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Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Principles of Consolidation and Presentation
Principles of Consolidation and Presentation
Our consolidated financial statements include the accounts of SVB Financial Group and consolidated entities. We consolidate voting entities in which we have control through voting interests or entities through which we have a controlling financial interest in a variable interest entity (“VIE”). We determine whether we have a controlling financial interest in a VIE by determining if we have: (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses, or (c) the right to receive the expected returns of the entity. Generally, we have significant variable interests if our commitments to a limited partnership investment represent a significant amount of the total commitments to the entity. We also evaluate the impact of related parties on our determination of variable interests in our consolidation conclusions. We consolidate VIEs in which we are the primary beneficiary based on a controlling financial interest. If we are not the primary beneficiary of a VIE, we record our pro-rata interests or our cost basis in the VIE, as appropriate, based on other accounting guidance within GAAP.
VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. We assess VIEs to determine if we are the primary beneficiary of a VIE.  A primary beneficiary is defined as a variable interest holder that has a controlling financial interest. A controlling financial interest requires both: (a) power to direct the activities that most significantly impact the VIE’s economic performance, and (b) obligation to absorb losses or receive benefits of a VIE that could potentially be significant to a VIE. Under this analysis, we also evaluate kick-out rights and other participating rights which could provide us a controlling financial interest. The primary beneficiary of a VIE is required to consolidate the VIE.
We also evaluate fees paid to managers of our limited partnership investments. We exclude those fee arrangements that are not deemed to be variable interests from the analysis of our interests in our investments in VIEs and the determination of a primary beneficiary, if any. Fee arrangements based on terms that are customary and commensurate with the services provided are deemed not to be variable interests and are, therefore, excluded.
All significant intercompany accounts and transactions with consolidated entities have been eliminated. We have not provided financial or other support during the periods presented to any VIE that we were not previously contractually required to provide.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
In May 2014, the FASB issued a new accounting standard update (ASU 2014-09, Revenue from Contracts with Customers (Topic 606)), which provides revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the income statement. The guidance requires that revenue from contracts with customers be recognized when transfer of control over goods or services is passed to customers in the amount of consideration expected to be received. Subsequent Accounting Standard Updates have been issued clarifying the original pronouncement (ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20). The new standard and amendments will be effective January 1, 2018, either on a full retrospective approach or a modified retrospective approach. We plan to adopt the revenue guidance in the first quarter of 2018 using the modified retrospective transition approach applied to contracts which are not completed as of January 1, 2018. Upon adoption, we will recognize the cumulative-effect of adopting this guidance as an adjustment to opening retained earnings. We have conducted a comprehensive scoping exercise to determine the revenue streams that are within the scope of this guidance. The scope of this guidance explicitly excludes net interest income, including interest income earned from our loan and fixed income securities portfolios, as well as certain other noninterest income earned from our lending-, investment- and derivative-related activities. Based on our contract assessments to-date, we have not identified any material changes to the timing or the amounts of our revenue recognition. We expect minor changes in the timing of recognizing fund management fees in noninterest income for a portion of our SVB Capital funds as the fees will be recognized at the time of distribution which typically occurs later in the fund life than had been previously recognized. Based on our preliminary analysis, we expect the cumulative adjustment to retained earnings associated with this change to be from $7 million to $10 million, with an immaterial impact to our net income on an ongoing basis. We continue to evaluate the effect the guidance has on our revenue and the presentation of certain costs associated with our credit card and merchant services and whether these costs are presented in noninterest expense or offset against credit card fees in noninterest income. We currently recognize payment networks costs associated with our credit card and merchant services in noninterest expense. If we determine that the adoption of the guidance results in a change in the presentation of these costs, we estimate that this will result in approximately $10 million to $15 million of annual expenses would be netted against credit card interchange fees and reported in noninterest income instead of other noninterest expense. This change would occur on a prospective basis starting January 1, 2018 and would reduce our non-GAAP core fee income within noninterest income and also reduce noninterest expense with no impact to net income. Furthermore, we continue to evaluate the disaggregation of our significant categories of revenue within the scope of this guidance and plan to expand our qualitative disclosures of our noninterest income within the Consolidated Financial Statements upon adoption in 2018.
In January 2016, the FASB issued a new accounting standard update (ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The adoption of the new standard will result in the elimination of cost method accounting for equity investments and will impact our nonmarketable and other equity securities that are currently carried at cost. This guidance will be effective on January 1, 2018, and our equity investments measured at cost will be measured at fair value and the difference between cost and fair value at adoption date will be recorded as a cumulative-effect adjustment to opening retained earnings of the fiscal year of adoption for our cost method venture capital and private equity fund investments with readily determinable fair values. The actual adjustment to opening retained earnings will depend upon the fair value of our investments at the adoption date but based on September 30, 2017 and historical values, we expect the transition adjustment to increase capital between $110 million and $120 million on a pre-tax basis. Any subsequent changes in the fair value will be recorded as unrealized gains or losses in our consolidated statements of income. Additionally, for purposes of disclosing the fair value of loans carried at amortized cost, we are evaluating our valuation methods to determine the necessary changes to conform to an “exit price” concept as required by the standard update. Accordingly, the fair value amounts disclosed for such loans may change upon adoption.
In February 2016, the FASB issued a new accounting standard update (ASU 2016-02, Leases (Topic 842)), which will require for all operating leases the recognition of a right-of-use asset and a corresponding lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance will be effective on January 1, 2019, on a modified retrospective basis, with early adoption permitted. We plan to adopt the lease accounting guidance in the first quarter of 2019 and are currently evaluating the impact this guidance will have on our consolidated financial statements by reviewing our existing lease contracts and service contracts that may include embedded leases. We expect to recognize right-of-use assets and related lease liabilities associated predominantly with noncancelable operating leases included in the table of minimum future payments in the amount of $217 million as disclosed in Note 18 of our 2016 Form 10-K.
In June 2016, the FASB issued a new accounting standard update (ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments), which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance will be effective January 1, 2020, on a modified retrospective approach, with early adoption permitted, but not before January 1, 2019. We currently have a working project team in place and subject matter experts to assist with our review of key interpretive issues and assist in the assessment of our existing credit loss forecasting models and processes against the new guidance to determine what modifications may be required. We are currently evaluating the impact this guidance will have on our financial position, results of operation and stockholders’ equity.
In August 2016, the FASB issued a new accounting standard update (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments), which clarifies the guidance on eight specific cash flow issues. This guidance will be effective January 1, 2018 on a full retrospective approach, with early adoption permitted. Our preliminary evaluation has resulted in the expectation that this guidance will primarily impact the presentation between investing and operating activities within our statements of cash flows related to distributions and net gains from our nonmarketable and other securities portfolio. We are continuing to evaluate any further impact of this guidance to the presentation of our operating, investing and financing activities within our statements of cash flows.
Reclassifications
Reclassifications
Certain prior period amounts, primarily related to the changes to our income statement presentation of net gains on derivative instruments and provision for unfunded credit commitments have been reclassified to conform to current period presentations.