Off-Balance Sheet Arrangements, Guarantees and Other Commitments

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Off-Balance Sheet Arrangements, Guarantees and Other Commitments

In the normal course of business, we use financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial and standby letters of credit and commitments to invest in venture capital and private equity fund investments. These instruments involve, to varying degrees, elements of credit risk. Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract.

Commitments to Extend Credit

A commitment to extend credit is a formal agreement to lend funds to a client as long as there is no violation of any condition established in the agreement. Such commitments generally have fixed expiration dates, or other termination clauses, and usually require a fee paid by the client upon us issuing the commitment. The following table summarizes information related to our commitments to extend credit at December 31, 2019 and 2018, respectively:



	December 31,
(Dollars in thousands)	2019		2018
Loan commitments available for funding: (1)
Fixed interest rate commitments	$	2,434,042	$	1,839,190
Variable interest rate commitments	19,309,317		14,821,815
Total loan commitments available for funding	21,743,359		16,661,005
Commercial and standby letters of credit (2)	2,778,561		2,252,016
Total unfunded credit commitments	$	24,521,920	$	18,913,021
Commitments unavailable for funding (3)	$	3,051,075	$	2,723,835
Allowance for unfunded credit commitments (4)	67,656		55,183


(1)	Represents commitments which are available for funding, due to clients meeting all collateral, compliance and financial covenants required under loan commitment agreements.


(2)	See below for additional information on our commercial and standby letters of credit.


(3)	Represents commitments which are currently unavailable for funding due to clients failing to meet all collateral, compliance and financial covenants under loan commitment agreements.


(4)	Our allowance for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit.

Our potential exposure to credit loss for commitments to extend credit, in the event of nonperformance by the other party to the financial instrument, is the contractual amount of the available unused loan commitment. We use the same credit approval and monitoring process in extending credit commitments as we do in making loans. The actual liquidity needs and the credit risk that we have experienced have historically been lower than the contractual amount of commitments to extend credit because a significant portion of these commitments expire without being drawn upon. We evaluate each potential borrower and the necessary collateral on an individual basis. The type of collateral varies, but may include real property, intellectual property, bank deposits or business and personal assets. The credit risk associated with these commitments is considered in the allowance for unfunded credit commitments.

Commercial and Standby Letters of Credit

Commercial and standby letters of credit represent conditional commitments issued by us on behalf of a client to guarantee the performance of the client to a third party when certain specified future events have occurred. Commercial letters of credit are issued primarily for inventory purchases by a client and are typically short-term in nature. We provide two types of standby letters of credit: performance and financial standby letters of credit. Performance standby letters of credit are issued to guarantee the performance of a client to a third party when certain specified future events have occurred and are primarily used to support performance instruments such as bid bonds, performance bonds, lease obligations, repayment of loans and past due notices. Financial standby letters of credit are conditional commitments issued by us to guarantee the payment by a client to a third party (beneficiary) and are primarily used to support many types of domestic and international payments. These standby letters of credit have fixed expiration dates and generally require a fee to be paid by the client at the time we issue the commitment.

The credit risk involved in issuing letters of credit is essentially the same as that involved with extending credit commitments to clients, and accordingly, we use a credit evaluation process and collateral requirements similar to those for credit commitments. Our standby letters of credit often are cash secured by our clients. The actual liquidity needs and the credit risk that we have experienced historically have been lower than the contractual amount of letters of credit issued because a significant portion of these conditional commitments expire without being drawn upon.

The table below summarizes our commercial and standby letters of credit at December 31, 2019. The maximum potential amount of future payments represents the amount that could be remitted under letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.



(Dollars in thousands)	Expires In One Year or Less		Expires After One Year		Total Amount Outstanding		Maximum Amount of Future Payments
Financial standby letters of credit	$	2,566,623	$	79,207	$	2,645,830	$	2,645,830
Performance standby letters of credit	105,993		19,618		125,611		125,611
Commercial letters of credit	7,120		—		7,120		7,120
Total	$	2,679,736	$	98,825	$	2,778,561	$	2,778,561

Deferred fees related to financial and performance standby letters of credit were $17.2 million at December 31, 2019 and $14.1 million at December 31, 2018. At December 31, 2019, collateral in the form of cash of $1.6 billion was available to us to reimburse losses, if any, under financial and performance standby letters of credit.

Commitments to Invest in Venture Capital and Private Equity Funds

We make commitments to invest in venture capital and private equity funds, which generally makes investments in privately-held companies. Commitments to invest in these funds are generally made for a 10-year period from the inception of the fund. Although the limited partnership agreements governing these investments typically do not restrict the general partners from calling 100% of committed capital in one year, it is customary for these funds to call most of the capital commitments over 5 to 7 years, and in certain cases, the funds may not call 100% of committed capital. The actual timing of future cash requirements to fund these commitments is generally dependent upon the investment cycle, overall market conditions, and the nature and type of industry in which the privately held companies operate. The following table details our total capital commitments, unfunded capital commitments, and our ownership percentage in each fund at December 31, 2019:



(Dollars in thousands)	SVBFG Capital Commitments		SVBFG Unfunded Commitments		SVBFG Ownership of each Fund (3)
CP I, LP	$	6,000	$	270	10.7	%
CP II, LP (1)	1,200		162		5.1
Capital Preferred Return Fund, LP	12,688		—		20.0
Growth Partners, LP	24,670		1,340		33.0
Strategic Investors Fund, LP	15,300		688		12.6
Strategic Investors Fund II, LP	15,000		1,050		8.6
Strategic Investors Fund III, LP	15,000		1,275		5.9
Strategic Investors Fund IV, LP	12,239		2,325		5.0
Strategic Investors Fund V funds	515		131		Various
Other venture capital and private equity fund investments (equity method accounting)	21,801		5,732		Various
Debt funds (equity method accounting)	58,493		—		Various
Other fund investments (2)	284,758		6,119		Various
Total	$	467,664	$	19,092


(1)	Our ownership includes direct ownership of 1.3 percent and indirect ownership of 3.8 percent through our investment in Strategic Investors Fund II, LP.


(2)	Represents commitments to 211 funds (primarily venture capital funds) where our ownership interest is generally less than five percent of the voting interests of each such fund.


(3)	We are subject to the Volcker Rule which restricts or limits us from sponsoring or having ownership interests in “covered” funds including venture capital and private equity funds. See “Business - Supervision and Regulation” under Part I, Item 1 of this report.

The following table details the amounts of remaining unfunded commitments to venture capital and private equity funds by our consolidated managed funds of funds (including our interest and the noncontrolling interests) at December 31, 2019:



(Dollars in thousands)	Unfunded Commitments
Strategic Investors Fund, LP	$	1,338
Capital Preferred Return Fund, LP	1,540
Growth Partners, LP	2,468
Total	$	5,346