SIVB (2019 - Q1)

Welcome to the SVB Financial Group Q1 2019 Earnings Call. My name is Erin, and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I'll now turn the call over to Meghan O’Leary. Miss. O'Leary, you may begin. Meghan O

Thank you, Erin, and thank you, everyone for joining us today. Our President and CEO, Greg Becker; and our CFO, Dan Beck, are here to talk about our first quarter 2019 financial results and will be joined by other members of management for the Q&A. Our current earnings release is available on the Investor Relations section of our website at svb.com. We'll be making forward-looking statements during this call, and actual results may differ materially. We encourage you to review the disclaimer in our earnings release dealing with forward-looking information, which applies equally to statements made in this call. In addition, some of our discussion may include references to non-GAAP financial measures. Information about those measures, including reconciliation to GAAP measures, may be found in our SEC filings and in our earnings release. I’d like to mention that beginning in July, we intend to change the format of our earnings calls rather than reading our prepared remarks and then conducting Q&A, we will issue a short document with our commentary on the quarter in conjunction with the issuance of our earnings release prior to our call. We ask that you review the document before the call begins as we plan to start the Q&A immediately. We hope this will make the timing of our call a little more manageable for you given that it occurs late in the day during what we know is a long couple of weeks for most of you. And now, I'll turn the call over to Greg Becker.

Thank you, Meghan, and thanks everyone for joining us today. We had an excellent first quarter of 2019 continuing some of the key trends we saw in 2018: a strong venture capital and private equity environment driving substantial client liquidity and continued strength in our core business, plus the added benefit of a positive shift in momentum in the public markets. We delivered earnings per share of $5.44 and net income of $289 million. These results reflect healthy loan and deposit growth, continued stable credit quality, robust core fee income and strong gains from warrants and VC related investments. Well, the success of our interest bearing deposits initiatives put pressure on net interest income during the quarter. Our liquidity and clients’ liquidity remain exceptionally strong. We continue to perform well across the business and are seeing solid momentum in both client activity and our pipeline. Highlights of the first quarter included annualized growth of 14% in average loans, 9% in average total client funds including healthy growth and interest bearing deposits, 20% core fee income growth, excluding $64 million of revenue related to SVB Leerink. And as Dan will talk about in a minute, we are raising our core fee income outlook for the full year.

Thank you, Greg, and good afternoon everyone. We kicked off 2019 with a strong performance featuring continued profitable growth across all of our segments against the backdrop of positive market conditions. Our growth story remains strong and our deposit initiatives are clearly succeeding. Although we lowered our net interest income outlook based on the impact of lower rate expectations on our securities portfolio and higher deposit costs, we also raised our fee income outlook and lowered our expense outlook. The net is that our expectations for 2019 if overall financial performance have not changed.

Thank you. And your first question comes from Ken Zerbe with Morgan Stanley. Ken, your line is open.

Great, thanks. Good evening, guys.

Hi, Ken. How are you doing?

Doing well, thank you. I wanted to start off in terms of looking at the deposit flows, specifically I guess the relation between non-interest bearing and the interest bearing. Obviously, you're having very good success bringing in customers going into the interest bearing side, but is that coming at the expense of non-interest bearing outflows? Or are they just – or are we talking about two very different customer sets? Thanks.

So, Ken, this is Greg. I'll start and then Dan I am sure will add onto it. So I think you said this right, which I think it's very important to note. We are fortunate that we have an incredible amount of client inflows for client funds, right. So on an average basis we're up $3 billion if look at on a period – period end basis we’re up $5.2 billion. So there is good momentum with our clients and we're able to bring that client flow in right. So as we saw this cash and a lot of it is becoming more concentrated. So if you look at the number of financings out there, there are fewer than there have been over the years, so bigger dollar amounts. And so when that's dollars come in, they want to get excess cash or a yield in that excess cash and the choices for us should we direct it off-balance sheet or should we direct more of it on-balance sheet. And obviously that means you've got to pay a certain yield. It's going to be comparable to what did they can get off-balance sheet. And so, we made that choice during the quarter that we wanted to drive more of it onto the balance sheet. And for that we have to have a more competitive yield for that. So that's kind of the background, but I think it starts with the fact that there is an incredible amount of client funds flow that we have coming into the organization. So Dan?

Yes, and Ken I'll add to that. So we’re paying a lot of attention to the inflows and what's happening from an outflow perspective and non-interest bearing. And what we saw in the quarter were distributions from our private equity funds as well as some slower growth in our Asia business related to the China trade tensions and our Europe business we think somewhere related to Brexit. So we're paying close attention to that. What we're seeing coming into interest bearing is more related to new flows from primarily our technology business and other sectors. So there's a distinction between what's flowing out of non-interest bearing and coming in to interest bearing.

Got it. Okay, so it sounds like they're not – you're not necessarily cannibalizing your current non-interest bearing customers. They're just – they are two different groups of people, right? If my I understanding is correct?

Yeah, that's correct. That's correct.

Okay, perfect. And then in terms of Leerink, the $50 million of fees and obviously the $15 million of commissions, with that negatively effected all by the government shutdown or is that at a fairly good run rate to think about over the next few quarters?

So, this is Greg and again Dan may want to add on to it, but – so they ended up doing I think an incredible job considering the government shutdown. And so I would say, they were kind of on track with what they expected to deliver in the first quarter, which I would say we were a little surprised by how strong it came out given the government shutdown. So the team deserves a huge amount of credit for just jumping on it when the market did open back up and they had some great listings during the first quarter. The first quarter does tend to be a higher – a better quarter. And so, I think I would just go back to the guidance that Dan gave as far as the overall core fee income or fee income level that obviously SVB Leerink is baked into.

Okay, that helps. And then just if I can just one last question. Dan, I think you did mentioned talking about the general partners sort of paying out some of the money to the LPs, which we expected going into first quarter. Do you think we're close to being done with that? Or do you still see a potential for that to continue into second quarter?

Ken, this is Mike Descheneaux.

Hi, Mike.

It looks like things are certainly strengthening when we look at towards the end of March. Pretty much across the board we're starting to see strength in even the life sciences as you know the government shutdown life sciences world was impacted, PS seems to be coming back strong and nicely as well too, even in the UK as well too. So I think definitely the economies looking really good, feeling pretty positive about the outlook going forward. And you see that kind of in the earnings that people releasing on in The Street here as well. So, definitely, the outlook looks good.

Okay, all right. Thank you very much.

Yeah.

Okay. And your next question comes from Ebrahim Poonawala with Bank of America. Your line is open.

Good afternoon, guys.

Hi, Ebrahim.

Hi. I just wanted to follow up on deposit. So I think Dan, if I recall correctly, last quarter you talked about total cost of deposits being 11 basis points to 15 basis points was the expectation for the year. Clearly, we've seen a big jump in the interest bearing deposit costs. What's the updated expectations? And I heard what you said about average deposit growth being driven by interest bearing? Do you still expect on the period end basis deposit growth to be 50:50, 75:25 interest bearing versus non-interest bearing?

Yeah. So I'll just tackle it. If we look at overall average, growth of deposits based on how we started the year, my expectation is that the overall average deposits are going to be weighted much more heavily towards interest bearing. So putting a percentage on it I would say the majority on average would be interest bearing. At the same point, we will – we have expectations that we're going to be growing our non-interest bearing deposits. And as Mike just mentioned, we're seeing some positive trends there already as we look at what's happening here in the second quarter. So we will see growth in non-interest bearing. It's really just a function of what happened in the first quarter that's driving more of this expectation towards interest bearing.

And the total cost of deposits, any thoughts?

The total cost of deposits if we think about it – and obviously this is subject to variability based on what happens with interest bearing deposits flows, but we say it'd be approximately 30 basis points. So you won't see as big of a pickup as what you saw between Q4 and Q1.

That's helpful. And just shifting to the asset side, so 92% of the loan book is variable rate. What's the expectation, have you think about earning asset yields, there was a fair amount of cash build up as well. If you can just talk to in terms of what we should expect in terms of loan yields as well as just the side of the balance sheet?

Yes. So, going forward, if we take a look at loan yields, the expectation for the remainder of the year obviously without additional rate hikes is that we won't see much more upward progression on overall yields. We are paying attention to the competitive environment. It might see some small amounts of margin compression there on the loan side between here and the rest of the year. When we think about the treasury portfolio, and I made this remark in my comments, the yield environment has obviously changed a lot over the last 120 days, and even more significantly even as much in the last 30 days, with a 30 basis point decline in the five-year over that timeframe. So, we'll have ample dollars to invest, those dollars would be invested at a lower rate, which is driving part of the reduction in our net interest income expectations.

Right. But the cash balances, which was $4.6 billion, those you expect them to be at similar levels as a percentage of earning assets go up, down?

Yeah, we would expect that those will fluctuate anywhere between $3 billion to $5 billion throughout the year.

Got it, thank you.

Yeah.

And your next question comes from Jared Shaw with Wells Fargo. Jared, your line is open.

Hi, thanks. I guess, sticking with the growth in the on-balance sheet deposits. In this rate environment is that trade right now from off-balance sheet to on-balance sheet net positive to EPS. When you look at the alternative versus fee income stream from that? Or is that more of a near-term investment to increase the balance sheet funding for the longer term?

And Jared it's Dan. So, it is accretive from an EPS perspective. So that much is true, albeit, obviously it's a mix of what we can do from a lending and an investment securities perspective. Even if we put it in an investment security, it is accretive, but obviously at lower margins. When we think about what we're doing on the deposit side, it makes sense for us to continue to offer these types of rates to our clients because the all-in relationship is obviously very important to us. And if we look at all the incremental and ancillary benefits from additional fee income and things along those lines not only makes sense EPS wise to continue by offering these deposit rates, but we get the incremental benefit of fees as well.

Okay, thanks. And then shifting over to the tech side of it, do you get any sense of a feeling of urgency on the part of the sponsors the VC, the PE community to push for exits, given the strength of the market here. Are they comfortable with keeping more of a stable investment horizon for their invested companies?

This is Greg, I'll start, and then Mike may want to add. I think they're looking and saying, if the markets open, it's going to be – they're going to be opportunistic in looking at. I don't – I certainly don't feel that there is any sense of heightened urgency or anything like that, that's out there. I think they are always opportunistic and I think definitely continue to be opportunistic. The market as you can see with some of the IPOs, not all, the markets receptive to it and we got more coming. So, I think, they're looking at that as a good time and we'll see how long it stays open. As you know the market tends to be a little bit fickle, but right now it's open and looking healthy.

The only thing I would add is that everybody views as Greg was saying is a healthy market in 2019, clearly can be a really, really strong year for that. So, I don't think there is absolutely any sense of urgency right now, but as we all know, no doubt they'd be happy if they can get out sooner than later. No, doubt that’s just a natural reaction.

And then are you seeing them have an appetite to put that money back into the system. Earlier I guess last quarter you had said that from talking with the sponsors, they were very excited about the additional investment opportunity. So, is that still the case that the money that they're getting back from the exits are going to be reinvested back into the system?

Yeah, I think, venture capitalists for sure are looking at this and saying they still feel it's a good time to be investing. We just have – we have a bunch of data points out in the market as we engage with venture capitalists and they're are very active. We hear that from a standpoint of what they're telling us, but obviously the numbers that I told you $32.6 billion invested in the first quarter validates that. So the number is validated and what they're saying validated. I think they're feeling good, a couple of stories that I heard directly from venture capitalists is that they're surprised that how many even in this environment – valuations are up, there's some really amazing high quality companies out there still and are looking to put money, more money behind it. So, I think, it's still a very, very good market.

Absolutely, and when you also think about that so-called dry powder both from PE and VC are extraordinarily high level. So, there's plenty of liquidity, plenty of cash for them to go invest and that's what they get paid to do. So, they are definitely looking to deploy it into high-quality company.

Now to add onto it, do I believe that private equity firms are looking and saying, boy, I would really like to see a downturn, so I could pay less. Yeah, we're hearing that too. They're ready with all this dry powder that if the market does turn down, I think, they're going to look at it as a buying opportunity. So, I think, what's interesting about our portfolio today versus what it would have been in many years ago when it was all venture capital is that it was so tied to the up and the downs of the venture capital, but, right now, because we're more balanced, even in a downturn, I think, we’re going to see a lot of activity in the PE side.

Great, thanks for that color.

Yeah.

And your next question comes from Steven Alexopoulos with JPMorgan. Steven, your line is open.

Hi, everybody.

Hi, Steve.

I wanted to start, so given the yield curve and the lower reinvestment opportunity on securities which Dan called out, I would have thought that would have reduced your appetite to grow the on-balance sheet deposits when I look at raised money market is up pretty sharply sort of sweeps. So, what drove – it’s not clear to me. What drove the strategic shift here to emphasize that given the reinvestment rate seem to be down quite a bit?

So, this is Greg. Clearly, we would have been better off if the -- what we could reinvest that money at would have been, what it was at 120 days ago. We are working hard to not think so short-term and think a little bit longer-term. And so the view was as this money is coming in, it was – it could go off-balance sheet when we could to let it go off-balance sheet, but the question was, if it's accretive to bring it on-balance sheet, what would it take to bring it on the balance sheet and that's the decision we made. And as you know from our watching us closely for many, many years when we focus on something, we can be really successful at it. We were really successful at it at the end of the first quarter. And so, we're going to take a look at that and see what is the product offering need to be to make sure we have as many options as possible and we're going to watch that to see if it should be more of a balance off-balance sheet. So, if we're not getting a decent return, we're going to direct more of at off-balance sheet. What we proved in this kind of quarter is that we can drive it onto the balance sheet and that I think was a great lesson from our standpoint. So, that's how we think about it longer-term and really how much do we want to keep on the balance sheet.

Steve, the only thing I would add to it is if you look at those decisions on a marginal basis, yes, it's much more thin from a spread perspective, but all-in the total cost of funds remains incredibly low. So, we can continue to drive liquidity at a very low cost. As we start to grow that liquidity in and above loan balances that's when we'll start to do some of the things that Greg talked about optimization and how to drive and make decisions to either drive on or off-balance sheet. But this is just part of the evolution of us with the power of the deposit franchise for us to be able to optimize and to drive in – in the right way and we've shown good progress.

And are there rates where they need to be now to be competitive where the off-balance sheet or do you see a need to further increase those?

So, Steve, we're pretty close. I think that there may be just a couple of other small product changes that drive some incremental cost. So, I'd expect over the next quarter that or maybe two, there you may see some small increases related to additional rate changes, but other than that we're there.

Okay. And then just we can all understand the seasonal nature of the first quarter better. Can you quantify what the private equity distributions were this quarter?

In total it was roughly if we look at private equity balances within kind of the billion plus dollar range at least for what we’re seeing in our data. It’s hard to get too specific, but it is over a $1 billion.

Okay, perfect. Thanks for taking my questions.

Yes, thanks Steve.

Your next question comes from Brett Rabatin with Piper Jaffray. Brett your line is open.

Hi, good afternoon.

Hey, Brett.

Why don't you go back to just you mentioned Leerink did really well despite the IPO market being shut down in the government a lot. And why don’t you make sure I understood sort of the guidance around the update guidance around fee income and just your expectations and what's your building into that guidance in terms of how you're thinking about some of the bigger companies, the IPO market? And just kind of what you're expecting versus what might be kind of cream on the top of what your normal business is?

Yes, so as we look at SVB Leerink at this point on a full year basis we left their guidance unchanged. They did have a good, strong first quarter as Brett said in the backdrop of the markets being shot for a part of it. But it’s also a seasonal business the first two quarters were generally their best and then it tails off a bit. So we felt it made sense to leave that where it was. Where you’re seeing the improvement in core fees is really in the banking business going back to what we're seeing with the card transactions, FX. If you look at where we are this quarter, it’s actually lower number of days than the fourth quarter. If you look at that on an apples-to-apples basis, we're doing better in growing that business. So core fees and deepening with our clients is the big driver there.

Okay. I appreciate the color there. And then just thinking about the margin guidance, obviously the yield curve is flat and you've got the dynamic that you have with funding. Just thinking about the guidance as we progressed through the year, I mean it would seem like you might exit 2019 it's a below the guidance, the low end of the guidance range. Any thoughts on that and just kind of how you were thinking about relative margins as we think about obviously 2020 so far from now but see where the yield curve is.

Yes, so as we look at the rest of 2019 and heading into the second quarter with the substantial slower funds in Q4, as well as Q1 into interest bearing that's why we're seeing the big pickup in cost on interest-bearing deposits in the first quarter. So we expect that to slow down materially, from the second quarter on. So you'll actually see the second quarter be much lower from a margin perspective, let's call it in the low 270 range. And as the securities portfolio continues to re-price, even though yields are down we’re re-pricing in incremental yield in and above that. That's going to help drive margins forward and slightly higher throughout the rest of the year.

Okay. That's great color. I appreciate it.

And your next question comes from Chris McGratty with KBW. Chris, your line is open.

Great thanks. Dan may be a pivot to the capital at the current rate you're going to be to kind of complete with the buyback in call it six months. Can we talk about, or could you elaborate on what your thoughts might be beyond that, in terms of additional buybacks or use of capital?

Yes so we're obviously in a good position capital wise. And based on market conditions we’ll continue to look at the buyback. On a go forward basis, as we head into next year, we'll have to see how the economy firms up first. I think that'll be our first priority continuing to look at growth opportunities and how we can deploy that. And then as we've shown this year to the extent it makes sense for us to look at capital actions, buyback, or dividends, these are things that we talk about. And we'll see where we end up at the end of this year.

Okay, great. And then maybe just on the expenses, I think an Investor Day, I'm looking at my notes, you talked about 2020 expenses, I think, in high single digits. I guess number one, is that still kind of your base case and I assume that included Leerink, any color would be great. Thanks.

High single digits, yes is the plan for at least that's target for 2020. As it relates to Leerink that that was somewhat of a latter development their expenses were driven almost wholly by what's happening from a market activity perspective. So I think I'd look at the bank operations as where we're targeting that piece.

Okay, thanks.

Yes.

And your next question comes from Aaron Deer with Sandler O'Neill. Aaron, your line is open.

Hi, good afternoon everyone.

Hi Aaron.

Sticking with the expense subject through the end of last year, I guess and the early guidance for this year suggested higher level of expenses you guys were undertaking a lot of these investment activities. Now you've brought down that expense guide. What's changed that's bringing that down?

Yes, so first it's a pretty small change in the brand scheme of our expenses. Our number one priority continues to invest especially as we’re facing a flat rate environment. And somebody had been saying a downward rate environment. For us to be able to continue our growth, we absolutely need to continue to invest. So what we're doing here isn't walking away from investment. Some of this is just a natural outcome of the lower rate environment. And we also had some opportunities on professional services spend that just made sense for us to push out. Again, number one priority for us as to invest for growth as we drive forward.

Okay. And then going back to the balance sheet discussion, I guess, I understand the balance sheet trends what we saw and kind of what's going on in the deposit side and the rate environment. But previously through last year when the environment was better we talked about continuing to leverage capital and the deposits that you have. And so you've reduced the securities book during the quarter, you’ve got a lot more cash and liquidity on the balance sheet, but would you not be better served to get that invested. And I mean historically you guys were much more focused on net interest income rather than the margin. And by getting that invested, wouldn't that two help serve your goal of reducing assets sensitivity?

Yes, so a lot of what we're talking about here is just dynamics of what happened during the quarter. Sales really related to the borrowing position that we were at the end of the fourth quarter. Since then deposits of grown quite nicely and it gives us the opportunity as we exited the first quarter with this cash balance to deploy those funds. I can’t say that we have been deploying investment securities purposes at the end of the first quarter and into the second quarter. So you'll see that. But the higher cash balance coming out of the year is really just or out of the quarter is a function of the strong growth in deposits.

Okay. And just a clarity on one of your earlier comments today. I hear you correctly to say you'd expect the margin to be coming down to 370-ish range and then growing through the back half of the year, did I mishear that?

That is correct.

Okay.

We think that would be second quarter into that, although 370s rang and growing out from there.

Okay. And that's reflective of that kind of reinvestment then or part of that anyway, okay. Alright, thank you for taking my questions.

And your next question comes from like Gary Tenner with D.A. Davidson. Gary, your line is open.

Thanks. Good afternoon.

Hi Garry.

Hey. Greg, I wanted to go back to a comment you made earlier that I think was also reflected in the venture capital monitor this quarter. The idea of a lower number but larger funds being raised and that's – as that continues to happen in the industry, what's your sense of – what that means: a) for the health of the industry long-term? And b) how it would translate into Silicon Valley's positioning to benefit?

Yes, it’s a great question. We were actually having this discussion today. And we look at PitchBook as the database that we use to kind of track all the information. And you can look at the number of financings that happen and they go all the way from seed up to late stage private financings. But when I define seed it does create more institutional seed rounds, not seed from friends, and family and all the other players that were money comes from. And so when you look at that data, that's the more the bigger seed rounds and beyond. The seed numbers are actually going down the number of companies. So it's highly concentrated, larger rounds. My belief though – because we see this in our own portfolio and our market share is going up a fair amount which could be the case, or there's more funding sources out there where money is coming into. And so in our early stage portfolio we again, we brought in another 1,100 new clients in the early stage. And we really haven't seen a much of a change in that activity level. So it implied that there's money coming in from seed areas that are not being captured. So, excuse me, I think that we're going to continue to see a lot of upside. And as we expand our funnel and to look at other places where startups can be brought into the organization, we believe that there is, quite honestly, a lot more upside to come.

Well it’s definitely – I would say it's definitely healthy in Q1, particularly when we look at our category called the emerging technology clients. That was actually the predominance of the growth in our on-balance sheet deposits. So it's great describing. It actually is healthy and again, we view the future prospects is looking good in that area.

Alright, thank you. And then secondly, just on SVB Leerink, I think, last quarter you provided some revenue guidance in dollars of $2.50 to $2.70. And that I think contemplated sort of a slow first quarter particularly on the commission and trading side of things. The combined revenue this quarter was right in the middle of that range on annualized basis. So was the trading side of things stronger than expected two or more so the investment banking fee side.

Yes, this is Greg, I'll start. I would say that they're on track with what we expected. As Dan said, we haven't changed the guidance. What we're including in the overall core fee income, but the last time we came up it when we closed on SVB Leerink, we gave revenue guidance for the year. And so as Dan said, we haven't changed that. I think what our comment was is we believe when the government shutdown occurred that the first quarter would actually end up being a bad quarter ended up, they ended up making up their numbers and they actually hit their numbers despite the government shutdown. So as we said, we view that as a very, very big positive. So net-net when you net it all out they are on track despite the government shutdown.

Okay perfect.

And your next question comes from David Long with Raymond James. David, your line is open.

Good afternoon everyone. The off-balance sheet yield still moving a bit higher, maybe not to the same extent that we've saw in prior quarters. In this newer rate environment, can you still expand what you're earning on the off-balance sheet deposits?

So this is Mike Descheneaux. So you did see a one basis point tick up in Q1. Predominant amount of that growth came in our off-balance sweep account, which the yields on the other fees were a little bit north of the 20 basis points. So again a lot of it just depends on a little bit of the mix and where the volumes are coming from. But again, yes, you definitely see some slight improvement there, no doubt.

Alright, great. Thanks Mike. Appreciate it.

And your next question comes from Tyler Stafford with Stephens. Tyler your line is open.

Hey, good afternoon and thanks for taking the question. I just want to start on the expense guide and I just want to make sure I am understanding this correctly. So you lowered the expense guidance excluding Leerink to the low teens, but you're maintaining the mid-30s expense guidance including Leerink. So are you actually lowering the expense guidance if total expenses are still expected to grow mid-30s?

Yes, the way to look at it is obviously with Leerink and the total size of their expenses, that's a much bigger number. So to get a sense of exactly how much we're taking it down focus on the bank’s expense levels and at the end of the day when we look at that total range, including Leerink with this change would be at the lower end of that bigger number expense range. So there is a change, look at the bank first that's what's driving the majority of the change. But the all in number would be at the lower end of that range.

The lower end of the mid-30s range is what you're saying?

Yes.

Okay. So then even with just coming in at the lower end of that range, there's still no net financial impact from the lower NII guide, is that right?

What we're saying is the combination of that, plus the positive increase on the core fees and the reduction of expenses get you largely to net neutral impact.

Okay. Alright, thanks for clarifying that. And then just going back to one of your earlier comments Dan the 30 basis point expectation for deposit cost, is that for the full year or is that by the end of 2019?

That is full year average expectation.

Okay, thanks.

And your next question comes from David Chiaverini with Wedbush Securities. David, your line is open.

Hi, thanks. I was wondering, so with the IPO pipeline ramping up, based on what you've seen over the past couple of decades for that matter, do you tend to retain the business of VC-backed companies after they mature and entered the public markets?

Yes, this is Greg. I'll start. I would say if you go back a decade or so ago the percentage we retained actually on the lower end. But over the last decade every year it continues to improve because of our capabilities, what we can do from a balance sheet perspective, what we can do from a syndication capability. If you look at last year, we were in the middle market as far as the number of syndicated deals done. We were number one. So we did roughly $6 billion of syndicated loans last year. So when you look at that our capabilities are just very different. So we can scale up with our clients a lot more. Yeah our ability retained is a lot better than it was.

That's it for me. Thanks very much.

Yes.

And your next question comes from Brock Vandervliet with UBS. Brock, your line is open.

Okay great. Good evening. On the foreign deposits they were up very strongly. I was just wondering if you could square that with your commentary about some slowing that you saw in Europe and Asia and going beyond that, could you talk about the rates around those deposits, which also stepped up?

So this is on the foreign deposits, I would say in from our EMEA division if you just talk about on-balance sheet, it was probably up around $300 million and maybe in Asia a little bit up around $300 million or so in terms of the average balance. So there was definitely some strong growth overseas if that's what you're referring to.

And then two quarters the rate on those, have gone from really nothing to something pretty material. Is that, I think, it was around 140 in this quarter. Is that likely to stabilize? I'm just trying to get a sense of what the drivers there since they are foreign deposits?

Yes, I think – you guys maybe talking about an apple and a banana here. I think what you're referring to is sweep deposits in foreign offices which is different than say Asia particularly or EMEA and those different things. So it’s a little bit different. And so perhaps Dan might want to go and explain the difference if that'll be helpful for you.

Sure.

Those are just our asset size, they’re sweep deposit out of our foreign offices and different from the deposits that fit directly on the bank's balance sheet.

Okay. And why the large step up in rate in two quarters?

One of the reasons for that is that we were sourcing additional deposits from that population and there were some changes in rates that we implemented in the fourth quarter. So it was one of the areas of increased in the on-balance sheet deposits.

Okay, thanks. And just to clarify the NIM guide here, in terms of the step down in Q2, is that mainly driven by funding or is that also driven by adding back investment securities and redeploying it at lower rates or a bit of both?

It largely deposits, but there also is some impact of putting some of that investment security money back to work. So it's really a combination of those things but much more largely based on what's happening with deposits.

Okay, great. Thank you.

Yes.

And there are no more questions at this time. I would like to turn the call over to Greg Becker.

Great, thank you. Well thanks everyone for joining us. Just to kind of sum up, really happy with the performance of the first quarter and with the strength and momentum we're seeing in our business. Again it was great to see – continue to see client funds growth at the level that we saw. Even considering the prospect of a flat to down rate environment, we still see a lot of opportunities for growth and remain positive on the outlook for 2019. As always want to thank our clients first for their trust and partnership, which we greatly appreciate. We feel incredibly lucky and fortunate to work with them and take their success very seriously. And also incredibly important is our employees, their dedication to our clients and SVB overall is what makes us a special place to work and a special place to take care of our clients. So with that I thank all of you and have a wonderful night. Thanks.

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