SVB Financial Group Management Discusses Q1 2013 Results - Earnings Call Transcript

Apr.25.13 | About: SVB Financial (SIVB)

SVB Financial Group (NASDAQ:SIVB)

Q1 2013 Earnings Call

April 25, 2013 6:00 pm ET

Executives

Meghan O'Leary

Gregory W. Becker - Chief Executive Officer, President, Chief Executive Officer of Silicon Valley Bank, President of Silicon Valley Bank and Director

Michael R. Descheneaux - Chief Financial Officer

David A. Jones - Chief Credit Officer

Analysts

Herman Chan - Wells Fargo Securities, LLC, Research Division

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Joe Morford - RBC Capital Markets, LLC, Research Division

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Gaston F. Ceron - Morningstar Inc., Research Division

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

Operator

Good afternoon. My name is Kyle, and I will be your conference operator today. At this time, I would like to welcome everyone to the SVB Financial Group First Quarter 2013 Earnings Conference Call. [Operator Instructions] Ms. O'Leary, you may begin your conference.

Meghan O'Leary

Thank you, Kyle, and thanks, everyone, for joining us today for our first quarter 2013 earnings call. Our President and CEO, Greg Becker; and our CFO, Mike Descheneaux, are here to talk about our first quarter results. As usual, they'll be joined by other members of the management for the Q&A.

I would like to remind everyone that our current earnings release is available on the Investor Relations section of our website at svb.com.

I will caution you that we will be making forward-looking statements during this call and that actual results may differ materially. As usual, we encourage you to 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 our discussion may include references to non-GAAP financial measures. Information about those measures, including reconciliations to GAAP measures, may be found in our SEC filings and in our earnings release. [Operator Instructions]

And with that, I will turn the call over to our CEO, Greg Becker.

Gregory W. Becker

Thank you, Meghan, and I thank all of you for joining us today. In the first quarter, we delivered a strong performance and continued to make progress on our growth strategy. We posted net income of $41 million and earnings per share of $0.90 versus consensus of $0.88 per share. Our performance compares favorably to the same period last year when we delivered net income of $34.8 million or $0.78 per share.

Highlights from the quarter included 20% annualized loan growth, average loan growth. As we expected, period-end loan balances were effectively flat due to paydowns of capital call lines of credit, which were elevated in the fourth quarter for tax-motivated reasons. We also delivered very healthy credit quality, a higher net interest margin due to lower premium amortization expense and a strong growth in FX and credit cards. Overall, it was a very good quarter. Our clients continue to do well, and we are executing on our strategy of winning clients early and staying with them as they grow, providing products, services and solutions that can scale with our clients; and expanding globally.

Let me start with clients. SVB has built a reputation over its 3 decades for being a great partner to innovation companies. This reputation and our track record of helping clients succeed give us a significant competitive advantage with clients at all stages. That advantage was clear in the first quarter as we continue to add new clients, book new loans and expand existing relationships at a very healthy pace.

For example, this first quarter was one of our strongest ever for early-stage client acquisition. We added 438 new early-stage clients during the quarter, compared to 352 in the same period last year. We have seen no slowdown in new company formation. Our clients are benefiting from healthy levels of what we think of as innovation capital. Innovation capital comprises funding from angel investors, seed-stage funds and corporate venturing groups, as well as traditional venture capital investing.

We are more than maintaining our strong market share of startups, and we are working successfully to make sure our market share includes an even higher percentage of the best, fastest-growing startups that will become larger growth stage and corporate finance clients.

To illustrate how this works, of the 66 venture-backed companies that went public in the last 15 months, 41 were SVB clients. These fast-growth companies use more products and services. For instance, the majority of those clients that went public invested their IPO proceeds, some $2.6 billion, into SVB's off-balance sheet products, which generate fees for us. And of course, borrowing from larger clients has driven the majority of loan growth in recent quarters, as we've outlined before.

So you can see, how capturing companies at their early stages creates a built-in pipeline for growth and capturing the best companies can accelerate that growth.

In the same vein, we have steadily improved our pace of new client wins in corporate finance, that is clients with revenues greater than $75 million. We are winning 20 to 30 new corporate finance clients every year, effectively double the pace of 3 years ago. Now that may not sound like a big number compared to our early-stage client acquisition, but if you consider there our larger client relationships are anywhere from 10 to 20x more profitable for us, it represents important momentum. Our ability to win more of these larger clients as a result of our ongoing investment in the products and services that our clients need as they grow. We saw continued solid growth during the first quarter in 2 of the most in-demand products among our larger clients: foreign exchange and credit cards. In the first quarter of 2013 versus quarter of 2012, foreign exchange dollar volumes grew by 6% and credit cards, which is still a young business for us, grew by an amazing 44%.

Also in the first quarter, we completed the rollout of new technology solutions we launched in the last few months. These are part of our efforts to make things simple and scalable for our clients. The market is recognizing the strength of our products and services. We were proud that our new business-to-business payment platform for small and midsized companies received an innovation award from a mobile payments industry group, the first of many innovation awards we hope to win over the coming years.

And we are one of only 7 banks to receive a prestigious Excellence Award from Greenwich Associates for international service to mid-sized companies. This award is based on the results of 14,000 interviews with U.S. executives at mid-sized companies. I think it says a lot about the power of our commitment and focus when you consider that the winners were -- the other winners were banks ranging from 5 to 100x our size.

We're also continuing our efforts to create unique, relevant events that help to move things forward for our clients. In the first quarter, one of the many events we held included a speed dating event in which a group of startups presented to Turner Broadcasting's corporate venture arm. The event was a tremendous success, not only for the startups making connections that could literally make their business, but for the Turner executives who got to evaluate numerous hand-picked potential investments and partnerships.

We hosted a similar event, where we brought together a large group of our best portfolio companies with our best corporate venture partners. We first did this last year and invited one of our corporate venture clients, a major telecom company. They liked it so much that they asked us to sponsor the creation of a similar event under their name this year.

Such positive client responses reinforce our belief that we are uniquely positioned to connect Fortune 1000 companies with the very best emerging companies in the world, which is a win-win for everyone.

Moving onto our global strategy. We continue to build momentum with total loan outstandings of $500 million and $2 billion in deposits, both significant milestones for us. As we approach the first anniversary of our U.K. branch, we have more than 200 clients banking with us, approximately 130 of these are from the local market. The rest are U.S. clients who are bringing more of their global banking business to SVB now that we have a U.K. presence.

We were also honored to be named U.K. Niche Bank of the Year in a survey of 10,000 industry professionals by Acquisition Finance Magazine.

In China, we're making steady progress in forming partnerships and winning new clients for our JV bank, although we are still in the early stages. And today we also announced and I know many of you noted, Dave Jones will be taking on a new strategic leadership role as President of Asia for SVB. He will be helping lead and expand our Asia strategy and work closely with Ken Wilcox to continue building the joint venture bank. This will include adopting our lending and business model for China and implementing the JV banks credit and risk management strategies. As you know, China is one of the most important and complex long-term growth initiatives for SVB. Given Dave's exemplary track record at SVB, we're extremely pleased that Dave has agreed to step into this role. We plan for Dave to make this transition by the end of the third quarter.

And Marc Cadieux, our Assistant Chief Credit Officer for the past 4 years and a 21-year SVB veteran, will become Chief Credit Officer at that time. As you know, in 16 very successful years as Chief Credit Officer, David has overseen the creation of a world-class credit discipline at SVB. I think our performance through some of the very challenging market cycles speaks to his success. We are all very excited for David in his new role, but we're also confident in the capabilities of Marc and our seasoned credit team to fill Dave's shoes as big as they may be.

So to wrap things up, we are pleased with our first quarter results and with our direction and momentum overall. We're effectively executing our strategy and have a substantial portfolio of real growth initiatives that is just beginning to bear fruit, including: staying within supporting our clients as they become large public and private companies; providing personal banking to the partners and teams of our venture capital and private equity clients and increasingly to our corporate CEOs; adding more products and services, including payment solutions and stronger global cash management; and expanding globally that is helping our U.S. clients go overseas and supporting companies locally in our international markets.

Our challenges are industry challenges. Low interest rates continue to impact loan pricing and fee income on client investment funds. And we don't expect the interest rate environment to improve anytime soon, as we talked about it before. Competition for clients remains intense. Fortunately, we have a significant advantage in our reputation, capabilities and track record. But I can promise you, we are not the least bit complacent. We have an incredibly dedicated team of outstanding employees, who work hard every day to make SVB the obvious choice for our clients.

Overall, we feel positive about the year ahead. We're expecting healthy growth in loans, fee income, net interest income during the year, when most banks have relatively low expectations. And we're even more optimistic about the long term as we build out our strategic plans for growth. And when rates eventually do arise, the benefit to us will be tremendous.

Thank you, and then now I'm going to turn it over to our CFO, Mike Descheneaux.

Michael R. Descheneaux

Thank you, Greg, and good afternoon, everyone. Let me start off by saying that we are pleased with our first quarter performance. The quarter included strong average loan growth, high credit quality, an increase in our net interest margin and growth in certain key fee income lines. Despite continued pressure from low interest rates, we are off to a good start in 2013.

There are 4 items I want to highlight today: First, solid average loan growth and effectively flat period-end balances, as we expected; second, strong growth in average total client funds despite lower average deposits; third, higher net interest income despite having 2 fewer days in the quarter and a higher net interest margin in the face of continued interest rate pressure; and fourth, high credit quality and solid trends.

I will also touch on noninterest income, expenses, capital ratios and, of course, our 2013 outlook.

Let me we start with the details on loans. Average loan balances increased by $406 million or 4.9% over Q4 to another all-time high of $8.7 billion. This increase reflects strong activity across the board, offset by paydowns in capital call lines. This paydown activity was expected, following the runout last quarter in year-end capital call balances, driven by tax-related borrowing. As a result, first quarter period-end loans were effectively flat at $8.8 million.

As we move into the second quarter, we continue to see relatively high levels of activity among our clients and our pipeline remains strong.

Now let me turn to total client funds. As a reminder, total client funds are composed of on-balance sheet deposits and off-balance sheet investments. Total client funds showed continued robust growth, marked by strong growth in off-balance sheet funds and more moderate deposit growth during the quarter. Average total client funds increased by $1.1 billion or 2.8% to $41.3 billion, reflecting our continuous success in acquiring new clients and a strong funding environment for existing clients. On a period-end basis, total client funds were $42.3 billion compared to $41.7 billion in the fourth quarter.

Average deposits decreased for the first time in 23 quarters by $205 million or 1.1% to $18.8 billion. While it is a relatively small decrease and it would be premature to call it a trend, we view this decrease as a result of our ongoing efforts to encourage clients to use our off-balance sheet funds when it is appropriate for them. Period-end balances increased slightly by $133 million or 0.6% to $19.3 billion.

Average off-balance sheet funds increased by $1.3 billion or 6.2% to $22.5 billion, while period-end balances increased by $468 million or 2.1% to $23 billion. Growth occurred primarily on our off-balance sheet suite product, which averaged $4.3 billion for the first quarter of 2013 compared to $3.7 billion in the prior quarter. We are pleased at the continuous strong growth in total client funds and encouraged to see off-balance sheet growth outpacing on-balance sheet trends for the time being. Our efforts to provide our clients with our appropriate off-balance sheet products are succeeding. In addition, although the expiration of the TAG program did not result in any notable moves of client funds from the balance sheet, we are receiving feedback from clients that they are more open to off-balance sheet options than in the past. However, as long as interest rates remain low, we don't expect a material change in the mix of on and off-balance sheet client funds.

Moving to net interest income. Net interest income was $163.2 million in the first quarter, an increase of $2.6 million or 1.6% over the prior quarter. This increase was due to higher average loan balances and a reduction of premium amortization expense in our available-for-sale investment securities portfolio, and was offset somewhat by lower loan prepayment fees and 2 fewer days in the first quarter.

Premium amortization expense on our investment securities portfolio decreased to $8.3 million in the first quarter compared to $13.1 million in the fourth quarter. This decrease contributed to an improvement in the average yield on our investment securities portfolio by 15 basis points to 1.75%. While strong loan volumes contributed to high net interest income, the increase was offset by lower yields on the loan portfolio. The average yield on loans declined 20 basis points to 5.78% in the first quarter compared to 5.98% in the fourth quarter.

Lower loan prepayment fees contributed 13 basis points of the decline. The remaining decrease was due to continued competition for clients and changes in our loan mix as we added more large loans to clients with traditionally higher credit quality.

In terms of the offsetting factors, we saw a $2.5 million decrease in loan prepayment fees during the quarter after experiencing elevated loan prepayments in the fourth quarter, and there were 2 fewer days in the first quarter which reduced income from loans by approximately $2.5 million. Our net interest margin increased to 3.25%, an increase of 12 basis points compared to the fourth quarter of 2012. Lower premium amortization expense on our investment securities portfolio accounted for 9 basis points of that increase. Overall, our expectations for net interest income and net interest margin in 2013 has improved, and I'll give you the details when we get to our outlook.

Turning to credit quality. Credit quality remains strong with our provision for loan losses of $5.8 million in the first quarter compared to $15 million in the fourth quarter. The first quarter provision reflected low gross charge ups of $5.6 million primarily from our life science and hardware portfolio and recoveries of $1.4 million.

Nonperforming loans increased by $6.5 million to $44.3 million, primarily driven by small number of new impaired loans. Classified loans decreased by 14%, driven primarily by the timing of funding loans to our early-stage clients. Overall, our credit trends remain positive and within our expectations for the year.

Those are the highlights of the quarter. Now I'd like to touch on a few other items before reviewing our outlook.

Beginning with noninterest income. Non-GAAP noninterest income net of noncontrolling interest was $56.1 million in the first quarter compared to $75.6 million in the fourth quarter. The primary driver of this decrease was lower net gains on our venture capital-related investments, net of noncontrolling interest, of $5.1 million in the first quarter compared to $17.2 million in the fourth quarter. You will recall that we had unusually large unrealized gains from a single investment in the fourth quarter. We noted at the time that such outsized gains were not frequent. We also noted that we could see fluctuations in the fair value of these investments from quarter to quarter. As expected, we did not have similar-sized gains in the first quarter.

We also had lower net gains on equity warrant assets of $3.5 million. This compares to $7 million in the prior quarter, which was the most notable for a particularly large gain related to one company. Most of our gains in the first quarter were unrealized, meaning they came in the form of valuation increases rather than exercises.

Now let us turn to core fee income, that is, aggregate fees and deposit services, letters of credit, credit cards, client investments and foreign exchange. We saw solid increases in key income streams that had delivered much of our recent fee income growth including foreign exchange, which grew by 6%, and credit card fees, which increased by 12%. In aggregate, core fee income was effectively flat in Q1 at $36.6 million. This was a result of 2 things. First, lower letter of credit income due to some nonrecurring fees in Q4. Without the impact of those Q4 fees, letter of credit income was effectively flat. And second, lower client investment fees due to historically low yields for our SVB Asset Management and repo products. The decrease in client investment fees has caused us to tweak our expectations for core fee income down a bit in 2013. I will comment on this a bit more later.

Now I move on to noninterest expense, which increased by $6 million in the first quarter to $149 million, primarily due to seasonal expenses. These seasonal expenses included higher compensation and benefits cost, particularly an increase of $5.1 million, related to employees stock ownership and 401(k) matching contributions related to annual incentive compensation payouts, as well as taxes and other employee-related expenses.

Salaries and wages also increased by $2.2 million, primarily due to an increase in the number of average full-time equivalent employees. We had a provision for unfunded credit commitments of $2 million compared to a reduction of provision of $0.8 million in the prior quarter, due to an increase in unfunded credit commitment balances.

Expense increases were partially offset by a decrease of $3.9 million in incentive compensation expense relative to the fourth quarter, when incentive compensation was higher due to our stronger-than-expected financial performance. Additionally, we had lower premises and equipment expense and lower professional services expense due to elevated levels in Q4.

On to capital. Our capital ratios increased across the board, both at the holding company and the bank. Tier 1 leverage increased by 33 basis points to 8.39% at the holding company and by 29 basis points to 7.35% at the bank level, primarily due to our earnings and relatively unchanged asset levels.

Our total risk-based capital ratio increased by 54 basis points to 14.59% at the holding company and by 48 basis points to 13.01% at the bank level, also as a result of our earnings and an overall decrease in risk-weighted assets.

Moving on to our outlook for 2013 versus the full year 2012. As I mentioned, we are improving our outlook for net interest income and net interest margin and tweaking down our outlook for the core fee income. The net of these adjustments is a positive change to our overall outlook for 2013.

First, we improved our outlook for net interest income to growth in the high single digits versus the prior range of mid-single digits. This improvement was driven by lower-than-expected premium amortization expense due to lower prepayments on mortgage-backed securities. This change in our outlook assumes that the pace of prepayments in the remaining quarters of the year will be similar to that in Q1, but ultimately that depends on interest rates.

Second, we improved our outlook for our net interest margin as a result of lower premium amortization expense on our investment securities portfolio. We now expect our net interest margin to be between 3.15% and 3.25%. This compares to our prior range of 3.1% to 3.2%.

And third, we decreased our outlook for our core fees, primarily due to the lower-than-expected client investment fees related to lower yields on certain products.

Now for our wrap up. We are pleased with our results overall in the first quarter and believe we are on track to meet our expectations in 2013. While interest rates remain a challenge and competition is adding to pressure on loan pricing, we continue to execute strongly and to deliver growth in our core business. We are well positioned to deal with these challenges both tactically and strategically. We have a high-quality and liquid balance sheet. We are well capitalized. We have near-term and long-term growth opportunities. And few, if any, banks could even begin to build the capabilities and unique competitive position we have created over the 3 decades. Rest assured, we're doing everything in our power to maintain and extend that position and to continue executing on our long-term growth strategy. Fortunately for us, the innovation sector is alive and well, our pipeline looks good and we remain positive about our prospects for 2013.

Thank you, and now I'll ask the operator to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Herman Chan from Wells Fargo Securities.

Herman Chan - Wells Fargo Securities, LLC, Research Division

With 2 former high-level executives of the bank now focused on Asia, what's the longer-term opportunity there? If we were to fast-forward, say, 10 years from now, what's that business going to look like?

Gregory W. Becker

So Herman, this is Greg. I'll answer them. I guess, Dave and Mike may want to chime in. So from a long-term perspective, there's really 2 things that I would look at as far as the opportunity in China for us. Clearly, one is the domestic business for the innovation companies, venture-backed companies, technology companies that exist and will be growing in China over the next 5 to 10 years. And as you know, that's what our core competency is here in the U.S. The second part, and I think sometimes we gloss over this, is that you look at companies in the United States, so technology companies. And I would say they are anywhere from small companies up to companies of a level of $400 million or $500 million plus revenue. As they expand into Asia or have relationships in Asia, one of the things that we found that they're looking for is a strong, trusted partner in the market. And if we can play that role in the joint venture, we certainly believe there's a big opportunity for that. Now how big is that? How big will it become? Honestly, it's hard to predict exactly what that will look like. But clearly, we believe it's a big enough long-term opportunity that we have. We're committing, as you said, 2 very senior people to the initiative and expect to have that commitment for the long time.

David A. Jones

Herman, this is Dave. I think that one of the things that's important for a startup, and I acknowledge that what we're doing in China is much of a startup, is execution and process implementation. And that's a significant challenge for us, and we do not want to regret having not dedicated enough resources to it. So my commitment is to work with and make sure that we're not short of the resources we need for the kind of execution the market deserves.

Herman Chan - Wells Fargo Securities, LLC, Research Division

Understood. And my second question, with interbank [ph] exit slowing and the pace of fundraising sort of muted, it seems like the activity within your core customer base is slowing. However, in your prepared comments, you did seem fairly optimistic. How do you sort of reconcile those 2 views?

Gregory W. Becker

Yes, Herman, so this is Greg again. I'd say there's a couple of ways to think about it. We look at it as this constant innovation capital being one. And that's -- it's really important because it's not just venture capital. Venture capital is a core critical part of it. And I agree with your points that clearly fundraising from venture capital has slowed down, no question about that. But when you look at the level of corporate venturing that's coming in, when you look at the seat funds that are being put out there, when you look at the level of Angel funding that's coming in, all those things contribute to this innovation capital which we, again, feel is very healthy. The secondary point to that is when you look at the capital that it takes to form companies today, it's a lot less. So you're seeing companies form with very, very little capital and get to revenue much more quickly. Literally, it could take a 10th of the level of capital that it did a decade ago. So we looked a lot at company formations, which is why as I said in my prepared remarks, we look at the number of companies we're bringing in at the very early stage. And at the very early stage, for the third year and fourth year in row, since we've really spent a lot of time tracking it, we've seen very strong growth in that number. So part of our point of view is the number of companies we're bringing in, part of our point of view is that we're doing a better job of tracking the total innovation capital. And the last part of this is what's happening in the market, which is companies are just running more efficiently with less capital. So I agree with your point on the venture capital side, but we're taking, I'd say, a more broad-based approach to -- with the help of the market.

David A. Jones

And Herman, this is Dave. I think a better measure to watch, as opposed to the dollars, because as Greg is indicating, depending upon what is innovative at the time, some companies require more capital than others. We're right now in a part of the cycle where new companies can be started and managed to cash flow breakeven off of smaller dollars. I think the number to watch instead of dollars is the number of rounds that are closed on a quarterly basis. And what you will find is that there's a long history with roughly 800 or 900 companies every quarter closing on rounds, and that indicates that the volume of opportunity is not decreasing.

Operator

The next question comes from the line of Julianna Balicka from KBW.

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

I just wanted to ask in terms of the securities portfolio, are there any new comments in terms of the yields on your reinvestments, how much they're decreasing each quarter? Or any particular remarks as to durations or anything like that?

Michael R. Descheneaux

So just the 2 few -- 2 of the high-level comments. One, the duration is about 2.4 years. So it hasn't really changed a whole lot since the prior quarter. In terms of reinvestment yield, they're approximately around that 1.5%, so it's a touch below the current yield that's on our portfolio, but again not too, too far. Also, the downward progression that we had seen over time, assuming to be tempering, as you know, as I mentioned in the prepared remarks, that we were certainly helped by the reduction in the premium amortization expense for the quarter.

Julianna Balicka - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, very good. And then a follow-up to your remarks about the deposits being down in the quarter, and 1 quarter does not make a trend. But in terms of seasonality, is there any seasonality we should thinking about there or not really?

Michael R. Descheneaux

I could start off and Greg or Dave can maybe -- perhaps add. I don't really think as so much as the seasonality for at least for the deposits, but the one thing I perhaps suggest to consider is the runoff we had in fourth quarter was so strong. And I mean, we grew several billion dollars in that fourth quarter. So this could be just a little bit of tempering and kind of getting back to normal level for things after settling down such a rapid run up. Setting back a bit, and that's what we talk a little bit about the total client funds, over all is that -- look, there's still a lot of cash and deposits running around our different clients. In fact, we saw our average total client funds increase to over $1 billion in the quarter. So again, it still looks very healthy. Again, as we said, 1 quarter doesn't make a trend. You'll certainly keep an eye on it. But the positive result, as we mentioned on the capital ratios as well too, has certainly helped our Tier 1 leverage ratio at the bank go up to 7.35 for the first time in over 2 years or so. So again there's some positive results to that, but we'll certainly keep an eye on it.

Gregory W. Becker

Yes, the only thing I would add, Julianna, is just from the standpoint of -- again we spend a lot of time just looking at this total client funds and think it's in the right direction. If you just take -- try to temper the fourth quarter a little bit, and I think that's prior way to think about it, the trend line actually would still be, from my standpoint, still headed in the right direction. Plus, again, this is part of our strategy. We've been talking about that we've seen we would expect to see some tempered deposits for quite a while. And finally, we're starting to see it. So we're not surprised by it. And again, we look at the total client funds as an indicator of the health of the overall market.

Operator

Your next question comes from the line of Steven Alexopoulos from JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Maybe as my first question, many banks out there are talking about competition for lending being taken up quite a few notches here in the first quarter. Could you comment as you continue to build out the mid-stage market share, you need to be more competitive on price and how should we think about this flowing through to pressure on loan yields?

Gregory W. Becker

Yes, Steve, this is Greg. I'll start and then Dave will probably want to add. As I said in my comments, Mike said in his comments, clearly, we're seeing a very competitive market, and we've kind of talked about that all of last year even part of the year before. And we've clearly saw that in the first quarter. And as we sit back, and from my standpoint, this isn't a surprise. We've talked about the fact that there really isn't a lot of growth in the consumer side of the business, the retail side of the business and say you're going to see a lot more competition in the commercial side or wholesale side. So that isn't a surprise to us. Again, what we've been doing for many years is building on 2 things. One is making sure that we're doing everything we can to add more value in a differentiated way to our clients. That's number 1. Maybe a couple of examples is some of the different events that we're doing. And the second part is what we can do from a product set perspective to make it very easy for our clients to do business with us. And whether it's our Net Promoter Scores, whether it's the feedback on the new mobile application we're rolling out, we're getting a lot of really positive feedback, plus my comments also about some of the awards that we've won in either international area or other cash management. So it is competitive. It's a dogfight out there, to be honest. And again, it's not a surprise to us, and we're doing everything we can to make sure that we're maintaining and actually growing our market share.

David A. Jones

And Steve, this is Dave. And I'll just expand on one thing that Greg mentioned, and that is the product side of it. So we don't want to think about the lending opportunity by solely focusing on the interest rate and the loan fees. What we want to do is we want the entire banking relationship. So the companies that are going to find the better competitive environment are also the companies that are going to be producing more cash flow, more fee opportunities. So it is for us an all-in value of that client, not just strictly on the loan rate.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And maybe if I -- that's helpful. If I could just ask one follow-up. Greg, in your comments, you said that new early-stage clients acquire up, looks like 25% or so year-over-year. Is the market actually growing that fast, or is just your share expanding here?

Gregory W. Becker

Steve, so no, I don't think the market is expanding that fast. Although I do think it's expanding faster than what people would believe. And that's part of what we said earlier. Just the ability to start a company today is easier from a capital perspective. It's easier from a technology perspective, and so more companies from our standpoint are being started. So that's clearly a part of it. Another part of it is I think our 2 teams are just doing, quite honestly, an excellent job of being in the right place in the right market, whether it's we had teams of people down at South by Southwest, we're getting really close to a lot of the key incubators and accelerators. And just making sure that we're there and working with them, adding value, building relationships at a very early stage. So it's really a combination of both those things that's driving that 25% growth.

Operator

Your next question comes from the line of Joe Morford from RBC Capital Markets.

Joe Morford - RBC Capital Markets, LLC, Research Division

On the lending side, I wondered if you could comment a bit more on the loan pipeline, specifically how you saw billed through the quarter? And also, if you could comment on the mix, including if capital call-ins are again a big part of that?

David A. Jones

Sure. So Joe, let me start that. In the quarter, as expected, we saw the capital call activity fall off. Period end to period end, it was roughly $400 million decline. As you look at the period end numbers, total loans were only down $100 million. So there were $300 million of incremental loans in other areas. And an important factor for that is capital call loans, as you all know tend to be very short. A lot of them, not all of them, but a lot of them, 10- and 20-day outs, versus a lot of this other business would be out, in a lot of cases, the entire 90 days of a 90-day quarter. So having that kind of growth puts us with a good platform for the second quarter. I also look at what we have been saying and the loan approval loan committee process for the last several weeks, and we continue to see good quality opportunity at that corporate finance, the buyout level. Now it's not all about corporate finance and buyout. Every part of our business is seeing growth as was discussed with Steve a moment ago. Early-stage are small loans. So a lot of them wouldn't necessarily make a huge difference in terms of overall volume. Middle-stage are bigger, but still it takes a lot of them to make for huge. But if we have a few of the buyout corporate finance loans that fund at a $25 million level, then it doesn't take quite so many of them to provide the kind of growth that we need in our guidance for low 20% growth.

Joe Morford - RBC Capital Markets, LLC, Research Division

Okay, that's very helpful. And then the other question is for Mike. You touched on this a bit, but I just -- your guidance for net interest income assumes premium amortization levels similar to the first quarter. Since period end, we've seen tenured yields down, and I was just curious, have you seen prepayments increase again or is that already taken into account with your new guidance?

Michael R. Descheneaux

Yes, we've taken into account at the moment. But to your point, it can move up and down. But again we obviously raised our guidance, so we feel fairly confidently going forward based on levels we're at.

Operator

Your next question comes from the line of Brett Rabatin from Sterne Agee.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Wanted to get a little more color, if I could, basically asking a previous question in a different way. If we're thinking about linked-quarter loan yields, they were down 20 basis points. And if I heard it correctly, 13 of that was lower prepaid fees this quarter. Would it be reasonable to assume the pace of pressure on loan yields aside from prepay is similar going forward? Or should it increase just given the competition?

Michael R. Descheneaux

At this juncture, I think it's -- you're probably going to see a fairly consistent trend going down. Again, it's partly competition, but it's also a little bit of a loan mix. Because when you're seeing some capital call lines, they're actually at a much lower rate, a primer in that neighborhood as well, too. So it's a little bit of both. But again, I think you can kind of see that glide down over time as kind of that similar trend. But again just considered the mix of the type loans we're doing.

Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division

Okay, fair enough. And then the other thing I wanted to get a little more color and if I could was just on the fee income guidance, and kind of how you changed at this quarter given the lower yields on certain products. It doesn't seem like rates have changed too much, can you talk a little more about just the product sets and the investment fees that you're essentially seeing decrease relative to your previous expectations.

Michael R. Descheneaux

Yes. Let me just try to put it in perspective a little bit. We adjusted the driver outlook from the mid-teens to low teens. So really we're talking about 2%, 2.5% decline in the outlook. And when you're looking at the number, you're talking about $3 million, $4 million, $5 million, somewhere in that neighborhood, again just kind of a range. But really the key driver is coming from that investment piece as I alluded to in my prepared remarks. But specifically, when you look at the repo transactions that we're facilitating for our clients, the yield in that area has just been down quite a lot in the first quarter. So when there's only 3, 4 basis points for our client, there's just no way you can really capture much of the fee for ourselves as well. So that's kind of big driver. So when you think about that kind of investment fee number being down some $1.5 million, $1.6 million in the quarter. You kind of extrapolate that out for the rest of the year. You're looking at $3 million, $4 million, $5 million a year. So again, we just wanted to tweak it a bit. But again, it is real and repo rates are absolutely down.

Operator

Your next question comes from the line of Ken Zerbe from Morgan Stanley.

Ken A. Zerbe - Morgan Stanley, Research Division

Maybe just more of a broad theoretical question. Is there anything that we sort of externally to the bank kind of look at it even a sense of a taste of growth in the VC market or how that's trending up on any given quarter just given that obviously you had the 400-ish million dollar decline in capital call lines. Is there any way that we would know that ahead of time or have an index to at least get a sense of it?

Gregory W. Becker

So Ken, this is Greg, and then Dave may want to add something. So we obviously have internal information that we look at that we kind of track to give us little bit of an indication. But really, from a public perspective, the best data that you're going to look at is going to be anything related in National Venture Capital Association data. And there are some other 2 or 3 different groups out there that kind of track it. But outside of that, honestly, there really isn't public data and it wouldn't be something that we would obviously share within the quarter to give -- to get that information. So...

David A. Jones

And Ken, this is Dave. I guess one other thought that we've talked about in prior calls is timing is everything. Again, with capital calls tending to be out 10, 15, 20 days at a time, a transaction closed on say, December 10, 2012, might have been repaid by December 31. So depending upon when the transaction is closed, close to quarter end, they can make a big difference in terms of $100 million, $200 million or $300 million. I guess I'd also say that on the capital call side, we have a huge market share for the venture capital side and we have a building market share good, but building market share on the private equity. The difference in size is significant. So a venture capital firm making an investment could be anywhere from, say, high 6 figures to high 7 figures versus a private equity firm making an acquisition, the capital call could very easily be several tens of millions of dollars. So the one thing that I think can be watched with less than perfect information is just what maybe said generally about the volume of M&A transactions and particularly the business involved in the private equity side.

Ken A. Zerbe - Morgan Stanley, Research Division

Got it. But again just to be super clear, you guys, do you feel about good about the refund and capital call lines going into the next sort of the rest of the year versus what we saw this quarter?

Gregory W. Becker

Let's put it this way, Ken. There's nothing out there that we would point to that would cause us to change our point of view about an average capital call borrowings and so forth. Again, it was just down from last quarter. But again, as we predicted, last quarter was elevated, and we expected this quarter to be down, and that's how it's laid out. And so do we think it will rebound? I think you have to take a little bit of an average point of view from a quarter-to-quarter because again, you could literally have the -- concerning how large these deals are, and they only are out for 10 to 20 days. If you're looking at a period of time, point of period end, you could end up with some spikes. So there's nothing that we see that will cause us to change our outlook for what we see from capital call lending.

Operator

Your next question comes from the line of Gaston Ceron from Morningstar.

Gaston F. Ceron - Morningstar Inc., Research Division

I just wanted to address one quick point, which is one thing you mentioned is it looks like on the release you guys said that the concentration -- it looks like the concentration of loans to large clients has come down a little bit. I'm talking about the loans to any center clients greater than $20 million [ph]. I think that went down about from $3.1 billion to $3.0 billion. I'm just curious, what you would expect somewhere over the longer term, if I think you said it earlier in your comments that in startup activity what not you're seeing companies being started with less amount of capital these days, so would you expect then that concentration of loans to kind of larger clients kind of go down overtime?

David A. Jones

And Gaston, this is Dave. So some information in terms of the clients with funded balances, $20 million and larger. For the December period, there were 103 of them. For the March period, there were 100 of them. So nearly the same number. The significant decline, as you might expect, and well I guess as you see with the disclosure, is and what happened with the private equity lines of credit, and again that's the capital call. So there, as I indicated with a response to Joe, you can see that there is a little bit of growth in some of the other areas. So I think that there's nothing to read in that decline in the first quarter. I think that the kinds of trends that you would have seen first and second quarter, third quarter of last year might be more indicative of what you could expect to see going forward.

Gaston F. Ceron - Morningstar Inc., Research Division

Okay. And then very quickly, just a follow-up on [indiscernible]. A lot of your loan growth has come at a time when frankly the economic recovery that we've seen has been tepid to look warm. I'm just -- you've seen pretty nice longer when you say that the sector continues to do well. I'm just curious, what your expectations would be [indiscernible] recovery ever really kind of pick up speed. I mean, obviously you would expect you would -- I would think you would expect kind of longer to trend higher, but you seem pretty healthy as it is, so...

Gregory W. Becker

Yes, this is Greg. And loan growth from a standpoint of, if you look at it the last several years, a part of it has been clearly coming from the low point from a lower point from a lending perspective. And part of that's kind of -- that being built back up. If we weren't -- if this market were to stay where it is right now, again, we got it towards 20% average growth this year. Could that slow down a little bit in '15 or '14, '15 and '16? Yes, I think so. But clearly if the market picks back up, it would be the higher end of that range. And so we're fortunate, whether it's 20% on average or even a little bit less than that or a little bit more, the technology innovation market is the market that is outpacing the rest of the economy, and we're fortunate to be so concentrated in that space that we benefited from that. And that's really what's been driving the growth and will continue to drive the growth.

Operator

The next question comes from the line of Jennifer Demba from SunTrust Robinson.

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Just wanted to get some color on the loans outstanding you have overseas. Are the majority of those in the U.K.?

Gregory W. Becker

Yes, Jennifer, this is Greg. And yes, they are. And again, these are rough numbers, but $500 million in outstandings. You're looking at roughly $400 million, almost $400 million is coming from the U.K., a little bit less than that. And from that standpoint, again, as we've said, that's a growth area that we expect to continue to outpace the rest of the business. We feel very good about that for the reasons we've articulated in the past that the market over there is -- big banks over and the U.K. are still pulling back. And it's not -- we're looking across all the different segments. Whether it's early stage, mid stage in corporate finance private equity services. So we've been able to grow in all those areas. And that's what's appealing, that's what's driving the growth, and that's what we believe will continue to drive the growth.

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Could you envision dedicating more resources to that particular team like you are in China, given the European banks retreating?

Gregory W. Becker

Yes, it's a little bit since a fewer people in the U.K. right now than we do in the China joint venture for a couple of reasons. One is think about it in a joint venture we're literally building a new bank, So you need all the infrastructure, you need all the compliance, you need all the teams of people there. And that's one aspect of it. But in the U.K., it's a branch, so it's a little bit different, although we have dedicated a lot of resources to it. And we expect that this growth rate that will continue to add resources to it as they are not only needed, but to be able to support what we believe is going to be the growth that would be faster than the rest of the business. So short answer to your question is yes, we will be allocating additional resources to the U.K.

Operator

Your next question comes from the line of Aaron Deer from Sandler O'Neill.

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

I think most of my questions were answered. I just have one that I wanted to touch on. Rather than the sequential change -- basis point change in the prepayment fees, Greg, can you give the actual dollar amount of what those fees were in the quarter and whether that was running maybe below what the average level is, which typically you might see?

Gregory W. Becker

Aaron, I'm going to Mike answer that question. He's -- he got the numbers in front of him.

Michael R. Descheneaux

Are you referring to the investment securities premium amortization?

Aaron James Deer - Sandler O'Neill + Partners, L.P., Research Division

No, actually on the loan book.

Michael R. Descheneaux

Yes, on the loan book. So yes, we actually recently added a disclosure in our press release, which you can refer to. But this quarter, total loan fees were about $16.8 million versus last quarter of $19.5 million. So yes, that's a delta of about $2.7 million, but the bulk of that, the $2.5 million out of $2.7 million, relates to prepayment or acceleration of the loan fees, if that's helpful.

Gregory W. Becker

So I think -- this is Greg, I think we actually are done with the questions, so let me just wrap up real quick.

In the short summary is that from a good quarter perspective, we're pleased where we ended up in the quarter from a number's perspective and continue to see growth which we are obviously excited about, number one.

Number two, from a progress perspective on our growth initiatives, whether it's corporate finance, whether it's the globalization, building on our products and services, again, we continue to make progress along those lines. And again, as I said, what we felt good about is not only do we feel good about our products, our clients feel good about it, but also we're getting some acknowledgment from the grenaches [ph] of the world about what our products are and how they're doing, so we feel good about that.

Regarding Dave's moving to China, I think all of us, I know all of us from the team are excited for us that we have to see a seasoned senior person that is going to be over there with Ken to build out the Asia practice. And for those people who haven't spent as much time with Dave over the years, what's great about Dave is that what's allowed him to be so successful over the last 16 years in his role is that he hasn't just been a Chief Credit Officer, he's been a business partner. And clearly, we believe that's what going to allow him to be successful in Asia and allow us to be even more successful in Asia, and so we feel good about that. And the fact that he's built up an incredibly strong team of people to include Mark on the credit side, so we don't believe we're going to miss a beat on that side either. So that's great.

And last point I will make is that all of us, again, feel really privileged to have such great clients and great employees at SVB. And again, the combination of those 2 things, along with our strategy, is what excites us for the long term.

So with that, I want to thank everyone for joining on the call and have a great day.

Operator

This concludes today's conference call. You may now disconnect.

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