Q4 2020 SVB Financial Group Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly fees continued to standby and thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the S V. B financial group fourth quarter 2020 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone fees.
Require any further assistance please press star zero.
Now I'd like to hand, the conference over to your speakers day Mythmaking O'leary SPV head of Investor Relations. Please go ahead.
Thank you Gabriel and thank you everyone for joining us today are president and CEO, Greg Becker and our CFO, Dan Beck are here to talk about our fourth quarter and full year 'twenty 'twenty, one financial results and will be joined by other members of our management team for the Q&A, Our current earnings release, earning highlight slides and see.
E. L letter have been filed and are available on the Investor Relations section of our website at <unk> Dot com.
I'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 and now I will turn the call over to our President and CEO Greg Becker.
Thanks, Meghan and thank all of you for joining US today, you can see from the materials. We followed filed earlier today that we had another outstanding quarter with continued balance sheet growth driven by robust client liquidity net interest income above our guidance despite pressure from low rates strong core fee income.
Outsized warrant and investment gains strong investment banking revenue and continued stable credit.
It was an outstanding finish to an outstanding year. We are pleased with the continued resilience and health of our clients and the broader innovation economy.
Now, we'd like to move right into Q&A, So I'll ask the operator to open up the lines.
Absolutely. So again as a reminder, in order to ask a question. Please press star one on your telephone keypad. If you wish to withdraw a question simply press the pound key.
The first question will come from Ebrahim.
Ebrahim Qunar Waller of Bank of America. Please go ahead.
Good afternoon.
Hi, everybody I guess, just wanted to start with capital I know God bless you.
Address that a little bit in your letter as well, but looking at sort of the leverage ratios both at the bank and Holdco level why not leave some common equity given where the stock's trading at given what looks like a pretty strong growth outlook, well just give us a sense of like why not do it well.
Who knows markets can be volatile so why not take advantage of the currency do need some capital today and if Dan you can remind us in terms of the capacity at the Holdco to downstream capital to the bank if needed.
Yes.
Yeah, Ebrahim I'll start and Greg might want to follow up on it.
We look at capital and when you look at you know.
Where are the growth in balances have Cree.
Created at least some reduction in the capital levels, it's in the tier one leverage.
And if we look at.
The cheapest way to be able to fund that tier one leverage.
And at the same time the way we've done it in the recent past is really drew preferred.
Issuance that we downstream to the bank as well as senior debt.
We have a recent history of doing that and we've got the flexibility to be able to do it. So I think that allows especially as we look at the tier one leverage ratio.
The ability for us to be able to.
Manage that.
In terms of the capacity at the holding company. If we look at the amount of liquidity that remains there. We're sitting right now roughly 700 million and that's after downstream and close to 700.
$700 million to the bank in order to support the tier one leverage ratio. So we believe that we've got the flexibility to manage through preferred through senior debt.
To that 7% to 8% leverage ratio.
Okay.
Got it and I guess, just moving in terms of the expense outlook I know normally they give you a hot payment expenses growth a stronger, but just given how strong your revenue growth outlook is I'm looking at the low single digit expenses growth.
Are you are you kind of pulling back on Ah <unk>.
Investments that you were making a perfect weight or is it kind of maxing out all investment opportunities I'm, just wondering why not make more investments right now and use this momentum to build the business.
And grow it even faster.
Hey, Ryan this is Greg I'll start.
Dan will walk through the the positives and negatives and how we'd think about it there's a couple of things that.
It drove higher expenses at the end of the year.
With SVP Leerink being one of those components clearly their incredible results in 2020.
And just a higher payout ratio. So you look at that and say that's a big number. So if you pull back a little bit on the revenue forecast that will have an impact on expenses.
We had a real estate.
Write down on some leases that we looked at.
In the other than the fees that we're donating four P. P piece from you add up all those things, but actually has a pretty big number. So if you. If you normalize to all that we actually do have nice growth built in for 'twenty.
One.
We are investing in the same places that were have been in the past.
We're actually increasing the investments, we're making and have been making in infrastructure and.
The one thing I would say.
You look at the last part is yes, the performance of the bank or if Seb Leerink outperforms those.
And those expenses will be on the higher on the higher end so.
We do have capacity in there to invest in the business and we're investing more than we did last year.
So we feel good about the level that you have in there, but Dan you want to give any additional color.
Yeah, Gregg the only additional color it would be just numbers wise, we had $20 million of incremental expenses in the fourth quarter adjusted the PPP donation real estate. It was another 30 million and if you look at just the performance in the year in the fourth quarter that was over $85 million of incremental expense. So yes.
The year over year guide looks low but to Greg's point when you strip all of that out the investment levels.
More along the lines of our traditional high single digits investment pace from an operating expense perspective on a much bigger number.
And I think Thats really Nicky we are clearly investing and investing heavily in an opportunity is there.
Thanks for taking my slide 30.
Slide 31, you ever who if you look at that you can.
Look at the places where the numbers may pick up.
We may decide to accelerate some strategic investments we have the Boston private integration planning.
We have moving too.
From a regulatory side. So we do there are things in there that could cause it to be higher.
In addition, two of them.
Again, as I said, if Seb leerink.
Exceeds.
The expectations that we had built into the forecast. So those are all things to pay attention to.
Got it thank you.
Our next question comes from the line of Steven Alexopoulos of Jpmorgan. Please go ahead.
Hi, everyone.
Hey, Steve.
Or does it start Greg first a big picture question. So if we look at the incredible growth in 2020 from the company is it your sense that this represented how much DNA innovation economy grew or are you taking significant market share here.
Yes, Steve I'll start.
It's I haven't gone through and done the analysis to say exactly what contributed to.
The growth in your just split it out between the two things the way I think about your question. One is the markets that we serve and then our ability to execute.
Theres no question that the markets that we serve when you look at.
Slide eight where we tried to describe the level of venture capital activity.
<unk>.
You can look at public markets as you know all of those have been incredibly strong.
So that's that's the kind of the tailwind that we have based on the success of the market that we're that we're in.
But I would also say when you think about what we've been doing to build out our capabilities. So you can look at.
Health care and life Sciences, with SBB Leerink, we get a benefit from having that being on our platform because we're able to do more with healthcare life Science company. So our market share is going up.
You can look at the quality of deals that we're doing in later stage winning.
More syndications and we have in the past and so working with later stage companies in keeping our market share in fact, increasing our market share and the final point is the market share, we're having with what I would say is the best or the highest quality companies.
All three of those things have improved.
And so when you think about that and you add to that the global presence that we have all those things combined.
Really are about execution. So what you see the results that we're delivering we delivered in 2020 and what we certainly expect to in 'twenty. One is a combination of an incredibly strong market.
And then secondly, the execution that we've had and the share improvement that we've seen as well.
Okay. That's helpful.
Greg if I look at total client funds. It took the company 34 years to reach 80 billion and you just grew by more than that amount in 2020.
What could go wrong here alright, what what worries you that could derail this momentum.
Okay.
Well.
Well I'll answer the question then I'll come back to what's the probability at least from my lens right. So when I think about where the risks are so you've got a public market that is a very strong valuations are high and that's trickling down into private markets. You have very few places globally for investment dollar.
To flow right fixed income is really difficult because rates are so low real estate and other investments that would historically be placed.
Places that money would be deployed there's so much uncertainty around that that youre not seeing money deployed there. So if you look at those things and you see where where is growth coming from innovation economy, both tech and life Sciences. So that that's that's what's driving it so what could derail it well in public markets all of a sudden.
Valuations dropped substantially in tech and health care companies in IPO slow down dramatically and valuations take a hit that.
That will trickle down into private markets now as I said.
Why don't I believe that will happen I believe that won't happen because there are very few places for that money to be deployed group.
Growth is being driven in the northeast markets and I expect that to continue and then the final piece is our strategy about.
Out kind of the four pillars of commercial bank, the private bank Seb capital and investment banking are all part of that strategy. So I believe from a market perspective.
The market is healthy and while it may.
It may soften a little bit I.
I certainly believe that it's the best place from Longmont long run to invest and so I don't think you're going to see a slowdown in the long run it's more about could there be volatility in the short run or medium term, that's clearly a possibility.
Okay.
That's helpful. If I could ask you one final question. So if I look at tangible book value grew almost 30% in 2020 helped by roughly $630 million net investment and warrant gains. If you look at the investment warrant gains.
The growth rate of those is accelerating rate and it was a good year for ipos, but it wasn't two and a half times better than 2019, what are these larger gains going to you guys attributable to.
Are you are you positioning better and the winners.
What have you guys observed on that front because this is a material driver of book value.
Yep Yep.
So I think about that in a few different ways Steve.
One is it goes back to the first question you asked.
The quality of companies that were we.
<unk> are the higher quality companies, so our market share with the best companies is a proven and as you know if you're in the best companies. The returns that are being driven by the top companies are greatly outsized compared to the average or below average companies. So our ability to be in the best companies helps to drive.
Those gains number one number two is the product set so when you think about the breadth of product set that we have where it is.
<unk> mezzanine debt.
Our.
<unk> financing.
Early stage, it's late stage.
Across the board.
There is a variety of different ways, where you can participate in the upside and the team has done an excellent job of delivering on that and again these gains arent coming from deals that were done. This year. These these gains or what was being derived from deals that were done three years, four years, five years ago or longer and now.
Those benefits are being realized and so from that standpoint again, we think about the number of warrants that were taking in companies, we think about the <unk>.
New products, we're offering.
We're trying to work as hard as we can to come up with new products, New solutions that allow us to continue to build on those.
Equity positions that we have had over a period of time and then finally in SCD capital.
The amount of money that we're putting under management raising new funds direct funds and fund of funds has also been substantial from all those take a while to realize the carried interest from the other benefits.
We certainly expect that to continue over time, so just like the last question. It will it will see some volatility.
But we certainly feel good about the long term return of those investments and the loans that we're making in the innovation economy.
Okay. It was a remarkable year, thanks for taking my questions.
Great. Thanks, Steve.
Next question will come from the line of Ken Zerbe of Morgan Stanley. Please go ahead.
Alright, great. Thanks.
I guess, maybe the first question I had just in terms of deposit growth or your outlook costs. It looks like your outlook for this upcoming year still implies.
Tens of billions of dollars of additional deposit growth from here can.
Can you just talk about like how sustainable some of that is like I get the stimulus and everything and Theres just a lot of cash out there, but it just feels like there's been such a meaningful step up in the level of deposit growth and then the expectation is that you keep all of that continues to grow could you just help us understand why that is.
The case.
<unk>.
Yep.
I'll start and Dan or Mike.
May want to add to it.
I'll start with just.
Almost repeating what I had said too.
Ebrahim.
With Steve which is the.
The market share that we have on the best companies is really is really driving that.
Those companies are able to raise money at higher and higher valuations because they're the ones that are performing.
And while their burn rates may increase right. When the bird made three increase we don't believe it'll have a substantial substantial.
A substantial impact so.
Part of it is the starting point of where we finished the year and we do have growth built into it but as.
As we talk to our teams as we talk to venture capitalists.
We remain optimistic about how 'twenty, one will play out.
If you look at public markets I know we're early in.
The new year, but they have remained robust you can look at again the activity levels that SCB leerink has in their public offerings in the press releases I was referenced that as a way to gauge how well they're doing.
<unk> had incredible number of deals already this year and what I've heard from the technology investment banks.
And the market is there pipeline is incredibly strong so we certainly believe.
At least as far as we can see that the momentum will continue maybe not at the same pace or probably not at the same pace, we saw in the fourth quarter.
But it's still going to be healthy.
Dan or Mike do you guys want to add anything to that.
Yes.
Hop in there Craig I think if you you said it right at the end, we don't expect a fourth quarter continuation of the same deposit flows I think as we look at just the overall liquidity that's in the market, especially with Covid and with the incremental liquidity that's been added to the market.
And the fact that we're going to see additional investments in the space private equity venture capital debt.
Net liquidity is clearly there and then the market we for our guidance didn't forecast an identical 2020, we are looking at something Thats culture.
Two a 2019, but since we're in a lower rate environment more of that is going to find its way on the balance sheet and off the balance sheet. So I think when we look at all of those things. There is plentiful liquidity, we think it will be invested in the space and when we look at lower rates and compare that back to where we were in 2019, we think.
With the jumping off point and that this is this is a reasonable guidance.
Maybe just add on top of that Ken This is Mike <unk> here.
Stepping back and looking at the amount of dry powder. That's out there that's over two trillion worldwide. So theres a significant amount of dollars debt wanting and willing to be deployed and then when you think about what's COVID-19 has actually done it has accelerated.
Technology, and innovation and more compressed that might have taken a couple of years to deploy and now it's all of a sudden being accelerated here in the states opening up and creating a lot of new investment opportunities. So the combination of all of the things that Greg and Dan and myself, we're saying that's why we feel pretty.
Confident or pretty good here over the next couple of quarters debt, it's going to continue unless something disruptive.
Got it Okay, and then just sort of my second question, which is the very sharp a multipart question.
What was your Cecil day, one reserve ratio and is that still a good target.
The meaningful drop in your ACO this quarter.
How quickly do you think you might get back to that sort of new target level.
So just wanted to make sure I understand your question, it's Marc Cadieux right away.
Are you asking where.
Well Q4 reserve as compared to the first quarter of seasonal reserves is that well actually yes, technically I'm kind of thinking like if you back out all of the COVID-19 related issues.
Which obviously you guys have a little less than other banks certainly.
Like where is the right seasonal reserve ratio.
For Us I V P.
Obviously, it wasn't I think I'm looking at your reserves there wasn't 188 or $1 60 is probably not 126, there's probably something lower I suspect like what.
What does that usually I guess sort of what normally we've talked about is sort of the seasonal day, one which is kind of where it was on January 1st before we knew we were going into a pandemic and most banks are targeting that level.
Kind of the quote right level to get back to eventually and that's what I was asking for you guys. Thank.
Thank you that's helpful. So certainly as you as you see the year kickoff right. We like so many others added significant provision in the first half of the year significant reserve build.
Against what we expected I think everybody expected to happen what economic forecasts, we're suggesting would happen.
And as you see the economic forecast that alright.
A key driver of the sea Salt reserve methodology improve in Q3 and Q4.
You see some of those reserves come down and so I'm just going to our funded reserve we were at 99 basis points in the fourth quarter.
And that compares to the fourth quarter of 19 in basis points terms.
Pretty accurately having said that if our portfolio composition.
Was.
Consistent with where we were at the end of 2019.
Then, yes apples to apples, we still have a reserve thats higher than pre COVID-19.
I think the presumption is that if things continue.
To be stable and credit the economy continues to improve and like others, we too would get back to where we were pre COVID-19 not quite there yet.
Alright, great. Thank you.
Our next question will come from the line of Jennifer demo of true Securities. Please go ahead.
Thank you good evening.
Hey, Jennifer.
Moving to have obviously been.
Great former from.
Are you how.
How conservative is your guidance for Larry for 'twenty, one and what does the pipeline look like.
Right now for them.
Hey, Jennifer this is Greg.
When I think about pipeline.
Hard to think about at least from my standpoint, but I would say the best way to gauge how theyre doing is again just look at the press releases, there theyre, giving out and again through the first few weeks of the year youre going to see that debt.
The press releases are pretty darn robust so I think it's a good indication.
Addicting, what's going to happen in the balance of the year is it isn't easy I would say that.
We are.
<unk> are going to be forecasting a lower number than what we have in here, but again as we talked with the leadership team of SCB Leerink.
Feeling good about the first half per year. So I would say that that is the accurate forecast of where we are clearly if we see.
The continued.
A high level of activity that we're already seeing in January.
And we see that play out for the year just by definition.
The numbers are going to be very strong, but again just to put it in context last year I would encourage anyone that has a question about.
The activity levels in the health care market, we issued a report on the robustness of the public markets for the health care sector.
Theres No question last year was the best year period end of story.
So it is really hard to predict and may be impossible to predict that youre going to have back to back record years, because some of that equity is really a pull forward of.
Raises that we would expect to see.
'twenty one so now some of these companies have three or four years' worth of cash on their balance sheet public biotech companies.
Could they go out and do more possible.
But unlikely so I would say the forecast that we have in there is what we expect in that range.
But again, you'll be able to see it.
On a weekly basis as you look at the activity levels that are being published by the team.
Thanks, so much.
Mhm.
As a reminder, if you want to ask a question simply press star one on your telephone keypad. Your next question will come from the line of John <unk> of Evercore ISI. Please go ahead.
Good afternoon.
Hey, John.
Just on your.
NIM guidance of $2 20 to $2 30.
Implies a fair amount of compression from the Covid.
Coming off the $2 40 level for the fourth quarter and I believe it's down from your prior guide as well. So I just wanted to get a little bit of color about what's driving that is that liquidity.
Or is there other factors that you could walk through thanks.
Yes, John its Dan.
I'll take that.
The guidance.
Guidance on the NIM compression is largely just driven by liquidity deployment.
As well as the continued paydowns in the investment securities portfolio. So on a quarterly basis, we're getting about two and a half to $3 billion worth of Paydowns in the investment securities portfolio.
<unk> that and the incremental deployment of cash in with cash balances that we expect throughout the rest of next year youre going to see the NIM compression come true. If we look at the other factors. We look at lending we look at the deposit side of the equation. Those are all roughly stay flat you might see.
Up to 10 basis point reduction from a lending perspective, just mostly because of loan mix.
But overall, it's really this liquidity going to work.
Going to work at lower rates and Paydowns from the investment securities portfolio, obviously translating.
<unk> had good improvement in NOI.
NII.
Got it okay.
Helpful and then.
Separately, just want to be more of a question for you, Greg or Mike but.
Just wanted to see if you can.
Update us on the <unk>.
On the competitive backdrop.
By business.
When.
I guess, if you could talk about it perhaps from the perspective of the on the lending front I mean, clearly we see a lot of of other banks that are active now in capital call lending So would love to hear your thoughts on that front as well as your other lending areas, but and then maybe even.
Maybe a competitive assessment on where you stand in Germany, and some of your other fee areas. Thanks.
Yeah. This is Greg I'll start and then I know, Michael when I when I add.
With more detail.
But.
Here's a couple of ways to think about it one is.
First of all it's a competitive market, so, let's acknowledge that and as banks feel more comfortable with their results.
They are leaning in and asking where growth can come from and clearly.
Our market is <unk>.
By our performance is a place where people are looking.
But.
It's been that way for a long time, but this has been the market that people are looking at and so what we tried to do to compete against that.
There's a lot of things one is just strategically and I said this in an earlier answer to a question.
Is that from.
More that we can provide one stop shopping across all the needs of our clients are not just doing an okay job. They are doing exceptional job why would you go in any other place.
Think about it from a commercial bank perspective, and what Mike and his whole team is doing.
It is it is exceptional.
And there's ways that we can even improve it and make it better you can look at what we're doing in SUV capital and it's not just the investments, we're making but it's also the new capabilities. They have with the acquisition that we did with West River group and the debt can be capabilities that expands our capacity to lend money to those commercial.
Bank clients.
The <unk>.
Investment bank with SBB Leerink.
They have done as well as they have done and they've done an unbelievable job.
The team is not resting on laurels, we're looking at bringing on new teams new capabilities, which we'll be announcing shortly and thinking about technology investment banking. So I think about expanding in those areas again, it goes back to being able to help our clients and all of their needs and finally, as the private banking and wealth and with the acquisition of Boston.
Private again, if we can add value to our clients and all four of those areas and do an exceptional job for them.
That's competitive differentiation and that's why we're so focused on executing on that strategy. So is it competitive absolutely, but we've shown that we can deliver for our clients and to be honest. We're just getting started and building out the full platform and that I think is going to be as I said the biggest competitive differentiator over time.
I'll turn it over to Mike to add some additional color I'm sure. Greg you made just a few things John just to just to think about it Bob you mentioned global funds banking specifically.
Saw here in this quarter, we had basically a record quarter for the team. So the team is the best platform in the business and so they continue to do extraordinary well extraordinary well theres a lot of opportunities in front of us as well no doubt when you start to think about the tech and life Sciences and a lot of the competition is coming in the form of debt funds as well 10, Greg mentioned our acquisition.
At West River group expect extends our capabilities for off balance sheet activities like that from the debt funds as well too, but the teams are doing extraordinarily well as well there, but then shifting to we don't talk about a lot, but the deposit franchise as well too is incredibly strong client acquisitions essentially another record quarter in Q4, and the quality that we're getting just continues.
To improve and it's not only at the early stage, but it's also at the accelerator States I think we're making really great progress there as well too. So we feel very good about client acquisition and that really is the key and we're just we just do a lot of things right and being relevant to our clients and then you mentioned kind of in the fee areas. So maybe just touch upon a little bit of that as well too, but it really gets back to the capabilities that we have.
To deliver to our clients to expansion of our product set as well too, which we've been very focused on over the last couple of years and so.
I know some of the fee income items took a bit of hit during COVID-19, but.
But you saw FX had another record quarter and again a lot of that is with some a lot of our as we expand our private equity clients as well too.
We extend our global reach as well, whether it's in London, Our Asia as well too that just continues to be strong and similarly on the card side as well to again enhancements from some of the product set and putting it in the hands of our clients as well as we acquire them when they come on board here as well again, we're going to we're starting to get back to Covid.
Covid levels, excluding travel that we are starting to get back and see some of that volume come back significantly as well. So we feel pretty good where we're at in terms of the competitive front and look for more to come.
Got it alright, well thanks to both of you for taking my question I know that was a pretty broad one thanks a lot.
No problem. Thanks.
Our next question will come from the line of Bill per catchy of Wolfe Research. Please go ahead.
Thanks, Good afternoon, Greg I was hoping you could give us a bit of an inside view on your new client growth. This quarter in your CEO letter you talked about the 1500 clients.
Debt you guys added during the quarter can you give some color on how those new client wins came about broadly speaking what percentage of those wins were a result of referrals from existing clients and how does that number of referrals.
From existing clients been trending and if you expect similar new client growth trends to hold as you look at.
Yeah.
Bill I'll start and my guess is Michael when I add to it.
The trend of 500.
Consistent with the last few quarters and has been at near record levels. So we are thrilled with the level of new client growth that we have now kind of peeling back the onion and understanding a little bit more where it's coming from I'd break it down into two different ways first of all as a startup banking team. These are the comps.
These that are just being formed pre venture capital back and.
We have been absolutely exceptional team there and what to me is so impressive about what they have done and what they are building.
Is it is all about how do you add value to these companies how can you be a mentor how can you be a coach how can you get move advice to us we like to say increase their probability of success and what they're working on is <unk>.
Making sure the companies are working with or have the highest potential of getting that next round of our first round of equity financing. So I think that the team that is coming together to do that is really the quality is really the quality of the team is driving the quality of the results. So that is a big.
Portion of those 500 clients, but what we've seen the last couple of quarters.
Quite honestly gets me, even more excited which is.
We've had an uptick in wins in what I'll call. It venture backed mid state early mid stage and even later stage companies just new wins.
The only way that happens again it goes back to what I said earlier, an incredible team, but it's also how we come together to deliver for them across our product set and so while the 1500 clients is a very high level again, what excites me is the quality of companies that exist in that 500 and.
Do I think that's going to continue I, certainly expect it to from a quality perspective.
The number of companies will certainly be a function of of <unk>.
How the markets the activity levels, and so forth, but to me. There's no reason that we would see that that slowed down at least as I see it so feeling really good about that number and feeling really good about the quality.
Mike I don't know if you have any debt to add to it.
No Greg you covered it very well thank you.
Yes.
That's super helpful. Thank you.
Separately, if I could ask about rates and if you could discuss the impact of curve steepening on both the loan and securities portfolios, and where Youre gearing to the long end of the curve is greatest.
Okay.
Dan I don't know if you are coming through.
My fault I forgot to take it off mute.
So.
If we look at.
Where we are today and where we have.
We're paying the most attention that occur.
Intermediate.
Part of the curve so look at the three year, let's call it to the five year and Thats, where if you look at the liquidity that we're generating absent the loans that we're putting to work were putting investment securities to work, So thats, where if we see curve steepening in 2021, we'll start to see.
Those benefits.
Really pushed through at least in the short term, obviously, we still remain asset sensitivity asset sensitive to short rate movements.
But at this point.
Aren't expecting a change in fed funds, so were not really paying attention to that three to five year range that that's where we're putting the investment securities portfolio to work and any curve steepening there could provide incremental benefits to what we have in the guidance.
Understood.
And obviously your your exceptional growth overwhelms low rates, but what if I could just follow up on that.
Lending side in the last cycle, we saw some sort of back book repricing headwinds.
Let your loan yields to continue to decline throughout Europe.
Do you see a similar dynamic playing out in the cycle on the lending side and on the security side, assuming the short end of the card remains zero as you just described.
Get some worsening.
What level would you be.
To see the downward pressure on reimbursement rates debate and no longer pose a headwind to the securities portfolio.
Yes, so first on the lending side.
The majority of the loan portfolio is variable rate and it is really tied the majority of that is tied to prime rate the research there.
Really occurred so that's really all price through the majority of the loan book at this point, the only exception being the mortgage portfolio.
And.
Obviously, we have been seeing.
Good day new.
New activity there.
Some pretty decent yield stability, so I think when I look at loans on an overall basis.
We feel good over the next year, maybe you'll see on average.
10.
Five to 10 basis point decline in overall overall yields the investment securities portfolio is another story, that's where we are seeing pay downs in the two and a half to $3 billion.
On a quarter range.
Obviously that money is being reinvested at today's rates.
So that's being reinvested in this let's call. It 110 to 130 type of range. So that's going to continue to be a drag on the overall yield from the investment portfolio perspective, and Thats going to take if you just look at the duration of the book.
Another couple of years the price all the way through so that's the way to think about it we're still not done and we've reflected all of the repricing activity that we expect and the new purchases and to the net interest income and the NIM guidance for the year.
Understood.
Nice to have.
The exceptional growth too overwhelmed that thank you for taking my questions.
Thank you.
There are no further questions at this time I will now turn the call back over to Mr. Greg Becker for closing remarks.
Great. Thanks, just wanted to thank everyone for joining us today, obviously we're.
We're pleased with our strong results from the continued resilience of our clients in the innovation economy.
While there is.
Still uncertainty regarding the broader economy and the duration of the pandemic, we're managing effectively.
Continuing to focus on our strong execution.
And executing on our long term strategy as I've said several times during the call.
Our plans are about having a long term strategy and then.
Relentlessly executing on that strategy and so where we are today certainly feels good.
We're on the right track with the strategy and certainly the things that we have ahead of US we feel really really good about.
I want to thank as I always do our employees for their continued creativity and dedication to helping our clients and just reflect on 2020, because that's what these results are here sharing with you 2020, and we all know.
What we went through in.
In 2020, and it seems like in some ways a long time ago. When you think about going into the pandemic and the work from home.
The social justice issues that came up last year and so many other things on top of that.
We really asked a lot of our team when you think about the execution of the volume increases looking at acquisitions and so I just truly want to thank all of them for what they delivered last year for.
For the organization and for our clients so.
I want to thank our clients for.
Putting their trust in us and we.
We certainly know as good of a job as we have done we can do better and we're committed to doing better both on the overall client experience as well as building out our product set that we can be there for them across every aspect of their needs.
So we feel again really good about that and appreciate their trust in us.
And finally I just wanted to acknowledge that we are well aware that there are still many people struggling and suffering through this economic downturn and pandemic.
We just.
Continue to hold them all of them all of them in our Hearts and we're trying to do our part with donations at the end of the year for our pandemic relief to other <unk> initiatives and quite honestly encourage our clients to do that as well.
So.
We just want to thank everyone for joining us and wish everyone, a safe and healthy 2021. Thank you.
This concludes today's conference call. Thank you for joining you may now disconnect.
Good day.
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