ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page Number
Overview of Company Operations
Management's Overview of December 31, 2022 Financial Performance
Critical Accounting Policies and Estimates
Allowance for Credit Losses
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis)
Provision for Credit Losses
Noninterest Income
Noninterest Expense
Income Taxes
Net Income Attributable to Noncontrolling Interests
Operating Segment Results
Silicon Valley Bank
SVB Private
SVB Capital
SVB Securities
Consolidated Financial Condition
Cash and Cash Equivalents
Investment Securities
Loans
Accrued Interest Receivable and Other Assets
Derivatives
Deposits
Short-Term Borrowings
Long-Term Debt
Other Liabilities
Noncontrolling Interests
Capital Resources
SVBFG Stockholders' Equity
Capital Ratios
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Liquidity
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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and supplementary data as presented under Part II, Item 8 of this report. Certain prior period amounts have been reclassified to conform to current period presentations. For a comparison of 2021 results to 2020 results and other 2020 information not included herein, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7 of our 2021 Form 10-K filed with the SEC on February 25, 2022.
The following discussion and analysis of our financial condition and results of operations contains forward-looking statements. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties. See our cautionary language at the beginning of this report under “Forward-Looking Statements”. Actual results could differ materially because of various factors, including but not limited to those discussed in “Risk Factors,” under Part I, Item 1A of this report.
Our fiscal year ends December 31 st and, unless otherwise noted, references to years or fiscal years are for fiscal years ended December 31 st .
Overview of Company Operations
SVB Financial is a diversified financial services company, as well as a bank holding company and a financial holding company. SVB Financial was incorporated in the state of Delaware in March 1999. Through our various subsidiaries and divisions, we offer a variety of banking and financial products and services. For 40 years, we have been dedicated to helping innovative companies and their investors succeed, especially in the technology, life science/healthcare, private equity/venture capital and premium wine industries. We provide our clients of all sizes and stages with a diverse set of products and services to support them through all stages of their life cycles, and key innovation markets around the world.
We offer commercial and private banking products and services through our principal subsidiary, the Bank, which is a California-state chartered bank founded in 1983 and a member of the Federal Reserve System. Through its subsidiaries, the Bank also offers asset management, private wealth management and other investment services. In addition, through SVB Financial's other subsidiaries and divisions, we also offer investment banking services and non-banking products and services, such as funds management, M&A advisory services and venture capital and private equity investment.
Management’s Overview of 2022 Financial Performance
2022 was a challenging year as prolonged market volatility slowed public and private fundraising activity, which pressured our balance sheet growth and valuations of our private fund investments. Despite these challenging market conditions, we continued to deliver healthy results during 2022. Annual net interest income grew by 41%, driven by higher interest rates and average fixed income investment securities balances as well as strong loan growth even while funding costs increased as a result of the imbalance between client liquidity inflows from fundraising activities and declines from client cash burn. 2022 was a record for core fee income (a non-GAAP measure) as higher interest rates drove improved client investment fee margins. Despite pressured public markets, SVB Securities revenue continued to deliver solid results supported by our past investments to expand our investment banking capabilities and expertise. Credit quality remained healthy overall in 2022. While nonperforming loans and net charge offs did increase towards the end of the year as a result of current market challenges, they still remain at relatively low levels.
Reference Rate Reform
The publication of the British Pound Sterling, Euro, Swiss Franc and Japanese Yen LIBOR settings and one-week and two-month U.S. dollar LIBOR settings terminated at the end of December 2021, leaving the remaining U.S. dollar LIBOR settings (i.e., overnight, one month, three month, six month and 12 month) in place, which are expected to terminate at the end of June 2023. We hold instruments that may be impacted by the discontinuance of LIBOR, including loans, investments, debt and derivative products that use LIBOR as a benchmark rate.
SVB has launched alternative reference rates in line with industry standards across USD (SOFR), GBP (SONIA) and EUR (€STR). For USD, SVB supports Term SOFR (one month, three month and six month tenors) and Daily Simple SOFR conventions. We have made significant progress on legacy contract migration away from LIBOR to alternate reference rates. SVB does not expect any material changes in net interest income or net interest expense from product spread adjustments as a result of offering alternative reference rates.
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Results for the fiscal year ended, and as of, December 31, 2022, (compared to the fiscal year ended, and as of, December 31, 2021, where applicable):
BALANCE SHEET
EARNINGS
Assets. $216.1 billion in average total assets (up 30.2%). $211.8 billion in period-end total assets (up 0.2%).
Loans. $70.3 billion in average total loan balances, amortized cost (up 28.9%). $74.3 billion in period-end total loan balances, amortized cost (up 12.0%).
Total Client Funds. (on-balance sheet deposits and off-balance sheet client investment funds). $374.9 billion in average total client fund balances (up 13.9%). $341.5 billion in period-end total client fund balances (down 14.5%).
AFS/HTM Fixed Income Investments. $124.2 billion in average fixed income investment securities (up 49.6%). $117.4 billion in period-end fixed income investment securities (down 6.4%).
EPS. Earnings per diluted share of $25.35 (down 18.9%).
Net Income. Consolidated net income available to common stockholders of $1.5 billion (down 14.7%).
- NII of $4.5 billion (up 41.1%).
- Net interest margin of 2.16% (up 14 bps).
- Noninterest income of $1.7 billion (down 36.9%), non-GAAP core fee income + of $1.2 billion (up 57.3%) and non-GAAP SVB Securities revenue ++ of $518 million (down 3.7%).
- Noninterest expense of $3.6 billion (up 17.9%).
Return on Average Equity. Return on average equity performance of 12.14%.
Operating Efficiency Ratio. Operating efficiency ratio of 58.28%.
CAPITAL
CREDIT QUALITY
Capital +++ . Continued strong capital, with all capital ratios considered "well-capitalized" under banking regulations. SVBFG and SVB capital ratios, respectively, were:
- CET1 risk-based capital ratio of 12.05% and 15.26% .
- Tier 1 risk-based capital ratio of 15.40% and 15.26%.
- Total risk-based capital ratio of 16.18% and 16.05%. - Tier 1 leverage ratio of 8.11% and 7.96%.
Credit Quality. Healthy credit in an evolving credit environment.
- ACL of 0.86% as a percentage of period-end total loans.
- Allowance for unfunded credit commitments of 0.48% as a percentage of total unfunded credit commitments.
- Provision for loans of 0.39% as a percentage of period-end total loans.
- Net loan charge-offs of 0.10% as a percentage of average total loans.
+ Consists of fee income for deposit services, letters of credit and standby letters of credit, credit cards, client investments, wealth management and trust, foreign exchange and lending-related activities. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under “Results of Operations—Noninterest Income”)
++ Consists of investment banking revenue and commissions. This is a non-GAAP financial measure. (See the non-GAAP reconciliation under “Results of Operations—Noninterest Income”).
+++ In March 2020, the federal banking agencies provided transitional relief to banking organizations with respect to the impact of CECL on regulatory capital. Under the 2020 CECL Transition Rule, banking organizations may delay the estimated impact of CECL on regulatory capital for two years, followed by a three-year period to phase out the aggregate capital benefit provided during the initial two-year delay. We have elected to use this five-year transition option. For additional details, see "Capital Resources" within "Consolidated Financial Condition" under Part 2, Item 7 of this report.
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A summary of our performance in 2022 compared to 2021 is as follows:
Year ended December 31,
(Dollars in millions, except per share data, employees and ratios)
% Change
Income Statement:
Diluted EPS
Net income available to common stockholders
Net interest income
Net interest margin
bps
Provision for credit losses (1) (2)
Noninterest income
Noninterest expense
Non-GAAP core fee income (3)
Non-GAAP core fee income, plus SVB Securities Revenue (3)
Balance Sheet:
Average AFS securities
Average HTM securities
Average loans, amortized cost
Average noninterest-bearing demand deposits
Average interest-bearing deposits
Average total deposits
Earnings Ratios:
Return on average assets (4)
Return on average SVBFG common stockholders’ equity (5)
Asset Quality Ratios:
ACL for loans as a % of total period-end loans
bps
ACL for performing loans as a % of total performing loans
Gross loan charge-offs as a % of average total loans (2)
Net loan charge-offs as a % of average total loans (2)
Capital Ratios:
SVBFG CET1 risk-based capital ratio
bps
SVBFG tier 1 risk-based capital ratio
SVBFG total risk-based capital ratio
SVBFG tier 1 leverage ratio
SVBFG tangible common equity to tangible assets (6)
SVBFG tangible common equity to risk-weighted assets (6)
Bank CET1 risk-based capital ratio
Bank tier 1 risk-based capital ratio
Bank total risk-based capital ratio
Bank tier 1 leverage ratio
Bank tangible common equity to tangible assets (6)
Bank tangible common equity to risk-weighted assets (6)
Other Ratios:
Operating efficiency ratio (7)
Total costs of deposits (8)
Book value per common share (9)
Tangible book value per common share (10)
Other Statistics:
Average full-time equivalent employees
Period-end full-time equivalent employees
(1) This metric for the year ended December 31, 2021, includes a post-combination provision of $46 million to record the ACL for non-PCD loans and unfunded credit commitments acquired from Boston Private.
(2) This metric for the year ended December 31, 2021, includes the impact of an $80 million charge-off related to fraudulent activity discussed in previous filings.
(3) See “Results of Operations–Noninterest Income” for a description and reconciliation of non-GAAP core fee income and non-GAAP core fee income plus investment banking revenue and commissions.
(4) Ratio represents consolidated net income available to common stockholders divided by average assets.
(5) Ratio represents consolidated net income available to common stockholders divided by average SVBFG stockholders’ equity.
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(6) See “Capital Resources–Capital Ratios” for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.
(7) The operating efficiency ratio is calculated by dividing total noninterest expense by total NII plus noninterest income.
(8) Ratio represents total cost of deposits and is calculated by dividing interest expense from deposits by average total deposits.
(9) Book value per common share is calculated by dividing total SVBFG common stockholders’ equity by total outstanding common shares at period-end.
(10) Tangible book value per common share is calculated by dividing tangible common equity by total outstanding common shares at period-end. Tangible common equity is a non-GAAP measure defined under the section “Capital Resources-Capital Ratios.”
For more information with respect to our capital ratios, please refer to “Capital Ratios” under “Consolidated Financial Condition-Capital Ratios” below.
Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding our financial condition and results of operations and are discussed in Note 2—“Summary of Significant Accounting Policies” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report. We have identified one policy as being critical because it requires us to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain, and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. We evaluate our estimates and assumptions on an ongoing basis and we base these estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.
This critical accounting policy addresses the adequacy of the ACL for loans and unfunded credit commitments. Our senior management has discussed and reviewed the development, selection, application and disclosure of this critical accounting policy with the Audit Committee of our Board of Directors. The following is a brief discussion of our critical accounting estimate and related policy.
Allowance for Credit Losses
We consider this accounting policy to be critical as estimation of ECL involves material management estimates and is susceptible to significant changes in the near-term. Determining the ACL for loans and unfunded credit commitments requires us to make forecasts that are highly uncertain and require a high degree of judgment. A committee comprised of senior management evaluates the adequacy of the ACL for loans, which includes review of loan portfolio segmentation, quantitative models, internal and external data inputs, economic forecasts, credit risk ratings and qualitative adjustments.
Expected Credit Losses Estimate for Loans and Unfunded Credit Commitments
The methodology for estimating the amount of ECL reported in the ACL is the sum of two main components: (i) ECL assessed on a collective basis for pools of loans and unfunded credit commitments that share similar risk characteristics and (ii) ECL assessed for individual loans and unfunded credit commitments that do not share similar risk characteristics with other loans. Estimating the amount of ECL involves significant judgment on various matters including the assessment of risk characteristics, assignment of risk ratings, development and weighting of macroeconomic forecasts and incorporation of historical loss experience.
We derive an estimate of ECL using three predictive metrics: (i) probability of default ("PD"), (ii) loss given default ("LGD") and (iii) exposure at default ("EAD"), over the estimated life of the exposure. PD and LGD assumptions are developed based on quantitative models and inherent risk of credit loss, both of which involve significant judgment.
One of the most significant areas of judgment involved in estimating the ACL relates to the macroeconomic forecasts used to estimate credit losses. To the extent the remaining contractual lives of loans in the portfolio extend beyond the forecast period, we revert to historical averages using a method that will gradually trend towards the mean historical loss over the remaining contractual lives of loans, adjusted for prepayments. The macroeconomic scenarios are reviewed on a quarterly basis.
The selection of variables used in our econometric models varies by loan portfolio, but typically includes real gross domestic product ("GDP") growth, unemployment rates, Housing Price Index ("HPI") changes and BBB corporate bond spread.
Changes in management’s assumptions and macroeconomic forecasts could significantly affect the estimate of ECL and alternative assumptions could have a significant impact on the ECL. However, changing one assumption without reassessing other assumptions used in the quantitative or qualitative process could yield results that are not reasonable or appropriate. Our ECL models were designed to capture the correlation between economic conditions and historical portfolio changes. As such, evaluating shifts in individual variables in isolation may not be indicative of past or future performance.
Given the range of the most significant macroeconomic variables in the upside, or stronger near-term growth, and downside, or moderate recession, scenarios of our forecast used to develop the ECL as of December 31, 2022, our portfolio reserve coverage ranges from 0.71 percent to 1.10 percent, with a funded reserve rate of 0.86 percent as of December 31,
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2022. This range demonstrates the sensitivity of the ECL to key quantitative assumptions; however, it is not intended to estimate changes in the overall ECL as it does not reflect qualitative factor adjustments which are important considerations to ensure the allowance reflects our best estimate of current expected credit losses.
We apply certain qualitative factor adjustments to the results obtained through our quantitative ECL models to consider model imprecision, emerging risk assessments, trends and other subjective factors that may not be adequately represented in the quantitative ECL models. These adjustments to historical loss information are for asset-specific risk characteristics and also reflect our assessment of the extent that current conditions and reasonable and supportable forecasts differ from conditions that existed during the period over which historical information was evaluated. Given the current processes and risk monitoring by the Bank, management believes the combination of the quantitative model results and the qualitative factor adjustment represents a reasonable and appropriate estimate of ECL.
Recent Accounting Pronouncements
In March 2022, the FASB issued Accounting Standard Update No. 2022-01, Derivatives and Hedging (Topic 815), which allows multiple hedged layers to be designated in a single closed portfolio of financial assets. As a result, an entity can achieve hedge accounting for hedges of a greater proportion of the interest rate risk inherent in the assets included in the closed portfolio, further aligning hedge accounting with our risk management strategies. The update allows for a one-time transfer of certain debt securities from HTM to AFS upon adoption. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. We adopted this standard on January 1, 2023 and did not transfer any securities to the AFS portfolio. The adoption of this standard did not have a material impact on our financial statements.
In March 2022, the FASB issued Accounting Standard Update No. 2022-02, Financial Instruments — Credit Losses (Topic 326), which eliminates the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. The update also requires disclosure of current-period gross write-offs by year of origination for financing receivables. The update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. We adopted this standard on January 1, 2023. The adoption of this standard did not have a material impact on our financial statements.
In June 2022, the FASB issued Accounting Standard Update No. 2022-03, Fair Value Measurement (Topic 820), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. SVB currently applies a discount on securities covered by contractual restrictions, and these discounts will be removed upon adoption. We do not expect the adoption of the update to have a material impact on our consolidated financial statements and related disclosures.
Results of Operations
Net Interest Income and Margin (Fully Taxable Equivalent Basis)
NII is defined as the difference between: (i) interest earned on loans, fixed income investments in our AFS and HTM securities portfolios and cash and cash equivalents and (ii) interest paid on funding sources. Net interest margin is defined as NII, on a fully taxable equivalent basis, as a percentage of average interest-earning assets. NII and net interest margin are presented on a fully taxable equivalent basis to consistently reflect income from taxable loans and securities and tax-exempt securities based on the applicable federal statutory tax rate.
Analysis of Net Interest Income Changes Due to Volume and Rate (Fully Taxable Equivalent Basis)
NII is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume change.” NII is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as “rate change.” The following table sets forth changes in interest income for each major category of interest-earning assets and interest expense for each major category of interest-bearing liabilities. The table also reflects the amount of simultaneous changes attributable to both volume and rate changes for the years indicated. For this table, changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate.
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2022 compared to 2021
2021 compared to 2020
Change due to
Change due to
(Dollars in millions)
Volume
Rate
Total
Volume
Rate
Total
Interest income:
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities
Fixed income investment portfolio (taxable)
Fixed income investment portfolio (non-taxable)
Loans, amortized cost (1)
Increase (decrease) in interest income, net
Interest expense:
Interest-bearing checking and savings accounts
Money market deposits
Money market deposits in foreign offices
Time deposits
Sweep deposits in foreign offices
Total increase (decrease) in deposits expense
Short-term borrowings
Long term debt
Total increase (decrease) in borrowings expense
Increase (decrease) in interest expense, net
Increase (decrease) in net interest income
(1) Upon the completion of the Boston Private acquisition in July 2021, a $104 million fair market value adjustment was made on the acquired loans that will be amortized into loan interest income over the contractual terms of the underlying loans using the constant effective yield method. The adjustment will be approximately 90 percent amortized by the end of fiscal year 2023. For the year ended December 31, 2022, $40 million of this premium amortization partially offset the overall increase in NII. At December 31, 2022, $24 million of unamortized fair market value adjustment was included in the line item "loans, amortized cost" on the consolidated balance sheet.
Net Interest Income (Fully Taxable Equivalent Basis)
NII increased by $1.3 billion to $4.5 billion in 2022, compared to $3.2 billion in 2021. Overall, our NII increased primarily from higher yields as well as increases in average balances of our fixed income investment securities and loans. The increase in NII was partially offset by higher rates on deposits as well as increases in average balances of interest-bearing deposits and increases in average balances of short-term borrowings.
The main factors affecting interest income and interest expense for 2022, compared to 2021, are discussed below:
• Interest income for 2022 increased by $2.4 billion primarily due to:
◦ A $1.2 billion increase in interest income on loans to $3.2 billion in 2022, compared to $2.0 billion for the comparable 2021 period. The increase in interest income on loans was due primarily to an increase in average loan balances of $15.7 billion as well as higher loan interest yields driven by the increase in market rates,
◦ A $957 million increase in interest income from our fixed income investment securities due primarily to an increase of $41.2 billion in average fixed income investment securities and an increase in yields earned on these investments reflective of lower premium amortization as a result of higher rates reducing estimated prepayment speeds and
◦ A $194 million increase in interest income from increased market yields on interest-earning cash, partially offset by a $6.1 billion decrease in average cash balances.
• Interest expense for 2022 increased by $1.1 billion primarily due to:
◦ A $800 million increase in interest expense on deposits due primarily to an increase in average interest-bearing deposit balances as well as by an increase in interest expense paid on our interest-bearing deposits driven by higher market rates and
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◦ A $278 million increase in interest expense on borrowings due primarily to an increase in average short-term borrowings driven by declines in deposits from client cash burn as well as full year interest expense on our 1.800% Senior Notes issued in October 2021 as well as interest expense on our 4.345% and 4.570% Senior Fixed Rate/Floating Rate Notes issued in April 2022 and long-term FHLB advances issued in the fourth quarter of 2022.
Net Interest Margin (Fully Taxable Equivalent Basis)
Our net interest margin increased by 14 bps to 2.16 percent in 2022, compared to 2.02 percent in 2021.
• The higher margin for the year ended December 31, 2022, was due primarily to improved yields reflective of a higher rate environment and the decrease in premium amortization mentioned above, partially offset by the increase in interest-bearing deposit expense and borrowing costs mentioned above.
Average Balances, Yields and Rates Paid (Fully Taxable Equivalent Basis)
The average yield earned on interest-earning assets is the amount of fully taxable equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is the amount of interest expense expressed as a percentage of average funding sources. The following tables set forth average assets, liabilities, NCI, preferred stock and SVBFG stockholders’ equity, interest income, interest expense, yields and rates and the composition of our net interest margin in 2022, 2021 and 2020:
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Average Balances, Yields and Rates Paid for the Years Ended December 31, 2022, 2021 and 2020
Year ended December 31,
(Dollars in millions)
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Interest-earning assets :
Federal Reserve deposits, federal funds sold, securities purchased under agreements to resell and other short-term investment securities (1)
Investment Securities: (2)
AFS securities:
Taxable (3)
HTM securities:
Taxable
Non-taxable (4)
Total loans, amortized cost (5) (6)
Total interest-earning assets
Cash and due from banks
ACL: loans
Other assets (3) (7)
Total assets
Funding sources :
Interest-bearing liabilities:
Interest-bearing checking and savings accounts
Money market deposits
Money market deposits in foreign offices
Time deposits
Sweep deposits in foreign offices
Total interest-bearing deposits
Short-term borrowings
Long term debt
Total interest-bearing liabilities
Portion of noninterest-bearing funding sources
Total funding sources
Noninterest-bearing funding sources :
Demand deposits
Other liabilities
Preferred stock
SVBFG common stockholders’ equity
Noncontrolling interests
Portion used to fund interest-earning assets
Total liabilities, noncontrolling interest and SVBFG stockholders' equity
Net interest income and margin
Total deposits
Average SVBFG common stockholders’ equity as a percentage of average assets
Reconciliation to reported net interest income :
Adjustments for taxable equivalent basis
Net interest income, as reported
(1) Includes average interest-earning deposits in other financial institutions of $5.3 billion, $4.6 billion and $1.1 billion in the years ended December 31, 2022, December 31, 2021, and December 31, 2020, respectively. For December 31, 2022, December 31, 2021, and December 31, 2020, balances also include $9.2 billion, $15.9 billion and $9.9 billion, respectively, deposited at the FRB, earning interest at the Federal Funds target rate.
(2) Yields on interest-earning investment securities do not give effect to changes in fair value that are reflected in other comprehensive income.
(3) Average unrealized losses on AFS securities of $1.7 billion and average unrealized gains of $163 million and $562 million for the year ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively, were reclassified out of AFS securities into other assets.
(4) Interest income on non-taxable investment securities is presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21.0 percent for all periods presented.
(5) Nonaccrual loans are reflected in the average balances of loans.
(6) Interest income includes loan fees of $207 million, $217 million and $191 million in the years ended December 31, 2022, December 31, 2021, and December 31, 2020, respectively.
(7) Average nonmarketable and other equity securities of $2.6 billion, $3.0 billion and $1.4 billion in the years ended December 31, 2022, December 31, 2021, and December 31, 2020, respectively, were classified as other assets as they are noninterest-earning assets.
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Provision for Credit Losses
The provision for credit losses is the combination of (i) the provision for loans, (ii) the provision for unfunded credit commitments and (iii) the provision for HTM securities. Our allowance for credit losses reflects our best estimate of probable credit losses that are inherent in the portfolios at the balance sheet date.
The following table summarizes our ACL and provision for credit losses for loans, unfunded credit commitments and HTM securities for 2022, 2021 and 2020, respectively:
Year ended December 31,
(Dollars in millions)
ACL, beginning balance
Day one impact of adopting ASC 326
Initial allowance on PCD loans
Provision for loans (1) (2)
Gross loan charge-offs (2)
Loan recoveries
Foreign currency translation adjustments
ACL, ending balance
ACL for unfunded credit commitments, beginning balance
Day one impact of adopting ASC 326
Provision for unfunded credit commitments (1)
Foreign currency translation adjustments
ACL for unfunded credit commitments, ending balance (3)
ACL for HTM securities, beginning balance
Provision (reduction in ACL) for HTM securities
ACL for HTM securities, ending balance (4)
Ratios and other information:
Provision for loans as a percentage of period-end total loans (2)
Gross loan charge-offs as a percentage of average total loans (2)
Net loan charge-offs as a percentage of average total loans (2)
ACL for loans as a percentage of period-end total loans
Provision for credit losses
Period-end total loans
Average total loans
Allowance for loan losses for nonaccrual loans
Nonaccrual loans
(1) The provision for credit losses for the year ended December 31, 2021 includes $46 million recognized as a result of the Boston Private acquisition, which consists of a $44 million initial provision for loans related to non-PCD loans and a $2 million initial provision for unfunded commitments.
(2) Metrics for the year ended December 31, 2021 includes the impact of an $80 million charge-off related to fraudulent activity on one loan as disclosed in previous filings.
(3) The " ACL for unfunded credit commitments” is included as a component of “Other liabilities” on our consolidated balance sheets.
(4) The " ACL for HTM securities " is included as a component of "HTM securities" and presented net in our consolidated financial statements.
For a more detailed discussion of credit quality and the ACL, see “Critical Accounting Policies and Estimates” above, “Consolidated Financial Condition-Credit Quality and the Allowance for Credit Losses for Loans and for Unfunded Credit Commitments” below and Note 10—“Loans and Allowance for Credit Losses: Loans and Unfunded Credit Commitments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for further details on our ACL.
Provision for Loans
We had a provision for credit losses for loans of $288 million in 2022, compared to a provision of $66 million in 2021. The provision for loans of $288 million in 2022 was driven primarily by the deterioration in projected financial conditions which accounted for $129 million, of which $89 million was taken in the second quarter. Other major drivers of the provision
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were $82 million in charge-offs not previously specifically reserved for and $74 million due to loan growth. The largest offset was $32 million in recoveries.
We had a provision for loans of $66 million in 2021, driven primarily by a $64 million increase for organic growth in our loan portfolio, $44 million initial provision from acquired Boston Private non-PCD loans and $113 million of charge-offs not previously specifically reserved for, of which $80 million was related to a single instance of fraudulent activity on one loan as disclosed in previous filings. These increases in the provision were partially offset by $24 million of recoveries, a $62 million reduction in performing reserves as a result of the ongoing improvement of economic scenarios in our forecast models and a $69 million reduction in provision due to enhancements made in the model.
We had a provision for loans of $190 million in 2020, driven primarily by $60 million in net new nonaccrual loans and $57 million in additional reserves for our performing loans based on the forecast models of the economic environment at the time, including the impact of the COVID-19 pandemic, as well as changes in loan composition within our portfolio segments. The provision was also driven by $55 million in additional reserves for period-end loan growth and $49 million for charge-offs not specifically reserved for, partially offset by $29 million of recoveries.
Provision for Unfunded Credit Commitments
We recorded a provision for unfunded credit commitments of $133 million in 2022, compared to a provision of $50 million in 2021. Our provision for unfunded credit commitments in 2022 was driven primarily by the deterioration in economic forecasts described above which accounted for $67 million. Growth in our unfunded commitments contributed to an additional $61 million in provision.
We recorded a provision for unfunded credit commitments of $50 million in 2021. Our provision for unfunded credit commitments in 2021 was driven primarily by growth in our outstanding commitments and changes in the unfunded portfolio composition, as well as an increase in the expected future commitments for milestone tranches of Investor Dependent loans, which are tied to company performance or additional funding rounds, resulting in a longer weighted average life of these higher risk segments. These increases were partially offset by improved economic scenarios in our forecast models.
We recorded a provision for unfunded credit commitments of $30 million in 2020, driven primarily by the forecast models of the economic environment at the time, including the impact of the COVID-19 pandemic, as well as growth in unfunded credit commitments.
Provision for HTM Securities
We recorded a reduction in the allowance for credit losses for HTM securities of $1 million in 2022. This reflects a release of reserves driven primarily by the ongoing stability of our HTM securities portfolio during the year. Our HTM portfolio as of December 31, 2022, was entirely made up of A3 or better rated bonds, all considered investment grade.
We recorded a provision for HTM securities of $7 million in 2021. Our provision for HTM securities was driven primarily by the creation of our corporate bond portfolio, which had a balance of $712 million at December 31, 2021. Our HTM portfolio as of December 31, 2021, was entirely made up of A3 or better rated bonds, all considered investment grade.
We recorded a provision for HTM securities of less than $1 million in 2020. The nominal provision for HTM securities was driven primarily by the forecast models of the economic environment at the time. Our HTM portfolio as of December 31, 2020, was entirely made up of Aa2 or better rated bonds, all considered high quality.
See Note 10—“Loans and Allowance for Credit Losses: Loans and Unfunded Credit Commitments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for further details on our gross loan charge-offs and our ACL for loans and unfunded credit commitments.
Noninterest Income
For the year ended December 31, 2022, noninterest income was $1.7 billion, compared to $2.7 billion for the comparable 2021 period. For the year ended December 31, 2022, non-GAAP core fee income was $1.2 billion, compared to $751 million for the comparable 2021 period. For the year ended December 31, 2022, non-GAAP SVB Securities revenue was $518 million, compared to $538 million for the comparable 2021 period. (See reconciliations of non-GAAP measures used below under "Use of Non-GAAP Financial Measures".)
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Use of Non-GAAP Financial Measures
To supplement our audited consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance (including, but not limited to, non-GAAP core fee income, non-GAAP SVB Securities revenue, non-GAAP core fee income plus non-GAAP SVB Securities revenue, non-GAAP net gains (losses) on investment securities, net of NCI and non-GAAP financial ratios). These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.
We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by (i) excluding items that represent income attributable to investors other than us and our subsidiaries and (ii) providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, and not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.
Included in net income is income and expense attributable to NCI. We recognize, as part of our investment funds management business through SVB Capital and SVB Securities, the entire income or loss from funds consolidated in accordance with ASC Topic 810 as discussed in Note 2—“Summary of Significant Accounting Policies” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report. We are required under GAAP to consolidate 100% of the results of these entities, even though we may own less than 100% of such entities. The relevant amounts attributable to investors other than us are reflected under “Net Income Attributable to Noncontrolling Interests” on our statements of income. Where applicable, the tables below for noninterest income and net gains (losses) on investment securities exclude NCI.
Core fee income is a non-GAAP financial measure, which represents GAAP noninterest income, but excludes (i) SVB Securities revenue, (ii) certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets and (iii) other noninterest income. Core fee income represents client investment fees, wealth management and trust fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees.
SVB Securities revenue is a non-GAAP financial measure, which represents noninterest income but excludes (i) Core fee income and (ii) certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets and other noninterest income. SVB Securities revenue represents investment banking revenue and commissions.
Core fee income plus SVB Securities revenue is a non-GAAP measure, which represents GAAP noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control, primarily our net gains (losses) on investment securities and equity warrant assets and other noninterest income. Core fee income plus SVB Securities revenue represents core fee income plus investment banking revenue and commissions.
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The following table provides a reconciliation of GAAP noninterest income to non-GAAP core fee income for 2022, 2021 and 2020, respectively:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
GAAP noninterest income
Less: gains (losses) on investment securities, net
Less: gains on equity warrant assets, net
Less: other noninterest income
Non-GAAP core fee income plus SVB Securities revenue (1)
Investment banking revenue
Commissions
Non-GAAP SVB Securities revenue (2)
Non-GAAP core fee income (3)
(1) Non-GAAP core fee income plus SVB Securities revenue represents noninterest income, but excludes certain line items where performance is typically subject to market or other conditions beyond our control and other noninterest income. Core fee income plus SVB Securities revenue is non-GAAP core fee income (as defined in footnote (3) below) with the addition of investment banking revenue and commissions.
(2) Non-GAAP SVB Securities revenue represents investment banking revenue and commissions, but excludes certain line items where performance is typically subject to market or other conditions beyond our control and other noninterest income.
(3) Non-GAAP core fee income represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. Non-GAAP core fee income includes client investment fees, wealth management and trust fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees and letters of credit and standby letters of credit fees.
Gains (losses) on Investment Securities, Net
Net gains (losses) on investment securities include gains and losses from our non-marketable and other equity securities, which include public equity securities held as a result of exercised equity warrant assets, as well as gains and losses from sales of our AFS debt securities portfolio, when applicable.
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD-SVB, debt funds, private and public portfolio companies and qualified affordable housing projects. We experience variability in the performance of our non-marketable and other equity securities from period to period, which results in net gains or losses on investment securities (both realized and unrealized). This variability is due to a number of factors, including unrealized changes in the values of our investments, changes in the amount of realized gains and losses from distributions, changes in liquidity events and general economic and market conditions. Unrealized gains or losses from non-marketable and other equity securities for any single period are typically driven by valuation changes, and are therefore subject to potential increases or decreases in future periods. Such variability may lead to volatility in the gains or losses from investment securities. As such, our results for a particular period are not necessarily indicative of our expected performance in a future period.
The extent to which any unrealized gains or losses will become realized is subject to a variety of factors, including, among other things, the expiration of certain sales restrictions to which these equity securities may be subject to (e.g., lock-up agreements), changes in prevailing market prices, market conditions, the actual sales or distributions of securities, and the timing of such actual sales or distributions, which, to the extent such securities are managed by our managed funds, are subject to our funds' separate discretionary sales/distributions and governance processes.
Our AFS securities portfolio is a fixed income investment portfolio that is managed with the objective of earning an appropriate portfolio yield over the long-term while maintaining sufficient liquidity and credit diversification as well as addressing our asset/liability management objectives. Though infrequent, sales of debt securities in our AFS securities portfolio may result in net gains or losses and are conducted pursuant to the guidelines of our investment policy related to the management of our liquidity position and interest rate risk.
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The following tables provide a reconciliation of GAAP total gains (losses) on investment securities, net, to non-GAAP net gains (losses) on investment securities, net of NCI, for 2022, 2021 and 2020:
(Dollars in millions)
Managed
Funds of
Funds
Managed
Direct
Venture
Funds
Managed
Credit Funds
Public Equity Securities
Sales of AFS Debt
Securities
Debt
Funds
Strategic
and Other
Investments
SVB Securities
Total
Year ended December 31, 2022
GAAP gains (losses) on investment securities, net
Less: (losses) gains attributable to NCI, including carried interest allocation
Non-GAAP net gains (losses) on investment securities, net of NCI
Year ended December 31, 2021
GAAP gains (losses) on investment securities, net
Less: gains attributable to NCI, including carried interest allocation
Non-GAAP net gains (losses) on investment securities, net of NCI
Year ended December 31, 2020
GAAP gains (losses) on investment securities, net
Less: gains attributable to NCI, including carried interest allocation
Non-GAAP net gains (losses) on investment securities, net of NCI
In 2022, we had net losses on investment securities of $285 million, compared to net gains of $761 million in 2021. Non-GAAP net losses on investment securities, net of NCI were $223 million in 2022, compared to net gains of $521 million in 2021. Net losses on investment securities, net of NCI of $223 million in 2022 were driven by the following:
• Total net loss of $275 million ($209 million, net of NCI) in our managed funds of funds, SVB Securities and strategic and other investment portfolios were driven primarily by valuation declines reflective of adverse market conditions, partially offset by
• Net gains of $21 million on the sale of $9.5 billion of AFS debt securities, inclusive of the gains from the termination of AFS fair value swaps.
• Net losses in our managed funds of funds portfolio are also partially offset by gains of $40 million, included in other noninterest income, for the change in fair value of hedge instruments for certain funds.
In 2021, we had net gains on investment securities of $761 million, compared to $421 million in 2020. Non-GAAP net gains on investment securities, net of NCI were $521 million in 2021, compared to $335 million in 2020, respectively. Net gains on investment securities, net of NCI of $521 million in 2021 were driven by the following:
• Gains of $195 million from our managed fund of funds portfolio driven by unrealized valuations increases of private and public positions as well as fund distributions driven primarily by realized gains from one public company position,
• Gains of $170 million from our strategic and other investments driven primarily by net unrealized valuation increases,
• Gains of $61 million from SVB Securities driven primarily by unrealized valuation gains from the SVB Securities funds and
• Gains of $31 million from our AFS debt securities portfolio, resulting from the sale of $1.6 billion of mortgage-backed securities.
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Gains on Equity Warrant Assets, Net
A summary of gains on equity warrant assets, net, for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Equity warrant assets (1):
Gains on exercises, net
Terminations
Changes in fair value, net
Total gains on equity warrant assets, net
(1) At December 31, 2022, we held warrants in 3,234 companies, compared to 2,831 companies at December 31, 2021. The total fair value of our warrant portfolio was $383 million at December 31, 2022 and $277 million at December 31, 2021. Warrants in 65 companies each had fair values greater than $1 million and collectively represented $199 million, or 51.9 percent, of the fair value of the total warrant portfolio at December 31, 2022.
Gains on equity warrant assets, net, were $148 million in 2022, compared to $560 million in 2021. Net gains on equity warrant assets of $148 million in 2022 were primarily due to the following:
• Net gains on equity warrant assets were driven by $107 million in net valuation increases reflective of private company valuation updates and inclusive of a downward valuation adjustment of $8 million for illiquid investments during the second quarter of 2022, reflective of market volatility and
• Net gains on warrant exercises of $45 million driven primarily by M&A activity.
Gains on equity warrant assets, net, were $560 million in 2021, compared to $237 million in 2020. Net gains on equity warrant assets of $560 million in 2021 were primarily due to the following:
• Net gains on warrant exercises of $446 million reflective of $116 million in gains related to Coinbase's direct listing, with the remaining gains driven primarily by IPO activity and
• Net gains of $116 million from warrant valuations increases, driven by our private company portfolio reflective of pricing updates and pending exit activity.
Overall, net gains on investment securities and net gains on equity warrant assets were exceptionally strong for 2021. Combined, they totaled $1.3 billion ($1.1 billion net of NCI) for the year ended December 31, 2021.
Gains (or losses) related to our equity securities in public companies are based on valuation changes or the sale of any securities, and are subject to such companies' stock price, which are subject to market conditions and various other factors. Additionally, the public equity investment expected gains and losses, and the extent to which such gains (or losses) will become realized is subject to a variety of factors, including among other factors, changes in prevailing market prices and the timing of any sales of securities, which are subject to our securities sales and governance process as well as certain sales restrictions (e.g., lock-up agreements).
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Non-GAAP Core Fee Income and Non-GAAP SVB Securities Revenue
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Non-GAAP core fee income (1):
Client investment fees
Wealth management and trust fees
Foreign exchange fees
Credit card fees
Deposit service charges
Lending related fees
Letters of credit and standby letters of credit fees
Total non-GAAP core fee income (1)
Investment banking revenue
Commissions
Total non-GAAP SVB Securities revenue (2)
Total non-GAAP core fee income plus SVB Securities revenue (3)
(1) This non-GAAP measure represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) our investment banking revenue and commissions and (iii) other noninterest income. See “Use of Non-GAAP Measures” above.
(2) Non-GAAP SVB Securities revenue represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control, (ii) non-GAAP core fee income and (iii) other noninterest income. See “Use of Non-GAAP Measures” above.
(3) Non-GAAP core fee income plus SVB Securities revenue represents noninterest income, but excludes (i) certain line items where performance is typically subject to market or other conditions beyond our control and (ii) other noninterest income. See “Use of Non-GAAP Measures” above.
Client Investment Fees
We offer a variety of investment products on which we earn fees. These products include money market mutual funds, overnight repurchase agreements and sweep money market funds available through the Bank and fixed income management services offered through SVB Asset Management, our investment advisory subsidiary.
Client investment fees were $386 million in 2022, compared to $75 million in 2021. The increase was reflective of improved fee margins resulting from higher short-term interest rates driven by the 2022 Federal Funds rate increases. A summary of client investment fees by type for 2022 , 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Client investment fees by type:
Sweep money market fees
Asset management fees
Repurchase agreement fees
Total client investment fees
The following table summarizes average client investment funds for 2022, 2021 and 2020:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Sweep money market funds
Managed client investment funds (1)
Repurchase agreements
Total average client investment funds (2)
(1) These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management.
(2) Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet.
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The following table summarizes period-end client investment funds at December 31, 2022, 2021 and 2020:
December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Sweep money market funds
Managed client investment funds (1)
Repurchase agreements
Total period-end client investment funds (2)
(1) These funds represent investments in third-party money market mutual funds and fixed-income securities managed by SVB Asset Management.
(2) Client investment funds are maintained at third-party financial institutions and are not recorded on our balance sheet.
Wealth Management and Trust Fees
Wealth management and trust fees was a new core fee income line item for the year ended 2021 reflective of the acquisition of Boston Private. Wealth management and trust fees were $83 million in 2022 as compared to $44 million in 2021. The increase was due to the acquisition of Boston Private occurring in the third quarter of 2021. A summary of wealth management and trust fees for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Wealth management and trust fees by type:
Wealth management fees
Trust fees
Total wealth management and trust fees
The following table summarizes the activity and balances relating to SVB Private AUM and AUA for the years ended December 31, 2022 and December 31, 2021.
Year ended December 31,
(Dollars in millions)
Beginning balance AUM / AUA (1)
AUM / AUA acquired (2)
Net flows
Market returns
Ending balance AUM / AUA (3)
(1) Represents SVB Private AUM previously reported in off-balance sheet managed client investment funds for the year ended December 31, 2020.
(2) Represents $15.9 billion of AUM and $2.1 billion of AUA acquired from the acquisition of Boston Private on July 1, 2021.
(3) Includes approximately $14.8 billion and $16.8 billion of AUM at December 31, 2022 and 2021, respectively.
Foreign Exchange Fees
Foreign exchange fees were $285 million in 2022, compared to $262 million in 2021. The increase in foreign exchange fees was driven primarily by increases in forward and spot contract commissions reflective of the increased volume of client trades. A summary of foreign exchange fees by instrument type for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Foreign exchange fees by instrument type:
Foreign exchange contract commissions
Option premium fees
Total foreign exchange fees
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Credit Card Fees
Credit card fees were $150 million in 2022, compared to $131 million in 2021. Credit card fees increased due to higher transaction volumes reflective of increased spending and client growth, as well as higher travel spending, compared to the comparable 2021 periods when travel was down due to the impact of COVID-19. A summary of credit card fees by instrument type for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Credit card fees by instrument type:
Card interchange fees, net
Merchant service fees
Card service fees
Total credit card fees
Deposit Service Charges
Deposit service charges were $126 million in 2022, compared to $112 million in 2021. Deposit service charges increased primarily driven by higher volumes of our transaction-based fee products.
Lending Related Fees
Lending related fees were $94 million in 2022, compared to $76 million in 2021. The increase was primarily due to an increase in unused commitment fees associated with an increase in unfunded credit commitments. A summary of lending related fees by type for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Lending related fees by instrument type:
Unused commitment fees
Other
Total lending related fees
Letters of Credit and Standby Letters of Credit Fees
Letters of credit and standby letters of credit fees were $57 million in 2022, compared to $51 million in 2021. The increase was primarily driven by growth in commitment balances.
Investment Banking Revenue
Investment banking revenue was $420 million in 2022, compared to $459 million in 2021. The decrease was primarily driven by the slowdown in public markets, which limited underwriting fees, partially offset by increased advisory fees reflective of past hiring and investment to expand our investment banking capabilities. A summary of investment banking revenue by type for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Investment banking revenue:
Underwriting fees
Advisory fees
Private placements and other
Total investment banking revenue
Commissions
Commissions were $98 million in 2022, compared to $79 million in 2021. Commissions include commissions received from clients for the execution of agency-based brokerage transactions in listed and over-the-counter equities. The Company also earns subscription fees for market intelligence services that are recognized over the period in which they are delivered.
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Fees received before the subscription period ends are initially recorded as deferred revenue (a contract liability) in other liabilities in our consolidated balance sheet. The increase in commissions was driven by subscription fees, which are new to core fee income due to the acquisition of MoffettNathanson in December 2021.
Other Noninterest Income
Other noninterest income in 2022 was $166 million, compared to $128 million in 2021. The increase was primarily due to the $40 million increase in fair value of the instrument hedging of certain funds within our managed fund of funds portfolio.
Noninterest Expense
A summary of noninterest expense for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Compensation and benefits
Professional services
Premises and equipment
Net occupancy
Business development and travel
FDIC and state assessments
Merger-related charges
Other
Total noninterest expense
Compensation and Benefits Expense
The following table provides a summary of our compensation and benefits expense:
Year ended December 31,
(Dollars in millions, except employees)
% Change 2022/2021
% Change 2021/2020
Compensation and benefits:
Salaries and wages
Incentive compensation plans
Other employee incentives and benefits (1)
Total compensation and benefits
Period-end FTEs
Average FTEs
(1) Other employee incentives and benefits includes employer payroll taxes, group health and life insurance, share-based compensation, 401(k), ESOP, warrant and other incentive plans, retention plans, agency fees and other employee-related expenses.
Compensation and benefits expense was $2.3 billion in 2022, compared to $2.0 billion in 2021. The key factors driving the increase in compensation and benefits expense in 2022 were as follows:
• An increase of $359 million in salaries and wages expense and an increase of $35 million in other employee incentives and benefits were primarily due to an increase in FTE employees, as we continue to invest in our revenue-generating lines of business, support and risk management functions as well as the impact of annual merit increases, partially offset by
• A decrease of $116 million in incentive compensation plans expense related primarily to a decrease in our incentive compensation plan accrual as a result of our 2022 results, partially offset by an increase in the number of plan participants along with higher incentive compensation targets driven by annual salary increases and promotions.
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Professional Services
Professional services expense was $480 million in 2022, compared to $392 million in 2021. The increase was driven by higher consulting fees associated with our initiatives related to our regulatory programs as well as continued investments in our infrastructure and operating projects to support our presence both domestically and internationally.
Premises and Equipment
Premises and equipment expense was $269 million in 2022, compared to $178 million in 2021. The increase was primarily related to higher computer software support and maintenance fees driven by new contracts and the renewal of existing contracts as well as an increase in software project depreciation.
Net Occupancy
Net occupancy expense was $101 million in 2022, compared to $83 million in 2021. The increase was driven by increased amortization expenses on new leases and extensions, a full year impact of the Boston Private acquisition and expansion of the SVB Securities team to support individuals hired throughout 2021.
Business Development and Travel
Business development and travel expense was $85 million in 2022, compared to $24 million in 2021. The increase was primarily due to the continued easing of COVID-19 restrictions on in-person meetings and travel that were previously in place.
FDIC and State Assessments
FDIC and state assessments expense was $75 million in 2022, compared to $48 million in 2021. The increase was due primarily to the increase in our average deposits as well as the acquisition of Boston Private deposits in 2021.
Merger-related Charges
Merger-related charges was a new noninterest expense line item for 2021 as a result of the Boston Private acquisition. A summary of merger-related charges, which includes direct acquisition costs for the years ended 2022 and 2021 is as follows:
Year ended December 31,
(Dollars in millions)
Personnel-related
Occupancy and facilities
Professional services
Systems integration and related charges
Total merger-related charges
Other Noninterest Expense
Other noninterest expense was $268 million in 2022, compared to $201 million in 2021. This increase was driven by higher amortization expense of intangible assets primarily related to Boston Private, higher expenses related to increased lending, deposit and other client-related processing costs and higher advertising and promotional expenses.
Operating Efficiency Ratio
Our operating efficiency ratio increased to 58.28 percent for the year ended December 31, 2022, compared to 51.88 percent for the year ended December 31, 2021. This increase was driven by lower noninterest income driven by net losses on investment securities as well as lower net gains on equity warrant assets and higher noninterest expense driven by increased compensation and benefits expense. These changes were partially offset by higher net interest income driven by higher yields as well as increases in average balances of our fixed income investment securities and loans.
Income Taxes
Our effective income tax rate was 25.2 percent in 2022, compared to 26.2 percent in 2021. The decrease in our effective tax rate for the year ended December 31, 2022, was attributable to increased state tax and tax-exempt interest benefits. Our effective tax rate is calculated by dividing income tax expense by the sum of income before income tax expense and the net income attributable to NCI. The components of our effective tax rates for 2022 and 2021 are discussed in Note 18—“Income Taxes” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
The Inflation Reduction Act (IRA) of 2022 was signed into law in August 2022. Among other things, the IRA introduced a new corporate alternative minimum tax (CAMT) on public corporations with financial profits over $1 billion. The CAMT will apply to tax years beginning after December 31, 2022, and we are evaluating its impact on the Company.
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Net Loss (Income) Attributable to NCI
Included in net loss (income) is loss (income) and expense attributable to NCI. The relevant amounts allocated to investors in our consolidated subsidiaries, other than us, are reflected under “net loss (income) attributable to noncontrolling interests” on our consolidated statements of income.
In the table below, noninterest loss (income) consists primarily of net investment gains and losses from our consolidated funds. Noninterest expense is primarily related to management fees paid by our managed funds to SVB Financial's subsidiaries as the managed funds’ general partners. A summary of net loss (income) attributable to NCI for 2022, 2021 and 2020 is as follows:
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Noninterest loss (income) (1)
Noninterest expense (1)
Carried interest allocation (2)
Net loss (income) attributable to noncontrolling interests
(1) Represents NCI's share in noninterest income or loss.
(2) Represents the preferred allocation of income (or change in income) earned by us as the general partner of certain consolidated funds.
Net loss attributable to NCI was $63 million in 2022, compared to net income attributable to NCI of $240 million in 2021. Net loss attributable to NCI of $63 million for the year ended December 31, 2022, was driven primarily by net losses on investment securities (including carried interest allocation) from unrealized valuation decreases of our managed funds of funds portfolio and our SVB Securities funds.
Net income attributable to NCI was $240 million in 2021, compared to $86 million in 2020. Net income attributable to NCI of $240 million for the year ended December 31, 2021 was driven primarily by net gains on investment securities (including carried interest allocation) from unrealized valuation of our managed funds of funds and our SVB Securities funds.
Operating Segment Results
We have four segments for which we report our financial information: Silicon Valley Bank, SVB Private, SVB Capital and SVB Securities.
We report segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reporting segments. Please refer to Note 24—“Segment Reporting” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for additional details.
Our Silicon Valley Bank and SVB Private segments' primary source of revenue is from net interest income, which is primarily the difference between interest earned on loans, net of FTP and interest paid on deposits, net of FTP. Accordingly, these segments are reported using net interest income, net of FTP. FTP is the mechanism by which a funding credit is given for deposits raised, and a funding charge is made for funded loans.
The following is our reportable segment information for 2022, 2021 and 2020:
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Silicon Valley Bank
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Net interest income
Provision for credit losses
Noninterest income
Noninterest expense
Income before income tax expense
Total average loans, amortized cost
Total average assets
Total average deposits
Income before income tax expense from Silicon Valley Bank increased to $3.4 billion in 2022, compared to $2.3 billion in 2021. The key components of Silicon Valley Bank's performance are discussed below.
NII from Silicon Valley Bank increased by $1.2 billion in 2022, due primarily from increases in deposit funding credits, yields and average loans, partially offset by higher interest rates on deposits as well as increases in average balances of interest-bearing deposits.
The provision for credit losses was $277 million for 2022, compared to a provision of $55 million for 2021. The provision for 2022 was driven by a deterioration in projected economic conditions, as well as growth in funded loans and unfunded commitments.
Noninterest income increased by $401 million in 2022, related primarily to an overall increase in our non-GAAP core fee income. The overall increase was primarily due to higher client investment fees driven by improved fee margins resulting from higher short-term interest rates as a result of the 2022 Federal Funds rate hikes, higher foreign exchange fees primarily due to increases in spot contract commissions reflective of the increased volume of client trades, credit card fees driven by higher transaction volumes reflective of increased spending and client growth, as well as higher travel spending compared to 2021 when COVID-19 restrictions where in place.
Noninterest expense increased by $291 million in 2022, primarily due to compensation and benefits expense, business development and travel expenses and premises and equipment expense. Compensation and benefits expense increased as a result of higher salaries and wages expenses. Salaries and wages expense increased primarily due to an increase in FTE employees as we continue to invest in our business, as well as from the impact of annual merit increases. Premises and equipment expense increased due to higher software support and maintenance fees as well as an increase in software depreciation. Business development and travel expense increased due to the easing of COVID-19 restrictions on in-person meetings and travel that were previously in place.
SVB Private
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Net interest income
Provision for credit losses
Noninterest income
Noninterest expense
Income before income tax expense
Total average loans, amortized cost
Total average assets
Total average deposits
Income before income tax expense from SVB Private increased to $132 million in 2022, compared to $47 million in 2021. The key drivers of SVB Private's performance are discussed below:
NII increased by $181 million in 2022, from the comparable 2021 period, as average loans increased driven primarily by the acquisition of Boston Private, as well as strong loan growth, higher yields and higher deposit funding credits, partially offset by higher rates on deposits, average balances of interest-bearing deposits and loan funding charges.
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The provision for credit losses was $10 million for 2022 driven primarily by a deterioration in projected economic conditions and loan growth.
Noninterest income increased by $38 million in 2022 primarily due to wealth management and trust fees, which was a new financial statement line item for the third quarter of 2021 as a result of the Boston Private acquisition.
Noninterest expense increased $138 million in 2022 related primarily due to compensation and benefits expense. Compensation and benefits expense increased as a result of an increase in average number of FTE employees primarily due to the acquisition of Boston Private.
SVB Capital
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Noninterest (loss) income
Noninterest expense
(Loss) income before income tax expense
Total average assets
SVB Capital’s components of noninterest income primarily include net gains and losses on non-marketable and other equity securities, carried interest and fund management fees. All components of income before income tax expense discussed below are net of NCI.
We experience variability in the performance of SVB Capital from period to period due to a number of factors, including changes in the values of our funds’ underlying investments, changes in the amount of distributions and general economic and market conditions. Such variability may lead to volatility in the gains and losses from investment securities and cause our results to differ from period to period.
SVB Capital had a noninterest loss of $110 million in 2022, compared to noninterest income of $487 million in 2021. The decrease in noninterest income was primarily due to reduced valuations reflecting adverse market conditions during 2022 which drove net losses on investment securities, net of NCI, of $175 million for 2022, compared to net gains on investment securities, net of NCI, of $398 million for 2021.
SVB Securities
Year ended December 31,
(Dollars in millions)
% Change 2022/2021
% Change 2021/2020
Net interest income
Noninterest income
Noninterest expense
(Loss) income before income tax expense
Total average assets
SVB Securities' components of noninterest income primarily include investment banking revenue, commissions and net gains and losses on non-marketable and other equity securities, carried interest and fund management fees. All components of income before income tax expense discussed below are net of NCI.
Noninterest income decreased $103 million to $505 million in 2022. The $103 million decrease in noninterest income was driven primarily by lower investment banking revenue during 2022 due to the slowdown in capital market transactions as a result of market volatility, partially offset by an increase in commissions driven by subscription fees related to the acquisition of MoffettNathanson in December 2021 and an increase in advisory fees reflective of hiring during 2021. SVB Securities also includes fund investments which also negatively impacted noninterest income in 2022.
Noninterest expense increased $42 million to $603 million in 2022. The $42 million increase in noninterest expense was driven primarily by an increase in compensation and benefits expense due to an increase in strategic hires during 2021 to support the continued expansion of SVB Securities.
Consolidated Financial Condition
Our total assets, and total liabilities and stockholders' equity were $211.8 billion at December 31, 2022, and $211.3 billion at December 31, 2021. Please refer below to a summary of the individual components driving the changes in total assets, total liabilities and stockholders' equity.
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Cash and Cash Equivalents
Cash and cash equivalents totaled $13.8 billion at December 31, 2022, a decrease of $783 million, or 5.4 percent, compared to $14.6 billion at December 31, 2021. The decrease was primarily driven by a decrease in interest-earning deposits in other financial institutions. As of December 31, 2022, $7.8 billion of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate, and interest-earning deposits in other financial institutions were $4.0 billion. As of December 31, 2021, $5.7 billion, of our cash and due from banks was deposited at the FRB and was earning interest at the Federal Funds target rate and interest-earning deposits in other financial institutions were $5.8 billion.
Investment Securities
Investment securities totaled $120.1 billion at December 31, 2022, a decrease of $7.9 billion, or 6.2 percent, compared to $128.0 billion at December 31, 2021. Our investment securities portfolio is comprised of: (i) an AFS securities portfolio and a HTM securities portfolio, both of which represents interest-earning fixed income investment securities and (ii) a non-marketable and other equity securities portfolio, which primarily represents investments managed as part of our funds management business, investments in qualified affordable housing projects, as well as public equity securities held as a result of equity warrant assets exercised. The major components of the change in investment securities are explained below.
The following table presents a profile of our investment securities portfolio at December 31, 2022 and December 31, 2021:
December 31,
(Dollars in millions)
AFS securities, at fair value:
U.S. Treasury securities
U.S. agency debentures
Foreign government debt securities
Residential MBS:
Agency-issued MBS
Agency-issued CMO—fixed rate
Agency-issued CMBS
Total AFS securities
HTM securities, at net carry value:
U.S. agency debentures
Residential MBS:
Agency-issued MBS
Agency-issued CMO—fixed rate
Agency-issued CMO—variable rate
Agency-issued CMBS
Municipal bonds and notes
Corporate bonds
Total HTM securities
Non-marketable and other equity securities:
Non-marketable securities (fair value accounting):
Consolidated venture capital and private equity fund investments
Unconsolidated venture capital and private equity fund investments
Other investments without a readily determinable fair value
Other equity securities in public companies (fair value accounting)
Non-marketable securities (equity method accounting):
Venture capital and private equity fund investments
Debt funds
Other investments
Investments in qualified affordable housing projects, net
Total non-marketable and other equity securities
Total investment securities
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Available-for-Sale Securities
Period-end AFS securities were $26.1 billion at December 31, 2022, a decrease of $1.1 billion, or 4.2 percent, compared to $27.2 billion at December 31, 2021. The $1.1 billion decrease in period-end AFS securities balances from December 31, 2021, to December 31, 2022, was driven by a the sale of $9.5 billion of AFS securities and a $2.4 billion decrease in the fair value of our AFS securities portfolio, reflective of higher interest rates, as well as paydowns and maturities of AFS securities of $1.5 billion, partially offset by $12.7 billion of purchases.
The following table summarizes the remaining contractual principal maturities and fully taxable equivalent yields on fixed income securities, carried at fair value, classified as AFS as of December 31, 2022. The weighted average yield is computed using the amortized cost of fixed income investment securities. For U.S. Treasury securities, U.S. agency debentures and foreign government debt securities, the expected maturity is the actual contractual maturity of the notes. Expected remaining maturities for certain U.S. agency debentures may occur earlier than their contractual maturities because the note issuers have the right to call outstanding amounts ahead of their contractual maturity. Expected maturities for MBS may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. MBS classified as AFS typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The expected yield on MBS is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.
December 31, 2022
Total
One Year
or Less
After One Year to
Five Years
After Five Years to
Ten Years
After
Ten Years
(Dollars in millions)
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
U.S. Treasury securities
U.S. agency debentures
Foreign government debt securities
Residential MBS:
Agency-issued MBS
Agency-issued CMO - fixed rate
Agency-issued CMBS
Total
Held-to-Maturity Securities
Period-end HTM securities were $91.3 billion as of December 31, 2022, a decrease of $6.9 billion, or 7.0 percent, compared to $98.2 billion as of December 31, 2021. The $6.9 billion decrease in period-end HTM securities balances from December 31, 2021, to December 31, 2022, was driven by $11.5 billion in paydowns and maturities, partially offset by purchases of $5.0 billion.
Securities classified as HTM are accounted for at cost with no adjustments for changes in fair value. For securities re-designated as HTM from AFS, the net unrealized gains or losses at the date of transfer will continue to be reported as a separate component of shareholders' equity and amortized over the life of the securities in a manner consistent with the amortization of a premium or discount.
The following table summarizes the remaining contractual principal maturities based on net carry value, which is the amortized cost net of ACL of $6 million, and fully taxable equivalent yields on fixed income investment securities classified as HTM as of December 31, 2022. Interest income on certain municipal bonds and notes (non-taxable investments) are presented on a fully taxable equivalent basis using the federal statutory tax rate of 21.0 percent. The weighted average yield is computed using the amortized cost of fixed income investment securities. For U.S. agency debentures, the expected maturity is the actual contractual maturity of the notes. Expected maturities for MBS may differ significantly from their contractual maturities because mortgage borrowers have the right to prepay outstanding loan obligations with or without penalties. MBS classified as HTM typically have original contractual maturities from 10 to 30 years whereas expected average lives of these securities tend to be significantly shorter and vary based upon structure and prepayments in lower interest rate environments. The expected yield on MBS is based on prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.
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December 31, 2022
Total
One Year
or Less
After One Year to
Five Years
After Five Years to
Ten Years
After
Ten Years
(Dollars in millions)
Net Carry Value
Weighted
Average
Yield
Net Carry Value
Weighted
Average
Yield
Net Carry Value
Weighted
Average
Yield
Net Carry Value
Weighted
Average
Yield
Net Carry Value
Weighted
Average
Yield
U.S. agency debentures
Residential MBS:
Agency-issued MBS
Agency-issued CMO - fixed rate
Agency-issued CMO - variable rate
Agency-issued CMBS
Municipal bonds and notes
Corporate bonds
Total
Portfolio duration is a standard measure used to approximate changes in the market value of fixed income instruments due to a change in market interest rates. The measure is an estimate based on the level of current market interest rates, expectations for changes in the path of forward rates and the effect of forward rates on mortgage prepayment speed assumptions. As such, portfolio duration will fluctuate with changes in market interest rates. Changes in portfolio duration are also impacted by changes in the mix of longer versus shorter term-to-maturity securities. The estimated weighted-average duration of our fixed income investment securities portfolio was 5.7 and 4.0 years at December 31, 2022, and December 31, 2021, respectively. The weighted-average duration of our total fixed income securities portfolio including the impact of our fair value swaps was 5.6 years at December 31, 2022, and 3.7 years December 31, 2021. The weighted-average duration of our AFS securities portfolio was 3.6 years at December 31, 2022, and 3.5 years at December 31, 2021. The weighted-average duration of our AFS securities portfolio including the impact of our fair value swaps was 3.6 years and 2.4 year at December 31, 2022, and December 31, 2021, respectively. The weighted-average duration of our HTM securities portfolio was 6.2 years at December 31, 2022, and 4.1 years at December 31, 2021.
Non-Marketable and Other Equity Securities
Our non-marketable and other equity securities portfolio primarily represents investments in venture capital and private equity funds, SPD-SVB, debt funds, private and public portfolio companies, including public equity securities held as a result of equity warrant assets exercised and qualified affordable housing projects. Included in our non-marketable and other equity securities carried under fair value accounting are amounts that are attributable to NCI. We are required under GAAP to consolidate 100% of these investments that we are deemed to control, even though we may own less than 100% of such entities. See below for a summary of the carrying value (as reported) of non-marketable and other equity securities compared to the amounts attributable to SVBFG.
Non-marketable and other equity securities were $2.7 billion ($2.4 billion net of NCI) at December 31, 2022, an increase of $121 million, or 4.8 percent, compared to $2.5 billion ($2.2 billion net of NCI) at December 31, 2021.
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The following table summarizes the carrying value (as reported) of non-marketable and other equity securities compared to the amounts attributable to SVBFG (which generally represents the carrying value times our ownership percentage) at December 31, 2022, and December 31, 2021:
December 31,
(Dollars in millions)
Carrying value (as reported)
Amount attributable to SVBFG
Carrying value (as reported)
Amount attributable to SVBFG
Non-marketable and other equity securities:
Non-marketable securities (fair value accounting):
Consolidated venture capital and private equity fund investments (1)
Unconsolidated venture capital and private equity fund investments (2)
Other investments without a readily determinable fair value (3)
Other equity securities in public companies (fair value accounting) (4)
Non-marketable securities (equity method accounting) (5):
Venture capital and private equity fund investments
Debt funds
Other investments
Investments in qualified affordable housing projects, net
Total non-marketable and other equity securities
(1) The following table shows the amounts of venture capital and private equity fund investments held by the following consolidated funds and amounts attributable to SVBFG for each fund at December 31, 2022, and December 31, 2021:
December 31,
(Dollars in millions)
Carrying value (as reported)
Amount attributable to SVBFG
Carrying value (as reported)
Amount attributable to SVBFG
Strategic Investors Fund, LP
Capital Preferred Return Fund, LP
Growth Partners, LP
Redwood Evergreen Fund, LP
Total consolidated venture capital and private equity fund investments
(2) The carrying value represents investments in 136 and 150 funds (primarily venture capital funds) at December 31, 2022, and December 31, 2021, respectively, where our ownership interest is typically less than 5% of the voting interests of each such fund and in which we do not have the ability to exercise significant influence over the partnerships' operating activities and financial policies. Our unconsolidated venture capital and private equity fund investments are carried at fair value based on the fund investments' net asset values per share as obtained from the general partners of the funds. For each fund investment, we adjust the net asset value per share for differences between our measurement date and the date of the fund investment’s net asset value by using the most recently available financial information from the investee general partner, for example September 30 th , for our December 31 st consolidated financial statements, adjusted for any contributions paid, distributions received from the investment, and significant fund transactions or market events during the reporting period.
(3) Investments classified as "Other investments without a readily determinable fair value" include direct equity investments in private companies. The carrying value is based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, exit strategies, financing transactions subsequent to the acquisition of the investment and a discount for certain investments that have lock-up restrictions or other features that indicate a discount to fair value is warranted. For further details on the carrying value of these investments refer to Note 9—“Investment Securities" of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
(4) Investments classified as other equity securities (fair value accounting) represent shares held in public companies as a result of exercising public equity warrant assets and direct equity investments in public companies held by our consolidated funds. Changes in the fair value recognized through net income.
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(5) The following table shows the carrying value and our ownership percentage of each investment at December 31, 2022, and December 31, 2021, (equity method accounting):
December 31, 2022
December 31, 2021
(Dollars in millions)
Carrying value (as reported)
Amount attributable to SVBFG
Carrying value (as reported)
Amount attributable to SVBFG
Venture capital and private equity fund investments:
Strategic Investors Fund II, LP
Strategic Investors Fund III, LP
Strategic Investors Fund IV, LP
Strategic Investors Fund V funds
Other venture capital and private equity fund investments
Total venture capital and private equity fund investments
Debt funds:
Gold Hill Capital 2008, LP (ii)
Other debt funds
Total debt funds
Other investments:
SPD Silicon Valley Bank Co., Ltd.
Other investments
Total other investments
(i) Our ownership includes direct ownership interest of 1.3 percent and indirect ownership interest of 3.8 percent through our investments in Strategic Investors Fund II, LP.
(ii) Our ownership includes direct ownership interest of 11.5 percent in the fund and an indirect interest in the fund through our investment in Gold Hill Capital 2008, LLC of 4.0 percent.
Volcker Rule
The Volcker Rule prohibits, subject to certain exceptions, a banking entity, such as the Company, from sponsoring, investing in, or having certain relationships with covered funds. Under the currently effective regulations implementing the Volcker Rule, covered funds are defined to include many venture capital and private equity funds.
In 2017, we received notice that the Federal Reserve approved the Company’s application for an extension of the permitted conformance period for the Company’s investments in “illiquid” covered funds (“Restricted Volcker Investments”). The approval extended the deadline by which the Company must sell, divest, restructure or otherwise conform Restricted Volcker Investments by July 2022. As a result of various subsequent amendments to the Volcker Rule, we believe that substantially all of our Restricted Volcker Investments (i) qualify for new exclusions under the amended rules, (ii) otherwise are excluded from the definition of "covered fund" or (iii) commenced or completed a liquidation or dissolution process prior to July 2022 (For more information about the Volcker Rule, see “Business — Supervision and Regulation” under Part 1, Item 1 of our 2022 Form 10-K).
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Loans
Loans at amortized cost increased by $8.0 billion to $74.3 billion at December 31, 2022, compared to $66.3 billion at December 31, 2021. Unearned income, deferred fees and costs and net unamortized premiums and discounts was $283 million at December 31, 2022, and $250 million at December 31, 2021. The increase in period-end loans was driven primarily by our Global Fund Banking, Technology and Life Science/Healthcare and Private Bank loan portfolios.
Loan Concentration
Loan concentrations may exist when there are borrowers engaged in similar activities or types of loans extended to a diverse group of borrowers that could cause those borrowers or portfolios to be similarly impacted by economic or other conditions. A substantial percentage of our loans are commercial in nature. The breakdown of total loans and loans as a percentage of total loans by class of financing receivables is as follows:
December 31,
(Dollars in millions)
Amount
Percentage
Amount
Percentage
Global fund banking
Investor dependent:
Early stage
Growth stage
Total investor dependent
Cash flow dependent - SLBO
Innovation C&I
Private bank
CRE
Premium wine
Other C&I
Other
PPP
Total loans
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The table below details loans that are secured by real estate, at amortized cost as of December 31, 2022, and December 31, 2021.
December 31,
(Dollars in millions)
Private bank:
Loans for personal residence
Loans to eligible employees
Home equity lines of credit
Other
Total private bank loans secured by real estate
CRE:
Multifamily and residential investment
Retail
Office and medical
Manufacturing, industrial and warehouse
Hospitality
Other
Total CRE loans secured by real estate
Premium wine
Other
Total real estate secured loans
Our portfolio is focused on three main markets: (i) Global Fund Banking, (ii) Technology and Life Science/Healthcare and (iii) Private Banking. The remainder of the portfolio is made up of various loans including commercial real estate, commercial and industrial and premium wine which collectively may be referred to as (iv) non-technology other.
(i) Global Fund Banking
Our Global Fund Banking loan portfolio includes loans to clients in the private equity/venture capital community. Our lending to private equity/venture capital firms and funds represented 56 percent and 57 percent of total loans at December 31, 2022 and December 31, 2021, respectively. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds' remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are typically secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.
(ii) Technology and Life Science/Healthcare
Our Technology and Life Science/Healthcare loan portfolios include loans to clients at the various stages of their life cycles. The classes of financing receivables for our technology and life science/healthcare market segments are classified as Investor Dependent, Cash Flow Dependent - SLBO or Innovation C&I for reporting purposes.
Investor Dependent loans represented nine percent of total loans at December 31, 2022, and eight percent at December 31, 2021. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases a successful sale to a third party or an IPO. These loans are made to companies in both our Early Stage and Growth Stage practices.
Cash Flow Dependent loans for SLBO lending represented three percent of total loans at both December 31, 2022, and December 31, 2021. These loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, and repayment is generally dependent upon the cash flows of the combined entities.
Innovation C&I loans represented 12 percent of total loans at December 31, 2022, and 10 percent at December 31, 2021. These loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash flow dependent loans require the borrower to maintain cash flow from operations that is sufficient to service all debt. Balance sheet dependent loans, which include asset-based loans, are structured to require constant current asset coverage in an
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amount that exceeds the outstanding debt. Working capital lines and accounts receivable financing, both part of our asset-based lending, each represented approximately two percent and less than one percent of total loans, respectively, at December 31, 2022, and one percent and less than one percent of total loans, respectively, at December 31, 2021.
(iii) Private Banking
Our SVB Private clients are primarily executive leaders and senior investment professionals in the innovation economy, as well as high net worth clients that were primarily acquired as part of the Boston Private acquisition. Our lending to Private Bank clients represented 14 percent of total loans at December 31, 2022, and 13 percent at December 31, 2021. Many of our Private Bank products are secured by real estate, which represented 87 percent of this portfolio at December 31, 2022, and 88 percent at December 31, 2021. These products include mortgage loans, owner-occupied commercial mortgage loans, home equity lines of credit and other secured lending products such as real estate secured loans to eligible employees through our EHOP. The remaining balance of our Private Bank portfolio consists of personal capital call lines of credit, restricted and private stock loans and other secured and unsecured lending products.
(iv) Non-technology Other
In addition to the focus markets above, we have loans to various other clients. This category includes our CRE, Premium Wine, Other C&I and Other classes of financing receivable. CRE loans are generally acquisition financing for commercial properties, such as office buildings, retail properties, apartment buildings and industrial/warehouse space. Premium wine loans are to wine producers, vineyards and wine industry or hospitality businesses across the Western United States. All CRE products and a large portion of premium wine loans are secured by real estate collateral. Other C&I loans include tax-exempt commercial loans to non-for-profit private schools, college, public charter schools and other not-for-profit organizations as well as commercial loans to clients that are not in technology and life sciences/healthcare industries. Our Other class of loans is primarily comprised of construction and land loans for financing new developments or financing improvements to existing buildings, as well as loans made as part of our responsibilities under the CRA.
The following table provides a summary of total loans by size and class of financing receivables. The breakout below is based on total client balances (individually or in the aggregate) as of December 31, 2022:
December 31, 2022
(Dollars in millions)
Less than
Five Million
Five to Ten
Million
Ten to Twenty
Million
Twenty to Thirty Million
Thirty Million or More
Total
Global fund banking
Investor dependent:
Early stage
Growth stage
Total investor dependent
Cash flow dependent - SLBO
Innovation C&I
Private bank
CRE
Premium wine
Other C&I
Other
Total Loans (1)
(1) Included in total loans at amortized cost is approximately $23 million in PPP loans. The PPP loans consist of loans across all of our classes of financing receivables.
At December 31, 2022, loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $46.8 billion, or 63% of our total loan portfolio. These loans represented 863 clients, and of these loans, none were on nonaccrual status as of December 31, 2022.
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The following table provides a summary of loans by size and class of financing receivable. The breakout below is based on total client balances (individually or in the aggregate) as of December 31, 2021:
December 31, 2021
(Dollars in millions)
Less than
Five Million
Five to Ten
Million
Ten to Twenty
Million
Twenty to Thirty Million
Thirty Million
or More
Total
Global fund banking
Investor dependent:
Early stage
Growth stage
Total investor dependent
Cash flow dependent - SLBO
Innovation C&I
Private bank
CRE
Premium wine
Other C&I
Other
Total loans (1)
(1) Included in total loans at amortized cost is approximately $331 million in PPP loans. The PPP loans consist of loans across all of our classes of financing receivables.
At December 31, 2021, loans equal to or greater than $20 million to any single client (individually or in the aggregate) totaled $41.3 billion, or 62 percent of our total loan portfolio. These loans represented 768 clients, and of these loans, $21 million were on nonaccrual status as of December 31, 2021.
State Concentrations
Approximately 27 percent of our outstanding total loan balances as of December 31, 2022, were to borrowers based in California, compared to 30 percent as of December 31, 2021. Additionally, borrowers in Massachusetts increased to 13 percent as of December 31, 2022, compared to 12 percent as of December 31, 2021. Borrowers in New York represented approximately 12 percent of total loan balances as of December 31, 2022, compared to 10 percent as of December 31, 2021. Other than California, Massachusetts and New York, there are no additional states with loan balances greater than or equal to 10 percent of total loans as of December 31, 2022.
See generally "Risk Factors—Credit Risks" set forth under Part I, Item 1A of this report.
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As of December 31, 2022, 92 percent, or $68.4 billion, of our outstanding total loans were variable-rate loans that adjust at a prescribed measurement date upon a change in our prime-lending rate or other variable indices, compared to 91 percent, or $60.4 billion, as of December 31, 2021. The following table sets forth the remaining contractual maturity distribution of our total loans by class of financing receivables as of December 31, 2022, for fixed and variable rate loans:
Remaining Contractual Maturity of Loans
(Dollars in millions)
One Year or Less
After One Year and Through Five Years
After Five Years Through Fifteen Years
After Fifteen Years
Total
Fixed-rate loans:
Global fund banking
Investor dependent:
Early stage
Growth stage
Total investor dependent
Cash flow dependent - SLBO
Innovation C&I
Private bank
CRE
Premium wine
Other C&I
Other
PPP
Total fixed-rate loans
Variable-rate loans:
Global fund banking
Investor dependent:
Early stage
Growth stage
Total investor dependent
Cash flow dependent - SLBO
Innovation C&I
Private bank
CRE
Premium wine
Other C&I
Other
Total variable-rate loans
Total loans
Upon maturity, loans satisfying our credit quality standards may be eligible for renewal. Such renewals are subject to the normal underwriting and credit administration practices associated with new loans. We do not grant loans with unconditional extension terms.
Paycheck Protection Program
We accepted applications under the PPP administered by the SBA under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), as amended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Economic Aid Act"), and originated loans to qualified small businesses through June 30, 2021. As of December 31, 2022, we have outstanding PPP loans in the amount of $23 million compared to $331 million as of December 31, 2021. This funded amount reflects repayments received as of such date.
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Loan Deferral Programs
In April 2020, we implemented three loan payment deferral programs targeted to assist borrowers who were the most impacted by the COVID-19 pandemic. As of December 31, 2022, no loan modifications remained active under these programs. As of December 31, 2021, loans modified under these programs had outstanding balances of $10 million, which consisted entirely of venture-backed borrowers who lengthened their existing interest-only payment period under the deferral program.
Loan Administration
The Risk Committee of our Board of Directors oversees our credit risks and strategies, as well as our key credit policies and lending practices. Subject to the oversight of the Risk Committee, lending authority is delegated to our Chief Credit Officer and other senior members of our lending management based on certain size and underwriting criteria.
Credit Quality Indicators
As of December 31, 2022, and December 31, 2021, our total criticized loans and nonaccrual loans collectively represented three percent of our total loans. Criticized loans and nonaccrual loans to early-stage investor dependent clients represented 13 percent of our total criticized loans and nonaccrual loan balances as of December 31, 2022, and December 31, 2021. Loans to early-stage clients represent a relatively small percentage of our overall portfolio at three percent and two percent of total loans as of December 31, 2022, and December 31, 2021, respectively. It is common for an early-stage client’s remaining liquidity to fall temporarily below the threshold for a pass-rated credit during its capital-raising period for a new round of funding. Based on our experience, for most early-stage clients, this situation typically lasts one to two quarters and generally resolves itself with a subsequent round of venture funding, though there are exceptions, from time to time. As a result, we expect that each of our early-stage clients will reside in our criticized portfolio during a portion of their life cycle.
As of December 31, 2022, we have identified the following risks to credit quality: (i) pressured public and private markets, (ii) larger Growth Stage, Innovation C&I and Cash Flow Dependent — SLBO loan sizes and (iii) exposure from CRE loans.
(i) Pressured public and private markets - Prolonged market volatility may impact the performance of the Technology and Life Science/Healthcare portfolio. This risk particularly applies to Investor Dependent loans, where repayment is dependent on the borrower's ability to fundraise or exit.
(ii) Larger Growth Stage, Innovation C&I and Cash Flow Dependent — SLBO loan sizes - The growth of our balance sheet and our clients continues to increase the number of large loans, which may introduce greater volatility in credit metrics.
(iii) Exposure from CRE loans - We acquired these loans from Boston Private in 2021. The exposure is mitigated by the well-margined collateral on these loans and our limited overall exposure, with CRE making up only three percent of total loans at December 31, 2022.
Additionally, we have identified the following factors that could have a positive impact on credit quality: (i) a high quality loan mix and (ii) stronger client balance sheets than in previous cycles.
(i) High quality loan mix - As described above, our Investor Dependent - Early Stage class, which historically has been the most vulnerable loan class with the most losses, is only three percent of total loans. Furthermore, 70 percent of total loans are now in our Global Fund Banking and Private Bank classes, which have low credit loss experience.
(ii) Stronger client balance sheets than in previous cycles - Record venture capital investment throughout 2020-2021 has generally extended clients' runways, bolstered by clients taking steps to reduce cash burn. These factors place our clients in stronger positions than in previous economic downturns.
We continue to monitor the current environment to evaluate the impact of the above on our portfolio's credit quality and to identify the emergence of additional factors.
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ACL for Loans and for Unfunded Credit Commitments
The following table summarizes the allocation of the ACL for loans for our portfolio segments:
December 31,
(Dollars in millions)
ACL Amount
Percent of Total Loans (1)
ACL Amount
Percent of Total Loans (1)
Global fund banking
Investor dependent
Cash flow dependent and innovation C&I
Private bank
CRE
Other C&I
Premium wine and other
PPP
Total
(1) Represents loan balances as a percentage of total loans at each respective year-end.
To determine the ACL for performing loans as of December 31, 2022, and December 31, 2021, we utilized three scenarios, on a weighted basis, from Moody's Analytics' December 2022 and December 2021 forecasts, respectively, in our expected lifetime loss estimate. The table below summarizes the key assumptions within each period's baseline forecasts, as well as the weightings we applied to the three economic forecast scenarios in our model.
December 31, 2022
December 31, 2021
Key economic factors from Moody's baseline forecasts
Gross domestic product projected growth rate
Projected unemployment rate
Housing price index projected growth rate
Weightings applied to different Moody's economic scenarios
Upward outlook (Moody's S1)
Baseline (Moody's B)
Downward outlook (Moody's S3)
Total
Gross Loan Charge-Offs
Gross loan charge-offs were $103 million for the year ended December 31, 2022, for which $82 million was not previously specifically reserved. Gross loan charge-offs not previously specifically reserved for were primarily driven by our Investor Dependent loan portfolio, reflective of the pressured markets our Technology and Life Science/Healthcare clients are operating in. Despite the challenging conditions, charge-offs remained low overall.
Gross loan charge-offs were $138 million for the year ended December 31, 2021, of which $113 million was not specifically reserved for in prior quarters. Gross loan charge-offs not previously reserved for were primarily driven by $80 million related to a single instance of fraudulent activity on one loan disclosed in previous filings. The remaining $33 million of gross loan charge-offs not previously specifically reserved for came primarily from our Investor Dependent and Innovation C&I loan portfolios.
Net Charge-offs to Average Loans Outstanding
The following table summarizes our net charge-offs to average outstanding loans by classes of financing receivables for the years ended December 31, 2022, and December 31, 2021:
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December 31, 2022
December 31, 2021
(Dollars in millions)
Net Charge-offs (Net Recoveries)
Average Loan Balance
Percentage
Net Charge-offs (Net Recoveries)
Average Loan Balance
Percentage
Global fund banking (1)
Investor dependent:
Early stage
Growth stage
Total investor dependent
Cash flow dependent- SLBO
Innovation C&I
Private bank
CRE
Premium wine
Other C&I
Other
PPP
Total
(1) Global fund banking net charge-offs for the year ended December 31, 2021, includes the impact of an $80 million charge-off related to fraudulent activity on one loan as disclosed in previous filings.
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Nonperforming Assets
Nonperforming assets consist of loans on nonaccrual status, loans past due 90 days or more still accruing interest and OREO and other foreclosed assets. We measure all loans placed on nonaccrual status for impairment based on the fair value of the underlying collateral or the net present value of the expected cash flows. The table below sets forth certain data and ratios between nonperforming loans, nonperforming assets and the ACL for loans and unfunded credit commitments:
December 31,
(Dollars in millions)
Nonperforming, past due and restructured loans:
Nonaccrual loans
Loans past due 90 days or more still accruing interest
Total nonperforming loans
OREO and other foreclosed assets
Total nonperforming assets
Performing TDRs
Nonaccrual loans as a percentage of total loans
Nonperforming loans as a percentage of total loans
Nonperforming assets as a percentage of total assets
ACL for loans (1)
As a percentage of total loans
As a percentage of total nonperforming loans
ACL for nonaccrual loans (1)
As a percentage of total loans
As a percentage of total nonperforming loans
ACL for total performing loans (1)
As a percentage of total loans
As a percentage of total performing loans
Total loans
Total performing loans
ACL for unfunded credit commitments (2)
As a percentage of total unfunded credit commitments
Total unfunded credit commitments (3)
(1) The "ACL for loans" at December 31, 2021, includes an initial allowance of $66 million related to acquired Boston Private loans, of which $2 million was related to nonaccrual loans. See “Provision for Credit Losses” for a detailed discussion of the changes to the allowance.
(2) The “ACL for unfunded credit commitments” is included as a component of other liabilities and any provision is included in the “provision for credit losses” in the statement of income. At December 31, 2021, this includes an initial allowance of $2 million related to acquired Boston Private commitments. See “Provision for Credit Losses” for a detailed discussion of the changes to the allowance.
(3) Includes unfunded loan commitments and letters of credit.
Our ACL for loans as a percentage of total loans increased 22 bps to 0.86 percent at December 31, 2022, compared to 0.64 percent at December 31, 2021. The 22 bps increase was primarily due to the increase in our performing loans reserve rate, which was a result of the deterioration of current and forecasted economic conditions, as well as continued loan growth. These same factors also contributed to an increase in our nonaccrual reserve rate. For a detailed discussion of changes in the current period's reserve, see "Provision for Credit Losses."
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Nonaccrual Loans
The following table presents a summary of changes in nonaccrual loans for the years ended December 31, 2022 and 2021:
Year ended December 31,
(Dollars in millions)
Balance, beginning of period
Additions
Paydowns and other reductions
Charge-offs
Balance, end of period
Average nonaccrual loans
Our nonaccrual loan balance increased $48 million to $132 million as of December 31, 2022, compared to $84 million as of December 31, 2021. The increase was due primarily to new nonaccrual loans, reflective of current economic conditions, offset by paydowns and charge-offs. We specifically reserved $51 million and $35 million for our nonaccrual loans as of December 31, 2022, and December 31, 2021, respectively.
Accrued Interest Receivable and Other Assets
A summary of accrued interest receivable and other assets at December 31, 2022 and December 31, 2021 is as follows:
December 31,
(Dollars in millions)
% Change
Derivative assets (1)
AIR
FHLB and FRB stock
Deferred tax assets
Accounts receivable
Other assets
Total AIR and other assets
(1) See “Derivatives” section below.
Accrued interest receivable
The increase of $252 million in AIR was driven by the purchase of treasury notes as well as the increase in the period-end balance of our loans at December 31, 2022, as compared to December 31, 2021.
FHLB and Federal Reserve Bank stock
The increase of $613 million in FHLB and Federal Reserve Bank stock is primarily due to purchases of additional shares as required by the Federal Reserve.
Net deferred tax assets
Net deferred tax assets increased $155 million primarily due to an increase in unrealized losses on AFS securities attributable to an increase in market rates.
Other Assets
Other assets include various asset amounts for other operational transactions. The increase of $135 million was primarily due to higher tax receivables.
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Derivatives
Derivative instruments are recorded as a component of other assets and other liabilities on the balance sheet. The following table provides a summary of derivative assets and liabilities at December 31, 2022, and December 31, 2021:
December 31,
(Dollars in millions)
% Change
Assets:
Equity warrant assets
Contingent conversion rights
Foreign exchange contracts
Total return swaps
Client interest rate derivatives
Interest rate swaps
Total gross derivative assets
Less: netting adjustments (1)
Total derivative assets
Liabilities:
Foreign exchange contracts
Client interest rate derivatives
Total gross derivative liabilities
Less: netting adjustments (1)
Total derivative liabilities
(1) During the third quarter of 2022, we changed our accounting policy to report the fair values of our derivative assets and liabilities subject to ISDA master netting arrangements on a net basis where a right of setoff exists. The net derivative fair values have been further adjusted for cash collateral received/pledged. The change in accounting policy was applied retrospectively, and prior periods have been revised to conform with current period presentation.
Equity Warrant Assets
In connection with negotiating credit facilities and certain other services, we often obtain rights to acquire stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. At December 31, 2022, we held warrants in 3,234 companies, compared to 2,831 companies at December 31, 2021. Warrants in 65 companies each had fair values greater than $1 million and collectively represented $199 million, or 51.9 percent, of the fair value of the total warrant portfolio at December 31, 2022. The change in fair value of equity warrant assets is recorded in "Gains on equity warrant assets, net" in noninterest income, a component of consolidated net income. The following table provides a summary of transactions and valuation changes for the years ended December 31, 2022, and December 31, 2021:
Year ended December 31,
(Dollars in millions)
Balance, beginning of period
New equity warrant assets
Non-cash changes in fair value, net
Exercised equity warrant assets
Terminated equity warrant assets
Balance, end of period
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Foreign Exchange Contracts
We enter into foreign exchange contracts with clients involved in foreign activities, either as the purchaser or seller, depending upon the clients’ needs. For each contract entered into with our clients, we enter into an opposite way contract with a correspondent bank, which mitigates the risk of fluctuations in currency rates. We also enter into forward contracts with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments. Net gains and losses on the revaluation of foreign currency denominated instruments are recorded in the line item “Other” as part of noninterest income, a component of consolidated net income. To manage our exposure to variability on the foreign currency translation of net investments in non-U.S. subsidiaries, we enter into certain foreign exchange contracts to hedge against the foreign currency risk of a net investment in foreign operations. We designate these foreign exchange contracts as net investment hedges that qualify for hedge accounting under ASC 815. We have not experienced nonperformance by any of our counterparties and therefore have not incurred any related losses. Further, we anticipate performance by all counterparties. For additional information on our foreign exchange contracts, see Note 16—“Derivative Financial Instruments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
Client Interest Rate Derivatives
We sell interest rate contracts to clients who wish to mitigate their interest rate exposure. We economically reduce the interest rate risk from this business by entering into opposite way contracts with correspondent banks. For additional information on our client interest rate derivatives, refer to Note 16—“Derivative Financial Instruments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
Interest Rate Swaps
To manage interest rate risk on our AFS securities portfolio, we enter into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of the securities resulting from changes in interest rates. We designate these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815 and record them in other assets and other liabilities. Refer to Note 16—“Derivative Financial Instruments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for additional information.
Deposits
The following table presents the composition of our deposits as of December 31, 2022, and December 31, 2021:
December 31,
(Dollars in millions)
Noninterest-bearing demand
Interest-bearing checking and savings accounts
Money market
Money market deposits in foreign offices
Sweep deposits in foreign offices
Time
Total deposits
The decrease in deposits of $16.1 billion compared to December 31, 2021, was primarily driven by slowdown in public and private fundraising and exits as well as increased client cash burn, partially offset by flexible liquidity solutions that shifted off-balance sheet client funds on-balance sheet, all of which reduced the proportion of noninterest-bearing deposits. Noninterest-bearing demand deposits to total deposits decreased by 20 percentage points to 47 percent as of December 31, 2022, compared to December 31, 2021. Approximately seven percent and nine percent of our total deposits as of December 31, 2022, and December 31, 2021, respectively, were from our clients in Asia.
As of December 31, 2022, 53 percent of our total deposits were interest-bearing deposits, compared to 33 percent as of December 31, 2021.
Uninsured Deposits in U.S. Offices
As of December 31, 2022, and December 31, 2021, the amount of estimated uninsured deposits in U.S. offices that exceed the FDIC insurance limit were $151.5 billion and $166.0 billion, respectively. As of December 31, 2022, and December 31, 2021, foreign deposits of $13.9 billion and $16.1 billion, respectively, were not subject to any U.S. federal or state deposit
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insurance regime. The amounts disclosed above are derived using the same methodologies and assumptions used for regulatory reporting requirements.
Time Deposits
The maturity profile of our time deposits as of December 31, 2022, is as follows:
December 31, 2022
(Dollars in millions)
Three months
or less
More than
three months
to six months
More than six
months to
twelve months
More than
twelve months
Total
U.S. time deposits in excess of the FDIC insured amount
Non-U.S. time deposits in excess of insured amount
Remaining time deposits
Total time deposits
Short-Term Borrowings
The following table summarizes our short-term borrowings that mature in one year or less:
December 31,
(Dollars in millions)
Amount
Rate
Amount
Rate
Securities sold under agreement to repurchase
Other short-term borrowings (1)
Short-term FHLB advances
Total short-term borrowings
(1) During the third quarter of 2022, we changed our accounting policy to report the fair values of our derivative assets and liabilities subject to ISDA master netting arrangements on a net basis where a right of setoff exists. The net derivative fair values have been further adjusted for cash collateral received/pledged. The change in accounting policy was applied retrospectively, and prior periods have been revised to conform with current period presentation.
We had $13.6 billion in short-term borrowings at December 31, 2022, compared to $71 million at December 31, 2021. For more information on our short-term debt, see Note 15—“Short-Term Borrowings and Long-Term Debt” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
Average daily balances for our short-term borrowings in 2022, 2021 and 2020 were as follows:
Year ended December 31,
(Dollars in millions)
Average daily balances:
Short-term FHLB advances
Federal Funds purchased (1)
Securities sold under agreements to repurchase
Other short-term borrowings (2)
Total average short-term borrowings
Weighted average interest rate during the year:
Short-term FHLB advances
Federal Funds purchased
Securities sold under agreements to repurchase
Other short-term borrowings
(1) As part of our liquidity risk management practices, we periodically test availability and access to overnight borrowings in the Federal Funds market. These balances represent short-term borrowings.
(2) Represents cash collateral received from certain counterparties in excess of net derivative receivables balances.
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Long-Term Debt
The following table represents outstanding long-term debt at December 31, 2022, and December 31, 2021:
Principal value at December 31, 2022
December 31,
(Dollars in millions)
3.50% Senior Notes due 2025
3.125% Senior Notes due 2030
1.800% Senior Notes due 2031
2.100% Senior Notes due 2028
1.800% Senior Notes due 2026
4.345% Senior Fixed Rate/Floating Rate Notes due 2028
4.570% Senior Fixed Rate/Floating Rate Notes due 2033
Junior subordinated debentures
FHLB advances
Total long-term debt
The increase in our long-term debt was due to issuances of FHLB advances and our 4.345% Senior Fixed Rate/Floating Rate Notes due 2028 and 4.570% Senior Fixed Rate/Floating Rate Notes due 2033. For more information on our long-term debt outstanding as of December 31, 2022, refer to Note 15—“Short-Term Borrowings and Long-Term Debt” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
Other Liabilities
A summary of other liabilities at December 31, 2022, and December 31, 2021 is as follows:
December 31,
(Dollars in millions)
% Change
Accrued compensation
Allowance for unfunded credit commitments
Derivative liabilities (1)
Deferred tax liabilities
Other liabilities
Total other liabilities
(1) See “Derivatives” section above.
Allowance for Unfunded Credit Commitments
Allowance for unfunded credit commitments includes an allowance for both our unfunded loan commitments and our letters of credit. The increase of $132 million was primarily attributable to projected economic conditions and higher unfunded credit commitment balances.
Other Liabilities
Other liabilities include various accrued liability amounts for other operational transactions. The increase of $249 million was driven primarily by an increase in investments payable related to investments in qualified affordable housing projects.
NCI
NCI totaled $291 million and $373 million at December 31, 2022, and December 31, 2021, respectively. The decrease was due to net loss attributable to NCI of $63 million and net capital distributions of $19 million for the year ended December 31, 2022 . For more information, refer to Note 2—“Summary of Significant Accounting Policies” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
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Capital Resources
We maintain an adequate capital base to support anticipated asset growth, operating needs, credit and other business risks and to provide for SVB Financial and the Bank to be in compliance with applicable regulatory capital guidelines, including the joint agency rules implementing the "Basel III" capital rules (the "Capital Rules"). Our primary sources of new capital include retained earnings and proceeds from the sale and issuance of our capital stock or other securities. Under the oversight of the Finance Committee of our Board of Directors, management engages in regular capital planning processes in an effort to optimize the use of the capital available to us and to appropriately plan for our future capital needs. The capital plan considers capital needs for the foreseeable future and allocates capital to both existing and future business activities. Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments. In addition, we conduct capital stress tests as part of our annual capital planning process. The capital stress tests allow us to assess the impact of adverse changes in the economy and interest rates on our capital adequacy position.
SVBFG Stockholders’ Equity
SVBFG stockholders’ equity totaled $16.0 billion as of December 31, 2022, a decrease of $232 million, or 1.4 percent, compared to $16.2 billion as of December 31, 2021. The decrease was driven primarily by losses recorded on AFS securities included in AOCI, reflective of an increase in market rates. The decrease was partially offset by an increase in retained earnings driven by net income for the year ended December 31, 2022.
Funds generated through retained earnings are a significant source of capital and liquidity and are expected to continue to be so in the future.
Capital Ratios
Both SVB Financial and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. The following table represents the capital components for SVB Financial and the Bank used in calculating CET1, Tier 1 capital and total capital as of December 31, 2022, and December 31, 2021. See Note 23—“Regulatory Matters” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for further information.
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SVB Financial
Bank
December 31, 2022
December 31, 2021
December 31, 2022
December 31, 2021
Common stock plus related surplus, net of treasury stock
Retained earnings
AOCI
CET1 capital before adjustments and deductions
Less: Goodwill (net of associated deferred tax liabilities)
Intangibles (net of associated deferred tax liabilities)
Deferred tax assets that arise from net operating losses and tax credit carryforwards, net of any related valuation allowances and net of deferred tax liabilities
AOCI opt-out election related adjustments
Add: CECL transition provision
Total adjustments and deductions from CET1 capital
CET1 Capital
Add: Qualifying Preferred stock
Minority interest
Less: Additional tier 1 capital deductions
Additional tier 1 capital
Tier 1 Capital
Allowance for credit losses included in Tier 2 capital
CECL transition provision for allowance for credit losses
Tier 2 Capital
Total capital
Total risk-weighted assets
Average quarterly total assets (1)
(1) Average quarterly total assets as defined by the Federal Reserve less: (i) goodwill net of associated deferred tax liabilities, (ii) disallowed intangible assets net of associated deferred tax liabilities and deferred tax assets and (iii) other deductions from assets for leverage capital purposes.
Regulatory capital ratios for SVB Financial and the Bank exceeded minimum federal regulatory guidelines under the Capital Rules as well as for a "well capitalized" bank holding company and insured depository institution, respectively, as of December 31, 2022, and December 31, 2021. Capital ratios for SVB Financial and the Bank, compared to the minimum capital ratios, are set forth below:
December 31,
Required Minimum
Required Minimum + Capital Conservation Buffer (1)
Well Capitalized Minimum
SVB Financial:
CET1 risk-based capital ratio (2) (3)
Tier 1 risk-based capital ratio (3)
Total risk-based capital ratio (3)
Tier 1 leverage ratio (2) (3)
Tangible common equity to tangible assets ratio (4) (5)
Tangible common equity to risk-weighted assets ratio (4) (5)
Bank:
CET1 risk-based capital ratio (3)
Tier 1 risk-based capital ratio (3)
Total risk-based capital ratio (3)
Tier 1 leverage ratio (3)
Tangible common equity to tangible assets ratio (4) (5)
Tangible common equity to risk-weighted assets ratio (4) (5)
(1) Percentages represent the minimum capital ratios plus, as applicable, the fully phased-in 2.5% CET1 capital conservation buffer under the Capital Rules.
(2) "Well Capitalized Minimum" CET1 risk-based capital and Tier 1 leverage ratios are not formally defined under applicable banking regulations for bank holding companies.
(3) Capital ratios include regulatory capital phase-in of the ACL under the 2021 CECL Transition Rule.
(4) See below for a reconciliation of non-GAAP tangible common equity to tangible assets and tangible common equity to risk-weighted assets.
(5) The Federal Reserve has not issued any minimum guidelines for the tangible common equity to tangible assets ratio or the tangible common equity to risk-weighted assets ratio, however, we believe these ratios provide meaningful supplemental information regarding our capital levels and are therefore provided above.
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As of December 31, 2022, the CET1 risk-based, Tier 1 risk-based and total risk-based capital ratios decreased from December 31, 2021, reflective of the growth in risk-weighted assets outpacing the growth in regulatory capital. The increase in risk-weighted assets was driven by an increase in cash and other assets and loan growth partially offset by a decrease in our investment security portfolio. The increase in regulatory capital was driven primarily by net income and an increase in the allowance for credit losses, partially offset by Tier 1 capital deductions and preferred stock dividends.
The increase in our Tier 1 leverage ratio for SVB Financial is reflective of the growth in our regulatory capital outpacing our growth in average assets. The increase in average assets for SVB Financial was driven by an increase in cash and loan growth partially offset by a decrease in our investment security portfolio.
Non-GAAP Tangible Common Equity to Tangible Assets and Non-GAAP Tangible Common Equity to Risk-weighted Assets
The tangible common equity, or tangible book value, to tangible assets ratio and the tangible common equity to risk-weighted assets ratios are not required by GAAP or applicable bank regulatory requirements. However, we believe these ratios provide meaningful supplemental information regarding our capital levels. Our management uses, and believes that investors benefit from referring to, these ratios in evaluating the adequacy of the Company’s capital levels; however, these financial measures should be considered in addition to, not as a substitute for or preferable to, comparable financial measures prepared in accordance with GAAP. These ratios are calculated by dividing total SVBFG stockholders' equity, by total period-end assets and risk-weighted assets, after reducing both amounts by preferred stock and acquired intangibles, if any. The manner in which this ratio is calculated varies among companies. Accordingly, our ratio is not necessarily comparable to similar measures of other companies. The following table provides a reconciliation of non-GAAP financial measures with financial measures defined by GAAP:
Non-GAAP tangible common equity and tangible assets
(Dollars in millions, except ratios)
SVB Financial
December 31, 2022
December 31, 2021
December 31, 2020
December 31, 2019
December 31, 2018
GAAP SVBFG stockholders’ equity
Less: preferred stock
Less: intangible assets
Plus: net deferred taxes on intangible assets
Tangible common equity
GAAP total assets
Less: intangible assets
Plus: net deferred taxes on intangible assets
Tangible assets
Risk-weighted assets
Non-GAAP tangible common equity to tangible assets
Non-GAAP tangible common equity to risk-weighted assets
Non-GAAP tangible common equity and tangible assets
(Dollars in millions, except ratios)
Bank
December 31, 2022
December 31, 2021
December 31, 2020
December 31, 2019
December 31, 2018
Tangible common equity
Tangible assets
Risk-weighted assets
Non-GAAP tangible common equity to tangible assets
Non-GAAP tangible common equity to risk-weighted assets
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
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. The actual liquidity needs and the credit risk that we have experienced have historically been lower than the contractual amount of these commitments because a
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significant portion of these commitments expire without being drawn upon. For details of our commitments to extend credit and commercial and standby letters of credit, please refer to the discussion of our off-balance sheet arrangements in Note 21—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
The following table summarizes our unfunded commercial commitments as of December 31, 2022:
Amount of Commitments Expiring per Period
(Dollars in millions)
Total
Less than 1 year
1-3 years
4-5 years
After 5 years
Commercial commitments:
Loan commitments available for funding
Standby letters of credit
Commercial letters of credit
Total unfunded credit commitments
The following table summarizes our contractual obligations to make future payments as of December 31, 2022:
Payments Due By Period
(Dollars in millions)
Total
Less than 1 year
1-3 years
4-5 years
After 5 years
SVBFG contractual obligations:
Deposits (1) (2)
Borrowings (2)
Non-cancelable operating leases
Commitments to qualified affordable housing projects
Total obligations attributable to SVBFG
(1) Includes time deposits and deposits with no defined maturity, such as noninterest-bearing demand, interest-bearing checking, savings, money market and sweep accounts.
(2) Amounts exclude contractual interest.
Excluded from the tables above are unfunded commitment obligations of $ 164 million to our managed funds of funds and other fund investments for which neither the payment, timing, nor eventual obligation is certain. Subject to applicable regulatory requirements, including the Volcker Rule (see "Business - Supervision and Regulation" under Part I, Item 1 of this report), we make commitments to invest in venture capital and private equity funds, which in turn make investments generally in, or in some cases make loans to, 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 generally call most of the capital commitments over 5 to 7 years; however in certain cases, the funds may not call 100% of committed capital over the life of the fund. 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. Additionally, our consolidated managed funds of funds have $ 3 million of remaining unfunded commitments to venture capital and private equity funds. See Note 9—“Investment Securities" of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report for further disclosure related to non-marketable and other equity securities. Additional discussion of our off-balance sheet arrangements for these fund investments is included in Note 21—“Off-Balance Sheet Arrangements, Guarantees and Other Commitments” of the “Notes to the Consolidated Financial Statements” under Part II, Item 8 of this report.
Liquidity
The objective of liquidity management is to ensure that funds are available in a timely manner to meet our financial obligations, including, the availability of funds for both anticipated and unanticipated funding uses as necessary, paying creditors, meeting depositors’ needs, accommodating loan demand and growth, funding investments, repurchasing securities and other operating or capital needs, without incurring undue cost or risk, or causing a disruption to normal operating conditions.
We regularly assess the amount and likelihood of projected funding requirements through a range of business-as-usual and potential stress scenarios based on a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs and existing and planned business activities.
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ALCO provides oversight to the liquidity management process and recommends policy guidelines for the approval of the Finance Committee and Risk Committee of our Board of Directors, and courses of action to address our actual and projected liquidity needs. Additionally, we routinely conduct liquidity stress testing as part of our liquidity management practices.
Our client deposits base is, and historically has been, our primary source of liquidity funding. Our deposit levels and cost of deposits may fluctuate from time to time due to a variety of factors, including market conditions, prevailing interest rates, changes in client deposit behaviors, availability of insurance protection and our offering of deposit products. We may also offer more investment alternatives for our off-balance sheet products which may impact deposit levels. At December 31, 2022, our period-end total deposit balances decreased to $173.1 billion, compared to $189.2 billion at December 31, 2021.
We maintain a liquidity risk management and monitoring process designed to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stress environments, subject to the regular supervisory review process. Our liquidity requirements can also be met through the use of our portfolio of liquid assets. Our definition of liquid assets includes cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, short-term investment securities maturing within one year, AFS and HTM securities eligible and available for financing or pledging purposes with a maturity in excess of one year and anticipated near-term cash flows from investments.
We have certain facilities in place to enable us to access short- and long-term borrowings on a secured and unsecured basis. Our secured facilities include collateral pledged to the FHLB of San Francisco and the discount window at the FRB (using both fixed income securities and loans as collateral). Our unsecured facility consists of our uncommitted federal funds lines. As of December 31, 2022, collateral pledged to the FHLB of San Francisco was comprised primarily of fixed income investment securities and loans and had a carrying value of $44.9 billion, of which $25.9 billion was available to support additional borrowings. As of December 31, 2022, collateral pledged to the discount window at the FRB was comprised of fixed income investment securities and had a carrying value of $5.3 billion, all of which was unused and available to support additional borrowings. Our total unused and available borrowing capacity for our uncommitted federal funds lines totaled $3.2 billion as of December 31, 2022. Our total unused and available secured borrowing capacity under our master repurchase agreements with various financial institutions totaled $35.0 billion as of December 31, 2022.
As a banking organization, our liquidity is subject to supervision by our banking regulators. Because we are a Category IV organization with less than $250 billion in average total consolidated assets, less than $50 billion in average weighted short-term wholesale funding and less than $75 billion in cross-jurisdictional activity, we currently are not subject to the Federal Reserve’s LCR or NSFR requirements, either on a full or reduced basis. It is possible that, as a result of further growth, we may exceed one or more of those thresholds and therefore become subject to LCR and NSFR requirements or other heightened liquidity requirements in the future, which would require us to maintain high-quality liquid assets in accordance with specific quantitative requirements and increase the use of long-term debt as a funding source. In addition, if we were to exceed $75 billion in cross-jurisdictional activity, as a Category II organization, we could no longer opt out of excluding AOCI in calculating regulatory capital ratios and would become subject to the advance approaches framework as well as more stringent liquidity reporting requirements.
On a stand-alone basis, SVB Financial’s primary liquidity channels include dividends from the Bank, its portfolio of liquid assets and its ability to raise debt and capital. The ability of the Bank to pay dividends is subject to certain regulations described in “Business—Supervision and Regulation—Restriction on Dividends” under Part I, Item 1 of this report.
Consolidated Summary of Cash Flows
Below is a summary of our average cash position and statement of cash flows for 2022 and 2021, respectively: (For further details, see our Consolidated Statements of Cash Flows under "Consolidated Financial Statements and Supplementary Data" under Part II, Item 8 of this report.)
Year ended December 31,
(Dollars in millions)
Average cash and cash equivalents
Percentage of total average assets
Net cash provided by operating activities
Net cash used for investing activities
Net cash (used for) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Average cash and cash equivalents decreased to $17.1 billion in 2022, compared to $23.0 billion for 2021. Average deposits increased $37.8 billion which enabled us to grow our average loan portfolio by $15.7 billion in 2022.
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December 31, 2022
Cash provided by operating activities of $2.9 billion in 2022 included net income before NCI of $1.6 billion and $2.0 billion of adjustments to reconcile net income to net cash, partially offset by $749 million from changes in other assets and liabilities.
Cash used for investing activities of $3.6 billion in 2022 was driven by $17.7 billion in purchases of fixed income investment securities and a $7.9 billion increase in loan balances, partially offset by $22.4 billion in proceeds from sales, maturities and principal pay downs from our fixed income investment securities portfolio.
Cash used for financing activities of $9 million in 2022 was reflective of a $16.1 billion decrease in deposits, offset partially by a $13.5 billion increase in short-term borrowings and $2.8 billion increase from the issuance of long-term debt.
Cash and cash equivalents at December 31, 2022 were $13.8 billion, compared to $14.6 billion at December 31, 2021.
December 31, 2021
Cash provided by operating activities of $1.9 billion in 2021 included net income before NCI of $2.1 billion and $49 million from changes from adjustments to reconcile net income to net cash, partially offset by $254 million from changes in other assets and liabilities.
Cash used for investing activities of $90.3 billion in 2021 was driven by $97.7 billion in purchases of fixed income investment securities and a $13.7 billion increase in loan balances, partially offset by $19.8 billion in proceeds from sales, maturities and principal pay downs from our fixed income investment securities portfolio and $1.1 billion in proceeds from the acquisition of Boston Private.
Cash provided by financing activities of $85.4 billion in 2021 was reflective of a $78.2 billion increase in deposits, $5.7 billion in capital raised by our preferred and common stock issuances and $1.6 billion increase from the issuance of long-term debt.
Cash and cash equivalents at December 31, 2021, were $14.6 billion, compared to $17.6 billion at December 31, 2020.
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