SVB Financial Group (SIVB) 2010 Q3 法說會逐字稿

Good afternoon. My name is Amanda and I'll be your conference operator today. At this time I would like to welcome everyone to the SVB Financial Group third quarter 2010 earnings conference call. All the lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.

(Operator Instructions)

I would like to introduce Meghan O'Leary, Director of Investor Relations. Ms. O'Leary you may begin.

Thank you. And thank you for all joining us and welcome you to our third quarter 2010 earnings call. Is available on the investor section of our website at www.svb.com. I would also like to remind you that we will 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. This disclaimer applies to statements made on the call. We will limit the length of the call to one hour, which will include Q&A with our CEO, Ken Wilcox, and CFO, Mark Descheneaux, and other members of management. During the Q&A section we will ask you to limit your questions to one primary and one follow-up question before getting back in the queue to enable other participants to ask their questions. With that, I will turn the call over to our CEO, Ken Wilcox.

Thank you all for joining us today. I would like to start by saying I'm very happy with our results in the third quarter. We earned $0.89 per share. We delivered loan growth of 37% on an annualized basis, over half of which came from new clients. We added 423 new clients. We maintained high credit quality. We had $3.8 million in net gains on equity warrants and finally, we realized $6.2 million in gains net of non controlling interest on our SVB capital and other venture capital related investments. All around, I think it was a pretty good quarter. Of course, Mike will give you more details on the numbers in just a few minutes.

First, I would like to spend some time talking about what we are seeing in our markets, what we are hearing from our clients and what we are working on, what keeps me up at night and what we are expecting in the future. Let me start with the venture capital markets. They continue to improve although, of course, their progress is somewhat mixed. On the one hand, the venture remains strong in the third quarter with 109 acquisitions and 14 IPOs. Year to date there have been twice as many acquisitions of venture backed companies than in all of 2009. Average deal sizes have continued to increase. On the other hand, venture capital lists invested 31% fewer dollars and did 19% fewer deals in the third quarter.

We think the seasonality of the venture capital business has a lot to do with those numbers. Traditionally the summer months are slow for the industry. By contrast, prospects for the fourth quarter are looking pretty good. Our venture capital clients tell us they are expecting a stronger fourth quarter in terms of investments and assets. The innovation markets overall are showing clear signs of improvement, even as the economy at large still struggles. At SVB we have access to information on the performance of thousands of companies every quarter. Our clients. In these past several months and in the past year we have seen steady improvements among our client base in sales growth, operating margins and liquidity. These improvements have come from across all major sectors, including hardware, software, life sciences and clean tack. Our clients are definitely building momentum. The latest badge of earnings reports from Bell Weather Technology companies, such as Apple and Google, would appear to confirm these improvements.

Our outlook on our markets is positive. As our clients opportunities improve we see significant opportunities for growth ahead. Our ability to take advantage of these opportunities requires us to make prudent investments in our infrastructure, in new products, and in our global expansion. To this end, we are continuing our work of replacing our IT backbone so we can operate more effectively as a global company and position ourselves in the future. We are introducing new products for web based banking, mobile banking and global treasury management. All of which our clients have expressly requested. We continue to make strong progress in our efforts in the UK, China, India and Israel.

As you know, we have applied for banking licenses in both the UK and India and we recently opened a new office in Beijing. We are building a global risk management business and information services infrastructure to support this expansion. We continue to develop our model for serving clean tech companies and are hiring market based employees to drive our growth efforts overall. We are refining our approach to SVB capital to ensure our focus on areas of greatest opportunity. Through all of this we continue to invest in people through new hires and through the further development of our existing employees. We are continuing to build our reputation as an outstanding place to work in order to attract the very best people. In short, I believe we are doing everything in our power to continue to position ourselves for success. These efforts require time, cash and capital but we believe they will all pay off in the future. We do have a number of challenges in the near term. In particular there are three things that I worry about.

First, is the uncertainty of the economy at large. While things are looking good for our clients and for SVB, if the economy were to experience a double dip, it could change our outlook significantly. Second, is the changing regulatory environment. I think we are well positioned to handle new regulatory requirements, whatever they may be. Still, new requirements will comp indicate an already challenging business environment and add to the general uncertainty in the markets in the near term. My third worry is increasing competition.

Our clients are doing well and as a result they have become attractive prospects for banks whose traditional markets are not growing. We are being aggressive without taking undue risks but it is a focused and intense effort. As you can see from our results this quarter, we are succeeding. Despite these challenges, we are feeling confident about our future. We believe we have significant growth opportunities ahead and a clear strategy for seizing them. While I can't give you a specific outlook for 2011, I will give you a general sense of our expectations. We expect continued solid results as our clients businesses improve. We are estimating average loan growth of between 10 and 20% for the full year of 2011. Along with higher loans, we expect to see aggregate revenues from our fee based services increase at a rate in the high single or low double digits.

We anticipate continued modest improvements in venture capital fund raising and investing, and significant improvements in the venture capital asset markets primarily related to M&A. We expect low interest rates to continue to hold down our yields and net interest margin, but our higher loan volumes should generate higher interest income. Expenses are likely to be higher as a result of our continued investment in our business especially if our performance continues to improve. Our preliminary estimate is that expenses in 2011 could grow at a rate similar to 2010's growth. These expectations all assume there will not be another significant economic disruption in the year ahead. As we prepare to close out 2010 our morale here at SVB is decidedly high.

We have a wonderful group of employees. Their individual and team efforts have contributed tremendously to our success during the year and we believe will continue to do so in the future. We are all feeling good about the year ahead . Thank you. Now I will turn our call over to our Chief Financial Officer,

Thank you Ken, and thank you all for joining us today. We had a very solid third quarter which reflects improving business conditions for our clients. These improvements are beginning to translate into growth for us. There are a few things I would like to highlight from the quarter. First, is strong loan growth. Second, is continued high credit quality and improving underlying trends. Third, is strong net interest income despite a lower net interest margin. Fourth, is gains on our investment portfolio, going to the sale of agency backed securities and valuation gains on our venture related investments. Fifth, is stable fee income primarily due to an increase in foreign exchange fee income. And finally, six, is stable non-interest expense that reflects higher interest expense costs related to new hires and our strong performance.

Let us move onto the details starting with loan growth. We are please pleased that our return to loan growth has played out as we predicted it would. We said in the first quarter we expected to see average loan growth in the second half of the year. In Q2, we reported growing momentum in the pipeline and peer end loan growth. In third quarter we grew average loans by $387 million, or 9.4% to $4.5 billion. End of period loans grew by $409 million, or 9.2% to $4.9 billion. Which means we were starting Q4 on strong footing. Demand for loans came from clients in all sectors with the largest increase in loans to our software clients. Growth came from all segments from early stage to corporate finance.

The number of loans booked during the quarter increased by 13% over the second quarter. These loans represented $535 million of new dollars funded from new clients. Our pipeline remained relatively strong going into the forth quarter. Although it was lower because we closed so many loans in Q3. With respect to loan utilization, it held steady at 45%. Moving forward, we believe that an improving environment for technology companies will ultimately lead to high utilization, as well as increased commitment. Historically, utilization rates for SVB has been closer to 50%.

Moving onto credit quality. It remains strong with continued improvement in almost all credit metrics. We noted last quarter that we could see higher charge offs in Q3 primarily as a result of unusually low charge-offs in Q2. Net charge-offs were $8.4 million or 73 basis points annualized. About 95% of that figure came from our early stage portfolio as expected. In any environment, we would consider this level of charge offs to be a very good performance. We recorded a provision for loan losses of $11 million in the third quarter compared to $7.4 million in the second quarter. Primarily due to loan growth and the low levels of net charge offs in Q2. Our allowance for loan losses increased to $74.4 million compared to $71.8 million in the second quarter. Although as a percentage of gross loans it fell to 1.52% compared to 1.60% in the second quarter due to decrease this is our impaired loan balances and improving credit quality. Non performing loans decreased by $6.2 million during the third quarter to $45 million, or 0.92% of total growth loans.

Since the end of the quarter we have received payments on loans that had been reflected in our non performing balances including $8.8 million related to one loan that went on non performing status in the first quarter of 2009. That payment and others have further reduce ever had our current impaired loan balances although they will have no impact because there was no reserve associated with them as it was not needed. Overall, our credit trends reflect the high quality of our loan portfolio as evidenced by a further decline of 4% in classified loans which are now close to historical levels for normal market cycle. These results are due to our continued emphasis on strong portfolio management and the improving business environment for our clients.

Moving to net interest income and net interest margins, net interest income remains strong in the third quarter holding steady at $106.3 million despite the historically low interest rate environment. The competition significance of our investment portfolio shifted as older higher yield investments matured or paid down during the quarter and we reinvested those funds at currently available yields. We continued in excess liquidity from our deposit flows into our securities portfolio. Overall, these were accretive to net interest income but average yield on that portfolio was 42 basis points lower for the quarter. We made purchases total $1.8 billion during the third quarter primarily agency ventures and variable rate C and Os. As I noted earlier we sold $493 million of certain agency backed available securities during the quarter. Overall, we increased our available securities portfolio by $87.6 million to $5.3 billion. The sales of security were consistent with our ongoing efforts to efficiently manage our available liquid resources and mitigate duration risk in the portfolio.

Net interest income also reflects a higher interest expense of $500,000 related to our issuance of $350 million in 5.375% senior notes in September. These senior notes will also add to our interest expense in Q4 and the first quarter of 2011. Approximately $250 million of the net proceeds will be used to repay our 3.875% convertible senior notes due in April 2011 with the remaining going to general corporate purposes including the growth initiatives that Ken described. Average deposits held steed key for the first time in 12 quarters at $11.9 billion while period-end deposits rose by $275 million to $12.4 billion. We believe the staying power of our deposits so far reflects the continue lack of compelling yield opportunities in the market. Average total client fund balances rose by $484 million, only to our clients ' strong liquidity position and new clients acquisition. Our net interest margin was lower at 3.14% compared to 3.20% in the second quarter primarily due to changes in the composition of our securities portfolio and greater competition in loan pricing. Clearly net interest margin compression is a common issue for every one. In our view the highest and best use of our use for cash is loans. We are doing our best to deploy cash in lending. We are doing everything we can to maximize our net interest income and yield but we don't believe it is in the best interest of anyone touches yield or incur unnecessary credit risk and we don't chase it.

Turning to non-interest income, it increased significantly in the third quarter from 86.2 million compared to 40.2 million in the second quarter. This increase was do you primarily to two things. First, with net gains of $23.6 million from our sale of agency backed securities during the quarter. Second, was net gains of $23 million related to evaluation gains and distributions from our venture capital and private equity related investments. As Ken said earlier net of non controlling interest we realized $6.2 million from these gains. That compares to net gains of $4 million on these investments on the third quarter, or $400,000 net of non controlling interest. Our fund performance has generally improved during the year thanks to the improving liquidity mainly through M&A. We also saw a $3.8 million gain from equity one assets thanks to a healthy M&A market. Although, I will caution you not to use the third quarter as a basis for future run rates, never the less we are pleased with Q3 results. With respect to our core fee income, that is all other fee income outside of the other category, it remained relatively stable during the quarter.

One highlight for the quarter was for inn exchange income which was slightly higher and reached an all time high. Overall, our fee income reflects a modestly improving environment for our clients which we expect to continue. Moving to non-interest expense, although it wasn't unchanged at $104.2 million in the third quarter I want to point out that this number reflects higher compensation and benefits expenses related to two things. The first is our strong performance. We are out performing our internal targets and expect to exceed our annual forecast. That resulted in increased incentive compensation accruals during the quarter. The second driver was higher employee related expenses due to the growth initiatives Ken outlined earlier. We are investing in market phasing people to help us grow our business.

Expenses overall were flat because we had lower FDIC assessments after opting out of the tag program as well as a lower provision for unfunded credit commitments. Our FDIC assessment expense in the future could be impacted to new requirements related to today frank and the consumer protection act. At this point it is too soon to tell. Now I will move onto our updated outlook for the full year 2010, we are doing something a little different this quarter. We know that annual guidance can become less useful as you approach the end of the year. In the spirit of maintaining meaningful guidance where it makes sense, we have now narrowed our guidance on certain annual ranges. Second, we have translated certain refined annual ranges into fourth quarter guidance.

Our goal as we approach the end of the year is to ensure our guidance is still meaningful. This does not signal a move to quarterly guidance going forward, and, please keep in mind that these are our good faith estimates of where we will end up for 2010, based on what we know today. Actual results may differ.

Let me start with loans. We expect average 2010 loan balances to decrease at a percentage rate between 6.5% and 7.25%. That would translate into higher average loan balances for the fourth quarter of between $4.7 billion and $4.9 billion. We expect average deposits to increase at a percentage rate between 32% and 34% for 2010. That equates to fourth quarter average deposits of between $12 billion and $12.4 billion, and is an increase from our prior 2010 outlook. We had said before we thought we would see an outflow of deposits from the balance sheets from $1 billion to $1.5 billion once we opted out of the tag extended insurance program. But, the prevailing low interest rate environment has led clients to keep their deposits on balance sheets in the absence of compelling investment yields. We expect net interest income for 2010 to increase between 10% and 11%. That is consistent with our prior outlook calling for an annual increase and a percentage rate in the low double digits. We expect our net interest margin to be between 3.1% and 3.2% for the full year 2010. That is a decrease from our prior guidance only to continue deposit growth.

The fact that the low rate environment is keeping deposits from moving off the balance sheet and the issuance of our senior notes in the third quarter. This outlook assumes fourth quarter net interest margin of between of 3% and 3.2%. We expect net loan charge-offs of less than $50 million for the full year 2010. That is a significant improvement from our prior guidance that charge-offs would be less than 2009 levels of $125 million. We have made -- we have not made any changes to the remaining items in our outlook that pertain to credit quality. But, as we noted, we have had five successive quarters of improvements in credit quality.

Finally, we increased our outlook for non-interest expense and now expect it to increase at a percentage rate in the low 20s for the full year 2010. This increase is due to compensation and FTE increases related to our strong performance and our growth initiatives. There are a few items I have not covered in the outlook, and that is because we have not refined our guidance on those. Please refer to the outlook section of our press release for more information on those items. Overall, we are pleased with our results in the third quarter.

We are encouraged by how the technology industry is doing overall and the fact that improvements we anticipated in loans, in particular, have become reality. Our clients are out performing the broader economy and appear to be gaining momentum. We believe we have the right business model not only for today but for the future. We will continue to do everything in our power to remain competitive, win new clients, and leverage the power of our platform, to differentiate ourselves in the market. Thank you and now I will ask the operator to open the call for Q&A.

Your first question from Steven Alexopoulos from JP Morgan.

Hello everyone. (Inaudible) Regarding Ken's 2011 outlook, unless I misheard this, you are looking for 10% to 20% loan growth. Fees of high single digit low double digits, and then expenses up low 20%. Am I misreading this, that the expense growth is a bit more robust than the revenue outlook for 2011?

Yes, that's right. Just to try to maybe tweak that or clarify that a bit. So our expectations is that we are not going to see the 20% low, 20% gross. What he was really referring to were some of the core line items, ex-compensation and some of those areas. Again, we are not expecting expense growth of that 20%. As we get into the -- with our fourth quarter results we will certainly tweak that number. So no, don't be alarmed that we're going to grow expenses at 20% again in 2011.

Mike, maybe to follow-up, given the sharp increase in securities again this quarter I understand why the yield would be flowing but why would interest income on the securities be falling? Did you have higher yielding securities called away from you?

So you have the pay-downs -- primarily you have quite a fair amount that are maturing, as well as we opted to sell some of the securities we mentioned at $500 million. So those were a little bit higher yielding securities.

[ lost audio ] I would characterize acquisition financing as a core theme in that. So, in some cases corporates buying corporates in some cases, our private equity friends, making acquisitions. I would also characterize the fact that there was as much money spent in acquisitions as a good read of private equity, venture capital's opinion of the economy.

I guess on that, Dave, I did see in the large loan table that the venture capital private equity piece was up -- is that this acquisition financing you are talking about or is that also a return to some of the capital call line business that you have done?

The acquisition financing would be outside of that venture capital, capital call. What you are seeing there, Joe, is the capital call drolls.

That business is starting to pick up again it sounds like?

Yes.

And then lastly, I guess trying to get a little more sense of where the growth is coming from, it sounded like you added several new clients, over 400 new clients in the quarter. Is that -- Who are you a taking market share from? Is it primarily banks, some of the non-bank players? At the same time you are seeing increased competition. Maybe it is a fair amount of growth just from existing clients drawing down existing lines. I guess, if you could give us a little more color on all that, Dave, thanks.

Yes, Joe, so it's Greg Becker and then Dave can get onto it. So the number that Ken talked about as far as new client growth, that's both borrowing clients and non-borrowing clients. And that's a very broad section of company that comes in with the largest number coming in from the very early stage. And as you will hear about venture capital activity and stuff, there is still a lot of preventure backed companies that our teams are able to bring in the door, angel backed companies. The, I should say, overall client acquisition has gone very well. Where those companies come from, it is traditional commercial banks mainly. Those are obviously almost all coming over from traditional banking clients -- or banks. As far as the growth overall, it is broad based. We had -- as we said in the past, some of the growth continues to come from global and we expect that to continue and then the rest is pretty broad based across various niches, segments and stages. So as Ken and Mike both alluded to, we felt very good about the loan growth and composition in the third quarter.

Your next question from the line of Aaron Deer from Sandler, O'Neill and Partners.

Mike, I think it was in your discussion where you talked about the potential for seeing higher FDIC costs as results of some of the regulatory changes. I'm just wondering, are you referring specifically to -- the -- are you guys being put back into a mandatory tag program? And I'm wondering, if so, what that means for your thoughts in terms of maybe trying to push some of this excess liquidity back off balance sheet?

I mean, it is still to be seen on how all that's going to play out. It is a little bit too early as far as the FDIC rates or the mandatory -- entering into a mandatory -- mandatorily into the program. But, as far as our thoughts on moving deposits off, and again, yes that is certainly going to play into that and help us consider the economics deposits, overall. If we have to continue to pay higher levels and deposit costs on that. So that is something we are very attuned to and we're waiting to see how that's going to play out.

Okay. And then, maybe just following up on Steven's question regarding the securities. The securities that were sold in the quarter, what was the rationale for taking that gain, given that there is no great place to redeploy that? I mean, notwithstanding the loan growth and such that you've seen?

Yes, first, overall, it was actually very good for us. As you see, we recorded $23.6 million gain. But If you go back on to the higher level with our -- the way we have been positioning our portfolio both from a credit perspective and duration perspective, it goes back to quarter two where we sold off all of our non-agency securities as well. When all we have left, at least theoretically in a credit risk, is the municipal securities. So basically it's just part of that process that's continually enhanced the credit and the liquidity position. A lot of what we sold off, Aaron, was also some of the smaller lots -- odd lots, $100,000; $200,000; $300,000 types of bonds. It just helps us also to operational and logistically, and at the end of the day, also these securities were priced very, very rich, if you will, for lack of a better term. So again, all in all for us, overall both from a quantitative and a qualitative perspective, it was a very sensible thing for us to do.

Great quarter. Thanks, everyone.

Thanks, Aaron.

Your next question from John Pancari from Evercore partners.

Good afternoon.

Hello, John.

In terms of the securities transactions, can you talk about how that impacted the margin in the quarter? Just particularly given what yields they came off at and the reinvestment yields?

Yes, John, those securities were sold towards the end of the quarter. So it had, I would say a marginally a small impact. I think that the bigger impact will be going forward in the quarter four.

Okay, then in terms of your outlook for the margin, just given how the securities transaction impacts it, would you say this kind of resets the margin at a trough level, given what you are doing on the securities book? And could we assume that we could see some upside through 2011 as loan growth materializes -- or, accelerates?

I think that is a very good way to look at it. What plays out in quarter two. If you look at our guidance for quarter four we are saying between 3% and 3.2%. I would like to say that that is the trough. And as you know there's quite a few things that do impact on that interest margin. If deposits continue to run up, that obviously has a play on it. But yes, going to 2000 level we are hopeful that loans will continue to grow, because that has a very positive impact on that interest margin. So, answer to your point and answer question is yes. I would like to see quarter four as that trough, if you will. But that is assuming deposits won't continue to increase. And, again, that's assuming that loans are going to hold their own and continue to grow. So yes, we are hopeful that that's going to be the trough.

Okay, and this also, lastly, just assumes what you've done in the portfolio with the repositioning of the bomb book, I'm assuming helps you mitigate the risk of quantitative easing is more sizable than what some of us fear.

Yes, I think so. The way we're positioned at portfolio, we're bringing down the duration extension risk and the things of that nature. So I think we are positioning ourself very, very nicely for these types of things.

Okay, thanks a lot.

Thank you.

Your next question comes from the line of John Hecht from JMP Securities. Your line is now open.

Good afternoon. Thank you for taking my questions -- how are you. A little bit more on the loan growth. I understand it was somewhat balanced on the size and the sector basis. But you would think around 40% with loans larger than $20 million. Can you just talk about the competitive framework in that lending market and maybe give us some perspective on spreads and terms there?

This is Dave. So, most of those transactions that would have met the above 20, I would describe that as very, very marginally above 20 in terms of size. Most of them as I indicated earlier would have been in acquisition financing. So we are enjoying in that business a spread that is above our prime and I will remind you that our prime is 4%. It is different from us from what it was 18 months ago, 12 months ago, further in the trough of the economy but we are still enjoying good spreads and that above our prime rate.

And the last question would be, Mike, you talked about 45% loan utilization rate and historical average of 50%. Can you quantify what that would mean if you moved? I know nothing will happen overnight. If you moved from 45% to 50% utilization, what would that mean in terms of potential loan add?

So, this is Dave. And we have calculated that and there are a lot of assumptions to be input into that calculation. But ballpark it with a number that is $200 million, maybe $400 million if we were to -- in one period go from 45 basis points -- or 45% to 50%.

Great, thanks for the details.

Your next question from the line of Bobby Boland from KBW. Your line is now open.

Thanks for taking my question. You mentioned competition on the loan side. I'm wondering if you are seeing competition on the side of lenders too. Talking about it is a premiere franchise. And it is harder for new banks to break in. What are you seeing on top of this in there?

This is Ken, let me start by making a couple of comments and pass it on to Greg, perhaps, with more detail. What we are seeing basically is a that number of banks that really have never taken any interest in this market in the past are drawn into it simply because it is probably the only good market left in the US economy. Just about everything else, other banks have focused on in the past is suffering in one way or another. Who really wants to be in residential real estate? Who wants to be in commercial real estate? Where is American manufacturing? All of these markets are suffering and as a result, because we have done as well as we have over the years, we are starting to attract some banks that really have never thought about this before. Exactly how that plays out remains to be seen but I will say that we are definitely winning more than we are losing. It is just that there are a lot more dog fights than would have been true a couple of years ago. And now with that, I would like to pass it to Greg to put a little color around it with some more detail.

Maybe a little more color. There is as we have said in the past, being a market leader and being in the sector that is doing well, obviously as people think about places to go, we are a natural place for that to -- to look. Clearly we have a lot of strengths that has kept our employees here over a long period of time. And it goes from the culture that we have, the products, the growth nature of our business. The fact that we are different and many other things. So, that being said, we have to be competitive with how we approach our employees and make sure that we are competitive across the board. And that in some cases means that from a compensation perspective we have to be competitive, and very competitive. At the same time we create opportunities for our clients. So it is something we are very sensitive to and I think we have done a very good job of that to date, and we need to remain vigilant on that in the coming years.

And then as a follow-up to that, as you are building out your global lending, who do you compete with for lenders globally?

This is Greg again. The one major market we are really looking to build out right now is in the UK. And we have a combination of both people (inaudible) that we're moving from the US over to London as well as hiring some very strong talent in market. The advantage we have there is we look at bringing people in, is that I think all of us have read about the challenges that the UK banks have had. And the fact that they're not growing, the fact that they're having challenges in getting credits approved and are internally focused. If you contrast that with our strategy, we present a very appealing platform for strong individuals to come on board. We are able to attract so far some extremely strong talent to our platform in the UK. And again, we are talking about small numbers overall, but we feel very good about our ability to attract talent in the UK and I think that will be the case in other markets as well.

All right, thank you I hope you are able to keep up the strong momentum you are showing.

Thanks, Bobby.

Your next question comes from Christopher Nolan for CRT Capital. Your line is now open.

Hello, guys. Quick question on the unrealized gains, Mike, how much for the gains from the funds and funds so forth? Was that all from SVB capital?

Those have -- Chris those primarily came from the funds that we had to manage funds. Roughly a little bit over $6 million from those funds. And there was nothing that really stood out that was significant. Each fund had some gains -- evaluation gains from $500,000 to $1 million. So it's pretty much across the board and very reflective of the financial markets we are seeing. So we're very pleased with that momentum, that progress.

A couple quarters ago you mentioned that for SVB Capital it's approaching the inflection point of a J curve. Are we starting to see that?

It goes by different funds. Overall, I would say we are right at that or crossing on that. And again, we are hopeful that continue on the upward movement. It's been a while that we've been down in there, and so it's kind of nice to start to be able to poke our head above water.

Okay, so you're more optimistic that we see repeat gains on this for quarters coming --

You know, again assuming the economy continues to move forward and the technology sector in particular continues to experience a little bit more reliance, a little bit more confidence that going forward that growth is going to come.

Great. And I guess for Ken, any update on the status of SVB Capital, vis a vie the vocal rule?

Not really. I would say we are about as actively engaged as anybody else out there in terms of providing the kind of information and background to the people that are transforming legislation into regulation as anybody. I think that our opinion is valued because we arguably know quite a bit more about the space than most people do. We are still as an industry I would say, quite a ways away from knowing exactly how it's all going to play out. Having said that, there are scenarios, and I think probable scenarios, under which, if anything, this could be construed as a benefit to us in the long haul. But, it is way too early to tell. It really is. Anything I said would be guesswork at this point.

Thanks for taking my questions.

Again, at this time if you would like to ask a question press star and then one on your telephone keypad. Your next question from the line of Mike Zaremski from Credit Suisse. Your line is now open.

Hello, guys, thanks for taking my question. I'm going to try to ask one on loan growth. I know there's been a bunch asked already. But, outside from a double dip, is there one or two major assumptions you are making in your 2011 loan growth estimates that could maturely change your assumptions? For example, acquisition related financing outlook? Or maybe a jump in the utilization rates or overseas loans?

This is Dave. That's a good question. I think that clearly if there was a sentiment from the portfolio companies that might be buying other companies; if there was a sentiment within the private equity environment that things were less certain -- but that seems almost to fall back on the presumption about the economy. So I think that we are going to experience the good growth, plenty of opportunities to do so, both domestically and internationally.

Let me weigh-in with my own view on that which corresponds to Dave and I'm probably saying the same thing Dave's saying but in my own words here. And that is that when we talk about loan growth in the potentially 10% to 20% range, that is not just because we feel good or because we are shooting in the dark. There are a number of identifiable identifiable trends that would support that contention. And I would just like to list five of them for you. A couple of which you already mentioned for me, thank you. One would be as their continues to be M&A activity growing in our market, which there is ample evidence of, then the potential for appropriately sized acquisition financing, it is a greater rather than a smaller. That is number one.

Number two is we have witnessed in the past few quarters identifiable positive trendline in our portfolio with respect to revenue growth. And that usually leads to a modest re-leveraging. So a re-leveraging -- or, in other words, higher utilization rates on existing facilities, can contribute to loan growth. Number three would be as we expand our activities overseas, and I know you mentioned that yourself, but we anticipate there will be measurable loan growth in that arena as well. Number four would be we have a lot more competition than we did before, but we're also winning more than we're losing. So, taking market share could contribute to increased loan growth as we believe -- or know it did this quarter.

And then number five would be our basic business model. Because, as you know, our basic business model in short, but over-simplified order, would be we that bring in as high a percentage of companies in on the onset as we possibly can and then we keep them as they grow. So you could say -- and of course these are general numbers -- but you could say that 80% or 90% of our new business development activity focuses on raw start ups, and a disproportionately large percentage of our revenue comes from larger companies.

So, in the natural course, there will be many smaller companies that will survive, and become larger companies. And as they become larger companies their capacity for leverage increases, and all five of those are objectively identifiable trends of which we have seen evidence in these past quarters. So unless there was a dramatic change in the overall economic environment, we would anticipate that all five of these could contribute to increase loan growth, and we are estimating between 10% and 20%.

All right, that was very helpful. Thank you.

And at this time there are no further questions. I would now like to turn it back to Ken Wilcox for closing remarks.

Thank you very much for attending today. I don't have much in the way of closing remarks. I would just like to say we do believe it was a good quarter. We hope you do too. We believe that we not only had good earnings, but we are also using some portion of that to invest in future earnings on your behalf. I will tell you that you can be absolutely certain we are dedicated to producing the highest returns for you that we possibly can. And I also want to take ten seconds here to -- of your time, to thank our employees who worked extremely hard this quarter in this increasingly competitive atmosphere, and as I have said a couple of times already, have won a lot more than they have lost. And I think we are all grateful to them for their efforts. Thank you very much