SVB Financial Group (SIVB) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Allen, and I will be your conference operator today. At this time, I would like to welcome everyone to the SVB Financial Group quarter one 2011 earnings conference call. All 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). Thank you very much. Ms. Meghan O'Leary, Director of Investor Relations, please go ahead.

Thank you, operator, and thank you all for joining us. We welcome to you our first quarter 2011 earnings call. Ken Wilcox, our CEO, and Mike Descheneaux, our CFO, are here today to talk about our first quarter results, and they will be joined by other members of management for the Q&A. I would like to remind everyone that our first earnings release is available at svb.com.

I would also like to caution you that we will be making forward-looking statements during this call, and that actual results may differ materially. We encourage to you review the disclaimer in our earnings release dealing with forward-looking information. This disclaimer applies equally to statements made in this call. In addition, some of the discussion today will include references to non-GAAP measures. Information about those measures, including a reconciliation to GAAP measures, can be found in the SEC filings and in our earnings release.

We will limit the length of the call, including Q&A, to one hour. During the question-and-answer session, we will ask you to limit yourself to one primary and one follow-up question.

And with that, I'll turn the call over to our CEO, Ken Wilcox.

Thank you, Meghan, and thank you all for joining us.

I am proud that we delivered an outstanding quarter, particularly since it was my last full quarter as CEO. Our strong performance across nearly every area of the business earned our shareholders $33 million, or $0.76 per share. Those numbers reflect strong loan and deposit growth, high credit quality, a significant increase in net interest income, meaningful gains on venture-related investments, and continued market share growth.

When I look at how well SVB performed, I am more convinced than ever that we have the right business model, and that we're executing on it in the best way possible. Clearly, we are headed in a good direction. We are focused on the innovation space, a space that has proven itself reliable over time. We are constantly assessing the needs of our clients, constantly trying new approaches, and constantly developing new products. We follow our clients around the world, and we use these new approaches and new products to help them tie it all together by facilitating cross border transactions and relationships. And this enables us to serve our clients successfully, no matter how large they grow.

Our markets are doing well. Global technology spending is growing, and our clients are seeing top line revenue growth. Venture investment is recovering, and funding is pouring into new technology sectors such as social media and cleantech. The exit markets for venture-backed companies are gaining momentum. Robust new economies are developing in China and in India.

Against the backdrop of these positive developments, SVB is stronger today than at any point in its history. And I would like to share with you as investors a few thoughts as to why I think we're so strong, and how you can help to ensure that we remain so.

First is that we at SVB are focused on the long-term rather than the short short-term. This focus has enabled us to return a 9% compound annual growth rate in net book value over the entirety of the past decade. When you as investors focus on the long-term, you make it easier for us to deliver long-term value as well.

Second is that we understand the difference between real and perceived risk. That has allowed us to succeed in dynamic growth markets where others have failed. We have proven over the last decade that our model is no riskier than that of other banks. More recently, the recession seems to have proven that our model is far less risky than that of most banks.

The final thought I would like to share is that SVB is in excellent hands. I believe we have a great management team, without whom we would not be where we are today. I've been planning this transition for a number of years, and I have dedicated myself to putting in place the strongest teams of executives and bankers possible. I am ready to move on now because I have succeeded in that effort.

So I would like to close with a Chinese proverb. (Spoken in foreign language). If I said it right, it means, "a single tree cannot make a forest." I have often talked about our work here at SVB has planting sequoia seeds. Going forward, I will be cultivating one of the trees that makes up the larger forest we are planting and growing here at SVB, and I will still be actively engaged and contributing to our future success.

I want to thank you members of the investment community for your support and faith in SVB over these years. I also want to thank the 1,400 excellent SVB employees who are responsible for our success to date. I believe we have a tremendous opportunity ahead, and that you are exactly the right group to make the most of it. I wish you all the very best.

And with that, I would like to turn the call over to our CFO, Mike Descheneaux.

Thank you, Ken, and thank you everybody for joining us today. But before I start I just want to say that this is our 16th quarterly earnings call together, and I'm extremely happy that we are helping you go out with some great earnings as you just described. Thank you, Ken.

So on to the numbers. Clearly we had excellent results in the first quarter, and we are pleased with our ability to deliver strong performance in a still recovering economic environment. We are extremely well-positioned to take advantage of the economic recovery and any increases in market rates.

There are a few items I would like to highlight from the quarter. First it is continued loan growth for the third quarter in a row. Loan balances are at an all time high. Second is exceptional credit quality, resulting in a negative provision. Third is continued growth in our all ready strong deposit franchise, which enabled us to expand our investment portfolio and increased net interest income. Fourth is gains on warrants and investment securities related to our venture capital investments. And fifth is higher non-interest expenses, driven by higher compensation related to strong performance and seasonal items.

Additionally, I will talk about changes we have made to our outlook for the year. Let me start with loan growth. We grew average loans by $305 million, or 6.1%,to $5.3 billion, the highest average balance in our history. That's an impressive 29% increase over the same quarter in 2010. Period end loan balances also rose by $129 million, or 2.3%, to $5.7 billion, a 34% increase over the same period last year. Our first quarter loan growth reflects particularly strong activity from software clients, much of it related to acquisitions, as well as a strong showing from our private bank.

We did experience lower than expected runoff of the shorter term venture capital and private equity capital call lines of credit that drove much of our loan growth in the fourth quarter of 2010. We told you last quarter we thought pay-downs on some of these loans could lower our period end balances in Q1. But while our VC clients did pay down their lines as we predicted, the brisk level of venture and private equity activity in the first quarter resulted in near equal funded debt for the December and March quarter end periods. Of course, this is good news that our VC clients are continuing to borrow. As we enter the second quarter, our loan pipeline remains strong, and we are seeing continued demand from all client sectors.

With regard to credit quality, we had an exceptional quarter. We had a negative loan loss of $3 million -- in other words, a reduction of provision -- driven by very low gross charge-offs of $4.3 million and higher than normal recovers of $6.8 million, which resulted in net recoveries of $2.5 million in the first quarter. Those recoveries were helped by liquidity provide by a strong early stage merger and acquisition market, which enabled to us to recover $3.1 million related to software loans previously charged off when the companies associated with those loans were acquired.

Credit performance is improving across our portfolio, which also drove the negative provision, although we believe the combination of low charge-offs and high recoveries in the first quarter is likely to be repeated. Non-performing loans continued their decline by 12% to $34.5 million, primarily as a result of our active management of that portfolio. This is our fifth consecutive quarter of overall credit quality improvement. As a result of these positive credit trends, continuously improving conditions for the clients, and some improvement in the economy, we lowered our allowance for loan losses as a percentage of total gross performing loans to 1.33% from 1.37%.

Moving on to deposits. Our strong deposit franchise contributed significantly to our results this quarter, supporting our loan growth and a larger investment portfolio that drove record high net interest income and a higher net interest margin. As a result of new client growth and a low rate environment, average deposits increased bid $1.4 billion. or 10.3%, to $14.7 billion, while period end deposits increased by $994 million to $15.3 billion.

Average client investment funds, which are held off the balance sheet, increased by $514 million, or 3.2%, to $16.8 billion. This increase was due to a steadily improving environment for our clients and our own initiatives to ensure that our client are in the right products. Our clients liquidity reached an all-time high in the first quarter. Average total client funds, which are deposits and client investment funds, increased by $1.9 billion, or 6.4%, to $31.5 billion.

We put a significant amount of deposits to work during the quarter in loans and in the investment portfolio. As a result, we had record high net interest income of $120 million, an increase of $15.8 million, or 15%, over the prior quarter, and a 19% increase over the first quarter of 2010. That increase reflected slightly high interest income from loans and significantly higher interest income from our available-for-sale investment portfolio.

Interest income from loans rose by $450,000 during the quarter. It would have been even higher, but there were two fewer days in the first quarter than in the fourth quarter. That said, average loan yields were lower at 6.85% versus 7.08% in the fourth quarter due to loan mix, as well as increasing competition for high quality borrowers. But we are very pleased with our success at winning new business from these very desirable borrowers.

The increase in interest income from our investment portfolio was due primarily to a higher volume of investments, an increase in our allocation of new investments to fixed rate securities over variable rate securities, and margin increases in market interest rates. At the end of the first quarter, our available-for-sale investment portfolio reached $9.5 billion, an increase of $1.6 billion. As we have discussed in prior quarters, our investment strategy has been to position our balance sheet to effectively utilize excess cash balances while maintaining liquidity to support our growth.

The combined effect of these changes resulted in an improved average portfolio yield of 199 basis points, compared to 158 basis points in the prior quarter, and it increased interest income by $15.5 million. Also as a result of these changes and our continuing loan growth, net interest margin increased from 2.74% to 2.96% in the first quarter. As you can imagine, we are extremely pleased with our net interest income and net margin performance in the first quarter, especially given the low interest rate environment.

Before I move on, I want to touch on two additional items that will impact our net interest income and net interest margin. First is the maturity of our convertible senior notes on April 15. All notes were converted. We repaid the $250 million principal and outstanding interest in cash. The excess conversion value of $10.4 million over principal was settled in shares of our common stock. Moving forward, this repayment will benefit net interest income and net interest margin, as we will no longer have a net interest expense associated with those notes, which in the first quarter was $3.6 million. Because of the way we structured the transaction, we do not expect any significant share dilution or impact on stockholders' equity as a result of the payment.

The second items is our announcement today that we launched a tender offer to repurchase our bank level debt, specifically our senior notes due in 2012 and our subordinated notes due in 2017. These notes were issued in 2007. When complete, we expect the transaction will strengthen our capital position and be accretive to earnings. We also expect it to positively impact our net interest income and net interest margin.

Moving on to non-interest income. GAAP non-interest income was $90 million, an increase of $18.1 million, or 25%, over the prior quarter. Net of non-controlling interest, non-interest income was $46.4 million versus $52.1 million in the prior quarter. It is often important to recall that because of adjustments we made in Q4 to certain fee related non-interest items, our Q4 fee related non-interest income was somewhat higher, and now it is back to normalized levels. If you take into account those one-time adjustments from the fourth quarter, the run rate for Q1 is consistent with the prior quarter.

During Q1, we were pleased to see continued strong investment securities gains, which drove the higher non-interest GAAP number. Our investments securities gains of $51.3 million in Q1 were primarily related to higher valuations and higher distribution in our venture capital fund investments. Overall, our investment securities gains were $8 million net of non-controlling interest, versus a gain of $6.5 million net of non-controlling interest in the fourth quarter of 2010, which is no doubt a good result.

This marks our seventh consecutive quarter with securities gains, reflecting a steady recovery since the market downturn. We believe these gains are a validation of our longtime strategy of targeting the top tier venture capital firms. About half of the valuation gains we saw in our funds were driven by Internet and social networking companies. We are also seeing the benefit of strong exit markets and higher valuations on our warrant portfolio, in which we had gains of $4 million in Q1 from both valuation increases and exercises, versus $3.5 million in the prior quarter.

Moving to non-interest expense. Non-interest expense increased slightly by $1.5 million, or 1.3%, to $117.4 million in the first quarter. But there were a number of moving parts that I would like to note for you. First was seasonally higher compensation and benefits expense related to employee stock ownership and 401(k) contributions, payroll taxes and personal time off. Second was annual merit increases, effective March 1, and new hires. Third was higher incentive compensation related to our strong performance.

Together these items increased experiences by $9 million, of which two-thirds related to seasonal items, but offset to a great extent by lower operating expenses due to two items. First of lower professional services expense in Q1 related to consulting and legal fees. These fees were elevated in Q4 because of accelerated investment in certain growth initiatives and increased loan activities. The second driver was the reduction of provision for unfunded credit commits due to credit performance across the portfolio.

Now I will move on to the updates in our outlook. As a reminder, all of my comments refer to our outlook for the full year 2011 as compared to the full year 2010 unless otherwise specified. I am pleased to say our outlook for the year has improved as a result of continued strength among our clients, solid valuations and exit markets, and an improving economy. We are increasing our average deposit growth outlook from the high single digits to the low double digits due to our expectation that clients will continue their preference for the balance sheet, barring any interest rate increases.

We raised our outlook for net interest income. We now expect growth in the mid 20% range versus the high teens. This change is due to the strength of our deposit franchise, which is contributing to higher investment portfolio balances and higher interest income.

We are improving our outlook on overall credit quality due to strong Q1 results as well as expected improvements in economic conditions and their impact on our clients and the exit markets. We now expect a lower range for allowance for loan losses of 1.25% to 1.35% of total gross performing loans. We previous said we expected the allowance to be between 1.3% and 1.4% of total gross performing loans.

We lowered our net charge off expectations to less than 50 basis points on average for the year. We previously said we expected net charge offs to be comparable to 2010 levels of $34.5 million, which equated to 75 to 80 basis points. This improvement stems primarily for lower charge offs and higher recoveries in the first quarter and our expectation of strong credit performance in our portfolio for the remainder of 2011. Similarly, we expect non-performing loans to be lower than 2010 levels of 71 basis points. We previously said we expected non-performing loans to be comparable to 2010 levels.

We are increasing our outlook for net gains on equity warrants. We previously said we expected them to be comparable to 2010 levels of $6.6 million. In light of our strong Q1 performance and continued improvements in valuation and exit markets, we now expect these gains to be in the $7 million to $10 million range for 2011. Likewise we are improving our outlook for net gains, net of non-controlling interest, on investment securities to a range between $13 million and $16 million due to improvements in the economy. We previously said we expected these gains to between $4 million and $8 million for 2011.

We are also increasing our expense outlook to the low digits for the mid teens. This change is due entirely to our expectations for higher incentive compensation related to our strong performance in Q1, and our improved outlook for 2011. We continue to be very focused on operating expenses, scaling and efficiency. That said, we pay for performance, we set our targets for the year, and we are exceeding them. I also want to point out that our outlook for loans has not changed.

We still expect loan growth if the mid 20% range. We are extremely pleased with our results in the first quarter. Our clients are doing well, and they are borrowing to pursue growth opportunities. Higher venture capital valuations and strong exit activities are helping our gains from venture related investments and warrants. Our strong deposit franchise and loan growth are driving higher interest income. We are tremendously excited about the opportunities ahead of us and the earnings boost we expect to see in time from an improving economy and a rising rate environment.

Thank you, and now I will ask the operator to open the call for Q&A.

(Operator Instructions). Your first question comes from the line of Steven Alexopoulos, and his line is now open for you.

Hey, everyone. Maybe I'll start --

Hello, Steve.

Hi. You touched on this a bit, but can you give color on what you're seeing in the VC investment and business formation in the social networking sector? Maybe talk about how active you are there?

So, Steve, this is Greg Becker. Let me start. So from a -- obviously a lending prospective, our lending in the technology innovation sector is pretty broad, and there is from our standpoint no concentration that we would say in the social media sector. It's a very hot space on one hand. On the other hand, I think it's important to note that those companies are tending to be raising a lot of money right now, so their desire or need for debt is less. So they tend to be very liquid. It's clearly a key part of our deposits, but I wouldn't view it as any cause for a concern at all from a concentration prospective on the lending side, ifthat's the path you were heading down. And, Dave, I don't know if you would add anything else, but --

I would say the same thing.

Okay.

Okay, that's helpful. Maybe just one follow-up. The deposits in-flows have been real good, but the growth of the size of the balance sheet seems to be stressing the leverage ratio a bit. If you continue to see these in-flows, can you talk about what the game plan might look like from a capital perspective?

Well, Steve, we are well aware of that, and our goal right now is to make sure we can support that deposit growth here. And given our earnings power and projections, we're looking that we will be able to continue to handle that. But again, of course, if you continue to see $1 billion, $2 billion every single quarter, that would certainly be problematic. But again, we are well aware of it, we're planning for it, and we're developing different products and moving our clients into the right product, which could be on our balance sheet, and in many cases would be off our balance sheets as well. So we do have those mechanisms to try to help us manage that if it does become an issue.

(Inaudible -- multiple speakers). I was going to say, you haven't had to hit those triggers yet?

Steve, this is Greg. Not the triggers from that standpoint. Mike said obviously we're watching it closely. And just from the standpoint of products, there's a few things. One is off balance sheet suite products, other inventive to move balances off balance sheets. So we're making progress there, but your point, the in-flow of deposits has been greater than the movement off balance sheet. But we're watching that, and I think the products will help drive that down.

Another part relates to just he overall rates. As we said in previous calls, the big driver of movement of our deposits off balance sheet to the off balance sheet funds, or deposits to off balance sheet funds, is going to be when rates start to pick back up. And there's more of a margin that can be picked off up off balance sheet. So we believe later this year, beginning of next year that will take place. But in the meantime, the new products we're going to be introducing will help drive that off.

Thanks for all of the color.

Thanks, Steve.

Your next question comes from the line of Mike Zaremski, and his line is open for you.

Hi, guys.

Hi, Mike.

On the investment portfolio, the a bit surprised. I mean, a good thing on the jump in the yields. Is there a different thought process there in terms of duration? Any color there?

As you're probably well aware, we continued to focus on duration in that 2.5 to 3.5 year period, so again there's no real strategic shift there at all. Again, one of our key aims is trying sure we have the right liquidity levels as well too, and not going too far out in the yield curve. So again, still steady as she goes, and we're helped by some of that reinvestment portfolio as well, too, because interest rates have been going up a touch as well too. And again -- but purely, volumes have been a big, big help.

Okay. And on the whole potential Volcker rule issue, I was curious, do you believe if it did include venture capital it would impact the warrants you obtain from loan customers, or it would just be on the -- your funds, your money in venture capital investments?

Our belief it would not impact taking warrants.

Okay.

Yes, this is Greg. It's specifically investments in fund, so to Mike's point, it doesn't relate to warrant.

Okay. Thanks for taking my question.

Thanks, Mike.

Your next question comes from the line of Joe Morford, and Joe's line is now open for you.

Thanks. Good afternoon, everyone, and Ken, best wishes on your new role over in China.

Thank you.

I have a follow-up to some of the questions asked. Mike, what was the tier one leverage ratio at the bank level at the end of the period, and what's the kind of level you don't want to see that dip below?

We didn't disclose it in the filings there. It typically comes out in that call report. But I'll share with you. I mean, just full transparency, which is quite fine. It was approximately around that 6.6% level at the bank level.

Yes, okay. Is that -- where is kind of the floor that you'd like to see on that?

It's around that area, plus or minus a few things. I what we want to see is the trend to continue to go up. And again, with our earnings power and what you have seen, certainly that has helped news Q1. So direction is going the right direction.

Okay. Then also just a follow-up on the Volcker rule. Any updates on whether it looks like venture capital will indeed be treated under the same umbrella as hedge funds and private equity?

Yes, this is Mary Dent (inaudible -- multiple speakers) --

When do you expect to hear something.

As we mentioned last quarter, the good news was that the Financial Stability Oversight Counsel in its report seemed to validate our position that venture is fundamentally different and encouraged regulators to really look at the issue. They have a deadline of this fall to adopt a final rule, and so what we're hearing is sometime in the next quarter they should come out with a notice of proposed rule making. I think we continue to believe strongly that the right policy outcome is to distinguish venture, but in the bottom line in terms of what they'll actually do is that nobody can know. The one thing we absolutely know is that even if we're covered, it plays out over a long period of time, and if we're effected, we'll have years and years to adjust our holdings to fit any final rules.

Right. Okay, thanks so much.

Thanks, Joe.

Your next question comes from the line of John Hecht, and John's line is open for you.

Good afternoon. Thanks for taking my questions. Mike, real quick, didyou say $3.6 million quarterly lower interest rate expense as it relates to the convert?

Yes, it was exactly $3.6 million of interestexpense in Q1.

And then can you tell us what was the premium amortization [on the] security of these portfolio in Q1 versus Q4?

I don't have that number with me, but the premiere amortizations were down. If you're talking about kind of the phenomena what was happening, whether the slowdown in the repayment of mortgages, whether that was affecting people's securities, the pay-downs did slow down, if that's what you're driving toward.

Okay. And then the last question is, Mike, you suggested that -- you highlighted kind of the competitive market is driving some yields downs. I'm wondering also how much of the yield decline in loans might be related to mixed shift, as you guys move into larger loans? And then beyond that, can you comment on the competitive market? Is it changing purely in spreads, or is it changing in terms of credit profile now, or maybe leverage multiples and things of that nature might be moving up at this point?

This is Greg. Let me start with the margin discussion. SoI think you're right; it's definitely a mix part as well. Mix is a key part of it; competition to a lesser degree. We believe where we are at is for the balance of the year going to be consistent loan margin. Maybe it drop slightly from where we are, but we feel good about where we are. The other part is that we continue to look for a high quality loans, and so obviously those are the ones most coveted by everyone in the market. With the fact that the rest of the industry is struggling to find loan growth, there's no question that the technology and innovation space is a market that other people would like to get into as well. So we are seeing competition, but again the main driver of the decline in margin related to a mixed shift.

And any changes in leverage multiples or anything that would suggest there's some credit quality factors changing in the marketplace?

This is Dave Jones. We are seeing some signs that a larger number of people are getting comfortable with a larger leverage balance, but we're still a long way away from some of the heights that we saw in 2007 timeframe.

Okay. Thanks very much for the color, and congratulations on a strong quarter.

Thanks, John.

Thank you.

Your next question comes from the line of John Pancari, and John's the line is open for you.

Good afternoon.

Hi, John.

Mike, the cash tender offer and then the convertible senior note deal, does that -- repayment -- are they both reflected in your margin outlook for 3.30% to 3.40% range?

On the convert, which just settled in April, that one would be reflected in our net interest margin outlook and guidance. And I think if we recall correctly, and think we talked somewhere in the neighborhood of four and six basis points that would help our net interest margin. Now with respect to the tender offered, the answer is no. There is -- it's not been forecasted in there, because again, you don't know how much you'll be successful in tendering or buying back. So we'll be getting those results obviously over the next couple of days, and then once we announce the final results of the tender, we'll certainly perhaps be able to -- you'll be able to figure out roughly how much that's going to be helpful.

Okay, all right. And then we kind of talked about this last quarter a bit, but that 3.30% to 3.40% range still implies quite a steep ramp in the margin from where you are at right now. And you did see expansion this quarter, and then obviously you do have the convert repayment, but still it seems like a relatively steep ramp. And can you just talk about your viewpoint of how you get there? Is it partly from the loan growth?

It's similar to what we had talked about it in the past, John. It certainly is the loan growth, but we talked about dropping down some of the deposits as well by the end of the year on the period end numbers as well, so -- and also the debt buyback here is helpful. So there's quite a few things that will certainly help us to get back to that range. And of course the investment securities, with the uptick in rates a bit, that's also very, very helpful.

Okay, all right. And lastly, in terms -- you gave us the updated loan loss reserve expectation of 125 to 135 bips. Could you talk about what you view as a more normalized reserve level for SVB going forward here, just given your shifting loan mix as a structure?

This is Dave Jones, and certainly in the 2006-2007 timeframe, we had loan loss reserve less than the 125 basis points. I think that as we continue to experience positive credit results over a longer period of time, and if there are no dark clouds in the economy, then I think there is the possibility that we could see the loan loss reserve even lower than 125 over an extended period of time. But we've got to get there first.

Okay, thank you.

Your next question comes from the line of Julianna Balicka, and her line is open for you.

Good afternoon.

Hello.

Good afternoon?

Hi there. We're here.

Hi, can you hear me?

Sure.

Oh, hi, sorry. Great quarter. I have a quick housekeeping question. On the $2.5 billion of securities that you added this quarter, did they roll in throughout the quarter, or is there -- or at the beginning or the end? I'm sorry if I missed you discussing that. I'm just trying to figure out (inaudible -- multiple speakers) [effect].

Yes, it's pretty hard for me to say, but I would say for your purposes you probably need to assume it rolled pretty evenly throughout the quarter.

Great. Thank you very much.

Your next question comes from the line of Aaron Deer, and Aaron, the line is open for you.

Hi, good afternoon, everyone.

Hello, Aaron.

One of my questions has been answered, but oneI still have is, can you confirm whether or not you have an ownership position in SecondMarket, and if so is that a strategic investment, or is it a financial investment that maybe you have through one of your funds business?

Aaron, this is Greg and I don't think we've publicly disclosed whether we have invested or not invested in different entities, just consistently. So to my knowledge, we have not disclosed any investments we've made, whether it's in SecondMarket or other companies.

Okay. The -- I guess, because their press releases show you to be an investor there, and I'm just curious, because they've obviously had a lot of growth recently with -- they're one of the leading transaction sites for Facebook shares and a lot of that sort of stuff. So I'm just --I don't know, it seems like if --

Aaron, we were just talking about it. So given that they've given a press release out about it, we wouldn't do a press release. We would confirm that, yes, we are an investor.

Okay. And then just as a follow-up. If some of the trust banks had come under scrutiny for their 4X pricing and execution practices. Have you done any internal review on your own practices and just to confirmed that customers are getting the best execution on that sort of thing?

Aaron, we don't have anything specific to comment about that, but it is our belief that we continue to our give clients the best pricing and execute on the best practices that we know. So we're not aware of anything in that front.

Okay, great. Thanks very much. Great quarter.

Thanks, Aaron.

Your next question comes from the line of Christopher Nolan, and Christopher's line is open for you

Hi, guys.

Hey, Chris. Hey, Mike, on the security gains, were most of those from the SVB Capital? I might have missed your comments. It was across all of the venture capital and private equity investments, but certainly when you refer to SVB Capital, that is our fund to funds business, and that did certainly perform well in this quarter, so that would be a fair statement.

You guys have been harvesting gains from -- substantial gains over the last few quarters, and we're still in sort of the harvesting phase for some of your funds, should we expect elevated levels of gains for the next few quarters? Or any color there?

Chris, I think for -- again, for the best for your purposes is just looking to our full year outlook. As can you imagine, those items can up and down in a given quarter, so you have to take that longer term view. So again, we would just kindly refer you to our full year guidance.

Great. Ken, congratulations. The last question is for you. Since you're heading up, as I recall, the JV with the bank in China, any color you with give when this might start trailing into earnings for SVB in terms of minority interest or gains or something?

Yes, I can do my best there, although my best isn't going to satisfy you. It's going to be extremely difficult to know when we will get a license from the CBRC. Now, I'm a naturally optimistic person, so that colors it somewhat, but I will tell you that it would appear that the stars are aligning. So I am probably more optimistic today than I would have been three months ago around how long it's going to take us to get that license. On the other hand there's is no way of knowing with certainty. And once the license is in place, if it ends up being in place, which we are pretty certain will be the case, then it's our belief that we would move to some level of profitability very, very quickly. And we also anticipate that at least in the fullness of time we'll see considerable growth in that entity, simply because the space within which we operate in China is very, very buoyant and has every prospect of remaining soBut it's -- again, all bets are off if we don't end up getting a license.

Great. Thanks for the color, and good quarter, guys.

Thank you.

Thank you.

(Operator Instructions). Your next question comes from the line of Casey Haire, and Casey's line is open for you.

Good afternoon. Could you guys talk a little bit about just a follow-up on the international initiatives?I hear your thoughts on China, but it sounds like London is one, the UK could be an area that could be further along. Is that embedded within your outlook guidance for the year? And then secondly, how much of the expense base was towards these international initiatives in the first quarter?

Yes, Casey, this is Greg, and the outlook for the balance of the year does obviously have growth built into there from global. The majority of the growth we have in our forecast relates to three key markets. It would be the UK, itwould be Israel, andit would also be our international venture capital portfolio, which is really a combination of all four of our international markets. So that's -- thoseare the big drivers. China, as Ken said, is subject to certain licensing, which we believe we will get, but it will take longer to realize. AndIndia is growing, but still coming off of a very small, small base.

Okay. And then how much of the expenses towards the international initiatives were in the current quarter?

I don't have the specific breakdowns, but again, you recall we had that discussion last quarter about the expense growth for the year and the proportion of the allocation to how we were dividing up into different growth initiatives? So that proportional allocation has not changed significantly at all since what we had talked about last quarter.

Okay, great, thanks very much. Best wishes, Ken.

Thank you.

Thanks, Casey.

At this time there's are no further questions in queue.

Well, with no further questions, then I will just wrap up by onceagain saying good-bye to all of you. I thank you very much for your interest and support over all of these years. I also want to thank our 1,400 SVBers once again for being the wonderful and productive employees that they are. And I will tell you I am leaving in just a couple of weeks now for China with a very optimistic view of the direction we're going. So thanks again, and good luck.

Ladies and gentlemen, this concludes our call today. You may disconnect. disconnect.