Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2012

Receivables [Abstract]

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

We serve a variety of commercial clients in the technology, life science, venture capital/private equity and premium wine industries. Our technology clients generally tend to be in the industries of hardware (semiconductors, communications and electronics), software and related services, and clean technology. Because of the diverse nature of clean technology products and services, for our loan-related reporting purposes, cleantech-related loans are reported under our hardware, software, life science and other commercial loan categories, as applicable. Our life science clients are concentrated in the medical devices and biotechnology sectors. Loans made to venture capital/private equity firm clients typically enable them to fund investments prior to their receipt of funds from capital calls. Loans to the premium wine industry focus on vineyards and wineries that produce grapes and wines of high quality.

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

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

The composition of loans, net of unearned income of $77 million and $60 million at December 31, 2012 and 2011, respectively, is presented in the following table:

	December 31,
(Dollars in thousands)	2012		2011
Commercial loans:
Software	$	3,261,489	$	2,492,849
Hardware	1,118,370		952,303
Venture capital/private equity	1,732,699		1,117,419
Life science	1,066,199		863,737
Premium wine	143,511		130,245
Other	315,453		342,147
Total commercial loans	7,637,721		5,898,700
Real estate secured loans:
Premium wine (1)	413,513		345,988
Consumer loans (2)	685,300		534,001
Total real estate secured loans	1,098,813		879,989
Construction loans	65,742		30,256
Consumer loans	144,657		161,137
Total loans, net of unearned income (3)	$	8,946,933	$	6,970,082

(1) Included in our premium wine portfolio are gross construction loans of $148 million and $111 million at December 31, 2012 and 2011, respectively.

(2) Consumer loans secured by real estate at December 31, 2012 and 2011 were comprised of the following:

	December 31,
(Dollars in thousands)	2012		2011
Loans for personal residence	$	503,378	$	350,359
Loans to eligible employees	110,584		99,704
Home equity lines of credit	71,338		83,938
Consumer loans secured by real estate	$	685,300	$	534,001

(3) Included within our total loan portfolio are credit card loans of $64 million and $50 million at December 31, 2012 and 2011, respectively.

Credit Quality

The composition of loans, net of unearned income of $77 million and $60 million at December 31, 2012 and December 31, 2011, respectively, broken out by portfolio segment and class of financing receivable is as follows:

	December 31,
(Dollars in thousands)	2012		2011
Commercial loans:
Software	$	3,261,489	$	2,492,849
Hardware	1,118,370		952,303
Venture capital/private equity	1,732,699		1,117,419
Life science	1,066,199		863,737
Premium wine	557,024		476,233
Other	381,195		372,403
Total commercial loans	8,116,976		6,274,944
Consumer loans:
Real estate secured loans	685,300		534,001
Other consumer loans	144,657		161,137
Total consumer loans	829,957		695,138
Total loans, net of unearned income	$	8,946,933	$	6,970,082

The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of December 31, 2012 and 2011:

(Dollars in thousands)	30 - 59   Days Past   Due		60 - 89   Days Past   Due		Greater Than 90   Days Past   Due		Total Past   Due		Current		Loans Past Due   90 Days or More Still Accruing Interest
December 31, 2012:
Commercial loans:
Software	$	5,890	$	238	$	19	$	6,147	$	3,284,489	$	19
Hardware	167		32		—		199		1,107,422		—
Venture capital/private equity	7		—		—		7		1,749,896		—
Life science	207		117		—		324		1,076,468		—
Premium wine	—		—		—		—		554,886		—
Other	280		—		—		280		378,619		—
Total commercial loans	6,551		387		19		6,957		8,151,780		19
Consumer loans:
Real estate secured loans	—		—		—		—		683,254		—
Other consumer loans	111		—		—		111		143,867		—
Total consumer loans	111		—		—		111		827,121		—
Total gross loans excluding impaired loans	6,662		387		19		7,068		8,978,901		19
Impaired loans	3,901		9,676		2,269		15,846		22,433		—
Total gross loans	$	10,563	$	10,063	$	2,288	$	22,914	$	9,001,334	$	19
December 31, 2011:
Commercial loans:
Software	$	415	$	1,006	$	—	$	1,421	$	2,515,327	$	—
Hardware	1,951		45		—		1,996		954,690		—
Venture capital/private equity	45		—		—		45		1,128,475		—
Life science	398		78		—		476		871,626		—
Premium wine	1		174		—		175		475,406		—
Other	15		—		—		15		370,539		—
Total commercial loans	2,825		1,303		—		4,128		6,316,063		—
Consumer loans:
Real estate secured loans	—		—		—		—		515,534		—
Other consumer loans	590		—		—		590		157,389		—
Total consumer loans	590		—		—		590		672,923		—
Total gross loans excluding impaired loans	3,415		1,303		—		4,718		6,988,986		—
Impaired loans	1,350		1,794		6,613		9,757		26,860		—
Total gross loans	$	4,765	$	3,097	$	6,613	$	14,475	$	7,015,846	$	—

The following table summarizes our impaired loans as they relate to our allowance for loan losses, broken out by portfolio segment and class of financing receivable as of December 31, 2012 and 2011:

(Dollars in thousands)	Impaired loans for   which there is a related allowance for loan losses		Impaired loans for   which there is no related allowance for loan losses		Total carrying value of impaired loans		Total unpaid principal of impaired loans
December 31, 2012:
Commercial loans:
Software	$	3,191	$	72	$	3,263	$	4,475
Hardware	21,863		—		21,863		27,876
Life Science	—		—		—		—
Premium wine	—		4,398		4,398		4,716
Other	—		5,415		5,415		9,859
Total commercial loans	25,054		9,885		34,939		46,926
Consumer loans:
Real estate secured loans	—		2,239		2,239		7,185
Other consumer loans	1,101		—		1,101		1,300
Total consumer loans	1,101		2,239		3,340		8,485
Total	$	26,155	$	12,124	$	38,279	$	55,411
December 31, 2011:
Commercial loans:
Software	$	1,142	$	—	$	1,142	$	1,540
Hardware	4,754		429		5,183		8,843
Life science	—		311		311		523
Premium wine	—		3,212		3,212		3,341
Other	4,303		1,050		5,353		9,104
Total commercial loans	10,199		5,002		15,201		23,351
Consumer loans:
Real estate secured loans	—		18,283		18,283		22,410
Other consumer loans	3,133		—		3,133		3,197
Total consumer loans	3,133		18,283		21,416		25,607
Total	$	13,332	$	23,285	$	36,617	$	48,958

The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable during 2012, 2011 and 2010:

	Year ended December 31,
(Dollars in thousands)	2012		2011		2010
Average impaired loans:
Commercial loans:
Software	$	2,223	$	2,575	$	6,153
Hardware	19,242		5,854		9,485
Life science	345		1,228		5,772
Premium wine	3,513		2,566		1,461
Other	3,558		4,751		2,279
Total commercial loans	28,881		16,974		25,150
Consumer loans:
Real estate secured loans	5,037		19,179		21,055
Other consumer loans	1,896		1,076		117
Total consumer loans	6,933		20,255		21,172
Total average impaired loans	$	35,814	$	37,229	$	46,322

The following tables summarize the activity relating to our allowance for loan losses for 2012 and 2011, broken out by portfolio segment:

Year ended December 31, 2012	Beginning Balance December 31, 2011		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Ending Balance December 31, 2012
(dollars in thousands)
Commercial loans:
Software	$	38,263	$	(4,316	)	$	4,874	$	3,827		$	42,648
Hardware	16,810		(20,247		)	1,107		32,091			29,761
Venture capital/private equity	7,319		—			—		2,644			9,963
Life science	10,243		(5,080		)	334		8,109			13,606
Premium wine	3,914		(584		)	650		(457		)	3,523
Other	5,817		(2,485		)	1,377		(797		)	3,912
Total commercial loans	82,366		(32,712		)	8,342		45,417			103,413
Consumer loans	7,581		(607		)	1,351		(1,087		)	7,238
Total allowance for loan losses	$	89,947	$	(33,319	)	$	9,693	$	44,330		$	110,651

Year ended December 31, 2011	Beginning Balance December 31, 2010		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Ending Balance December 31, 2011
(dollars in thousands)
Commercial loans:
Software	$	29,288	$	(10,252	)	$	11,659	$	7,568		$	38,263
Hardware	14,688		(4,828		)	455		6,495			16,810
Venture capital/private equity	8,241		—			—		(922		)	7,319
Life science	9,077		(4,201		)	6,644		(1,277		)	10,243
Premium wine	5,492		(449		)	1,223		(2,352		)	3,914
Other	5,318		(3,954		)	471		3,982			5,817
Total commercial loans	72,104		(23,684		)	20,452		13,494			82,366
Consumer loans	10,523		(220		)	4,671		(7,393		)	7,581
Total allowance for loan losses	$	82,627	$	(23,904	)	$	25,123	$	6,101		$	89,947

The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of December 31, 2012 and 2011, broken out by portfolio segment:

	December 31, 2012				December 31, 2011
(Dollars in thousands)	Individually Evaluated for   Impairment		Collectively Evaluated for   Impairment		Individually Evaluated for   Impairment		Collectively Evaluated for   Impairment
Commercial loans:
Software	$	762	$	41,886	$	526	$	37,737
Hardware	5,251		24,510		1,261		15,549
Venture capital/private equity	—		9,963		—		7,319
Life science	—		13,606		—		10,243
Premium wine	—		3,523		—		3,914
Other	—		3,912		1,180		4,637
Total commercial loans	6,013		97,400		2,967		79,399
Consumer loans	248		6,990		740		6,841
Total allowance for loan losses	$	6,261	$	104,390	$	3,707	$	86,240

Credit Quality Indicators

For each individual client, we establish an internal credit risk rating for that loan, which is used for assessing and monitoring credit risk as well as performance of the loan and the overall portfolio. Our internal credit risk ratings are also used to summarize the risk of loss due to failure by an individual borrower to repay the loan. For our internal credit risk ratings, each individual loan is given a risk rating of 1 through 10. Loans risk-rated 1 through 4 are performing loans and translate to an internal rating of “Pass”, with loans risk-rated 1 being cash secured. Loans risk-rated 5 through 7 are performing loans, however, we consider them as demonstrating higher risk which requires more frequent review of the individual exposures; these translate to an internal rating of “Performing (Criticized)”. A majority of our Performing (Criticized) loans are from our SVB Accelerator practice, serving our emerging or early stage clients. Loans risk-rated 8 and 9 are loans that are considered to be impaired and are on nonaccrual status. Loans are placed on nonaccrual status when they become 90 days past due as to principal or interest payments (unless the principal and interest are well secured and in the process of collection), or when we have determined, based upon most recent available information, that the timely collection of principal or interest is not probable; these loans are deemed “impaired” (For further description of nonaccrual loans, refer to Note 2—“Summary of Significant Accounting Policies”). Loans rated 10 are charged-off and are not included as part of our loan portfolio balance. We review our credit quality indicators for performance and appropriateness of risk ratings as part of our evaluation process for our allowance for loan losses.

The following table summarizes the credit quality indicators, broken out by portfolio segment and class of financing receivables as of December 31, 2012 and 2011:

(Dollars in thousands)	Pass		Performing     (Criticized)		Impaired		Total
December 31, 2012:
Commercial loans:
Software	$	3,050,449	$	240,187	$	3,263	$	3,293,899
Hardware	970,802		136,819		21,863		1,129,484
Venture capital/private equity	1,748,663		1,240		—		1,749,903
Life science	956,276		120,516		—		1,076,792
Premium wine	545,697		9,189		4,398		559,284
Other	360,291		18,608		5,415		384,314
Total commercial loans	7,632,178		526,559		34,939		8,193,676
Consumer loans:
Real estate secured loans	663,911		19,343		2,239		685,493
Other consumer loans	132,818		11,160		1,101		145,079
Total consumer loans	796,729		30,503		3,340		830,572
Total gross loans	$	8,428,907	$	557,062	$	38,279	$	9,024,248
December 31, 2011:
Commercial loans:
Software	$	2,290,497	$	226,251	$	1,142	$	2,517,890
Hardware	839,230		117,456		5,183		961,869
Venture capital/private equity	1,120,373		8,147		—		1,128,520
Life science	748,129		123,973		311		872,413
Premium wine	434,309		41,272		3,212		478,793
Other	353,434		17,120		5,353		375,907
Total commercial loans	5,785,972		534,219		15,201		6,335,392
Consumer loans:
Real estate secured loans	497,060		18,474		18,283		533,817
Other consumer loans	151,101		6,878		3,133		161,112
Total consumer loans	648,161		25,352		21,416		694,929
Total gross loans	$	6,434,133	$	559,571	$	36,617	$	7,030,321

TDRs

As of December 31, 2012 we had 18 TDRs with a total carrying value of $34.3 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. This compares to 17 TDRs with a total carrying value of $34.3 million as of December 31, 2011. There were unfunded commitments available for funding of $0.5 million to the clients associated with these TDRs as of December 31, 2012. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at December 31, 2012 and 2011:

	December 31,
(Dollars in thousands)	2012		2011
Loans modified in TDRs:
Commercial loans:
Software	$	2,021	$	1,142
Hardware	20,514		5,183
Premium wine	2,593		1,949
Other	5,900		4,934
Total commercial loans	31,028		13,208
Consumer loans:
Real estate secured loans	2,199		17,934
Other consumer loans	1,101		3,133
Total consumer loans	3,300		21,067
Total	$	34,328	$	34,275

The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during 2012 and 2011:

	Year ended December 31,
(Dollars in thousands)	2012		2011
Loans modified in TDRs during the period:
Commercial loans:
Software	$	1,939	$	615
Hardware	20,514		4,018
Premium wine	1,024		1,949
Other	4,878		3,884
Total commercial loans	28,355		10,466
Consumer loans:
Real estate secured loans	368		—
Other consumer loans	—		3,133
Total consumer loans	368		3,133
Total loans modified in TDR’s during the period (1)	$	28,723	$	13,599

(1) During 2012 and 2011, we had partial charge-offs of $14.3 million and $2.8 million, respectively, on loans classified as TDRs.

During 2012 new TDRs totaling $9.3 million and $19.4 million were modified through forgiveness of principal and payment deferrals granted to our clients, respectively. During 2011 all new TDRs were modified through payment deferrals granted to our clients and no principal or interest was forgiven.

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

The following table summarizes the recorded investment in loans modified in TDRs within the previous 12 months that subsequently defaulted during their respective periods, broken out by portfolio segment and class of financing receivable:

	Year ended December 31,
(Dollars in thousands)	2012		2011
TDRs modified within the previous 12 months that defaulted during the period:
Commercial loans:
Hardware	$	1,868	$	1,885
Premium wine	—		1,949
Total commercial loans	1,868		3,834
Consumer loans:
Real estate secured loans	120		—
Other consumer loans	—		3,133
Total consumer loans	120		3,133
Total TDRs modified within the previous 12 months that defaulted in the period	$	1,988	$	6,967

Charge-offs and defaults on previously restructured loans are evaluated to determine the impact to the allowance for loan losses, if any. The evaluation of these defaults may impact the assumptions used in calculating the reserve on other TDRs and impaired loans as well as management’s overall outlook of macroeconomic factors that affect the reserve on the loan portfolio as a whole. After evaluating the charge-offs and defaults experienced on our TDRs we determined that no change to our reserving methodology was necessary to determine the allowance for loan losses as of December 31, 2012.