Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the SVB Financial Group Q2 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 at that time, simply 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. It is now my pleasure to turn today's call over to Meghan O'Leary, Head of Investor Relations. Please go ahead. Thank you, Brent, and thank you everyone for joining us today. We're sorry to be a little bit delayed. We had some phone issues this afternoon. Our President and CEO, Greg Becker, and our CFO, Dan Beck, are here to talk about our second quarter 2022 financial results, and they'll 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. Thanks, Meghan. Thanks everyone for joining us today. Before we jump into questions, I just want to share a few thoughts about the market and how we're positioned to navigate it before we again open it up to everyone. Obviously, we've seen a lot of changes in the markets and sentiment regarding the economy in the last few months, and the innovation economy has been impacted even to a greater degree. We have unprecedented Fed tightening, record inflation, the persistence of COVID and geopolitical conflict have pressured public markets and increased economic uncertainty. We've all seen that. This environment has nearly closed the IPO market, meaningfully slowed the pace of PE and VC investment, and revalued private companies. Based on these facts, we've lowered our 2022 outlook to reflect these near-term challenges. The current environment, though challenging, is a normal and necessary part of the innovation cycle, and we've talked a lot about that with many of you over the last several years. What we're experiencing certainly doesn't change our view of our markets or our opportunity in any way. For us, it's really just a question of when, not if, our markets will recover. Now, we all know innovation drives economic growth. It's happening more and more every day, and digital adoption and activity in healthcare have all accelerated. Plus, PE and VC firms have record levels of dry powder to invest, and we believe they'll do so once valuations normalize. Our markets have recovered quickly in the past, and today our clients are better positioned than ever before to weather a downturn. Record VC investment over the last two years has strengthened clients' balance sheets in a way we've never seen. The innovation economy today is significantly larger than before. Again, comments I've made before many times. It's also important to note that we're stronger and better positioned than at any time in our history to support our clients as well. We have a high quality balance sheet with ample liquidity and strong capital. We have the right strategy and a powerful set of capabilities to meet our clients' needs at every stage. We have a great team, strongest in our history, and one that has experienced managing through multiple cycles. We've always stood apart from competitors for our commitment to partnership with our clients, our depth of knowledge, and our effectiveness as advisors. These qualities are important differentiators in today's environment, especially in today's environment. We've been here before and are better equipped to continue serving our clients and executing on our strategy. These are the times, although maybe not the most enjoyable times, when we develop the best relationships with our clients and really show who we are as an institution. Looking forward to answering your questions. With that, operator, please open up the lines. Thank you. At this time, I would like to remind everyone in order to ask a question, press star, followed by the number one on your telephone keypad. Your first question comes from Steven Alexopoulos with JPMorgan. Your line is open. Hi, everyone. Hey, Steve. I want to start, first on the deposit side for the high 20% deposit guidance, which basically looks like period-end balances remain pretty flat through the rest of the year. Do you think you can hold flat on an organic basis, or are you assuming at least for now that organically balances go down and you just move balances from the off-balance-sheet on-balance-sheet to fill the gap? Yeah, Steve, it's Greg. I'll start, and then I'm gonna turn it over to Dan to add a little more granular detail. Put it in context and some of this you know, but I'll just give you a little more detail. When you look at the last you know, four or five quarters, we've seen rapid growth in quarterly venture capital flows, and that's the biggest catalyst of deposits for us. It peaked out in Q3. We saw kind of flattening in Q4, a decline in Q1, and then a bigger decline in Q2. That's obviously one driver of deposits and flow. There's another factor, and we haven't spent as much time talking about, and that's cash burn. What's interesting is, you know, when companies raise a lot of money, the expectation is they're going to invest that money. We saw burn rates had accelerated for over the last 18 months, so six quarters, and it's actually continued to accelerate. Now the question is, well, with all the messaging out there from investors, why would that actually be happening? The answer is, we believe the following. It's the burn rate is a little bit of a lag. So you got, the investment came last year, the burn rate, increases, and now you start to slow down. But when you start to slow down burn rates, you have with the companies and you're hearing about this severance, you've got real estate, getting out of real estate and those sort of things. The burn rate actually is a little bit of a lag. This quarter was the highest cash burn quarter that we had seen. When you put those things together, that's what really created the decline and the softness in this quarter. Now to give you more color, a little more granular detail, plus the assumptions that we've made in our outlook, I'll turn it over to Dan to give you a little more of that detail. Yeah. Steve, you know, as Greg was talking about public markets effectively shut for the quarter. We had about $2 billion worth of inflow from the public markets. Just putting that into perspective, Q3 of 2021, that was $16 billion. We're off pretty significantly. You look at the private markets, we're down, you know, roughly 20% on a quarterly basis, and I think that's, you know, fairly consistent with what we're seeing with investments in venture. Those burn rates, as Greg talked about, you know, are certainly accelerated and up on a quarter-over-quarter basis. When I look at those factors on a go-forward basis, you know, we're for the guidance effectively looking at anywhere between $3 billion-$5 billion on a sequential quarter basis of the deposit decline, assuming that public markets effectively stay shut, assuming that we see sequential declines of 20% in Q3 of public market investment and as well as in Q4, and that effectively burn rates slow slightly but stay at elevated levels. We've tried to build a forecast that takes all of those elements into consideration. Now, if the public markets start to improve a bit, public market you know investment improves, you know, we could see upside relative to to what we have. To the extent public market investments slow, that could put additional pressure on the numbers. Just to add to that, Steve, on the private side, again, as Dan said, we've built in a continuation of a decline over the next few quarters. So that's one aspect, and we really haven't shown much of a change, maybe a little bit of a change in cash burn rate. So you've got those three variables, kind of giving you our assumptions. If you see improvement in any one of those three, you know, you could see some upside from our forecast. Conversely, if they're actually on the downside to any one of those three, you could see some softness as well. The last thing I'll say, Steve, is if I look at July deposit balances, we're effectively, you know, staying relatively flat to where we ended the second quarter. You know, seeing some consistency there on at least a, you know, early July results. Okay. That's good color on the deposit side. If I could ask now on the loan guidance, this is somewhat similar that it implies pretty flattish growth through the rest of the year, at least to where period end was. That's pretty consistent with what Signature Bank guided earlier in the week. They really dialed down their expectations for capital call growth in the second half. I'm curious if, you know, can you give more color on this? I get it why VCs would slow down capital call lending, but aren't VC, PE firms typically more active during periods of stress? Yeah. Steve, I'll start and then Mike will add. You know, the drivers of loan growth, you know, we expect to see actually the tech and life sciences, that actually is gonna be better than what we originally were forecasting. You're gonna see more slowness in the mortgages for the obvious reasons around rates. Then you really think about on the capital call, it's really about utilization rates. We do have growth built into it, but it's clearly we pulled that growth down. You're right on venture capital calls, that has slowed. PE is somewhat, I'll call cyclical. They still need to find companies that have recalibrated to lower valuations. That doesn't even though public markets are mark to market, private markets are not mark to market. It takes a little while for opportunities to kinda come to the conclusion or companies to come to the conclusion that the valuations have reset, and it may not come back. We're seeing a little bit of that softness. Now, again, if that changes and the stability of valuations start to balance out, you could see that pick up. There's one other factor in here that I would say that creates upside. We've had incredibly strong term sheets and new business sign-ups in the Global Fund Banking. I think, and Mike, correct me if I'm wrong, but last quarter was either the highest or second highest of new deals signed up or term sheets signed. That also creates opportunities. The final piece I would say when you think of capital calls, it's this. Not only is it about new relationships, but I would also say as our balance sheet has grown, our ability to take larger sizes of loans has also increased. That creates additional loan growth capacity. You know, the uncertainty of the market is kinda causing us to give the outlook that we have. But I would say certainly as the market plays out, there's definitely some upside that could be built in. Thank you. The final question. If we look at the $137 million of investment losses, which you detail on page seven. That decline's a bit more than we've seen in other periods, right? It's over 8%. Typically you're like 2%-3%. Can you walk us through the three buckets so we can understand that a bit better, which is really fund to fund, strategic and other investments, and then SVB Securities? And which of those held the public equities you're calling out? Thanks. Yeah, Steve. Just breaking those losses into the three buckets. We've got the public fund exposures, we've got, you know, valuation adjustments against the liquid private exposures, and then we've got a hedged equity investment that's included within those numbers. While the majority of the portfolio is made up of this private investment, there's a small portion of our warrant and investment portfolio that's made up of public exposures. During the quarter, we saw valuation declines in that bucket of close to $45 million, and that's, you know, effectively marked to market. That makes up about 20% of the losses. Probably more importantly, given our fund portfolios over time are somewhat correlated to the public markets, these are the illiquid privates. We took a downward valuation adjustment for the illiquid investments held in that investment and warrant portfolio. That reserve was close to $40 million. The losses on investments and warrants are effectively marked to market through the quarter. If we see, you know, the updates for valuations, we've effectively captured that with those adjustments in the quarter. Last but not least, that hedged equity investment, there's about $35 million worth of a loss included there. There's an offset to that in other income, so that's effectively flat. If you back out that $35 million, you're really looking at the losses on private illiquid and the public securities. Okay. Got it. Because Greg, you said there aren't that many down rounds yet. What you're saying, Dan, is you guys marked them down, not the public, your privates, anticipating that it will come down. Is that right? Yep. Based on, you know, our estimate of what was happening in the public market. Yeah We took a valuation adjustment. Now to the extent that public markets continue to decline, you could see further adjustments. We believe that we've effectively marked through those down rounds that could really trickle through in the next, you know, one or two quarters. That's. Maybe just to pile onto that last part, Steve, you know, the one advantage of it seeing the rapid decline in valuations in public tech stocks is you kind of hopefully get to that floor more quickly as opposed to kind of a bunch of quarters in a row. I think you've seen over the last, you know, week to couple weeks, there's more stability with the public tech stocks. At least from my standpoint, I believe, and I certainly hope we've kind of gotten down to the floor. No guarantees, but this is just a flavor for how we've approached the securities portfolio. Got it. Okay. Thanks for all the color. Yeah. Thanks, Steve. Your next question is from the line of Ebrahim Poonawala with Bank of America. Your line is open. Hey, good afternoon. Hey, Ebrahim. Hey, Greg. I'm just taking a step back, I guess, want to follow up on your comments on deposits and loan growth. One, like, what's the degree of visibility that you have? I mean, I appreciate the macro environment's really tough. Stocks could have had a bounce over the last two weeks, but as you pointed out, we could see a sell-off. I'm just wondering, the comment you made about deposits being flat month-over-month, should we take it as the likelihood of another downward revision on loan and deposit growth is a low probability event given how much you factored in in terms of downside risk? Would love to get a sense based on previous cycles, what you've seen and just how confident you feel about this guidance. Yeah. I mean, Ebrahim, I think as I described it, and I'm gonna ask again Dan to reinforce what he said. What we have built in is a, you know, few different factors, and then you have to kind of have your own point of view. Does that assumption make sense from your standpoint? What we built in the venture capital flows is that we believe that there's likely two additional quarters of decline that you're gonna see in venture capital dollars going in, right? That's what we build into it, and we think that is a reasonable assumption. The second part is on the cash burn. Again, this quarter was the highest quarter that we've seen, and almost 50%, or actually more than 50% higher from an average quarterly cash burn compared to 18 months ago. We believe that is going to kind of temper off, right? Kind of flatten out. We also believe that is a very realistic and reasonable assumption given everything we've heard, talked to our clients, you've read, we've all read about the views that venture capitalists have had about the market. When you put those two factors in together, that really creates the outlook. Now confidence level. The confidence level that you have that we're gonna hit that mark perfectly is I would say a little bit cloudy. Could you see it being higher or could you see it being lower? The answer is yeah, it's possible. We're giving you the kind of all the factors that build our outcome or build our forecast, and kind of what are the drivers that could drive it up, and what are the drivers that could drive it down. We certainly feel good about the assumptions that we put into our forecast. The only thing I'll add, Greg, is as we, you know, talk to others in the market and in our channel checks, it's not that this market has completely stopped. You know, good companies are certainly getting fundraising rounds, so we're seeing that play through. This is not a, you know, zero funding environment. We're showing another 20% of sequential decline in private venture investing in Q3 and Q4. That assumes that we're still seeing at least some deal flow, albeit at lower levels, and that seems pretty consistent with what we're hearing from others in the market. Again, a lot of it really just depends on cash burn, and will we see the burn rates slow down relative to all the conversations coming from our clients that they're trying to slow it down. That's where those confidence factors are gonna come in. On lending, you know, we expect to see order of magnitude, you know, $1.5 billion-$2 billion worth of lending growth a quarter, you know, in the loan guidance going forward. That doesn't mean that we're stopped in any way, shape, or form. Without question, we continue, as Mike said, to see substantial amounts of commitments and term sheets. And we're really waiting for that moment where you know, middle market private equity feels like it's time to put that money back to work. That's at least the color that we have around you know, the assumptions and how we're feeling about it. On that, Dan, the $1.5-$2 billion, how much of that is dependent on fund banking private equity? I ask because you had Blackstone on their earnings call talk about deal volume slowing down. I'm just wondering how much of that is fund banking driven growth that you expect versus everything else? Yeah. The majority of that growth is still coming out of the funds banking portfolio, but there's more contribution coming from technology and healthcare, because in the past, we were crowded out from an equity perspective in those deals, and we're seeing that at least pick up. But still, just because of the size of that portfolio, the majority of that growth is in fund banking. Yeah. Well, go ahead, Mike. You were gonna- Ebrahim it's, Michael Descheneaux. One thing to add and pile on to what Dan is saying. When we look at the pipelines for tech and healthcare, they are at the strongest levels in history. Greg already mentioned, and similarly on the Global Fund Banking, both in terms of term sheets issued and term sheets signed in the quarter was right up there with the first or second highest all time. It does take some time to close for them to draw down. This gets back to the macroeconomic backdrop that Greg was talking about. We've certainly been increasing the volumes and feel pretty good about where we are positioned. Got it. Just one last piece tied to visibility. You took a $20 million charge off tied to unreserved losses, I guess, this quarter. Just give us a perspective on credit in terms of visibility on losses as we look into the back half of the year. Is it still the early stage and growth portfolios where we should expect the losses? Hi, Ebrahim. It's Marc Cadieux here. In a word, yes. What we saw, what the unreserved charge-offs effectively reflect, is a sort of speedier deterioration that I think was a function of the abrupt change in investor-dependent clients' access to capital, or failing that, M&A. If you were a company, you know, low on liquidity or trying to get sold in the second quarter and perhaps had already availed yourself of investor support previously, relative to a year ago, that same company still would have had more options to get out for enough to repay us. That was different in the second quarter. The second answer to your question, I think, goes to the back half of this year. I think as we've already touched on, there's a high level of uncertainty. As mentioned already, right, the unreserved charge-offs are a sign, but, you know, the very beginning of a sign and still at $20 million, I think you would acknowledge charge-offs still remain pretty low. The number of individual charge-offs, pretty low. Thinking about the back half of the year, it really depends on whether this environment we're in in the second quarter persists, or it doesn't. I think playing into that as well will be the higher average liquidity that a lot of these companies have. So we'll see what happens. Again, it's hard to predict, but I think it will largely be a function of, again, access to capital, M&A, and if those remain diminished, then we could see some degree of higher investor-dependent charge-offs in the back half of the year. Got it. Thanks for taking my questions. Yep. Your next question is from the line of Manan Gosalia with Morgan Stanley. Your line is open. Hey. Good afternoon. Appreciate all the comments on the environment and the burn rates at portfolio companies and that they've accelerated. I guess how much runway do you think they have before they have to raise money or they have to look at M&A opportunities? You know, I appreciate that would vary by company, but I just wanted to get a general sense of how much deposit balances could decline before they really have to go out there and raise money. It's Greg. I'll start, and Marc wants to add. You answered part of your question, which is it's so company dependent. The very good news, again, we've talked about this on previous earnings calls, companies are more flush with cash than they've ever been in history by a wide margin, and that from my standpoint protects two things. It protects the overall liquidity total client funds from the standpoint that they can slow the burn and, you know, money is still gonna flow in, and it helps protect credit quality as well. I think it's important, you know, we go back and Dan and I spent a lot of time talking about the mix, you know, the balance of new money coming in and burn rate. I think it is just so important to understand what we talked about, because my view is yes, you could see what we have in our outlook, which is a 20% decline in venture capital the next two quarters. There is, we talked about it, a lot of dry powder. There is so much money out there with new funds being closed. While they may wait a little bit and be patient, again, what I said, the good news is that valuations publicly, and now we're starting to see it privately, have corrected. When there's so many good companies out there that money will continue to be deployed from my standpoint out of a healthy clip. They're flush with cash, you know, not worried about my view, not worried about it from a credit perspective relative to what we've seen in the past when companies are a lot lower on cash balances on average. It's Marc Cadieux. I'll just add to that a historical point of reference. Thinking about 2015, 2016, right? We started to see some pressure build in the back half of 2015 and the front part of 2016, first two quarters is where we had that elevated level of early-stage investor-dependent charge-offs. Yeah, back half of the year, spring sprung, and it was all off to the races again. If we saw that same experience today, I think the higher average liquidity these companies have might get them, more of them through a patch that short. If it's longer, then yeah, more companies will be under pressure. All other things being equal, I think that a higher average level of liquidity is a really good potential mitigating factor to what we're seeing now, particularly if it is not terribly long-lived. That's great, Marc Cadieux. Thanks. Just separately, you talk about proactive interest rate risk management in the deck. You know, you're now focused on protecting against rates moving lower. Any more detail on that and how much more you want to do in the coming quarters? Because clearly that's going to reduce some of the upside from the additional 200 basis points or so rate hikes that we have in the forward curve. Yeah, this is Dan. I think, you know, we're still well-positioned to the upside for higher rates. At the same time, what we can start to do is look at dampening the asset sensitivity. We've done this before back in 2017-2018 time frame to below 10% for 100 basis points parallel shock. We'll do that progressively, paying attention to what's in the forward curve, so that we can manage that further. Right now, we're sitting at 6.8% asset sensitivity to down rates, and we think we still have a couple percentage points to go. We'll do that through some receive-fixed swaps and continuing to embed floors in our lending agreement. That should help protect to the downside. Great. Thank you. Yep. Your next question is from the line of Casey Haire with Jefferies. Your line is open. Yeah, thanks. Good evening, everyone. Question on the NII guide and what you guys are assuming for funding going forward, because if I'm understanding you correctly, you do expect some loan growth, expect deposits down. I know you have the bond book cash flowing $2-$3 billion a quarter, but is that enough to match, you know, to fund the loan growth and the deposit outflows? Yes. Casey, it's Dan. We talk about it in the investor presentation. There's roughly $3 billion worth of cash flow coming off of the investment securities portfolio quarter. That provides the solid foundation just to start. You know, on top of that, you know, we have and we've had some short-term wholesale borrowings at least outstanding, and that helps us at least manage periodic cash flow. You know, as we have talked about in the past, we have opportunities to drive deposits from off the balance sheet to on the balance sheet to effectively shore up liquidity flows. Those are some of the options that we have to continue to manage the cash flow. Those options are all considered in the NII guide that we have. Okay. Very good. Marc, question for you. Slide 28 gives pretty good color as to what the downside scenario that Moody's lays out that you guys have weighted 65%. It speaks to like broader macro, like peak unemployment of 7.9% and GDP shrinkage of 2.2%. Like, that's great for a garden variety regional. You guys obviously are a little bit different. What does that mean for the tech and innovation markets? Are there any indicators that you could point to? That way we have a better understanding of, you know, how things change, how conservative or aggressive your reserve policy has been thus far. Yeah. It's Marc. What I would say here is that, broadly speaking, our portfolio, putting aside the investor dependent, and particularly companies that aren't going to have to sell a product or service to customers for some number of years, the rest of the portfolio, generally speaking, would be impacted to varying degrees in differing segments by a recession. I think that's the first thing. I think by extension there is some sensitivity in unemployment. There are some of our segments of the portfolio that are consumer-facing, depend on consumer spending, could see stress there. I'm gonna stop and make sure I'm answering the question you're asking. Yeah, no, that's great. That's great. I know it's not easy to address. You want to- Casey, it's Dan. I think another way to look at it is, you know, in the more risky segments, what do we have reserved relative to kind of the highest stress life cycle losses? You know, we talked about this at the onset of COVID. You know, our highest loss rates in the early stage investor dependent portfolio through the cycle are around 6%. Well, you've seen us with this change in the Moody's economic scenario get very close to a reserve rate on that book of 5%. Kind of seeing where that's heading from a reserve on our riskiest segment. Hopefully that helps a little bit in trying to, you know, point out how covered we are for a more negative scenario. Gotcha. Last one from me, just on the capital front. Obviously not a lot of balance sheet growth upcoming. Wondering if share buybacks are being considered, you know, with capital ratios climbing, you know, with the balance sheet kind of running in place in the next little bit. Yeah, Casey, you know, we're always open, you know, obviously to capital actions. We'll see how the next couple of quarters play out. You know, you folks have seen this in our business. We've been here before. Once we get to a spot where valuation folks are comfortable with that, and that amount of dry powder that's out there comes off the sidelines, growth returns pretty rapidly. We gotta be ready for that. But obviously if this plays out, you know, over the next couple of quarters, we'll consider all of our options from a capital perspective. Great. Thank you. Your next question is from the line of Jared Shaw with Wells Fargo Securities. Your line is open. Hey, good afternoon. Hey, Jared. You know, just looking at deposit betas, you know, I see, you know, you're clearly calling out, you know, the 55-60% beta through the cycle. I mean, this quarter, we got up pretty quickly to 46%, it looks like. How should we be thinking about additional beta growth from here? Is it, you know, are we gonna get there basically next quarter, or this was the initial jump up and now you think you can moderate that growth? Yeah, Jared, I think if we look at it this quarter, the through June 30 beta is right around 41 basis points. You know, we're still, you know, really projecting that 60 basis points throughout the cycle, and we think, you know, that off-balance-sheet to on-balance-sheet flow that we did see this quarter is going to moderate a bit in our forecast for the remainder of the year. So those are some higher priced deposits that increase the beta more significantly within the quarter. So we think that we're still within that 60 basis points beta through the cycle range. But obviously market conditions, you know, will dictate that. Most importantly, retaining our clients' deposits, you know, and paying a market rate to them for their deposits, you know, is important to us. Okay. Thanks. You know, looking at the growth, loan growth outlook, how should we be thinking about spread compression, from here? You know, obviously it's a competitive market. Should that continue to be accelerating? If you're talking in terms of loan beta, I think right now we're around 70%. As we get through some of the floors, you can start to see us be around 80% or 90% there as we go forward. We feel pretty good here right now. Again, as we go back to the pipelines are full and it is still competitive out there. Again, I think we're in a pretty good position on loan beta. Yeah, I guess I'm thinking about, in addition, you know, future loan growth with the new pricing and the spreads on new pricing. Is that continuing to see compression? Yeah. Go ahead. Jared, it's Dan. I think, you know, as we look at loan growth for the rest of the year, we've factored in, kind of where those new origination spreads are. There's a little bit of compression on it, but that's all factored into our net interest income guide. I think you're still, you know, in that 80% beta range, you know, just based on what we're seeing in the market. Okay, great. Thank you. Yep. Your next question is from the line of John Pancari with Evercore ISI. Your line is open. Good afternoon. Hey, John. On the charge-off expectation and your expectation you could see, you know, rising charge-offs in the incoming quarters. Also, I guess for the increase we saw for the second quarter. I guess as you look at it by portfolio, can you maybe help clarify where you see that pressure perhaps for the second quarter and then for the outlook? I know you had mentioned a little bit in Ebrahim's question, but specifically the innovation portfolio versus the growth stage and early stage. Would you say the loss concentration would be greatest from what your expectations considering? Thanks. Yeah, it's Marc. Generally speaking, I would say history is most instructive here. To the extent we were to have a prolonged downturn of any severity, generally early stage investor dependent charge-offs is where we have historically seen the highest losses and would just make the related point here that that particular portfolio segment has come down quite dramatically as a percentage of total loans to roughly 2% now. Then we would expect to see probably you know fewer but potentially larger charge-offs in mid and later stage investor dependent. Then after that, it's really a you know a function. I wouldn't expect to see higher losses, but again, I'm gonna stop there because the uncertainty is high and want to resist the urge to try to predict the future here. Got it. The areas of the highest loss content would amount to about 8% of your portfolio if you look at the growth in the early stage piece, correct? Correct. If you were to go back to slide referenced earlier, 28, you see the breakdown of the allowance for credit loss by that segment. As Dan alluded to earlier, early stage investor dependent almost up to the 2008, 2010 levels at 4.93% for that segment. John, as you think about it, I mean, the early stage investor dependent is only about 2% of the total loan portfolio. That's what we're referring to as the highest loss rates historically. Right. Yeah. No, got it. Got it. Thanks, Mike. Within the private bank portfolio, getting some questions just regarding credit exposure there, given stock-based compensation and everything. Maybe can you just talk about how you're viewing potential frequency and severity out of that book? I'd say, it's Marc again, and reflective of the reserve we have on private bank, we continue to expect a pretty strong credit quality there. It is by and large a mortgage portfolio. To your point, there may be some diminished income, but at the same time, these tend to be fairly wealthy clients, gainfully employed, and most importantly, very well margined mortgages from a loan-to-value standpoint. That being the bulk of our portfolio, feel pretty confident about that. There are certainly other segments there too, but not seeing anything in the second quarter that's giving us cause for concern at this time. Got it. Okay, thanks Marc. On the core fee income, the guidance increasing that to the mid-50s, maybe could you unpack that for us in terms of the drivers? You know, how does that break out by your core fee businesses in terms of your growth expectation? Yeah, John, it's Dan. I'll start. First and foremost, when we look at, you know, new client activity, we continue to see really strong new client acquisition. That's kind of the foundation for continued transaction activity. When we look at, you know, the drivers for the increase in guidance, the vast majority of that is coming from client fund fee income. Very quickly we've gone from eight basis points to very close to 17 basis points on the off-balance sheet client funds. Now, with every additional 25 basis points, we'll see another one to two basis points worth of spread. That is not incorporated in the guidance forecast. You're just seeing what has already transpired with Fed funds at 175 and the balances in the portfolio as it is. There's upside from there, should we get additional rate hikes. Okay, great. All right. Thanks for taking my question. Yep. Thanks, John. Your next question comes from the line of Chris McGratty with KBW. Your line is open. Great, thanks. Dan or Greg, on the off-balance sheet trends, can you remind me what you moved on this quarter? Within your forecast for the updated deposit growth, what are your assumptions, I guess, for total client funds? Like I'm trying to gauge the size of the off-balance sheet. Chris, it's Dan. When we look at you know, total funds from off to on the balance sheet, it gets a little bit complicated because we also had funds flowing generally from our Global Fund Banking clients off the balance sheet for higher rates. When we look at it order of magnitude, we saw something close to $10 billion of funds move from off the balance sheet to on the balance sheet within the quarter. We've tempered that expectation in the third and the fourth quarter. That effectively is there and stands ready to the extent that you know, from a pricing perspective, it makes sense for us to bring more of those funds onto the balance sheet. Okay, great. Maybe my follow-up would be, you guys moved your bond portfolio to held-to-maturity a lot sooner than others and protected book. Can you walk me through a scenario where you would have to or be allowed to reverse that? And if so, I assume there'd be a mark on that. Yeah, Chris, we have no expectation or intention of doing that. If we take a look just at the overall liquidity of the balance sheet, we're in a really solid position, so no intention to do it. Okay. Thank you. Your next question comes from the line of Vilas Abraham with UBS. Your line is open. Hey, everyone. Thanks for all the market color on the call today. It is very helpful. You know, I hear you on the abundance of dry powder that's out there. Can you discuss what you're hearing from LPs that have committed this capital, but, you know, much of it is presumably still in their bank accounts. Are they getting uncomfortable at all, particularly as private market exposures in their portfolio may actually be moving up as the public side gets marked down? Just, you know, how are they thinking about things right now? Yeah. This is Greg. I'll start. I know Mike has spent even more time with limited partners recently and will give you even more real-time color about what he's hearing. You know, from my standpoint, I'm not hearing or seeing any concern about the balance, you know, where they're at, their balances. Clearly, they're having write-downs for the markets that the dollars they have out right now. But they still look at the returns they have made over time in private equity and venture capital, and it's at the top of the, you know, return food chain over time. That's number one. Number two, a lot of firms looked at who didn't have money in the market back in, you know, 2008, 2009, 2010 because they were concerned that the market turned down and it was a bad investment and they missed out on that incredible trajectory over the last, you know, decade. We're seeing an interest for people that haven't been in the market to say, "Wow, what a great time to come back in right now." Now, what they are saying. That's part of it. Second part of it is, if your underlying question has any part around worried about defaults from limited partners, the answer is there is zero. We haven't seen any. We don't expect any. We didn't see any in the last cycle. Not worried about that. What they are saying is, "Wow, you raised a lot of funds very quickly, and, you know, can you slow down the pace somewhat for new formations?" The answer is, yeah, firms are doing that, not surprisingly. But as far as limited partners go, my view is they're very optimistic about the innovation economy much as we are. Mike, what would you add? Yeah, just maybe a few things to add. I mean, what you saw here coming out recently, the data shows $3.62 trillion of dry powder at the end of June 30. There's a significant amount, a lot of interest in certainly deploying in the areas. The one thing to keep in mind, though, in terms of public valuations is the so-called denominator effect. You do have some endowments and pensions that are saying, "Look, I'm a little bit more overweighted in the private sector because the public market valuations have come down." There is some anecdotal commentary about, "Hey, let maybe slow down a little bit, but my interest has not waned." It's just a little bit of buying time. Clearly, with the economic backdrop, some of the states, in terms of tax dollars, could be coming down, so they maybe need these savings dollars for the other areas. Again, strong demand, strong interest, and during these cycles, they tend to create great companies. I don't see that slowing down. It's just maybe, as Greg said, a little bit slow down the pace just a bit. Again, still tremendous opportunities for them going forward. Okay. Got it. That's very helpful. Just back to the tech and life sciences portfolio. You know, it sounds like you guys are looking at that as an opportunity here as equity capital access gets a little bit more, you know, challenging for some of these companies. You know, can you talk though about just the underwriting box from here on out? Has that changed at all from a couple of quarters ago as the environment changes, as you put out those term sheets? It's Marc. I'll start. Mike may wish to add. Historically speaking, we try very, very hard to be the consistent, predictable, dependable provider of services to our clients at every point in the cycle, no matter where we are. We are very much interested in the loan demand we're seeing. At the same time, as you might expect, we are being thoughtful, you know, about which new clients we take on or new deals we originate. Obviously, that would differ from sector to sector, segment to segment. But that's, again, nothing new. We strive to be consistent, but we will, of course, be thoughtful when the environment changes around us as to how far and to what degree to lean in, you know, given opportunities. That is a practice that has served us well for a long, long time. Michael Descheneaux, what would you add? Yeah, there's a few different things we're watching. I mean, when you think of the backdrop, what are some of the things that are going on in the econ? Inflation. How does a company handle increases in pricing? Do they have pricing power? Some things we're watching for. Increase in interest rates. Can they at least absorb some of the interest rate increases? Those are things that we're looking on. To Marc's point, I think it's a great opportunity for us to lean in and help our clients, particularly some of the good clients, having those discussions with the VCs about which ones they're gonna lean on and making sure we're there to continue for the support. Great. That's all I had. Thank you, guys. Thanks. Thanks. Your next question comes from the line of Andrew Liesch with Piper Sandler. Your line is open. All right. Thanks for taking the question. Just a question on the expense guide from here. Backing up the margin chart, it looks like it's a pretty big ramp in expenses in the second half of the year. I'm just curious, where are these investments going and how do we get to that expense guide? Yeah, it's Greg. You know, we still obviously have a lot of initiatives that we're investing in. You can look at it from the standpoint of digital investment. We're still adding headcount to support growth, infrastructure build. There's a lot of things. In fact, actually what's happening is we're, excuse me, lowering the trajectory. From that standpoint, we're looking at professional services, we're looking at open recs and pulling back on that. I'll get Dan to give you a little more color. If you look at the expense trajectory, you know, first and foremost in the quarter, considering the pullback of our expectations for the year, we did have some, you know, overall, reductions in expenses around incentive compensation and the like. When we really look at run rate for expenses, we were a little bit lower in this quarter just because of the reduction in that area. When I look at the expense run rate for Q3, we're probably in the $950-$970 range, just to put a little bit of color around it. We're clearly focused, you know, on investment management and expense management. We absolutely know that we need to invest to take advantage of the opportunity in front of us. When revenue and balance sheet was growing with rate opportunities at a much higher pace, we clearly hit the accelerator on investments. Now we have the opportunity to be able to dial some of that back, you know, through, you know, through professional services, consultants and the like. Just really turning the dial on that are ways for us to be able to temper some of those investments in a slower period. Again, we must continue to invest, though, because we see this opportunity in front of us. Understood. Thanks for taking the question. You've covered everything else. Thanks. Your next question is from the line of David Smith with Autonomous. Your line is open. Hi. You spoke earlier about how the balance sheet having grown means that you can take on larger sizes of loans. Does that mean you can go above the mid-market in Global Fund Banking, you could potentially go above the mid-market fund space that you've historically focused on? This is Greg. I'll start. There's always interesting definitions of mid-market. I think you have to start there. I would say when you look at when we've done our analysis, we can go up by, you know, compared to a year ago or two years ago, you're looking at more than 50% growth in capacity from where we were, and selectively even higher than that for the highest quality firms. You combine that with our ability to syndicate. You have to look at those two things together, and our syndication capability gives us even more headroom. We can support very large PE firms. Now, when you get to a certain size, it becomes, I would argue, so large, and the returns aren't there. Actually, I think we've got lots of headroom to grow, and we can go, again, to very large firms. Mike, what would you add to anything? I think the benefit of the increase that we mentioned here it allows us to continue to grow with certain funds as they become larger and they bring on more funds, even larger size funds and new strategies. I think that's going to be very helpful for us going forward. Great. Then, you know, broadly, it's been a tough period for the innovation economy. Are there any bright spots within that you would highlight, or has it been pretty uniform in terms of the weakness from an investment and valuation front in your view? I'm glad you asked a positive question. There are a lot, I mean, there are so many bright spots when you go out there and you spend time with clients. That has always been the best part of what we get to do. What's so amazing it is across the board. You can look at, there are so many things in AgTech, there are so many things in the broad energy and clean tech that's getting so much excitement. Much in healthcare, broadly speaking, in healthcare services, in biotechnology, in digital health. It is literally in every area. When you hear us talk about the reason we're optimistic about the medium and long term of the innovation economy, it's we get to spend time on the ground with these companies and watching them grow at such an incredible pace. You know, to your question, is there one area, is there one segment that stands out above the other ones? The answer is not really. They're all doing amazing things. I actually believe like a lot of times when you have a, you know, a recalibration where we are right now, companies end up being better in the end. Because when you have money that is free the way it was the last couple of years, you're just not as disciplined. I think companies are going to get back on the right track, and really make the right decisions for the long term. As much as you'd like to say, nobody wants a correction, a recalibration. I think it's actually going to be healthy in the long run. Got it. Thank you. Yep. There are no further questions at this time. I will now turn the call back over to Mr. Greg Becker. Great. Thank you. Just want to thank everyone for joining us. Obviously, we spent a lot of time talking about the market. The market, volatile, has a lot going on. You know, it's a great way to close with the last question, which is the view of why we view where we are and where we sit and what do we get to do every day as being so optimistic and positive. Clearly, we've taken our outlook down, given the uncertainty that we have, and we talked a lot about liquidity and client flows, and I think we've given you a lot of context behind that so that you can look and look where we're headed and where we assume we're going to end up the balance of this year and into next year. There's also so many positives that have gone on the last few quarters, such as the core fee income growth, the new client acquisition, and having this strong loan pipeline. The team enhancements across all four businesses and even the support and infrastructure that, again, we look around the table and just feel really, really good about what's being built. You look at it with the four businesses and SVB Securities and SVB Private and all those businesses working together. Right now is the time, right now is the time when they want advice. Our ability to sit in front of the most amazing companies right now and get their attention and have them work with us to come up with solutions has never been stronger. There is definitely an optimistic tone despite the challenges that may be in front of us. Huge thanks to our team. They're the ones that have to do the heavy lifting every single day, and they get also the positive side of working with our great clients. Appreciate our clients for their support of us and working with us, and we look forward to working with them through this market. Thanks to everyone for joining us. Have a wonderful day. Thank you. Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.