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SVB Financial Group (NASDAQ:SIVB)
Q2 2020 Earnings Call
Jul 23, 2020, 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the SVB Financial Group Q2 2020 Earnings Call. My name is Adrian, and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to Meghan O'Leary. 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 second quarter 2020 financial results, and will 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 President and CEO, Greg Becker.

Greg Becker -- President, Chief Executive Officer & Director

Thanks, Megan, and thank you all for joining us today. You can see from the materials we filed earlier today that we had a very strong second quarter with outstanding balance sheet growth including exceptional client liquidity, low credit losses, solid net interest income and very strong revenues from SVB Leerink. Overall, our clients and our markets are showing strong resilience and we feel really good with our results for the quarter. You also see that we're providing outlooks for select business drivers for the second half of 2020. While it's still challenging to predict outcomes for the year given the uncertain economic environment, we've tried to provide as much color as we can for the rest of the year.

With that, we know you have questions, so I'll ask Adrian to open up for Q&A. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

Meghan O'Leary -- Head of Investor Relations

Adrian, is the queue open? I didn't see any names in there.

Operator

Really, yes it is. And our first question comes from Ebrahim Poonawala from Bank of America. Your line is open.

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

Hey, guys, good afternoon.

Greg Becker -- President, Chief Executive Officer & Director

Hey, Ebrahim.

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

I guess, is the first question, Greg or Dan, around capital, in your letter you mentioned that you have abundant capital at the holding company to downstream, but would appreciate some color around your appetite if you decided the growth remains strong in terms of raising common equity. And also if you can talk to how the bank is positioned differently today than I guess 2014-2015 when you had to raise capital to support balance sheet growth around just being able to channel deposit growth on or off balance sheet.

Daniel Beck -- Chief Financial Officer

Yeah, Ebrahim. It's Dan. So, I'll start and Greg might want to add to it. I think, if you look at actions that we took in the quarter by raising senior debt at the holding company for $0.5 billion and take a look at the overall cash position at the holding company of $1.4 billion that provides, number one, ample amount of cash to be able to downstream down to the bank. So, if you think about it for every $100 million that we downstream that gives us about, let's call 13 basis points to 15 basis points worth of running room on Tier 1 leverage.

So, not all of that $1.4 billion could be downstream, but a good portion could. So, that's number one. Number two, from an unrealized gain perspective on the investment securities portfolio, we got close to $1.3 pre-tax that's it's they are available to the extent that we wanted to monetize some of that in order to grow from a capital perspective.

And third, if you just look at the overall earnings of the franchise, it's still moving at a pretty good clip. So, between all of those things that we think we've got ample resources already sitting on the balance sheet to deal with uncertainty. And secondly, to the extent that we need to be able to support our growth. So, I don't think that this is the same situation and we wouldn't be looking externally for capital at this point.

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

Got it. And just part of that in terms of Dan, if you can speak to how you're thinking about channeling deposits on versus off balance sheet. And is there any difference in terms of just how the bank is set up, you've done some hiring on this end around how you think about moving deposits off balance sheet versus on?

Daniel Beck -- Chief Financial Officer

Yeah, I mean, I think as you've seen over the last year, we have had our clients and number one, they are, I think in this type of environment looking for more safety and more security on a bank balance sheet perspective to sell. Our products are here, our products are in place and I think our clients are comfortable with our on-balance sheet products as well as what they see off balance sheet wise.

So, I think, you're going to continue to see more of a desire for our clients to drive deposits on the balance sheet. And I think we from a -- like we just talked about a capital perspective are able to continue to support that and at the same time earn. And not as good of a spread as I would like to, but at least a good spread on those deposits in the form of investment securities with that excess liquidity.

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

Got it. And if one more, Greg, you mentioned about investment activity remains where you can find two large rounds, larger companies, at the same time you added record amount of clients this quarter, I think 1,500. Just kind of, if you could reconcile what's going on there in terms of, I guess, client formation what SVB is picking up and what the outlook is as we think about the back half?

Greg Becker -- President, Chief Executive Officer & Director

Sure, Ebrahim, let me answer that. It is -- on the fund raising side, clearly it is later stage, it's later stage, it's some IPOs, but mainly secondary. So, that's a very active market and you see that with the SVB Leerink results. But as you know, when we talked about new client acquisitions that is mostly or almost exclusively at the early stage. And so what we've been investing in and building around our early stage practice, first of all, we've gotten even more focused on that. We've developed a broader product set to bring more clients in.

And I have to acknowledge, I think, right now, Dan touched on this a little bit that when you have an economic downturn that we've seen as pandemic, a lot of companies want to go where they view a trusted organization. So, we believe that's been a catalyst as well and we've strengthened our team there. So, overall, our started banking group has done a really, really good job and so the results are from that very, very strong client acquisition in the second quarter. And so we're going to continue to invest in that early stage practice. We feel really, really good about it. And so we'll see about formation and how that plays out for the balance of the year.

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

Got it. Thanks for taking my questions.

Greg Becker -- President, Chief Executive Officer & Director

Yeah.

Operator

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

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

Hi, everybody.

Greg Becker -- President, Chief Executive Officer & Director

Hey, Steve.

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

So, I'm trying to reconcile this record growth of client inflows with the exit market, it's clearly being disrupted, do they not matter, do the exit markets aren't matter anymore? Like how do you figure, we saw record period end growth of $22 billion this quarter given everything that's happening.

Greg Becker -- President, Chief Executive Officer & Director

Yeah. It's -- there is a lot of things going on, Steve. And I'll start and Mike Descheneaux, our President for the Bank, he may want to add some color to it as well. So, the markets that have been exceptionally strong. The exit when I think of exit you're thinking of IPOs or M&A that has been soft, but when you look at secondaries especially in healthcare, life sciences, that has been exceptionally strong and that's been one of the key catalysts of the success of SVB Leerink. And we think that -- there is a part of that's going to continue to a degree for the balance of the year. So, that's one major category and that's been a big part of that client funds growth, especially in the second part of the quarter. So that's been incredibly positive.

The second part is that you can still look at venture capital and so there is two pieces, dollar flow and companies, the number of companies that are getting money. So, the number of companies that have gotten money venture capital has shrunk. It was down a fair amount, but the dollars you saw were actually pretty strong, actually very, very strong. And so you benefit from the markets being very active in late stage, you benefit from secondary markets. And then, again, as I said, I also believe there is a part where they want to go and put their money with the trusted organization. So, all three of those things have really been strong catalysts. And yeah, we benefited from that and the numbers were pretty extraordinary.

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

But Greg...

Michael Descheneaux -- President, Silicon Valley Bank

Maybe one thing to add, Steve is, there are a couple of things maybe.

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

Okay. Yeah.

Michael Descheneaux -- President, Silicon Valley Bank

When you think about the dry powder as well and the venture capital arena as well, it's still incredible levels there. So, and they are able and willing to deploy and particularly now. When we first started in the COVID environment, it's a little bit tougher to kind of gauge and invest, but the venture capitals are working through in triage and some of their companies starting to focus on the winners as well too and starting to adapt and get more comfortable with deploying the dollars out in the marketplace.

So, again, they have that dry powder that they can put to work. Some other things that we saw obviously the stimulus money has put a lot of cash money out in the system, whether it's PPP or some of the other strong things that government has done, which certainly has helped the environment for sure. And then you start to think about burn rate slowing as well too, right. So, people are getting smarter about what money they have left for the rest of the year and trying to say look, do I need to save it or not. So the combination of all these factors that Greg described and there is few other things to add, really the combination of the strength of liquidity there.

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

Mike, is having Leerink helping you and when we saw the press releases they put out is that helping get more of that secondary money into your bank. Is that a factor?

Michael Descheneaux -- President, Silicon Valley Bank

We definitely are, I mean, they've been good partners, obviously, when they have a relationship or we have a relationship with the client. And so we certainly have great products and solutions for our clients. And so, yes, it does open up the avenue and we've had really good success rate with our clients.

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

Okay. And then on credit, I think, Marc is probably there, what were the -- what was the number of early stage abandonments this quarter, how that compared to last quarter? And then when we look at the two NPLs, the severity seemed high, do you call these one-offs or is that the outlook, should we have more defaults in those books? Thanks.

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Sure, Steve. It's Marc, I'll start and Dan or Greg might wish to add. So, in terms of the number of investor abandonment so to speak, probably a better way to think about the quarter, Steve, is in terms of the charge-offs and the new non-performing loans. As you can see charge-offs were really pretty low in the quarter and the granular investor dependent didn't show up the same degree, but again it's a very small number. And so there's not a lot you can really take away from that in part because it's -- there's one roughly $4 million charge-off in there that kind of dominates the investor dependent segment of it.

And then going to new non-performing loans, we have a handful beyond the large two that I'll come back to in a moment. The rest is what I would call the typical granular early investor dependent, but largely early stage. And in terms of the numbers of those, I don't have an exact count on them, Steve. But I think when you take the two bigger ones out of the new non-performing mix, what's left isn't that large of a number.

Going to the two large ones, I think, it would be fair to say that both of those are examples of businesses that were significantly disrupted by COVID or efforts to stem the spread of COVID-19. At the same time -- so from that standpoint, I would say, a bit anomalous to the extent that the arrival of COVID and knocking companies over suddenly is anomalous. And here I would say, just on the largest of those, we are encouraged at the moment working as we always do with sponsors and management to work together to try to get beyond this. And back to a place where the business can recover recognizing that this was severely disrupted and so there is some degree of uncertainty hanging over that, as I think is just typical of the entire environment right now. So, I'll stop there, Steve, hope I'm answering the question you're asking.

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

Yeah. That's very helpful. Thanks for taking my questions.

Operator

And your next question comes from Ken Zerbe from Morgan Stanley. Your line is open.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Great. Thanks. I guess, my question in terms of guidance, one of the line items that you did give guidance on was non-interest expenses of $900 million to $930 million. It seems like we're missing kind of rather important piece, which is probably Leerink because and I totally understand the link if they make more money they should get paid more money, it makes sense. But can you comment little bit about what your expectations are for Leerink because if that doesn't do fantastic in 3Q, and it seems like your expenses are probably unusually high. Thank you.

Greg Becker -- President, Chief Executive Officer & Director

Yeah, this is Greg. I'll start and then turn it over to Dan. Ken, clearly what you just said, is a key component of the expense outlook, which is the variability and it is a percentage of revenue. So, the way the payout ratio work, so the way they earnings work, it's a function of how well they do and obviously they did really well second quarter, and obviously you guys can look at the press releases into the third quarter and see that there -- that momentum is continuing into the third quarter. So that's part of it.

There are other components that I'm going to ask Dan to comment on that are one-time in nature that are going to be impacted either from Q2 that were one-time expenses or even in Q3 and Q4. That will be one-time expenses. But the other component is, again, as we said for years, we're continuing to invest in the business because we certainly believe we have many, many, many opportunities and that's in client experience, employee enablement, driving revenue growth, all those things are continuing to invest behind that. But I think the majority of it actually relates to Leerink. And some of the one-time things, so I'll stand to comment on that.

Daniel Beck -- Chief Financial Officer

Yeah. Thanks, Greg. So, really, there are three things. So if we could just baseline the expenses for the second quarter, first, as Greg mentioned, there were some exceptional items in the quarter. SVB Leerink's performance, professional services or the Paycheck Protection Program and higher levels of incentives at the Bank for performance. So, all of that represented, let's call it approximately $70 million. So, the baseline of costs, if you look at it in the range of $415 million, $425 million [Phonetic] for the quarter.

From there, as Greg mentioned, we continue to expect to invest in the franchise. So, the way to think about it is in on a quarterly basis something on the order of magnitude between 2% to 2.5% expense increase just for the investments.

And then finally, we do expect continued strong performance for Leerink in the markets in which they operate for the remainder of the year. And on top of that we have the Paycheck Protection Program professional fees and a donation expense of roughly $20 million in the fourth quarter. So, those are all the moving pieces that lead to Ken what you pointed out was what looks like a higher expense guide in the second half.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got it. Okay. That does help quite a bit. And then just the other question, in terms of your guidance for core fee income obviously it was weaker this quarter than I think some of us may have been expecting. Like if we were to sort of draw a corollary to what other banks are saying about their fee income, which I know it's totally different, but we're seeing a lot more activity, normal customers are using their cards and it seems that most other banks are seeing sort of an increase in that core fee line and granted, yes, yours is different than theirs. But what are you seeing that gives you confidence that you're not going to see a rebound in your core fees in a meaningful way in second half, because obviously you were on such a good trajectory prior to the pandemic?

Daniel Beck -- Chief Financial Officer

So, Ken, I'll take it. And Mike might want to add to it. If you look at where the growth in our core fee income has come over the last couple of years, a lot of it has been driven by that very strong client funds growth. Now that is rate sensitive. So, we certainly saw that come off in the quarter down into the 12 basis point range. We do expect that that's probably going to settle out in the high single digits. So, even as we continue to add client investments, the overall spread income that we earn there is going to continue to contract.

So, that's going to be a headwind. At the same time, I think our business activity in foreign exchange and cards has been off meaningfully in the second quarter, down in the 20% range on both of those. We may start to see some small rebound in those areas as the markets pick back up. But at the same time, we are going to continue to see that pressure from the client fund fee income. So, I think, that's how we're getting to our view on how things are going to look here in the second half. Mike, I don't know if you have anything else to add?

Michael Descheneaux -- President, Silicon Valley Bank

Yeah, I mean, just a few think to think about, Ken, I mean, obviously, a lot of it depends on the level of activity in the economy right. With the economy, let's just say the volume levels of activity are down, it's certainly impacting our business. So, you can, let's start with credit cards for example, lot of our clients use the credit cards for travel, and that's a significant part of the spend on the credit card. And so that's down significantly as well too.

So, depending, if we start to see travel picking back up, that will certainly help, there's certainly we're shifting to other areas where they're spending, but it's going to take some time. Then you think about foreign exchange, we had an incredible first quarter. And then so, the number, the comparison from Q1 to Q2 is a little bit tougher comparison and that's certainly was impacted in Q2 with respect that there's less deal activity cross border investments as well, too, which is having an impact on the FX as well.

So, again, with people becoming a little bit more resilient and returning back and starting to do deals you could start to see some foreign exchange pick back up, but again it's still obviously very challenge in this environment here and then Dan was covering the client investment fees as well too given the fact that that's very rate centric or rate oriented. Again, our volumes are up significantly, no doubt, but of course, the margins are down with respect to the interest rates.

And then similarly on the deposit service charges as well too, we certainly have higher volumes of deposit, but that's also meaning people are getting higher levels of earnings credit as well to offset some of their transactions and plus activity and payment volumes are certainly down in this environment. But nonetheless, again, I think it does tie back to the environment and we're obviously all keeping a watchful eye. And hopefully, there is a bit more resilient in the second half.

Kenneth Zerbe -- Morgan Stanley -- Analyst

All right. Great. Thank you.

Operator

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

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Hi. Thank you.

Operator

Jennifer...

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Yeah. Thank you. Just question on the nature of your net charge-offs. Could you just give us a little bit more detail and color on those charge-offs? Thank you.

Daniel Beck -- Chief Financial Officer

Yeah. So, as noted before few in number. Our gross number was around $15 million and that was concentrated in one balance sheet dependent loan that represented about a third, about another almost third of the gross in one investor dependent lifescience credit and the rest after that pretty granular and relatively speaking concentrated mainly in investor dependent.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

When you look at your entire loan portfolio, it's vastly different from many of your regular commercial banking peers, but are there any particular segments of the portfolio that look more sensitive to this pandemic than others. I'm thinking maybe, specifically the wine portfolio or other parts of it. Thank you.

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Sure. So, I think, as we've mentioned before investor dependent, and particularly the early stage pandemic [Phonetic]. I would characterize as probably our most vulnerable clients given that they are early stage, they are cash burning. And as we've noted in the past, historically, speaking, that has where -- been where the bulk of our losses come from in periods of economic stress and we think in the bounce of time that will probably be the same case. After that there are a number of businesses in various technology segments that serve industries most disrupted, right, travel, hospitality, things like that.

And so those fortunately are fewer in number in terms of the ones that have been severely impacted and then you mentioned wine, certainly, we were very concerned coming into this that we would given the shutdown of tasting room revenue, of restaurant revenue that our wine borrowers would be very severely impacted. And I think a combination of relatively speaking stronger performance in the second quarter than we expected, coupled with PPP and in some cases owners infused in cash as well that portfolio so far is looking better than we might have expected recognizing again that there is a lot of uncertainty hanging over the second half, parts of California going either rolling back the phased reopening or pausing. And to some degree that may continue to be a source of stress for our wine borrowers, but again that I think remains to be seen.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thank you.

Operator

And our next question comes from Jared Shaw from Wells Fargo. Your line is open.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good afternoon.

Greg Becker -- President, Chief Executive Officer & Director

Hey, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Maybe just looking at the early stage book when you look at the potential severity of loss. Do you still feel that, that's where we -- similar to where it was in past cycles, or some of the improvements in sort of client interaction in underwriting, do you feel that that could help limit severity of loss. And then also what's the remaining months of liquidity as far as you know on the early stage book.

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Sure. I'll start Dan or Greg, Mike may want to jump in on this. So, maybe a good way to think about it is just this downturn relative to the global financial crisis, I think, is a good place to start. And generally speaking, coming into this downturn venture-backed investor dependent companies had on average more liquidity and we're, I think, in a better position to weather a storm.

And then a number of things have happened to make that liquidity situation better still, right, PPP loans, our programmatic deferrals, payment deferrals companies were pretty quick to reduce expenses that helps as well. And then finally investor support has been much stronger frankly than I recall seeing in the last downturn and the combination of those things have I think on average put quite a bit of runway in front of the average investor dependent company and you see that of course reflected in the lower losses that we experienced in the second quarter.

So, those are, I think, some key differences and one of the reasons why we have some cautious optimism that while there is still a lot to go in a lot of uncertainty, the hope is that we will do better. And then again emphasis on hope than we did in the global financial crisis. I'll stop there. Sorry, you had a second part of your question on undrawing a link.

Jared Shaw -- Wells Fargo Securities -- Analyst

With the remaining months of liquidity is in the [Speech Overlap]

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Correct. Yeah. So that is a statistic we do track, but have not disclosed. And so I'm going to resist the urge to do it here, but we will again say from a generally speaking liquidity for this cohort better this time for the reasons I mentioned than in the global financial crisis.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. That's great color. Thanks. And then I guess looking at the capital call lines, little bit of a pull back this quarter, can you just comment generally about on the trends there, the new fund formation. I know there is a lot of dry powder on the existing funds with the new fund formation, as well as the change in the competitive landscape in that product over the past few quarters.

Greg Becker -- President, Chief Executive Officer & Director

This is Greg. I'll start and Mike may want to add. So, couple of things, one is new fund formation as we talked about for larger funds has actually been pretty good. You can look at the numbers from PitchBook or other things that we've talked about and they have actually been pretty healthy. I mean, there was a concern that it was going to slow down dramatically. And I think especially for larger more established firms, which a lot of PE firms are people have gotten comfortable, LPs have gotten comfortable in this virtual environment. And so the closing has actually been pretty good.

As far as competition and competition overall, I mean, it's still a competitive market. When we think about how we have shown up, I give our teams a huge amount of credit, they've been incredibly effective. We've had very, very, very little turnover and we've been able to add new clients along the way. So, the function of where we are from a volume perspective is more about just overall activity levels. As we said at the beginning of last quarter, we thought that there would actually be a greater decline in private equity volumes from an outstanding perspective, but it was actually, it's held up held up pretty well. So, we're going to watch and pay attention to the balance of the year, but feel pretty good about where we are and feel very good about where we are from the competitive positioning perspective.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. Thank you.

Greg Becker -- President, Chief Executive Officer & Director

Yeah.

Operator

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

John Pancari -- Evercore ISI -- Analyst

Good afternoon.

Greg Becker -- President, Chief Executive Officer & Director

Hey, John.

John Pancari -- Evercore ISI -- Analyst

I have a question regarding the -- your commentary on charge-offs, I know you expect, you indicated you expect them to be elevated in the second half. I just wonder if you can give us some idea on the level that you would be pointing to in terms of elevated would that be up a significant amount from where we're at now to 32 basis points?

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Yeah. It's Marc. I'll start and probably finish on this one. As noted in our materials, we believe there is just too much uncertainty to provide any reliable guidance on that particular topic. And so have to beg off the question at least this quarter.

John Pancari -- Evercore ISI -- Analyst

Okay. And I know you also in that same comment, you indicated that while you do it's going to be elevated, you do -- you indicated that they're largely reflected in your current loan loss reserve, but when I go back to where you gave the detail of the loan loss provision for this quarter, of the $66.5 million and you indicated that $10.5 million of that $66.5 million was related to charge-offs that were not reserved for. So what does that $10.5 million, what type of charge-offs are you seeing now that were not in your CECL lifetime reserve?

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Sure. So, it's Marc, I'll start and the -- it's rare outside of investor dependent early stage to see credits to evolve quickly into loss. Having said that, I think, as we would all recognize, these have been highly unusual times and that one balance sheet dependent credit I mentioned earlier, roughly a third of our gross charge-offs falls into that category of severely and very rapidly disrupted. And that is at $5 million roughly half of the unreserved charge-off number. The rest is what I would characterize as there is one other borrower in there, I would characterize as, in trouble before COVID arrived and COVID finished the job.

And the rest are what I would characterize as again severe and sudden disruption. And so said another way, it's rare that we would find ourselves in a situation with two-thirds of the charge-offs unreserved is pretty rare, but again these are then extraordinary times.

John Pancari -- Evercore ISI -- Analyst

Got it. Okay. That's helpful. And then on the reserve where it stands now. I know you added $50 million to the reserve this quarter, so just wanted to get an idea, do you -- given that and given what you just mentioned around credit, do you expect any incremental additions to the reserve from here or do you think it substantially represents your outlook at this time?

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Yes. Well, as I, I think, mentioned earlier, we are not providing credit guidance given the high degree of uncertainty. And so by virtue of that, difficult to provide any guidance on what further provisioning over the balance of the year might look like.

John Pancari -- Evercore ISI -- Analyst

Okay. Now, it's understandable. If I could just ask one more also on credit, but do you have your level of criticized assets for the quarter, how that changed?

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

As we noted in our materials, criticized loans did increase in the quarter but remain at relatively low level from a historical standpoint.

John Pancari -- Evercore ISI -- Analyst

Okay. Got it. All right. Thank you.

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

Yeah.

Operator

And our next question comes from Chris McGratty from KBW.

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

Great. Thanks for the question. Greg, with Leerink strength in the quarter, I'm just kind of back into what kind of profitability drop to the bottom line, it looked like the revenues are up about $100 million and the comp that you call out is it kind of in the 50% range that we should be think about in terms of the increase in costs associated with Leerink.

Greg Becker -- President, Chief Executive Officer & Director

So, I'm going to give you some high level comments, Chris and I'm going to ask Dan to share his perspective. Where the comp ratio is that we have with them are pretty consistent in the industry, at least, what we have seen as we were looking at the deal. This is a year and a half ago, number one.

Number two, we have structures in there, so that there is some additional they perform really well. There is some additional earn out capabilities, which they have hit and to be honest very happy they are hitting those earn-out levels because it's a great sign in there and what they're delivering. I think, one way to think about it is when you're at these elevated levels, we're probably around that pre-tax profit level of kind of in that 15% to 20% range when you look at it.

And so take a look at the revenue and if it stays at these more elevated levels even with the earn out, you're in that range. So, it's been very, very great from a contribution perspective and feel really good about what they're delivering and they're just staying incredibly busy, which is nice too.

Daniel Beck -- Chief Financial Officer

And Greg -- and Chris, just to add to it. Just looking at on a pre-tax basis with drops is this quarter $55 million for Leerink and that compares to about $1 million in the first quarter. So, obviously, a big change, but that's absorbing all of the comp that Greg was mentioning.

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

Great. Maybe one more on just the outlook for capital call growth. Some of your peers, kind of the numbers this quarter that I have seen have somewhat up somewhat down. Maybe just a little more color on activity in terms of what might drive year forecast for loan growth to be on either side of conservatism. Thanks.

Greg Becker -- President, Chief Executive Officer & Director

Yeah, this is -- I'll start, Chris, and I think one of the ways to think about it is, we are staying very focused in what I'll call the middle market category. It's what our teams are exceptionally good at. It's what they really understand. What they're not chasing or what I'll call the funds that are $10 billion plus where the margins are low and the size of the commitments that you have to put in place are substantial. So, yes, these are larger loans that we have. But as I said earlier, the teams have done an excellent job of supporting clients being there for them, providing them information and insights about what's going on and adding new clients.

And so really given the market share that we have for the most part the dramatic change in volumes is going to be a function of activity levels. And so as activity levels pick up, we certainly believe that you're going to continue to see loan growth back on a consistent trajectory that we've seen historically. But until that gets back to what I would say is normal, it's just more uncertain. So, it's a very -- it's more difficult to predict.

Mike, you may want to have some additional commentary.

Michael Descheneaux -- President, Silicon Valley Bank

Not a whole lot to add there, Greg. I mean, I think we are keeping true to how we underwrite as well too. I mean, certainly in the market and competitive environment that it is. I mean, you are seeing some banks that might be doing some things that we don't feel comfortable with such as funding prior to call or giving higher limits on the size of the fund versus the line.

So, there is just a variety of different things, but again the team is doing really well. They are bringing in new clients as well. And to Greg's, really the key point is when we start to see levels of activities to pick up, that's when you're going to continue to see the strength, but again a really solid portfolio.

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

Great. Thanks. And Dan I just to make sure I heard you right, the fee rate on the client funds do you say 12 basis points is kind of the range.

Daniel Beck -- Chief Financial Officer

Where we ended the second quarter and we expect as we head into the third quarter to be in the, let's call it, high single-digits range.

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

Okay, great. Thanks.

Operator

And our last question comes from David Smits [Phonetic] from Autonomous. Your line is open.

David Smits -- Autonomous -- Analyst

Thank you. Good afternoon.

Greg Becker -- President, Chief Executive Officer & Director

Hey, David.

David Smits -- Autonomous -- Analyst

Back on the PEBC [Phonetic] loans. Could you speak a little bit about how unfunded balances for those loans have trended since 1Q and how your utilization has gone. Were you able to grow committed lines at least in the quarter despite the loss in balances?

Greg Becker -- President, Chief Executive Officer & Director

This is Greg. I'm going to ask Marc to comment on that. Marc may have those numbers handy. Marc, do you have that? Marc, I can see his voice is out a little bit, his sound is off. So, I don't -- I think they -- actually, I would just say we don't have the data right now. And so we can follow up on it and you'll see that in our 10-Q when it comes up.

David Smits -- Autonomous -- Analyst

Great. Thanks. And then your assumption for the PPP loan forgiveness, it seems like that went up to 75% versus 50% or 60% last quarter, anything in particular you can share about what drove that increase?

Daniel Beck -- Chief Financial Officer

Yeah. This is Dan. I think that as you look at how the SBA and the rules have been changing, the extension of the items that are available for forgiveness in the timeline, the amount of weeks and months that are available make us feel like there is just going to be more dollars that are eligible for forgiveness. So, that's the reason and the rationale for the shift in the amount that we expect to be forgiven.

David Smits -- Autonomous -- Analyst

Sure. Makes sense. And anything you can share about the pipeline for Leerink in terms of deal volume over the next quarter or two.

Greg Becker -- President, Chief Executive Officer & Director

Yeah. This is Greg. As we have found out pipeline for investment banking is very hard to predict more so than part -- almost anything else. So, it's really a function of the activity levels. What I've said to people, inter-quarter when they ask me how it's doing. And obviously we can't share the numbers I said just pay attention to the press releases that SVB Leerink is printing and you clearly saw last quarter it was incredibly active and I think you'd see so far this quarter, it's been very active. So, if you wanted indication of how well they're doing again in a broad level that's probably the best indicator. I would just say generally speaking on top of that, look, when you think about the healthcare, life science market and biotech specifically, there is still a lot of momentum. But as we know with public markets, IPOs or secondaries, it can change very quickly.

So, trying to predict what that's going to happen with public markets for secondaries and IPOs is, I would say that would be very challenging for us to do. But super happy with the team really happy with what they've done and feel really good about the market share they have.

David Smits -- Autonomous -- Analyst

Yeah, certainly incredible quarter. Thank you.

Greg Becker -- President, Chief Executive Officer & Director

Great, thanks.

Operator

And this concludes our question-and-answer session, I'll now turn the call back over to Greg Becker for final remarks.

Greg Becker -- President, Chief Executive Officer & Director

Great. Thanks, Adrian. So, I just want to thank everyone for joining us today. We're obviously feel really good with the performance in the second quarter. And feel good in our ability to manage effectively through these challenging times. Obviously, there is still a lot of uncertainty out there and it seems like every day there is changing information about closures and what may happen. So, the crystal ball is pretty cloudy from that perspective. But as we pointed out, we're in the best financial position we've ever been in and have their resources expertise to we believe effectively execute and support our clients.

Before I think our team and our clients, so I just want to add a few comments on inclusion, diversity and equity at SVB and the innovation economy. So, let me start with SVB, one, incredibly proud of SVB and our team. We have much more work to do around making SVB a more diverse, more inclusive and more equitable company. One of our values that we talked about on a regular basis is embracing diverse perspectives and to really live that the value we need to do better. This is something we at all levels of the company have been focused on particularly in recent weeks.

Secondly, I'm going to talk about the market that we serve, which is the innovation market, the innovation economy. We know the numbers and the market knows the numbers and they aren't good on the innovation economy. Many groups are underrepresented in the investment, founder and worker categories of the innovation space. So, while we've issued reports highlighting these issues, I just would say, I know that we haven't done enough to lead change. So, while we're working on the details of the how we'll do this I want to let everyone listening know that where we'll be doing more driving change and being more transparent in holding ourselves accountable.

So, as I always end on these calls, I want to thank our employees. They do such an incredible job, they are dedicated, passionate and creative and how they help our clients something we don't talk about that much. They've also just done an incredible job in core operations. Just really making sure the businesses run smoothly. Every SVB here has a role to play and make a difference. So, I just want to thank them. Also want to thank our clients. I would say their trust and willingness to give us an opportunity to show them what our long-term partnership mindset is great, and we think that's especially been true in this difficult time right now.

And finally, our hearts and thoughts are with everyone who has been personally affected by this crisis. We wish you all good health and safety. And with that we're going to close. Thank you.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Meghan O'Leary -- Head of Investor Relations

Greg Becker -- President, Chief Executive Officer & Director

Daniel Beck -- Chief Financial Officer

Michael Descheneaux -- President, Silicon Valley Bank

Marc Cadieux -- Chief Credit Officer, Silicon Valley Bank

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

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

Kenneth Zerbe -- Morgan Stanley -- Analyst

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

John Pancari -- Evercore ISI -- Analyst

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

David Smits -- Autonomous -- Analyst

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