
	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 and executive leaders in the innovation companies they support. These products and services include real estate secured home equity lines of credit, which may be used to finance real estate investments and loans used to purchase, renovate or refinance personal residences. These products and services also include restricted stock purchase loans and capital call lines of credit.

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

The composition of loans, net of unearned income of $89 million and $77 million at September 30, 2013 and December 31, 2012, respectively, is presented in the following table:



(Dollars in thousands)	September 30, 2013		December 31, 2012
Commercial loans:
Software	$	3,698,937	$	3,261,489
Hardware	1,141,297		1,118,370
Venture capital/private equity	1,932,822		1,732,699
Life science	1,096,440		1,066,199
Premium wine	149,257		143,511
Other	287,352		315,453
Total commercial loans	8,306,105		7,637,721
Real estate secured loans:
Premium wine (1)	492,677		413,513
Consumer (2)	831,644		685,300
Other	28,233		—
Total real estate secured loans	1,352,554		1,098,813
Construction loans	72,398		65,742
Consumer loans	93,925		144,657
Total loans, net of unearned income (3)	$	9,824,982	$	8,946,933


(1)	Included in our premium wine portfolio are gross construction loans of $132 million and $148 million at September 30, 2013 and December 31, 2012, respectively.


(2)	Consumer loans secured by real estate at September 30, 2013 and December 31, 2012 were comprised of the following:



(Dollars in thousands)	September 30, 2013		December 31, 2012
Loans for personal residence	$	643,345	$	503,378
Loans to eligible employees	119,371		110,584
Home equity lines of credit	68,928		71,338
Consumer loans secured by real estate	$	831,644	$	685,300


(3)	Included within our total loan portfolio are credit card loans of $85 million and $64 million at September 30, 2013 and December 31, 2012, respectively.

Credit Quality

The composition of loans, net of unearned income of $89 million and $77 million at September 30, 2013 and December 31, 2012, respectively, broken out by portfolio segment and class of financing receivable, is as follows:



(Dollars in thousands)	September 30, 2013		December 31, 2012
Commercial loans:
Software	$	3,698,937	$	3,261,489
Hardware	1,141,297		1,118,370
Venture capital/private equity	1,932,822		1,732,699
Life science	1,096,440		1,066,199
Premium wine	641,934		557,024
Other	387,983		381,195
Total commercial loans	8,899,413		8,116,976
Consumer loans:
Real estate secured loans	831,644		685,300
Other consumer loans	93,925		144,657
Total consumer loans	925,569		829,957
Total loans, net of unearned income	$	9,824,982	$	8,946,933

The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of September 30, 2013 and December 31, 2012:



(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
September 30, 2013:
Commercial loans:
Software	$	1,546	$	171	$	24	$	1,741	$	3,733,358	$	24
Hardware	29		643		—		672		1,125,277		—
Venture capital/private equity	4		—		—		4		1,953,111		—
Life science	153		249		—		402		1,107,659		—
Premium wine	2,400		—		—		2,400		640,741		—
Other	71		97		—		168		389,145		—
Total commercial loans	4,203		1,160		24		5,387		8,949,291		24
Consumer loans:
Real estate secured loans	—		—		—		—		828,401		—
Other consumer loans	—		—		—		—		93,072		—
Total consumer loans	—		—		—		—		921,473		—
Total gross loans excluding impaired loans	4,203		1,160		24		5,387		9,870,764		24
Impaired loans	91		—		5,678		5,769		32,279		—
Total gross loans	$	4,294	$	1,160	$	5,702	$	11,156	$	9,903,043	$	24
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

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 September 30, 2013 and December 31, 2012:



(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 (1)
September 30, 2013:
Commercial loans:
Software	$	3,041	$	—	$	3,041	$	4,185
Hardware	25,891		1,555		27,446		46,744
Venture capital/private equity	47		—		47		47
Premium wine	—		1,476		1,476		1,786
Other	734		1,154		1,888		2,560
Total commercial loans	29,713		4,185		33,898		55,322
Consumer loans:
Real estate secured loans	—		3,339		3,339		9,256
Other consumer loans	811		—		811		1,065
Total consumer loans	811		3,339		4,150		10,321
Total	$	30,524	$	7,524	$	38,048	$	65,643
December 31, 2012:
Commercial loans:
Software	$	3,191	$	72	$	3,263	$	4,475
Hardware	21,863		—		21,863		38,551
Venture capital/private equity	—		—		—		—
Premium wine	—		4,398		4,398		4,716
Other	—		5,415		5,415		9,859
Total commercial loans	25,054		9,885		34,939		57,601
Consumer loans:
Real estate secured loans	—		2,239		2,239		7,341
Other consumer loans	1,101		—		1,101		1,300
Total consumer loans	1,101		2,239		3,340		8,641
Total	$	26,155	$	12,124	$	38,279	$	66,242


(1)	The unpaid principal balances for hardware and real estate secured consumer loans as of December 31, 2012 have been corrected from previously reported amounts resulting in the total unpaid principal of impaired loans at December 31, 2012 changing from $55.4 million to $66.2 million.

The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable for the three and nine months ended September 30, 2013 and 2012:



	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2013		2012		2013		2012
Average impaired loans:
Commercial loans:
Software	$	4,306	$	2,689	$	4,631	$	2,040
Hardware	25,456		18,490		24,536		17,407
Venture capital/private equity	75		—		35		—
Life science	—		—		303		78
Premium wine	1,502		3,093		2,458		3,334
Other	3,648		2,619		4,344		3,590
Total commercial loans	34,987		26,891		36,307		26,449
Consumer loans:
Real estate secured loans	3,426		2,411		3,391		5,967
Other consumer loans	866		1,266		1,021		2,152
Total consumer loans	4,292		3,677		4,412		8,119
Total average impaired loans	$	39,279	$	30,568	$	40,719	$	34,568

The following tables summarize the activity relating to our allowance for loan losses for the three and nine months ended September 30, 2013 and 2012, broken out by portfolio segment:



Three months ended September 30, 2013 (dollars in thousands)	Beginning Balance June 30, 2013		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Ending Balance September 30, 2013
Commercial loans:
Software	$	46,798	$	(2,527	)	$	816	$	4,369		$	49,456
Hardware	33,188		(5,544		)	1,149		7,370			36,163
Venture capital/private equity	13,593		—			—		617			14,210
Life science	11,741		(57		)	246		(780		)	11,150
Premium wine	3,793		—			4		81			3,878
Other	3,654		(21		)	77		(24		)	3,686
Total commercial loans	112,767		(8,149		)	2,292		11,633			118,543
Consumer loans	6,804		—			382		(995		)	6,191
Total allowance for loan losses	$	119,571	$	(8,149	)	$	2,674	$	10,638		$	124,734



Nine months ended September 30, 2013 (dollars in thousands)	Beginning Balance December 31, 2012		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Ending Balance September 30, 2013
Commercial loans:
Software	$	42,648	$	(7,619	)	$	1,455	$	12,972		$	49,456
Hardware	29,761		(11,975		)	1,998		16,379			36,163
Venture capital/private equity	9,963		—			—		4,247			14,210
Life science	13,606		(2,618		)	1,335		(1,173		)	11,150
Premium wine	3,523		—			135		220			3,878
Other	3,912		(6,069		)	2,458		3,385			3,686
Total commercial loans	103,413		(28,281		)	7,381		36,030			118,543
Consumer loans	7,238		(869		)	829		(1,007		)	6,191
Total allowance for loan losses	$	110,651	$	(29,150	)	$	8,210	$	35,023		$	124,734



Three months ended September 30, 2012 (dollars in thousands)	Beginning Balance June 30, 2012		Charge-offs			Recoveries		Provision for(Reduction of) Loan Losses			Ending Balance September 30, 2012
Commercial loans:
Software	$	37,981	$	—		$	374	$	(1,110	)	$	37,245
Hardware	22,632		(1,849		)	106		6,796			27,685
Venture capital/private equity	9,652		—			—		991			10,643
Life science	11,660		(2,781		)	3		3,281			12,163
Premium wine	3,396		—			228		(463		)	3,161
Other	4,942		(7		)	30		(1,708		)	3,257
Total commercial loans	90,263		(4,637		)	741		7,787			94,154
Consumer loans	7,903		—			466		(999		)	7,370
Total allowance for loan losses	$	98,166	$	(4,637	)	$	1,207	$	6,788		$	101,524



Nine months ended September 30, 2012 (dollars in thousands)	Beginning Balance December 31, 2011		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Ending Balance September 30, 2012
Commercial loans:
Software	$	38,263	$	(2,977	)	$	4,462	$	(2,503	)	$	37,245
Hardware	16,810		(16,110		)	540		26,445			27,685
Venture capital/private equity	7,319		—			—		3,324			10,643
Life science	10,243		(3,016		)	316		4,620			12,163
Premium wine	3,914		(584		)	493		(662		)	3,161
Other	5,817		(2,463		)	1,181		(1,278		)	3,257
Total commercial loans	82,366		(25,150		)	6,992		29,946			94,154
Consumer loans	7,581		(607		)	1,026		(630		)	7,370
Total allowance for loan losses	$	89,947	$	(25,757	)	$	8,018	$	29,316		$	101,524

The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of September 30, 2013 and December 31, 2012, broken out by portfolio segment:



	September 30, 2013				December 31, 2012
(Dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Commercial loans:
Software	$	705	$	48,751	$	762	$	41,886
Hardware	12,392		23,771		5,251		24,510
Venture capital/private equity	23		14,187		—		9,963
Life science	—		11,150		—		13,606
Premium wine	—		3,878		—		3,523
Other	162		3,524		—		3,912
Total commercial loans	13,282		105,261		6,013		97,400
Consumer loans	187		6,004		248		6,990
Total allowance for loan losses	$	13,469	$	111,265	$	6,261	$	104,390

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” under Part II, Item 8 of our 2012 Form 10-K). Loans rated 10 are charged-off and are not included as part of our loan portfolio balance. We review our credit quality indicators for performance and appropriateness of risk ratings as part of our evaluation process for our allowance for loan losses. The following table summarizes the credit quality indicators, broken out by portfolio segment and class of financing receivables as of September 30, 2013 and December 31, 2012:



(Dollars in thousands)	Pass		Performing (Criticized)		Impaired		Total
September 30, 2013:
Commercial loans:
Software	$	3,442,540	$	292,560	$	3,041	$	3,738,141
Hardware	904,312		221,635		27,446		1,153,393
Venture capital/private equity	1,952,680		434		47		1,953,161
Life science	1,019,522		88,539		—		1,108,061
Premium wine	632,438		10,704		1,476		644,618
Other	366,533		22,780		1,888		391,201
Total commercial loans	8,318,025		636,652		33,898		8,988,575
Consumer loans:
Real estate secured loans	822,148		6,252		3,339		831,739
Other consumer loans	89,036		4,038		811		93,885
Total consumer loans	911,184		10,290		4,150		925,624
Total gross loans	$	9,229,209	$	646,942	$	38,048	$	9,914,199
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

TDRs

As of September 30, 2013 we had 21 TDRs with a total carrying value of $29.3 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. There were unfunded commitments available for funding of $0.4 million to the clients associated with these TDRs as of September 30, 2013. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at September 30, 2013 and December 31, 2012:



(Dollars in thousands)	September 30, 2013		December 31, 2012
Loans modified in TDRs:
Commercial loans:
Software	$	2,205	$	2,021
Hardware	21,284		20,514
Venture capital/ private equity	88		—
Premium wine	1,476		2,593
Other	2,283		5,900
Total commercial loans	27,336		31,028
Consumer loans:
Real estate secured loans	1,126		2,199
Other consumer loans	811		1,101
Total consumer loans	1,937		3,300
Total	$	29,273	$	34,328

The following table summarizes the recorded investment in loans modified in TDRs, broken out by portfolio segment and class of financing receivable, for modifications made during the three and nine months ended September 30, 2013 and 2012:



	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2013		2012		2013		2012
Loans modified in TDRs during the period:
Commercial loans:
Software	$	1,007	$	1,969	$	1,007	$	1,969
Hardware	6,330		—		7,783		11,677
Venture capital/ private equity	—		—		88		—
Premium wine	—		—		—		156
Other	—		—		734		2,237
Total commercial loans	7,337		1,969		9,612		16,039
Consumer loans:
Real estate secured loans	—		—		—		392
Other consumer loans	—		—		41		—
Total consumer loans	—		—		41		392
Total loans modified in TDR’s during the period (1)	$	7,337	$	1,969	$	9,653	$	16,431


(1)	There were partial charge-offs of $1.2 million and $2.4 million on loans classified as TDRs for the three and nine months ended September 30, 2013, respectively. There were partial charge-offs of $1.1 million and $11.0 million, respectively, on loans classified as TDRs during the three and nine months ended September 30, 2012.

During the three and nine months ended September 30, 2013, all new TDRs of $7.3 million and $9.6 million, respectively, were modified through payment deferrals granted to our clients, and no principal or interest was forgiven.

During the three months ended September 30, 2012, all new TDRs of $2.0 million were modified through payment deferrals granted to our client and no principal or interest was forgiven. During the nine months ended September 30, 2012, new TDRs totaling $9.6 million and $6.8 million were modified through partial forgiveness of principal and payment deferrals granted to our clients, respectively.

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 the three and nine months ended September 30, 2013 and 2012, broken out by portfolio segment and class of financing receivable:



	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2013		2012		2013		2012
TDRs modified within the previous 12 months that defaulted during the period:
Commercial loans:
Software	$	—	$	—	$	—	$	—
Hardware	—		515		—		515
Premium wine	—		—		—		—
Other	—				—
Total commercial loans	—		515		—		515
Consumer loans	—		120		41		120
Total TDRs modified within the previous 12 months that defaulted in the period	$	—	$	635	$	41	$	635

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 September 30, 2013.