
	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, clean technology-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 $87 million and $89 million at March 31, 2014 and December 31, 2013, respectively, is presented in the following table:



(Dollars in thousands)	March 31, 2014		December 31, 2013
Commercial loans:
Software	$	4,125,823	$	4,102,636
Hardware	1,193,183		1,213,032
Venture capital/private equity	2,201,243		2,386,054
Life science	1,171,258		1,170,220
Premium wine	161,186		149,841
Other	293,597		288,904
Total commercial loans	9,146,290		9,310,687
Real estate secured loans:
Premium wine (1)	540,193		514,993
Consumer loans (2)	916,998		873,255
Other	30,548		30,743
Total real estate secured loans	1,487,739		1,418,991
Construction loans	98,413		76,997
Consumer loans	101,466		99,711
Total loans, net of unearned income (3)	$	10,833,908	$	10,906,386


(1)	Included in our premium wine portfolio are gross construction loans of $112 million at both March 31, 2014 and December 31, 2013, respectively.


(2)	Consumer loans secured by real estate at March 31, 2014 and December 31, 2013 were comprised of the following:



(Dollars in thousands)	March 31, 2014		December 31, 2013
Loans for personal residence	$	724,797	$	685,327
Loans to eligible employees	123,062		121,548
Home equity lines of credit	69,139		66,380
Consumer loans secured by real estate	$	916,998	$	873,255


(3)	Included within our total loan portfolio are credit card loans of $105 million and $85 million at March 31, 2014 and December 31, 2013, respectively.

Credit Quality

The composition of loans, net of unearned income of $87 million and $89 million at March 31, 2014 and December 31, 2013, respectively, broken out by portfolio segment and class of financing receivable, is as follows:



(Dollars in thousands)	March 31, 2014		December 31, 2013
Commercial loans:
Software	$	4,125,823	$	4,102,636
Hardware	1,193,183		1,213,032
Venture capital/private equity	2,201,243		2,386,054
Life science	1,171,258		1,170,220
Premium wine	701,379		664,834
Other	422,558		396,644
Total commercial loans	9,815,444		9,933,420
Consumer loans:
Real estate secured loans	916,998		873,255
Other consumer loans	101,466		99,711
Total consumer loans	1,018,464		972,966
Total loans, net of unearned income	$	10,833,908	$	10,906,386

The following table summarizes the aging of our gross loans, broken out by portfolio segment and class of financing receivable as of March 31, 2014 and December 31, 2013:



(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
March 31, 2014:
Commercial loans:
Software	$	9,609	$	2,925	$	99	$	12,633	$	4,140,041	$	99
Hardware	2,007		480		—		2,487		1,193,977		—
Venture capital/private equity	47,711		—		—		47,711		2,174,061		—
Life science	7,248		203		—		7,451		1,173,859		—
Premium wine	1,400		—		—		1,400		700,970		—
Other	70		116		—		186		423,259		—
Total commercial loans	68,045		3,724		99		71,868		9,806,167		99
Consumer loans:
Real estate secured loans	6,165		—		—		6,165		910,378		—
Other consumer loans	29		—		—		29		100,886		—
Total consumer loans	6,194		—		—		6,194		1,011,264		—
Total gross loans excluding impaired loans	74,239		3,724		99		78,062		10,817,431		99
Impaired loans	6,590		370		2,287		9,247		15,742		—
Total gross loans	$	80,829	$	4,094	$	2,386	$	87,309	$	10,833,173	$	99
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

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 March 31, 2014 and December 31, 2013:



(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
March 31, 2014:
Commercial loans:
Software	$	11,214	$	547	$	11,761	$	12,002
Hardware	7,541		345		7,886		9,505
Venture capital/private equity	—		—		—		—
Life science	909		—		909		4,892
Premium wine	—		1,408		1,408		1,769
Other	2,339		—		2,339		2,394
Total commercial loans	22,003		2,300		24,303		30,562
Consumer loans:
Real estate secured loans	—		236		236		1,432
Other consumer loans	450		—		450		730
Total consumer loans	450		236		686		2,162
Total	$	22,453	$	2,536	$	24,989	$	32,724
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

The following table summarizes our average impaired loans, broken out by portfolio segment and class of financing receivable for the three months ended March 31, 2014 and 2013:



	Three months ended March 31,
(Dollars in thousands)	2014		2013
Average impaired loans:
Commercial loans:
Software	$	14,677	$	4,114
Hardware	16,020		23,632
Life science	1,022		314
Premium wine	1,433		4,336
Other	1,777		5,218
Total commercial loans	34,929		37,614
Consumer loans:
Real estate secured loans	237		2,676
Other consumer loans	489		1,129
Total consumer loans	726		3,805
Total average impaired loans	$	35,655	$	41,419

The following tables summarize the activity relating to our allowance for loan losses for the three months ended March 31, 2014 and 2013, broken out by portfolio segment:



Three months ended March 31, 2014 (dollars in thousands)	Beginning Balance December 31, 2013		Charge-offs			Recoveries		Provision for (Reduction of) Loan Losses			Ending Balance March 31, 2014
Commercial loans:
Software	$	64,084	$	(8,010	)	$	114	$	(947	)	$	55,241
Hardware	36,553		(12,175		)	775		83			25,236
Venture capital/private equity	16,385		—			—		1,291			17,676
Life science	11,926		(681		)	98		131			11,474
Premium wine	3,914		—			219		(396		)	3,737
Other	3,680		(284		)	—		645			4,041
Total commercial loans	136,542		(21,150		)	1,206		807			117,405
Consumer loans	6,344		—			106		(313		)	6,137
Total allowance for loan losses	$	142,886	$	(21,150	)	$	1,312	$	494		$	123,542



Three months ended March 31, 2013 (dollars in thousands)	Beginning Balance December 31, 2012		Charge-offs			Recoveries		Provision for(Reduction of) Loan Losses			Ending Balance March 31, 2013
Commercial loans:
Software	$	42,648	$	(1,518	)	$	242	$	3,638		$	45,010
Hardware	29,761		(1,997		)	446		(341		)	27,869
Venture capital/private equity	9,963		—			—		519			10,482
Life science	13,606		(2,070		)	203		2,207			13,946
Premium wine	3,523		—			90		86			3,699
Other	3,912		(41		)	6		98			3,975
Total commercial loans	103,413		(5,626		)	987		6,207			104,981
Consumer loans	7,238		—			380		(394		)	7,224
Total allowance for loan losses	$	110,651	$	(5,626	)	$	1,367	$	5,813		$	112,205

The following table summarizes the allowance for loan losses individually and collectively evaluated for impairment as of March 31, 2014 and December 31, 2013, broken out by portfolio segment:



	March 31, 2014								December 31, 2013
	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Individually Evaluated for Impairment				Collectively Evaluated for Impairment
(Dollars in thousands)	Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans		Allowance for loan losses		Recorded investment in loans
Commercial loans:
Software	$	4,652	$	11,761	$	50,589	$	4,114,062	$	11,261	$	27,617	$	52,823	$	4,075,019
Hardware	979		7,886		24,257		1,185,297		9,673		19,667		26,880		1,193,365
Venture capital/private equity	—		—		17,676		2,201,243		19		39		16,366		2,386,015
Life science	231		909		11,243		1,170,349		—		1,278		11,926		1,168,942
Premium wine	—		1,408		3,737		699,971		—		1,442		3,914		663,392
Other	802		2,339		3,239		420,219		156		690		3,524		395,954
Total commercial loans	6,664		24,303		110,741		9,791,141		21,109		50,733		115,433		9,882,687
Consumer loans	112		686		6,025		1,017,778		168		915		6,176		972,051
Total	$	6,776	$	24,989	$	116,766	$	10,808,919	$	21,277	$	51,648	$	121,609	$	10,854,738

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 2013 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 March 31, 2014 and December 31, 2013:



(Dollars in thousands)	Pass		Performing (Criticized)		Impaired		Total
March 31, 2014:
Commercial loans:
Software	$	3,859,696	$	292,978	$	11,761	$	4,164,435
Hardware	1,023,405		173,059		7,886		1,204,350
Venture capital/private equity	2,221,772		—		—		2,221,772
Life science	1,097,180		84,130		909		1,182,219
Premium wine	693,351		9,019		1,408		703,778
Other	411,108		12,337		2,339		425,784
Total commercial loans	9,306,512		571,523		24,303		9,902,338
Consumer loans:
Real estate secured loans	912,790		3,753		236		916,779
Other consumer loans	97,982		2,933		450		101,365
Total consumer loans	1,010,772		6,686		686		1,018,144
Total gross loans	$	10,317,284	$	578,209	$	24,989	$	10,920,482
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

TDRs

As of March 31, 2014 we had 17 TDRs with a total carrying value of $23 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 $0.3 million to the clients associated with these TDRs as of March 31, 2014. The following table summarizes our loans modified in TDRs, broken out by portfolio segment and class of financing receivables at March 31, 2014 and December 31, 2013:



(Dollars in thousands)	March 31, 2014		December 31, 2013
Loans modified in TDRs:
Commercial loans:
Software	$	10,509	$	5,860
Hardware	7,541		13,329
Venture capital/ private equity	—		77
Premium wine	2,058		1,442
Other	2,674		1,055
Total commercial loans	22,782		21,763
Consumer loans:
Other consumer loans	450		670
Total consumer loans	450		670
Total	$	23,232	$	22,433

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 months ended March 31, 2014 and 2013:



	Three months ended March 31,
(Dollars in thousands)	2014		2013
Loans modified in TDRs during the period:
Commercial loans:
Software	$	9,737	$	—
Venture capital/ private equity	—		821
Life science	—		454
Premium wine	650		—
Other	1,746		—
Total commercial loans	12,133		1,275
Consumer loans:
Other consumer loans	—		100
Total consumer loans	—		100
Total loans modified in TDR’s during the period (1)	$	12,133	$	1,375


(1)	There were no partial charge-offs on loans classified as TDRs for the three months ended March 31, 2014 or March 31, 2013.

During the three months ended March 31, 2014, new TDRs totaling $2.8 million and $9.3 million were modified through forgiveness of principal and payment deferrals granted to our clients, respectively.

During the three months ended March 31, 2013, all new TDRs of $1.4 million 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 the three months ended March 31, 2013, broken out by portfolio segment and class of financing receivable. There were no TDRs modified, which defaulted during the three months ended March 31, 2014.



	Three months ended March 31,
(Dollars in thousands)	2013
TDRs modified within the previous 12 months that defaulted during the period:
Commercial loans:
Hardware	$	125
Other	2,750
Total commercial loans	2,875
Consumer loans	247
Total TDRs modified within the previous 12 months that defaulted in the period	$	3,122

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 March 31, 2014.