Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2013

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 (energy and resource innovation). 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 December 31, 2013 and 2012, respectively, is presented in the following table:

	December 31,
(Dollars in thousands)	2013		2012
Commercial loans:
Software	$	4,102,636	$	3,261,489
Hardware	1,213,032		1,118,370
Venture capital/private equity	2,386,054		1,732,699
Life science	1,170,220		1,066,199
Premium wine	149,841		143,511
Other	288,904		315,453
Total commercial loans	9,310,687		7,637,721
Real estate secured loans:
Premium wine (1)	514,993		413,513
Consumer loans (2)	873,255		685,300
Other	30,743		—
Total real estate secured loans	1,418,991		1,098,813
Construction loans	76,997		65,742
Consumer loans	99,711		144,657
Total loans, net of unearned income (3)	$	10,906,386	$	8,946,933

(1) Included in our premium wine portfolio are gross construction loans of $112 million and $148 million at December 31, 2013 and 2012, respectively.

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

	December 31,
(Dollars in thousands)	2013		2012
Loans for personal residence	$	685,327	$	503,378
Loans to eligible employees	121,548		110,584
Home equity lines of credit	66,380		71,338
Consumer loans secured by real estate	$	873,255	$	685,300

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

Credit Quality

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

	December 31,
(Dollars in thousands)	2013		2012
Commercial loans:
Software	$	4,102,636	$	3,261,489
Hardware	1,213,032		1,118,370
Venture capital/private equity	2,386,054		1,732,699
Life science	1,170,220		1,066,199
Premium wine	664,834		557,024
Other	396,644		381,195
Total commercial loans	9,933,420		8,116,976
Consumer loans:
Real estate secured loans	873,255		685,300
Other consumer loans	99,711		144,657
Total consumer loans	972,966		829,957
Total loans, net of unearned income	$	10,906,386	$	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 December 31, 2013 and 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
December 31, 2013:
Commercial loans:
Software	$	9,804	$	1,291	$	99	$	11,194	$	4,102,546	$	99
Hardware	2,679		3,965		—		6,644		1,198,169		—
Venture capital/private equity	4		—		—		4		2,408,382		—
Life science	395		131		—		526		1,179,462		—
Premium wine	—		—		—		—		665,755		—
Other	1,580		142		—		1,722		397,416		—
Total commercial loans	14,462		5,529		99		20,090		9,951,730		99
Consumer loans:
Real estate secured loans	240		—		—		240		872,586		—
Other consumer loans	8		—		—		8		98,965		—
Total consumer loans	248		—		—		248		971,551		—
Total gross loans excluding impaired loans	14,710		5,529		99		20,338		10,923,281		99
Impaired loans	4,657		7,043		4,339		16,039		35,610		—
Total gross loans	$	19,367	$	12,572	$	4,438	$	36,377	$	10,958,891	$	99
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 December 31, 2013 and 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)
December 31, 2013:
Commercial loans:
Software	$	27,308	$	310	$	27,618	$	28,316
Hardware	19,329		338		19,667		35,317
Venture capital/private equity	40		—		40		40
Life Science	—		1,278		1,278		4,727
Premium wine	—		1,442		1,442		1,778
Other	690		—		690		718
Total commercial loans	47,367		3,368		50,735		70,896
Consumer loans:
Real estate secured loans	—		244		244		1,434
Other consumer loans	670		—		670		941
Total consumer loans	670		244		914		2,375
Total	$	48,037	$	3,612	$	51,649	$	73,271
December 31, 2012:
Commercial loans:
Software	$	3,191	$	72	$	3,263	$	4,475
Hardware	21,863		—		21,863		38,551
Venture capital/private equity	—		—		—		—
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		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 during 2013, 2012 and 2011:

	Year ended December 31,
(Dollars in thousands)	2013		2012		2011
Average impaired loans:
Commercial loans:
Software	$	6,254	$	2,223	$	2,575
Hardware	24,508		19,242		5,854
Venture capital/private equity	37		—		—
Life science	334		345		1,228
Premium wine	2,210		3,513		2,566
Other	3,601		3,558		4,751
Total commercial loans	36,944		28,881		16,974
Consumer loans:
Real estate secured loans	2,957		5,037		19,179
Other consumer loans	945		1,896		1,076
Total consumer loans	3,902		6,933		20,255
Total average impaired loans	$	40,846	$	35,814	$	37,229

The following tables summarize the activity relating to our allowance for loan losses for 2013, 2012, and 2011 broken out by portfolio segment:

Year ended December 31, 2013	Beginning Balance December 31, 2012		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Ending Balance December 31, 2013
(Dollars in thousands)
Commercial loans:
Software	$	42,648	$	(8,861	)	$	1,934	$	28,363		$	64,084
Hardware	29,761		(18,819		)	2,677		22,934			36,553
Venture capital/private equity	9,963		—			—		6,422			16,385
Life science	13,606		(6,010		)	1,860		2,470			11,926
Premium wine	3,523		—			170		221			3,914
Other	3,912		(8,107		)	2,995		4,880			3,680
Total commercial loans	103,413		(41,797		)	9,636		65,290			136,542
Consumer loans	7,238		(869		)	1,572		(1,597		)	6,344
Total allowance for loan losses	$	110,651	$	(42,666	)	$	11,208	$	63,693		$	142,886

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, 2013 and 2012, broken out by portfolio segment:

	December 31, 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	$	11,261	$	52,823	$	762	$	41,886
Hardware	9,673		26,880		5,251		24,510
Venture capital/private equity	19		16,366		—		9,963
Life science	—		11,926		—		13,606
Premium wine	—		3,914		—		3,523
Other	156		3,524		—		3,912
Total commercial loans	21,109		115,433		6,013		97,400
Consumer loans	168		6,176		248		6,990
Total allowance for loan losses	$	21,277	$	121,609	$	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”). 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, 2013 and 2012:

(Dollars in thousands)	Pass		Performing     (Criticized)		Impaired		Total
December 31, 2013:
Commercial loans:
Software	$	3,875,043	$	238,697	$	27,618	$	4,141,358
Hardware	995,055		209,758		19,667		1,224,480
Venture capital/private equity	2,408,386		—		40		2,408,426
Life science	1,091,993		87,995		1,278		1,181,266
Premium wine	652,747		13,008		1,442		667,197
Other	383,602		15,536		690		399,828
Total commercial loans	9,406,826		564,994		50,735		10,022,555
Consumer loans:
Real estate secured loans	868,789		4,037		244		873,070
Other consumer loans	95,586		3,387		670		99,643
Total consumer loans	964,375		7,424		914		972,713
Total gross loans	$	10,371,201	$	572,418	$	51,649	$	10,995,268
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 December 31, 2013 we had 18 TDRs with a total carrying value of $22 million where concessions have been granted to borrowers experiencing financial difficulties, in an attempt to maximize collection. This compares to 18 TDRs with a total carrying value of $34 million as of December 31, 2012. There were unfunded commitments available for funding of $0.1 million to the clients associated with these TDRs as of December 31, 2013. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at December 31, 2013 and 2012:

	December 31,
(Dollars in thousands)	2013		2012
Loans modified in TDRs:
Commercial loans:
Software	$	5,860	$	2,021
Hardware	13,329		20,514
Venture capital/ private equity	77		—
Premium wine	1,442		2,593
Other	1,055		5,900
Total commercial loans	21,763		31,028
Consumer loans:
Real estate secured loans	—		2,199
Other consumer loans	670		1,101
Total consumer loans	670		3,300
Total	$	22,433	$	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 2013, 2012, and 2011:

	Year ended December 31,
(Dollars in thousands)	2013		2012		2011
Loans modified in TDRs during the period:
Commercial loans:
Software	$	4,932	$	1,939	$	615
Hardware	8,143		20,514		4,018
Venture capital/ private equity	77		—		—
Premium wine	—		1,024		1,949
Other	690		4,878		3,884
Total commercial loans	13,842		28,355		10,466
Consumer loans:
Real estate secured loans	—		368		—
Other consumer loans	6		—		3,133
Total consumer loans	6		368		3,133
Total loans modified in TDRs during the period (1)	$	13,848	$	28,723	$	13,599

(1) During 2013 , 2012, and 2011 we had partial charge-offs of $11.1 million, $14.3 million, and $2.8 million respectively, on loans classified as TDRs.

During 2013 and 2011 all new TDRs were modified through payment deferrals granted to our clients and no principal or interest was forgiven. During 2012 new TDRs totaling $9 million and $19 million were modified through 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 their respective periods, broken out by portfolio segment and class of financing receivable:

	Year ended December 31,
(Dollars in thousands)	2013		2012		2011
TDRs modified within the previous 12 months that defaulted during the period:
Commercial loans:
Hardware	$	1,627	$	1,868	$	1,885
Venture capital/ private equity	38		—		—
Premium wine	—		—		1,949
Other	365		—		—
Total commercial loans	2,030		1,868		3,834
Consumer loans:
Real estate secured loans	—		120		—
Other consumer loans	6		—		3,133
Total consumer loans	6		120		3,133
Total TDRs modified within the previous 12 months that defaulted in the period	$	2,036	$	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, 2013.