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Edited Transcript of SIVB earnings conference call or presentation 27-Apr-17 10:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 SVB Financial Group Earnings Call

SANTA CLARA May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of SVB Financial Group earnings conference call or presentation Thursday, April 27, 2017 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory W. Becker

SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank

* Marc C. Cadieux

SVB Financial Group - Chief Credit Officer and Chief Credit Officer of Silicon Valley Bank

* Meghan O’Leary

SVB Financial Group - Director of IR

* Michael R. Descheneaux

SVB Financial Group - CFO

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Conference Call Participants

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* Aaron James Deer

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst

* Brett D. Rabatin

Piper Jaffray Companies, Research Division - Senior Research Analyst

* Christopher John York

JMP Securities LLC, Research Division - Director and Senior Research Analyst

* Christopher McGratty

Keefe, Bruyette, & Woods, Inc., Research Division - MD

* Gary Peter Tenner

D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst

* Geoffrey Elliott

Autonomous Research LLP - Partner, Regional and Trust Banks

* Jared David Wesley Shaw

Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst

* Kenneth Allen Zerbe

Morgan Stanley, Research Division - Executive Director

* Rahul Suresh Patil

Evercore ISI, Research Division - Research Analyst

* Steven A. Alexopoulos

JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks

* Tyler Stafford

Stephens Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to the SVB Financial Group Q1 2017 Earnings Call. My name is Adrianne, and I'll be your operator for today's call. (Operator Instructions) Please note, this conference is being recorded.

I'll now turn the call over to Meghan O'Leary. Meghan O'Leary, you may begin.

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Meghan O’Leary, SVB Financial Group - Director of IR [2]

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Thank you, Adrianne, and thank you, everyone, for joining us today. Our President and CEO, Greg Becker; and our CFO, Mike Descheneaux, are here to talk about our first quarter 2017 financial results, and we'll be joined by other members of management for the Q&A. Our current earnings release is available on the Investor Relations section of our website at svb.com.

We'll be making forward-looking statements during this call and actual results may differ materially. We encourage you to review the disclaimer in our earnings release dealing with forward-looking information, which applies equally to statements made in this call.

In addition, some of our discussion may include references to non-GAAP financial measures. Information about those measures, including reconciliation to GAAP measures, may be found in our SEC filings and in our earnings release.

We expect the call, including Q&A, to last approximately an hour. And with that, I will turn the call over to Greg Becker.

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [3]

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Great. Thanks, Meghan. Good afternoon, and thank you for joining us today. In the first quarter of 2017, SVB delivered earnings per share of $1.91 and net income of $101.5 million. These results reflect solid loan growth, healthy growth in total client funds, higher net interest income and NIM and stable credit quality despite higher NPLs. And although, we experienced some seasonal slowness in core fee income, year-over-year fee income trends are positive.

Looking at the first quarter of 2017 versus the same period last year, we saw good growth. We grew net interest income by 10%. We grew core fee income by 8%. We grew loans by 18% and both average and period-end loan balances exceeded $20 billion for the first time. We grew total client funds by 5%, and we grew our net commercial client count by more than 12%.

Overall, our business is performing well. Our pipeline for 2017 is solid. And we finally received some help from higher rates. With positive impact of rate increases as well as a more visibility into full year deposits and credit trends from our performance in the first quarter, we will be updating several of our full year 2017 outlook items. Mike will go into detail on those in a few minutes.

Now I'd like to discuss the market environment and provide some perspective on why we remain positive about 2017. The environment for our clients remains healthy, although, not without its challenges. Raising money was the top challenge identified by startup executives in our recent annual Startup Outlook Survey. Fortunately, there is continued investor appetite and capital for good companies, especially those that can demonstrate growth. While U.S. venture capital investment in the first quarter pulled back from its 2016 highs, the number of deals in the first quarter was still healthy and dollars invested increased over the fourth quarter. Overall, we view this progression as an expected and desirable return to normalcy. With estimated levels of dry powder in venture capital greater than $100 billion, most of that raised in the last 2 years, we believe there is sufficient capital to fuel the innovation ecosystem and that good companies will continue to get funding.

Having added more than 1,000 new clients in the first quarter, we see evidence that new company formation is still healthy, even if it’s down from historic highs. Exit markets were relatively active in the first quarter, although, they too remain below historic highs. There were 7 U.S. venture-backed IPOs in the innovation space in the first quarter, 3 of which were SVB clients. Another 7 VC-backed technology and life science companies have filed to go public in the second quarter, and there is a healthy pipeline of companies that reportedly planning for an IPO later this year.

In M&A, the total number of deals in the first quarter declined by 18% over the first quarter last year, although, the value of these deals rose by 9%. Nevertheless, corporate acquisitions remained a significant force in exit markets, driven in part by strategic acquisitions by companies positioning themselves to remain competitive in the future. Among our clients, the pace of M&A remain brisk and M&A remains the most common exit for startups. Half of the respondents to our Startup Outlook Survey indicated they expect the pace of M&A to increase this year. We believe the current VC market conditions represent a sustainable pace of fundraising and investment. And while exits are off to a modest start, we still expect 2017 to be a better year for liquidity for our clients relative to 2016. In the meantime, we remain focused on building our business, expanding our global reach and providing our unique value-add to our clients in the innovation ecosystem.

We continue to build momentum in our payments business, increasing card revenue 14% year-over-year in the first quarter. This growth was driven largely by accelerating activity in our multicard program, which provides integrated purchasing and corporate (inaudible) functions, including secure virtual cards, which grew by 63% during that period. And despite seasonal slowness in credit cards in the first quarter, activity accelerated from January to March, with March being the highest card spend month in our history.

We are building out our global footprint and capabilities, providing partnership and support to high-growth innovation companies doing business around the world. We have generated significant momentum as a key player in the thriving innovation ecosystems of the Western Europe and Israel. Our U.K. and Israel offices today have more than 1,400 clients, representing a 28% growth rate in the past year.

Loan balances for the combined regions increased 25% year-over-year on a constant-currency basis. FX trade volumes increased 41%, and payment volumes increased 55%. We continue to move our joint venture bank strategy forward. In February, our joint venture bank in China opened its second branch and now operates in Beijing as well as Shanghai. These 2 cities have historically been home to 60% of all VC-backed companies in China. And we are making progress in our plans to expand into Germany and Canada. We are close to submitting our applications in both locations, and pending regulatory approval, we believe both branches could be operational in 2018. More broadly, we continue to leverage our unique position in the innovation markets on behalf of our clients to provide insight and partnership to entrepreneurs, innovators and investors.

In addition to our 2017 startup outlook, we released our annual report on trends in healthcare investments and exits in January. This report predicts 2017 investments in IPOs on par with 2016 biopharma as the strongest sector and improving M&A activity among healthcare companies at all life stages.

We also released our annual State of the Wine Industry Report, which predicts higher premium wine sales in 2017. Obviously, if this forecast plays out, it's a good news for our premium wine clients. And in April, we launched the sixth class of our commerce innovated accelerator program. This program is designed to help commerce, payments and fintech startups grow by providing with mentorship, support, advice and introductions. This year, we are partnering with First Data, which brings expertise and resources to the table that we believe will provide a significant advantage for our fintech startups. We launched the commerce innovated program in 2014, and to date, have worked with 24 commerce payments and fintech focused startups. More than half of this companies have raised funding or going to acquire it, since graduating from the program. These are a just few examples of the many ways in which we differentiate ourselves in the market.

Regarding challenges. Little has changed with regard to the challenges we face. While the impacts of last year's market recalibration continue to fade, our clients are still feeling effects of access to capital and valuations. And while loan originations remain robust, a high rate of M&A activity among our technology and life science clients remains a drag on our loan growth.

Stepping back to look at the broader industry, competition remains intense for all banks. Stagnating traditional banks and lightly regulated nonbanks are all searching for growth and the innovation economy is a key target for them. This competition has continued to drive down pricing and impact the pace of loan growth. While the broader markets have been more positive and less volatile than in recent quarters, there is still uncertainty about the health of the U.S. economy, the likely pace of rate increases and tax reform. We believe this uncertainty will likely cause more volatility over the coming quarters.

The competition, market volatility and uncertainty have been the norm for most of the last decade. While we're always adapting to deal with challenge and change, at the same time, we're taking proactive actions to enhance our business in market position and improve our operational efficiency. Our strong growth has been enabled by our expansion into key markets, such as private equity and private banking and by our long-standing commitment to supporting our clients globally. A significant pace of new client wins is a direct result of our ongoing work to form relationships with each successive generation of new entrepreneurs, whether they're VC-backed or bootstrapped, located in Silicon Valley or on the other side of the world. Our continued fee income growth reflects our successful focus on creating cooperation across borders and teams that enable us to take a more holistic approach to understanding and solving our clients' problems. And our focus on creating operational efficiencies while investing in our growth has enabled us to drive down our efficiency ratio over time.

On top of that, our unique position in the innovation industry and focus on being the best partner to entrepreneurs, companies and investors remain significant competitive advantage. Our consistency has allowed us to deliver growth and high-quality results over the long-term, regardless of market and competitor dynamics. We intend to stay focused on strong execution and maintaining our distinct competitive advantage in the innovation ecosystem.

Thank you, and now I'll turn the call over to our CFO, Mike Descheneaux.

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Michael R. Descheneaux, SVB Financial Group - CFO [4]

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Thanks, Greg, and good afternoon, everyone. I would like to start by talking at a high level about certain notable items that were included in our earnings per share of $1.91. I will get into further details on these items later in my comments. But I believe this overview will enable you to more easily separate the seasonal or notable items from fundamental trends, which are generally positive and on track overall.

On the plus side, we realized a tax benefit from a change in accounting rules for stock-based compensation, which contributed $6.1 million to earnings. This accounting change affects all companies. We also had a benefit to earnings of $4.7 million due to the return of tax funds related to a prior year's tax return. Countering those 2 items, we incurred our typical first quarter seasonal compensation expenses from bonus-related 401(k) contributions and employer taxes of approximately $6.5 million. Premium amortization expense from investment securities in the first quarter was $3.5 million higher than last quarter. And there were 2 fewer days in the quarter compared to the last quarter, which meant lower net interest income of approximately $4.8 million.

Now I will get into the details of the quarter and highlight the following: first, solid loan growth; second, another quarter of healthy total client funds growth, driven by our off-balance sheet client investment funds; third, higher net interest income and a higher net interest margin; fourth, stable credit quality overall; fifth, higher investment securities and warrant gains; and sixth, slightly higher noninterest expense, including the seasonal expenses I noted. Additionally, I will comment on our capital ratios, tax rate and provide details on the changes to our 2017 outlook that Gregg mentioned.

Let us start with loans. Average loans grew by $809 million or 4.2% to $20.1 billion. Growth was driven primarily by private equity capital call lines and life sciences. Other parts of the portfolio were relatively flat in the first quarter, although, this is consistent with what we have seen in the first quarter in past years. Nevertheless, we are seeing a continued high pace of repayment due to M&A. On the upside, despite heavy competition and seemingly loosening terms in the market, new loan commitments were solid and advances were strong in the quarter. Client activity remains healthy across all portfolios, and our pipeline is in good shape. As a result, we are maintaining our full year 2017 loan growth outlook of the high-teens.

Moving to total client funds, that is combined on-balance sheet deposits and off-balance sheet client investment funds. We saw another quarter of healthy growth due to client funding rounds and exit activity. Average total client funds grew $1.4 billion or 1.7% to $86.1 billion in the first quarter. This reflected average off-balance sheet client investment funds growth of $1.2 billion and average deposit growth of $261 million. This growth reflected strong activity among our life science and corporate finance clients. Although, that growth was offset somewhat by significant outflows related to our private equity clients making distributions to their investors.

Period-end total client funds grew by $2.7 billion or 3.2% to $87.5 billion. This reflected off-balance sheet client investment funds growth of $637 million and deposit growth of $2.1 billion, which means we are starting the second quarter on a positive note. This growth was driven by existing private equity clients, as well as strong new client acquisition in our life science and early stage technology segments. Nevertheless, we are narrowing our full year 2017 outlook for deposit growth to the mid-single digits from our previous outlook of mid- to high-single digits, although, we believe growth is likely to be at the high-end of our revised range. While strong new client acquisition continues to drive deposit inflows, it is offset by high pace of investment and distribution activity among our private equity clients.

Turning now to net interest income and our net interest margin. Net interest income increased by $13.4 million to $310.3 million in the first quarter. This increase was primarily driven by higher average loan balances and an increase of 11 basis points in net loan yield due to the impact of the December increase in the Fed funds rate. Interest income from fixed income securities increased by $4.1 million due to higher average balances, which benefited from reinvestment of portfolio cash flows at higher market rates.

I would like to provide some additional insight into the timing and impact on our results from increases in short-term interest rates. The sensitivity of our net interest income to changes in rates was generally in line with our expectations. However, when comparing our first quarter results with the fourth quarter of 2016, there are few specific items that should be considered as they impacted the actual increases in net interest income and our net interest margin. First, as I mentioned at the beginning of my comments, we had 2 fewer days and higher premium amortization expense in the first quarter versus the fourth quarter. Additionally, there is a lag effect of the impact of higher short-term interest rates on approximately 30% of our loan portfolio, which is tied to 30, 60 and 90-day LIBOR. In short, this means it can take almost 2 quarters to see the full effect of rate increases on these loans. Finally, certain of our sponsored buyout loans have a LIBOR floor of 1%. It is important to note that we are seeing margin compression, both in newly originated loans and existing renewals, as a result of competition and tightening market terms, primarily in our private equity, sponsored buyout and accelerator segments. We estimate that this has resulted in approximately 15 to 25 basis points of margin compression in these portfolios since the beginning of 2016, which is the time period covering the Fed rate increases in December 2015 and 2016. This equates to approximately $15 million to $20 million of net interest income on an annualized net basis. We expect margin compression to continue to impact our net interest income and net interest margin throughout the year despite the benefit from rate increases.

Moving onto net interest margin. Our net interest margin increased by 15 basis points in the first quarter to 2.88% due to higher average loan and investment securities balances relative to lower yielding cash balances as well as the impact of the December rate increase. This impact was partially offset by the increase in premium amortization expense and the compression in loan yields from competition, which I just mentioned. As a result of the 25 basis point increase in the Fed funds rate in March, we are raising our outlook for net interest income and net interest margin. We expect net interest income to increase at a percentage rate in the high-teens compared to our previous outlook of the low teens. And we expect our net interest margin to be between 2.9% and 3.1% compared to our previous outlook of 2.8% to 3%.

These expectations take into account the impact of margin compression I noted earlier, but do not assume any further increases in short-term interest rates. Clearly, any rate increases will help our net interest income and our net interest margin.

Now let us move to credit quality, which remained stable overall despite higher nonaccrual loans. Our allowance for loan losses was $243.1 million at the end of the first quarter or 1.18% of total gross loans, an increase of $17.8 million or 5 basis points compared to the fourth quarter. Our provision for credit losses, which includes the provision for funded and unfunded commitments, was $30.7 million versus $16.5 million in the fourth quarter. The increase in our allowance for loan losses and the provision for credit losses in the first quarter were due primarily to 3 nonaccrual loans, 2 new ones in the software space and 1 previously impaired sponsored buyout loan. These 3 loans accounted for $16.7 million of the $25.4 million of specific reserves added in the first quarter. In addition, loan growth in the quarter contributed an additional $5 million.

Net charge-offs were significantly lower at $12.2 million or 25 basis points compared to $21.3 million or 44 basis points in the fourth quarter. Approximately 60% of charge-offs had prior reserves and nearly 90% came from our early-stage clients. Nonaccrual loans increased by $19.8 million to $138.8 million or 68 basis points of total gross loans. This increase was primarily due to 1 late-stage and 1 early-stage client. We view this as a manageable level of -- for nonperforming loans. However, it is near the high-end of our outlook range. As a result, we are slightly increasing our outlook range for nonperforming loans by 10 basis points to between 60 and 80 basis points of total gross loans. This increase reflects the gradual evolution of our loan portfolio over time to include more growth, corporate finance and sponsored buyout loans. However, we are maintaining our full year 2017 outlook for the allowance for loan losses, which we expect to be comparable to 2016 levels and for net loan charge-offs of between 30 and 50 basis points.

Now I will turn to noninterest income, which is primarily composed of core fee income and net gains from warrants and PE and VC-related investment securities. I will discuss certain non-GAAP measures in my comments, and we encourage you to refer to the non-GAAP reconciliations in our press release for further details. GAAP noninterest income was $117.7 million compared to $113.5 million in the fourth quarter. Non-GAAP, noninterest income, net of noncontrolling interest, was $111.1 million compared to $109.1 million in the fourth quarter. The increase was mainly related to higher, though, still relatively modest net gains on investment securities and warrants, which were offset somewhat by seasonally lower core fee income.

Let me review the components. First, non-GAAP, net gains, net of noncontrolling interest on investment securities were $9.5 million compared to $5.3 million in the fourth quarter. Second, we had net gains of $6.7 million on equity warrant assets, primarily related to warrant exercises driven by M&A activity during the quarter. This compares to warrant gains of $4.6 million in the fourth quarter, primarily related to unrealized valuation increases.

Moving onto core fee income, which includes fees from foreign exchange, credit cards, deposit service charges, lending-related activities, letters of credit and client investment funds. Core fee income decreased by $2.1 million or 2.4% to $82.6 million in the first quarter. This decrease was due primarily to seasonally lower fees on credit cards and foreign exchange. These decreases were partially offset by increases in client investment fees, driven by higher balances and improve yields due to increases in general market rates and an increase in deposit service charges due to higher deposit, client counts and transaction volumes. We are reiterating our full year core fee income outlook of growth in the high-teens.

Moving onto expenses. Noninterest expense increased by $2.4 million or 1% to $237.6 million, primarily due to higher compensation and benefits expense.

Compensation and benefits expense increased by $7.3 million as a result of annual merit pay raises and higher number employees to support our growth and seasonal expenses related to 401(k) matching and employer payroll taxes. These increases were offset by lower share-based compensation expenses and incentive compensation plan expenses in the first quarter, which were elevated in the fourth quarter.

As a result of our improved outlook for the full year and our other initiatives to enhance return on equity, we expect our 2017 return on equity to outperform most of our peers, as defined in our 2017 proxy. Because part of our incentive plans are tied to return on equity performance versus our designated peers, we expect higher performance related incentive compensation expense. Consequently, we are increasing our 2017 noninterest expense growth percentage outlook from the high single-digits to the low double-digits.

Turning to capital. Our capital ratios rose across the board as a result of increased capital from higher net income. Increases to holding company capital ratios were partially offset by higher risk weighted assets due to period-end loan growth.

Lastly, I would like to provide some insights into our effective tax rate. As I mentioned at the start of my comments, we recognized a $6.1 million tax benefits as a result of implementing new accounting guidance that is applicable to all companies effective this quarter. Under this guidance, tax impacts from employee share based transactions are recognized in the provision for income taxes rather than directly in equity under the prior rules. This guidance will likely result in volatility in our effective tax rate. The magnitude of the tax impact of employee share based transactions is a function of one, vesting days for restricted stock units; two, the amount of in the money stock options that are exercised; and three, the change in our stock price relative to the grant date values of the share based compensation awards. Excluding the impact of both the required accounting change and the other tax item I noted earlier, we expect the tax rate for 2017 to be comparable to 2016.

In closing, we are off to a good start in 2017. Our outlook remains positive and our expectations for net interest income and net interest margin have improved as a result of the recent increase in the Fed funds rate. Although, competition and a high pace of M&A activity among our clients continue to impact loan growth and margin, there is ample new loan activity in the pipeline going into the second quarter look solid. Fee income trends also remain positive despite some seasonal slowness in the first quarter. We believe our clients are healthy overall, and we are maintaining our long-term focus on expanding our client base, product offerings and global footprint, while delivering high-quality growth and maintaining stable credit quality. While we are not counting our future rate increases, tax decreases or significant changes on the regulatory front, any improvements in these areas will likely be positive to our current outlook.

Thank you. And now I will ask the operator to open the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Tyler Stafford from Stephens.

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Tyler Stafford, Stephens Inc., Research Division - Research Analyst [2]

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I just want to start on the margin Can you talk about what the current new pricing is on the PE portfolio? And how that has -- that pricing has incrementally changed or worsened over the last couple quarters?

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Marc C. Cadieux, SVB Financial Group - Chief Credit Officer and Chief Credit Officer of Silicon Valley Bank [3]

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It's Marc Cadieux. So we look at the private equity reserves portfolio really in 2 components: private equity funds; and venture capital funds. With the venture capital funds tending to be about plus or minus 20 basis points higher. Blended together, we're at a blended note rate in the mid-3% range and that is up roughly 15 to 20 basis points quarter-over-quarter.

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Tyler Stafford, Stephens Inc., Research Division - Research Analyst [4]

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Okay. And then, what are the new reinvestment yields on the securities portfolio in 1Q?

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Michael R. Descheneaux, SVB Financial Group - CFO [5]

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So roughly, approximately around 2.5%, and we're primarily mortgage-backed securities or agency-backed securities.

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Tyler Stafford, Stephens Inc., Research Division - Research Analyst [6]

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Okay. And then, maybe just last one from me. Just a question to the -- the reference in the release about the 10% of the variable portfolio that won't reprice in 2017, is that because of the levels of the floors that are on those 10%? Or due to the frequency of the repricing of that variable book?

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Michael R. Descheneaux, SVB Financial Group - CFO [7]

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So there's a few things. I'm not quite sure what you referred to in the 10%, but if you're referring to the 30, 60, 90-day LIBOR-based loans or the sponsored buyout loans that have floors with the LIBOR floor of one.

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [8]

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Tyler, this Greg. My assumption is you are probably talking about the mortgage portfolio. So it is variable rate, but clearly, it takes -- it's a longer tenure than just pricing -- with repricing with prime and net price is about the 10%. It's the arms that we have in the mortgage portfolio.

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Operator [9]

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And our next question comes from Steven Alexopoulos from JPMorgan.

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Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [10]

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On the expenses, what changed this quarter that drove such elevated comp expense and the related increase in the expense outlook? Was it all this new incentive plan that Mike discussed?

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Michael R. Descheneaux, SVB Financial Group - CFO [11]

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Well, Steve, you may recall that in my prepared remarks, typically, each first quarter of the year, we have the seasonal expenses there, right? So that is what drives kind of the expenses. If you're comparing Q1 to Q4, so they were $6.5 million of seasonal expenses in Q1, so that's part of it. The other thing is, when you start to look at some of the incentive compensation levels, our stock price was up as well -- stock-based compensation expenses compared to a year ago as well, so just depends on what you're looking at, but primarily with the seasonal expenses. As far as the outlook for 2017, the rise in price and there was a fact that some of our incentive compensation plans are tied to ROE. And given our outlook for the full year in terms of ROE, that is up compared to the designated peer set in our proxy. Therefore, the incentive compensation pool is going to be funded at a bit of higher rate. So primarily, the main driver of us moving up our expense outlook is driven by the more improved outlook view on the return on equity against our peers.

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Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [12]

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Okay. That's helpful, Mike. Maybe for Marc, on the (inaudible) increase, any read-throughs for the rest of the software and Internet portfolio? And when we look at the $34 million increase, the release says that there were 2 loans, I think, 1 early-stage and 1 late. But Mike, I thought you said there was also 1 sponsored-led buyout loan, so maybe you could reconcile that?

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Marc C. Cadieux, SVB Financial Group - Chief Credit Officer and Chief Credit Officer of Silicon Valley Bank [13]

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Sure. So maybe just starting with the increase in nonperforming loans, it's up roughly $20 million quarter-over-quarter and a couple of things, I think, that will -- I think just help put things in perspective. So the first is, nonperforming loans. This really isn't unusual this quarter. For the last couple of years, we've had guidance that has ranged as high as 100 basis points of nonperforming loans. And so where we are at present, I don't think of it as being too terribly different from where we've been over the last couple of years. And again, this is a function of having more or large loans in the portfolio. Second, I just would note again, as Mike mentioned, that we're not changing our guidance for charge-offs or the ALLL. And while -- finally, while nonperforming loans do tend to be dynamic by their nature, we do feel like we are adequately reserved for the potential loss exposure in there. Turning to your question just to sort out the 2 versus 3, we had 2 new nonperforming loans, 1 later-stage, 1 early-stage that are the primary driver of the $20 million increase. I think the reference to the 3 loans goes to what drove specific reserves for nonperforming loans, which was higher reserves, related to those or new reserves related to those 2 new nonperformers and a higher reserve related to one existing nonperforming loan.

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Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [14]

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Okay. That's helpful. If I can maybe squeeze one more. And I was just looking for more color on the slowdown in the deposit growth and the narrowing of the guidance range. Are you just seeing fewer startups getting funded bring cash into the bank?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [15]

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So Steve, this is Greg. No, we add -- as I mentioned in my comments, we added more than 1,000 new clients in the first quarter, which is pretty consistent with what we've seen over the last really 6 to 8 quarters with some little bit bouncing around from quarter-to-quarter, so that's still solid. And if you look at the total client funds, the total client funds actually was a healthy number for the quarter. And so you're really looking at just -- we can't perfectly guide the balances, whether it's in deposits or off-balance sheet. And if you are little bit behind in the first quarter, obviously, that carries through for the balance of the year. And so we just said, when we looked at the numbers, and we looked at where deposits flows were on-balance sheet that it made sense to kind of move towards the lower end of the range that we had already given. So I wouldn't read anything else into it. The total client funds numbers is still healthy and so as the new client count.

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Operator [16]

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And the next question comes from Jared Shaw from Wells Fargo.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [17]

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Just circling back on the margin, you just spoke -- I like the -- you did a good job of explaining the difference between the competitive pressures this quarter, upsetting the benefit from higher rates, but if we expect or if we see higher rates, additional rate hikes this year, do you think that, that competitive pressure is now fully reflected in that margin guidance? Or would there be less asset sensitivity in the model incrementally as we look forward?

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Michael R. Descheneaux, SVB Financial Group - CFO [18]

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We believe we picked up that. But obviously, it is -- it does change quarter-to-quarter when you're on the market competition, it's also dictated by what your competitors are doing. So it's -- obviously, it's a bit harder to predict. But, again, we would -- the numbers we gave you just in the margin compression that we've seen in the last year. But generally, if you kind of use that as a rule of thumb, we're probably going pickup about 70% of the benefit going forward, somewhere around there is a current estimates, but just want to caution that can change up or down quite quickly.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [19]

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Yes, sure. That's great. And then on the VC outlook when you talked about the dry powder sitting there in the market, what you think is really holding back some of that investment? Is it more the valuations that you're seeing in the market? Or is it just lack of opportunity? Or is it maybe more of a macro view on taxes and wanting to wait to make those investments?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [20]

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Yes, this is Greg. I think the important point to make is that, the level of investment that we see we would describe and many of the people in the market would describe is being a healthy level. So I wouldn't say it's being held back. Actually, for me, it's a healthy discipline that actually should be in place. And I've said this in prior quarters. If we see -- if we've saw what we saw in '15 again, that pace of investment, those numbers of companies being funded, we should be a little concerned. And so I think this is a healthy level. I think it's great. We have the dry powder. It gives us a solid outlook for not just the next few quarters, but really the next 18 to 24 months. So I would just say it's healthy, and I think they're being disciplined, so it's a good thing.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [21]

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Okay. And then, finally for me on the international expansion, especially, with Canada and Germany, are those going to be more structured like we see in the U.K. where it's a full-service loan and deposit operation in those markets? Or is it just more of a maybe a deeper exposure for loan sourcing and funding?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [22]

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Yes, it's a great question. And it will be different than the U.K. Our intention against other 2 regulatory approval is that both the offices will operate more like loan production offices. There will be branches, but operate more as lending offices. And so it's not just that we'll have just loan related income out of it, because Canada, obviously, there's a lot of activity with those Canadian companies in the U.S. and other markets, so we'll have deposit activities with those. We'll have FX opportunities in Germany the same thing. But we won't have the same branch structure deposit taking capabilities that we have in the U.K. That could change over time. But right now, we think that's the right place to a start in both markets.

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Jared David Wesley Shaw, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [23]

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And how much of that expansion is -- how much of the growth in the expense outlook is due to the branch expansion or not that much at all?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [24]

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There's a little bit there. I mean, if you add up both areas, you're probably looking at anywhere from $3 million to $5 million would be my range for 2017.

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Operator [25]

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And the next question comes from John Pancari from Evercore.

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Rahul Suresh Patil, Evercore ISI, Research Division - Research Analyst [26]

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This is Rahul Patil on behalf of John. Just going back to expenses, the FTE account was up 42 to around 2,300 this quarter. Where are the hiring efforts largely focused on? Is it mainly front-end lending officers? Or is it maybe on the back office compliance risk management? Just trying to get a sense for the potential upward pressure on comp expense going forward.

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Michael R. Descheneaux, SVB Financial Group - CFO [27]

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It's probably somewhere around 40%, 45% front office and the rest is back office, somewhere around that neighborhood.

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Rahul Suresh Patil, Evercore ISI, Research Division - Research Analyst [28]

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Okay. And then, the efficiency ratio this quarter was around 55.5%. Longer-term, where do you see this ratio heading toward? And what sort of rate outlook would be required to get you there?

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Michael R. Descheneaux, SVB Financial Group - CFO [29]

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Well, obviously, it all depends on the rate outlook and the efficiency ratio. Clearly, we've been trying to bring that down. And the trend has been coming down over the last couple of years, so that we've exhibited a really nice trend there. But, obviously, we still didn't make -- need to make investments as well too, but again, I think, you can continue to see general trend. Certainly, the general trend is going down, but again, it all depends on what you're assuming for the rate increase, because clearly, when we have the rate increase, we get a significant amount of revenues without any real incremental expenses. So it really just comes back to how you're modeling to your interest rate changes.

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Operator [30]

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And your next question comes from Chris McGratty from KBW.

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Christopher McGratty, Keefe, Bruyette, & Woods, Inc., Research Division - MD [31]

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Mike, quick question on the expenses. Just want to make sure I'm starting with the right figure for this year. I know, last quarter, you've [reclassed] some unfunded from the provision to the expense line. Is the right number to start with around 870 for the expenses and then build the growth rate off of that?

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Michael R. Descheneaux, SVB Financial Group - CFO [32]

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So well, I guess, what you do is, you look at the 2016 number, obviously that we finished out. For clarity, we did move the provision for unfunded credit commitments out of expenses to combine it with the provision for loan losses. So that in itself created a little bit of uptick in the interest rate -- sorry, in the expense outlook as well too. But I think if you just do reconcile that, I can certainly work with you offline to show what to start with. I don't have the exact numbers in front of me.

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Christopher McGratty, Keefe, Bruyette, & Woods, Inc., Research Division - MD [33]

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And maybe, Greg, for you. Last quarter, you talked about this year being the year of liquidity. Obviously, there has been some noted IPOs and exits in the first quarter. Obviously, it's only a 3-month change in terms of sentiment. But how would you characterize what if any change you're seeing in your customers behavior or you're feeling about the exit markets?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [34]

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Yes, so I thank you brought up, I can describe it the right way. One quarter is a little bit difficult to judge where we are. But I'll tell you, Chris, when we talk to our clients, when we look at the pipeline of companies that are either have filed to go public, talking about going public or just M&A discussions that are going on in general, I still feel the same as I said earlier. I still think that 2017 is going to be a solid year for liquidity. Now, again, what I want to make sure we caveat is that, it's mainly (inaudible) to '16, that's a low bar. So I don't believe it's going to be a gangbuster year, but at the same time, I would describe it and still believe it will be a healthy year.

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Operator [35]

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And your next question comes from Aaron Deer from Sandler O'Neill.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [36]

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Congratulations on opening the new branch in China. So I guess following up on the international discussion, can you give us a sense of kind of what the level of activity is over there at this point?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [37]

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Yes, so I'll start. Mike, may want to add, as Mike is also on the -- our China JV board. Activity is strong, but, again, you're going from a very low base. So your growth rates are, again, very solid, but it's one of the things where it's kind of 2 step forward, 1 back when you have a small balance sheet that's what you have in the joint venture, you've got to manage deposits, you have to manage the loan growth and it's more complex, which is why we continue to say that China is a long-term play. The joint venture is hovering around breakeven. And we expect that even as it grows and makes more money, we want to plough that income back into the growth of the business. But we feel that, again, over time, we're adding value right now, enterprise value to the joint venture, and we'll continue to grow that business, but it's still small.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [38]

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Okay. And then, on the core noninterest income guidance for kind of high-teens growth for this year, looking the year-over-year first quarters, it was up 8%. So I guess, I'm just -- what gives you the confidence that you're going to see more of an acceleration here in '17 than what we see in the quarter-over-quarter numbers?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [39]

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Yes, it's a great question. We obviously looked that as well when first quarter results came out. And Mike and I both try to provide a little bit color on that. So there's a couple components to it. So one is, you have to look at credit card fees. As I described, you had January and February where a little bit slow, march picked up dramatically. And we feel that spend rate is likely to continue to occur, March being an all-time high card spend. That's number one. Number two, we're hearing and we're seeing a lot more activity in the FX side on forwards and options and sitting and talking to or FX teams. There is high-growth expectations for the balance of the year, and the team is comfortable with that as an outlook. And the third category would be client investment funds. And remember, those -- that doesn't take much to change that. And you saw about $800,000 with the growth in the first quarter compared to the fourth quarter. You're averaging about 7.5 basis points of margin to us in that client investment fees. And we believe that can get up to 10 to 11 basis points with the rate increases that we have experienced, it just hasn't all translated to that yet. So if you take those 3 factors together and bake that into the outlook, that's where we end up with the guidance that we provided and -- which is why reiterated the numbers.

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Operator [40]

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And your next question comes from Ken Zerbe from Morgan Stanley.

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Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [41]

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Just wanted to make sure, give the magnitude of this. So your NII guidance does not include any additional rate hikes, which I totally understand. If we do get the one in June, which I think, I saw like 60-something percent probability, is the magnitude right coming from low-teens to high-teens that come to June hike or after it passes that NII guidance, is it reasonable to assume like low-20s? I'm just trying to make sure I think about this in the right way?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [42]

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So this is Greg. I'll start and Mike you may add some color. So if it happens in June, you got, firstly, you only have half year, half the benefit for it, that's number one. The second part is that from a competitive standpoint, you have that. And I think you're going to be -- my view is, Mike can correct me, you probably end up at the high-end of the high-teens, it may tip over to low double, but you're going to be in that general ballpark if we got the 25 basis points in June.

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Michael R. Descheneaux, SVB Financial Group - CFO [43]

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The other thing as we are trying to get across in our prepared remarks is remember on the LIBOR-based loans there is a little bit of a lag. So if a client has a 90-day LIBOR loan and let's say, it just got repriced a day before, the rate increase comes out in June, let's hope there is one, it's going to be 90 days before that loan even reprices, which means you still have 90 days after that. So you're kind of looking at in that example 180 days. So it can take almost up to 2 quarters to see a full effect on some of these LIBOR-based loans there. So again, it eventually does come. It is sensitive to that, but it's just a little bit of a lag when you're repricing these 30, 60, 90-day LIBOR loan.

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Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [44]

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Got. Understood. Okay. And then, just going back to the competition question, is the competition -- I mean, is it mostly like the private equity capital call lines? Or does it -- where are you seeing most of the competition that you talked about earlier?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [45]

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So this is Greg. I'll add some color to it and then Marc may want to add on to it. It is I would say generally across the board. And as I said in my prepared remarks, you have banks. And so at the later-stage companies, you have the larger more traditional monies that are banks competing for those deals. When you're looking at banks at the lower end or earlier stage or mid-stage deals, you have, again, broad competition from a variety of smaller more niche banks. And at the same time, you have nonbank lenders. Same thing in sponsored led buyouts. We're seeing less competition from banks, although, it is competitive, but the main competition is coming from nonbanks, who have raised significant amount of private capital to go after sponsored buyout, both senior and junior debt. And who -- quite, frankly, they don't have the same regulatory restrictions that banks have in leverage lending. And then, of course, in private equity services, because of the low-risk nature of that client base of the target market, you see heavy competition there as well. So you're really seeing it across the board. I would say this, in general and this is played out for many years, because of our reputation, because of our team, because of the value-add we bring, we tend to get a premium, just that premium continues to go down as they're willing to price at even lower and lower amounts. So it's something we've dealt with for a while. We're just being cognizant of the fact that it is a competitive market out there.

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Operator [46]

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And our next question comes from Brett Rabatin from Piper Jaffray.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [47]

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Wanted to ask on the expense guidance. I know you went through it pretty thoroughly, but just any additional color around just $50 billion in interest spending any money for that this year? Any thoughts on infrastructure spend and compliance?

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Michael R. Descheneaux, SVB Financial Group - CFO [48]

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Absolutely, Chris. I mean, we continue to invest and spend on that. We've been doing that for a couple of years. Each year, it probably goes by a couple of million. I mean, $3 million to $5 million increases per year. I mean, last year, I think we increased it around almost $8 million. This year, we may, again, take it up a bit as well. So we continue whether it's for a CCAR, whether it's for SIFI, there's still the whole host of other areas of compliance, whether it's BSA, AML all across the board that we continue to invest. This is part of being a larger bank, but it is embedded in our expense outlook.

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Brett D. Rabatin, Piper Jaffray Companies, Research Division - Senior Research Analyst [49]

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Okay. And then, the other thing is just, Greg, you kind of mentioned early on access to capital was more difficult for some early-stage type companies. What gives you the confidence on those early-stage companies where they're ending their life cycle and M&A may not be their path? How are you seeing some of those credits? And I think last quarter it was 11 or 13 that you are sort of looking at that maybe would fall out. What's -- is an updated number on that? And how do you sort of see some of those trends?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [50]

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Yes, I'll start and then I'm sure Marc will want to add on this. When you look at the numbers what we've said is that, it's returning to a normal or stability, and we saw that in '16. And, obviously, we see that this quarter too, which means, you've seen the normal falloff, the normal what I'll call failure rate of these early-stage companies, obviously, we need to do a good job of working with the right ones, with the right investors at the beginning. But that being said, you still have issues and it always doesn't go well. We believe that is factored into our outlook. We've dealt with this for many, many years. Obviously, we experienced this in 2016. And we spent a lot of time thinking about the guidance for 2017.

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Marc C. Cadieux, SVB Financial Group - Chief Credit Officer and Chief Credit Officer of Silicon Valley Bank [51]

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So what I would just add to that is really 2 things. The first is, I think, it's important to remember that the number of early-stage borrowing clients is a relatively speaking small fraction of the number of early-stage banking clients that we have. And so said another way, while early-stage investing and that's the early-stage segment continues to be under pressure, that doesn't correspond perfectly to pressure on the early-stage part of our loan portfolio. That's what we saw reflected in the first quarter, while that pressure remains out there, while we continue to read about it and hear about it, you don't really see it reflected in the numbers to any great degree. You'd ask about, I think, a client count and maybe just starting with charge-offs, they're really 4 early-stage loans that make up about 3 quarters of the total gross charge-off number in the quarter. And then thinking about new early-stage nonperforming loans, there were really -- there was 10 in all, but only 6 of what I call of consequence. And that rate of charge-off numbers and new nonperformers from the early-stage segment is really more or like what you would expect to see in any given quarter in normal times as opposed to being reflective of increased stress.

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Operator [52]

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And your next question comes from Gary Tenner from D.A. Davidson.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst [53]

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Just had a question on securities portfolio and reinvestment. It looks like based on your outlook for loan growth and deposit growth for the year, the deposit growth will effectively fund the loan growth leaving the securities portfolio probably unchanged or roughly unchanged for the year. What's the quarterly runoff in reinvestment in the securities portfolio?

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Michael R. Descheneaux, SVB Financial Group - CFO [54]

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The maturities are roughly around $800 million per quarter somewhere around there. That's been pretty consistent for the last several quarters.

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Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [55]

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Okay. And you said that this past quarter, the reinvestment rate was around 2.5%?

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Michael R. Descheneaux, SVB Financial Group - CFO [56]

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That's correct.

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Gary Peter Tenner, D.A. Davidson & Co., Research Division - SVP and Senior Research Analyst [57]

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Okay. And then just one other quick question. Obviously, you've got a vast amount of client funds on- or off-balance sheet. Deposit rates have just leaped up a tiny bit the last couple quarters, but remain very low. What's the sense of the ability to keep them at this level? Or do they kind of creep up at the same level we've seen the last couple quarters in terms of the interest-bearing deposits, excuse me?

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Michael R. Descheneaux, SVB Financial Group - CFO [58]

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Yes, I mean, we're seeing very little modest increases in the interest rate increases on just a few basis points. And I think we recently updated around 5 basis points or so for some of the interesting-bearing deposit. So it's more or less coming in line as with our sensitivity tables that we've been working with, maybe a slightly little bit less than what we modeled out. But, again, no real uptick or significant pressure on that.

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [59]

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The only thing I would add to that is, you can -- sometimes people forget that there's 2 parts to how we manage our client funds, right? So one is on the balance sheet, which is the majority is noninterest-bearing with a little bit of interest-bearing. But when clients are looking for yield, we do have $45-plus billion of off-balance sheet client funds and they get a market rate in those -- on those. So unlike some banks where they keep everything on balance sheet and they have to figure out how to pay up to make sure they may keep clients given some yield. We have options for them off-balance sheet. So they get to look at the entire picture about what our clients can get from a yield perspective with their excess cash.

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Operator [60]

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And our next question comes from Geoffrey Elliott from Autonomous Research.

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Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [61]

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The private equity and venture capital loans, they're now up to almost half of the overall loan portfolio. Could you give us a sense of how you expect that to keep changing over time? Is it going to go above half? And what -- where would you we expect it to level out?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [62]

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Yes, this is Greg. Currently, we're at 41% of the loan book private equity and venture capital. So that's one part of it. Second part of it is to clarify we need to look at it not just on -- just percentage of loan portfolio, but look at it as a percentage of total assets base. That's the second part. And then I'll get you answering your question, which is, where do we see it going to from a limit perspective? Right now, we're comfortable in the high 40s approaching 50%. And the more we look at it from a volatility perspective and run our scenarios, it's possible we'll be able to go over 50% less from a risk perspective, more just from a how much of one category do you want in your overall loan portfolio. But I say right now, comfortable levels would be approaching 50%.

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Operator [63]

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And our next question comes from Chris York from JMP Securities.

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Christopher John York, JMP Securities LLC, Research Division - Director and Senior Research Analyst [64]

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I just have one quick follow-up here. The questions on competition from [nonbakes] which we've discussed, because I'm curious whether these nonregulated lenders present any opportunities for partnerships, either formally and like a joint venture or informally be first-out structures with some of these nonbanks giving differences in your risk appetite funding and then cost of capital?

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [65]

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So Chris, it's Greg. I'll start. Yes, we do that to date to a certain extent. And as we think about our outlook on a go-forward basis, clearly, there's an opportunity for us to partner that. We do that in the life science area. We do that in our mezzanine loans. And we can certainly see that broadening that out in a greater way. So yes, that is part of our playbook that we look to use.

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Operator [66]

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This concludes the question-and-answer session. I'd now turn the call over to Greg Becker for closing remarks.

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Michael R. Descheneaux, SVB Financial Group - CFO [67]

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Before we move on to Greg Becker, I want to actually just clarify one question from Chris McGratty from KBW a moment ago. Chris' question was with respect to what is the basis of expenses for 2016 that we would be using when we apply our 2017 expense outlook? Because, again, just to clarify, we did make a reclassification or recasting of our numbers by moving the provision for unfunded credit commitments into the provision for credit losses. As a result, the provision for unfunded credit commitments came out in the expense line item. So long story short, the base is the way you look at as we start for 2016, you would take the number from the 2016 10-K of $871 million for expenses for the total year and then you would take out the expenses related to provision for unfunded credit commitments of $11 million, which gets you to a net starting point for 2016 of $860 million approximately, of which you would apply that new outlook -- expense growth outlook rate. So essentially what you're doing, yes, the expense outlook for 2017 is higher for the reasons we described, but you're also starting from a lower base in 2016. And nonetheless, I just wanted to clarify that for Chris and that was a good question.

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Gregory W. Becker, SVB Financial Group - CEO, President, Director, CEO of Silicon Valley Bank, President of Silicon Valley Bank and Director of Silicon Valley Bank [68]

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Great. Thanks, Mike. So I just want to thank everyone for joining us today. As we stated, we believe we're off to a solid start in 2017. We've reiterated our expectations for healthy growth this year and obviously, that's regardless of tax reform. We think exit markets are going to be healthier than they are right now, so things will pick up. And obviously, there is upside if we do get some additional rate increases that hasn't been factored into our outlook. We wouldn't be able to do without great employees, and I just wanted to thank our employees for doing such a great job. We've got phenomenal clients than it's -- we get impressed every single day with who they are, what they do. And we're going to do everything in our power to continue to help them succeed. I also want to thank Mike Descheneaux, our CFO, currently CFO, soon moving into President's role. Mike, today will be his 40th earnings call. And if I do my job right and find a CFO in the next 90 days, it will be his last time as a CFO on the earnings call. And I want to thank you for the job over the last 10 years. And I'm looking forward to all of the great things he's going to do in the President's role for many years to come. With that, I look forward to speaking everyone next quarter. And have a great evening. Thank you.

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Operator [69]

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Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.