To the extent not forgiven, loans are subject to certain terms including, among others, the following: maximum two-year term for loans issued beforeJune 5, 2020 (unless borrower and lender agree otherwise); a maximum five-year term for loans issued on or afterJune 5, 2020 ; an interest rate of 1.0%; deferral of loan payments until a loan forgiveness decision is rendered or until 10 months after the end of a borrower's forgiveness covered period; and no requirement for any collateral or personal guarantees. PPP borrowers are not required to pay any fees to the government or the lender, and the loans may be repaid by the borrower at any time. The SBA, however, will pay lenders a processing fee based on the size of the PPP loan, ranging from 1% to 5% of the loan for loans made before the enactment of the Economic Aid Act, and thereafter, a processing fee of (1) the lesser of 50% of the loan or$2,500 for loans of not more than$50,000 , (2) 5% of the loan for loans above$50,000 but not more than$350,000 , and (3) 3% of the loan for loans above$350,000 (and, in case of the first draw PPP loans only, a fee of 1% for the loans at or above$2,000,000 ). Additional loans were issuable up untilJune 30, 2021 , pursuant to the PPP Extension Act of 2021, and qualifying PPP borrowers were able to apply for second draw loans in an amount of up to$2 million . We continued to participate in the forgiveness stage of the PPP through the fourth quarter of 2021. As ofDecember 31, 2021 , we have outstanding PPP loans in the amount of$331 million , as approved by the SBA, compared to$1.6 billion atDecember 31, 2020 . This funded amount reflects repayments received as of such date.
Loan Deferral Programs
InApril 2020 , we implemented three loan payment deferral programs targeted to assist borrowers who were the most impacted by the COVID-19 pandemic. These programs included relief for venture-backed, private bank and wine borrowers who met certain criteria. The three-month private bank and wine deferral programs ended, and payments resumed, in the third quarter of 2020. The six-month venture debt and private bank deferral programs ended, and payments resumed, in the fourth quarter of 2020 for a majority of participants. As ofDecember 31, 2021 , a single loan remained modified under these programs, with an outstanding balance of$10 million . The borrower lengthened their existing interest-only payment period under the deferral program and is currently making interest-only payments. As ofDecember 31, 2020 , loans modified under these programs had outstanding balances of$769 million ,$13 million and$2 million for venture-backed, private bank and wine borrowers, respectively. These amounts reflect repayments received as ofDecember 31, 2020 . For loans modified under these programs, in accordance with the provisions of Section 4013 of the CARES Act, we elected to not apply TDR classification to borrowers who were current as ofDecember 31, 2019 . In addition, for loans modified under these programs that did not meet the CARES Act criteria, we applied the guidance in an interagency statement issued by bank regulatory agencies. Using this guidance, we may find that borrowers are not experiencing financial difficulty that may otherwise result in a TDR classification, in accordance with ASC Subtopic 310-40, if loan modifications are performed in response to the COVID-19 pandemic, provide short-term loan payment deferrals (e.g. six months in duration) and are granted to borrowers who were current as of the implementation date of the loan modification program. We evaluated all loans modified under these programs against the CARES Act and interagency guidance, as applicable, and determined the loan modifications would not be considered TDRs. We did not defer interest income recognition during periods of payment deferral, nor did any qualifying modification trigger nonaccrual status.
The Credit Committee of our Board of Directors oversees our credit risks and
strategies, as well as our key credit policies and lending practices.
Subject to the oversight of the Credit Committee, lending authority is delegated to ourChief Credit Officer and other senior members of our lending management based on certain size and underwriting criteria.
Credit Quality Indicators
As of bothDecember 31, 2021 andDecember 31, 2020 , our total criticized loans and nonaccrual loans collectively represented three percent of our total loans. Criticized loans and nonaccrual loans to early-stage clients represented 13 percent and 15 percent of our total criticized loans and nonaccrual loan balances atDecember 31, 2021 andDecember 31, 2020 , respectively. Loans to early-stage clients represent a relatively small percentage of our overall portfolio at 2 percent and 3 percent of total loans atDecember 31, 2021 andDecember 31, 2020 , respectively. It is common for an early-stage client's remaining liquidity to fall temporarily below the threshold for a pass-rated credit during its capital-raising period for a new round of funding. Based on our experience, for most early-stage clients, this situation typically lasts one to two quarters and generally resolves itself with a subsequent round of venture funding, though there are exceptions, from time to time. As a result, we expect that each of our early-stage clients will reside in our criticized portfolio during a portion of their life cycle. As ofDecember 31, 2021 we have identified the following risks to credit quality: (i) increased COVID-19 exposure from acquired Boston Private loans, (ii) larger Growth Stage and Innovation C&I loan sizes, (iii) company valuation volatility and (iv) macroeconomic risks, particularly supply chain constraints and inflation. 75 -------------------------------------------------------------------------------- Table of Contents (i) Increased COVID-19 exposure from acquired Boston Private loans - We acquired CRE loans from Boston Private that have a balance of$2.7 billion atDecember 31, 2021 . CRE is generally more impacted by restrictions to reduce the spread of COVID-19 and transitions to hybrid work environments. This risk is mitigated by the reserves held for this loan class and our limited overall exposure, with CRE representing only 4 percent of total loans atDecember 31, 2021 . (ii) Larger Growth Stage and Innovation C&I loan sizes - The size of individual loans to our Investor Dependent - Growth Stage and Innovation C&I clients has increased, which may introduce greater volatility to those portfolios' credit quality. (iii) Company valuation volatility - Given the very choppy markets which are generally a precursor to private company valuations, we could see a pullback from the very high valuations that exist today. (iv) Macroeconomic risks, particularly supply chain constraints and inflation - We see limited impact to each of these across the portfolio though the risk exists that one, or the combination of these, could post an issue for different segments.
Additionally, we have identified the following factors that could have a
positive impact on credit quality: (i) recovering business activity, (ii)
continued investor support and (iii) improved risk profile of loan portfolio.
(i) Recovering business activity - We continue to monitor our loan portfolio for the impact of the COVID-19 pandemic, especially the emergence of COVID-19 variants and continued spread. Our portfolio has limited direct exposure to the industries most severely impacted by the pandemic.
(ii) Continued investor support – We continue to see robust venture capital
investment activity and dry powder available in the market.
(iii) Improved risk profile of loan portfolio - As described above, our Investor Dependent - Early Stage class, which historically has been the most vulnerable loan class with the most losses, is now only 2 percent of total loans. Furthermore, over 70 percent of total loans are now in ourGlobal Fund Banking andPrivate Bank classes, which have low credit loss experience.
We continue to monitor the current environment to evaluate the impact of the
above on our portfolio’s credit quality and to identify the emergence of
additional factors.
ACL for Loans and for Unfunded Credit Commitments
The following table summarizes the allocation of the ACL for loans for our
portfolio segments:
December 31,
2021 2020
Percent of Total Percent of Total
(Dollars in millions) ACL Amount Loans (1) ACL Amount Loans (1)
Global fund banking $ 67 57.3 % $ 46 56.5 %
Investor dependent 146 8.3 213 11.0
Cash flow dependent and innovation C&I 118 12.8 125 15.7
Private bank 33 13.2 53 10.9
CRE 36 4.0 - -
Other C&I 14 1.9 - -
Premium wine and other 8 2.0 9 2.4
PPP - 0.5 2 3.5
Total $ 422 100.0 % $ 448 100.0 %
(1)Represents loan balances as a percentage of total loans at each respective
year-end.
To determine the ACL for performing loans as ofDecember 31, 2021 and 2020, we utilized three scenarios, on a weighted basis, fromMoody's Analytics December 2021 and 2020 forecasts, respectively, in our expected lifetime loss estimate. The baseline scenario, which carries the highest weighting of 40 percent in both periods, reflected an unemployment rate of 4.3 percent as ofDecember 31, 2021 , as a result of the ongoing economic stabilization seen in 2021, compared to 6.7 percent as ofDecember 31, 2020 . The baseline scenario also included a GDP growth rate of 6.8 percent and 4.0 percent as ofDecember 31, 2021 and 2020, respectively, reflecting ongoing expected economic recovery as the impact of the COVID-19 pandemic continues to subside. As part of the 2021 model enhancement we added the housing price index as an input, which the baseline scenario reflected as 5.9 percent as ofDecember 31, 2021 , consistent with the imbalance between supply and demand in the housing market. In addition to the baseline, we also utilized a more favorable (Moody's 76 -------------------------------------------------------------------------------- Table of Contents S1, Upside) and less favorable (Moody's S3, Downside) economic forecast scenario, each weighted at 30 percent at bothDecember 31, 2021 andDecember 31, 2020 . To the extent we identified credit risk considerations that were not captured by theMoody's Analytics scenarios, we addressed the risk through management's qualitative adjustments to our ACL for performing loans.
Gross Loan Charge-Offs
Gross loan charge-offs were$138 million for the year endedDecember 31, 2021 , of which$113 million was not specifically reserved for in prior quarters. Gross loan charge-offs not previously reserved for were primarily driven by$80 million related to a single instance of fraudulent activity on one loan disclosed in previous filings. The remaining$33 million of gross loan charge-offs not previously reserved for came primarily from our Investor Dependent and Innovation C&I loan portfolios. Gross loan charge-offs were$103 million for the year endedDecember 31, 2020 , primarily driven by$89 million charge-offs for our Investor Dependent clients and$11 million charge-offs from our Cash Flow Dependent - SLBO portfolio. The remaining charge-offs came primarily from our Private bank and Premium Wine and Other portfolios.
Net Charge-offs to Average Loans Outstanding
The following table summarizes our net charge-offs to average outstanding loans by classes of financing receivables for the years endedDecember 31, 2021 and 2020: December 31, 2021 December 31, 2020 Average Loan Average Loan (Dollars in millions) Net Charge-offs Balance Percentage Net Charge-offs Balance Percentage Global fund banking (1) $ 80$ 30,358 0.26 % $ -$ 19,403 - % Investor dependent: Early stage 28 2,131 1.31 25 1,570 1.59 Growth stage - 3,546 - 39 3,293 1.18 Total investor dependent 28 5,677 0.49 64 4,863 1.32 Cash flow dependent- SLBO 5 1,685 0.30 - 2,014 - Innovation C&I (3) 6,600 (0.05) 8 4,200 0.19 Private bank 3 6,704 0.04 2 4,260 0.05 CRE - 1,366 - - - - Premium wine - 1,047 - - 1,079 - Other C&I - 628 - - - - Other 1 155 0.65 - 112 - PPP - 327 - - 1,335 - Total$ 114 $ 54,547 0.21 % $ 74$ 37,266 0.20 %
(1)Global fund banking net charge-offs for the year ended
includes the impact of an
on one loan as disclosed in previous filings.
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Nonperforming Assets
Nonperforming assets consist of loans on nonaccrual status, loans past due 90
days or more still accruing interest, and OREO and other foreclosed assets. We
measure all loans placed on nonaccrual status for impairment based on the fair
value of the underlying collateral or the net present value of the expected cash
flows. The table below sets forth certain data and ratios between nonperforming
loans, nonperforming assets and the ACL for loans and unfunded credit
commitments:
December 31,
(Dollars in millions) 2021 2020
Nonperforming, past due, and restructured loans:
Nonaccrual loans $ 84 $ 104
Loans past due 90 days or more still accruing interest 7
–
Total nonperforming loans 91
104
OREO and other foreclosed assets 1 1 Total nonperforming assets$ 92 $ 105 Performing TDRs$ 40 $ 5 Nonaccrual loans as a percentage of total loans 0.13 % 0.23 % Nonperforming loans as a percentage of total loans 0.14
0.23
Nonperforming assets as a percentage of total assets 0.04
0.09
ACL for loans (1)$ 422 $ 448 As a percentage of total loans 0.64 % 0.99 % As a percentage of total nonperforming loans 463.74
429.54
ACL for nonaccrual loans (1)$ 35 $ 54 As a percentage of total loans 0.05 % 0.12 % As a percentage of total nonperforming loans 38.46
51.83
ACL for total performing loans (1)$ 387 $ 394 As a percentage of total loans 0.58 % 0.87 % As a percentage of total performing loans 0.58 0.87 Total loans$ 66,276 $ 45,181 Total performing loans 66,185 45,077 ACL for unfunded credit commitments (2) 171
121
As a percentage of total unfunded credit commitments 0.39 % 0.38 % Total unfunded credit commitments (3)$ 44,016 $ 31,982 (1)The "ACL for loans" atDecember 31, 2021 includes an initial allowance of$66 million related to Boston Private loans, of which$2 million is related to nonaccrual loans. See "Provision for Credit Losses" for a detailed discussion of the changes to the allowance. (2)The "ACL for unfunded credit commitments" is included as a component of other liabilities and any provision is included in the "provision for credit losses" in the statement of income. AtDecember 31, 2021 , this includes an initial allowance of$2 million related to Boston Private commitments. See "Provision for Credit Losses" for a detailed discussion of the changes to the allowance. (3)Includes unfunded loan commitments and letters of credit. Our ACL for loans as a percentage of total loans decreased 35 bps to 0.64 percent atDecember 31, 2021 , compared to 0.99 percent atDecember 31, 2020 . The 35 bps decrease consists primarily of a 29 bps decrease for our performing loans reserve as a percentage of total loans and a 7 bps decrease for our nonaccrual individually assessed loans. The decreases were primarily driven by improved economic conditions and enhancements in our reserving model, which were partially offset by increases from organic loan growth and the acquisition of Boston Private. Much of our organic loan growth is driven by ourGlobal Fund Banking portfolio, which historically has had very low loss rates. Should the growth in this lower risk portfolio persist, it will continue to reduce the ratio of ACL to total loans. Our performing loans reserve as a percentage of total loans includes 9 bps from the inclusion of Boston Private; nonaccrual reserves as a percentage of total loans includes less than one basis point from Boston Private. For a detailed discussion of changes in the current period's provision, including the impacts of the model enhancements and the Boston Private acquisition, see "Provision for Credit Losses." 78 -------------------------------------------------------------------------------- Table of Contents Our ACL for performing loans was$387 million atDecember 31, 2021 , compared to$394 million atDecember 31, 2020 . The$7 million decrease was driven primarily by the improved economic scenarios in our forecast models, reflective of the ongoing improvement of the economic outlooks as the impact of the COVID-19 pandemic begins to subside and enhancements to our reserving model, which was partially offset by growth in our loan portfolio. For a detailed discussion of changes in the current period's provision, including the impacts of the model enhancements and the Boston Private acquisition see "Provision for Credit Losses."
Nonaccrual Loans
The following table presents a summary of changes in nonaccrual loans for the
years ended
Year ended December
31,
(Dollars in millions) 2021 2020
Balance, beginning of period (1) $ 104 $ 103
Additions 98 201
Paydowns and other reductions (91) (137)
Charge-offs (27) (63)
Balance, end of period $ 84 $ 104
(1)As of
amortized cost basis as a result of the adoption of CECL. Prior period loan
amounts are disclosed using the gross basis.
Our nonaccrual loan balance decreased$20 million to$84 million atDecember 31, 2021 , compared to$104 million atDecember 31, 2020 . The decrease was driven by$27 million in charge-offs and$91 million in paydowns and other reductions, partially offset by$98 million in new nonaccrual loans. Charge-offs of nonaccrual loans were primarily driven by clients in our Investor Dependent - Early Stage loan class. Paydowns and other reductions were primarily driven by$22 million from one Investor Dependent - Growth Stage client,$17 million from one Premium Wine client, and$14 million from one CRE client. New nonaccrual loans were driven primarily by the acquisition of$31 million nonaccrual loans from Boston Private,$17 million from one Premium Wine client, and$12 million from twoPrivate Bank clients. The remaining new nonaccrual loans were primarily driven by our Investor Dependent portfolio. As ofDecember 31, 2021 , we have specifically reserved$35 million for our nonaccrual loans. Average nonaccrual loans for the year endedDecember 31, 2021 were$105 million compared to$85 million atDecember 31, 2020 . The increase in average nonaccrual loans was primarily driven by organic loan growth throughout the year and the acquisition of loans from Boston Private in the third quarter of 2021, while many paydowns occurred during the fourth quarter. If the nonaccrual loans for the years endedDecember 31, 2021 and 2020 had not been nonperforming,$3 million and$2 million , respectively, in interest income would have been recorded.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at
and
December 31,
(Dollars in millions) 2021 2020 % Change
Derivative assets (1) $ 565 $ 488 15.8 %
Foreign exchange spot contract assets, gross 119 2,108 (94.4)
AIR 470 245 91.8
FHLB and FRB stock 107 61 75.4
Net deferred tax assets 24 1 NM
Accounts receivable 54 37 45.9
Other assets 589 266 121.4
Total AIR and other assets $ 1,928 $ 3,206 (39.9)
(1)See “Derivatives” section below.
79 -------------------------------------------------------------------------------- Table of Contents Foreign Exchange Spot Contract Assets The decrease of$2.0 billion in foreign exchange spot contract assets was primarily due to a decrease in the number of unsettled spot trades with large notional balances atDecember 31, 2021 asDecember 31, 2020 had several large unsettled spot trades at year-end.
Accrued interest receivable
The increase of
period-end balances of our HTM investment securities portfolio and loans at
Net deferred tax assets
Net deferred tax assets increased$23 million as our tax position changed from a payable to a receivable primarily due to the decrease in the fair value of our AFS securities and the adoption of fair value accounting on loans and debt securities for income tax purposes as a result of the Boston Private acquisition.
Other Assets
Other assets includes various asset amounts for other operational transactions. The increase of$323 million was due primarily to$122 million increase in current taxes receivable reflective of an overpayment of federal and state taxes, a$28 million increase in prepaid expenses, a$29 million increase in capitalized cloud computing costs reflective of investments in systems and technology to support our revenue growth and related initiatives and the acquisition of Boston Private which impacted several line items within other assets. Derivatives
Derivative instruments are recorded as a component of other assets and other
liabilities on the balance sheet. The following table provides a summary of
derivative assets and liabilities at
December 31,
(Dollars in millions) 2021 2020 % Change
Assets:
Equity warrant assets $ 277 $ 203 36.5 %
Foreign exchange forward, swap and option contracts 171 217
(21.2)
Client interest rate derivatives 99 68 45.6 Interest rate swaps 18 - - Total derivatives assets$ 565 $ 488 15.8 Liabilities:
Foreign exchange forward, swap and option contracts
(34.8)
Client interest rate derivatives 101 27 NM Total derivatives liabilities$ 238 $ 237 0.4 Equity Warrant Assets In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. AtDecember 31, 2021 , we held warrants in 2,831 companies, compared to 2,602 companies atDecember 31, 2020 . Warrants in 47 companies each had values greater than$1 million and collectively represented$140 million , or 50.5 percent, of the fair value of the total warrant portfolio. The change in fair value of equity warrant assets is recorded in "Gains on equity warrant assets, net", in noninterest income, a component of consolidated net income. The following table provides a summary of transactions and valuation changes for the years endedDecember 31, 2021 and 2020: 80
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Year ended December 31,
(Dollars in millions) 2021 2020
Balance, beginning of period $ 203 $ 165
New equity warrant assets 25 20
Non-cash increases in fair value 116 60
Exercised equity warrant assets (65)
(40)
Terminated equity warrant assets (2)
(2)
Balance, end of period $ 277$ 203
Foreign Exchange Forward and Foreign Currency Option Contracts
We enter into foreign exchange forward and swap contracts and foreign currency option contracts with clients involved in foreign activities, either as the purchaser or seller, depending upon the clients' needs. For each forward, swap or option contract entered into with our clients, we enter into an opposite way forward, swap or option contract with a correspondent bank, which mitigates the risk of fluctuations in currency rates. We also enter into forward contracts with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments. Net gains and losses on the revaluation of foreign currency denominated instruments are recorded in the line item "Other" as part of noninterest income, a component of consolidated net income. We have not experienced nonperformance by any of our counterparties and therefore have not incurred any related losses. Further, we anticipate performance by all counterparties. Our net exposure for foreign exchange forward and swaps and foreign currency option contracts, net of cash collateral, was zero atDecember 31, 2021 and$31 million atDecember 31, 2020 . For additional information on our foreign exchange forward contracts and swap and foreign currency option contracts, see Note 16-"Derivative Financial Instruments" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report.
Client Interest Rate Derivatives
We sell interest rate contracts to clients who wish to mitigate their interest rate exposure. We economically reduce the interest rate risk from this business by entering into opposite way contracts with correspondent banks. Our net exposure for client interest rate derivative contracts, net of cash collateral, was$47 million atDecember 31, 2021 and$67 million atDecember 31, 2020 . For additional information on our client interest rate derivatives, refer to Note 16-"Derivative Financial Instruments" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report.
Interest Rate Swaps
To manage interest rate risk on our AFS securities portfolio, we enter into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of the securities resulting from changes in interest rates. We designate these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815 and record them in other assets and other liabilities. Our net exposure for interest rate swaps was$5 million atDecember 31, 2021 . We had zero net exposure for interest rate swaps atDecember 31, 2020 . Refer to Note 16-"Derivative Financial Instruments" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report for additional information.
Deposits
The following table presents the composition of our deposits as ofDecember 31, 2021 and 2020: December 31, (Dollars in millions) 2021 2020 Noninterest-bearing demand$ 125,851
Interest-bearing checking and savings accounts 5,106
4,801
Money market 54,842
28,406
Money market deposits in foreign offices 696 617
Sweep deposits in foreign offices 969 951
Time 1,739 688
Total deposits $ 189,203 $ 101,982
The increase in deposits of $87.2 billion in 2021 was driven by growth across
all portfolios with the primary contributor coming from our Technology and
healthcare portfolio driven by exits in the first half of 2021 and strong
private fundraising throughout 2021 . The Boston Private acquisition contributed
$8.9 billion of deposit growth. No material portion of our deposits has been
obtained from a single depositor and the loss of any one depositor would not
materially affect our
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business. Approximately 9 percent and 12 percent of our total deposits at
At
deposits, compared to 35 percent at
Uninsured Deposits in
AtDecember 31, 2021 and 2020, the amount of estimated uninsured deposits inU.S. offices that exceed theFDIC insurance limit were$166.0 billion and$88.6 billion , respectively. AtDecember 31, 2021 and 2020, foreign deposits of$16.1 billion and$8.4 billion , respectively, were not subject to anyU.S. federal or state deposit insurance regime. The amounts disclosed above are derived using the same methodologies and assumptions used for regulatory reporting requirements.
Time Deposits
The maturity profile of our time deposits as ofDecember 31, 2021 is as follows: December 31, 2021 More than More than six Three months three months months to More than (Dollars in millions) or less to six months twelve months twelve months
Total
U.S. time deposits in excess of theFDIC insured amount $ 53 $ 54 $ 85 $ 16 $
208
Non-U.S. time deposits in excess of insured amount 1,048 286 18 - 1,352 Remaining time deposits 69 51 51 8 179 Total time deposits$ 1,170 $ 391 $ 154 $ 24$ 1,739 Short-Term Borrowings The following table summarizes our short-term borrowings that mature in one month or less: December 31, 2021 2020 (Dollars in millions) Amount Rate Amount Rate
Securities sold under agreement to repurchase
Other short-term borrowings 60 0.07
21 0.08
Total short-term borrowings$ 121 0.06
We had$121 million in short-term borrowings atDecember 31, 2021 , compared to$21 million atDecember 31, 2020 . For more information on our short-term debt, see Note 15-"Short-Term Borrowings and Long-Term Debt" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report. 82
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Average daily balances for our short-term borrowings in 2021, 2020 and 2019 were
as follows:
Year ended December 31,
(Dollars in millions) 2021 2020 2019
Average daily balances:
Short-term FHLB advances $ - $ 296 $ 64
Federal Funds purchased (1) 1
13 25
Securities sold under agreements to repurchase 41
65 37
Other short-term borrowings (2) 32
27 19
Total average short-term borrowings$ 74
Weighted average interest rate during the year:
Short-term FHLB advances - %
0.62 % 2.57 %
Federal Funds purchased 0.13
0.73 2.45
Securities sold under agreements to repurchase 0.05
1.74 2.65
Other short-term borrowings 0.30 0.28 1.92 (1)As part of our liquidity risk management practices, we periodically test availability and access to overnight borrowings in the Federal Funds market. These balances represent short-term borrowings. (2)Represents cash collateral received from certain counterparties in relation to market value exposures of derivative contracts in our favor.
Long-Term Debt
The following table represents outstanding long-term debt atDecember 31, 2021 and 2020: December 31, (Dollars in millions) Principal value at December 31, 2021 2021 2020 3.50% Senior Notes due 2025 $ 350$ 349 $ 349 3.125% Senior Notes due 2030 500 496 495 1.800% Senior Notes due 2031 500 494 - 2.100% Senior Notes due 2028 500 496 - 1.800% Senior Notes due 2026 650 645 - Junior subordinated debentures 100 90 - Total long-term debt $ 2,600$ 2,570 $ 844 As ofDecember 31, 2021 , long-term debt was comprised of our 3.50% Senior Notes due 2025, 3.125% Senior Notes due 2030, 1.800% Senior Notes due 2031, 2.100% Senior Notes due 2028, 1.800% Senior Notes due 2026 and junior subordinated debentures. The increase was driven by issuances of senior notes during the first, second and fourth quarters of 2021 and the assumption of junior subordinated debentures as part of the Boston Private acquisition. For more information on our long-term debt outstanding atDecember 31, 2021 , refer to Note 15-"Short-Term Borrowings and Long-Term Debt" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report. 83 -------------------------------------------------------------------------------- Table of Contents Other Liabilities
A summary of other liabilities at
December 31,
(Dollars in millions) 2021 2020 % Change
Foreign exchange spot contract liabilities, gross $ 160 $ 2,165 (92.6) %
Accrued compensation 896 545 64.4
Derivative liabilities (1) 238 237 0.4
Allowance for unfunded credit commitments 171 121 41.3
Net deferred tax liabilities - 173 (100.0)
Other liabilities 1,122 731 53.5
Total other liabilities $ 2,587 $ 3,972 (34.9)
(1)See “Derivatives” section above.
Foreign Exchange Spot Contract Liabilities
Foreign exchange spot contract liabilities represent unsettled client trades at the end of the period. The decrease of$2.0 billion in foreign exchange spot contract liabilities was primarily due to a decrease in the number of unsettled spot trades with large notional balances atDecember 31, 2021 asDecember 31, 2020 had several large unsettled spot trades at year-end.
Accrued Compensation
Accrued compensation includes amounts for our Incentive Compensation Plan, Direct Drive Incentive Compensation Plan, Retention Program, Warrant Incentive Plan, ESOP, SVB Securities Incentive Compensation Plan, SVB Securities Retention Award and other compensation arrangements. The increase of$351 million was driven primarily by an increase in accrued incentive pay as a result of our strong 2021 full-year financial performance and an increase in the number of average FTEs in 2021. For a description of our variable compensation plans, refer to Note 19-"Employee Compensation and Benefit Plans" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report.
Allowance for Unfunded Credit Commitments
Allowance for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit. The increase of$50 million was attributable to commitment growth and changes in portfolio composition and an increase in the expected future commitments for milestone tranches of Investor Dependent loans, which are tied to company performance or additional funding rounds, resulting in a longer weighted average life of these higher risk segments. Additionally, we recorded an initial provision of$2 million related to Boston Private unfunded commitments in the third quarter of 2021.
Net Deferred Tax Liabilities
Net deferred tax liabilities decreased$173 million as our tax position changed to a net deferred tax asset position of$24 million due primarily to the decrease in the fair value of our AFS securities and the adoption of fair value accounting on loans and debt securities for income tax purposes as a result of the Boston Private acquisition.
Other Liabilities
Other liabilities includes various accrued liability amounts for other operational transactions. The increase of$391 million was driven primarily by$60 million of unsettled fixed income investment securities purchases and a$112 million increase in investments payable related to investments in qualified affordable housing projects. Noncontrolling Interests Noncontrolling interests totaled$373 million and$213 million atDecember 31, 2021 andDecember 31, 2020 , respectively. The increase was due to net income attributable to noncontrolling interests of$240 million , partially offset by net capital distributions of$80 million for the year endedDecember 31, 2021 . For more information, refer to Note 2-"Summary of Significant Accounting Policies" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report. 84 -------------------------------------------------------------------------------- Table of Contents Capital Resources We maintain an adequate capital base to support anticipated asset growth, operating needs, and credit and other business risks, and to provide forSVB Financial and the Bank to be in compliance with applicable regulatory capital guidelines, including the joint agency rules implementing the "Basel III" capital rules (the "Capital Rules"). Our primary sources of new capital include retained earnings and proceeds from the sale and issuance of our capital stock or other securities. Under the oversight of theFinance Committee of our Board of Directors, management engages in regular capital planning processes in an effort to optimize the use of the capital available to us and to appropriately plan for our future capital needs. The capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments. In addition, we conduct capital stress tests as part of our annual capital planning process. The capital stress tests allow us to assess the impact of adverse changes in the economy and interest rates on our capital adequacy position.
SVBFG Stockholders’ Equity
SVBFG stockholders' equity totaled$16.2 billion atDecember 31, 2021 , an increase of$8.0 billion , or 97.5 percent, compared to$8.2 billion atDecember 31, 2020 . The increase was driven primarily by a$3.4 billion issuance of common stock, of which$1.1 billion was issued to complete the acquisition ofBoston Private,$3.3 billion issuance of preferred stock and$1.8 billion of net income, offset partially by the decrease in AOCI of$632 million . The decrease in AOCI was driven primarily by a$644 million (or$465 million net of tax) decrease in the fair value of our AFS securities portfolio reflective of increases in market interest rates.
Funds generated through retained earnings are a significant source of capital
and liquidity and are expected to continue to be so in the future.
Common Stock
OnMarch 22, 2021 , to support the continued growth of our balance sheet, we issued and sold 2,000,000 shares of common stock at a price of$500.00 per share. We received net proceeds of$972 million after deducting underwriting discounts and commissions. OnApril 14, 2021 , we issued and sold an additional 300,000 shares of common stock under the full exercise of the underwriter's over-allotment option resulting in additional net proceeds of approximately$146 million after deducting discounts and commissions. OnJuly 1, 2021 , we issued 1,887,981 shares of common stock for the acquisition of Boston Private at an exchange ratio of 0.0228 SIVB shares per Boston Private share totaling$1.1 billion . OnAugust 12, 2021 , we issued and sold an additional 2,227,000 shares of common stock at an offering price of$564.00 per share, which resulted in net proceeds of$1.2 billion . Preferred Stock OnFebruary 2, 2021 ,SVB Financial Group issued 750,000 depositary shares each representing a 1/100th ownership interest in a share of 4.10% Non-Cumulative Perpetual Series B Preferred Stock (''Series B Preferred Stock'') with a$0.001 par value and a liquidation preference of$100,000 per share, or$1,000 per depositary share. The Series B Preferred Stock is perpetual and has no stated maturity. Dividends are approved by the Board of Directors and, if declared, are payable quarterly, in arrears, at a rate per annum equal to (i) 4.10 percent from the original issue date to, but excluding,February 15, 2031 and (ii) for theFebruary 15, 2031 dividend date and during each subsequent ten year period, the ten-year treasury rate (calculated three business days prior to each reset date as the five day average of the yields on actively tradedU.S. treasury securities adjusted to constant maturity, for ten-year maturities) plus 3.064 percent. As ofDecember 31, 2021 , our Series B Preferred Stock had a carrying value of$739 million and a liquidation preference of$750 million . OnMay 13, 2021 ,SVB Financial Group issued 1,000,000 depositary shares each representing a 1/100th ownership interest in a share of 4.00% Non-Cumulative Perpetual Series C Preferred Stock (''Series C Preferred Stock'') with a$0.001 par value and a liquidation preference of$100,000 per share, or$1,000 per depositary share. The Series C Preferred Stock is perpetual and has no stated maturity. Dividends, if approved and declared by the Board of Directors, are payable quarterly, in arrears, at a rate per annum equal to (i) 4.000 percent from the original issue date to, but excluding,May 15, 2026 , and (ii) for theMay 15, 2026 dividend date and during each subsequent five year period, the five-year treasury rate (calculated three business days prior to each reset date as the five day average of the yields on actively tradedU.S. treasury securities adjusted to constant maturity, for five-year maturities) plus 3.202 percent. As ofDecember 31, 2021 , our Series C Preferred Stock had a carrying value of$985 million and a liquidation preference of$1.0 billion . OnOctober 28, 2021 ,SVB Financial Group issued 1,000,000 depositary shares each representing a 1/100th ownership interest in a share of 4.25% Non-Cumulative Perpetual Series D Preferred Stock (''Series D Preferred Stock'') with a$0.001 par value and a liquidation preference of$100,000 per share, or$1,000 per depositary share. The Series D Preferred Stock is perpetual and has no stated maturity. Dividends, if approved and declared by the Board of Directors, are payable quarterly, in 85 -------------------------------------------------------------------------------- Table of Contents arrears, at a rate per annum equal to (i) 4.250 percent from the original issue date to, but excluding,November 15, 2026 , and (ii) for theNovember 15, 2026 dividend date and during each subsequent five year period, the five-year treasury rate (calculated three business days prior to each reset date as the five day average of the yields on actively tradedU.S. treasury securities adjusted to constant maturity, for five-year maturities) plus 3.074 percent. As ofDecember 31, 2021 , our Series D Preferred Stock had a carrying value of$989 million and a liquidation preference of$1.0 billion . OnOctober 28, 2021 ,SVB Financial Group also issued 600,000 depositary shares each representing a 1/100th ownership interest in a share of 4.70% Series E Preferred Stock ("Series E Preferred Stock") with a$0.001 par value and a liquidation preference of$100,000 per share, or$1,000 per depositary share. The Series E Preferred Stock is perpetual and has no stated maturity. Dividends, if approved and declared by the Board of Directors, are payable quarterly, in arrears, at a rate per annum equal to (i) 4.700 percent from the original issue date to, but excluding,November 15, 2031 , and (ii) for theNovember 15, 2031 dividend date and during each subsequent ten years period, the ten-year treasury rate (calculated three business days prior to each reset date as the five day average of the yields on actively tradedU.S. treasury securities adjusted to constant maturity, for five-year maturities) plus 3.064 percent. As ofDecember 31, 2021 , our Series E Preferred Stock had a carrying value of$593 million and a liquidation preference of$600 million .
Capital Ratios
Regulatory capital ratios forSVB Financial and the Bank exceeded minimum federal regulatory guidelines under the current Capital Rules as well as for a well-capitalized bank holding company and insured depository institution as defined under theFederal Reserve's Regulation Y, respectively, as ofDecember 31, 2021 , and 2020. See Note 23-"Regulatory Matters" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report for further information. Capital ratios forSVB Financial and the Bank, compared to the minimum capital ratios are set forth below: Required Minimum + December 31, Capital Conservation Buffer Well Capitalized 2021 2020 Required Minimum (1) MinimumSVB Financial : CET1 risk-based capital ratio (2) (3) 12.09 % 11.04 % 4.5 % 7.0 % N/A Tier 1 risk-based capital ratio (3) 16.08 11.89 6.0 8.5 6.0 Total risk-based capital ratio (3) 16.58 12.64 8.0 10.5 10.0 Tier 1 leverage ratio (2) (3) 7.93 7.45 4.0 N/A N/A Tangible common equity to tangible assets ratio (4)(5) 5.73 6.66 N/A N/A N/A Tangible common equity to risk-weighted assets ratio (4)(5) 11.98 11.87 N/A N/A N/A
Bank:
CET1 risk-based capital ratio (3) 14.89 % 10.70 % 4.5 % 7.0 % 6.5 % Tier 1 risk-based capital ratio (3) 14.89 10.70 6.0 8.5 8.0 Total risk-based capital ratio (3) 15.40 11.49 8.0 10.5 10.0 Tier 1 leverage ratio (3) 7.24 6.43 4.0 N/A 5.0 Tangible common equity to tangible assets ratio (4)(5) 7.09 6.24 N/A N/A N/A Tangible common equity to risk-weighted assets ratio (4)(5) 15.06 11.58 N/A N/A N/A (1)Percentages represent the minimum capital ratios plus, as applicable, the fully phased-in 2.5% CET1 capital conservation buffer under the Capital Rules. (2)"Well-Capitalized Minimum" CET1 risk-based capital and Tier 1 leverage ratios are not formally defined under applicable banking regulations for bank holding companies. (3)Capital ratios include regulatory capital phase-in of the ACL under the 2020 CECL Transition Rule for periods beginningDecember 31, 2020 . (4)See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets. (5)The FRB has not issued any minimum guidelines for the tangible common equity to tangible assets ratio or the tangible common equity to risk-weighted assets ratio, however, we believe these ratios provide meaningful supplemental information regarding our capital levels and are therefore provided above. Our risk-based capital ratios, tier 1 capital ratios and leverage ratios increased for bothSVB Financial andSilicon Valley Bank as ofDecember 31, 2021 , compared toDecember 31, 2020 . The increase in capital ratios was driven primarily by increases in our capital, partially offset by increases in our risk-weighted and average assets. The increase in capital forSVB Financial was driven by the issuance of common and preferred stock and net income. The increase in capital forSilicon Valley Bank was driven by a$5.8 billion downstream capital infusion from our bank holding company during the year ended 86 -------------------------------------------------------------------------------- Table of ContentsDecember 31, 2021 . The increase in average assets was driven by increases in our fixed income investments and loan portfolios. All of our reported capital ratios remain above the levels considered to be "well capitalized" under applicable banking regulations.
Non-GAAP Tangible Common Equity to Tangible Assets and Non-GAAP Tangible Common
Equity to Risk-weighted Assets
The tangible common equity, or tangible book value, to tangible assets ratio and the tangible common equity to risk-weighted assets ratios are not required by GAAP or applicable bank regulatory requirements. However, we believe these ratios provide meaningful supplemental information regarding our capital levels. Our management uses, and believes that investors benefit from referring to, these ratios in evaluating the adequacy of the Company's capital levels; however, these financial measures should be considered in addition to, not as a substitute for or preferable to, comparable financial measures prepared in accordance with GAAP. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies. The following table provides a reconciliation of non-GAAP financial measures with financial measures defined by GAAP: Non-GAAP tangible common equity and tangible assets SVB Financial (Dollars in millions, except December 31, December 31,
ratios)
2021 2020 2019 2018 2017
GAAP SVBFG stockholders’ equity
$ 6,470 $ 5,116 $ 4,180 Less: preferred stock 3,646 340 340 - - Less: intangible assets 535 204 187 - - Plus: net deferred taxes on intangible assets 26 - - - - Tangible common equity$ 12,081 $ 7,676 $ 5,943 $ 5,116 $ 4,180 GAAP total assets$ 211,478 $ 115,511 $ 71,005 $ 56,928 $ 51,214 Less: intangible assets 535 204 187 - - Plus: net deferred taxes on intangible assets 26 - - - - Tangible assets$ 210,969 $ 115,307 $ 70,818 $ 56,928 $ 51,214 Risk-weighted assets$ 100,812 $ 64,681 $ 46,577 $ 38,528 $ 32,737 Non-GAAP tangible common equity to tangible assets 5.73 % 6.66 % 8.39 % 8.99 % 8.16 % Non-GAAP tangible common equity to risk-weighted assets 11.98 11.87 12.76 13.28 12.77 Non-GAAP tangible common equity and tangible assets
Bank
(Dollars in millions, except
December 31, December 31, December 31, ratios) 2021 2020 2019 2018 2017 Tangible common equity$ 14,795 $ 7,069 $ 5,034 $ 4,555 $ 3,763 Tangible assets$ 208,576 $ 113,303 $ 69,564 $ 56,047 $ 50,384 Risk-weighted assets$ 98,214 $ 61,023 $ 44,502 $ 37,104 $ 31,403 Non-GAAP tangible common equity to tangible assets 7.09 % 6.24 % 7.24 % 8.13 % 7.47 % Non-GAAP tangible common equity to risk-weighted assets 15.06 11.58 11.31 12.28 11.98
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In the normal course of business, we use financial instruments with off-balance
sheet risk to meet the financing needs of our customers. These financial
instruments include commitments to extend credit, standby letters of credit and
commitments to invest in venture capital and private equity fund investments.
These instruments involve, to varying degrees, elements of credit risk. Credit
risk is defined as the possibility of sustaining a loss because other parties to
the financial instrument fail to perform in accordance with the terms of the
contract. The actual liquidity needs and the credit risk that we have
experienced have historically been lower than the contractual amount of these
commitments because a significant portion of these commitments expire without
being drawn upon. Refer to the discussion of our off-balance sheet arrangements
in Note 21-"Off-Balance Sheet Arrangements, Guarantees and Other Commitments" of
the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of
this report.
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The following table summarizes our unfunded commercial commitments as of
Amount of Commitments Expiring per Period
Less than 1 After 5
(Dollars in millions) Total year 1-3 years 4-5 years years
Commercial commitments:
Loan commitments available for funding $ 40,327
Standby letters of credit
3,612 3,492 89 18 13 Commercial letters of credit 77 40 37 - - Total unfunded credit commitments$ 44,016
The following table summarizes our contractual obligations to make future
payments as of
Payments Due By Period
Less than 1 After 5
(Dollars in millions) Total year 1-3 years 4-5 years years
SVBFG contractual obligations:
Deposits (1) (2) $ 189,203 $
189,203 $ – $ – $ –
Borrowings (2)
2,691 121 349 645 1,576 Non-cancelable operating leases 416 77 139 88 112 Commitments to qualified affordable housing projects 482 173 271 14 24 Total obligations attributable to SVBFG$ 192,792 $ 189,574 $ 759 $ 747 $ 1,712 (1)Includes time deposits and deposits with no defined maturity, such as noninterest-bearing demand, interest-bearing checking, savings, money market and sweep accounts. (2)Amounts exclude contractual interest. Excluded from the tables above are unfunded commitment obligations of$22 million to our managed funds of funds and other fund investments for which neither the payment, timing, nor eventual obligation is certain. Subject to applicable regulatory requirements, including the Volcker Rule (see "Business - Supervision and Regulation" under Part I, Item 1 of this report), we make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to generally call most of the capital commitments over 5 to 7 years; however in certain cases, the funds may not call 100% of committed capital over the life of the fund. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate. Additionally, our consolidated managed funds of funds have $3.0 million of remaining unfunded commitments to venture capital and private equity funds. See Note 9-"Investment Securities" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report for further disclosure related to non-marketable and other equity securities. Additional discussion of our off-balance sheet arrangements for these fund investments is included in Note 21-"Off-Balance Sheet Arrangements, Guarantees and Other Commitments" of the "Notes to the Consolidated Financial Statements" under Part II, Item 8 of this report.
Liquidity
The objective of liquidity management is to ensure that funds are available in a
timely manner to meet our financial obligations, including, as necessary, paying
creditors, meeting depositors' needs, accommodating loan demand and growth,
funding investments, repurchasing securities and other operating or capital
needs, without incurring undue cost or risk, or causing a disruption to normal
operating conditions.
We regularly assess the amount and likelihood of projected funding requirements
through a review of factors such as historical deposit volatility and funding
patterns, present and forecasted market and economic conditions, individual
client funding needs, and existing and planned business activities. Our
Asset/Liability Committee ("ALCO"), which is a management committee, provides
oversight to the liquidity management process and recommends policy guidelines
for the approval of the Finance Committee of our Board of Directors, and courses
of action to address our actual and projected liquidity needs. Additionally, we
routinely conduct liquidity stress testing as part of our liquidity management
practices.
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Historically, client deposits have been our primary source of liquidity. Our
deposit levels and cost of deposits may fluctuate from time to time due to a
variety of factors, including market conditions, prevailing interest rates,
changes in client deposit behaviors, availability of insurance protection, and
our offering of deposit products. We may also offer more investment alternatives
for our off-balance sheet products which may impact deposit levels. At December
31, 2021, our period-end total deposit balances increased to $189.2 billion,
compared to $102.0 billion at December 31, 2020.
Our liquidity requirements can also be met through the use of our portfolio of
liquid assets. Our definition of liquid assets includes cash and cash
equivalents in excess of the minimum levels necessary to carry out normal
business operations, short-term investment securities maturing within one year,
AFS securities eligible and available for financing or pledging purposes with a
maturity in excess of one year and anticipated near-term cash flows from
investments.
We have certain facilities in place to enable us to access short-term borrowings
on a secured and unsecured basis. Our secured facilities include collateral
pledged to the FHLB of San Francisco and the discount window at the FRB (using
both fixed income securities and loans as collateral). Our unsecured facility
consists of our uncommitted federal funds lines. As of December 31, 2021,
collateral pledged to the FHLB of San Francisco was comprised primarily of fixed
income investment securities and loans and had a carrying value of $7.3 billion,
of which $6.3 billion was available to support additional borrowings. As of
December 31, 2021, collateral pledged to the discount window at the FRB was
comprised of fixed income investment securities and had a carrying value of $0.8
billion, all of which was unused and available to support additional borrowings.
Our total unused and available borrowing capacity for our uncommitted federal
funds lines totaled $2.1 billion at December 31, 2021. Our total unused and
available borrowing capacity under our master repurchase agreements with various
financial institutions totaled $5.5 billion at December 31, 2021.
Additionally, interim final capital rules issued by federal bank regulatory
agencies have neutralized the regulatory capital effects of participating in the
PPP, in that loans outstanding are assessed a zero percent risk weight for
regulatory capital purposes.
On a stand-alone basis,
dividends from the Bank, its portfolio of liquid assets, and its ability to
raise debt and capital. The ability of the Bank to pay dividends is subject to
certain regulations described in “Business-Supervision and
Regulation-Restrictions on Dividends” under Part I, Item 1 of this report.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for
2021 and 2020, respectively: (For further details, see our Consolidated
Statements of Cash Flows under “Consolidated Financial Statements and
Supplementary Data” under Part II, Item 8 of this report.)
Year ended December 31,
(Dollars in millions) 2021
2020
Average cash and cash equivalents $ 23,041 $ 13,273 Percentage of total average assets 13.9 % 15.5 % Net cash provided by operating activities $ 1,812 $ 1,446 Net cash used for investing activities (90,336)
(31,206)
Net cash provided by financing activities 85,468
40,653
Net (decrease) increase in cash and cash equivalents $ (3,056)
$ 10,893
Average cash and cash equivalents increased to $23.0 billion in 2021, compared
to $13.3 billion for 2020. Average deposits increased $72.9 billion which
enabled us to grow our average loan portfolio by $17.3 billion in 2021.
December 31, 2021
Cash provided by operating activities of $1.8 billion in 2021 included net income before noncontrolling interests of $2.1 billion partially offset by $254 million from changes in other assets and liabilities and $7 million from changes from adjustments to reconcile to net income to net cash. Cash used for investing activities of $90.3 billion in 2021 was driven by $97.7 billion in purchases of fixed income investment securities and a $13.7 billion increase in loan balances, partially offset by $19.8 billion in proceeds from sales, maturities and principal pay downs from our fixed income investment securities portfolio and $1.1 billion in proceeds from the acquisition ofBoston Private.
Cash provided by financing activities of $85.5 billion in 2021 reflective
primarily of a $78.2 billion increase in deposits, $5.7 billion in capital
raised by our preferred and common stock issuances, and $1.6 billion increase
from the issuance of long-term debt.
89 -------------------------------------------------------------------------------- Table of Contents Cash and cash equivalents at December 31, 2021 were $14.6 billion, compared to $17.7 billion at December 31, 2020.
December 31, 2020
Cash provided by operating activities of $1.4 billion in 2020 included net
income before noncontrolling interests of $1.3 billion and $200 million from
changes in other assets and liabilities, offset by $49 million from changes from
adjustments to reconcile to net income to net cash.
Cash used for investing activities of $31.2 billion in 2020 included $19.1
billion of net outflows from our fixed income securities portfolio due to $30.0
billion of purchases, offset by fixed income inflows of $10.9 billion in
portfolio cash flows from sales, maturities and paydowns, and $11.9 billion of
net outflows from funded loans.
Cash provided by financing activities of $40.7 billion in 2020 was driven
primarily by the net increase in deposits of $40.2 billion and $495 million from
the issuance of our 3.125% Senior Notes. Cash and cash equivalents at December
31, 2020 were $17.7 billion, compared to $6.8 billion at December 31, 2019.
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