When you have an "available for sale" security on the balance sheet then the unrealized gains/losses do not change the net income in the reporting period. However, the balance sheet will record this change in the equity section of the balance sheet under "accumulated other comprehensive income". In other words, profits or losses are not reflected on the income statement but they do appear on the balance sheet.
Here is the clever accounting trick that Silicon Valley used. SVB had a large number of "hold to maturity" MBS in their portfolio. The accounting for this is treated much different than when it's "available for sale". Under this scenario, SVB was able to hide the unrealized loss on the income statement and also hide it on the balance sheet as well!
It's very easy. All you have to do is amortize the loss over the life of the asset because it's technically, "hold to maturity". The majority of the unrealized loss will be reported in future accounting periods and will not be recorded in the current period.
On the surface, it appeared as if everything was fine. In reality, the unrealized losses on these long dated MBS completely wiped out its tangible equity value. In other words, in a liquidation event, equity holders would be left with nothing.
The current Bank Term Funding Program is going to prevent this from happening. In the future, a bank in crisis could exchange its long dates MBS at par value to the Fed in exchange for cash and pay them back at the one year overnight index swap rate. This would provide them the liquidity they need to fund their operations. A bank cannot use a debt that is not collateralized as unsecured debt is not part of the agreement.