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SVB Financial Group (SIVB.Q)
Q1Â 2020 Earnings Call
Apr 23, 2020, 6:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the SVB Financial Group Q1 2020 Earnings Call. My name is Daryl, and I will be your operator for today's call. [Operator Instructions]
I will now turn the call over to Meghan O'Leary, Head of Investor Relations. Meghan, you may begin.
Meghan O'Leary -- Head of Investor Relation
Thank you, Daryl, 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 2020 financial results, and they'll be joined by other members of management for the Q&A. Our current earnings release, slides and summary CEO letter have been filed in an 8-K and 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 CEO, Greg Becker.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Thanks, Meghan, and thank all of you for joining us today. You can see from the materials we filed earlier today that we had a solid first quarter despite a substantial macro environment loan loss provision. But our primary focus and yours, too, I'm sure, is on the impact of the COVID-19. Our priority has been helping our clients, employees and communities, and we have provided some details on our initiatives there. And like every business, we're assessing the likely impact of the crisis on our future performance.
We've worked hard to provide as much detail as possible about what we're seeing and expecting despite limited visibility into how the economic downturn and the recovery will play out. The bottom line is that we have the strongest, highest quality balance sheet in our history, including ample liquidity. We believe we are well positioned to support our clients through this crisis while continuing to invest in our long-term growth. While we expect the near-term to be challenging, we are well prepared and believe our clients in the innovation economy will remain resilient over the long term.
We want to answer as many questions you have as possible, so I'll ask the operator to open up the lines right now. Thank you.
Questions and Answers:
Operator
[Operator Instructions] And our first question comes from Ken Zerbe from Morgan Stanley. Go ahead Ken.
Ken Zerbe -- Morgan Stanley -- Analyst
Thanks. Good afternoon.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Hey Ken.
Ken Zerbe -- Morgan Stanley -- Analyst
I thought I just want to start off. Your guidance for second quarter seems to imply a lot less NIM compression than what we were expecting. Can you just talk about some of the actions that you've taken to help minimize the impact of the Fed rate moves? And also if there's any factors that could drive NIM lower in future quarters like spread compression, etc.
Daniel Beck -- Chief Financial Officer
Ken, it's Dan. So if we look at the NIM in the first quarter and what's taken place, obviously, we had the hedge portfolio in place. Our floors were all triggered by changes in the rate environment. And at the same time, at the beginning of the quarter, we put close to $2 billion of investment securities on while the rate environment was still favorable. So when we add all of that to a changing mix in the portfolio where we had more growth in technology, healthcare and life science lending, that provides much more of a benefit to net interest income and net interest margin heading into the second quarter. So those are really all the factors to consider.
Now looking ahead to future quarters, obviously, the shape of the curve is really important. Looking at where we can invest our funds from an investment securities perspective is something that can and will continue to put pressure on the margin going forward. But I think those are the primary factors.
Ken Zerbe -- Morgan Stanley -- Analyst
Got it. Okay. That's helpful. And then in terms of expenses, and I'm thinking of the guidance for second quarter, again, I understand the lower compensation line that makes sense. But can you talk about some of the other types of expenses that you're cutting in the non-comp lines that help lead to your lower expense guidance?
Daniel Beck -- Chief Financial Officer
Yes. To be clear, as we look at expenses, we're not in the expense cutting business. We're certainly more looking to invest and invest in the long term. What we're really seeing is the natural outcome of what looks like a weaker business environment in front of us. And those other expenses that are just lower by their very nature or business development and travel and things along those lines that are just tied to the amount of economic activity. If we take a step back and look at our strategic priorities, we are certainly investing at the levels that we had anticipated, and we'll continue to invest in our growth. But these are really business activity driven, and we do expect that to be weaker as we look ahead to the second quarter.
Ken Zerbe -- Morgan Stanley -- Analyst
Got it. Okay. And if I could just squeeze one last question in. In terms of the reserve build and certainly the provision expense that we took this quarter, how much of that relates to categories like the early stage portfolio versus some of your other technology lending categories?
Marc Cadieux -- Chief Credit Officer
This is Marc. I'll take that one. And the reserve build is pretty heavily weighted toward the investor-dependent categories and particularly the early stage where we've historically had the greatest amount of loan losses. If you take a look at the earnings presentation, you'll see on Slide 22 a pretty good depiction in Slide 23, for that matter, a good depiction of how the reserve breaks down by risk-based segment and the transition from the old to the new.
Ken Zerbe -- Morgan Stanley -- Analyst
Perfect. Thank you very much.
Operator
And our next question comes from Steven Alexopoulos from JPMorgan. Go ahead. Steven, you are online.
Steven Alexopoulos -- JPMorgan -- Analyst
Sorry about that. Hi, everybody.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Hey, Seve.
Steven Alexopoulos -- JPMorgan -- Analyst
Looking at the capital call details, it looked like private equity remained pretty strong, much stronger than VC through the quarter. Just given the higher mix of PE, are you guys expecting a drop-off in overall capital call volumes in 2Q?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
This is Greg, Steve. I'll start. So what capital call activity is a function of activity levels, right? So as we have talked about, clearly, activity levels are going to slow. So what's going to happen is, as these capital calls have maturity dates over the course of this quarter and the following quarters, but there is a deal activity that then will replenish those pay downs, you're going to, by definition, see a decline in that in those outstanding. So that's why we kind of couched it in the second quarter as we did see some drop. But again, as we said, the crystal ball beyond the second quarter is much more difficult, which is why we have kind of stuck to Q2. But that's something we're clearly paying attention to how fast activity levels picked back up to normal levels.
Steven Alexopoulos -- JPMorgan -- Analyst
Yes. And then, Greg, in the past, right, where we normally see a pause and then when we would see a larger pickup as firms took advantage of lower valuations. Again, with more private equity in the mix versus, say, other cycles, how do you think about this pod? Do you think it could be shortened as compared to prior cycles?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Steve, it's such a hard, hard thing to say. And here's the factors that kind of come into it, right? So one is we've never seen this before, right? And we don't know the ripple effect and how long it's going to be. And obviously, when you can see our provision we took the provision, and basically assuming when we did our model provision, we said it's going to take longer. It's going to be deeper and longer. What does that mean? How long will it take for deals to find the right balance between what investors are looking to pay for an asset and the sellers are looking to sell for, we literally don't know. But I would say whether it takes an extra quarter or whatever, your point is right on. There's never been this amount of dry powder. And we also believe that there's more money that's coming after this market even behind that.
When we've talked to limited partners, unlike what we have seen in the past where limited partners are really spooked, we've done some channel checks. And what we've heard from limited partners is that they're actually looking at this as an opportunity. And I think that's a great sign. So we've seen good indications. But calling when that's going to start to come back to normal is going to be really, really difficult to determine. Mike Descheneaux is on the phone. I will see if he has anything he wants to add to it about what he's seeing or hearing.
Michael Descheneaux -- President of Silicon Valley Bank
Thanks, Greg. Yes, Steve, there are some things to think about as well just logistically, right? You will just to actually do a deal with clients, I mean, with new investments is really hard, right? And it's going to be very difficult for somebody to get excited about investing $50 million over a Zoom video call. So that's something I think you have to think about logistically. Now what would happen is if they have an existing investment and try to continue to support that, so you could see investments continue going down that aspect but the prospects of a new, new is really going to be impacted by the duration of how long we have to have the shelter in place or not to be engaged physically. Over time, it will certainly work itself out. I think we'll all figure out how to do deals like that. But in the meantime, that's certainly there's certainly no doubt there's been a drop-off in new deal activity.
Steven Alexopoulos -- JPMorgan -- Analyst
Okay. That's helpful. And then for Marc, if we look at the early stage portfolio, so you guys are calling out accurately, it's half the size it was in the last downturn in the financial crisis. But when you look at the composition of the early stage book, is there any noticeable change that would lead you to believe that historical losses in early stage will be materially different than what we've seen in prior cycles?
Marc Cadieux -- Chief Credit Officer
Yes. So there is, I think, one thing that's probably most important to call out, Steve, that's not different, and that's the granularity in that portfolio. The average loan size is around $2.3 million in early stage. And that truly is the best defense against the unknown and certainly the best defense at times like this.
Moving beyond that, what I would say, is probably different in this cycle relative to the downturn. two things primarily: companies, on average, are more liquid going into this; and investors, on average, have more dry powder with which to support their portfolio. And so wrapping those three things together, the continued granularity, and generally speaking, better-funded companies with better backers, more deep-pocketed backers with more capacity behind them, all other things being equal, at this juncture at least, we would not expect losses to be quite what we saw in 2009, 2010.
Steven Alexopoulos -- JPMorgan -- Analyst
Okay. And so far, VC behavior, no change there as compared to other cycles in terms of supporting their companies?
Marc Cadieux -- Chief Credit Officer
No real discernible change there. I would say it's early yet. I think like all of us, venture capitalists are taking stock of the portfolio they've got, making decisions in real time. And we haven't really seen beyond a couple of anecdotal instances where a round of financing falls apart and is blamed, in effect, on COVID. We've seen some of that, I would say, in the same breath as many of those. I think the crisis was maybe an excuse. These were companies in trouble anyway. And so we haven't really seen a pickup in what I would call COVID-related investor abandonment, and that's probably a function of folks still taken.
Steven Alexopoulos -- JPMorgan -- Analyst
Great. Thank you for all the color.
Marc Cadieux -- Chief Credit Officer
Thanks.
Operator
And our next question comes from Ebrahim Poonawala. Go ahead, Ebrahim.
Ebrahim Poonawala -- Bank of America -- Analyst
Hi, guys.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Hi, Ebrahim
Ebrahim Poonawala -- Bank of America -- Analyst
I just wanted to follow-up on the reserves. So if we think about and in the Slide 23, where you find great detail actually on the breakdown. Your loan loss reserves ex capital call line are close to 3%, give or take. In '08, '09, the reserves peaked at about 1.92%. So when we think about the fact that the portfolio has become much significantly better relative to the last crisis. I'm assuming you still don't expect even the 30 basis point losses that you provided for against capital call line. Just talk to us in terms of incrementally, is there a do you envision a meaningful reserve build from where you are at the end of the first quarter, like relative to any minor tweaks in Moody's forecast or something like that?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
So Ebrahim, this is Greg. I'll start, and then Marc will want to add to it. I think one of the things when you look at the provision, and it is a substantial provision, it comes from what we decided in the model. As you know, or I'm sure you know, there's a couple of different choices we had as we were going into it. You could take the early March Moody's model or the later March Moody's model, and the delta between those two are very different. Meaning the kind of economic forecast in the later Moody's model was very severe. So we took that into consideration, and we decided to really embrace that because there's just a lot of uncertainty. Despite all the things that we talked about, the credit quality has been very, very good. We don't expect it to be as bad as it was in '08. All those things, including private bank, we had very good track record, all those things. We really as you know, CECL and the modeling, you need to kind of rely a lot in your model. So that's where a lot of the reserves came from and you see in that analysis. So that's probably the most important point. And then I'll turn it over to Marc to give you a little more specific color.
Marc Cadieux -- Chief Credit Officer
Great. And so, Ebrahim, you mentioned capital call lending, in particular, and that is one of the couple of segments that we would expect to continue to perform very well from a credit quality standpoint, notwithstanding what the March 27 Moody's COVID scenarios and the weightings we've applied, etc, would suggest in terms of provisioning and expected loss there.
And to what I think was your part of your question, will we see further provisioning in Q2? That's a hard one to answer, right? None of us can perfectly tell the future. But we do take note of a I think it was April 16, Moody's released another subsequent version that was a little bit worse, but not quite the delta that we saw between early March and late March. And so two comments here. I think the first is that we are unlikely, I think, to see a provision in the second quarter that's as significant as what we are seeing here in the first. Again, I can't tell the future, but all things being equal, I think that's likely. And then the other thing is in the fullness of time, right, we will see whether the losses projected by the model are actually showing up or not. And to the extent that they are not showing up, I think we'll have to take that into consideration as we evaluate assumptions in the model and think about whether the reserve we have continues to be supportable.
Ebrahim Poonawala -- Bank of America -- Analyst
Got it. And just tied to that, one on capital call line, just given the size of that loan book. Is there anything that's played out in the last four to six weeks that would make you or change your view around the fact that you've had 0 losses? And most likely, I think most investors expect, does that book to be a zero loss kind of portfolio? Has anything occurred, any customer behavior that would make you rethink that there is some potential for some losses?
Marc Cadieux -- Chief Credit Officer
Yes. Ebrahim, it's Marc again. I'll take that one. Greg or Mike, they wish to add to it. The answer blanket answer is no. We've seen nothing at all that would suggest that credit quality is going to deviate from what we've seen over the last 30 years. Capital calls are still being made on time. We haven't heard any issues about LPs being slow to perform or asking GPs to slow down the pace of capital calls.
And more broadly, we take comfort from the Fund Finance Association put out a bulletin that sort of covered the broader landscape of this and basically confirmed the same. Noting that there was a couple of articles referencing such things, they were quick to dispatch the notions raised in those articles that if there was anything in this reporting that there has been absolutely no capital call defaults, including with high net worth limited partners. Similarly, no acceleration of capital calls that was discernible. And so, so far, so good. And our expectation is, hopefully, that will stay that way.
Ebrahim Poonawala -- Bank of America -- Analyst
Got it. And just on a very separate topic, in terms of deposit growth. We saw significant deposit growth in noninterest-bearing deposits. Is the function of the crisis and the fact that rates are back to 0, are we back to an environment where deposits once again start being driven by noninterest-bearing deposit growth? And I know it's early days, and I think it's volatile, but would love any color that you can add.
Daniel Beck -- Chief Financial Officer
Ebrahim, it's Dan. I think that in this rate environment, we are going to continue to see the trend that we saw in the first quarter with more noninterest-bearing growth. That's not to say that we won't see interest-bearing growth mixed in. But I do think we are seeing and we'll see a reversal of the trend that we had over the last couple of quarters. And we baked that into our assumptions of what we're looking at, at least for the second quarter.
Marc Cadieux -- Chief Credit Officer
There's a few things I'd add also to think about as well, when you talk about deposit growth. We'd certainly love to see continued growth, but some of the factors you keep an eye on is new company formation as well. In this type of an environment, as we were saying, whether VCs or PE are investing in these new companies, as well as a couple of the fact that, obviously, revenues are impacted as well, depending it all comes back to the duration there. So those are some other things just to think about when you think about deposit growth and deposit formation.
Ebrahim Poonawala -- Bank of America -- Analyst
Thanks, Mike.
Operator
And our next question comes from Casey Haire. Go ahead Casey from Jefferies.
Casey Haire -- Jefferies -- Analyst
Yes. Thanks. Good afternoon, guys. So I had a question about the capital call. If we do get a pause, and this is going to be it's obviously a very big portfolio for you guys. What do you guys do with those funds? Is it part in liquidity? The securities book? Just trying to get a sense of where that money goes.
Daniel Beck -- Chief Financial Officer
Casey, it's Dan. If we do see paydowns, we can certainly look at taking them and potentially investing them in the investment securities with deposit costs, where they end up at the end of the quarter near four basis points all-in, in terms of cost of deposits. We can still make a decent spread, albeit not what it was 12 to 24 months ago with investment securities. So we can put that money to work. There is also a short-term use of those funds over the next three to six months with the SBA's payroll protection program as we expect to originate over $2 billion of that. So we'll be using some of those potential paydowns and those funds to be able to support that program. So there are places for us to be able to put that money.
Casey Haire -- Jefferies -- Analyst
Okay, great. And just, Marc, follow-up question for you on the early stage portfolio. You mentioned that they are much more liquid than they were in previous cycles. Can you just give us a sense of what kind of cash burn on average that portfolio is that those companies are sitting on, just so we can gauge that versus duration here?
Marc Cadieux -- Chief Credit Officer
Yes. I don't have a average cash burn statistic handy, and I don't think that's something we have disclosed previously. What I could tell you though is that, on average, one of the steps that we pay quite a bit of attention to what we call remaining month liquidity. And generally speaking, at the outset of this downturn, companies are in a pretty good place from an RML, or remaining month liquidity, standpoint. And as we've all seen in the news and elsewhere, companies are not wasting any time, reducing expenses and extending that runway, which we think is one of the most encouraging things we could possibly see.
Really, for early stage, the name of the game is to maximize that runway to stay alive as long as possible to get to a different place, right? A company that needs to go out and raise capital right now to the earlier points of folks just having their pencils down and taking stock of their portfolio, etc, and not being able to get out of their house to do due diligence, right? All of those things are limiting factors. If these companies can push their runway out and get to a place where things have become more unstuck and capital is flowing again, etc, that, on average, these companies are going to have much better outcomes. And by extension, we're going to have much better outcomes.
Casey Haire -- Jefferies -- Analyst
Great. Thank you.
Operator
And our next question comes from Jennifer Demba from SunTrust.
Jennifer Demba -- SunTrust -- Analyst
Thank you. Good evening.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Hey, Jennifer.
Jennifer Demba -- SunTrust -- Analyst
Could you talk about the SVB Leerink revenue outlook over the near term? I would think with the healthcare, life science focus, it could be maybe a little bit more stable than other competitors.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Yes, Jennifer. I will start, and then Dan may want to add something. Yes, we certainly believe it will it may be more stable than other markets for the reasons you articulated. But there's no question it will be impacted. Obviously, they're doing some IPOs, but the number of IPOs are going to be much, much, much fewer. You saw that toward the tail end of the quarter. And although, again, April had some activity, it's just going to be slower. Now, again, what's important to note is that as that revenue declines, the expense base drops substantially as well. And so there is that's one buffer you have. Maybe the secondary question is, how do we feel about SVB Leerink overall?
And I would tell you, we still feel very, very good about the platform, the team, how we're collaborating across the platform, because, as we said when we originally made the acquisition, it was not just about the revenue that was generated from SVB Leerink, it was about the platform benefit, and there's no question we're seeing that. We're seeing that with better information and knowledge sharing across our commercial banking, life science and healthcare team and the SVB Leerink platform. So yes, it's impacted, but we feel very, very good about the partnership we have with them.
Jennifer Demba -- SunTrust -- Analyst
And on the PPP program, what percentage of your client base applied for a loan there?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Yes, Jennifer. So I'll start, and I don't have the percentage. But I'll just give you the number of applications. So we had and these are round numbers, we had about 5,500 clients applied for the PPP program. We had about 3,600, 3,700 that were actually approved through the SBA program, and we're in process of getting those loans funded. A substantial loan have already been funded. And we are gearing up for the next wave so that we can then take care of the other roughly 1,800, 1,900 companies that are kind of still in the queue.
So that's kind of a perspective of it. We feel really good about how we ended up rallying behind it since, as we've talked about before, we have not done an SBA loan in, I think, it's 25 or 26 years. So we had to get ramped up very, very, very quickly. And I just want to say a huge hats off to our team who did absolute incredible job working around the clock to get us to where we are today.
Jennifer Demba -- SunTrust -- Analyst
Thank you very much.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Yeah.
Operator
And our next question comes from Chris McGratty from KBW. Go ahead, Chris.
Chris McGratty -- KBW -- Analyst
Great. Thanks for the question. Dan, maybe a balance sheet question for you. I think you talked earlier about the mix of deposit growth, noninterest-bearing, interest-bearing. Could you speak to how you see the client flows trending on or off? Any change in mix that you might expect given where we are in the rate cycle and the macro, whether it be on or off balance sheet?
Daniel Beck -- Chief Financial Officer
Yes, Chris. We had a really strong quarter in terms of average client funds growth of over $7 billion growth. And what we did see, especially toward the tail end of the quarter, is more on balance sheet growth. So we do expect to see more deposits on the balance sheet. But as Mike mentioned earlier, as we look at the next quarter and we look at the lack of fundraising activity and slowdown of business activity, that's going to lead to more of a flat to slightly lower level of overall deposits.
Chris McGratty -- KBW -- Analyst
Great. Thanks. And if I could, the fee rate that you are on the off-balance came down a little under 17 basis points. You obviously didn't have a full impact of the cuts. Could you talk about where that you might see that rate kind of trough?
Daniel Beck -- Chief Financial Officer
Yes. So I think we're going to end up in a spot where it's in the, let's call it, high single digits, maybe in the six to eight basis point range, something along those lines. That's likely where it's going to trend at this point.
Chris McGratty -- KBW -- Analyst
Great. And then one last one, if I could. The guide for the Q2, does that assume those, whatever, $2.5 million, $3 million of PPP loans get funded this quarter? Or is that irrespective of that?
Daniel Beck -- Chief Financial Officer
The loans, the do take that into consideration, as well as the margin and the NII piece. So that is included in there. To the extent that we originate more as we are looking at the second wave of that program, there could be a little bit more from an extra balance perspective. So that is included in our Q2 metrics.
Chris McGratty -- KBW -- Analyst
Great. Thanks Dan.
Operator
And our next question comes from Gary Tenner from D.A. Davidson. Go ahead, Gary.
Gary Tenner -- D.A. Davidson -- Analyst
Thanks. Good afternoon.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Hey, Gary.
Gary Tenner -- D.A. Davidson -- Analyst
A couple of questions on the loan front. I guess, first off, obviously, the period end balances were well above the average. So I'm just curious if you've seen paydowns early in the second quarter that are driving that flat to lower outlook from an average perspective?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
This is Greg. I will oh, go ahead, Dan. Okay.
Daniel Beck -- Chief Financial Officer
At this point, overall balances are slightly lower, but holding in the beginning of April. And our thoughts on what's going to happen from a loan balance perspective were included in that view on the Q2 average balances on the average lending that we have in our guidance. And Mike might want to add something to that.
Michael Descheneaux -- President of Silicon Valley Bank
Yes. Just obviously, we finished the quarter quite strong in March with respect to loans, right? We had suddenly some drawdowns from our clients, as well as they prepare for this downturn as well, too. So you saw average balances for loans were around $33.7 billion, but the period end number was around $36 billion. As we enter into the Q2, we're starting really strong there as well, too. And as we mentioned earlier, the thing that we are watching very closely is just the behavior of the private equity services or global funds banking to see if there is a little bit of payback, paydowns as well. But again, starting this quarter, quite strong in terms of loan numbers.
Gary Tenner -- D.A. Davidson -- Analyst
Okay. And just to clarify the point from the last question. In terms of the, in your commentary where you've got the loan drivers, the upside could include increased borrowing by technology and life sciences as well as the PPP. Does your initial approvals that you've already got in the queue, is that driven or is that embedded in the guidance? Whereas the ability to kind of fund up the additional 1,800 or so customers in the queue would be the upside driver? Is that the right way to think about it?
Daniel Beck -- Chief Financial Officer
Yes, that's the right way to think about it. We have a general assumption of what we think is going to be funded from the first round, where we already have approvals from the SBA to the extent that we're able to do more and how much more we'd be able to do is clearly uncertain. That can provide some upside. Again, if you look at the rate on those loans, it's quite low. So it don't have a material impact to the overall financials.
Gary Tenner -- D.A. Davidson -- Analyst
Okay. Great. And then finally, in terms of Venture Capital Limited Partners, you talked about how they seem to saw a very positive view in dry powder in terms of investment. There's been some commentary and reports about whether or not the LPs might have to rebalance or have to because of the lower public equity values that maybe they were kind of overweight in their VC allocation. Is that an overdone concern? Or are you hearing that?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
This is Greg. I'll start, and then Mike would want to add to, because we've both been spending time kind of hearing this dialogue with clients and then limited partners. I would say that unlike the last time, and actually, if you go back to 2000 where that was like the main event, you're hearing some talk about it, but it's a lot less than the last time. So I'm sure it will happen on the margin, but I don't believe it's going to happen as much. And I'd say there's a couple of reasons. One is a lot of these tensions and endowments have actually been thinking about should they be upping their alternative investment portfolio. But they don't it's like the question is when do they do it. So now that they sit back and go, rates are as low as they are, right, and we're back down to 0, I think you're going to see more kind of up to the percentage as opposed to just think about rebalancing. So yes, on the margin, you are going to see some. But I think overall, some of them are going to look at this as an opportunity to add more to their investment pool.
Gary Tenner -- D.A. Davidson -- Analyst
Thanks very much.
Operator
[Operator Instructions] And our next question comes from Brock Vandervliet from UBS. Go ahead Brock.
Brock Vandervliet -- UBS -- Analyst
Thanks for taking the question. So I was just trying to tie Page 22 of the release and I think the Slide 25. In terms of the deferrals, the $2.1 billion of venture debt and other portfolios that are deferred, if you could characterize that. And against what is the total balance there? Is that $5 billion? Or is that a larger number?
Marc Cadieux -- Chief Credit Officer
So it's Marc, I'll start. And I want to play back the question just to make sure I got it. You are asking the total population of loans that were eligible for deferral? Or where we're at...
Brock Vandervliet -- UBS -- Analyst
I mean we could start at the high level. I don't think this has come up yet. But just the overall deferral pattern that you've seen and entertained. And then of that $2.1 billion on that slide, what's the total against that? In other words, what percentage of the portfolio has been deferred?
Marc Cadieux -- Chief Credit Officer
Okay. So I will attempt to answer it this way. Hopefully, I'm answering the question you were asking. So just taking the venture debt program, we started out with roughly $2.5 billion worth of eligible loans. And if 100% of that population had accepted the offer, that would amount to deferral of 600 up to $600 million of principal payments over a 6-month period of time. A key point there, interest payments will continue monthly during that deferral period. And that six months that we deferred goes to a six-month extension period on the back of the loan and is paid ratably over that additional six months. I'm going to stop there and make sure that I'm answering the question that you are asking.
Operator
I'm sorry. He's dropped off. [Operator Instructions] I'm going to move on to Jared Shaw from Wells Fargo. Go ahead, Jared.
Jared Shaw -- Wells Fargo -- Analyst
Thanks. Good afternoon, everyone.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Hey, Jared.
Jared Shaw -- Wells Fargo -- Analyst
Just looking at the margin guidance, just had a couple of questions on that. First, you mentioned the potential widening spreads on loans. Is that sort of just across the board in a general view that spreads are widening? Or is that more specifically in certain categories that you're seeing some early signs there?
Michael Descheneaux -- President of Silicon Valley Bank
This is Mike Descheneaux here. I mean it is still very early here right now. But you were definitely seeing some movement, some changes in different segments like so for example, like private equity world, you're not seeing a whole lot of movement there because there's just not a whole lot of deal activity. And so it's still high-quality product, as you know. Then when you start to get kind of the technology and life sciences area as well, you are starting to see people price more of risk into it given the environment here. So you are seeing a little bit of uptick in terms of price, maybe 50 to 100 basis points. But again, not a whole lot of deal activity here given this market, at least for the new, new out there, at least going to different banks.
And then on the sponsor buyout, you are seeing definitely some even heavier pricing increase, maybe up to 100 to 200 basis points. But again, very, very few new deals being started. So again, really early, but at least the pricing pressures from the previous before COVID, they definitely have started to alleviate. But again, time will tell. But so we'll see it from here.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Just to add to what Mike just said, included in our second quarter margin and net interest income guidance, we don't have a substantial amount of that expansion.
Jared Shaw -- Wells Fargo -- Analyst
Okay. And then on the PPP loans, actually, I guess, a 2-part question. One, what's the blended fee rate on that? And then two, should we expect that all of those fees are ultimately donated? And is that reflected in the expense expectation in terms of sort of a charitable expense? Or is that still level still to be determined?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Yes. This is Greg. I'll start, and then Dan will give you a little more detail. So we don't have the average yet. Our as far as the average fee, we are on the higher end of the average loan size. So you could is it somewhere between in the 200 basis points in that range. It's probably in that range give or take 25 basis points on either side. So you take that. And so when we made the comment that we're looking to donate, because I want to be really clear about this, it's the gross fees less servicing fees and costs that we put together to administer it.
We're going to look at we'll probably have to estimate, is there going to be any losses associated with it because, obviously, we don't know exactly how this is going to play out. And so that net amount is what we're looking to donate to charities. And what that could look like, it could end up being something in the $10 million to $20 million range when all is said and done. So that's just a quick way to think about it from the top to the bottom. But we're going to know a lot more over the coming really eight, nine weeks as the forgiveness process starts to happen and we get more clarity from the SBA. But that just gives you a little bit of perspective on how we're thinking about it. And I'll see if Dan has anything he wants to add.
Daniel Beck -- Chief Financial Officer
And just in terms of timing and when you're going to see the greatest financial impact other than the balance sheet associated with the program, that's going to be mostly a Q3 event as that's when the majority of the forgiveness applications are going to occur. And that's when you will see the majority of both the fee recognition and then the net amount of the donation. So that's not included in the view for the second quarter.
Jared Shaw -- Wells Fargo -- Analyst
Okay. So we should assume that the donation level is similarly timed with the revenue as opposed to maybe just being spread out over the following four quarters?
Daniel Beck -- Chief Financial Officer
Sure. I mean, it's early, and we'll really figure that out as we get closer to it. I think the key point is that we are looking to donate those net proceeds. And as the situation clarifies, we'll give guidance on exactly how that's going to play out.
Jared Shaw -- Wells Fargo -- Analyst
Okay. So just actually a final question on the termination of the swap agreements. How much of an impact on margin or benefit or detriment to margin is that?
Daniel Beck -- Chief Financial Officer
The overall value on a pre-tax basis was close to $230 million. So what we're seeing on a quarterly basis, and this is included in the materials, is something close to, let's call it, $13 million to $16 million of benefit that's going to come through. And that's going to amortize back into interest income over the next three to four years. So over the next one to two years, in particular, you will see that $13 million to $16 million benefit coming through.
Jared Shaw -- Wells Fargo -- Analyst
Thank you.
Operator
[Operator Instructions] And we have Brock Vandervliet back with his follow up.
Brock Vandervliet -- UBS -- Analyst
Great. Thanks. So the $2.1 billion maps to a total of what in terms of the investor-dependent loans?
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
How much is the $2.1 billion that's eligible? Is it that?
Brock Vandervliet -- UBS -- Analyst
Yes. Yes. If the take-up was $2.1 billion what was the...
Michael Descheneaux -- President of Silicon Valley Bank
Rough numbers, it is about roughly half of the investor-dependent population. And to round off on, I think, the question that you'd started before you dropped, we've seen about an 80% take rate so far. And that programmatic offer expires tomorrow, the other programmatic offers are coming up on expiration as well. And so 80% or so is about where we think that's going to land.
Brock Vandervliet -- UBS -- Analyst
Okay. And beyond that, in your portfolio, there's been no broader efforts at forbearance or other measures?
Marc Cadieux -- Chief Credit Officer
Yes. So the three programmatic offers are what you see here depicted on Slide 25. It's the venture debt, private bank and wine. We have looked at some other things. We might do something on cards, we might do something on financial covenant. Relief as we expect to see those companies March 31 reporting starts to show up, and they start to recap their plans that the presumption is they will see some financial covenant challenges that they will want to talk to us about. But the key point is we'll be, pretty much from here on out, past these programs, addressing everything we see next in more of a business as usual, case-by-case fashion.
Brock Vandervliet -- UBS -- Analyst
Okay. Thanks for the color.
Operator
And we have no more questions at this time. I'm going to turn it back to Greg Becker for some brief closing comments.
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Great. Thank you. I just want to thank everyone for joining us today. Just to reiterate, we are in the best financial position we've ever been in and have the resources and expertise to kind of navigate through this really challenging times, and not just for ourselves, but obviously, to support our clients as well. As I say on these calls every quarter, we are just incredibly fortunate to have such amazing employees. And I have never, in my 27 years, I have never seen our team operate at such an amazing level, whether it's working on the PPP program or working with clients, communities, etc, has been amazing to watch. And then remember, almost doing it 100% from home.
So that's been incredible. It's also so incredible to be helping such amazing innovation clients as they navigate this storm. And for us, it's really about proving that we really we want to be a long-term partner with them. And I think we are showing that in this environment. So it's a challenging time. It's a tough time. And I just want to say, I know we're going to get through it and just appreciate everyone's support. Finally, our hearts and thoughts are with everyone who has been personally affected by the crisis, and we just want to hope, and hope that everyone stays safe and healthy in this time. So thanks, everyone, for joining us. Have a great day. Thank you.
Operator
[Operator Closing Remarks]
Duration: 46 minutes
Call participants:
Meghan O'Leary -- Head of Investor Relation
Greg Becker -- President And Cheif Executive Officer, Svb Financial Group; Cheif Executive Officer, Silicon Valley
Daniel Beck -- Chief Financial Officer
Marc Cadieux -- Chief Credit Officer
Michael Descheneaux -- President of Silicon Valley Bank
Ken Zerbe -- Morgan Stanley -- Analyst
Steven Alexopoulos -- JPMorgan -- Analyst
Ebrahim Poonawala -- Bank of America -- Analyst
Casey Haire -- Jefferies -- Analyst
Jennifer Demba -- SunTrust -- Analyst
Chris McGratty -- KBW -- Analyst
Gary Tenner -- D.A. Davidson -- Analyst
Brock Vandervliet -- UBS -- Analyst
Jared Shaw -- Wells Fargo -- Analyst
