SVB Financial Group (SIVB) 2007 Q1 法說會逐字稿

Good afternoon. My name is Matthew and I will be your conference operator for today. At this time, I would like to welcome everyone to the SVB Financial Group First Quarter 2007 Earnings Conference Call. (OPERATOR INSTRUCTIONS) I will now turn the call over to Miss Megan O'Leary, Director of Investor Relations. Miss O'Leary, you may begin.

Thank you. Today, Ken Wilcox, our President and CEO, and Jack Jenkins-Stark, our Chief Financial Officer, will discuss SVB's first quarter 2007 performance and financial results. Following this presentation, Ken and Jack, along with Marc Verissimo, our Chief Strategy Officer, will be available to answer your questions.

I'd like to start the meeting by reading the Safe Harbor disclosure. This presentation contains forward-looking statements within the meaning of the federal securities laws including, without limitation, financial guidance for the second quarter and full year 2007. Forward-looking statements are just statements that are not historical facts. Such statements are just predictions and actual events or results may differ materially. The information about factors that could cause actual results to differ materially from those contained in our forward-looking statements is provided in our press release and our last filed Form 10-K.

Now I'd like to turn the call over to Ken Wilcox.

Thank you all for joining us today. I'm pleased to be here to talk about another strong quarter marked by earnings per share that exceeded our expectations and robust performance with respect to the key business metrics that drive our bottom line.

Average loans continued to grow meaningfully at 3.4%. Credit quality remains strong. And net interest margin, which was already on the high side, rose again to 7.58%. We also had some success in controlling expense growth, as I am hoping you have already noticed.

These results are an indication that our core business is thriving, and we are doing everything in our power to ensure that it continues to do so. Our focus on long-term growth is not new, but the question of where we're going and, more importantly, how we'll get there, has recently taken on increased significance. That's because our business environment and our clients are changing in some important ways. Let me highlight a few of the changes that we find most compelling and then tell you what we're doing about them.

First, interest rates, which have been rising for several years now, appear to have peaked, at least for the time being. Second, private equity fundraising and investment have grown rapidly in the past five years, surpassing venture capital investing and constituting a larger and growing proportion of our business. And third, globalization has become a business reality for the majority of our clients as tech and life sciences companies expand their horizons and global markets claim an increasing share of new venture investing.

Within SVB, we've seen some shifts as well. While our total client fund balances have increased substantially in recent years, our on-balance sheet deposits have plateaued. At the same time, our loan growth has remained very strong, at about 20% in 2006, causing us to borrow more to fund it. And all of this business growth has been accompanied by rapid expense growth as we've expanded our product set and improved our infrastructure.

Against this backdrop, our vision is constant. That is, to be the premier provider of innovative services to enterprising companies of all sizes worldwide. But as the world has changed around us, we have refined how we will work to achieve that vision. At our Investor and Analyst Day in February, we described the three major components of our strategic shift -- efficiency, private equity and globalization. I'd like to tell you how we're doing on each of those fronts.

Let me start with efficiency. As I mentioned in February, this is the element of our strategy that I believe can yield the most immediate returns. One of the specific commitments we made in February was to cut our core expense growth rate in half from 10% to 5%. To that end, I've created an Efficiency and Performance Improvement Team and have dedicated a member of our senior management to co-lead it with me. That executive is Dave Webb, our Chief Information Officer, who has extensive experience at implementing process improvement and quality engineering programs. Dave also holds a Six Sigma Blackbelt certification. Those of you who are familiar with that designation know that, in the final analysis, it means he's very good at turning a goal like ours into a real actionable plan. Dave, in turn, has divided our effort into specific initiatives -- outsourcing, process improvement, evaluation of a new universal banking system and several more tactical expense-eliminating initiatives. We expect that any costs incurred in this effort will be more than offset by the savings we realize from it, even within the first year. And even though we're only about three months into this effort, we are on track to achieve the expense reduction goal we stated in February.

The second element of our strategy is to broaden our focus beyond early-stage clients and the venture firms that fund them to also serve the needs of larger, more mature companies and the broader private equity industry. As I mentioned in February, this effort is somewhat longer-term in nature. I expect it will begin to yield some returns in 2007 but that it will drive growth primarily in 2008 and beyond. The principal focus of our up-market strategy is in our core commercial banking business. Specifically, we are looking to increase our market share of technology companies with annual revenues between $35 million and $500 million and public life science companies. We also are looking to bank more private equity firms and begin lending into select PE buyout deals. We have already made significant progress on this effort. We've identified specific steps we will take to improve our visibility in the corporate technology market. We've articulated a sweet spot in terms of transaction size and client type and determined the optimum kinds of buyout lending that are appropriate for our capabilities. Across the board, we've identified what additions we need to make to our product set and in what areas we'll need to augment our team. In fact, we've already hired some senior lenders with experience in this segment who have already closed a number of deals, one of which was announced on Tuesday. We are very pleased with our progress so far.

Many of you know that we have another private equity focus, and that, of course, is on private equity funds through SVB Capital. We believe that, over time, SVB Capital will be able to leverage the deeper relationships we are building within the private equity world, just as historically it has leveraged our relationships within the venture community. And so while most of what I've said has to do with our commercial banking business, I do believe this element of our strategy will benefit the organization more broadly.

Moving on to globalization. This is the element of our strategic effort that I like to refer to as "planting sequoias". In my view, if we are to retain our relevance to our clients, we need to grow with them and build in new markets the same kind of ecosystem that has driven our enormous success here in the United States. The opportunities are there. Our challenge is to select the best opportunities and the smartest ways to pursue them. To that end, we have spent the past several months refining our assessment of the global markets that are most relevant to us, developing specific market entry strategies for the countries we've targeted, and clarifying our overall strategic framework for approaching the global market. I look forward to updating you as we move forward with specific initiatives over the next several months and years.

In order to exploit our three strategic initiatives, we also need to continue to focus on the resources that we bring to these efforts. I'd like to spend a few moments updating you on two specific items that I spoke about in February to let you know where we stand on the commitments I made at that time.

First, I committed to you that we would develop specific, concrete and actionable plans to grow our on-balance sheet deposits. We have been working hard on that front and will be introducing one new product in the second quarter and a second new product later this year. We expect these products will result in meaningful levels of new deposits on the balance sheet late in this year and beyond.

Second, I committed to refine our capital plan and optimize our capital base. Again, we have already started to deliver on this promise. During the first quarter of 2007, we continued to repurchase shares. We also evaluated new programs that will help optimize our mix of debt and equity. While it would be premature to announce specific transactions we are contemplating, I will keep you apprised over the coming quarters as we implement these programs.

Let me wrap up this discussion of our growth by saying that we expect to see continued strength in our core business throughout 2007. The venture capital industry recently had its biggest quarter for investment in five years. The IPO market is picking up steam, according to published statistics. And our own anecdotal information suggests that registrations are up significantly. With these factors in mind, some are predicting that 2007 will be a break-out year for venture capital firms and for the early-stage companies that they fund, which remain our lifeblood.

Overall, we believe our results will continue to bear out the soundness of our strategy and the effectiveness of our approach to achieving it.

Before I turn the call over to Jack, I want to take a moment to recognize him for his leadership and his tireless work on behalf of SVB Financial Group in the past three years. With Jack's help, we emerged from a restatement -- certainly one of the most challenging experiences any public company can have -- in very good shape. Not only that, we emerged with better processes, better controls, improved financial governance and a stronger team. Although we're sorry to see Jack go, we feel he is leaving us at a point where we have the ability to continue moving forward without disruption. Fortunately for us, he is also leaving us in Mike Descheneaux's capable hands. Mike, who was a partner at Arthur Andersen, worked side by side with Jack and the finance team on the restatement, and he is intimately familiar with our financial systems and processes. If you read our press release on the subject, you know that he also has extensive background in corporate governments and international business that we believe will ensure a smooth transition. Those of you who have met him have an inkling of his deep knowledge of the accounting and reporting requirements of financial services firms, and we are glad to have such a strong successor.

Thank you, and now I'd like to turn the call over to Jack.

Thanks, Ken.

In show business, the axiom is to go out on a high note and leave the audience wanting more. The first quarter feels a little bit like that for me, as it is my last with SVB Financial Group, and it is full of high notes. Let me begin with some of those.

Earnings per share at $0.76 were ahead of the first quarter guidance we gave you in January. Quarterly average loans reached another record high of $3.26 billion, up 3.4% from the fourth quarter. Net interest margin remained high at 7.58%. Noninterest income also continued its upward trend, reaching $47.5 million for the quarter. Our credit quality remains superb and was reflected at a much lower provision than we had expected. And finally, I'm pleased to tell you that noninterest expense in the first quarter was effectively flat compared to the fourth quarter.

Now let's get into some details, and let's start with loans. As Ken and I mentioned, average loans net of unearned income were up 3.4%, primarily due to growth in loans to our software and life science clients. Net interest income increased slightly by about $0.4 million in the first quarter of 2007 to $93.4 million, reflecting an increase of $1.3 million in income from the loan portfolio, primarily related to an increase in fee-related income which resulted from loan prepayments recorded in the first quarter. This increase was partially offset by higher interest expense of $800,000 related to a rise of $9 million in average interest-bearing deposits and increased borrowing.

Our net interest margin increased to 7.58% in the first quarter of 2007, in part due to the growth in our loan portfolio, but also, as I mentioned earlier, a result of loan prepayments. Noninterest income rose by $1.6 million to $47.5 million in the first quarter of 2007, for the most part as a result of an $8.5 million increase in net gains on investment securities to $12.3 million, which was primarily related to increases in the fair value of investments managed by our funds business, SVB Capital. About $7.2 million of that increase represents the minority interest of our limited partners. As those of you who attended our Investor and Analyst Day in February know, we fully consolidate on our financial statements certain of the investment funds managed by SVB Capital, even though we only hold a minority interest in those funds. Therefore, it is important to understand the minority interest related to the security gains and losses line which can vary from quarter to quarter before drawing any conclusions about the total impact on our bottom line.

I should add that this same issue of consolidation impacts our expense categories, and we will, over time, give you a better sense of the impact of full consolidation on these key line items.

In other noninterest income for the first quarter, warrant gains decreased $4.9 million to $1.4 million. As you may recall, in the fourth quarter of 2006, we enjoyed significant warrant gains and, as you well know, we expect warrants to remain a valuable, though variable, source of income.

Client investment fees remained relatively consistent in the first quarter at $12 million, compared to $12.2 million in the fourth quarter of 2006. Corporate finance fees from SVB Alliant were lower at $2.9 million for the first quarter, compared to $4.4 million in the fourth quarter.

Moving on to noninterest expense, it was effectively flat in the first quarter at $82.1 million, compared to $83.2 million in the fourth quarter of 2006. This reduction was primarily due to a net reduction in our provision for unfunded credit commitments and decreases in professional service fees as well as business development and travel expenses, all told about $4.9 million. As expected, these reductions were partially offset by a $3.5 million increase in compensation and benefits.

Net income remained steady in the first quarter of 2007 at $28.4 million.

Credit quality continues to be a strong suit, and in the first quarter, nonperforming loans as a percentage of gross loans remained stable at 0.32%, compared to 0.31% in the fourth quarter of 2006. As a result of credit performance that exceeded even our high expectations, we decreased our allowance for loan losses as a percentage of gross loans from 1.23% in the fourth quarter to 1.20% in the first quarter of 2007.

Finally, we repurchased nearly 400,000 shares of common stock in the first quarter of 2007 at an aggregate cost of just over $19 million. That leaves $48.7 million under the current stock repurchase program which expires in June of 2008.

Before I get into our expectations for the second quarter of 2007, I want to refresh your memories a bit about a plan we shared with you in February to move gradually away from quarterly earnings-per-share guidance toward annual guidance ranges for key business drivers that we believe are relevant, meaningful indicators of our future performance. We will apprise you of our progress on these annual metrics each quarter. We came to this decision after numerous conversations internally and with the financial community about the relative usefulness and value of our traditional earnings-per-share guidance. By way of transition, we indicated we would provide both earnings per share for the second quarter of 2007 and full-year guidance on business drivers, and that is what we intend to do. I want to emphasize that our intent is to improve the effectiveness of our guidance. To that end, we hope you will give us feedback on how well this is working and how we can make it better as we move forward.

So with that plan in mind, looking forward to the second quarter of 2007, we expect diluted earnings per share to be between $0.70 and $0.76. Turning to business drivers for the full year 2007, we expect average loans to increase at a percentage rate in the high teens. We expect total client funds to grow at an average percentage rate similar to the growth rate of our loan portfolio. We expect our net interest margin to be about the same percentage we recorded for 2006. We expect average on-balance sheet deposits to be flat or decline slightly. Our outlook also reflects fees for deposit services, letters of credit, foreign exchange and other services in aggregate to grow at about -- at a percentage rate in the mid-teens. And we expect our provision for loan losses to be slightly below what we reported for 2006.

Before I wrap up and we take your questions, I want to say a few words about my departure from SVB Financial Group and about Mike Descheneaux, who will be taking over as Chief Financial Officer. First, as many of you know from our conversations in the past week, my decision to leave SVB is purely a personal one that resulted from an opportunity to work with two friends and colleagues from my years in the energy sector in a new venture that is showing impressive early momentum and enormous promise. It all came together suddenly and much more quickly than I could have anticipated. It is in no way a reflection of my feelings about SVB which continues to deliver compelling results also shows tremendous promise. I have enjoyed every moment of my time as CFO here -- assuming you put the restatement effort in a category of its own -- and the company is as unique as its business model. To the credit of the management team here at SVB, we have been working hard on succession planning for the last couple of years, and the fact that Mike was on board ready to step into the role of CFO is a testament to our effectiveness in implementing that process. As you get to know Mike in the coming months, you will see as we did when we hired him that his experience with a unique and complex accounting landscape of financial services companies makes him an ideal fit for this role. I wish I could say that I taught him everything he knows, but in reality, he has taught me quite a few things since he began working with us in 2005. Most importantly, Mike is surrounded by an extremely capable team of finance and accounting people that I am personally proud of. As a result, I feel good that SVB is in an excellent position with Mike and, of course, with Ken and the rest of the management team to accomplish its plans for growth.

Thanks and we can open it up for questions.

(OPERATOR INSTRUCTIONS) Our first question is from Joe Morford with RBC Capital Markets. Joe, your line is open.

Thanks. Good afternoon, everyone, and good work on the expenses. I wasn't sure we'd ever see professional fees go down, so it looks like there's progress. I guess, Jack, if you could, on the expense front, just talk about what kind of seasonal boost you may have seen here in the first quarter with payroll taxes and the stuff that just runs through here, and then as also as you work towards meeting this goal of cutting the expense growth in half, what should we expect in terms of progress in the second quarter in terms -- or outlook for expenses in the second quarter.

Alright. I'll give it a go. On the seasonal front, of course what you're referring to there is the -- sort of the Social Security payroll taxes and 401(K) contributions. I think you can pretty much attribute somewhere in the neighborhood of $2 million to that number.

Okay.

Maybe as much as 2.5 if you went through all the categories, but I think $2 million is a good number. We also had a little bit additional incentive comp accrual in Q1, more than we had expected. On the second part of your question in terms of what to expect, I think you're going to see, as Ken said, you're going to see continued movement toward achieving the goal we set -- the multi-year goal we set for ourselves -- which is cutting that expense growth rate in half. Every quarter, I think your -- I hope and expect that you will see it come from one or more categories on our income statement. From Q1, it happened to be professional services. Some of that may be a bit due to timing, but some of it is very real. You also some biz dev and travel expense down. There's a lot of focus on that kind of activity right now, and I would expect that -- well, as Ken said, our target is to achieve the goal we set for ourselves this year and in future years.

Okay. And also, it was a good quarter for the funds management business. I just wonder if you could kind of give us an update on that at all and where some of these gains are coming from, any new funds that were formed and things like that.

Well, I don't know that I can comment on the new funds -- any new funds that were formed. I'm trying to recall where we stand on a couple of those, whether they're available for comment yet, but suffice it to say that we are working and certainly in the process continually of developing those funds. In terms of the gains and losses that you saw in Q1, do keep in mind that, as I said in my prepared comments and we talked about last February and, of course, we've talked about continuously over the quarters, is that there -- it was a very good up quarter for the fair value estimation of a lot of the funds that we participate in or manage as a general partner. Now those all are fully consolidated, so if you look down at our minority interest line, you'll also see that it took a blip up as well, and that's in part a reflection of the fact that those gains and losses are offset by other LP owners in those funds. But primarily, up (inaudible). A lot of it came, too -- as you know, the market was up fairly strong in Q4 of last year. A lot of these funds that we participate in, they typically are running about a quarter behind in terms of when we record the impacts of any fair value adjustments that occur.

Okay.

Let me just add to that, Joe, that as you well know, but just to make sure everybody's on the same page, the -- we are building new funds. Having said that, any gains that we experienced in this first quarter would not have come from new funds anyway because those -- any gains from new funds are a few years out, which you should interpret as good news. That means that the old funds are kicking in and producing profits for us.

Okay. That's it. Thanks so much.

Our next question is from Andrea Jao from Lehman Brothers.

Good afternoon, everyone, and congratulations on expense control.

Thank you, Andrea.

Jack, best of luck.

Thank you.

Quick question on the margin. Your outlook for the margin says you expect it to remain the same level as '06 which, if I'm not mistaken, is closer to the 7.38 level. Right?

Yes. It was -- we recorded 7.38 in '06.

What's the -- what are the drivers going forward that --

Well, sure, sure. Good question, Andrea. One is, as I said in my prepared remarks, I used the word "about", so you can interpret that as -- well, just as the definition. It's an approximate guidance level. As you well know, and we described in our February analyst meeting, our margin is susceptible to a variety of factors, probably moreso than other banks in terms of the mix of loans, prepayment activity and a whole host of other things that we discussed with you in our presentations to the investment community in February. So giving us a little bit of wiggle room. With that said, too, we have, as a matter perhaps of conservatism, adopted the notion that there will be a 25 basis point decline in 2007. So if you wanted to adopt a different notion, it would have an effect on the margin corresponding to that 25 basis point assumption that we're using.

Okay. Great. Thank you.

Our next question is from Christopher Nolan with Oppenheimer.

Afternoon. And Jack, I want to wish you well in your future endeavors there.

Thanks, Chris.

Was there a reduction in any of the unfunded credit commitments?

Yes.

Can you quantify --

1.1 million, I think. 1 million.

Okay. So it's just nominal?

Well, in Q1, it was a negative $1 million entry for unfunded credit commitments.

Right. Okay.

And that shows up in Other Expenses.

Great. Okay. Thank you.

Our next question is from Erika Penala with Merrill Lynch.

Good afternoon. My question is for Ken. There has been some more cautious commentary regarding leverage financing out in the media of late, and I guess what I wanted to ask is what are you seeing in terms of credit quality and perhaps you could weigh in on the debate regarding -- somebody described it as the next shoe to drop in credit quality. What are your thoughts? And also, I guess, circling back in terms of specifically what you're seeing in terms of drivers for stable credit quality for '07.

Let me share this question with two other of my colleagues, but I would like to take a high-level stab at it myself. And then I'd like to pass it on to Dave Jones, our Chief Credit Officer, and to Greg Becker, who is responsible for the vast majority of our corporate lending activity. First of all, our risk rating systems, like everybody else's, for that matter, are applied in such a way that the future is as fully discounted as is imaginable. In other words, to the extent that we can see anything out on the horizon through our high-powered telescopes, it's already incorporated into our current view of quality of the credit portfolio. And then that, of course, ends up getting reflected -- indirectly, at least -- through the provision. So I would say that what you see is what you get, to the extent that we, with our understanding of our portfolio, are able to give it to you. That's one thing. The second thing I would say is that while we're fully cognizant of what's happening out there in the credit market, that not -- as you know, not all industries or subsectors move in the same direction at the same pace at the same time, and certainly our portfolio, which is a very specific one, is no exception. And you may also recall that, during the recession that we experienced in the wake of the bursting of the bubble, our credit portfolio actually held up better than it has during peacetime and -- so I would say that we can't necessarily expect that because the rest of the economy is experiencing a little bit of deterioration in credit portfolios -- or at least is anticipating that -- that that will necessarily be the case here. And with that, I'd like to pass it first to Dave Jones, our Chief Credit Officer, and then to Greg, who's responsible for -- as I said before, the bulk of our corporate lending activity.

Hi, Erika. This is Dave. And I think it's important to point out the relative concentration of our loan portfolio with the buyouts. It is an -- a very small sector of our business. We actually only count about eight of our current clients that we're funding into the buyout activity. It remains a small part of our business. It remains an important part of our business, but going forward, our aspiration is still relatively small. We aspire to grow it, but grow it at a pace of two or three such transactions per quarter. So our expectation is for the balance of the year that it will remain a very small percentage of our book of business. Greg?

Yes. Erika, this is Greg. A couple of things to add on to that. One is the market size that we're going after is smaller than what you're hearing about in the overall market where it's much more overheated, so we're looking for senior debt transactions that are kind of in the -- I'll call it $75 million range up to $100 million. That's number one. Number two is the EBITDA multiples that we're looking at which are actually much less in the technology sector than you're finding out in the non-technology sector, so that mitigates the risk as well. And finally, the technology aspect of these companies, we believe, provides us with better downside protection, so when they do run out of cash flow, there's still, we believe, asset value there or enterprise value that will also provide a source of repayment. So it's really the combination of the lower leverage, the lower EBITDA multiples and the senior debt, etc. that really provide us comfort.

If I could just ask one follow-up question. In terms of EBITDA multiples, could you give us a range in terms of what you've been looking at?

Sure. We see stuff as low as 2 on up to -- on the senior piece -- total it would be higher, but on the senior piece 2 to 3.5, maybe it gets a little bit close to 4, but really not much higher than that. And again, it's because of the sectors that we're going after that the EBITDA multiples aren't creeping up on a senior basis higher than that.

Thanks for the color, gentlemen.

Sure.

You're welcome.

Our next question is from Fred Cannon with KBW.

Thanks and good afternoon, and congratulations on a solid quarter. I was wondering if you could comment the -- your average balances both on deposits and loans looked quite strong. The end-of-period ones seem to show a bit of a drop-off. I was wondering if we should look at those and if they're an indication as we move forward in the year?

This is for Greg.

Hi, Fred. How are you doing? Both on the loans and the deposits. This feels a little bit like the discussion we had about 12 months ago in Q1. On the loan side, I think, we had the loans in Q1 and part of this is -- we saw this last year. We look at the outlook and the direction we're heading and we feel as confident as we did last year with our ability to forecast the annual numbers for loans and deposits. So we do have lumpiness in intraquarter. We have lumpiness month to month. But from our standpoint -- my standpoint -- I'm as confident in those numbers as (inaudible) as we were last year.

Fred, just to weigh in a little bit is -- as you know, we've said every time this has come up is to focus on our average quarter numbers. End of quarter are not necessarily indicative, just as Greg described. I'd also point you to the guidance we gave on that issue specifically for the year in terms of average year over average year in the high teens. So I think that's also indicative of the optimism or the prospects that Greg mentioned.

Great. Thank you. Jack, two things on your guidance, leaving things on a high note. Number one, on the expenses, are you -- you didn't put the exact quote in the press release. Are you guiding to a drop of expense growth in half from last year in 2007 or is that a -- I think I heard Ken use the "multi-year" term, and in particular, when I was just looking at the math, it looks like the run rate of expenses would have to drop about 4 or $5 million on a quarterly basis for the rest of the year to get down to that kind of 5% growth versus 10% year-over-year growth.

Well, two things, Fred. One is, as we described in February, we want to make sure we're all taking about the same base level that we're growing off of, and the expense levels that we are growing off of or that we're indicating have to -- do not include the Alliant [impairment] for last year. So that's one thing to keep in mind, which makes it a more difficult task frankly.

Right.

Number two is in the February timeframe, we used the phrase "multi-year". I think now we're tending to focus more on each and every year of the horizon as achieving that goal. So I think -- I'll let Ken speak, but I think Ken said pretty clearly that the objective this year is what we said would be our multi-year goal in February.

Great. Okay. I'll take that as confirmation by Ken. And finally, on the margin, Jack, you have been somewhat more conservative each quarter of the last couple quarters than what your margin has turned -- actually turned out to come in at, and I was wondering if you could kind of reflect on some of the reasons why the conservatism outlook yet the -- we've tended to have the margins bubble up a bit more than expectations.

Sure. So one of the things that I should have highlighted in an earlier question that I didn't was that -- and it is in the press release and also in my comments -- is that the increase that you saw in the margin in Q1 was effectively due, or primarily due, to loan prepayment -- early loan prepayment amortizations that we booked in Q1 that hadn't been booked in prior quarters. So there's 9 basis points or 10 basis points in that margin that really is a bit of a nonrecurring event. So we do expect the margin to look a lot more like Q4 in -- say, in Q2 or somewhat below Q4. But -- and as I said, at about or nearby the level we saw for 2006, if you include a 25 basis point decrease into the third quarter of this year. I hope that readjusts your -- and takes me from being conservative to being realistic from the margin standpoint. But what you saw in Q2 was a 10 basis point pick that is sort of -- it is nonrecurring.

Was that an application of FAS-91 that you hadn't previously done?

Yes.

Great. Thanks so much.

And ladies and gentlemen, due to time restraints, our final question will be from Brent Christ with Fox-Pitt.

Good afternoon. Just one quick question, a follow-up on the buyout-related lending. You mentioned kind of your targeted level being 75 to $100 million. Are you guys holding that entire position or would that be something you would potentially participate in with other banks?

Yes. This is Greg, Brent, and we would absolutely in those deals be looking to bring somebody in. And I should have said target -- I probably misquoted that it's really -- that's the upper end of it. So on a senior basis, we're looking for deals where the senior piece is 15, 20, 25, up to those levels I quoted to you. So clearly, on the higher end, we are absolutely looking for participants in those deals.

And what's kind of your comfort level in terms of a targeted hold position on some of those larger transactions?

Yes. Clearly they vary, so it's deal-to-deal dependent. But you're looking for -- on the low side, you're probably looking at 10 to 15. On the high side, 20, 25, possibly higher than that, but again, it's very deal-dependent.

Gotcha. Thanks a lot.

Ladies and gentlemen, at this time, there are no further questions. Do you have any closing remarks?

No. Not at this time, except thank you very much for attending.

This concludes today's SVB Financial Group First Quarter 2007 Earnings Conference Call. We thank you for your participation. You may now disconnect.