Silicon Valley Bank 3Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Valuations admittedly reflect high expectations

“As we said in prior quarters, given the strength of these markets, we are paying close attention to today’s valuations, which, admittedly, reflect very high expectations. While some companies and industries may be overheated based on what we’re seeing, business models overall are better.”

deposit inflows have been primarily from early stage: VCs and Angels

” So when you look at where it came from, it is — predominantly, we look at the client base that’s driving that. It is more early — early stage is the biggest driver of that, and obviously, that’s driven by venture capital funding. It’s driven by corporate venturing, even angel investing in that category, which was, for the third quarter, was incredibly strong.”

You also see T Rowes and Fidelities getting active at later stages

“And then you see additional dollars flowing in from later-stage companies as the T. Rowe Prices and Fidelities get more active in putting more money at the later stage”

Seeing aggressiveness in price, size and structure

“When I think of the competitive landscape and we compete on a debt basis, you’re looking at price, size and structure being the 3 components. As I’ve said in prior calls, you can look at all 3 of those components, and we’re seeing a very aggressiveness in all 3 of those areas.”

The longer you see intense competition, the less it makes you want to keep playing

“Has anything changed dramatically? No, but the longer you see that intense competition at a certain level, that’s just — it becomes more challenging to figure out where you want to play and where you don’t want to play. ”

Hot areas

“I’d say higher valuations in software service, cloud computing, security companies, marketplaces, social. I’d say those are general categories that we either — probably all wouldn’t surprise us.”

A lot of liquidity

” we have $20 billion of investment securities versus a $36 billion balance sheet. So as you know, you got to be very cautious because if interest rates move, the rates gap up. That obviously can cause some challenges. So for us, the primary area that we are going for is liquidity. And obviously, in the low rate environment, pretty much across the curve, rates are just low, and you just don’t get paid to going out for any longer duration. ‘

Why would you need to borrow when you have so much money in the bank?

“You’re seeing competition also from the amount of liquidity in the market, right? When you see these companies that are raising massive rounds of equity financing, you sit back and you say even though you may have availability of a term loan or even acquisition financing in some cases, you sit back and you say why would I even spend, rates are low, money to borrow if you have this excess liquidity that isn’t earning a whole lot. So our utilization rates have dropped down a little bit, but we are seeing, again, competition pretty consistent across the board.”