SILICON VALLEY BANCSHARES - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to .

Commission File Number: 000-15637

SILICON VALLEY BANCSHARES

(Exact name of registrant as specified in its charter)

Delaware		91-1962278
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

3003 Tasman Drive, Santa Clara, California 95054 – 1191		http://www.svb.com/company/investor_fs.asp
(Address of principal executive offices including zip code)		(Registrant’s URL)

(408) 654-7400
Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes ý No o

At April 30, 2005, 35,486,738 shares of the registrant’s common stock ($0.001 par value) were outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1.	INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	3

	INTERIM CONSOLIDATED BALANCE SHEETS	3

	INTERIM CONSOLIDATED STATEMENTS OF INCOME	4

	INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5

	INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS	6

	NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	36

ITEM 4.	CONTROLS AND PROCEDURES	43

PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	44

ITEM 2.	UNREGISTED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	45

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	45

ITEM 5.	OTHER INFORMATION	45

ITEM 6.	EXHIBITS	45

SIGNATURES		46

INDEX TO EXHIBITS		47

PART I - FINANCIAL INFORMATION

ITEM 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS

SILICON VALLEY BANCSHARES AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(Dollars in thousands, except par value)	2005 (Unaudited)			2004


Assets
Cash and due from banks	$	252,659		$	279,653
Federal funds sold and securities purchased under agreement to resell	144,048			166,295
Investment securities	2,188,182			2,258,207
Loans, net of unearned income	2,344,022			2,312,143
Allowance for loan and lease losses	(35,698		)	(37,613		)
Net loans	2,308,324			2,274,530
Premises and equipment, net of accumulated depreciation and amortization	16,476			14,951
Goodwill	35,639			35,639
Accrued interest receivable and other assets	102,308			124,325
Total assets	$	5,047,636		$	5,153,600

Liabilities, Minority Interest, and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand	$	2,642,591		$	2,649,853
Negotiable order of withdrawal (NOW)	29,320			32,009
Money market	1,191,474			1,206,078
Time	292,890			331,574
Total deposits	4,156,275			4,219,514
Contingently convertible debt	146,975			146,740
Junior subordinated debentures	50,272			49,421
Other borrowings	11,915			9,820
Other liabilities	80,409			125,163
Total liabilities	4,445,846			4,550,658

Commitments and contingencies

Minority interest in capital of consolidated affiliates	84,924			70,674

Stockholders’ equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $0.001 par value, 150,000,000 shares authorized; 35,406,732 and 35,970,095 shares outstanding at March 31, 2005 and December 31, 2004, respectively	35			36
Additional paid-in capital	20,079			44,886
Retained earnings	511,659			487,509
Unearned compensation	(3,995		)	(4,512		)
Accumulated other comprehensive income	(10,912		)	4,349
Total stockholders’ equity	516,866			532,268
Total liabilities, minority interest, and stockholders’ equity	$	5,047,636		$	5,153,600

See accompanying notes to interim unaudited consolidated financial statements.

SILICON VALLEY BANCSHARES AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	For the three months ended
(Dollars in thousands, except per share amounts)	March 31, 2005			March 31, 2004

Interest income:
Loans	$	48,029		$	36,632
Investment securities:
Taxable	21,736			14,023
Non-taxable	1,023			1,461
Federal funds sold and securities purchased under agreement to resell	2,197			1,444
Total interest income	72,985			53,560
Interest expense:
Deposits	2,262			2,014
Other borrowings	795			726
Total interest expense	3,057			2,740
Net interest income	69,928			50,820
(Recovery of)/provision for loan and lease losses	(3,843		)	736
Net interest income after (recovery of)/provision for loan and lease losses	73,771			50,084

Noninterest income:
Client investment fees	7,396			6,268
Corporate finance fees	4,748			4,087
Letter of credit and foreign exchange income	4,693			3,729
Deposit service charges	2,504			3,713
Income from client warrants	1,723			2,908
Investment gains	1,599			1,322
Other	3,512			2,859
Total noninterest income	26,175			24,886

Noninterest expense:
Compensation and benefits	40,154			34,103
Professional services	5,070			3,339
Net occupancy	4,580			4,523
Furniture and equipment	2,719			2,909
Business development and travel	2,090			1,991
Correspondent bank fees	1,221			1,281
Data processing services	1,013			1,085
Telephone	889			782
(Recovery of) provision for loan and loss contingency	(185		)	(719		)
Other	3,072			3,156
Total noninterest expense	60,623			52,450

Income before minority interest in net loss (income) of consolidated affiliates and income tax expense	39,323			22,520
Minority interest in net loss (income) of consolidated affiliates	616			(481		)
Income before income taxes expense	39,939			22,039
Income tax expense	15,789			8,029
Net income	$	24,150		$	14,010

Earnings per common share — basic	$	0.68		$	0.40
Earnings per common share — diluted	$	0.62		$	0.38

See accompanying notes to interim unaudited consolidated financial statements.

SILICON VALLEY BANCSHARES AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	For the three months ended
(Dollars in thousands)	March 31, 2005			March 31, 2004

Net income	$	24,150		$	14,010
Other comprehensive (loss) income, net of tax:
Cumulative translation gain:
Translation gain	422			—
Change in unrealized (losses) gains on available-for-sale investment securities:
Unrealized holding (losses) gains	(13,738		)	8,246
Reclassification adjustment for gains included in net income	(1,945		)	(2,484		)
Other comprehensive (loss) income, net of tax	(15,261		)	5,762
Comprehensive income	$	8,889		$	19,772

See accompanying notes to interim unaudited consolidated financial statements.

SILICON VALLEY BANCSHARES AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the three months ended
(Dollars in thousands)	March 31, 2005			March 31, 2004

Cash flows from operating activities:
Net income	$	24,150		$	14,010
Adjustments to reconcile net income to net cash provided by operating activities:
(Recoveries of)/provision for loan and lease losses	(3,843		)	736
Income from client warrants	(1,723		)	(2,908		)
Net (gain) on sale of investment securities	(1,599		)	(1,322		)
Depreciation and amortization	2,047			1,959
Minority interest	(616		)	481
Amortization of deferred stock-based compensation	776			307
Changes in other assets and liabilities:
(Increase) in accrued interest receivable	(1,095		)	(949		)
Decrease (increase) in income tax receivable	5,568			(5,003		)
Decrease in deferred income tax	3,715			2,201
Increase (decrease) in other liabilities	5,820			(520		)
(Decrease) in accrued retention, warrant, incentive plans, and other compensation benefits payable	(29,771		)	(13,494		)
Other, net	7,353			7,414
Net cash provided by operating activities	10,782			2,912

Cash flows from investing activities:
Purchases of investment securities	(2,136,179		)	(2,811,393		)
Proceeds from sales of investment securities	848,977			2,090,295
Proceeds from maturities and pay-downs of investment securities	1,334,085			600,446
Net (increase) in loans	(35,213		)	(7,900		)
Proceeds from recoveries of charged-off loans	5,959			2,838
Purchases of premises and equipment	(3,572		)	(1,276		)
Net cash provided by (used for) investing activities	14,057			(126,990		)

Cash flows from financing activities:
Net (decrease) increase in deposits	(63,239		)	9,417
Increase in other borrowings, net	2,095			567
Capital contributions from minority interest participants	14,866			4,710
Proceeds from net issuance costs, from issuance of common stock including tax benefits of certain stock option exercises	4,832			4,807
Repurchase of common stock	(33,056		)	—
Net cash (used for) provided by financing activities	(74,502		)	19,501
Foreign exchange effect on cash and cash equivalents	422			—
Net (decrease) in cash and cash equivalents	(49,241		)	(104,577		)
Cash and cash equivalents at beginning of year	445,948			794,996
Cash and cash equivalents at end of period	$	396,707		$	690,419
Supplemental disclosures:
Cash paid during the period for:
Interest paid	$	3,035		$	2,599
Income taxes paid	$	3,673		$	7,548
Noncash items during the period:
Decrease in deferred rent liability related to landlord non-cash incentives	$	174		$	—

See accompanying notes to interim unaudited consolidated financial statements.

SILICON VALLEY BANCSHARES AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Nature of Business

Silicon Valley Bancshares and its subsidiaries (collectively referred to as the Company) offer clients financial products and services through five lines of banking and financial services (see Note 9. Segment Reporting.) Silicon Valley Bancshares (Bancshares) is a bank holding company and a financial holding company whose principal subsidiary is Silicon Valley Bank (the Bank), a California-chartered bank, founded in 1983, and headquartered in Santa Clara, California. The Bank serves more than 10,000 clients across the country, through its 26 regional offices in the United States, and through two foreign subsidiaries located in London, England and Bangalore, India. The Bank has 12 offices throughout California and operates regional offices across the country, in Arizona, Colorado, Georgia, Illinois, Massachusetts, Minnesota, New York, North Carolina, Oregon, Pennsylvania, Texas, Virginia, and Washington. The Bank serves clients in all stages of maturity ranging from emerging-growth companies to established corporate companies in the technology and life science markets and the premium wine industry. The Company defines “emerging-growth” clients as companies in the start-up or early stages of their lifecycle; these companies tend to be privately held and backed by venture capital; they generally have few employees, are primarily engaged in research and development, have brought relatively few products or services to market, and have no or little revenue. By contrast, the Company defines “middle market” clients as companies that tend to be more mature; these companies may be publicly traded, and more established in the markets in which they participate. Additionally, merger, acquisition, private placement, and corporate partnering services are provided through the Company’s wholly-owned investment banking subsidiary, SVB Alliant, whose offices are in California and Massachusetts.

2. Basis of Presentation

The accompanying unaudited interim consolidated financial statements contain all adjustments (of a normal and recurring nature) that are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America (GAAP). Such interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three months ended March 31, 2005, are not necessarily indicative of the results for any future periods. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

The consolidated balance sheet at December 31, 2004 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 2 to the Consolidated Financial Statements that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

The preparation of consolidated financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Prior to fourth quarter of 2004, the Company aggregated its allowance for loan and lease losses and its allowance for loan loss contingency and reflected the aggregate allowance in its allowance for loan and lease losses (ALLL) balance. Commencing in the fourth quarter of 2004, the Company reflected its allowance for loan and lease losses in its ALLL balance and its allowance for loan loss contingency in other liabilities. These reclassifications were also made to prior periods’ balance sheets to conform to current period’s presentations. Additionally, the Company reclassified expense related to the ALLL to provision for loan losses and expense related to changes in the allowance for loan loss contingency into noninterest expense for all periods presented. Such reclassifications had no effect on our results of operations or stockholders’ equity.

Federal Funds Sold and Securities Purchased under Agreement to Resell

Federal funds sold and securities purchased under agreement to resell as reported in the consolidated balance sheet include interest-bearing deposits in other financial institutions of $28.6 million and $15.9 million at March 31, 2005 and December 31, 2004, respectively.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), and related interpretations, to account for its employee stock options rather than the alternative fair value accounting allowed by SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” APB No. 25 provides that the compensation expense relative to the Company’s employee stock options be measured based on the intrinsic value of the stock option. SFAS No. 123 as amended by SFAS No. 148 requires those companies that continue to follow APB No. 25 to provide pro forma disclosure of the impact of applying the fair value method of SFAS No. 123.

The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123 and Financial Accounting Standards Board (FASB) Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation.”

The Company accounts for the cost of restricted stock and restricted stock units by amortizing the grant date fair value of such grants over their vesting period.

If compensation cost related to both the Company’s stock option awards to employees and directors and to the Employee Stock Purchase Plan had been determined under the fair value method prescribed under SFAS No. 123, the Company’s net income, basic earnings per share, and diluted earnings per share would have been the pro forma amounts shown below for the three months ended March 31, 2005 and 2004:

	For the three months ended
	March 31,
(Dollars in thousands, except per share amounts)	2005			2004
Net income, as reported	$	24,150		$	14,010

Less: Total stock-based employee compensation expense determined under fair value based method, net of tax	(3,110		)	(4,148		)
Net income, pro forma	$	21,040		$	9,862

Earnings per common share – basic:
As reported	$	0.68		$	0.40
Pro forma	0.59			0.28
Earnings per diluted share – diluted:
As reported	$	0.62		$	0.38
Pro forma	0.55			0.28

Refer to the Company’s 2004 Annual Report on Form 10-K under “Part II. Item 8. Consolidated Financial Statements and Supplementary Data — Note 18 to the Consolidated Financial Statements — Employee Benefit Plans” for assumptions used in calculating the pro forma amounts above.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” which is a revision of SFAS No. 123 and supersedes APB No. 25. SFAS No. 123(R) requires the Company to measure the cost of employee services received in exchange for an award of equity instruments using a fair value method, and record such expense in the Company’s consolidated financial statements for interim or annual reporting periods beginning after June 15, 2005. On April 14, 2005 the U.S. Securities and Exchange Commission (the SEC) changed the effective date of SFAS No. 123(R) from the first interim or annual reporting period beginning after June 15, 2005 to the first annual reporting period beginning after June 15, 2005. The effect of this change was to defer the effective date of FAS 123(R) for the Company and all calendar year companies until fiscal 2006.

The adoption of SFAS No. 123(R) will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. The adoption of SFAS No. 123(R) will have a material impact on the Company’s consolidated results of operations, financial position, and statement of cash flows as such expense will now be reported in its consolidated financial statements rather than on a pro forma basis in the notes to the consolidated financial statements. However, the Company expects that the pro forma expense calculated under SFAS No. 123 (above) does approximate the expense that will be recognized under SFAS No. 123(R).

3. Earnings Per Share (EPS)

The following is a reconciliation of basic EPS to diluted EPS for the three months ended March 31, 2005 and 2004.

	For the three months ended March 31,
(Dollars and shares in thousands,	Net		Weighted Average	Per Share
except per share amounts)	Income		Shares	Amount

2005:
Basic EPS:
Income available to common stockholders	$	24,150	35,385	$	0.68
Effect of dilutive securities:
Stock options and restricted stock	—		3,405

Diluted EPS:
Income available to common stockholders plus common stock equivalents	$	24,150	38,790	$	0.62

2004:
Basic EPS:
Income available to common stockholders	$	14,010	34,881	$	0.40
Effect of dilutive securities:
Stock options and restricted stock	—		1,841

Diluted EPS:
Income available to common stockholders plus common stock equivalents	$	14,010	36,722	$	0.38

4. Investment Securities

The detailed composition of the Company’s investment securities is presented as follows:

	March 31,		December 31,
(Dollars in thousands)	2005		2004

Available-for-sale securities, at fair value	$	2,030,238	$	2,112,284
Marketable securities (investment company accounting)(1)	473		480
Non-marketable securities (investment company accounting):
Venture capital fund investments(2)	59,606		52,547
Other private equity investments(3)	18,743		15,720
Other investments(4)	15,418		13,635
Non-marketable securities (cost basis accounting):
Venture capital fund investments	26,093		25,400
Tax credit funds	13,473		14,070
Federal Home Loan Bank stock (5)	12,798		12,798
Federal Reserve Bank stock (5)	7,954		7,967
Other private equity investments	3,386		3,306
Total investment securities	$	2,188,182	$	2,258,207

(1) Marketable equity securities (investment company accounting) included $0.5 million related to Silicon Valley BancVentures, LP, at March 31, 2005 and December 31, 2004, respectively. The Company has a controlling ownership interest of 10.7% in the fund. Excluding the minority interest-owned portion of Silicon Valley BancVentures, LP, the Company has marketable equity securities (investment company accounting) of $0.1 million as of March 31, 2005 and December 31, 2004, respectively.

(2) Non-marketable venture capital fund investments included $48.4 million and $45.3 million related to SVB Strategic Investors Fund, LP, at March 31, 2005, and December 31, 2004, respectively. The Company has a controlling ownership interest of 12.56% in the fund. It also included $11.2 million and $7.3 million related to SVB Strategic Investors Fund II, LP, at March 31, 2005 and December 31, 2004, respectively. The Company has a controlling interest of 9.47% in the fund.

(3) Non-marketable other private equity investments included $18.7 million and $15.7 million related to Silicon Valley BancVentures, LP, at March 31, 2005, and December 31, 2004, respectively. The Company has a controlling ownership interest of 10.7% in the fund. Excluding the minority interest-owned portion of Silicon Valley BancVentures, LP, the Company has non-marketable other private equity investments of $2.0 million and $1.7 million as of March 31, 2005, and December 31, 2004, respectively.

(4) Non-marketable other investments included $9.3 million and $9.0 million related to Partners For Growth, LP, at March 31, 2005 and December 31, 2004, respectively. The Company has a majority ownership interest of 53.2% in the fund. It also included $2.9 million and $3.0 million related to Gold Hill Venture Lending Partners 03, LLC and Gold Hill Venture Lending 03, LP, respectively, as of March 31, 2005. It also included $2.4 million and $2.3 million related to Gold Hill Venture Lending Partners 03, LLC and Gold Hill Venture Lending 03, LP, respectively, as of December 31, 2004. The Company has a majority interest of 90.65% in Gold Hill Venture Lending Partners 03, LLC.

(5) Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock are restricted, as the Company is required to hold shares of FHLB and FRB stock under the Bank’s borrowing agreement.

The following tables present the total commitments, funded commitments, and carrying value of the Company’s venture capital and other private equity investments at March 31, 2005. The tables also present net investment gains (losses) for the three months ended March 31, 2005.

	Consolidated as of March 31, 2005
	Venture Capital Funds				Other Private Equity
(Dollars in thousands)	Wholly owned Fund Investments		Funds of Funds		Wholly owned Equity Investments			Co-Investment Fund		Venture Debt Funds			Total
Commitments by investors to consolidated funds	$	—	$	280,250	$	—		$	56,100	$	47,000		$	383,350
Commitments to investments	61,373		186,425		16,054			27,773		39,434			331,059
Commitments funded	46,884		78,994		16,054			27,773		19,705			189,410
Inception to date distributions	53,022		6,910		9,213			5,019		—			74,164
Current cost of investments:
Marketable	—		—		—			514		7			521
Non-marketable	26,092		74,826		1,665			20,519		15,614			138,716
Total current cost of investments	26,092		74,826		1,665			21,033		15,621			139,237

Carrying value:
Marketable	1		—		—			473		7			481
Non-marketable	26,092		59,606		1,665			18,743		15,379			121,485
Total carrying value of investments	26,093		59,606		1,665			19,216		15,386			121,966

Year-to-date net investment (losses) gains	1,205		387		(215		)	220		(51		)	1,546

	The Company’s ownership interest as of March 31, 2005
	Venture Capital Funds				Other Private Equity
(Dollars in thousands)	Wholly owned Fund Investments		Managed Funds of Funds		Wholly owned Equity Investments			Managed Venture Capital Fund		Venture Debt Funds			Total
Commitments to investments	$	61,373	$	30,300	$	16,054		$	6,000	$	45,000		$	158,727
Current cost of investments	26,092		9,039		1,665			2,250		10,958			50,005
Carrying value	26,093		7,141		1,665			2,055		10,734			47,688
Year-to-date net investment (losses) gains	1,205		274		(215		)	24		(49		)	1,239

The following tables present the carrying value of the Company’s non-marketable venture capital and other private equity investments at December 31, 2004:

	Consolidated as of December 31, 2004
	Venture Capital Funds				Other Private Equity
(Dollars in thousands)	Wholly owned Fund Investments		Funds of Funds		Wholly owned Equity Investments		Co-Investment Fund		Venture Debt Funds		Total

Commitments by investors to consolidated funds	$	—	$	225,800	$	—	$	56,100	$	47,000	$	328,900
Commitments to investments	61,003		165,925		16,008		24,945		37,431		305,312
Commitments funded	45,109		71,170		16,008		24,945		15,830		173,062
Inception to date distributions	50,733		6,007		9,212		5,009		—		70,961
Current cost of investments:
Marketable	—		—		—		514		7		521
Non-marketable	25,400		67,455		1,834		19,164		15,854		129,707
Total current cost of investments	25,400		67,455		1,834		19,678		15,861		130,228

Carrying value:
Marketable	—		—		—		473		7		480
Non-marketable	25,400		52,547		1,834		15,720		13,635		109,136
Total carrying value of investments	25,400		52,547		1,834		16,193		13,642		109,616

	The Company’s ownership interest as of December 31, 2004
	Venture Capital Funds				Other Private Equity
(Dollars in thousands)	Wholly owned Fund Investments		Managed Fund of Funds		Wholly owned Equity Investments		Managed Venture Capital Fund		Venture Debt Funds		Total

Commitments to investments	$	61,003	$	28,500	$	16,008	$	6,000	$	45,000	$	156,511
Current cost of investments	25,400		7,728		1,834		2,105		10,468		47,535
Carrying value	25,400		6,067		1,834		1,732		9,220		44,254

The following table presents the components of gains and losses on investment securities, excluding warrant gains, for the three months ended March 31, 2005 and 2004.

	March 31,			March 31,
(Dollars in thousands)	2005			2004

Gross gains on investment securities:
Available-for-sale securities, at fair value	$	50		$	1,233
Non-marketable securities:
Venture capital fund investments	405			237
Other private equity investments	3,646			1,293
Total gross gains on investment securities	4,101			2,763

Gross losses on investment securities:
Non-marketable securities:
Venture capital fund investments	(2,102		)	(1,341		)
Other private equity investments	(400		)	(100		)
Total gross losses on investment securities	(2,502		)	(1,441		)
Net gains/(losses) on investment securities	$	1,599		$	1,322

Warrant gains totaled $1.7 million and $2.9 million for the three months ended March 31, 2005 and 2004, respectively.

5. Loans and Allowance for Loan and Lease Losses

The detailed composition of loans, net of unearned income of $13.7 million and $14.4 million, for the periods ended March 31 2005, and December 31, 2004, respectively, is presented in the following table:

	March 31,		December 31,
(Dollars in thousands)	2005		2004

Core commercial	$	1,415,483	$	1,378,133
Asset-based lending	330,799		327,796
Accounts receivable factoring	202,282		224,897
Total commercial loans	1,948,564		1,930,826

Vineyard development	89,887		80,960
Commercial real estate	22,152		18,562
Total real estate construction	112,039		99,522

Real estate term — consumer	27,671		27,124
Real estate term — commercial	19,604		16,720
Total real estate term	47,275		43,844

Consumer and other	236,144		237,951
Total loans, net of unearned income	$	2,344,022	$	2,312,143

The activity in the allowance for loan and lease losses for the three months ended March 31, 2005 and 2004 was as follows:

	Three months ended March 31,
(Dollars in thousands)	2005			2004

Beginning balance	$	37,613		$	49,862
(Recovery of)/provision for loan and lease losses	(3,843		)	736
Loans charged off	(4,031		)	(4,055		)
Recoveries	5,959			2,838
Ending balance	$	35,698		$	49,381

The aggregate recorded investment in loans for which impairment has been determined in accordance with SFAS No. 114 totaled $13.4 million and $14.0 million at March 31, 2005, and March 31, 2004, respectively. Allocations of the allowance for loan and lease losses specific to impaired loans totaled $3.8 million at March 31, 2005, and $4.7 million at March 31, 2004. Average impaired loans for the three months ended 2005 and 2004 totaled $13.8 million and $14.4 million, respectively.

6. Borrowings

The following table represents the outstanding borrowings at March 31, 2005 and December 31, 2004:

		March 31		December 31,
	Maturity	2005		2004
		(Dollars in thousands)

0% Short-term borrowings(1)	September 28, 2005	$	9,192	$	9,120
Other borrowings	Overdraft	1,523		—
Revolving line of credit — venture debt fund	Due on Demand	1,200		700
Total other borrowings		$	11,915	$	9,820

Contingently convertible debt	June 15, 2008	$	146,975	$	146,740
Junior subordinated debentures	October 30, 2033	50,272		49,421

(1) Relates to the acquisition of SVB Alliant (Alliant Partners) in 2001 and were payable to the former owners, who have been employed by the Company. These notes were discounted over their respective terms, based on market interest rates as of September 28, 2001.

Contingently Convertible Debt

On May 20, 2003, the Company issued $150.0 million of zero-coupon, convertible subordinated notes at face value, due June 15, 2008, to qualified institutional buyers pursuant to Rule 144A under the Securities Act and outside the United States to non-US persons pursuant to Regulation S under the Securities Act. The notes are convertible into the Company’s common stock at a conversion price of $33.6277 per share and are subordinated to all present and future senior debt of the Company. Holders of the notes may convert their notes only if: (i) the price of the Company’s common stock issuable upon conversion of a note reaches a specified threshold, (ii) specified corporate transactions occur, or (iii) the trading price for the notes falls below certain thresholds. At the initial conversion price, each $1,000 principal amount of notes will be convertible into approximately 29.7374 shares of the Company’s common stock. This represents 4,460,410 shares of the Company’s common stock. On August 14, 2003, the Company filed a shelf registration statement with the Securities and Exchange Commission, with respect to the resale of the notes and the common stock issuable upon the conversion of the notes. The fair value of the convertible subordinated notes at March 31, 2005, was $196.5 million, based on quoted market prices. The Company intends to settle the principal amount of $150.0 million (accreted value) in cash. Please refer to the 2004 Annual Report on Form 10-K, under “Part II. Item 8. Consolidated Financial Statements and Supplementary Data — Note 12 to the Consolidated Financial Statements — Borrowings.” The notes were convertible during the three months ended March 31, 2005, due to the share price of $44.82 on December 31, 2004, exceeding their conversion price. The Company is unaware of any note holders exercising their conversion option. The potential dilutive effect of this contingently convertible debt using the treasury stock method was 1,113,888 shares as of March 31, 2005, and was included in the calculation of earnings per share for the three months ended March 31, 2005. The Company included the dilutive effect in its EPS calculation using the treasury stock method, in accordance with the provisions of Emerging Issue Task Force (EITF) issue No. 90-19, “Convertible Bonds With Issuer Option to Settle in Cash Upon Conversion” and Statement of Financial Accounting Standard (SFAS) No. 128, “Earnings Per Share”. The exposure draft of SFAS No. 128R, if adopted in its proposed form, will require the Company to change its accounting for the calculation of EPS for its contingently convertible debt to the “if converted” method. If converted treatment of the contingently convertible debt would have decreased EPS by $0.05 per diluted common share, or 7.9% for the first quarter of 2005.

Concurrent with the issuance of the convertible notes, the Company entered into a convertible note hedge at a cost of $39.3 million and a warrant transaction providing proceeds of $17.4 million with respect to its common stock, with the objective of decreasing its exposure to potential economic dilution from conversion of the notes. The terms and conditions of the convertible note hedge are disclosed in the 2004 Annual Report on Form 10-K, under “Part II. Item 8. Consolidated Financial Statements and Supplementary Data — Note 15. Derivative Financial Instruments.” The cost of the convertible note hedge and the proceeds of the warrant transaction were included in stockholders’ equity in accordance with the guidance in EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under the warrant agreement, the Counterparty may purchase up to approximately 4,460,410 shares of the Company’s common stock at $51.34 per share, upon the occurrence of conversion events defined above. The warrant transaction will expire on June 15, 2008.

7.0% Junior Subordinated Debentures

On October 30, 2003, the Company issued $51.5 million in 7.0% junior subordinated debentures to a special-purpose trust, SVB Capital II. Distributions to SVB Capital II are cumulative and are payable quarterly at a fixed rate of 7.0% per annum of the face value of the junior subordinated debentures. The junior subordinated debentures are mandatorily redeemable upon the maturity of the debentures on October 15, 2033, or to the extent that there are any earlier redemptions of any debentures by the Company. The Company may redeem the debentures prior to maturity in whole or in part, at its option, at any time on or after October 30, 2008. In addition, the Company may redeem the debentures, in whole but not in part, prior to October 30, 2008 upon the occurrence of certain events. Issuance costs of $2.2 million related to the junior subordinated debentures were deferred and are being amortized over the period until mandatory redemption of the debentures in October 2033. Also see Note 7. Derivative Financial Instruments below. The fair value of the 7.0% junior subordinated debentures was estimated to be $49.9 million as of March 31, 2005.

Available Lines of Credit

The Company currently has available $306.0 million in federal funds and lines of credit, which were unused at March 31, 2005. In addition to the available federal funds lines the Company has reverse repurchase agreement lines available with multiple securities dealers. Reverse repurchase lines allow the Company to finance short term borrowings using various fixed income securities as collateral. At March 31, 2005, the Company had not borrowed against any of its reverse repurchase lines.

7. Derivative Financial Instruments

Derivative instruments that the Company uses as a part of its interest rate risk management may include interest rate swaps, caps and floors, and forward contracts. On October 30, 2003, the Company entered into an interest rate swap agreement with a notional amount of $50.0 million. This agreement hedges against the risk of changes in fair values associated with the majority of the Company’s 7.0% fixed rate, junior subordinated debentures. For information on the Company’s junior subordinated debentures, see Note 6. Borrowings.

The terms of this fair value hedge agreement provide for a swap of the Company’s 7.0% fixed rate payment for a variable rate based on London Inter-Bank Offer Rate (LIBOR) plus a spread. Because the swap meets the criteria for the short-cut treatment, the benefit or expense is recorded in the period incurred. This derivative agreement provided income of $0.4 million in the three months ended March 31, 2005. The swap agreement mirrors the terms of the junior subordinated debentures and therefore is callable by the counterparty anytime after October 30, 2008. The Company assumes no ineffectiveness as the swap agreement meets the short-cut method requirements under SFAS No. 133 for fair value hedges of debt instruments. As a result, changes in the fair value of the swap are offset by changes in the fair value of the junior subordinated debentures, and no net gain or loss is recognized in earnings. Changes in the fair value of the derivative agreement and the junior subordinated debentures are primarily dependent on changes in market interest rates. The derivative instrument had a fair value of $0.8 million, which was recorded in other assets at March 31, 2005.

On May 15, 2003, the Company entered into a convertible note hedge agreement (purchased call option) with a Counterparty with respect to its common stock, to limit its exposure to potential economic dilution from conversion of the Company’s $150.0 million principal amount of zero coupon convertible notes. For information on the Company’s $150.0 million principal amount of zero coupon convertible notes, see Note 6. Borrowings. Upon the occurrence of conversion events, the Company has the right to purchase up to approximately 4,460,410 of its common stock from the Counterparty at a price of $33.6277 per common share. The convertible note hedge agreement will expire on June 15, 2008. The Company has the option to settle any amounts due under the convertible hedge either in cash or net shares of its common stock. The cost of the convertible note hedge is included in stockholders’ equity in accordance with the guidance in EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”.

For the Company’s foreign exchange contracts and foreign currency option contracts, see “Part II. Item 8. Consolidated Financial Statements and Supplementary Data — Note 2. to the Consolidated Financial Statements — Summary of Significant Accounting Policies and Note 20. Off-Balance Sheet Arrangements, Guarantees, and Other Commitments” in the Company’s 2004 Annual Report on Form 10-K.

8. Common Stock Repurchase

$75.0 million share repurchase program authorized by the Company’s board of directors, effective January 27, 2005

On January 27, 2005, the Company announced that its board of directors authorized the repurchase of up to an additional $75.0 million of common stock under the Company’s stock repurchase program, in conjunction with the $160.0 million originally approved in May 2003. The additional $75.0 million of shares may be repurchased at any time, at the Company’s discretion, before June 30, 2006, in the open market, through block trades or otherwise, pursuant to applicable securities laws. Depending on market conditions, availability of funds, and other relevant factors, the repurchase of the additional shares may be commenced or suspended at any time prior to June 30, 2006, without any prior notice.

The Company repurchased 767,500 shares of its common stock for $33.9 million in the first quarter of 2005 under the May 2003 stock repurchase program. During the first quarter, the Company put into effect a 10b5-1 plan which allows the Company to automatically repurchase a predetermined number of shares per day at the market price. Since May 2003 when the program was approved by the board of directors, the Company has repurchased 5.6 million shares totaling $159.8 million as of March 31, 2005. The approximate dollar value of shares that may still be repurchased under this program is $75.2 million.

Included in the common stock repurchase activity in the first quarter was a block transaction of 400,000 shares of the Company’s common stock which was repurchased on March 2, 2005 from one of its principal stockholders, H.A. Schupf & Co., LLC. The shares were repurchased at a price of $44.20 per share for an aggregate price of $17.7 million, which reflected a discount from the current asking price, as quoted on the Nasdaq National Market, at the time the transaction was entered into.

9. Segment Reporting

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing financial performance as the source of the Company’s reportable segments.

The Company is organized into five lines of banking and financial services for management reporting: Commercial Banking, SVB Capital, SVB Alliant, Global Financial Services, and Private Client Services and Other. These operating segments are strategic units that offer different services to different clients. The segments are managed separately because they appeal to different markets and, accordingly, require different strategies. The results of operating segments are based on the Company’s internal profitability reporting process. This process assigns each client relationship in its entirety, to a primary operating segment. The process assigns income and expenses to the operating segments according to the customer’s primary relationship designation. Additionally, working capital and its associated costs are allocated to the operating segments on an economic basis, treating each operating segment as if it were an independent entity. Unlike financial reporting, which benefits from the comprehensive structure provided by GAAP, the internal profitability reporting process is highly subjective, as there is no comprehensive, authoritative guidance for management reporting. The management reporting process measures the performance of operating segments based on the Company’s internal operating structure and is not necessarily comparable with similar information for other financial services companies. Changes in the management structure and/or the allocation process have resulted, and may in the future result in, changes in the Company’s allocation methodology as this process is under constant refinement. In the event of such changes, results for prior periods have been, and may be, restated for comparability. Changes in an individual client’s primary relationship designation have resulted, and may in the future result, in certain client’s inclusion in different segments in different periods.

As of March 31, 2005, based on the quantitative threshold for determining reportable segments as required by SFAS No. 131, the Company’s reportable segments are: Commercial Banking and SVB Capital. SVB Alliant, Private Client Services and Global Financial Services do not meet the separate reporting thresholds as defined by SFAS No. 131 and as such, have been aggregated in a column labeled Other Business Services for segment reporting purposes. For further information, please see our 2004 Annual Report on Form 10-K under “Part II. Item 8. Consolidated Financial Statements and Supplementary Data - Note 24. Segment Reporting.”

Commercial Banking provides solutions to the needs of the Company’s commercial clients in the technology, life science, and premium wine industry niches, through the Company’s lending, cash and deposit management, and global banking and trade products and services.

SVB Capital focuses on the business needs of the Company’s venture capital and private equity clients while establishing and maintaining relationships with those firms domestically and internationally. Through this segment, Silicon Valley Bank provides banking services and financial solutions, including traditional deposit and checking accounts, loans, letters of credit, and cash management services.

The Other Business Services segment is principally comprised of Private Client Services, SVB Alliant, and Global Financial Services and other business service units that are not part of the Commercial Bank or SVB Capital segments. The Private Client Services group provides a wide range of credit services to high-net-worth individuals using both long-term secured and short-term unsecured lines of credit. Those products and services include home equity lines of credit, secured lines of credit, restricted stock

purchase loans, airplane loans, and capital call lines of credit. SVB Alliant provides investment banking products and services including, merger and acquisition services, strategic alliances services, and specialized financial studies such as valuations and fairness opinions. Global Financial Services serves the needs of the Company’s domestic clients with global banking products, including foreign exchange and global finance and access to SVB’s international banking network for in-country services abroad. Global Financial Services also supports venture capital and commercial banking clients with business services through subsidiaries in India and the United Kingdom.

The other business services units provide various products and services. The Other Business Services segment also reflects those adjustments necessary to reconcile the results of operating segments based on the Company’s internal profitability reporting process to the Consolidated Financial Statements prepared in conformity with GAAP.

The Company’s primary source of revenue is from net interest income. Accordingly, the Company’s segments are reported using net interest income. The Company also evaluates performance based on noninterest income and noninterest expense, which are presented as components of segment operating profit or loss. The Company does not allocate income taxes to its segments. Additionally, the Company’s management reporting model is predicated on average asset balances; therefore it is not possible to provide period-end asset balances for segment reporting purposes.

The Company’s segment information at and for the three months ended March 31, 2005 and 2004 are as follows:

	Commercial Banking			SVB Capital			Other Business Services			Total
	(Dollars in thousands)

First quarter of 2005
Net interest income	$	50,955		$	4,096		$	14,877		$	69,928
(Recovery of)/provision for loan and lease losses(1)	(3,413		)	—			(430		)	(3,843		)
Noninterest income (2)	18,646			3,118			4,411			26,175
Noninterest expense (3)	42,587			4,556			13,480			60,623
Minority interest in net (income) loss of consolidated affiliates	—			—			616			616
Income (loss) before income taxes	$	30,427		$	2,658		$	6,854		$	39,939

Total average loans	$	1,852,900		$	82,245		$	241,785		$	2,176,930
Total average assets	1,875,453			207,115			3,042,079			5,124,647
Total average deposits	3,443,374			601,928			152,062			4,197,364
Goodwill at March 31, 2005	—			—			35,639			35,639

First quarter of 2004
Net interest income	$	38,046		$	2,434		$	10,340		$	50,820
(Recovery of)/provision for loan and lease losses(1)	1,218			4			(486		)	736
Noninterest income (2)	18,574			847			5,465			24,886
Noninterest expense(3)	36,627			3,720			12,103			52,450
Minority interest in net (income) losses of consolidated affiliates	—			—			(481		)	(481		)
Income (loss) before income taxes	$	18,775		$	(443	)	$	3,707		$	22,039

Total average loans	$	1,519,373		$	63,725		$	223,994		$	1,807,092
Total average assets	1,514,187			144,167			2,777,570			4,435,924
Total average deposits	3,003,583			478,904			137,702			3,620,189
Goodwill at March 31, 2004	—			—			37,549			37,549

(1) For segment reporting purposes, the Company reports net charge-offs as provision for loan and lease losses. Thus, the Other Business Services segment includes $(2.1) million and $(0.5) million for the three months ended March 31, 2005 and 2004, respectively, which represent the difference between net charge-offs and the provision for loan and lease losses.

(2) Noninterest income presented in the SVB Capital segment included warrant income of $1.7 million and $2.9 million, for the three months ended March 31, 2005 and 2004, respectively.

(3) Commercial Banking segment included direct depreciation and amortization of $0.4 million and $0.3 million for the three months ended March 31, 2005 and 2004, respectively. Due to the complexity of the Company’s cost allocation model, it is not feasible to determine the exact amount of the remaining depreciation and amortization expense allocated to the various business segments totaling approximately $1.7 million for both three months ended March 31, 2005 and 2004.

10. Obligations Under Guarantees

The Company provides guarantees related to financial and performance standby letters of credit issued to its clients to enhance their credit standings and enable them to complete a wide variety of business transactions. Financial standby letters of credit are conditional commitments issued by the Company to guarantee the payment by a client to a third party (beneficiary). Financial standby letters of credit are primarily used to support many types of domestic and international payments. Performance standby letters of credit are issued to guarantee the performance of a client to a third party when certain specified future events have occurred. Performance standby letters of credit are primarily used to support performance instruments such as bid bonds, performance bonds, lease obligations, repayment of loans, and past due notices. These standby letters of credit have fixed expiration dates and generally require a fee paid by a client at the time the Company issues the commitment. Fees generated from these standby letters of credit are recognized in noninterest income over the commitment period.

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

The table below summarizes the Company’s standby letter of credits at March 31, 2005. The maximum potential amount of future payments represents the amount that could be lost under the standby letters of credit if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from the collateral held or pledged.

(Dollars in thousands as of	Expires within one		Expires after		Total amount		Maximum amount
March 31, 2005)	year or less		one year		outstanding		of future payments
Financial standby	$	531,846	$	49,783	$	581,629	$	581,629
Performance standby	8,476		5,311		13,787		13,787
Total	$	540,322	$	55,094	$	595,416	$	595,416

At March 31, 2005, the carrying amount of the liabilities related to financial and performance standby letters of credit was approximately $3.5 million. At March 31, 2005, cash and investment securities collateral available to us to reimburse losses under financial and performance standby letters of credits was $245.2 million.

In addition to standby letter of credit guarantees, the Company has issued additional guarantees as off-balance sheet arrangement. As of March 31, 2005, those guarantees include the following:

*	The Bank has guaranteed credit cards issued to the Company’s clients by an unaffiliated financial institution. As of March 31, 2005, the combined credit limits on those accounts are $46.8 million.

*	The Company may be required to make contingent payments to the former owners of Woodside Asset Management based on their future revenue growth. During 2004, the Company paid one earn-out payment of $338,000 to the former owners of Woodside Asset Management. As of March 31, 2005, under the acquisition agreement, the maximum future gross earn-out payments to Woodside Asset Management’s former owners are $1.6 million.

11. Legal Matters

On May 24, 2001, Gateway Communications, Inc. (Gateway) filed a lawsuit in the United States Bankruptcy Court for the Southern District of Ohio (Western Division) naming the Bank as a defendant. Gateway (the debtor in the bankruptcy case) alleges that the Bank’s actions in connection with a loan resulted in Gateway’s bankruptcy, and seeks $20,000,000 in compensatory damages, punitive damages, interest and attorneys’ fees. On June 24, 2003, the Court dismissed four of the five counts in the complaint, including the claim for punitive damages, leaving one breach of contract claim. The Company believes that the sole remaining claim has no merit and intends to defend the lawsuit vigorously. The action is scheduled for trial in December 2005.

The Company is unable to predict at this time the final outcome of the above matter and the ultimate effect, if any, on the Company’s liquidity, consolidated financial position or results of operations.

Additionally, from time to time, the Company is subject to other legal claims and proceedings that are in the normal course of the Company’s business. While the outcome of these matters is currently not determinable, based on information available to the Company, its review of such claims to date and consultation with outside counsel, the Company does not currently expect that the ultimate costs to resolve these matters, if any, will have a material adverse effect on the Company’s liquidity, consolidated financial position or results of operations.

12. Subsequent Event

Repurchases under the Company’s stock repurchase program

From April 1, 2005 through April 30, 2005, the Company repurchased 0.2 million shares of its common stock totaling $7.4 million under the stock repurchase program. Since May 2003 when the program was approved by the board of directors, the Company has repurchased 5.8 million shares totaling $167.1 million as of April 30, 2005. The approximate dollar value of shares that may still be repurchased under this program is $67.9 million.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis contains forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in “Item 3. Quantitative and Qualitative Disclosures about Market Risk—Factors That May Affect Future Results.”

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our interim unaudited consolidated financial statements and notes as presented in Part I - Item 1 of this report and in conjunction with our 2004 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC). 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

Silicon Valley Bancshares is a bank holding company and a financial holding company that was incorporated in the state of Delaware in March 1999. Our principal subsidiary, Silicon Valley Bank, is a California state-chartered bank and a member of the Federal Reserve System. Silicon Valley Bank’s deposits are insured by the Federal Deposit Insurance Corporation. Our corporate headquarters is located at 3003 Tasman Drive, Santa Clara, California 95054, and our telephone number is 408.654.7400. When we refer to “Silicon Valley Bancshares,” or “we” or use similar words, we intend to include Silicon Valley Bancshares and all of its subsidiaries collectively, including Silicon Valley Bank. When we refer to “Bancshares,” we are referring only to the parent company, Silicon Valley Bancshares.

For over 20 years, we have been dedicated to helping entrepreneurs succeed, specifically focusing on industries where we have deep knowledge and relationships. Our focus is on the technology, life science, private equity, and premium wine industries. We continue to diversify our products and services to support our clients throughout their life cycles, regardless of their age or size. We offer a range of financial services that generate three distinct sources of income.

In part, our income is generated from interest rate differentials. The difference between the interest rates received on interest-earning assets, such as loans extended to clients and securities held in our investment portfolio, and the interest rates paid by us on interest-bearing liabilities, such as deposits and other borrowings, accounts for the major portion of our earnings. Our deposits are largely obtained from commercial clients within our technology, life science, private equity, and premium wine industry sectors, and, to a lesser extent, from individuals served by our Private Client Services group. We do not obtain deposits from conventional retail sources and have no brokered deposits. As part of negotiated credit facilities and certain other services, we frequently obtain rights to acquire stock in the form of warrants in certain client companies.

Fee-based services also generate income for our business. We market our full range of financial services to all of our commercial and private equity firm clients. In addition to commercial banking and private client services, we offer fee-based merger and acquisition services, private placements, and investment and advisory services. Our ability to integrate and cross-sell our diverse financial services to our clients is a strength of our business model.

In addition, we seek to obtain returns through investments in private equity and venture capital fund investments. We manage three limited partnerships: a venture capital fund that invests directly in privately held companies and two funds that invest in other venture capital funds.

Business Overview

Silicon Valley Bancshares is organized into groups, which manage the diverse financial services we offer:

Commercial Banking

We provide solutions to the needs of our commercial clients in the technology, life science, private equity and premium wine industries through our lending, deposit account and cash management, and global banking and trade products and services.

Through our lending products and services, we extend loans and other credit facilities to our commercial clients, most often secured by the assets of our clients. Lending products and services include traditional term loans, equipment loans, revolving lines of credit, accounts-receivable based lines of credit, asset-based loans, real estate loans, vineyard development loans, and financing of affordable housing projects. We often obtain warrants to purchase an equity position in a client company’s stock in consideration for making loans, or for providing other services.

Our deposit account and cash management products and services provide commercial clients with short and long-term cash management solutions. Deposit account products and services include traditional deposit and checking accounts, certificates of deposit, and money market accounts. In connection with deposit accounts, we also provide lockbox and merchant services that facilitate quicker depositing of checks and other payments to clients’ accounts. Cash management products and services include wire transfer and Automated Clearing House (ACH) payment services to enable clients to transfer funds quickly from their deposit accounts. Additionally, the cash management services unit provides collection services, disbursement services, electronic funds transfers, and online banking through SVBeConnect.

Our global banking and trade products and services facilitate our clients’ global finance and business needs. These products and services include foreign exchange services that allow commercial clients to manage their foreign currency risks through the purchase and sale of currencies on the global inter-bank market. To facilitate our clients’ international trade, we offer a variety of loans and credit facilities guaranteed by the Export-Import Bank of the United States. We also offer letters of credit, including export, import, and standby letters of credit, to enable clients to ship and receive goods globally.

The Commercial Banking group also provides investment services to our clients through our broker-dealer subsidiary, SVB Securities. SVB Securities is registered with the National Association of Securities Dealers, Inc. (NASD). These services, which include money market mutual funds, fixed income securities and repurchase agreements enable our clients to better manage their assets. We also offer investment advisory services through SVB Asset Management, one of our registered investment advisor subsidiaries. SVB Asset Management specializes in outsourced treasury management, customized cash portfolio management and reporting and monitoring for corporations.

SVB Capital

SVB Capital focuses on the business needs of our venture capital and private equity clients, establishing and maintaining relationships with those firms domestically and internationally. Through this segment, we provide banking services and financial solutions, including traditional deposit and checking accounts, loans, letters of credit, and cash management services.

SVB Capital also makes investments in venture capital and other private equity firms and in companies in the niches we serve. The segment also manages three venture funds that are consolidated into our financial statements: SVB Strategic Investors Fund, LP and SVB Strategic Investors Fund II, LP, which are funds of funds that invest in other venture funds, and Silicon Valley BancVentures, LP, a direct equity venture fund that invests in privately held technology and life-science companies. This segment also includes 2004 investments in Gold Hill Venture Lending Partners 03, LP and its parallel funds (collectively known as Gold Hill Venture Lending Partners 03, LP), which provide secured debt to emerging growth clients in their earliest stages, and Partners for Growth, LP, a fund that provides secured debt to higher risk, emerging growth clients in their later stages. We define “emerging-growth” clients as companies in the start-up or early stages of their lifecycle. These companies tend to be privately held and backed by venture capital; they generally have few employees, have brought relatively few products or services to market, and have no or little revenue. By contrast, “middle market companies” tend to be more mature; they may be publicly traded and more established in the markets in which they participate, although not necessarily the leading players in the largest industries.

SVB Capital also offers services, through the Special Equities Group, to assist private equity firms, and the partners of such firms, with liquidating securities following initial public offerings and mergers and acquisitions, including in-kind stock transactions, restricted stock sales, block trading, and special situations trading such as liquidation of foreign securities and Private Investment in Public Equity (PIPE) positions. The Special Equities Group is a division of SVB Securities, a broker-dealer registered with the NASD.

Other Business Services

The Other Business Services segment is principally comprised of SVB Alliant, Global Financial Services and Private Client Services, and other business service units that are not part of the Commercial Bank or SVB Capital segments. SVB Alliant, Global Financial Services and Private Client Services do not meet the separate reporting thresholds as defined by SFAS No. 131 and as such, have been aggregated as Other Business Services for segment reporting purposes.

SVB Alliant

Through SVB Alliant, our investment banking subsidiary, we provide merger and acquisition advisory services (M&A), strategic alliance services, and specialized financial studies such as valuations and fairness opinions. In October 2003, we enhanced our investment banking product set by launching a Private Capital Group that provides advisory services for the private placement of securities. SVB Alliant is a broker-dealer registered with the NASD.

Global Financial Services

Global Financial Services serves the needs of the Company’s domestic clients with global banking products, including foreign exchange and global finance and access to SVB’s international banking network for in-country services abroad. Global Financial Services also supports venture capital and commercial banking clients with business services through subsidiaries in India and the United Kingdom.

Private Client Services and Other

Our Private Client Services and Other group is principally comprised of our Private Client Services group and other business services units. Private Client Services provides a wide range of credit services to high-net-worth individuals using both long-term secured and short-term unsecured lines of credit. Those products and services include home equity lines of credit, secured lines of credit, restricted stock purchase loans, airplane loans, and capital call lines of credit. We also help our clients meet their cash management needs by providing deposit account products and services, including checking accounts, deposit accounts, money market accounts, and certificates of deposit. Through our subsidiary, Woodside Asset Management, Inc., we provide individual clients with personal investment advisory services, assisting clients in establishing and implementing investment strategies to meet their individual needs and goals. As a result of the Private Client Services group’s recent decision to focus on its core banking and credit products, we are exploring strategic alternatives in relation to Woodside Asset Management, including a possible sale to a third party.

Critical Accounting Policies and Estimates

The accompanying management’s discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. Management evaluates estimates on an ongoing basis. Management bases its estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

A summary of significant accounting policies and a description of accounting policies that are considered critical are described in Note 2 to the Consolidated Financial Statements and in the Critical Accounting Policies section in our Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on March 16, 2005.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” which is a revision of SFAS No. 123 and supersedes APB No. 25. SFAS No. 123(R) requires us to measure the cost of employee services received in exchange for an award of equity instruments using a fair value method, and record such expense in our consolidated financial statements for interim or annual reporting periods beginning after June 15, 2005. On April 14, 2005 the SEC changed the effective date of SFAS No. 123(R) from the first interim or annual reporting period beginning after June 15, 2005 to the first annual reporting period beginning after June 15, 2005. The effect of this change was to defer the effective date of FAS 123(R) for us and all calendar year companies until fiscal 2006.

The adoption of SFAS No. 123(R) will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. The adoption of SFAS No. 123(R) will have a material impact on our consolidated results of operations, financial position, and statement of cash flows as such expense will now be reported in our consolidated financial statements rather than on a pro forma basis in the notes to the consolidated financial statements. However, we expect that the pro forma expense calculated under SFAS No. 123 does approximate the expense that will be recognized under SFAS No. 123(R).

Results of Operations

Earnings Summary

We reported net income of $24.2 million, or $0.62 per diluted common share, for the three months ended March 31, 2005. This was $10.2 million, or 63.2%, higher than net income of $14.0 million, or $0.38 per diluted common share, for the three months ended March 31, 2004.

Dilutive Effect of Contingently Convertible Debt on our Diluted Earnings per Share Calculation

We included the dilutive effect of the $150.0 million zero-coupon, convertible subordinated notes due June 15, 2008 in our fully diluted earnings per share (EPS) calculation using the treasury stock method, in accordance with the provisions of Emerging Issue Task Force (EITF) issue No. 90-19, “Convertible Bonds With Issuer Option to Settle in Cash Upon Conversion” and Statement of Financial Accounting Standard (SFAS) No. 128, “Earnings Per Share”. The exposure draft of SFAS No. 128R, if adopted in its proposed form, will require us to change our accounting for the calculation of EPS on our contingently convertible debt to the if converted method. If converted treatment of the contingently convertible debt would have decreased EPS by $0.05 per diluted common share, or 7.9% for the three months ended March 31, 2005, respectively.

Quarter ended March 31, 2005 Compared to Quarter ended March 31, 2004

Consolidated net income increased by $10.2 million between quarter ended March 31, 2005 and quarter ended March 31, 2004.

• Net interest income increased by $19.1 million due to an increase in interest-earning assets, particularly commercial loans and fixed income securities, and due to an improvement in yields generated from these assets.

• An increase in noninterest expense of $8.2 million was largely attributable to higher compensation expense of $6.1 million. Additionally, higher professional services expense of $1.7 million was primarily due to costs associated with commitment of resources to document, enhance and audit internal controls to accomplish compliance with the Sarbanes-Oxley Act of 2002.

The major components and changes of net income are summarized in the following table:

	For the three months
	ended March 31,						%
(Dollars in thousands)	2005			2004			Change

Net interest income	$	69,928		$	50,820		37.6	%
(Recovery of)/provision for loan and lease losses	(3,843		)	736			622.1
Noninterest income	26,175			24,886			5.2
Noninterest expense	60,623			52,450			15.6
Minority interest in net losses (income) of consolidated affiliates	616			(481		)	228.1
Income before income taxes	39,939			22,039			81.2
Income tax expense	15,789			8,029			96.6
Net income	$	24,150		$	14,010		72.4
Return on average assets(1)	1.91		%	1.27		%
Return on average stockholders’ equity(1)	18.42			12.15
Average stockholders’ equity to average assets	10.38			10.46

(1) Quarterly ratios represent annualized net income divided by quarterly average assets/equity.

Net Interest Income and Margin

Net interest income is defined as the difference between interest earned primarily on loans, investment securities, federal funds sold and securities purchased under agreement to resell, and interest paid on funding sources, primarily deposits. Net interest income is our principal source of revenue. Net interest margin is defined as the amount of annualized net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. The average yield earned on interest-earning assets is the amount of annualized taxable-equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is defined as annualized interest expense as a percentage of average interest-earning assets.

The following tables set forth average assets, liabilities, minority interest, stockholders’ equity, interest income, interest expense, annualized yields and rates, and the composition of our annualized net interest margin for the three months ended March 31, 2005 and 2004, respectively.

AVERAGE BALANCES, RATES AND YIELDS

	For the three months ended March 31,
	2005							2004
				Interest							Interest
	Average			Income/		Yield/		Average			Income/		Yield/
(Dollars in thousands)	Balance			Expense		Rate		Balance			Expense		Rate
Interest-earning assets:
Federal funds sold and securities purchased under agreement to resell(1)	$	359,312		$	2,197	2.48	%	$	541,819		$	1,444	1.07	%
Investment securities:
Taxable	2,020,406			21,736		4.36		1,515,957			14,023		3.72
Non-taxable(2)	92,079			1,574		6.93		144,413			2,247		6.26
Loans:
Commercial	1,789,100			42,628		9.66		1,514,123			33,303		8.85
Real estate construction and term	150,532			2,201		5.93		96,310			1,236		5.16
Consumer and other	237,298			3,200		5.47		196,659			2,093		4.28
Total loans, net of unearned income	2,176,930			48,029		8.95		1,807,092			36,632		8.15
Total interest-earning assets	4,648,727			73,536		6.42		4,009,281			54,346		5.45

Cash and due from banks	228,782							212,335
Allowance for loan and lease losses	(39,242		)					(51,824		)
Goodwill	35,639							37,551
Other assets (3)	250,741							228,581
Total assets	$	5,124,647						$	4,435,924

Funding sources:
Interest-bearing liabilities:
NOW deposits	$	30,594		30		0.40		$	23,475		25		0.43
Regular money market deposits	498,379			692		0.56		427,993			537		0.50
Bonus money market deposits	740,967			1,048		0.57		704,511			891		0.51
Time deposits	313,870			492		0.64		370,177			560		0.61
Contingently convertible debt	146,844			236		0.65		145,892			236		0.65
Junior subordinated debentures	49,491			484		3.97		49,311			350		2.85
Other borrowings	9,743			75		3.12		18,239			141		3.11
Total interest-bearing liabilities	1,789,888			3,057		0.69		1,739,598			2,740		0.63
Portion of noninterest-bearing funding sources	2,858,839							2,269,683
Total funding sources	4,648,727			3,057		0.27		4,009,281			2,740		0.27

Noninterest-bearing funding sources:
Demand deposits	2,613,554							2,094,033
Other liabilities	117,072							91,518
Minority interest in capital of consolidated affiliates	72,438							46,968
Stockholders’ equity	531,695							463,807
Portion used to fund interest- earning assets	(2,858,839		)					(2,269,683		)
Total liabilities, minority interest and stockholders’ equity	$	5,124,647						$	4,435,924

Net interest income and margin				$	70,479	6.15	%				$	51,606	5.18	%

Total deposits	$	4,197,364						$	3,620,189

(1)		Includes average interest-bearing deposits in other financial institutions of $19.7 million and $4.5 million for the three months ended March 31, 2005 and 2004, respectively.
(2)		Interest income on non-taxable investments is presented on a fully taxable-equivalent basis using the federal statutory income tax rate of 35.0% in 2005 and 2004. The tax equivalent adjustments were $551,000 and $786,000 for the three months ended March 31, 2005 and 2004, respectively.
(3)		Average equity investments of $122.4 million and $114.0 million for the three months ended March 31, 2005 and 2004, respectively, were reclassified to other assets as they were noninterest-yielding.

Net interest income is affected by changes in the amount and mix of interest-earnings assets and interest-bearing liabilities, referred to as “volume change.” Net interest income 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 and interest expense for each major category of interest-earning assets and interest-bearing liabilities. The table also reflects the amount of simultaneous change attributable to both volumes and rates for the periods 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. Changes relating to investments in non-taxable municipal securities are presented on a fully taxable-equivalent basis using the federal statutory rate of 35.0% in 2005 and 2004.

	2005 Compared to 2004
	Three months ended March 31, Increase (Decrease) Due to Change in
(Dollars in thousands)	Volume			Rate			Total

Interest income:
Federal funds sold and securities purchased under agreement to resell	$	(614	)	$	1,367		$	753
Investment securities	4,188			2,852			7,040
Loans	7,720			3,677			11,397
Increase (decrease) in interest income	11,294			7,896			19,190

Interest expense:
NOW deposits	7			(2		)	5
Regular money market deposits	91			64			155
Bonus money market deposits	45			112			157
Time deposits	(91		)	23			(68		)
Contingently convertible debt	—			—			—
Junior subordinated debentures	1			133			134
Other borrowings	(67		)	1			(66		)
(Decrease) increase in interest expense	(14		)	331			317
Increase in net interest income	$	11,308		$	7,565		$	18,873

Net Interest Income

Net interest income, on a fully taxable-equivalent basis, totaled $70.5 million for the three months ended March 31, 2005, an increase of $18.9 million, or 36.6% from the comparable 2004 period. The increase in net interest income was the result of a $19.2 million increase in interest income and slightly offset by a $0.3 million increase in interest expense.

Interest Income - Net Increase in Interest-Earning Assets (Volume Variance)

The $19.2 million increase in interest income was primarily the result of a $11.3 million favorable volume variance. The favorable volume variance resulted from a $639.4 million, or 15.9% increase, in average interest-earning assets. Increases in our sources of funding, largely deposits, were the main contributors to the increase in average interest-earning assets. We believe deposits increased due to an improved venture capital funding environment and a general improvement in business conditions for many of our clients. This increase was primarily centered in investment securities and loans, which collectively increased $822.0 million.

Average investment securities increased by $452.1 million, resulting in a $4.2 million favorable volume variance. In particular, relatively higher-yielding mortgage-backed securities and collateralized mortgage obligations increased by $461.5 million. We estimated the average duration of the investment portfolio at March 31, 2005 to be 2.5 years, compared to 1.6 years at March 31, 2004. The increase in duration was due primarily to a general increase in long-term interest rates.

In addition, average loans increased by $369.8 million resulting in a $7.7 million favorable volume variance. The volume variance is largely driven by growth in our commercial loan category, which represented $275.0 million of the increase, followed by smaller increases in the real estate and consumer loan categories. The increase in average loans reflects an improvement in economic activity and in the markets served by us. Our strategy is to grow average loans modestly throughout 2005, as our corporate technology efforts continue to develop.

Average federal funds sold and securities purchased under agreement to resell for the three months ended March 31, 2005 decreased, resulting in a $0.6 million unfavorable volume variance. The decrease was mainly due to our shifting funds into our investment portfolio.

Interest Income - Change in Market Interest Rates and Shift in Investment Portfolio Mix (Rate Variance)

Favorable rate variances associated with each component of interest earning assets caused a $7.9 million increase in interest income. The yield on average interest-earning assets increased 97 basis points overall, largely driven by higher yields generated by average taxable investment securities and loans. The increase in yields on interest-earning assets was primarily caused by a shift in the average investment portfolio mix, a shift in the loan portfolio mix and an increase in our weighted-average prime lending rate and in short-term market rates.

The average yield on taxable investment securities for the three months ended March 31, 2005 increased 64 basis points to 4.36% from 3.72% in the comparable prior year period, causing a $2.9 million favorable rate variance associated with our average investment securities. This was primarily due to a shift in the composition of a portion of the investment portfolio to relatively higher-yielding, mortgage-backed securities and collateralized mortgage obligations.

We realized a $3.7 million favorable rate variance associated with our loan portfolio, largely driven by higher yields from loans. The increase in loan yields was partially attributable to a shift in the composition of the loan portfolio to higher-yielding, asset-based lending and accounts receivable factoring products, which, on an average balance basis, increased by approximately 60.6% in the 2005 first quarter compared to the first quarter of 2004. In addition, on February 3, 2005 and again, on March 23, 2005, we increased our prime lending rate, each time by 25 basis points, bringing our prime rate to 5.75%, in response to increases in short-term market interest rates. Our weighted-average prime lending rate increased to 5.43% in the 2005 first quarter from 4.00% in the 2004 first quarter. As of March 31, 2005, approximately 76.3%, or $1.8 billion of our total loan portfolio, were variable rate loans and would reprice with an increase in our prime lending rate.

In addition, we realized a $1.4 million favorable rate variance associated with federal funds sold and securities under agreement to resell. The aforementioned increases in short-term market interest rates were largely responsible for this favorable rate variance.

Many elements of our interest-earning assets are extremely interest rate sensitive, thus we expect that any future increase in market interest rates will be incremental to our earnings.

Interest Expense

Total interest expense for the three months ended March 31, 2005 increased by $0.3 million which resulted from an unfavorable rate variance of $0.3 million resulting largely from a slight increase in interest expense related to deposits.

The average cost of funds paid in the three months ended March 31, 2005 was 0.27%, unchanged from the three months ended March 31, 2004. The increase in deposit rates resulted from our decision to increase rates for certain types of deposit accounts, in response to recent increases in short term market interest rates.

(Recovery of)/provision for Loan and Lease Losses

The provision for loan and lease losses is based on our evaluation of the adequacy of the existing allowance for loan and lease losses in relation to total loans, and on our periodic assessment of the inherent and identified risk dynamics of the loan portfolio resulting from reviews of selected individual loans and loan commitments.

We realized a recovery of loan and lease losses of $3.8 million for the three months ended March 31, 2005, compared to a provision for loan and lease losses of $0.7 million for the comparable quarter a year ago.

We incurred net recoveries of approximately $1.9 million for the three months ended March 31, 2005 compared to net charge-offs of $1.2 million for the three months ended March 31, 2004. Credit quality remained strong with nonperforming loans at 0.59% of total gross loans. See “Financial Condition - Credit Quality and the Allowance for Loan and Lease Losses” for additional related discussion.

Noninterest Income

The following table summarizes the components of noninterest income for the three months ended March 31, 2005 and 2004, and the percent changes from period to period:

	For the three months ended March 31,				%
(Dollars in thousands)	2005		2004		Change

Client investment fees	$	7,396	$	6,268	18.0	%
Corporate finance fees	4,748		4,087		16.2
Letter of credit and foreign exchange income	4,693		3,729		25.9
Deposit service charges	2,504		3,713		(32.6	)
Income from client warrants	1,723		2,908		(40.7	)
Investment gains	1,599		1,322		21.0
Other	3,512		2,859		22.8
Total noninterest income	$	26,175	$	24,886	5.2

We offer client directed investment assets, sweep products, and asset management services on which we earn fees. The following table summarizes client investment funds in client directed investment assets, sweep products, and client investment assets under management as of March 31, 2005 and 2004:

(Dollars in millions)	At March 31, 2005		At March 31, 2004
Client investment funds:
Client directed investment assets	$	7,452.0	$	7,835.8
Sweep money market funds	1,355.5		1,093.8
Client investment assets under management	2,917.7		1,084.9
Total client investment funds(1)	$	11,725.2	$	10,014.5

(1) Client funds invested through Silicon Valley Bancshares, maintained at third party financial institutions.

Total client investment funds were $11.7 billion at March 31, 2005, compared to $10.0 billion at March 31, 2004, an increase of $1.7 billion, or by 17.1%. As of March 31, 2005, SVB Asset Management accounted for $2.9 billion, or 24.9%, of the total client investment funds. Mutual fund products totaled $6.1 billion and $6.7 billion at both March 31, 2005 and 2004, respectively.

Client investment fee income for the three months ended March 31, 2005 of $7.4 million was $1.1 million, or 18.0% higher, than $6.3 million for the three months ended March 31, 2004. The increased income in the three months ended March 31, 2005 as compared to March 31, 2004 was largely attributable to the growth in client investment funds generating this income.

Our fees, calculated on client average balances, ranged from 10 to 84 basis points as of March 31, 2005, compared to a range of 12 to 61 basis points as of March 31, 2004.

Corporate finance fees for the three months ended March 31, 2005 were $4.7 million at March 31, 2005, compared to $4.1 million at March 31, 2004, an increase of $0.6 million, or 16.2% higher, than for the three months ended March 31, 2004. SVB Alliant’s business is highly variable, thus we expect significant changes in corporate finance fees from period to period.

Letter of credit and foreign exchange fee income for the three months ended March 31, 2005 were $4.7 million at March 31, 2005, compared to $3.7 million at March 31, 2004, an increase of $1.0 million, or 25.9% higher, than for the three months ended March 31, 2004. The increase was primarily due to a higher volume of client foreign exchange transactions.

Deposit services for the three months ended March 31, 2005 were $2.5 million at March 31, 2005, compared to $3.7 million at March 31, 2004, a decrease of $1.2 million, or 32.6% lower, than for the three months ended March 31, 2004. Clients compensate us for depository services, either through earnings credits computed on their demand deposit balances, or via explicit payments that we recognize as deposit service charges income. Earnings credits are calculated using client average daily deposit balances, less a reserve requirement and a discounted U.S. Treasury bill interest rate. Clients received higher earnings credit in the three months ended March 31, 2005 compared to the respective prior year period due to increased short-term market interest rates in the first three months of 2005, resulting in additional credits to offset deposit service charges.

Income from client warrants recognized during the three months ended March 31, 2005 and 2004 was $1.7 million and $2.9 million, respectively, a decrease of $1.2 million or 40.7%.

We have historically obtained rights to acquire stock, in the form of warrants, in certain clients, primarily as part of negotiated credit facilities. The receipt of warrants does not change the loan pricing, covenants or other collateral control techniques we employ to mitigate the risk of a loan becoming nonperforming. The collateral requirements on loans with warrants are similar to lending arrangements where warrants are not obtained. The timing and amount of income from the disposition of client warrants typically depends on factors beyond our control, including the general condition of the public equity markets as well as the merger and acquisition environment. We therefore cannot predict the timing and amount of warrant related income with any degree of accuracy and it is likely to vary materially from period to period.

Investment gains during the three months ended March 31, 2005 and 2004 were $1.6 million and $1.3 million, respectively, an increase of $0.3 million or 21.0%. We recognized net investment gains for the three months ended March 31, 2005 over the same period for the three months ended March 31, 2004. Investment gains for the three months ended March 31, 2005 were concentrated in our managed funds of funds, our managed venture capital fund, and direct equity investments. Gain on our equity investments, excluding the impact of minority interest, were $1.2 million for the three months ended March 31, 2005, compared to net loss of $(0.5) million from the same period a year ago. We expect continued variability in the performance of our equity securities portfolio.

Noninterest Expense

The following table presents the detail of noninterest expense including the percent change in noninterest expense for the current year periods compared to the prior year periods:

	For the three months ended March 31,						%
(Dollars in thousands)	2005			2004			Change

Compensation and benefits	$	40,154		$	34,103		17.7	%
Professional services	5,070			3,339			51.8
Net occupancy	4,580			4,523			1.3
Furniture and equipment	2,719			2,909			(6.5	)
Business development and travel	2,090			1,991			5.0
Correspondent bank fees	1,221			1,281			(4.7	)
Data processing services	1,013			1,085			(6.6	)
Telephone	889			782			13.7
Recovery of provision for loan and lease loss contingency	(185		)	(719		)	74.3
Other	3,072			3,156			(3.0	)
Total noninterest expense	$	60,623		$	52,450		15.6

The increase in compensation and benefits expense of $6.1 million was primarily due to an increase in incentive compensation expense of $2.5 million, or 52.8%, to $7.1 million for the three months ended March 31, 2005, compared to $4.6 million for the comparable prior year period. The increase in incentive compensation is largely attributable to our improved consolidated financial performance.

The remainder of the increase in compensation and benefit expense in the first quarter of 2005 was largely due to increases in salaries and wages expense, employee stock ownership plan expense, and equity-based compensation expense. Salaries and wages expense increased by $2.3 million, or 11.8%, to $22.3 million for the 2005 first quarter, compared to $19.9 million for the 2004 first quarter. The increase was primarily attributable to an increase in average full-time equivalent (FTE) personnel and higher rates of employee salaries and wages. FTE personnel were 1,032 for the 2005 first quarter, a 6.5% increase from 969 FTE personnel for the 2004 first quarter.

Equity-based compensation increased by $0.9 million, or 386.6%, to $1.1 million for the 2005 first quarter, compared to $0.2 million for the 2004 first quarter. This increase reflects our increased use of restricted stock and restricted stock units, in lieu of stock options, as components of our employee compensation structure, as we transition our equity-based compensation programs.

Lastly, employee stock ownership plan expense increased by $0.4 million, or 40.8%, to $1.4 million for the 2005 first quarter, compared to $1.0 million for the 2004 first quarter. The increase was attributable to our improved consolidated financial performance.

Professional service expense totaled $5.1 million for the three months ended March 31, 2005, an increase of $1.8 million as compared to $3.3 million for the three months ended March 31, 2004. The primary components of this net increase were associated with commitment of resources to document, enhance and audit internal controls to accomplish compliance with the Sarbanes-Oxley Act of 2002 and the independent audit thereof.

Minority Interest in Net (Gains) Losses of Consolidated Affiliates

Investment gains or losses related to our managed funds, (see Note 4. Investment Securities), are included in noninterest income.

Minority interest in the net gains or losses of these consolidated managed funds primarily represents net investment gains or losses and management fees expenses attributable to the minority interest holders in these managed funds.

The change from net minority interest gains in the first quarter of 2004 to net minority losses in the first quarter of 2005 is primarily attributable to lower returns from one of our managed funds and SVB Strategic Investors Fund, LP. Additionally, two managed funds, Taurus LP and Libra LP returned $0.3 million in investment gains in Q1 2004. These funds were liquidated in the fourth quarter of 2004.

(Dollars in thousands)	For the three months ended March 31, 2005		For the three months ended March 31, 2004
Minority interest in net losses (income) of consolidated affiliates	$	616	$	(481	)

Income Taxes

Our effective tax rate was 39.5% for the three months ended March 31, 2005, compared with 36.4% for the three months ended March 31, 2004. The increase in our effective tax rate was primarily attributable to higher pre-tax income which resulted in a lower impact of our federally tax-exempt bonds and tax credit funds on overall pre-tax income.

Operating Segment Results

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” 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 reportable segments. Please refer to the discussion of our segment organization in our 2004 Annual Report on Form 10-K, “Part I. Item 1. Business – Business Overview.”

Our primary source of revenue is from net interest income. Accordingly, our segments are reported using net interest income. We also evaluate performance based on noninterest income and noninterest expense, which are presented as components of segment operating profit or loss. We do not allocate income taxes to our segments. Additionally, our management reporting model is predicated on average asset balances and therefore, it is not possible to provide period end asset balances for segment reporting purposes. Our segment information at and for the three months ended March 31, 2005 and 2004 are as follows:

Commercial Banking

Net Income (Loss) Before Taxes

Commercial Banking’s income before income taxes for the first quarter ended March 31, 2005 of $30.4 million represented an increase of $11.6 million, or 62.1%, from $18.8 million for the same period a year ago. This increase was the net result of higher revenues of $13.0 million and higher net recoveries of $4.6 million, offset by higher noninterest expenses of $6.0 million. The higher revenues were comprised of higher net interest income of $12.9 million and higher noninterest income of $0.1 million.

Net interest income of $51.0 million for the first quarter ended March 31, 2005 increased $12.9 million, or 33.9%, from $38.0 million for the same period a year ago. Higher loans and deposit volumes along with higher interest rates drove this increase.

Recovery of provision for loan and lease losses of $3.4 million for the first quarter ended March 31, 2005 represented a net change of approximately $4.6 million from $(1.2) million for the same period a year ago.

Noninterest income of $18.6 million for the first quarter ended March 31, 2005 increased $0.1 million, or 0.4%, from $18.6 million for the same period a year ago.

Noninterest expense of $42.6 million for the first quarter ended March 31, 2005 increased $6.0 million, or 16.3%, from $36.6 million for the same period a year ago. The increase in direct noninterest expense was primarily driven by expense related to compensation and benefits and correspondent bank fees. Specifically, base compensation increased $0.9 million and incentive compensation increased $0.8 million. Correspondent bank fees were $1.2 million, and these fees were not reported as part of Commercial Bank in 2004. Noninterest expenses related to units supporting Commercial Bank activities were also allocated to Commercial Bank. Increases in base compensation, incentive compensation and professional services related to the support units also contributed to the expense increase.

Financial Condition

Commercial Banking had an increase in average deposits of $439.8 million, or 14.6%, and an increase in average loans of $333.5 million, or 22.0%, during the first quarter ended March 31, 2005 compared to the same period a year ago. The loan products with the largest growth were asset-based lending, which grew by $129.3 million, and core commercial lending, which grew by $95.8 million.

The increase in average deposits and average loans reflects an improved funding environment for our venture capital-backed commercial clients and other market factors. Additionally, we are engaged in various marketing initiatives to attract and retain commercial clients at all stages of growth.

SVB Capital

Net Income (Loss) Before Taxes

SVB Capital’s income before taxes for the first quarter ended March 31, 2005 of $2.7 million represented a $3.1 million, or 700% increase, compared to $(0.4) million for the same period a year ago. This increase was primarily attributable to increases in interest income and noninterest income, partially offset by an increase in noninterest expense.

Net interest income for the first quarter ended March 31, 2005 of $4.1 million represented a $1.7 million increase, or 68.3%, from $2.4 million for the same period a year ago. Higher loans and deposit volumes along with higher interest rates drove this increase.

Noninterest income for the first quarter ended March 31, 2005 of $3.1 million represented a $2.3 million, or 268.1% increase, from $0.8 million for the same period a year ago. The increase was primarily a result of gains on securities net of minority interest, and increased fund management fees. Minority interest in the net gains or losses of these consolidated managed funds primarily represent net investment gains or losses and management fees expense attributable to the minority interest holders in these managed funds.

Noninterest expense for the first quarter ended March 31, 2005 of $4.6 million represented a $0.9 million, or 22.5% increase from $3.7 million for the same period a year ago. The increase in direct noninterest expense is primarily attributed to compensation and benefits, which increased by $0.5 million due to higher stock based compensation and incentive compensation expense. Noninterest expenses related to units supporting SVB Capital activities were also allocated to SVB Capital. Increases in base compensation, incentive compensation, and professional services related to the support units also contributed to the expense increase.

Financial Condition

SVB Capital had an increase in average deposits of $123.0 million, or 25.7%, and average loans of $18.5 million, or 29.1%, during the first quarter ended March 31, 2005 compared to the same period a year ago. The growth in average deposits and average loans was due to various market factors, including an improved funds flow environment for SVB Capital’s client base, venture capital, and private equity firms, as well as our initiatives to serve clients at all states of growth.

Other Business Services

The Other Business Services segment is principally comprised of Private Client Services, SVB Alliant and Global Financial Services and other business service units that are not part of the Commercial Bank or SVB Capital segments. These segments do not meet the separate reporting thresholds as defined by SFAS No. 131 and as such have been combined with other business service units for segment reporting purposes. The Other Business Services segment also reflects those adjustments necessary to reconcile the results of operating segments based on the Company’s internal profitability reporting process to the interim unaudited consolidated financial statements prepared in conformity with GAAP. The Private Client Services group provides a wide range of credit services to high-net-worth individuals using both long-term secured and short-term unsecured lines of credit. Those products and services include home equity lines of credit, secured lines of credit, restricted stock purchase loans, airplane loans, and capital call lines of credit. SVB Alliant provides investment banking products and services including, merger and acquisition services, strategic alliances services, and specialized financial studies such as valuations and fairness opinions. Global Financial Services serves the needs of our domestic clients with global banking products, including foreign exchange and global finance and access to our international banking network for in-country services abroad. Global Financial Services also supports venture capital and commercial banking clients with business services through subsidiaries in India and the United Kingdom.

Net interest income of $14.9 million for the first quarter ended March 31, 2005 increased $4.6 million, or 43.9%, from $10.3 million for the same period a year ago. The increase in net interest income is primarily attributed to an increase of $4.9 million related to an increased gap between the funds transfer rates utilized for profitability reporting and the realized earnings on the investment portfolio.

Financial Condition

Our total assets were $5.0 billion at March 31, 2005, a decrease of $106.0 million, or 2.1%, compared to $5.2 billion at December 31, 2004. The decrease in our total assets was primarily concentrated in investment securities.

Federal Funds Sold and Securities Purchased Under Agreement to Resell

Federal funds sold and securities purchased under agreement to resell totaled $144.0 million at March 31, 2005, a decrease of $22.2 million, or 13.4%, compared to the $166.3 million outstanding at December 31, 2004. The decrease was caused by lower total client deposit balances period over period.

Investment Securities

Investment securities totaled $2.2 billion at March 31, 2005, a decrease of $70.0 million, or 3.1% from December 31, 2004. The decrease was largely attributable to short-term investments, which decreased by $131.9 million, partially offset by increases in mortgage and asset-backed securities, which increased by $43.2 million.

The increase in certain market interest rates during the three months ended March 31, 2005 resulted in pre-tax unrealized losses on our available-for-sale fixed income securities investment portfolio, of $18.7 million as of March 31, 2005. This unrealized loss on available-for-sale fixed income securities included a pre-tax unrealized losses of $3.2 million associated with equity securities, which includes our warrant portfolio, venture capital fund, private equity, and managed fund investments.

Based on March 31, 2005 market valuations, we had $3.3 million in unrealized pre-tax warrant gains. We are restricted from exercising many of these warrants until later in 2005. As of March 31, 2005, we directly held 1,899 warrants in 1,366 companies, and held investments directly and through our managed investment funds, in 307 venture capital funds, 43 companies, and two venture debt funds.

We are typically contractually precluded from taking steps to hedge any current unrealized gains associated with many of these equity instruments. Hence, the amount of income realized by us from these equity instruments in future periods might vary materially from the current unrealized amount due to fluctuations in the market prices of the underlying common stock of these companies.

Refer to our 2004 Annual Report on Form 10-K under “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Part II. Item 8. Consolidated Financial Statements and Supplementary Data—Note 2. Significant Accounting Policies—Investment Securities” for our accounting policies related to investment securities.

Loans

Loans, net of unearned income, at March 31, 2005, totaled $2.3 billion, an increase of $31.9 million from the balance at December 31, 2004. Our strategy is to grow loans modestly throughout the remainder of 2005 in line with improved venture capital fund activity and as our later stage corporate technology efforts continue to develop. Our gross loans by industry niche as of March 31, 2005 and December 31, 2004 are as follows:

(Dollars in thousands)	March 31, 2005		December 31, 2004
Technology	$	1,065,763	$	1,044,444
Life science	219,781		232,654
Venture capital	343,064		306,939
Winery	327,481		329,812
Other(1)	401,590		412,647
Total gross loans	$	2,357,679	$	2,326,496

(1) At March 31, 2005, this balance was predominantly Private Client Services loans. The balance also included real estate, media and religious niche loans, areas that we exited in 2002 but will continue to service until the loans are paid off.

Credit Quality and the Allowance for Loan and Lease Losses

For a description of the accounting policies related to the allowance for loan and lease losses, see “Part 1. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our 2004 Annual Report on Form 10-K.

We incurred $4.0 million and $6.0 million in gross loan charge-offs and recoveries, respectively, during the three months ended March 31, 2005. The gross charge-offs and recoveries for the third quarter ended March 31, 2005 represented a diverse portfolio of relatively small loans.

Nonperforming assets consist of well-secured loans that are past due 90 days or more but are still accruing interest and loans on nonaccrual status. The rise of nonperforming loans (NPL) was primarily related to loans secured by real estate. Due to the quality of the related collateral, this rise in NPLs did not result in a significant impact on the allowance for loan and lease losses at March 31, 2005. The table below sets forth certain relationships between nonperforming assets and the allowance for loan and lease losses:

(Dollars in thousands)	March 31, 2005			December 31, 2004
Nonperforming assets:
Loans past due 90 days or more	$	566		$	616
Nonaccrual loans	13,360			14,322
Total nonperforming assets	$	13,926		$	14,938

Nonperforming loans as a percentage of total gross loans	0.59		%	0.64		%
Nonperforming assets as a percentage of total assets	0.28		%	0.29		%

Allowance for loan and lease losses	$	35,698		$	37,613
As a percentage of total gross loans	1.51		%	1.62		%
As a percentage of nonperforming assets	256.34		%	251.79		%

In addition to the loans disclosed in the foregoing analysis, we have identified loans which totaled $7.6 million, that, on the basis of information known to us, were judged to have a higher than normal risk of becoming nonperforming. We are not aware of any other loans where known information about possible problems of the borrower casts serious doubts about the ability of the borrower to comply with the loan repayment terms.

Deposits

Deposits decreased by $63.2 million to $4.2 billion at March 31, 2005, compared to the balance at December 31, 2004. Noninterest-bearing demands deposits increased slightly from December 31, 2004, as a percentage of total deposits, at approximately 63.6%.

Liabilities

Other liabilities at March 31, 2005 decreased from December 31, 2004, primarily due to a decrease in accrued variable compensation.

Capital Resources

Our management seeks to maintain adequate capital to support anticipated asset growth and credit risks, and to ensure that Silicon Valley Bancshares and Silicon Valley Bank are in compliance with all regulatory capital guidelines. Our primary sources of new capital include the issuance of common stock, as well as retained earnings.

Common Stock

$75.0 million share repurchase program authorized by the Company’s board of directors, effective January 27, 2005

On January 27, 2005, we announced that our board of directors authorized the repurchase of up to an additional $75.0 million of common stock under our stock repurchase program, in conjunction with the $160.0 million originally approved in May 2003. The additional $75.0 million of shares may be repurchased at any time, at our discretion, before June 30, 2006, in the open market, through block trades or otherwise, pursuant to applicable securities laws. Depending on market conditions, availability of funds, and other relevant factors, the repurchase of the additional shares may be commenced or suspended at any time prior to June 30, 2006, without any prior notice.

We repurchased 767,500 shares of our common stock for $33.9 million in the first quarter of 2005 under the May 2003 stock repurchase program. During the first quarter, we put into effect a 10b5-1 plan which allows us to automatically repurchase a predetermined number of shares per day at the market price. Since May 2003 when the program was approved by the board of directors, we have repurchased 5.6 million shares totaling $159.8 million as of March 31, 2005. The approximate dollar value of shares that may still be repurchased under this program is $75.2 million.

Included in the common stock repurchase activity in the first quarter was a block transaction of 400,000 shares of our common stock which was repurchased on March 2, 2005 from one of our principal stockholders, H.A. Schupf & Co., LLC. The shares were repurchased at a price of $44.20 per share for an aggregate price of $17.7 million, which reflected a discount from the current asking price, as quoted on the Nasdaq National Market, at the time the transaction was entered into.

Stockholders’ Equity

Stockholders’ equity totaled $516.9 million at March 31, 2005, a decrease of $15.4 million, or 2.9%, from the $532.3 million balance at December 31, 2004. This decrease was primarily as a result of our initiative to repurchase our common stock in the first quarter of 2005. We have not paid a cash dividend on our common stock since 1992, and we do not have any material commitments for capital expenditures as of March 31, 2005. As of March 31, 2005, there were no plans for payment of dividends.

Funds generated through retained earnings are a significant source of capital and liquidity, and are expected to continue to be so in the future. Our management engages in a periodic capital planning process in an effort to make effective use of the capital available to us. The capital plan considers capital needs for the foreseeable future and allocates capital to both existing business activities and expected future business activities. Expected future activities for which capital is set aside include potential product expansions and acquisitions of new business lines.

Both Silicon Valley Bancshares and Silicon Valley Bank are subject to capital adequacy guidelines issued by the Federal Reserve Board. Under these capital guidelines, the minimum total risk-based capital ratio and Tier 1 risk-based capital ratio requirements are 10.0% and 6.0%, respectively.

The Federal Reserve Board has also established minimum capital leverage ratio guidelines for state member banks. The ratio is determined using Tier 1 capital divided by quarterly average total assets. The guidelines require a minimum of 5.0% for a well-capitalized depository institution. For further information on risk-based capital and leverage ratios as defined by the Federal Reserve Board, see our 2004 Annual Report on Form 10-K, under “Part I. Item 1. Business—Supervision and Regulation—Regulatory Capital.”

Both Silicon Valley Bancshares’ and Silicon Valley Bank’s capital ratios were in excess of regulatory guidelines for a well-capitalized depository institution as of March 31, 2005, and December 31, 2004. Capital ratios for Silicon Valley Bancshares are set forth below:

	March 31 2005		December 31, 2004
Silicon Valley Bancshares:
Total risk-based capital ratio	16.10	%	15.88	%
Tier 1 risk-based capital ratio	12.75	%	12.53	%
Tier 1 leverage ratio	10.80	%	10.87	%

The improvement in our total risk-based capital, tier 1 risk-based capital and tier 1 leverage ratios from December 31, 2004, to March 31, 2005, was attributable to an increase in Tier 1 capital from year-to-date earnings and from proceeds from the exercise of employee stock options, partially offset by growth in risk-weighted assets, particularly loans.

A part of the dividends paid in 2003 and the dividend paid in 2004 were in excess of the amount permitted under the California State Department of Financial Institutions (DFI) guidelines. Therefore, Bancshares was required by the DFI to return to Silicon Valley Bank a portion the 2003 dividend and the 2004 dividend—the total amount returned totaled $28.4 million. At this time, Silicon Valley Bank must obtain prior approval from the DFI before paying any further dividends to Bancshares.

Liquidity

An important objective of asset/liability management is to manage liquidity. The objective of liquidity management is to ensure that funds are available in a timely manner to meet loan demand, to meet depositors’ needs, and to service other liabilities as they become due without causing an undue amount of cost or risk and without causing a disruption to normal operating conditions.

We regularly assess the amount and likelihood of projected funding requirements through 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. Our asset/liability committee provides oversight to the liquidity management process and recommends policy guidelines, subject to our board of directors’ approval, and courses of action to address our actual and projected liquidity needs.

The ability to attract a stable, low-cost deposit base is our primary source of liquidity. We continue to expand on opportunities to increase our liquidity and take steps to carefully manage our liquidity. In 2002, we became a member of the Federal Home Loan Bank of San Francisco, thereby adding to our liquidity channels. Other sources of liquidity available to us include federal funds purchased, reverse repurchase agreements, and other short-term borrowing arrangements. 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, federal funds sold, securities purchased under resale agreements, investment securities maturing within six months, investment securities eligible and available for financing or pledging purposes with a maturity in excess of six months, and anticipated near-term cash flows from investments.

Our policy guidelines provide that liquid assets as a percentage of total deposits should not fall below 20%. The Bank’s ratio of liquid assets to total deposits was 48.47% and 47.58% at March 31, 2005 and December 31, 2004, respectively, both well in excess of our minimum policy guidelines. In addition to monitoring the level of liquid assets relative to total deposits, we also utilize other policy measures in liquidity management activities. As of March 31, 2005 and December 31, 2004, we were in compliance with all of these policy measures.

In analyzing our liquidity during the three months ended March 31, 2005 and 2004, reference is made to our interim unaudited consolidated statement of cash flows for the three months ended March 31, 2005 and 2004; see “Item 1. Interim Unaudited Consolidated Financial Statements.” The statement of cash flows includes separate categories for operating, investing, and financing activities.

Cash provided by operating activities was $10.8 million, which included net income of $24.2 million for the three months ended March 31, 2005. Adjustments for noncash items included depreciation and amortization of $2.0 million, offset primarily by negative provisions for loan and lease losses of $3.8 million, net gains on disposition of client warrants of $1.7 million, and net gains of investment securities of $1.6 million. Sources of cash from changes in other assets and liabilities included an increase in other liabilities of $5.8 million, a net decrease in income tax receivable of $5.6 million and a net increase in deferred income tax of $3.7 million. Sources of cash were offset by decreases in accrued retention, warrant, and other compensation benefits payable of $29.8 million.

Cash provided by investing activities was $14.1 million for the three months ended March 31, 2005. Net cash inflow was primarily driven by proceeds from maturities and pay-downs of investment securities of $1.3 billion and proceeds from the sale of investment securities of $0.8 billion, partially offset by $2.1 billion in purchases of investment securities.

Cash used for financing activities was $74.5 million for the three months ended March 31, 2005, and was largely driven by net decreases in deposits of $63.2 million. Capital contributions from minority interest participants and proceeds from the issuance of common stock contributed $14.9 million and $4.8 million, respectively, and offset the overall cash decrease from our financing activities.

During the first quarter of 2005, our zero-coupon convertible debt notes were convertible due to the share price of $44.82 on December 31, 2004, exceeding their conversion price. We are unaware of any note holders exercising their conversion option.

Cash provided by operating activities was $2.9 million, which included net income of $14.0 million for the three months ended March 31, 2004. Adjustments for noncash items included depreciation and amortization of $2.0 million, offset primarily by net gains on disposition of client warrants of $2.9 million and net gains of investment securities of $1.3 million. Sources of cash from changes in other assets and liabilities included decreases in deferred income tax expenses of $2.2 million offset by decreases in accrued retention, warrant, and other compensation benefits payable of $13.5 million.

Cash used for investing activities was $127.0 million for the three months ended March 31, 2004. Net cash outflow was primarily driven by purchases of investment securities of $2.8 billion, partially offset by $2.1 billion in proceeds from the sale of investment securities and $0.6 billion in proceeds from maturities and pay-downs of investment securities.

Cash provided by financing activities was $19.5 million for the three months ended March 31, 2004, was largely driven by net increases in deposits of $9.4 million. Proceeds from the issuance of common stock and capital contributions from minority interest participants also contributed $4.8 million and $4.7 million, respectively, to the overall cash increase from our financing activities.

On a stand-alone basis, Bancshares’ primary liquidity channels include dividends from Silicon Valley Bank, its investment portfolio assets, and its ability to raise debt and capital. The ability of Silicon Valley Bank to pay dividends is subject to certain regulations described in “Part I. Item 1. Business—Supervision and Regulation—Restriction on Dividends” of our 2004 Annual Report on Form 10-K.

Forward-Looking Statements

This discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our management has in the past and might in the future make forward-looking statements orally to analysts, investors, the media, and others. Forward-looking statements are statements that are not historical facts. Broadly speaking, forward-looking statements include, without limitation:

• Projections of our revenues, income, earnings per share, cash flows, balance sheet, capital expenditures, capital structure or other financial items

• Descriptions of strategic initiatives, plans or objectives of our management for future operations, including pending acquisitions

• Forecasts of future economic performance

• Descriptions of assumptions underlying or relating to any of the foregoing

In this Quarterly Report on Form 10-Q, we make forward-looking statements discussing our management’s expectations about:

• Sensitivity of our interest-earning assets to interest rates, and impact to earnings from an increase in interest rates

• Realization, timing and performance of investments in equity securities

• Management of federal funds sold and overnight repurchase agreements at appropriate levels

• Development of our later-stage corporate technology lending efforts

• Growth in loan balances

• Credit quality of our loan portfolio

• Levels of nonperforming loans

• Liquidity provided by funds generated through retained earnings

• Activities for which capital will be required

• Ability to meet our liquidity requirements through our portfolio of liquid assets

• Ability to expand on opportunities to increase our liquidity

• Use of excess capital

• Volatility of performance of our equity portfolio

You can identify these and other forward-looking statements by the use of words such as “becoming”, “may”, “will”, “should”, “predicts”, “potential”, “continue”, “anticipates”, “believes”, “estimates”, “seeks”, “expects”, “plans”, “intends”, the negative of such words, or comparable terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we have based these expectations on our beliefs as well as our assumptions, and such expectations may prove to be incorrect. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our management’s forward-looking statements.

For information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see the subsection below “Factors that May Affect Future Results.” We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this discussion and analysis. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this filing are made only as of the date of this filing. We do not intend, and undertake no obligation, to update these forward-looking statements.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management

A key objective of asset/liability management is to manage interest rate risk associated with changing asset and liability cash flows and market interest rate movements. Interest rate risk occurs when interest rate sensitive assets and liabilities do not re-price simultaneously both in timing and volume. Our asset/liability committee provides oversight to our interest rate risk management process and recommends policy guidelines regarding exposure to interest rates for approval by our board of directors. Adherence to these policies is monitored on an ongoing basis, and decisions related to the management of interest rate exposure are made when appropriate.

We manage interest rate risk principally through strategies involving our investment securities portfolio. Our policies permit the use of off-balance-sheet derivative instruments in managing interest rate risk.

Our monitoring activities related to managing interest rate risk include both interest rate sensitivity gap analysis and the use of a simulation model. While traditional gap analysis provides a simple picture of the interest rate risk embedded in the balance sheet, it provides only a static view of interest rate sensitivity at a specific point in time and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time. Accordingly, we combine the use of gap analysis with use of a simulation model that provides a dynamic assessment of interest rate sensitivity.

For further information see “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2004 Annual Report on Form 10-K for disclosure of the quantitative and qualitative information regarding the interest rate risk inherent in interest rate risk sensitive instruments as of December 31, 2004. As of March 31, 2005, there have been no significant changes to the interest rate risk information contained in our 2004 Annual Report on Form 10-K and our policies in managing interest rate risk.

Market Value of Portfolio Equity (MVPE)

One application of the aforementioned simulation model involves measurement of the impact of market interest rate changes on the net present value of estimated cash flows from our assets, liabilities, and off-balance sheet items, defined as our market value of portfolio equity (MVPE).

The following table presents our MVPE exposure at March 31, 2005 and December 31, 2004, related to an instantaneous and sustained increase or decrease in market interest rates of 100 and 200 basis points, respectively.

	Estimated MVPE		Estimated Increase/ (Decrease) in MVPE						Estimated Net Interest Income		Estimated Increase/ (Decrease) in Net Interest Income
Change in interest rates (basis points)	Estimated MVPE		Amount				Percent		Estimated Net Interest Income		Amount			Percent
	(Dollars in thousands)
March 31, 2005:
+200	$	993,237		$	452		0.0	%	$	339,630	$	39,585		13.2	%
+100	995,331			2,526			0.3		320,007		19,962			6.7
-	992,785			—			—		300,045		—			—
-100	951,337			(41,448		)	(4.2	)	274,977		(25,068		)	(8.4	)
-200	886,411			(106,374		)	(10.7	)	242,921		(57,124		)	(19.0	)
December 31, 2004:
+200	$	1,019,622		$	20,290		2.0	%	$	326,744	$	41,285		14.5	%
+100	1,014,190			14,858			1.5		306,492		21,033			7.4
-	999,332			—			—		285,459		—			—
-100	936,599			(62,733		)	(6.3	)	257,295		(28,164		)	(9.9	)
-200	876,445			(122,887		)	(12.3	)	230,514		(54,945		)	(19.2	)

The preceding table indicates that at March 31, 2005, in the event of an instantaneous and sustained increase or decrease in market interest rates, our MVPE would be expected to increase or decrease accordingly.

The market value calculations supporting the results in the preceding table are based on the present value of estimated cash flows using both market interest rates provided by independent broker/dealers and other publicly available sources that we deem reliable. These calculations do not contemplate any changes that we could make to reduce our MVPE exposure in response to a change in market interest rates.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the preceding table. For example, although certain of our assets and liabilities may have similar maturity or re-pricing profiles, they may

react to changes in market interest rates with different magnitudes. Also, actual prepayment rates on loans and investments could vary substantially from the assumptions utilized in the model to derive the results as presented in the preceding table. Further, a change in the shape of the forward yield curve could result in different MVPE estimations from those presented herein. Accordingly, the results in the preceding table should not be relied upon as indicative of actual results in the event of changing market interest rates. Additionally, the resulting MVPE estimates are not intended to represent, and should not be construed to represent the underlying value.

Our MVPE exposure at March 31, 2005 increased slightly from December 31, 2004, primarily due to changes in the investment portfolio while staying well within our policy guidelines. In addition, our net interest income at risk remains well within policy limits. These estimates are highly assumption dependent and will change regularly as the company’s asset-liability structure changes and as different interest rate environments evolve. We expect to continue to manage our interest rate risk actively utilizing on and off balance sheet strategies as appropriate.

The simulation model also gives us the ability to simulate our net interest income using an interest rate forecast (simple simulation). In order to measure the sensitivity of our forecasted net interest income to changing interest rates utilizing the simple simulation methodology, both a rising and falling interest rate scenario are projected and compared to a base market interest rate forecast derived from the current yield curve. For the rising and falling interest rate scenarios, the base market interest rate forecast is increased or decreased, as applicable, by 200 basis points in 12 equal increments over a one-year period.

In addition to the 200 basis point ramp scenario mentioned above we perform net interest income and net income simulations in an interest rate environment whereby we shock the base rate immediately both up and down 300 basis points in 100 basis point increments. The combination of the ramp and shock scenarios provides us with additional information with respect to our sensitivity to interest rates and the impact on our net income under varied interest rate scenarios.

Our policy guidelines provide that the difference between a base market interest rate forecast scenario over the succeeding one-year period compared with the aforementioned rising and falling interest rate scenarios over the same time period should not result in net interest income degradation exceeding 25.0%. Simulations as of March 31, 2005, indicated that we were well within these policy guidelines.

Interest rate risk is the most significant market risk impacting us. Other types of market risk affecting us in the normal course of our business activities include foreign currency exchange risk, equity price risk, and basis risk. The impact resulting from these market risks is not considered significant, and no separate quantitative information concerning market rate and price exposure is presented herein.

Factors That May Affect Future Results

Our business faces significant risks. The factors described below may not be the only risks we face, and are not intended to serve as a comprehensive listing. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following factors actually occurs, our business, financial condition and/or results of operations could suffer.

If a significant number of clients fail to perform under their loans, our business, profitability, and financial condition would be adversely affected.

As a lender, the largest risk we face is the possibility that a significant number of our client borrowers will fail to pay their loans when due. If borrower defaults cause losses in excess of our allowance for loan and lease losses, it could have an adverse effect on our business, profitability, and financial condition. We have established an evaluation process designed to determine the adequacy of the allowance for loan and lease losses. While this evaluation process uses historical and other objective information, the classification of loans and the establishment of loan and lease losses are dependent to a great extent on our experience and judgment. We cannot assure you that our allowance for loan and lease losses will be sufficient to absorb future loan and lease losses or prevent a material adverse effect on our business, profitability, or financial condition.

Because of the credit profile of our loan portfolio, our levels of nonperforming assets and charge-offs can be volatile, and we may need to make material provisions for loan and lease losses in any period, which could cause reduced net income or increased net losses in that period.

Our loan portfolio has a credit profile different from that of most other banking companies. Many of our loans are made to companies in the early stages of development with negative cash flow and no established record of profitable operations. In many cases, repayment of the loan is dependent upon receipt of additional equity financing from venture capitalists or others. Collateral for many of the loans often includes intellectual property, which is difficult to value and may not be readily salable in the case of default. Because of the intense competition and rapid technological change that characterizes the companies in our technology and life science industry sectors, a borrower’s financial position can deteriorate rapidly. We also make loans that are larger, relative to the revenues of the borrower, than those made by traditional small business lenders, so the impact of any single borrower default may be more significant to us. Because of these characteristics, our level of nonperforming loans and loan charge-offs can be volatile and can vary materially from period to period. Changes in our level of nonperforming loans may require us to make material provisions for loan and lease losses in any period, which could reduce our net income or cause net losses in that period.

Our current level of interest rate spread may decline in the future. Any material reduction in our interest spread could have a material impact on our business and profitability.

A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid by us on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates we receive on interest-earning assets, such as loans extended to our clients and securities held in our investment portfolio. Interest rates are highly sensitive to many factors beyond our control, such as inflation, recession, global economic disruptions, and unemployment. In addition, legislative changes could affect the manner in which we pay interest on deposits or other liabilities. For example, Congress has for many years debated repealing a law that prohibits banks from paying interest rates on checking accounts. If this law were to be repealed, we would be subject to competitive pressure to pay interest on our clients’ checking accounts, which would negatively affect our interest rate spread. Any material decline in our interest rate spread would have a material adverse effect on our business and profitability.

Decreases in the amount of equity capital available to start-up and emerging-growth companies could adversely affect our business, profitability, and growth prospects.

Our strategy has focused on providing banking products and services to emerging-growth and corporate technology companies receiving financial support from sophisticated investors, including venture capitalists, “angels,” and corporate investors. In some cases, our lending credit decision is based on our analysis of the likelihood that our venture capital or angel-backed client will receive a second or third round of equity infusion from investors. If the amount of capital available to such companies decreases, it is likely that the number of new clients and investor financial support to our existing borrowers could decrease, which would have an adverse effect on our business, profitability and growth prospects.

Among the factors that have and could in the future affect the amount of capital available to startup and emerging-growth companies are the receptivity of the capital markets to initial public offerings or mergers and acquisitions of companies within our technology and life science industry sectors, the availability and return on alternative investments, and general economic conditions in the technology and life science industries. Reduced capital markets valuations could reduce the amount of capital available to startup and emerging-growth companies, including companies within our technology and life science industry sectors.

Our business is dependent upon access to funds on attractive terms.

We derive our net interest income through lending or investing capital on terms that provide returns in excess of our costs for obtaining that capital. As a result, our credit ratings are extremely important to our business. A reduction in our credit ratings could adversely affect our liquidity and competitive position, increase our borrowing costs (or trigger obligations under certain existing borrowings and other contracts), or increase the interest rates we pay our depositors. Further, our credit ratings and the terms upon which we have access to capital may be influenced by circumstances beyond our control, such as overall trends in the general market environment, perceptions about our creditworthiness or market conditions in the industries in which we focus.

We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.

Silicon Valley Bancshares, Silicon Valley Bank, and their subsidiaries are extensively regulated under federal and state law. These regulations are intended primarily for the protection of depositors, other clients, and the deposit insurance fund—not for the benefit of stockholders or security holders. Federal and state laws and regulations limit or otherwise affect the activities in which Silicon Valley Bancshares, Silicon Valley Bank, and their subsidiaries may engage. A change in the applicable statutes, regulations, or regulatory policy may have a material effect on our business and that of our subsidiaries. In addition, Silicon Valley Bancshares, Silicon Valley Bank, and their subsidiaries are required to maintain certain minimum levels of capital. Federal and state banking regulators possess broad powers to take supervisory action, as they deem appropriate, with respect to Silicon Valley Bancshares and Silicon Valley Bank. SVB Alliant and SVB Securities, both broker-dealer subsidiaries, are regulated by the SEC and the National Association of Securities Dealers, Inc. (NASD). Violations of the stringent regulations governing the actions of a broker-dealer can result in the revocation of broker-dealer licenses, the imposition of censures or fines, the issuance of cease and desist orders, and the suspension or expulsion from the securities business of a firm, its officers or employees. Supervisory actions can result in higher capital requirements, higher insurance premiums, and limitations on the activities of Silicon Valley Bancshares, Silicon Valley Bank or their subsidiaries. These supervisory actions could have a material adverse effect on our business and profitability.

Warrant, venture capital fund, and direct equity investment portfolio gains or losses depend upon the performance of the portfolio investments and the general condition of the public equity markets, which is uncertain.

We have historically obtained rights to acquire stock, in the form of warrants, in certain clients as part of negotiated credit facilities and for other services. We may not be able to realize gains from warrants in future periods, or our realized gains may be materially less than the current level of unrealized gains disclosed in this filing. We also have made investments in venture capital funds as well as direct equity investments in companies. The timing and amount of income, if any, from the disposition of client warrants, venture capital funds, and direct equity investments typically depend upon factors beyond our control, including the performance of the underlying portfolio companies, investor demand for initial public offerings, fluctuations in the market prices of the underlying common stock of these companies, levels of mergers and acquisitions activity, and legal and contractual restrictions on our ability to sell the underlying securities. In addition, our investments in venture capital funds and direct equity investments have lost value and could continue to lose value or become worthless, which would reduce our net income or could cause a net loss in any period. All of these factors are difficult to predict, particularly in the current economic environment. Additionally, it is likely that additional investments within our existing portfolio will become impaired. However, we are not in a position to know at the present time which specific investments, if any, are likely to be impaired or the extent or timing of individual impairments. Therefore, we cannot predict future investment gains or losses with any degree of accuracy, and any gains or losses are likely to vary materially from period to period.

Public offerings and mergers and acquisitions involving our clients can cause loans to be paid off early, which could adversely affect our business and profitability.

While an active market for public equity offerings and mergers and acquisitions generally has positive implications for our business, one negative consequence is that our clients may pay off or reduce their loans with us if they complete a public equity offering or are acquired or merge with another company. Any significant reduction in our outstanding loans could have a material adverse effect on our business and profitability.

Adverse changes in domestic or global economic conditions, especially in the technology sector and particularly in California, could have a material adverse effect on our business, growth, and profitability.

If conditions change adversely in the domestic or global economy, especially in the technology, life science, private equity, and premium wine industry niches, our business, growth, and profitability are likely to be materially adversely affected. Any worsening of the global or U.S. economic slowdown would harm many of our clients. Our clients may be particularly sensitive to disruptions in the growth of the technology sector of the U.S. economy. In addition, a substantial number of our clients are geographically concentrated in California, and adverse economic conditions in California could harm the businesses of a disproportionate number of our clients. To the extent that our clients’ underlying businesses are harmed, they are more likely to default on their loans.

If we fail to retain our key employees, our growth and profitability could be adversely affected.

We rely on experienced client relationship managers and on officers and employees with strong relationships with the venture capital community to generate new business. If a significant number of these employees were to leave us, our growth and profitability could be adversely affected. We believe that our employees frequently have opportunities for alternative employment with competing financial institutions and with our clients.

We cannot assure you that we will be able to maintain our historical levels of profitability in the face of sustained competitive pressures.

Other banks and specialty and diversified financial services companies, many of which are larger and have more capital than we do, offer lending, leasing, other financial products and advisory services to our client base. In some cases, our competitors focus their marketing on our industry sectors and seek to increase their lending and other financial relationships with technology companies, early stage growth companies or special industries such as wineries. In other cases, our competitors may offer a broader range of financial products to our clients. When new competitors seek to enter one of our markets, or when existing market participants seek to increase their market share, they sometimes undercut the pricing and/or credit terms prevalent in that market. Our pricing and credit terms could deteriorate if we act to meet these competitive challenges.

We face risks in connection with completed or potential acquisitions.

We completed one acquisition in each of 2002 and 2001 and, if appropriate opportunities present themselves, we intend to acquire businesses, technologies, services or products that we believe are strategic. There can be no assurance that we will be able to identify, negotiate or finance future acquisitions successfully or integrate such acquisitions with our current business.

Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, and/or contingent liabilities, which could have a material adverse effect on our business, results of operations, and/or financial condition. Any such future acquisitions of other businesses, technologies, services, or products might require us to obtain additional equity or debt financing, which might not be available on terms favorable to us, or at all; and such financing, if available, might be dilutive.

Upon completion of an acquisition, we are faced with the challenges of integrating the operations, services, products, personnel, and systems of acquired companies into our business, which may divert management’s attention from ongoing business operations. In addition, acquisitions of new businesses may subject us to regulatory scrutiny. We cannot assure you that we will be successful in integrating any acquired business effectively into the operations of our business. Moreover, there can be no assurance that the anticipated benefits of any acquisition will be realized.

The success of our acquisitions is dependent on the continued employment of several key employees. If acquired businesses do not meet projected revenue targets, or if certain key employees were to leave the businesses, we could conclude that the value of the businesses has decreased and that the related goodwill has been impaired. If we were to conclude that goodwill has been impaired that conclusion would result in an impairment of goodwill charge to us, which would adversely affect our results of operations.

We could be liable for breaches of security in our online banking services. Fear of security breaches could limit the growth of our online services.

We offer various Internet-based services to our clients, including online banking services. The secure transmission of confidential information over the Internet is essential to maintain our clients’ confidence in our online services. Advances in computer capabilities, new discoveries, or other developments could result in a compromise or breach of the technology we use to protect client transaction data. Although we have developed systems and processes that are designed to prevent security breaches and periodically test our security, failure to mitigate breaches of security could adversely affect our ability to offer and grow our online services and could harm our business.

People generally are concerned with security and privacy on the Internet and any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial transactions. Our ability to provide financial services over the Internet would be severely impeded if clients became unwilling to transmit confidential information online. As a result, our operations and financial condition could be adversely affected.

We face risks associated with international operations.

A component of our strategy is to expand internationally on a limited basis. Expansion into international markets, albeit on a limited basis, requires management’s attention and resources. We have limited experience in internationalizing our service, and we believe that many of our competitors are also undertaking expansion into foreign markets. There can be no assurance that we will be successful in expanding into international markets. In addition to the uncertainty regarding our ability to generate revenues from foreign operations and to expand our international presence, there are certain risks inherent in doing business on an international basis, including, among others, regulatory requirements, legal uncertainty regarding liability, tariffs, and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, different accounting practices, problems in collecting loan or other types of payments, political instability, seasonal reductions in business activity, and potentially adverse tax consequences, any of which could adversely affect the success of our international operations. To the extent we continue to expand our international operations and have additional portions of our international revenues denominated in foreign currencies, we could become subject to increased risks relating to foreign currency exchange rate fluctuations. There can be no assurance that one or more of the factors discussed above will not have a material adverse effect on our business, results of operations, and/or financial condition.

Maintaining or increasing our market share depends on market acceptance and regulatory approval of new products and services.

Our success depends, in part, upon our ability to adapt our products and services to evolving industry standards and client demands. There is increasing pressure on financial services companies to provide products and services at lower prices. In addition, the widespread adoption of new technologies, including Internet-based services, could require us to make substantial expenditures to modify or adapt our existing products or services. A failure to achieve market acceptance of any new products we introduce, or a failure to introduce products that the market may demand, could have an adverse effect on our business, profitability, or growth prospects.

Business interruptions due to natural disasters and other events beyond our control can adversely affect our business.

Our operations can be subject to natural disasters and other events beyond our control, such as earthquakes, fires, power failures, telecommunication loss, terrorist attacks, and acts of war. Our corporate headquarters and a portion of our critical business offices are located in California near major earthquake faults. Such events of disaster, whether natural or manmade, could cause severe destruction or interruption to our operations and as a result, our business could suffer serious harm. To mitigate these risks we have begun a phased business continuity program, with initial capabilities scheduled to become available during 2005 and additional work continuing throughout 2006.

We will be required to change our method of accounting for stock compensation expense and our cash flows and results of operations, as well as our ability to attract, recruit, and retain certain key employees, could be adversely affected as a result.

We account for our employee stock options in accordance with Accounting Principles Board Opinion No. 25 and related interpretations, which provide that any compensation expense relative to employee stock options be measured based on the intrinsic value of the stock options. As a result, when options are priced at the fair market value of the underlying stock on the date of grant, as is our practice, we incur no compensation expense. In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which is a revision of SFAS No. 123 and supersedes APB No. 25. SFAS No. 123(R) requires us to record compensation expense for all employee stock grants. Such expense will have a material impact on our results of operations. Note, on April 14, 2005 the U.S. Securities and Exchange Commission (the “SEC”) changed the effective date of SFAS No. 123(R) from the first interim or annual reporting period beginning after June 15, 2005 to the first annual reporting period beginning after June 15, 2005. The effect of this change was to defer the effective date of FAS 123(R) for the Company and all calendar year companies until the beginning of 2006.

In October 2004, in an effort to align our option grant rate to that of other financial institutions similar to us, we decreased the number of shares subject to options granted to our employees on a prospective basis. We may in the future consider taking other actions to modify employee compensation structures, such as granting cash compensation or other forms of equity compensation. Our decision to reduce the number of option shares to be granted on a prospective basis, any further change in our method of accounting for stock compensation expense, and any other future changes we may adopt in our employee compensation structures, could adversely affect our results of operations and cash flows, as well as our ability to attract, recruit, and retain certain key employees.

ITEM 4 — CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On May 24, 2001, Gateway Communications, Inc. (Gateway) filed a lawsuit in the United States Bankruptcy Court for the Southern District of Ohio (Western Division) naming Silicon Valley Bank (the Bank) as a defendant. Gateway (the debtor in the bankruptcy case) alleges that the Bank’s actions in connection with a loan resulted in Gateway’s bankruptcy, and seeks $20,000,000 in compensatory damages, punitive damages, interest and attorneys’ fees. On June 24, 2003, the Court dismissed four of the five counts in the complaint, including the claim for punitive damages, leaving one breach of contract claim. We believe that the sole remaining claim has no merit and intends to defend the lawsuit vigorously. The action is scheduled for trial in December 2005.

We are unable to predict at this time the final outcome of the above matter and the ultimate effect, if any, on our liquidity, consolidated financial position or results of operations.

Additionally, from time to time, we are subject to other legal claims and proceedings that are in the normal course of our business. While the outcome of these matters is currently not determinable, based on information available to us, our review of such claims to date and consultation with outside counsel, we do not currently expect that the ultimate costs to resolve these matters, if any, will have a material adverse effect on our liquidity, consolidated financial position or results of operations.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	(d) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)

January 1, 2005 - January 31, 2005	—	$	—	—	$	109,200,000
February 1, 2005 - February 28, 2005	272,500	44.18		272,500	97,200,000
March 1, 2005 - March 31, 2005	495,000	44.24		495,000	75,200,000
Total	767,500	44.22		767,500	$	75,200,000

(1) On May 7, 2003, the Company announced that its Board of Directors authorized a stock repurchase program of up to $160.0 million, with no specified expiration date. This program became effective immediately and replaced previously announced stock repurchase programs. Stock repurchases under this program may be made from time to time. On January 27, 2005, the Company announced that its Board of Directors authorized the repurchase of up to an additional $75.0 million of common stock under the stock repurchase program, in conjunction with the $160.0 million originally approved in May 2003. This $75.0 million of shares under this program may still be repurchased at any time, at our discretion, before June 30, 2006, in the open market, through block trades or otherwise, pursuant to applicable securities laws. Under this program, the Company repurchased in aggregate 5.6 million shares of common stock totaling $159.8 million as of March 31, 2005. The approximate dollar value of shares that may still be repurchased under this program totaled $75.2 million as of March 31, 2005.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None

ITEM 6 - EXHIBITS

(a) Exhibits:

See Index to Exhibits on page 47 hereof.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SILICON VALLEY BANCSHARES

Date: May 10, 2005	/s/ Donal D. Delaney
	Donal D. Delaney
	Corporate Controller
	(Principal Accounting Officer)

INDEX TO EXHIBITS

Exhibit Number		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
2.1	Asset Purchase Agreement between the registrant and SVB Alliant	8-K	000-15637	2.1	October 2, 2001
3.1	Certificate of Incorporation	8-K	000-15637	3.1	April 26, 1999
3.2	Certificate of Amendment to Certificate of Incorporation	10-Q	000-15637	3.1	May 13, 2003
3.3	Amended and Restated Bylaws	10-K	000-15637	3.3	March 11, 2004
3.4	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock	8-A/A	000-15637	3.4	February 27, 2004
4.1	Indenture dated as of May 20, 2003 between the Company and Wells Fargo Bank Minnesota, National Association	S-3	333-107994	4.1	August 14, 2003
4.2	Form of Note (included in Exhibit 4.9)	S-3	333-107994	4.2	August 14, 2003
4.3	Registration Rights Agreement dated as of May 20, 2003, between the Company and the initial purchasers named therein	S-3	333-107994	4.3	August 14, 2003
4.4	Junior Subordinated Indenture, dated as of October 30, 2003 between Silicon Valley Bancshares and Wilmington Trust Company, as trustee	8-K	000-15637	4.12	November 19, 2003
4.5	Junior Subordinated Deferrable Debenture due October 15, 2033 of Silicon Valley Bancshares	8-K	000-15637	4.13	November 19, 2003
4.6	Amended and Restated Trust Agreement, dated as of October 30, 2003, by and among Silicon Valley Bancshares as depositor, Wilmington Trust Company as property trustee, Wilmington Trust Company as Delaware trustee, and the Administrative Trustees named therein.	8-K	000-15637	4.14	November 19, 2003
4.7	Certificate Evidencing 7% Cumulative Trust Preferred Securities of SVB Capital II	8-K	000-15637	4.15	November 19, 2003
4.8	Guarantee Agreement, dated October 30, 2003 between Silicon Valley Bancshares and Wilmington Trust Company, as trustee	8-K	000-15637	4.17	November 19, 2003
4.9	Agreement as to Expenses and Liabilities, dated as of October 30, 2003, between Silicon Valley Bancshares and SVB Capital II	8-K	000-15637	4.17	November 19, 2003
4.10	Certificate Evidencing 7% Common Securities of SVB Capital II	8-K	000-15637	4.18	November 19, 2003
4.11	Silicon Valley Bancshares Officers’ Certificate and Company Order, dated October 30, 2003	8-K	000-15637	4.19	November 19, 2003
4.12	Amended and Restated Preferred Stock Rights Agreement dated as of January 29, 2004, between Silicon Valley Bancshares and Wells Fargo Bank Minnesota, N.A.	8-A/A	000-15637	4.20	February 27, 2004
4.13	Amendment No. 1 to Amended & Restated Preferred Stock Rights Agreement, dated as of August 2, 2004, by and between Silicon Valley Bancshares and Wells Fargo Bank, N.A.	8-A/A	000-15637	4.13	August 3, 2004
10.1	Office Lease Agreement, dated as of September 15, 2004, between CA-Lake Marriott Business Park Limited Partnership and Silicon Valley Bank: 3003 Tasman Drive, Santa Clara, CA 95054	8-K	000-15637	10.28	September 20, 2004
10.2	Amended and Restated Lease Termination Agreement, dated as of October 20, 2004, by and between CA-Lake Marriott Business Park Limited Partnership and Silicon Valley Bank	8-KA	000-15637	99.1	October 22, 2004
*10.3	Amended and Restated Silicon Valley Bancshares 1989 Stock Option Plan	10-Q	000-15637	10.28	August 13, 1996
*10.4	Silicon Valley Bank Money Purchase Pension Plan	10-Q	000-15637	10.29	August 13, 1996

*10.5

Amendment and Restatement of the Silicon Valley Bank Money Purchase Pension Plan

10-Q

000-15637

10.30

August 13, 1996

*10.6

Silicon Valley Bank 401(k) and Employee Stock Ownership Plan, as amended and restated

10-K

000-15637

10.6

March 16, 2005

*10.7

Form of Change in Control Severance Benefits Policy for Non-Executives

10-Q

000-15637

10.33

November 13, 1996

*10.8

Amended and Restated Silicon Valley Bancshares Retention Program Plan

10-Q

000-15637

10.8

August 9, 2004

*10.9

Severance Agreement between the Company and John C. Dean related to Garage.com™ as of August 12, 1998

10-Q

000-15637

10.40

November 13, 1998

*10.10

Severance Agreement between the Company and Harry W. Kellogg related to Garage.com™ as of August 12, 1998

10-Q

000-15637

10.41

November 13, 1998

*10.11

1999 Employee Stock Purchase Plan

10-K

000-15637

10.44

March 17, 2000

*10.12

Silicon Valley Bancshares 1998 Equity Incentive Plan, amended as of July 20, 2000

10-Q

000-15637

10.45

November 14, 2000

*10.13

Change in Control Severance Benefits Policy of Silicon Valley Bank

10-Q

000-15637

10.46

November 14, 2000

*10.14

Consulting Agreement between Silicon Valley Bancshares and John C. Dean, effective as of May 1, 2001

10-Q

000-15637

10.47

May 15, 2001

*10.15

Silicon Valley Bancshares 1997 Equity Incentive Plan, as amended

DEF 14A

000-15637

B-1

March 16, 2005

*10.16

Form of Indemnity Agreement between the Company and its directors and officers

10-Q

000-15637

10.50

November 14, 2003

*10.17

Severance Agreement between the Company and Lauren Friedman

10-Q

000-15637

10.51

November 14, 2003

*10.18

Promissory Note Between Silicon Valley Bancshares and Marc Verissimo dated August 4, 2000

10-K

000-15637

10.52

March 11, 2004

*10.19

Bonus Agreement Between Silicon Valley Bank and Marc Verissimo dated September 20, 2000

10-K

000-15637

10.53

March 11, 2004

*10.20

Promissory Note Between Silicon Valley Bancshares and Ken Wilcox dated April 4, 2002

10-K

000-15637

10.54

March 11, 2004

*10.21

Promissory Note Between Silicon Valley Bancshares and Marc Verissimo dated April 2, 2002

10-K

000-15637

10.55

March 11, 2004

*10.22

Promissory Note Between Silicon Valley Bancshares and Greg Becker dated May 6, 2002

10-K

000-15637

10.56

March 11, 2004

*10.23

Promissory Note Between Silicon Valley Bancshares and Greg Becker dated January 16, 2003

10-K

000-15637

10.57

March 11, 2004

*10.24

Silicon Valley Bancshares Senior Management Incentive Compensation Plan

10-K

000-15637

10.58

March 11, 2004

*10.25

Separation Agreement Between Silicon Valley Bank and Leilani Gayles dated July 16, 2003

10-K

000-15637

10.59

March 11, 2004

*10.26

Offer Letter to Jack Jenkins-Stark dated February 20, 2004

10-Q

000-15637

10.26

May 7, 2004

*10.27

Offer Letter to David C. Webb dated May 25, 2004

10-Q

000-15637

10.27

August 9, 2004

*10.28

Silicon Valley Bank Deferred Compensation Plan, as amended and restated

8-K

000-15637

10.29

November 3, 2004

*10.29

Form of Restricted Stock Unit Agreement under 1997 Equity Incentive

8-K

000-15637

10.30

November 5, 2004

*10.30

Form of Incentive Stock Option Agreement under 1997 Equity Incentive Plan

10-Q

000-15637

10.31

November 9, 2004

*10.31

Form of Nonqualified Stock Option Agreement under 1997 Equity Incentive Plan

10-Q

000-15637

10.32

November 9, 2004

*10.32

Form of Restricted Stock Award under 1997 Equity Incentive Plan

10-Q

000-15637

10.33

November 9, 2004

*10.33

Offer Letter to David Ketsdever dated November 13, 2004

8-K

000-15637

10.34

November 30, 2004

14.1

Code of Ethics

10-K

000-15637

14.1

March 16, 2005

21.1

Subsidiaries of Silicon Valley Bancshares

10-K

000-15637

21.1

March 16, 2005

23.1

Consent of KPMG LLP, independent registered public accounting firm

10-K

000-15637

23.1

March 16, 2005

31.1

Rule 13a-14(a)/ 15d-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a)/ 15d-14(a) Certification of Principal Financial Officer

32.1

Section 1350 Certifications

* Denotes management contract or any compensatory plan, contract or arrangement.