Silicon Valley Bancshares, which made its name financing high-technology companies, is also making a private banking impression.
Over the last three years, the Santa Clara, Calif.-based company has built an executive banking division serving 500 clients. It has its headquarters in nearby Palo Alto, five other offices in California, and one in Wellesley, Mass., serving the Silicon Valley of the East.
Despite the bank's name, 40% of the high-income executives getting its personal loans live outside California.
And over the next two years Silicon Valley Bank plans to expand into Atlanta; Boulder, Colo.; Rockville, Md.; St. Helena, Calif.; Beaverton, Ore.; and Austin, Tex.-all high-tech areas where the commercial bank has clients.
The advantage of Silicon Valley, which had an average $40 million of personal loans on its books last year, is that it gets to know affluent prospects before they hit the radar screens of larger, more traditional and conservative banks. But can a $1.9 billion-asset organization off the beaten financial institution track hold onto those clients once they become truly wealthy?
"That is a concern of ours," said Jean Whitney Blomberg, executive vice president and manager of executive banking. "When they do have a lot of money, can we continue to deliver what they need?"
Silicon Valley does not manage money but has two strategic alliances in the works to expand its offerings this year-one for investment management, the other for trust services.
Ms. Blomberg said the bank does not want to try to develop that expertise on its own but hopes to keep clients by drawing on established outside talent.
"I don't know where I'll go in the future," said David Buzby, 37, chief financial officer of Best Internet, a Mountain View, Calif., company that hosts Web sites. "I currently use someone like (discount broker Charles) Schwab because I can go on-line.
"But I imagine that Silicon Valley Bank, where there is a lot of trust involved, could be involved in managing assets of people who they helped finance who now have successful companies," he added.
Several executives of Best Internet borrowed from Silicon Valley to buy equity in their company.
Ms. Blomberg said her executive clients' average age is under 40, and requests for unsecured lines of credit in excess of $500,000 are not uncommon. If collateral is insufficient, the bank will accept additional qualified guarantors.
Mr. Buzby's loyalty to the bank is shared by Mark Verdi, chief financial officer of Mainspring Communications, a Cambridge, Mass., Internet service company.
Mr. Verdi learned about Silicon Valley Bank when he worked for a public accounting firm. Upon leaving for Mainspring, Mr. Verdi had to repay his former employer for his Harvard Business School tuition. Add to that his wife's law school costs, a mortgage, and car loans, and he was sitting on a six-figure mountain of debt.
Before Silicon Valley, which was providing banking services to Mainspring, came into the picture, Mr. Verdi could find no one to lend to a couple with a negative net worth.
"A traditional bank would never have lent to me," he said. "A loan shark would never have lent to me."
Because Silicon Valley stepped up, Mr. Verdi is willing to pay more than principal and interest. He said he would go through Silicon Valley for investment services in the future, rather than scope out money managers himself.
"They certainly have my trust," he said. "There is a fixed cost of my time in managing these types of relationships."
Besides principals of computer, electronics, and biotechnology companies, Silicon Valley's client base includes the venture capital firms that seed them. These investors provide a steady stream of referrals.
Benchmark Capital, a venture firm in Menlo Park, Calif., keeps its deposits in Silicon Valley and refers the companies it invests in there. Andrew Rachleff, general partner of Benchmark, said the bank is more astute about technology companies and quicker to the draw than other lenders.
He added that Silicon Valley Bank's reputation in the technology community precedes it as it ventures into other parts of the country where start-ups are thriving.
The expansion plan promises to let the bank diversify its risks geographically as well as among sub-sectors of technology.
"They are not as good as they are just because they are in Silicon Valley," said David Winton, an analyst at Keefe, Bruyette & Woods Inc. "They have been able to replicate that in Wellesley and other places around the country."
In contrast to the typical, well-diversified commercial bank portfolio, 70% to 80% of Silicon Valley Bank's loans are to technology companies. To diversify a bit, the bank has lent to religious organizations, wineries, and entertainers.
"A lot of people who don't look closely at the bank (Silicon Valley) say, 'Wow, they are dealing with emerging-growth companies' and think the asset quality could be suspect," Mr. Winton said. "But 90% of the loans are collateralized."
Mitigating risk is a priority for a bank that knows about loan problems. Only last year did California and Federal Reserve Bank of San Francisco regulators remove consent orders stemming from the bank's foray into speculative real estate.
But Silicon Valley will stay true to its roots, Ms. Blomberg said. "When technology is booming, everybody wants to be in that business," she said. "If there is a downturn, everyone (else) folds their tent and leaves."
The focus paid off last year. Net interest income rose 20% to $87.2 million, and net income per share increased 10% to $2.21. The bank's 1996 efficiency ratio was 55.9%. Returns on average assets and shareholders' equity were 1.4% and 17.9%, respectively.
As it tries to maintain its unique course, Ms. Blomberg's division is being shadowed by other institutions, among them BankAmerica Corp., Bessemer Trust Co., and Wells Fargo & Co. All have something Silicon Valley lacks: investment and trust management. The bank is also being challenged in Southern California by City National Corp. of Beverly Hills and in its own backyard by Imperial Bancorp of Los Angeles.
"City National has a broader product offering and more sophistication that technology companies did not have available to them in their early, pre-profit stages," said Beth Kinsey, senior vice president of City National and a former Silicon Valley Bank executive.
The biggest challengers, like BankAmerica and Wells, lack access to the technology crowd, said Craig E. Dauchy, partner of Cooley, Godward, a Menlo Park law firm. Mr. Dauchy, who advises technology firms when they go public, said the new tycoons tend to head to small, local investment firms.
"They are looking for people who have been here a long time, as opposed to some bank like Wells Fargo that they think of as a big, impersonal institution," he said.
Bryon J. Botsford, managing director in Wells' Silicon Valley private client services office, begged to differ. He arrived in Palo Alto four months ago and said he would try to accommodate people who do not yet meet Wells' $1 million investment minimum.
Yet most competitors are not as aggressive as Silicon Valley Bank in reaching entrepreneurs who fit the could-be-a-millionaire profile.
Timothy L. Vaill, president of Boston Private Bancorp and a competitor of Silicon Valley Bank in Wellesley, said the California-based bank will continue to succeed as long as it sticks to its specialty of "working with high-risk situations.
"No other bank does that," he said.