Summary of SVB FINANCIAL GROUP

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 in Item 8 of this report. Certain reclassifications have been made to prior years' results to conform to the current period's presentations. Such reclassifications had no effect on our results of operations or stockholders' equity. 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 30 years, we have been dedicated to helping entrepreneurs succeed, especially in the technology, life science, venture capital/private equity 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.
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 brokerage, investment advisory and asset management services. We also offer non-banking products and services, such as funds management, venture capital and private equity investment, and business valuation services, through our subsidiaries and divisions. Management's Overview of 2012 Financial Performance Overall, we had another strong year in 2012, which reflected the strength of our clients and our business. We had record high net income available to common stockholders of $175.1 million, and diluted EPS remained strong at $3.91 in 2012, compared to $3.94 in 2011. EPS in 2011 included $0.52 from the sale of certain available-for-sale securities, compared to $0.06 in 2012. In 2012, compared to 2011, we experienced strong growth in net interest income as a result of exceptional loan growth during the year with record high average balances of $7.6 billion. Our total client funds, which consist of on-balance sheet deposits and off-balance sheet client investment funds, also increased, reflecting growth from our existing clients and new clients. In addition, overall credit quality remained strong, and we saw continued growth in fee income and solid gains from our investment securities and equity warrant assets. Additionally, our liquidity and capital ratios continued to remain strong. 2012 results (compared to 2011) reflected strong performance across all areas of our businesses and included:

?         Average loan balances of $7.6 billion, an increase of $1.7 billion, or
          30.0 percent. Period-end loan balances were $8.9 billion, an increase
          of $2.0 billion, or 28.4 percent.


?         Average deposit balances of $17.9 billion, an increase of $2.3 billion,
          or 15.0 percent. Average total client funds (including both on-balance
          sheet deposits and off-balance sheet client investment funds) were
          $38.1 billion, an increase of $4.8 billion, or 14.5 percent.


?         Net interest income (fully taxable equivalent basis) of $619.8 million,
          an increase of $91.6 million, primarily due to an increase in interest
          income from loans attributable to growth in average balances of $1.7
          billion. This increase was largely offset by a decrease in the overall
          yield of our loan portfolio from a continued shift in the mix of our
          loans that are indexed to the national Prime rate versus the SVB Prime
          rate,.


?         Our net interest margin increased to 3.19 percent, compared to 3.08
          percent, primarily due to growth in average loan balances
          (higher-yielding assets) and lower cash balances from deployment into
          available-for-sale securities. These increases were partially offset by
          lower loan yields from a continued shift in the mix of our loans that
          are indexed to the national Prime rate versus the SVB Prime rate, as
          well as an increase of $27.7 million in premium amortization expense on
          our available-for-sale securities portfolio reflective of an increase
          in mortgage prepayment levels for fixed rate mortgage securities.


?         A provision for loan losses of $44.3 million, compared to $6.1 million.
          The provision of $44.3 million in 2012 was primarily due to net
          charge-offs of $23.6 million and period-end loan growth of $2.0
          billion. Net charge-offs in 2012 were 0.31 percent of average total
          gross loans, reflecting the strong overall credit quality of our
          portfolio.


?         Core fee income (deposit service charges, letters of credit fees,
          credit card fees, client investment fees, and foreign exchange fees) of
          $136.9 million, an increase of $18.4 million, or 15.6 percent. This
          increase reflects increased client activity and continued growth in our
          business, primarily from credit card fees, foreign exchange fees and
          client

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investments fees. See "Results of Operations-Noninterest Income" for a description and reconciliation of core fee income.

?         Gains on investment securities, net of noncontrolling interests and
          excluding gains on sales of certain-available-for-sale securities,
          remained at strong levels of $31.5 million, compared to $32.7 million.

See "Results of Operations-Noninterest Income-Gains on Investment Securities, Net" for further details and a reconciliation of gains on investment securities, net of noncontrolling interests.

?         Gains of $5.0 million from the sale of $316 million U.S. agency
          securities that were held in our available-for-sale portfolio.


?         Net gains of $4.2 million from the sale of certain assets related to
          our equity management services business.


?         Noninterest expense of $546.0 million, an increase of $45.4 million, or
          9.1 percent. The increase was primarily due to higher salaries and
          wages expense related to an increase in average full-time equivalent
          employees ("FTEs"), which increased by 9.0 percent to 1,581 average
          FTEs, compared to 1,451 average FTEs. In addition, we saw an increase
          in premises and equipment and professional services expenses to support
          continued growth in our business and IT infrastructure initiatives.


?         Overall, our liquidity remained strong based on the attributes of our
          period end available-for-sale securities portfolio, which totaled $11.3
          billion at December 31, 2012, compared to $10.5 billion at December 31,
          2011. Our available-for-sale securities portfolio continued to be a
          good source of liquidity as it was invested in high quality investments
          and generated steady monthly cash flows. Additionally, our
          available-for-sale securities portfolio continued to provide us with
          the ability to secure wholesale borrowings, as needed.


?         Overall, SVB Financial and the Bank continued to maintain strong
          capital positions. The Bank's Tier 1 leverage ratio increased by 19
          basis points to 7.06 percent at December 31, 2012, compared to 6.87
          percent at December 31, 2011. The increase in the Bank's Tier 1
          leverage capital ratio was primarily the result of strong earnings,
          partially offset by growth of average deposits.

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A summary of our performance in 2012 compared to 2011 is as follows:

                                                                  Year ended December 31,
 (Dollars in thousands, except per share data and
ratios)                                                    2012             2011         % Change
Income Statement:
Diluted earnings per share                             $      3.91     $      3.94       (0.8 ) %
Net income available to common stockholders                175,103         171,902        1.9
Net interest income                                        617,864         526,277       17.4
Net interest margin                                           3.19 %          3.08  %      11   bps
Provision for loan losses                              $    44,330     $     6,101         NM   %
Noninterest income                                         335,546         382,332      (12.2 )
Noninterest expense                                        545,998         500,628        9.1
Non-GAAP net income available to common stockholders
(1)                                                        169,569         147,515       15.0
Non-GAAP diluted earnings per common share (1)                3.79            3.38       12.1
Non-GAAP noninterest income, net of noncontrolling
interest and excluding gains on sales of certain
assets (2)                                                 240,408         222,682        8.0
Non-GAAP noninterest expense, net of noncontrolling
interest and excluding net gains from debt
repurchases (3)                                            534,662         492,184        8.6
Balance Sheet:
Average loans, net of unearned income                  $ 7,558,928     $ 5,815,071       30.0   %
Average noninterest-bearing demand deposits             12,765,506      10,237,844       24.7
Average interest-bearing deposits                        5,144,582       5,330,957       (3.5 )
Average total deposits                                  17,910,088      15,568,801       15.0
Earnings Ratios:
Return on average assets (4)                                  0.82 %          0.92  %   (10.9 ) %
Return on average common SVBFG stockholders' equity
(5)                                                          10.09           11.87      (15.0 )
Asset Quality Ratios:
Allowance for loan losses as a percentage of total
period-end gross loans                                        1.23 %          1.28  %      (5 ) bps
Allowance for loan losses for performing loans as a
percentage of total gross performing loans                    1.16            1.23         (7 )
Gross loan charge-offs as a percentage of average
total gross loans (annualized)                                0.44            0.41          3
Net loan charge-offs (recoveries) as a percentage of
average total gross loans (annualized)                        0.31           (0.02 )       33
Capital Ratios:
SVBFG total risk-based capital ratio (6)                     14.05 %         13.95  %      10   bps
SVBFG tier 1 risk-based capital ratio (6)                    12.79           12.62         17
SVBFG tier 1 leverage ratio                                   8.06            7.92         14
SVBFG tangible common equity to tangible assets (7)           8.04            7.86         18
SVBFG tangible common equity to risk-weighted assets
(6) (7)                                                      13.53           13.25         28
Bank total risk-based capital ratio (6)                      12.53           12.33         20
Bank tier 1 risk-based capital ratio (6)                     11.24           10.96         28
Bank tier 1 leverage ratio                                    7.06            6.87         19
Bank tangible common equity to tangible assets (7)            7.41            7.18         23
Bank tangible common equity to risk-weighted assets
(6) (7)                                                      12.08           11.75         33
Other Ratios:
Operating efficiency ratio (8)                               57.15 %         54.98  %     3.9   %
Non-GAAP operating efficiency ratio (3)                      62.16 %         65.56  %    (5.2 )
Book value per common share (9)                        $     41.02     $     36.07       13.7
Other Statistics:
Average full-time equivalent employees                       1,581           1,451        9.0   %
Period-end full-time equivalent employees                    1,615           1,526        5.8

NM-Not meaningful
(1) See "Non-GAAP Net Income and Non-GAAP Diluted Earnings Per Common Share" below for a description and reconciliation of non-GAAP net income available to common stockholders and non-GAAP diluted earnings per share.

(2) See "Results of Operations-Noninterest Income" below for a description and reconciliation of non-GAAP noninterest income.

(3) See "Results of Operations-Noninterest Expense" below for a description and reconciliation of non-GAAP noninterest expense and non-GAAP operating efficiency ratio.

(4) Ratio represents consolidated net income available to common stockholders divided by average assets.

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(5) Ratio represents consolidated net income available to common stockholders divided by average SVBFG stockholders' equity.

(6) Our risk-weighted assets at December 31, 2012 reflect a refinement in our determination of certain unfunded credit commitments related to the contractual borrowing base made in 2012.

(7) 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.

(8) The operating efficiency ratio is calculated by dividing total noninterest expense by total taxable-equivalent net interest income plus noninterest income.

(9) Book value per common share is calculated by dividing total SVBFG stockholders' equity by total outstanding common shares at period-end.

Non-GAAP Net Income and Non-GAAP Diluted Earnings Per Common Share We use and report non-GAAP net income and non-GAAP diluted earnings per common share, which excludes, in the year applicable, gains from sales of certain available-for-sale securities and net gains from note repurchases and termination of corresponding interest rate swaps, as well as gains from the sale of certain assets related to our equity management services business. We believe these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that do not occur every reporting period. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and related trends, and when planning, forecasting and analyzing future periods. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or preferable to, financial measures prepared in accordance with GAAP.
A reconciliation of GAAP to non-GAAP net income available to common stockholders and non-GAAP diluted earnings per common share for 2012 and 2011 is as follows:

                                                                Year ended December 31,
(Dollars in thousands, except per share data and ratios)         2012              2011
Net income available to common stockholders                 $    175,103      $    171,902
Less: gains on sales of available-for-sale securities (1)         (4,955 )         (37,314 )
Tax impact of gains on sales of certain
available-for-sale securities                                      1,974            14,810
Less: net gains on the sale of certain assets related to
our equity management services business (2)                       (4,243 )               -
Tax impact of net gains on the sale of certain assets
related to our equity management services business                 1,690                 -
Less: net gain from note repurchases and termination of
corresponding interest rate swaps (3)                                  -            (3,123 )
Tax impact of net gain from note repurchases and
termination of corresponding interest rate swaps                       -             1,240
Non-GAAP net income available to common stockholders        $    169,569      $    147,515
GAAP earnings per common share-diluted                      $       3.91      $       3.94
Less: gains on sales of certain available-for-sale
securities (1)                                                     (0.11 )           (0.86 )
Tax impact of gains on sales of certain
available-for-sale securities                                       0.05              0.34
Less: net gains on the sale of certain assets related to
our equity management services business (2)                        (0.10 )               -
Tax impact of net gains on the sale of certain assets
related to our equity management services business                  0.04                 -
Less: net gain from note repurchases and termination of
corresponding interest rate swaps (3)                                  -             (0.07 )
Tax impact of net gain from note repurchases and
termination of corresponding interest rate swaps                       -              0.03
Non-GAAP earnings per common share-diluted                  $       3.79      $       3.38
Weighted average diluted common shares outstanding            44,764,395        43,636,871

(1) Gains on the sales of $316 million and $1.4 billion in certain available-for-sale securities in the second quarters of 2012 and 2011, respectively.

(2) Net gains of $4.2 million from the sale of certain assets related to our equity management services business in the second quarter of 2012.

(3) Net gains of $3.1 million from the repurchase of $109 million of our 5.70% Senior Notes and $204 million of our 6.05% Subordinated Notes and the termination of the corresponding portions of interest rate swaps in the second quarter of 2011.

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Critical Accounting Policies and Estimates Our accounting policies are fundamental to understanding our financial condition and results of operations. We have identified four policies as being critical because they require 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.
Our critical accounting policies include those that address the adequacy of the allowance for loan losses and reserve for unfunded credit commitments, measurements of fair value, the valuation of equity warrant assets and the recognition and measurement of income tax assets and liabilities. Our senior management has discussed and reviewed the development, selection, application and disclosure of these critical accounting policies with the Audit Committee of our Board of Directors.
Allowance for Loan Losses and Reserve for Unfunded Credit Commitments Allowance for Loan Losses
The allowance for loan losses is management's estimate of credit losses inherent in the loan portfolio at the balance sheet date. We consider our accounting policy for the allowance for loan losses to be critical as estimation of the allowance involves material estimates by us and is particularly susceptible to significant changes in the near term. Determining the allowance for loan losses requires us to make forecasts that are highly uncertain and require a high degree of judgment. Our loan loss reserve methodology is applied to our loan portfolio and we maintain the allowance for loan losses at levels that we believe are appropriate to absorb estimated probable losses inherent in our loan portfolio.
Our allowance for loan losses is established for loan losses that are probable but not yet realized. The process of anticipating loan losses is imprecise. We apply a systematic process for the evaluation of individual loans and pools of loans for inherent risk of loan losses. On a quarterly basis, each loan in our portfolio is assigned a credit risk rating through an evaluation process, which includes consideration of such factors as payment status, the financial condition of the borrower, borrower compliance with loan covenants, underlying collateral values, potential loan concentrations, and general economic conditions.
The allowance for loan losses is based on a formula allocation for similarly risk-rated loans by client industry sector and individually for impaired loans. Our formula allocation is determined on a quarterly basis by utilizing a historical loan loss migration model, which is a statistical model used to estimate an appropriate allowance for outstanding loan balances by calculating the likelihood of a loan being charged-off based on its credit risk rating using historical loan performance data from our portfolio. The historical loan loss migration statistical model considers: (i) our quarterly historical loss experience since the year 2000, both by risk-rating category and client industry sector, and (ii) our quarterly loss experience for the one-, three-, and five-year periods preceding the applicable reporting period. The resulting loan loss factors for each risk-rating category and client industry sector are ultimately applied to the respective period-end client loan balances for each corresponding risk-rating category by client industry sector to provide an estimation of the allowance for loan losses.
We apply qualitative allocations to the results we obtained through our historical loan loss migration model to ascertain the total allowance for loan losses. These qualitative allocations are based upon management's assessment of the risks that may lead to a loan loss experience different from our historical loan loss experience. These risks are aggregated to become our qualitative allocation. Based on management's prediction or estimate of changing risks in the lending environment, the qualitative allocation may vary significantly from period to period and includes, but is not limited to, consideration of the following factors:

�        Changes in lending policies and procedures, including underwriting
         standards and collections, and charge-off and recovery practices;


�        Changes in national and local economic business conditions, including
         the market and economic condition of our clients' industry sectors;

� Changes in the nature of our loan portfolio;

� Changes in experience, ability, and depth of lending management and staff;

�        Changes in the trend of the volume and severity of past due and
         classified loans;


�        Changes in the trend of the volume of nonaccrual loans, troubled debt
         restructurings, and other loan modifications;


�        Reserve floor for portfolio segments that would not draw a minimum
         reserve based on the lack of historical loan loss experience;

� Reserve for large funded loan exposure; and

� Other factors as determined by management from time to time.

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A committee comprised of senior management evaluates the adequacy of the allowance for loan losses.
Reserve for Unfunded Credit Commitments
The level of the reserve for unfunded credit commitments is determined following a methodology that parallels that used for the allowance for loan losses. We consider our accounting policy for the reserve for unfunded credit commitments to be critical as estimation of the reserve involves material estimates by our management and is particularly susceptible to significant changes in the near term. We record a liability for probable and estimable losses associated with our unfunded credit commitments. Each quarter, every unfunded client credit commitment is allocated to a credit risk-rating category in accordance with each client's credit risk rating. We use the historical loan loss factors described under our allowance for loan losses to calculate the possible loan loss experience if unfunded credit commitments are funded. Separately, we use historical trends to calculate the probability of an unfunded credit commitment being funded. We apply the loan funding probability factor to risk-factor adjusted unfunded credit commitments by credit risk-rating to derive the reserve for unfunded credit commitments. The reserve for unfunded credit commitments also includes certain qualitative allocations as deemed appropriate by management.
Fair Value Measurements
We use fair value measurements to record fair value for certain financial instruments and to determine fair value disclosures. Our available-for-sale securities, derivative instruments, marketable securities and certain non-marketable securities are financial instruments recorded at fair value on a recurring basis. We disclose our method and approach for fair value measurements of assets and liabilities in Note 2-"Summary of Significant Accounting Policies" of the "Notes to Consolidated Financial Statements" under Part II, Item 8 in this report.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the "exit price") in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurements and Disclosures, establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the significant inputs to the valuation methodology used for measurement are observable or unobservable and the significance of the level of the input to the entire measurement. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data. The three levels for measuring fair value are defined in Note 2-"Summary of Significant Accounting Policies" of the "Notes to Consolidated Financial Statements" under Part II, Item 8 in this report.
It is our practice to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon valuation techniques that use relevant inputs derived from primarily market-based or independently-sourced market parameters, including interest rate yield curves, prepayment speeds, option volatilities and currency rates. Substantially all of our financial instruments use the foregoing methodologies, collectively Level 1 and Level 2 measurements, to determine fair value adjustments recorded to our financial statements. However, in certain cases, when market observable inputs for . . .