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SVB Financial Group (NASDAQ:SIVB)
Q4 2019 Earnings Call
Jan 23, 2020, 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the SVB Financial Group Q4 2019 Earnings Call. My name is Adrian, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded.

I'll now turn the call over to Meghan O'Leary, Head of Investor Relations. Meghan O'Leary, you may begin.

Meghan O'Leary -- Head of Investor Relations

Thank you, Adrian, 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 fourth quarter 2019 financial results and they'll be joined by other members of management for the Q&A.

Our current earnings release and summary CEO letter and slides are 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.

And now, I will turn the call over to our President and CEO, Greg Becker.

Gregory Becker -- President and Chief Executive Officer

Great. Thanks, Meghan, and thanks, everyone, for joining us today as we review our Q4 2019 and full-year 2019 results, as well as review the outlook for 2020. We're pleased to report we had an excellent fourth quarter, earnings per share of $5.06, net income of $263 million and a healthy ROE of 17%. Our presentation and stakeholder letter details these results, and as we have started to do at the end of 2019, are going to not go through scripted remarks, but just open up the call to questions.

So with that, I'll turn it back to the operator to start the Q&A.

Questions and Answers:

Operator

Thank you. We'll now begin the Q&A session. [Operator Instructions] And our first question comes from Ken Zerbe from Morgan Stanley. Your line is open.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Great. Thanks. Good evening, everyone.

Gregory Becker -- President and Chief Executive Officer

Hi, Ken.

Kenneth Zerbe -- Morgan Stanley -- Analyst

I want to start off with expenses. Clearly, a little bit higher than I think what most people were expecting this quarter. I guess, I'm just trying to figure out maybe a good place to start is, can you just break that up. I know there was a number of sort of non-recurring charges, I think like $10 million of comp, some software impairments and other stuff. But then there was stuff such as like your investments in your global -- like the digital banking and the infrastructure initiatives that you have. Can you just help us understand like how much of the expense growth is sort of to grow your business versus how much is sort of unusual one-time in nature-type charges?

Daniel Beck -- Chief Financial Officer

Yeah. Ken, this is Dan. I'll start and others might want to jump in. So, first, as we look at expenses overall, just looking at 2020 in total, we haven't moved off of our preliminary expense guidance that we issued last quarter. So we're still in the high-single digits for 2020. And when we look at expenses for the first quarter, we're expecting those expenses to be in the $430 million to $450 million range. So, just wanted to baseline there. And as we then start to talk about Q4's expenses, you're right, close to $30 million of that increase that we saw in the first quarter was all revenue driven mostly from our Leerink very strong performance. We also, like you said, had some one-time related items and compensation, as well as software impairment.

And then, finally, the items that are really driving the business are around the further development of our digital platforms and to continue to transform and modernize our technology and delivery organization. So that spend is consistent with that message that we've been talking about investing more in the franchise and our digital and scalability initiatives. So, if you look at it, the $28 million comp revenue-related, $13 million more exceptional one-time for this quarter and that $14 million is really that increased spend around the growth in the business.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got it. Okay. That does help a little bit. And just to be clear, though, the high-single-digit guidance because it was the same last quarter and this quarter, but this quarter includes, call it, I don't know, $50 million, $60 million higher than what sort of we were expecting. Does -- are you implying or trying to imply that your expense that the total expense base next year is now higher than -- not that I shouldn't say base, but the total expenses next year are now higher than what it was or what you expected last quarter because the base is higher?

Daniel Beck -- Chief Financial Officer

So if you think about it, the expense range we give, there is room within it. So, to say that it's materially increased, I don't think that's true. But it has slightly increased on a year -- on -- from last guidance to this guidance.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. And then just last question, if I may. Sorry, go ahead.

Daniel Beck -- Chief Financial Officer

Yeah. I was going to say, but still within that high-single digits range.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Understood. Okay. And then just last question. In terms of Leerink, obviously, they had a very good quarter. I saw -- I'm going to say, they maybe beat us by less than $20 million, but I saw your -- the compensation expense for Leerink, I think as part of the incentive plan, go by more than $20 million, around $20 million. Like it seems like there is -- can you just help us understand that? Because it seems like there is a bit of a disconnect between what they're earning versus what you're paying them. And I'm just trying to make sure I fully understand the dynamics of the big jump in their compensation.

Daniel Beck -- Chief Financial Officer

Yeah. So, if you look at them from a gross or an operating margin or operating profit perspective, they delivered 2019 in, let's call it, 18% operating margin. If we look at the earned comp ratio, that is more consistent with what you'd see at other investment banks. What you're seeing come through the expenses in this quarter is that, there was an expectation at the end of the third quarter that financial performance would be lower than what was delivered. So, the incentive compensation increased in the fourth quarter because of those improved expectations and actual delivery in the fourth quarter.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Okay, great. Thank you very much.

Operator

And our next question comes from Ebrahim Poonawala from Bank of America. Your line is open.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Just one quick follow-up, Dan, first on the expenses. So, if you take the midpoint of the range you gave, $430 million to $450 million, for the first quarter and annualize that over the $1.6 billion for 2019 gets you to a 9.9% expense growth. So, is it safe to assume that we're going to be in that range or lower sequentially for most of or all of 2020?

Daniel Beck -- Chief Financial Officer

So, we communicated this in the earnings presentation. So, in the first quarter, we also have higher seasonal compensation-related costs. So the expectation is that that comes off in the second quarter and then cost decreased in the second quarter. So, that's the right way to think about it.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And, I guess, we shouldn't anticipate as much of a ratcheting up in expenses as we saw in 2019 just based on your guidance, I guess. Understood.

Daniel Beck -- Chief Financial Officer

That's right. That's our guidance.

Gregory Becker -- President and Chief Executive Officer

This is Greg. The only exception to that, just to caveat it, is performance-based, as we've talked about in prior years. So, to the extent either the Bank's overall performance, SVB Leerink's performance, actually exceeds forecast in a meaningful way. You could see some incentive compensation take it over there. And at some point in the year, we may -- again from an investment perspective, we may take up investments in digital platform, etc. But I'd say, right now, again with the outlook we've given you, we're right in the range that we talked about.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And in terms of your loan growth guidance, it implies a meaningful deceleration just when you look at the dollar amounts of loan growth that you had in 2018, 2019. Is that you just being conservative in terms of your outlook on loan growth? Or do you expect some seasonality payoffs early part of the year?

Gregory Becker -- President and Chief Executive Officer

This is Greg. I'll start, and Dan and Marc may want to add to it. So we did have a really strong fourth quarter and especially a period end and most of that is from capital call lending, right? So when you look at that, there is the possibility that that will decline in the first quarter. So you get back to that level. If it sticks, if it stays and the first quarter plays out in a way higher than expectations, again, where it stays, we're going to be probably in the next range category. But again, we kept it at the same because it's mostly capital call lending and it may not be as sticky. So just, I guess, watch and see how the first quarter plays out.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And just, Greg, to your point around the investments, would love to get a little bit of a sense of like you made tremendous investments in people, global expansion, technology, like how does this translate into faster stronger revenue growth, balance sheet growth? If you could give us a sense of what we should expect beyond just your 2020 guidance as we think about two- to three-year timeframe as a function of all the investments?

Gregory Becker -- President and Chief Executive Officer

Yeah. So I will start, I'm sure Mike is going to want to add few things. And I'm going to piggyback on some of the things that Dan has said. So when I think about where we are as an institution, I think, I would give us incredibly high marks for our people, our service and broadly speaking, our product set. Where we need to continue to improve and get better is in the digital platform. We have an OK digital platform. We need to actually have a much better digital platform. So we're investing in that business heavily and you'll expect us to see or you should expect to see more investment in that. We expect to be releasing an early stage digital -- enhanced digital platform in the second quarter. And so, there is a lot of investment in there.

In addition, on the product side, almost every category of product we're paying attention to and investing in, whether it's FX or the card platform, part of that is to expand the opportunities that we have, both domestically and globally. But if you look at that as well, we're also using that as a way to push back on the competition that we're seeing in the market as well. So, we're looking at it both from a defensive perspective and also an offense perspective and we want to continue to grow our core fee income at a healthy pace.

On the people side, we're continuing to invest globally. And that's a business where you put more money into it, and it grows at a higher pace, but your margin isn't as high. You're really investing for the long-term growth. So, it's both product and it's the global business. And so, that's kind of a one way to think about it, but I'll let Mike add more.

Michael Descheneaux -- President, Silicon Valley Bank

Sure. Ebrahim, I think the way to think about it is a lot of our efforts are going around the client experience. So when you think about user interfaces, whether it's what Greg was talking about the early stage banking applications, whether it's with our credit card or onboarding clients, whether it's for loan onboarding or just deposit products, it's all about eliminating friction and making sure that the clients have a really good experience. At the same time, what that does is also helps you out with scale. It also helps you out with REITs in reaching out to more clients and be able to get more penetration. So that's why you see us doing a lot more investment in those areas.

In the cards world as well, too. Again, user experience very heavy, on the rewards, the loyalty program. FX areas, like small payments areas, global payments making again easier frictionless ways to do business with us as well, too. On deposit products, making sure that we have many different types of products that serve all of our different client's needs because, as you know, we have many different segments, many different life experiences of different stages they're at and they all require different type of product. So, we've been investing and expanding our solutions for our client's needs. And so, you're going to continue to see that, but again I think Greg summarized it pretty well essentially moving more to the digitization of that and experience with our clients.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks for taking my questions.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Operator

And your next question comes from Steven Alexopoulos with J.P. Morgan. Your line is open.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Hi, everybody.

Gregory Becker -- President and Chief Executive Officer

Hey, Steve.

Steven Alexopoulos -- J.P. Morgan -- Analyst

I wanted to start first with a big picture question. So if I look at the IPO market in 2019, there was a pretty wide divergence in the performance of what I think of as pure tech companies and then other companies that we're trying to get a tech multiple, but they were really in an old economy-type industry, right? I'm thinking about Uber or Lyft. When you look at your start-up clients, are companies that are not in pure tech now struggling today to raise funds? And maybe seeing like down rounds or anything like that?

Gregory Becker -- President and Chief Executive Officer

So, Steve, I'll start and Mike and Marc, may want to add. Yeah. At least from my standpoint, I have not seen anything significant that would say there would be a trend, whether it's hard core tech versus what I'll call business model innovation, if I distinguish the two that way. Do I think that the valuation of some of the business model companies that had rapid growth that maybe didn't have something as differentiated, the valuations are coming down or it's a little bit more difficult to get these high valuations? I think that's true. But I think also those companies are the ones that didn't have as clear path to profitability. And I think one of the questions we get on a regular basis is regarding WeWork and what was the impact.

I actually think the impact is positive for our market for the following reason. I think it caused companies to take a look back and say, let's look at our fundamental business and the path to profitability, which I think is a healthy thing and actually created more sustainability for the continuation of this kind of trajectory that we're on, because if we were headed -- continue to head down that path, and again, my bias, if WeWork would have gone public and seen a massive valuation, I actually think you would have started to see more bubble-ish type of valuations happening. And so, I look at it as taking a little bit of air out of what could be an overhyped market. So, it's a little bit harder to get valuations. You do have to have a better path to profitability, but I wouldn't say it's any dramatic change right now.

Michael Descheneaux -- President, Silicon Valley Bank

Yeah. I haven't been seeing any heavy amounts of down rounds either out there as well. Quite the opposite. I think we saw that probably about a year, year-and-a-half ago, a lot of down around talk, but around this current timeframe, I'm not really hearing much about down rounds.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Okay. That's helpful. And then on -- thanks for that. On the buybacks, you didn't buy back stock in the quarter and you have $350 million authorization left for 2020. How much do you think you'll buy back of that?

Daniel Beck -- Chief Financial Officer

It's hard to say in total, but the -- this is where the issuance of the preferred is helpful. We now have the ability to really optimize the capital stack and exchange some more expensive common equity Tier 1 as a result. So, hard to say exactly what we would do in terms of the amount, but there is an expectation that we will use some of the authorization.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Okay. Thanks. And then, finally, if I look at the deposit mix, the interest-bearing deposits are now about 34% of total, looking at average. Dan, where do you see that mix trending in 2020?

Daniel Beck -- Chief Financial Officer

Yeah. I think on a full-year average basis, we'll be in the low- to mid-60s full-year average. I think the trend to continuing to mix more toward interest-bearing is going to continue. And you could see us leave 2020 in the -- let's call it the lower-60s from non-interest bearing deposit perspective, that's generally in this rate environment, how I think it's going to continue to trend.

Steven Alexopoulos -- J.P. Morgan -- Analyst

In terms of the strong growth this quarter in interest-bearing, are you just offering more attractive rates than what clients can get in the off-balance sheet product. Is that what's driving that?

Daniel Beck -- Chief Financial Officer

No. If you've taken a look at our overall client liquidity over the last couple of years, especially with the increase in rates, you saw a material movement toward off-balance sheet. Now, what we're doing is, positioning more on-balance sheet products at a competitive rates. And you're seeing that plus some of the features that Mike talked about, from a product perspective, attract folks to who want to be on the balance sheet in a deposit product. So, it's not just about the rate, it's about the product, the product positioning and how we're moving forward with it.

Michael Descheneaux -- President, Silicon Valley Bank

I would say that, we're essentially, Steve, going to the market making sure that we're keeping in line with the market, because if you're out of market right now, obviously, it makes it a lot harder. So, again, being in the market range is certainly really, really helpful. And, as you know, there's just a significant amount of liquidity going on there and that people are fighting for it. So, we're no doubt getting more than our fair share.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Okay. Great. Thanks for taking my questions.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Operator

And your next question comes from Jennifer Demba from SunTrust. Your line is open.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thank you. Good evening.

Gregory Becker -- President and Chief Executive Officer

Hey, Jennifer.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Hi. Question on Leerink. Can you just expand on the outperformance in '19 and fourth quarter, what's gone really well? What do you feel like the opportunities are still in '20 and the next couple of years?

Gregory Becker -- President and Chief Executive Officer

Yeah. This is Greg. Certainly, I look at 2019, so our first year of SVB Leerink being part of the organization, and I would characterize it as being a very strong year. And I would look at it from the standpoint it slightly exceeded. But it's always good to exceed our expectations for the year from a revenue and contribution perspective, number one. But actually, more importantly, I would say, how the team has come together, the cultural fit that we hoped would exist was, as advertised, and maybe even a little better than expected there. So, I feel really, really good about that.

Then the last part is the collaboration with the life science and healthcare commercial banking team. And again, because of that cultural connection and the cultural fit, it is really a seamless partnership between our commercial bankers and the healthcare investment bankers at SVB Leerink. And I look at that and look at the deals that are being introduced to the commercial bankers, I look at the deals that are being introduced from the commercial bankers to SVB Leerink as a very, very positive sign. Now, was it working perfectly in 2019? No. But that gives me optimistic outlook for what I see going forward in 2020.

So part of the revenue, when you think about capital markets, it is mostly a function of what happens in the market and the market share they have. The market share we think is going to hold steady, maybe increase a little bit, but it's a solid market share in the target market they go after. So, if anything, my hope, my anticipation is that, the collaboration will be even better. And so, the commercial bank on the life science side, we'll see an even stronger 2020 over 2019. So, I would characterize it as a very, very good year and just I really want to say thanks to the team at SVB Leerink for just being such great partners.

Daniel Beck -- Chief Financial Officer

And maybe, well, add on to that Greg is, Jennifer, when we look back about the insight and knowledge that the Leerink team brings to the table when you having those discussions with our clients, their insight and knowledge is best-in-class. It just makes -- it brings the level of discussion to a completely different level and really adding value for our clients. So I think there has been a lot of great receptivity from our clients, as well as -- even inside here at SVB has just been quite surprised with their depth of knowledge.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

At what point do you expand into the technology sectors and investment banking?

Gregory Becker -- President and Chief Executive Officer

Yeah. It's a great question. I think for the most part, there are two different markets. What I mean by that is you to look at the technology space, what's interesting in life sciences, I'll start with that, you have some small players, you really have SVB Leerink as being right in the middle and incredibly solid. When you look at economics and everything else, they do a really, really good job and the economic differentiation for capital markets is very, very close to the bulge bracket firms. And then you had the bulge bracket firms.

In the technology side, as we've looked at that market what you really end up with is the bulge brackets and then everyone else. And so, from my standpoint, it's hard for me to see us jumping in to capital markets in technology. Well, what that leaves is advisory. And I know I'm sure you know that the number of firms that have got into the M&A advisory business and technology has increased dramatically. So that's a very competitive space. So before we would do that we would have to be confident that we had synergies on the commercial banking side in technology for buyouts or something in sponsor finance that we could capitalize on in an advisory business in technology. So that's what we're looking at. We're making sure that before we make any movement in that area that we can really make it work across the platform. So, nothing to share right now, but it is something we're looking at, but it will probably be, if we do something, it on the advisory side.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for the color.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Operator

And our next question comes from Chris McGratty from KBW. Your line is open.

Christopher McGratty -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Great. Thanks. Greg, maybe a question on just overall credit quality. It's performing very well. May be interested in kind of some thoughts of portfolios or sectors that you might be keeping an eye on.

Gregory Becker -- President and Chief Executive Officer

Yeah. Chris, I'm going to turn it over to Marc, as he is the expert in that area and he's dying to answer a question, so.

Marc Cadieux -- Chief Credit Officer

Thanks for asking me a question. So, yeah, it's Marc. And the answer to your question is, there is no particular sector, credit quality, as you noted, has been very strong for quite a while now and reflective in that is no adverse emerging trends that we can see. Having said that, the segments of our portfolio that always bear the closest watching is the investor-dependent. In particular, the early stage segment of the portfolio, given that that can change quickly depending on market factors, investor sentiment, etc.

Christopher McGratty -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay, great. And then maybe one more Greg, kind of a longer-term question, you've had a lot of success with capital call business, the growth there is tremendous. Maybe can you speak to diversification efforts that might be in a way over the next couple of years? I think you've talked in the past about private banking. Thanks.

Gregory Becker -- President and Chief Executive Officer

Yeah. And Chris, I guess, I think about your question is more broadly speaking about growth overall and I want to characterize one thing for us, which is the capital call business. When you think about it from a lending perspective, that clearly has been the biggest driver of loan growth. And that gets a lot of headlines because, obviously, Bank is focused on lending. But I really would ask everyone to focus on the overall business, the overall platform, core fee income, deposits or client liquidity and then lending. When you think about it from those three avenues, the tech and life science part of the portfolio, even though the lending side has headwinds from the standpoint, the amount of liquidity that exists in the market, the success that group is having about adding new clients, bringing loan commitments, bringing client liquidity, the majority of client liquidity came from technology and life sciences was exceptional and core fee income, FX, cards, they have seen exceptional growth. So I would argue that we actually do have a more diversified growth story than what is the headline in lending regarding private equity services.

You've got global, which is part of that and then you brought up private bank. I am very bullish on private -- the private bank and as far as I think about objectives for 2020, we need to make a bigger, bolder move in the wealth side, that is both organic and building it out. But we're also looking at inorganic opportunities as well. And so, that may come up during the course of 2020. So, when I think about the growth trajectory, it is the whole business tech, life sciences, private equity services, private banking, all those combine that gives me optimism for the kind of future.

Christopher McGratty -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Great. Thank you.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Operator

And our next question comes from Gary Tenner from D.A. Davidson. Your line is open.

Gary Tenner -- D.A. Davidson -- Analyst

Thanks, good afternoon.

Gregory Becker -- President and Chief Executive Officer

Hey, Gary.

Gary Tenner -- D.A. Davidson -- Analyst

I wanted to ask about what looks like a modest change to your guide on core fee income versus the preliminary guide last quarter. It looks to be a little bit lower. Now, I'm just wondering if it's the dynamic of bringing some more client funds on balance sheet, maybe a little bit of a negative impact on the growth in client investment fees in 2020.

Daniel Beck -- Chief Financial Officer

Yeah. This is Dan, I'll start. Mike, might have something to add. But if we take a look at the change in the guide, the majority of that change is related to the fact that our 2019 performance was even stronger than we had anticipated. That just changed the dynamic of the growth rate between 2019 and 2020. Overall, we continue to expect solid liquidity from client fund's perspective because of the environment that Greg and Mike mentioned earlier. So, we're still bullish on the environment and the change in the guide is just more related to how we exited 2019.

Gary Tenner -- D.A. Davidson -- Analyst

Thanks. And then one additional question. In terms of the margin, the guide for next year just modestly below where the fourth quarter ended up. I'm wondering, is this a question of kind of a first quarter step down from some additional repricing from the fourth quarter rate changes and then a stabilization or is it more of a kind of lead over the course of 2020 as earning asset mix maybe shifts more toward lower yielding assets?

Daniel Beck -- Chief Financial Officer

Yeah. I think if you look at how 2020 is going to continue to progress, you're going to, obviously, see stabilization from a rate perspective. But you are going to continue to see remixing of the deposit side of the portfolio into more interest-bearing deposits. So that's going to be a source of some continued -- of a source of growth but at the same time, some continued pressure on the margin. We also continue to expect some competitive pressure on the lending side of the equation. And I think those are the two factors that will continue to push margins lower through 2020. But overall, all of those factors have already been included in our guide for the year.

Gary Tenner -- D.A. Davidson -- Analyst

Thank you.

Operator

And our next question comes from David Chiaverini from Wedbush. Your line is open.

David Chiaverini -- Wedbush Securities Inc. -- Analyst

Hi, thanks. My questions were answered.

Operator

Thank you. And our next question comes from Jared Shaw from Wells Fargo.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good evening. Just circling back on Leerink, with the separation of the core fee income guide. So, we should expect that the growth rate at Leerink slows in 2020, is that the right way to think about it given what we see here?

Daniel Beck -- Chief Financial Officer

The growth rate in Leerink on a year-over-year basis, there is growth on the revenue side of the equation. And that's what's been factored into the guide. The growth rate since that was the first year for us with them that we see is consistent with what we had expected when we looked at the transaction.

Gregory Becker -- President and Chief Executive Officer

Jared, the only thing I would add to what Dan said is, it's not entirely comparable, but it's more -- it's -- at least for me, it's more analogous to what you see in warrants and securities gains, it's more market-driven. So if they keep their market share the same, it's part of -- it's a function of what is the M&A and what is the capital markets for healthcare. And so, yes, we got some growth built in, but if next year or this year is a very, very, very strong year, they're going to have more upside. If they're softening in that market, you're going to see a lower revenue. And so, when we first announced the acquisition of Leerink at the beginning of last year, or at the end of 2018, we said it is going to be more of a market tied business. And so, when you factor that in that's what you should expect.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. And then, when we look at Leerink, I guess, what's the -- what's a typical expense relationship to revenues of excluding the incentive comp, what's the efficiency ratio, I guess, for Leerink as we look at growth there?

Daniel Beck -- Chief Financial Officer

Yeah. So, we look at their overall operating margin. They're generally targeting 18% to 20% operating margins. So that's effectively the way to think about it.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay, great. Thanks. And then, Greg, maybe just talk a little bit about the view -- the international view and how any potential trade settlement could impact your business and how you're sort of viewing the international side of business overall?

Gregory Becker -- President and Chief Executive Officer

Yeah. So the international business and again, you can break it down into the UK, EMEA and then you look at Asia, and then we have Canada as well. The business has all three of them had nice growth in 2019. There really wasn't a lot of impact from -- in the UK, we didn't see a lot of impact or maybe any impact from the Brexit discussions. In China, we didn't see a lot of change there. And you may hear in the news about the venture capital activity in China, where it actually dropped pretty significantly in 2019. But, I guess, really important to distinguish what that drop or where that drop came from is kind of what I'll call two buckets of venture capital in China. One is government-supported RMB funds where the government is putting money into venture capital funds and the other one is, what I'll call, more our type of venture firms, which are either US funds that are gone there and setting up shop or almost like a western style of venture capital model there. Those are more familiar with, that's where our concentration is. And so, we really didn't see much change. Saw a little bit of change, but not much change in 2019. And so, we have healthy growth expectations across all those businesses. And I think the only -- I only expect positives from the fact that we had a Phase 1 trade deal in China, number one. Number two, Brexit is clarified, which I think is a really, really good things. So, I look at is just being more helpful but 2019 was a very good year.

Jared Shaw -- Wells Fargo Securities -- Analyst

Thanks for the color.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Operator

And our next question comes from Tyler Stafford from Stephens. Your line is open.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, good evening, guys. Thanks for taking the question.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Tyler Stafford -- Stephens Inc. -- Analyst

Greg or Dan, earlier you mentioned just around the competition impacting the margin outlook and obviously, within the capital call business, we've seen some newer market entrants in the fourth quarter and continued competition there. Can -- Greg, I guess, you just share your position how you feel about SIVB's position within that business, how insulated or comfortable you feel about protecting and growing your market share within the capital call segment?

Gregory Becker -- President and Chief Executive Officer

Yeah. I'll start and Mike may want to add, as he is even closer to it than I am. We've had great growth in that business. There has been some margin compression. But I still believe -- I know we have a premium for what we do. And so, the question is like, why would we get a premium or why would you expect to be in the position that we're in, which we believe or we know we're the leaders in that space. It's really several factors. So, one is the fact that, we're really the only global platform that covers private equity and venture capital across kind of all the global geographies. So, whether it's Asia, which is a big, big market, whether it's the US and then you can look at Europe, but specifically taking that out of the UK. So we have more people covering this market than any other institution, number one. Number two, all our products and services are tailored specifically to that market.

And number three, the third thing is the client service. And so, it's not one thing. It is kind of all those things. And if I were to say what's the outlook for us. I know, my objectives and I know Mike feels the same way that what we need to double down on is, what are the other things or services that we can provide private equity firms and venture capital firms to be even more of a one-stop? So, that's what we're looking to build out in 2020 and 2021, but I feel very good about our positioning in the market right now.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay, thanks. And, I guess, along the same vein, can you share maybe, Dan, what the current on-balance sheet yields of the capital call portfolio is? And any commentary about new origination yields out of that book would be helpful? Thanks.

Marc Cadieux -- Chief Credit Officer

Hi. So, it's Marc. I'll take that one. So the interest-only yield in that portfolio is between high-3% and low-4% is where it falls on average and haven't really -- in terms of recent originations are pretty consistent with the average I just gave you.

Tyler Stafford -- Stephens Inc. -- Analyst

And then, Marc, maybe just to follow-up. So, within your margin expectation would be no material change in that pricing that as originations?

Marc Cadieux -- Chief Credit Officer

I think as we already mentioned, competition will take some margin, right? We'll see some margin pressure from that. But yeah, at the range I'm talking about there is not a whole lot of room left to go.

Daniel Beck -- Chief Financial Officer

And Tyler, it's Dan. Based on what we've seen over the last, say, six quarters now we've continued to factor in those margin declines into our forecast. So that is already -- those expectations are already baked into our guidance.

Tyler Stafford -- Stephens Inc. -- Analyst

Thanks for clarifying, Dan. I appreciate it.

Operator

And our next question comes from John Pancari from Evercore. Your line is open.

John Pancari -- Evercore ISI -- Analyst

Good afternoon.

Gregory Becker -- President and Chief Executive Officer

Hey, John.

John Pancari -- Evercore ISI -- Analyst

On the competitive line of questioning, are there other portfolios outside of the capital call lines where you're seeing pricing pressure? Is the capital call business the primary area that's weighing on your margin from that perspective? Thanks.

Gregory Becker -- President and Chief Executive Officer

Yeah. This is Greg. It is a competitive market out there, and it's not just in capital call lending, it is really across the business. Our win rate is still exceptionally high, our market share is exceptionally strong. But yeah, we have to -- we definitely have to compete every single day. And you're seeing it from banks, non-banks, you're seeing it really across the board. And, I guess, we really shouldn't be surprised by that. I know I'm not surprised by it because, number one, the target market that we have has been exceptional market. Other institutions want to see growth, you've got low rates, and so people are looking for yield. And maybe, finally, and this is where I think it will be interesting to see when we do have a little bit of a downturn. There hasn't been a downturn from a credit perspective for a decade. And you see people coming in that are doing one covenant deals, no covenant deals with low pricing. And as Mike has talked about on this call, over the years, we want to focus on smart growth. So we're being aggressive, we're being competitive but there are situations where places that we just won't go because we just don't think it's going to end well if there was a kind of bump in the road. So, yes, it's competitive. We're sharpening our pencil and it's kind of hand-to-hand combat every day.

Michael Descheneaux -- President, Silicon Valley Bank

But at the same time, though, in terms of the margin compression we are, I would characterize as making it up from other products as well, too, right? Those have really good margins, we're improving on how we deliver our client experience as well, too. So, I'm quite OK with some margin declines, particularly as long as we continue to add the solutions and provide the solutions to our clients where you make up for it in fees.

John Pancari -- Evercore ISI -- Analyst

And on that Mike, as you look at the different products or the ways that deepen your relationship and enhanced profitability with private equity firms and VCs, what are examples of those types of products? And who you are poised to steal that business from? Like who is doing that business now? And would you need to move upstream to larger PE firms in order to get greater access to different products that you could be offering? Thanks.

Michael Descheneaux -- President, Silicon Valley Bank

See. As you know, the market is massive in the private equity world, even though we are the largest global player or largest player and by and large in the United States, there is still a large market share for us to continue to go after. So, I'm not worried about in terms of market opportunity at all. But, yes, so you got mid-sized firms, you've got large-sized firms, so we can go after all of them.

In terms of a specific product, what we've really have seen is FX, foreign exchange, as well as client investment piece, some of our off-balance sheet funds. And I'll give you an example, like from FX for private equity, we've been growing that business over the last five years about 30% per year in the FX world, right? Continue to educate our clients, we provide great insight, great solutions, great service to our clients. And so, we continue to win large mandates in that area. Similarly on the client investment thesis well too, the off-balance sheet funds, again a lot of deposits around that on and both off. So that's why I would say is that where we are picking up on the margin, and then it's a very scalable business, as you can imagine.

Gregory Becker -- President and Chief Executive Officer

The only thing I would add on to that is, there is market share growth and there is market growth. What I mean by that is, there is a fair number of private equity firms that historically actually haven't used capital call lending. And now, as it is becoming more common to do that, you're actually seeing the market growth. So you're not taking share with many one, it's just -- they're just realizing this is actually a really good solution for them and for their LPs, so you're seeing growth both in us having market share, you're having growth in product market share and you're also having growth in the market overall. And so, from that standpoint, that's really been the drivers of the growth.

John Pancari -- Evercore ISI -- Analyst

Okay. Got it. That's helpful. The one last thing, also on the same theme. I mean, in terms of the competitive intensity, particularly around the capital call space as it is. I mean, what would you say really reverses it? I mean, just given this is, as it is a growing space and more and more entrants are stepping in, do you really see that reversing in terms of the pricing impact on the lines itself?

Gregory Becker -- President and Chief Executive Officer

This is Greg. I don't see that market changing a whole lot from a competitiveness perspective. You see more non-banks competing with banks for lending and what that does with people want growth, they're going to be forced to compete on the lower risk spectrum. And you're going to compete in lower risk spectrum by usually lowering rate. What our focus is, in remarks for this earlier, which I just want to kind of follow up on, the margin is already low. So, whether it's an extra 25 basis points, or 30 basis points or 40 basis points, at some point, and we see that, companies say, that's not the most important thing. The most important thing is, I want service, I want certainty, I want the product set, I want value add and again, that's something our team and the platform we provide is -- does an exceptional job of. So, we're competitive on pricing, but we're doing as much as we can on the, I'll call it, a wrapper value add that is really the key differentiator at the end of the day.

John Pancari -- Evercore ISI -- Analyst

Got it. All right. Thanks, Greg.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Operator

And our next question comes from Brock Vandervliet from UBS.

Brocker Vandervliet -- UBS Investment Bank -- Analyst

Good evening. Thanks for the question. Going a little bit deeper into the footnotes here. I was just looking at the NII strength, and I noticed there is mention of the loan fees. Could you talk about whether there is a seasonality to that? What types of lending that's coming from, whether it's a capital call or tied to the mid-stage lending? And kind of how we should think about loan fees going forward?

Daniel Beck -- Chief Financial Officer

Yeah. This is Dan, I'll start and Marc might want to add. The loan fees that we see are -- aren't seasonal. We do see them just based on standard payoff activity, but it's really hard to predict on a quarter-to-quarter basis. We did happen to have stronger prepayment fees in this quarter and that's why we noted them in the presentation. Traditionally, the largest prepayment fees are coming out of our healthcare and life science lending portfolios, and those generally generate the largest more episodic fee events.

Brocker Vandervliet -- UBS Investment Bank -- Analyst

Okay. Great. And separately regarding CECL, I saw that disclosure and more -- this is more focused on kind of the day two impact, and I was trying to do the math, myself. But how should we look at this affecting your provisioning levels going forward?

Marc Cadieux -- Chief Credit Officer

So, it's Marc, I'll start. Dan may want to add. The -- as we noted in the slides, we have the one-time range of $40 million to $60 million and from there on out, we're expecting in the reserve for the funded a range of 0.95% to 1.05% is the guidance. And what that reflects is the expectation that, so long as the economy stays stable, and that's an important caveat that we expect to be within that range.

Brocker Vandervliet -- UBS Investment Bank -- Analyst

Okay. And provisioning I want to just -- well, just hold it there. Okay. Great. Thank you.

Gregory Becker -- President and Chief Executive Officer

Yeah.

Operator

And our next question comes from Casey Haire. Your line is open.

Casey Haire -- Jefferies & Company, Inc. -- Analyst

Great. Thanks. Quick follow-up on NIM. Dan, the NIM guide, you guys did a very good job of working down the liquidity this quarter and it's -- but it's still around 10% of your earning asset base. What does the NIM guide presume -- how does that trend in 2020?

Daniel Beck -- Chief Financial Officer

Yeah. It's a good question. The NIM guide assumes that we get back to our cash targets in, let's call it, the $3 billion to $5 billion range. We've been consistently over the last couple of quarters above that, which has been pressuring the NIM a bit. We've been putting money to work as quickly as we can. But at the same time, we have to balance kind of cash needs of the Company. So the expectation is staying in that, let's call it, $3 billion to $5 billion range, hopefully closer to the middle of that and to manage that down and that's what's embedded.

Casey Haire -- Jefferies & Company, Inc. -- Analyst

Okay. Would that be a gradual process from that -- while, actually you are what $6 billion, $6.5 billion now?

Daniel Beck -- Chief Financial Officer

Yeah. I mean, we've -- we manage that every day and put that money back to work. The velocity of the fund flows is pretty strong. So every day we're looking to manage down to that level.

Casey Haire -- Jefferies & Company, Inc. -- Analyst

Understood. And just one quick one on the expense side. Just a follow-up earlier. So, it sounds like the expenses are going to get some leverage in the second quarter from whatever the $430 million to $450 million in the first quarter. The season -- the pattern looking back is that, there is still expense growth in the second quarter, it's just as those seasonal payroll taxes roll off, the expense growth is more muted. So I'm just wondering where do you expect the expense leverage to come from in the second quarter.

Daniel Beck -- Chief Financial Officer

Yeah. Some of it is, obviously, related to the seasonal components and some of it is expected timing of spend from professional services. So, the largest aspect though is the roll off of those seasonal compensation expenses.

Casey Haire -- Jefferies & Company, Inc. -- Analyst

Got it. Thank you.

Operator

And that concludes our question-and-answer session. I'll now turn the call back over to Greg Becker for a brief closing comments.

Gregory Becker -- President and Chief Executive Officer

Great. Thanks. I just want to thank everyone for joining us for our Q4 results, and really is -- if you look at Q4 was a great quarter. 2019, the year was incredibly strong year. And actually I like to even look back in the last decade, since we're turning a new decade and it was really just an incredible period for us. As we look at the outlook, obviously, 2020, we got a positive guidance, which we feel good about. What we're probably most excited about is the team of people that we have, what we're building out. And so, the overall long-term outlook. So that gives me optimism.

I also want to thank our clients for supporting us and allowing us to support them. The team that I mentioned earlier, an incredible group of people that I believe are at the end of the day the biggest differentiator, both from a culture and values perspective and of course, our investors who support us and support our long-term vision. So, again, thanks to all of us for -- all you guys for joining us and have an incredible 2020. Thank you.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Meghan O'Leary -- Head of Investor Relations

Gregory Becker -- President and Chief Executive Officer

Daniel Beck -- Chief Financial Officer

Michael Descheneaux -- President, Silicon Valley Bank

Marc Cadieux -- Chief Credit Officer

Kenneth Zerbe -- Morgan Stanley -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Steven Alexopoulos -- J.P. Morgan -- Analyst

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Christopher McGratty -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Gary Tenner -- D.A. Davidson -- Analyst

David Chiaverini -- Wedbush Securities Inc. -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Tyler Stafford -- Stephens Inc. -- Analyst

John Pancari -- Evercore ISI -- Analyst

Brocker Vandervliet -- UBS Investment Bank -- Analyst

Casey Haire -- Jefferies & Company, Inc. -- Analyst

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