Ladies and gentlemen, thank you for standing by, and welcome to the SVB Financial Group Q1 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. Meghan O'Leary, Head of Investor Relations, you may begin your conference. Thank you, Josh, 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 Q1 2022 financial results and will be joined by other members of our management team for the Q&A. Our current earnings release, highlight slides, and CEO letter have been filed with the SEC and are available on the investor relations section of our website. 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. Now I will turn the call over to our President and CEO, Greg Becker. Great. Thanks, Megan, and thanks everybody for joining us today. We're pleased to be reporting an excellent quarter of strong earnings and profitability driven by healthy core fee income, solid balance sheet growth, and a significant lift from higher rates. Based on this momentum, we're raising our 2022 revenue outlook and our outlook for loan growth and have meaningful revenue upside if the forward rate curve plays out. Also really excited to be introducing our new brand, which highlights the power of our four business strategies. Hats off to our entire marketing team who's done a great job rolling that out, and we're getting really positive feedback around that. We know you have questions, and we wanna make sure we get to all of them, so I'll ask the operator to open up the lines. At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Manan Gosalia with Morgan Stanley. Your line is open. Hi, good afternoon. I was just a quick confirmation on the NII guide. That includes just the March rate hike and the improvement in the long end so far. Is that correct? It does not include the eight additional rate hikes we have in the forward curve? Yeah. Hi, this is Dan Beck. It does not include any additional increases in Fed funds. Got it. Can you help us to think through the puts and takes if we do get the eight additional hikes in the forward curve this year? You know, I know you've given us the rate sensitivity metrics in the deck, but how would that impact your guidance for loan and deposit growth as well? Yeah. I think it's better just to think about that sensitivity in net interest income. Obviously, there are a lot of variables. The expectation with additional 25 basis points, and we do have the growth assumptions in there, are $100 million-$130 million worth of annualized net interest income. Now with every subsequent increase in core fee client fund fee income, you would see another $20 million-$50 million annualized. That's the best way to look at it. That takes into consideration the dynamics of the balance sheet. We think for the rate increases and what's in the forward curve ahead of us, that's a good set of assumptions. Got it. How should we think about just loan growth in general, you know, just given you know I know you're seeing strong demand from both the fund banking and the tech and healthcare clients as well. But you know any more color on, like, you know, what you're seeing there that gives you know you the confidence that there's upside to your private loan growth guidance even with the rate expectations moving higher? Yeah. This is Greg. I'll start, and Mike may wanna add. I think about it on the commercial bank side and then also think about it on the private bank side. If you know, start to see those rates, play out on the commercial banking side, you know, we're seeing kind of what we're seeing now, which is we believe there's gonna be, you know, some softness in the venture capital levels, and so equity may be a little bit harder to get as rates pick up. What we see on the opposite side is we do see a stimulation of loan growth, on the high tech and the life science side. That, we believe, has some upside. There may be some softness in private equity and venture capital, but there's a lot of dry powder there, and as they continue to do deals, we certainly don't believe rates are gonna have that much of an impact on the velocity around it. That's I would say is neutral to positive. On the private bank side, clearly if rates start to pick back up, you know, we've already seen 30-year rates pick up and, you know, seen some slowness there. If they continue to accelerate and they get higher, we should expect, I think all banks that are looking at mortgages to see some softness there. That's one way to think, at least that's the way I think about the loan forecast on a go-forward basis with if the forward rate curve plays out over the balance of 2022. This is Mike. The only thing I would add is you did see strength in the lending in tech and life sciences in Q1. Then when we look about the future of the pipelines, the pipelines are at near or close to all-time high. We are still seeing some strength in the pipelines. Great. Very helpful. Thank you. Yep. Your next question comes from the line of Ebrahim Poonawala with Bank of America. Your line is open. Good afternoon. Hey, Ebrahim. Yes. First question, maybe Greg, just big picture. Obviously, it's been a lot has happened during the quarter. Give us a mark-to-market, means it was a fairly strong quarter. I think your guidance is better than I think most people feared what would play out. Give us a sense of I get that late stage has been tougher, IPOs have been tougher, early stage still moving along. When you talk to folks sort of in that VCP ecosystem, is it still wait and watch? Like, if we get another 10% sell-off in the markets, would that negatively impact sentiment? Just give us a sense of where things stand and, like, the downside risk to sentiment, appetite for VCP investment. Yep, that's about five questions in there. I'll try to pick it apart. Let me just start with client funds, and I'll talk about what happened in the quarter and then, again, as much as I can crystal ball it, there, and then just the general kind of sentiment, what we're engaging with when we talk to venture capitalists or private equity partners. In the quarter, if you think about four sources of funds flow, you've got venture capital, public funds, international, which isn't in the U.S. venture capital numbers, obviously, and then private equity. Venture capital was generally healthy in the Q1, and part of that's just a carryover from the end of the year. We saw more softness in healthcare than technology. But relatively flat, so the flows there were pretty decent. The biggest decline, as you would expect, is in the later stage public, so public fundraising. That was down roughly 85%, and that was most pronounced in healthcare. You know we've got a really great practice in healthcare, and so we did see a lot of softness in funds flow from public you know equity capital markets transactions. International was a little soft. Private equity was a little soft. When you add all that up, that's where you get kind of a just a really modest growth in total client funds, but kind of gives you a sense of where it came from. My view is that if the public markets continue to be soft, right, and you know, you probably have as good a perspective on that as I do on what that will look like, that will more than likely continue to play out. There's some really positive parts in there I think it's important to note, right? One is that when you think of the venture capital flow and activity levels in the early stage, incredibly strong. We had roughly 1,700 new clients in the quarter, which is one of the highest, like maybe the second or third highest numbers that we've had. You can look at the venture capital numbers. There's a lot of great flow in that market. As I spend time in the market and hear from our teams, there is an incredible amount of activity. I think even if we saw volatility through the balance of the year, the level of startup activity, the level of Series A, I think it's gonna be good. Look, there's just gonna be softness in the later stage markets until there's what I'll call a price discovery that kind of finds the right balance. I personally don't think it's gonna be that far off, a quarter or two quarters out because I think the public markets, in my view, are gonna be soft at these levels, maybe a little bit higher for a little while, and then I think they'll recalibrate into the later stage private market. Just in general, I think there's still a lot of positive momentum. People are feeling good. We're seeing incredibly strong deal activity. The pipeline for lending is strong. The pipeline for new deal activity, just bringing in clients, is strong. I'm actually relatively optimistic, you know, in this environment that we're dealing with that, again, we always talk about the long term. Innovation's where it's at. Money still wants to be here, and that's a good thing. Greg, one thing that... Thanks- Sorry, Ebrahim, one thing to add, as we think about what we also did within the quarter, not only do we have those factors that Greg mentioned, in the quarter, we started to really put products to work that allowed for us to also open up some of the off-balance sheet client funds to have them where it made sense for clients to move onto the balance sheet. It's just another lever for us, especially in this short-term rate environment that's so strong, to be able to help from a liquidity perspective. You know, with all that, we'll probably still be in the lower end of that 40% growth range from a guidance perspective. Again, lots of levers and good flexibility to be able to manage. Just to that point, if I may follow up with one, Dan. Talk to us about what you assume in the mix shift for deposits on balance sheet, and how quickly do we start seeing the deposit beta kick in for the interest-bearing piece if the Fed hikes 50 basis points May, 50 basis points June? Do we get to a 30%, 40% beta, or will it take time? Yeah, Ebrahim, I think it's going to take a little bit of time for us to see the betas kick in. Obviously, the timing of you know it looks like we're going to see a 50 basis point hike here in May. I still think it's going to take time to get to our assumptions of a 60% deposit beta that we're using at least for our net interest income guidance. I think we'll see that play out, and it's going to be a progression to get to that you know full 60% deposit beta. In terms of movement of non-interest bearing to interest bearing You know, I think that if the forward curve were to play out, we'll probably migrate into the 40% range of interest-bearing to non-interest-bearing accounts. You know, that's up from where we are in the 30-ish% range. That's all factored into our sensitivity from a 25 basis point rate hike. Hopefully that gives you enough color there. That is helpful. Thanks both. Thanks for taking the questions. Yep, absolutely. Your next question comes from the line of Casey Haire with Jefferies. Your line is open. Thanks. Good afternoon, everyone. Hey, Casey. I wanted to dig in on the deposit growth guide. In the letter you guys referenced, you know, help from well liquidity solutions, which looks to be you know taking money from off balance sheet onto the balance sheet. Just curious, how much was that this quarter? Then how much of that is contemplated as a lever for sustaining the deposit growth guide in 2022? Yeah. Casey, this is Dan. As we look at the quarter, on an average basis, it was in the, let's call it $2 billion range. A smaller part of what we saw from a quarterly basis. In terms of the full year, you know, we're not relying, you know, only on that from a growth perspective. We factored in some growth along with what we're seeing from, you know, traditional organic liquidity activity. This is really looked at as a tool for flexibility, and effectively a tool so that we can utilize the rate environment that we've got in front of us, and really, you know, help clients all at the same time. Okay. Very good. The distributions you also made mention of that. Was that a significant headwind in the quarter? What's the outlook going forward? Is that something that picks up or slows down for what we saw in the Q1 quarter? Yeah. Casey, it was one of the factors, you know, in the Q1. Traditionally, Q4, Q1 are the biggest quarters for distribution. We think most of that is behind us, at least for the year. Maybe this is my question. The one thing I would add is when you think about deal activity and you think about distribution, right? Deal activity creates new dollars coming in. As we talked about earlier, Greg mentioned the slowdown in exits, the slowdown in IPOs. There you don't have as much money coming in. With these distributions going out, that's what is giving, you know, a fair amount of headwinds or some challenges in that particular area. Okay, great. Just last one from me, just to clarify. On slide 32, you guys talk about that further rate hikes is not going to take your expense guide higher. So this high 20s could be a ceiling in terms of expense growth unless you guys really I mean, what else could drive that higher? I guess fee outperformance or SVB Securities? Yeah. Casey, it's Greg. I'll start, and Dan will add. You know, as we said last quarter, if we saw some rate increases, we're going to build some of that into our expense growth just as from an investment perspective. We feel really good about the numbers that we're putting out there, that they're really significant investments. That's why we basically have kind of said that we weren't going to cap out at the high 20's. Of course, we'll caveat it, and the caveat will be pay for performance is the biggest one. You know, that's either with SVB Securities, it's the institution overall. I think my guess is that you all would be happy if we end up having to pay more expense out, and we go above that because it would mean for the most part that the performance overall is even stronger. Casey, just one thing to add to that. If you think about performance relative to rate increases, if the forward curve were to play out, that expense guidance satisfies what we would do from interest income performance perspective. Just wanted to be clear about that guidance range incorporates what the pay for performance on just rate sensitivity would be contemplated. Got it. Thank you. Yep. Your next question comes from the line of Bill Carcache with Wolfe Research. Your line is open. Hi, good afternoon. Thank you for taking my questions. I wanted to ask about the outlook and at a high level, would love to hear your thoughts on how a scenario where the Fed is forced to push the economy into recession to tame inflation would impact your outlook. Yeah, this is Greg. I'll start. I think because we have the four business units now, I think it's important to kind of talk about them a little bit in separation. You know, on the bank side, you know, it's important to note that the clients are better positioned than they ever have been with lots of liquidity. They're in really strong positions. We think, you know, we wouldn't expect any, you know, material change in credit quality based on the fact that we continue to have a smaller percentage of the loan book in the higher risk from a historical perspective lending portfolio. You know, again, our clients from a lending perspective aren't as rate sensitive on the commercial side. You're not going to see much of a change there. Obviously, if you see rate declines, you know we're rate sensitive. Dan and the team are working on ensuring that we're as protected as we can be if rates, I know it's funny we're talking about potential rate decline when we just haven't even really seen the rate increases. You know, you have to think that way, being prepared for that. You know, I have a huge amount of confidence in Dan and the team that they're gonna make sure that we are protected as much as we can be there. That's the commercial bank or SVB, Silicon Valley Bank. On the private bank, could you see if rates go down, the long end goes down because there's you know worried about the economy, could that stimulate growth? Potentially. Depends upon what happens with prices and so forth. Securities, again, yeah, I think you'd probably be similar to where you are. You probably see softness in ECM, but M&A probably would pick up. It's important to note on the SVB Securities side, when we talk about M&A, we're starting from such a small basis that you know we do believe there is a significant upside over you know the next few years as that team really starts to hit stride. Their pipeline is strong now, and I feel really good about it. You can look at leveraged finance. That looks like it would also have, you know, upside there as well. I think there's still going to be an interest in money flowing in into SVB Capital, from our fund side. I think the balance sheet is much different than it was in prior economic downturns. The levers the finance team puts in place to protect the balance sheet, to protect net interest income is better than it ever has been. Will there be an impact? You know, sure. It's certainly, in my view, going to be more muted than it normally would be, if you hit a recession, you know, five, 10, 15 years ago. Dan, what would you add to it? Yeah, I think everything Greg said, plus if you think about, you know, potentially a slower liquidity environment, again, looking at the total pool of client liquidity, including off-balance sheet solutions and the products that the teams are putting in place, obviously doing the right thing for customers and clients, gives us just more flexibility. It's just part of a different toolkit that we have had from, you know, previous downturn scenarios. That's really helpful. Thank you. If I could follow up on sort of the credit side of that. Even if the credit environment remained relatively contained and the level of actual losses that you'd experience was within sort of your expected range, could we still see you add to reserves a little bit more aggressively just to reflect sort of a greater uncertainty? Or is the fact that you would expect losses to remain relatively contained, you know, would that lead to your not having to build reserves? Marc, I'll start. Dan may wish to add. Recalling that the reserve of today is driven by economic forecasts, the recession scenario you speak of likely would trigger a reserve build. Hopefully not like we saw in the early innings of COVID. It would certainly depend on the degree of the downturn in front of us. I think in that scenario, sort of irrespective of whether we're seeing a deterioration in credit quality, the economic forecast would probably take the reserve higher. Dan, anything to add? No, I think that's right, Marc. If I may squeeze in a final follow-up on your comments around the proactive interest rate risk management and sort of in that scenario. I mean, it's impressive, like in this quarter, where we've seen, you know, many banks, setting aside the larger ones, where there's a direct impact to their regulatory capital and buyback capacity. Some of the others that are outside of category one and two that don't have to recognize OCI headwinds for regulatory capital purposes. We've seen 12%-15% tangible book value hits, and they've sort of been okay with it because there's no impact on regulatory capital or buyback capacity or earnings. So they haven't really been as focused on tangible book value. You guys, maybe could you speak to SVB's, I guess to the extent that you protecting tangible book value is something that you hold as important and how important that is to you. It seems like your hedging strategy, you know, has made that a focus. I'd just love to hear you kind of speak at a high level on that. Yeah. Just really high level associated with it. We like to manage to ensure that we have flexibility, and I think this is just another area where, you know, we provide ourselves flexibility by reducing, you know, sensitivity to significant movements like that. Especially with the amount of liquidity that came in last year, being able to protect against what could have been a higher rate environment that's now played out, which we think even though it's not counted for regulatory capital, it's still important to be able to manage capital from a strength perspective, all in. We manage for flexibility, and, you know, even as we're thinking about the higher rate environment today, that's what Greg was talking about, thinking through how to sustain, you know, the rate environment that we're seeing today and to be able to protect against downside risk is kind of the shift in how we're starting to think about things. Yes, it's important and continuing to just make sure that we've got flexibility. That's very helpful. Thank you again for taking my questions. Yep. Your next question comes from the line of Jared Shaw with Wells Fargo Securities. Your line is open. Hey, good afternoon, evening. Hey, Jared. You know, I thought it was interesting you said, you know, you have your companies and you have the option to increase lending if some of the equity support cuts off. What did the utilization rate do this quarter among those tech and healthcare companies? Did you actually see some of that happen this quarter? I guess how much of the loan growth projection is due to you know, maybe a shift in lending into that sector? This is Mike Descheneaux. The utilization rates did not increase much at all. It's been pretty stable. It was up, you know, it was up a little bit in this quarter, but certainly not significant or not really the huge driver of growth. Yeah. Jared, this is Dan. On a forward-looking basis, the growth forecast is still primarily driven by capital call lending and exposure. There's a small increase from what we're seeing on technology, healthcare, and life sciences. But there again is a lot of new business there in the pipeline that's driving it. Less from commitment utilization usage versus new and what we're seeing from a private equity global funds banking capital call lending perspective. Okay, thanks. You know, like, you know, during the quarter, I think there's been a lot of investor concern or just concern that higher rates would really have a detrimental effect on private equity venture capital investments and need for capital call lending. You know, when we look at where everything was in 2018, we're at Fed funds of 2.50 and things seemed pretty healthy there. You know, from your conversations with I guess the GPs, what level do rates really need to get to before you think that has a meaningfully negative impact on capital call demand? Yeah. This is Greg. I'll start, and Mike may want to add. You know, it's far enough away that it's hard to predict. And what I mean by that is, you know, you referenced, you know, the last time, you know, when Fed funds were higher, and it really didn't have much of an impact. You know, yeah, we may see those Fed fund rates later this year, if the forward curve plays out. You know, there's a lot of dry powder out there and, innovation, you know, again, as I talked about, the startup activity is incredibly strong. The dry powder that exists in venture, the dry powder that exists in private equity is very, very, very strong. They need to put that money to work. You know, maybe it slows down a little bit if rates pick up, but there's just so much opportunity out there that it's just, as I said, it's far enough away that I can't give you an amount that would be helpful. All right. That's good color, though. Thanks. Then I guess just finally, you know, some great moves on asset liability positioning. Congratulations on that. You referenced there's still $6 million, or I'm sorry, $6 billion of receive floating hedges here. Is there any thought to unwinding more of that and continuing to see that shift in Q2 or not necessarily? Yeah. Jared, it's Dan. I mean, we're always gonna be opportunistic. But there's still, I think, a lot of risk of short rates moving higher from here. If you think about the hedging strategy and just being able to provide optionality to be able to execute and to gain access to liquidity, that's why we have such a large securities book to begin with. Keeping some of that protection there really makes sense for us. We'll keep an eye on what happens from a rate perspective. If rates start to move, we may be opportunistic. But no plans right in front of us right now. Great. Thank you. Yep. Your next question comes from the line of Steven Alexopoulos with JPMorgan. Your line is open. Hi, everybody. Hey, Steve. If I look at the Q1, it was an unusual quarter more broadly, given that the IPO market dried up. We still saw VC investment, given all the dry powder which you've referenced on the sidelines. You also saw VCs raise a lot more money than they spent in the Q1. The mountain of dry powder didn't even come down. Greg, what are you hearing from your VC partners that, you know, they're able to raise so much money in a pretty tough quarter? And are you hearing that a slowdown in either fundraising or investing is coming? Yeah. Steve, there's, as you said, and I agree, there's a lot of different things that are going around. Underneath, let's say, the fundraising, it's important to note that it's not, you know, it's not equally distributed. Meaning, a lot of that money that was raised was raised by the strong funds, the ones, the notable funds that have a long, long track record, upsizing their funds pretty significantly. You know, it was. I don't know if anyone would ever say it's easy, but it certainly was easier. The ones, the funds that are having a harder time are the smaller funds, the first-time funds, the funds that it's, you know, it's fund two or fund three, but you really don't have enough distributions in the first fund or two. There are some headwinds with that. You're getting a little bit of a mixed message. But the dry powder from the, you know, the more stalwart firms is incredibly strong. You are seeing, I'd say, a bifurcation. The large funds that have a, I'd say now the strategies they are employing are very different, meaning they have large late-stage strategies. They have seed fund programs. They have niche programs. They're much more diversified in both stage and the markets they're going after. Then you have very successful funds that are, you know, very niche-oriented. The ones that are having a harder time are the ones that I just said, the ones that don't have a long track record, or they're more of a, what I'll call a me-too approach, but they don't really have a differentiated strategy. You know, obviously, you know this, we have deep connections into all those areas, and we're staying very close to it. You know, the strongest funds clearly have benefited from it. I think personally, they're going to continue to benefit from it. There's a lot of money that still wants to come into venture, but they want to come into the funds that are proven. I think it's going to be a headwind for the emerging funds, and it's going to continue to be more of a tailwind for the funds that have been around a long time that have built up a great track record. I mean, certainly with the volatility that's in the system, that makes it difficult, so something to keep an eye on. The deals that we're closing in Q1, as Greg mentioned, Steve, they were large funds, and probably a lot of this was also agreed in 2021, right? As you kind of have these closes come in the Q1. It is definitely something to keep an eye on. As Greg said as well, that having something like $3.4 trillion of dry powder out there is just still a lot of dollars to get put to work. Yeah. Okay. That's helpful. I wanted to drill down into the capital call growth a bit. If I just look quarter-over-quarter, it trailed off in 1Q. Could you tell us in the private equity capital calls where you're seeing activity slow down a bit, the capital call side, and maybe where it's a little still a little bit more active? Looks like the other bucket went up, and I don't know what's in there. Are you talking about just, like, particular segments, Steve? Yeah. Within private equity capital calls. Yep. You know, it's an interesting, I would say, quarter. We started going to the Q1 healthy, strong. February was a bit funky. It kind of slowed down a little bit, but then started to pick back up in March. It was across the board that we had. There really was no real outlier, any particular sector that was up or down in that particular. There's really nothing really to point to that I can tell you at this time. Okay. Thanks. Finally, it's a little bit of a conceptual question, but Greg, regarding the comment in the CEO letter that you would expect any potential pullback to be short-lived, I tend to agree with that. If you think about all of these factors that really hit this Q1, which are probably worse than what we saw in the Q1 of 2016, and the fact that VCs still invested $70 billion in this backdrop, is it possible that we are living today in the exact period you're describing? Given how much capital there is, we just will not see a pullback of any kind? I would love to tell you with absolute confidence exactly what's going to happen, but I'm sitting beside our general counsel, and he says I can't do that. You know, Steve, I would say I would just follow through with what I commented. My crystal ball right now with the information that we have says that we're gonna have some softness. You know, it's still a very healthy market, right? Early stage is gonna be healthy for all the reasons I talked about earlier. You know, there's companies out there that are trying to figure out what's the right valuation relative to public markets. The question is, well, if I wait an extra quarter or two to raise that round, am I gonna get back to that higher valuation? When you add all that together, I just believe there's gonna be just, you know, this softness, and I put that with a lowercase s, not a capital S, because, you know, as you said, Q1 was still very, very healthy. It's kind of a, again, that's probably the simplest way for me to describe it. It's a lowercase softness versus an uppercase softness. You know, a lot more will come out in the next 30 days, 60 days, 90 days, and we'll be able to share that next quarter. Okay. Thanks for taking my questions. Absolutely. Your next question comes from the line of Chris McGratty with KBW. Your line is open. Oh, great. Just a quick one on the timing of the warrants. Greg, if we stay in this environment, is Q2 arguably just more of a step down than Q1? Because it was a little bit better than I thought this quarter. Yeah. You know, first of all, you got a very diversified portfolio, you know, number one. Number two, and what I mean by that is you only have thousands of companies that make up your warrant portfolio and your securities portfolio. You know, that's one factor. The second factor is you're right in some parts, and there's multiple parts that make up the securities portfolio, right? The warrants, you know, we try to get obviously the most recent information from the quarter, and we use that. We can't always get that, so there is a little bit of a lag there as we try to gather that information to value that. You also have it in some of the funds that there could be a lag, you know, in our fund of funds, where it's a quarter lag there in some cases. Could there be some softness, higher softness in the Q2 or the Q3 relative to the Q1? The answer is yes. I think that's a reasonable expectation to play out. That's the crystal ball as far as, you know, trying to characterize how big it could be. That's where I go back to the part about the diversification of the portfolio domestically, globally. You know, it's such a diversified portfolio that my view right now is the volatility won't be as great, probably as many people may expect. Hey, Chris, it's Dan. Just one thing to also pay attention to. In the quarter, we did have fixed income securities gains close to $49 million. That's in that number as well. Backing that out, you certainly do continue to see the softness there, especially compared to the experience of 2021. Agree with Greg, the diversification factor and just thinking about the number of funds, the number of companies, and just the different investment time horizons in those thousands of investments really does protect from the quarter-over-quarter significant declines. Okay. Great. If I could on one more. Capital levels are pretty stable due to the mentions of the OCI limited hit there. Maybe updated thoughts on just capital levels. Yeah, Chris, if you take a look at it, we're again capital constrained. Tier 1 leverage at the bank, we ended the quarter within our target range between 7%-8%. But certainly on the lower part of that range. Take a step back and you think about how we've managed capital in the past, preferreds, senior debt, from there looking at preferred, and then obviously opportunistically from a common equity perspective. Just considering the market, you know, we continue to look, you know, at the potential for senior debt preferred type transactions to manage that, you know, on a go-forward basis here. You also have the ability to move some capital down, right? That's correct. We have a good amount of cash sitting at the bank holding company that we can continue to use to manage Tier 1 leverage ratio at the bank. Great. Makes sense. Yep. Your next question comes from the line of Brian Foran with Autonomous Research. Your line is open. Oh, hi. You kind of Right Touched on it already. You know, I think one of the concerns was, is this 2016 all over again? You know, recognizing you gave some of the puts and takes, but, you know, for people who are worried about kind of 2016 style, you know, airpocket growth, what would you say is like the biggest difference in your mind, today versus then, both for your business and for your clients? This is Greg. I'll start, and then Dan may want to add to it. You know, I'd say the balance sheet is very different compared to what it was back then. You know, there's a lot of differences, but you know, it's an interesting comparison. You know, what I continue to reinforce on you know, earnings calls and meetings internally is that what gives me comfort every day on top of a lot of things is the fact that the innovation economy is gonna continue to be up and to the right over time. If you have a quarter or two of softness, you know, the way our balance sheet is constructed now, our loan portfolio, the way it's constructed, you know, I feel very good about that. I also feel good that, you know, that we shouldn't overreact, you know, if there is a little more softness that looks more like a 2016, that again, my view is it will be short-lived. It could change. You know, maybe we'll see something that is more severe than that. Again, my crystal ball would say that, we'll get through it, on a you know, faster pace and start back on that same trajectory based on the innovation economy strength. Great. Thanks for taking my question. Yep. Absolutely, Brian. Your next question comes from the line of Andrew Liesch with Piper Sandler. Your line is open. Hi. Thanks for taking my question. Yep. Just looking at page 16 of the slide deck, just the international loan growth and international core fee income growth. Just curious what was driving that, any particular region, and what's the outlook for both of those? On the fee side, you're predominantly going to be seeing FX, foreign exchange. Those would be some of the key drivers. Investments, securities, or client investment fees have been also strong. This is also the average balances. We had really significant activity coming through last year or the end of last year. You're seeing really the continuation you know of those balance levels from the end of last year you know carry forward into the Q1. Just good growth there. Got it. How's that trending so far, as we make progress into the year? I think as we look, as Greg mentioned, just all in from a liquidity and growth perspective, things are softer in the Q1. That was not, you know, different in the international market. Still growth, but clearly softer than the levels that we saw last year. Got it. Okay. Thanks for taking the questions. Yep. Your next question comes from the line of Jennifer Demba with Truist Securities. Your line is open. Thank you. Good evening. Two questions. I'm just curious as to how you feel the Boston Private acquisition has gone versus your internal plan thus far. My second question is, how much more hiring do you need to do in the investment bank? Thanks. Yeah. Jennifer, I'll maybe start with the question on the private bank. First off, you know, I feel very good about the platform we now have in SVB Private. When you look at the team of people we brought on board, and when you look at the new hires we're bringing on board, the quality. When you look on the breadth of capabilities. From my standpoint, the opportunity is at least as good if not stronger than I originally thought. One of the things I would say where probably underestimated on, I'll say my part is capacity. When you think of when we brought Boston Private on board, right? Their advisors, their teams were already, you know, fully leveraged. you know, I would say we probably hoped for more capacity, but look, with market volatility and everything else, people are spending a lot of time with clients, which is exactly what you'd want. Our focus is on attracting talent. That's where I am feeling really good. We've got a great team already, and when you look at the people we brought on board in the Q4, when you look on the people that are in the pipeline to come on board, and that we're in the middle of negotiating with, I feel incredibly positive about that. Then the last part is what feedback we're getting from our clients in the market about having this capability, and that's also very positive. I would say underestimation on my part about capacity, but the feeling about the potential and the opportunity is stronger than originally thought. Second question on SVB Securities. You know, yeah, we have some additional hiring to do, but I just wanna first pause on the fact that I feel incredibly positive about the people that we've added. Well, the original platform that we acquired with Leerink Partners, let's just start with that, and then the team of people we brought on board, and that is in both healthcare services, the technology, and the team that we brought on leveraged finance. Feedback from market, the pipeline, deal wins, et cetera, have been extraordinary. Now, your follow-up question may be, "Well, if you feel so good about it, why was Q1 soft?" So let me answer it. I think anyone that has a capital market business right now would clearly agree that the softness in the IPO market, capital markets, equity capital markets has been exceptionally soft. 85% decline from the Q4. So what's positive? Positive is we're still signing up deals. We're signing up new opportunities for companies to go public and when the market starts to open up, and M&A is strong. I feel very bullish about the team of people. I feel very bullish about our capabilities. When you combine the strength of the commercial bank that we have under Mike's leadership, the private bank and the investment bank, that's really why this concept of one SVB all working together is, again, while you probably hear it in our voices, you know, very, very positive as we think about the balance of 2022 and into 2023, 2024, et cetera. Thanks, Greg. Yep. Your next question comes from the line of John Pancari with Evercore ISI. Your line is open. Good afternoon. Hey, John. I just wanna ask around the fund flows question in a little bit different way. I guess I hear you in terms of where you're seeing a little softening and where the risk could be, but also the benefit of dry powder and how that's buffering flows. I mean, how what incremental slowing in flows is included in your guidance right now, as you look at the full year expectation? Yeah. I'll start and Dan will give you more color around it. This is how I think about it. I think about what we saw in the Q1. We kind of look at softness for, you know, another several months that's gonna continue. Then just start to see some uptick in kind of the market and money flowing back in at the pace that we talked about, capital markets opening up clearly more than they are right now, which you could argue it's closed. That's not a long leap from where we are right now. That's what we have in the forecast. You know, where we are when you think about that range, we're the lower end of that range of deposits that we have in that forecast. That's taking the forecast, lower end of that range, and combining it with what I said about what we're kind of how we think the crystal ball is, right? If it plays out differently, obviously more positive, more than likely we probably wouldn't go. I have a hard time seeing how we'd go above the range and go to another range. That's a pretty big step up. You'd have to see a pretty big pickup from where we are right now. Conversely, on the other side, you know, if the numbers that I talked about we saw from Q1 of the fund flow and venture capital, public, international private equity were worse, you could see us go below that range and tick down into the next range below that. It's just to give you a little more color of the outlook, what's built into the outlook and what could cause it to kind of go above or below that range. Yep. The only thing I would add to that, Greg, is again, the off-balance sheet, the ability to serve clients' needs, and with the short-term rate environment where it stands to be able to drive, you know, some of that money on the balance sheet to support, you know, liquidity management. It is another thing that we consider as a part of the scenario that Greg just laid out. So we do have more flexibility. We do have more options as well. Got it. Okay, thanks for that. Then separately, I know in your CEO letter indicate that warrant gains could moderate from here even though you typically don't guide on warrants. I don't know—can you help us maybe think, you know, frame out that potential moderation, how we could think about that? Then, you know, I get a ton of questions in times like this for you guys that could these warrant gains turn negative and could your investment gains turn negative? Could you talk about that? Thanks. Yep. So we don't guide. We don't give ranges. We don't give details around it because quite honestly, it's too hard to predict. We could be off in a meaningful way just based on market. That's obviously the reason that we don't guide. We wanted to give additional color to say, look, there's clearly a possibility that there could be more softness in there. We talked about this a little bit earlier on the call. There's a little bit of a lag in some of the investments, right? That could go through, and you could see a decline there. If your specific question was could you see warrants decline and actually be a negative number, the answer is yes, you could. It's possible. Again, we expect some softness. Do we expect it to go negative? The answer is no. What we like to do with our confidence levels, when you look at our guidance, we like to clearly have a pretty strong confidence, you know, 70%-80%. That's why we don't give guidance on warrants and securities because the confidence level, quite honestly, if I said this is the direction, if I said this is where it would be, the confidence level would be below our comfort zone. Clearly, John, I mean, as you know, how the IPO markets go, how the exit markets go is really going to drive or determine what those numbers are going to be. It's up to you to take a view on where do you think the IPO and exit markets are going to go. Yep. John, the last thing I'll say. Right. Yep. John, the last thing I'll say to Stan, again, the granularity here really matters. The fact that a vast majority of what we've got in the warrant and investment portfolio are in the private markets. If you think about it, you've got, you know, 500 funds. You have close to 5,000 companies and thousands of individual investments that are made over time. There's a lot of diversification in the timing of those investments and the number of companies. You have to have a prolonged and quite sustained reduction in value to see that really come through all of those private private investments. Hopefully that gives you a little bit of extra color. No, that does. Thanks, Dan. Lastly, also in your CEO letter, Greg, you indicate the increased expense outlook is partly influenced by the investments that you're making so in the business. Can you just talk about like what are the largest areas of investment that you're putting new money into right now? It is across the board. It's digital. It is, you know, headcount in a lot of different areas to increase capacity. Clearly it's in risk management as well. When you think about the growth that we've had and, you know, going to a Category III bank, there's a lot of investment around there. We look at all those areas as opportunity investment to really, you know. Again, it's not just building for today, it's building for the future. We've talked about that over the years that we look at these as opportunities with this additional revenue that we have to really just keep pressing on our ability to deliver for our clients. That is across every one of our four businesses plus the support functions. What are the highest? It's, you know, it really is. It's in almost every area in the sheet, in the deck that goes through and talks about our investments. It's significant across the board. Okay. Hey, John, the only thing I'd add to what Greg said is it's all about people as well, and we are strategically continuing to make investments in bringing new people onto the platform, as well as making sure that we retain the incredible talent that we have across the franchise today. All of those investments, really the core of it also continues to be the great people that we've got as part of the franchise. Got it. All right. Thanks, Dan. Your next question comes from the line of Chris Kotowski with Oppenheimer. Your line is open. Good evening. Thank you. I just wanted to make sure I understood the dynamic and the NIM in the Q1 properly because like on January 20, you guided to 1.90%-2%, and it came in at 2.13%. Was the delta in those 70 days just the premium amortization? Is it just as simple as that the long end of the curve let go and therefore premium amortization went to a de minimis level? Well, this is Dan. It's a combination of, like you said, the substantial slowdown in premium amortization from what happened with 10-year rates. We were highly sensitive to that premium amortization below 10-year rates of 2%. Now looking at the 10-year starting to get close to 3%, that's materially slowed down. You saw a big improvement there in the quarter on that. Secondly, just reinvestment in the quarter from this, you know, incredible investment securities portfolio, being able to reinvest with the short-term rates so much higher also helped from a NIM perspective. Kind of add all those things together in the quarter plus, you know, some of the benefits on the short-term cash, you get to a better yield. Wow. Okay. That's quite a dramatic change in 70 days. The other thing I was wondering about is, in your press release, you show that the, you know, the duration of the held-to-maturity portfolio extended about a year, 1.1 years to 5.2 years. Was that mainly a function of the movement in rates extending the maturities of the portfolio, or was it a function of the new securities that you added? No, you've got it. Really a function of the duration extension, especially of mortgage securities, of which there's a good proportion sitting in that held-to-maturity book. That reduction in premium amortization also comes, you know, as a part of all of that. Yes, mortgage securities in held-to-maturity versus net new purchases. Knowing that there's like a huge difference between duration and contractual maturities, you know, looking at your 10-K, it's roughly two-thirds of your held-to-maturity book has maturities of over 10 years. I mean, what is the extension risk on that portfolio if we get into like a, you know, another 200 or 300 basis points on the long end of the curve or something like that? Yeah. It's a good question. I think with rates where they are, you're seeing extension risk. You're seeing the extension of the book already playing out from a duration perspective. Going much higher from here will have some impact to the overall duration and extension risk. But not as material as the move that we've seen here, effectively in the 10-year, you know, getting close to 3% by the end of the quarter. That's where we had the most sensitivity. That's why we had those bonds sitting in held-to-maturity to begin with. You will see some extension of risk from here, but not as significant because we've played through a lot of that already. Okay, great. Thank you so much. That's it for me. Great. Your next question comes from the line of Brock Vandervliet with UBS. Your line is open. Hey, everyone. It's Vilas Abraham for Brock. Thanks for taking the question. Hi. Just wanted to revisit the on-balance sheet, off-balance sheet flexibility conversation again. You know, I think you mentioned $2 billion came on from off-balance sheet in Q1. You know, how are you thinking about the deposit beta for those and, you know, just how did that fit into your broader deposit beta assumptions? Yeah. The deposit beta there will likely be, you know, higher, you know, than what we see from, you know, some of the rest of the deposits in the portfolio. Still, in total, fits into, and I think this is what's important, the overall, as we said, through the cycle, 60% deposit beta. These might be a bit higher. If you look at portfolio segmentation, for larger corporate clients, I think you end up seeing that. Again, in total, from a guidance perspective, fitting, you know, quite well inside of that, through the cycle 60% deposit beta. Okay, great. That's helpful. You know, are you able to talk about what percentage of deposits you guys hold are from later stage companies and, you know, and just how you think about the deposit behavior of those relative to other segments? Thanks. In total percentages, I don't have them sitting offhand. As we look at the overall, you know, I gave some metrics earlier of the migration we expect, interest-bearing to non-interest-bearing. You know, we think that with the forward curve, that could move from the 30%- 40% range. That considers also those later stage clients. At the same time, the deposit beta that we mentioned, that 60% deposit beta also takes into consideration those later stage clients. We think through the last tightening cycle, that we've got that incorporated in there. Very helpful. Thanks, everyone. Yep. Your next question comes from the line of Jon Arfstrom with RBC Capital Markets. Your line is open. Hey, thanks for squeezing me in. Yep. Just have a longer-term philosophical margin question for you. If Fed funds go back to the levels of what we saw in 2018 and 2019, so around 2.5%, any reason your margin can't go back to 2018 levels? Anything different that would prevent that from happening? Yeah. John, this is Dan. I think the structure of the portfolio is really different, you know, from 2018. The investment securities portfolio, obviously larger. You take a look, you know, at the level that we have from a cash, you know, balance perspective, that's different. The mix of capital call lending still much higher than where we were back in 2018. When you look at those factors, the terminal margin that you end up getting to, even if you had a comparable rate environment, is lower. Now, at the same time, with the size of the balance sheet, obviously, you can start to do the math on what that means from a net interest income perspective. While the margin's clearly lower, the opportunity to be able to drive sustainable core net interest income growth is much stronger than what we had during that last tightening cycle. Okay. Thank you very much. Yep. That is all the time we have for questions. I'll turn the call back to CEO Greg Becker for closing comments. Great. Thank you. Just want to thank everyone for joining us today. I know it's late in the day for the people on the East Coast, and the analysts have had a lot of different things to digest. So thank you for joining us. We're obviously very positive about the year ahead, even with the prospects of market volatility, and we've talked a lot about on the call today. You know, we do have strong momentum from all the growth we've experienced the last couple years and, you know, strong and meaningful pipeline and additional upside if there are future rate hikes that we talked a lot about, again, on the call. As we've said, we're continuing to invest in our strategic priorities, all about delivering on this kind of four-pillar platform, four business units all in service to our clients. To me, again, I continue to be extremely excited about that with the market even with the market volatility. As always, I want to thank our employees for all the incredible work that they do every single day. You know, for me, it's been a great quarter getting out and spending more time in the market as more offices open up and spending more time. I was in Israel. I've been spending time in New York and other markets. And just spending time with our teams of people has been so rewarding. Our offices are opened up now, and the energy and excitement as we gather people together for events and just team meetings and the excitement and energy that people have about being together is just great to see. Obviously, we want to thank our clients as well because that energy and that excitement is translating into spending time with our clients. All the incredible things that they're doing, you know, in every aspect of innovation is also incredibly exciting, and we certainly thank them for their business and working with us. The final thanks I wanna do is an important one. I wanna give a really huge shout-out to our retiring Chairman, Roger Dunbar. Roger Dunbar has been with SVB as a board member, as an advisor since 2000, as a board member since 2004. You think about that time frame, 2004 to 2022, and the last decade as chairman, you know, it's hard to think about other institutions, banks that have performed better over that period of time. Having Roger at the helm as chair for the last decade, you know, really appreciate his leadership. I know for me personally, his mentorship and friendship and, you know, just wish him the best in the next chapter of his life. Again, just so appreciate what he's done for us. Also welcome our new chair, Kay Matthews, who's stepping in, to the role, later today. Really want to thank Roger for his service and welcome, Kay to the new chair, role. With that, I want to thank everyone again, and everyone have a wonderful day. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.