Please stand by. We're about to begin. Good afternoon, ladies and gentlemen. Welcome to SVB Financial Group's Q3 2022 earnings conference call. At this time, all participants are in a listen only mode. Please be advised that this call is being recorded. After the speakers prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star one again. Now at this time, I'll turn things over to Miss Meghan O'Leary, head of investor relations. Please go ahead, ma'am. Thank you, Bo, and thank you everyone for joining us today. Our president and CEO, Greg Becker, and our CFO, Daniel Beck, are here to talk about our third quarter 2022 financial results, and we'll be joined by other members of our management team for the Q&A. Our current earnings release, 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 this 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 Greg Becker. Great. Thanks, Meghan. Before we go into questions, I just want to comment briefly on both our business and the market, kind of the environment we're all dealing with just briefly. Let me start with the business. We continue to see strength and momentum in our underlying business, and I think it's really important to highlight, given all the other factors that are going on. We got global fund banking term sheets near record highs, new client acquisition at all-time highs, strong credit quality, record core fee income, and investments in our four core businesses are driving better and deeper client relationships, and really allowing us to give good advice to our clients as they weather this economic uncertainty. We've had great client feedback from the rollout of our digital banking platform, SVB Go, and we hit some international milestones. The UK subsidiarization and opening up our Stockholm office, that's going to help fuel our long-term growth. These are just a few of the many good things happening at SVB. Clearly at the same time, the markets are undeniably challenging. Market volatility rising from a number of global issues has reduced private and public investment in the innovation economy. This investment reduction, combined with elevated cash burn, is clearly pressuring deposit flow. This economic uncertainty is making it very difficult to predict when the balance of investment and lower cash burn will normalize. We firmly believe the global innovation economy is the best market. It will get back on track, and our core business platform is well positioned to capitalize on its return. In the meantime, we're well equipped to manage these conditions with a strong liquid balance sheet with healthy levels of capital, recession-tested management, a resilient client base. It's important to note that we remain steadfast in our focus on our strategy and laying the foundation for our long-term growth. With that, turn it over to the operator to open up the line for questions. Thanks. Thank you, Mr. Becker. Again, ladies and gentlemen, any questions at this time, simply press star one. Take our first question this afternoon from Steven Alexopoulos at JPMorgan. Hey, good morning, everyone. Or good afternoon. Hey, Steve. Actually. Sorry, I wanted to start with a big picture question. Asset sensitivity has declined, but you're still asset sensitive, and we have rates basically moving up across the entire curve, which would suggest you should see some benefit potentially to NIM, but definitely to NII. In the slides, you're guiding to both NII and NIM have now peaked. Mm-hmm. Can you just explain for us what's happening in the real world that your asset sensitive model is not capturing? Because the guidance almost looks like you're a liability sensitive bank here. Yeah. Steve, it's Dan. If you think about what's happening, we continue to have asset sensitivity on the static balance sheet, but we continue to shift from non-interest-bearing to interest-bearing and use of off-balance-sheet client funds on the balance sheet driving interest-bearing to have higher levels of interest costs from an end-of-quarter perspective. While we are still getting some benefit from a net interest income sensitivity perspective, that shift in mix to higher levels of interest-bearing in this environment while we're seeing higher cash burn and slower deployment in the venture space is driving weaker net interest income on a quarter-to-quarter basis. Okay. Dan, if we stay with that line, the chart on slide nine shows inflows and outflows, which was pretty helpful. Are the outflows now at 2x historical rates simply because more capital was raised during QE that's now getting spent or something else going on there? What level of VC spend do you need to see this stabilize? Yes, Steve. It's Greg. Let me take that. You know, it clearly is a function, the first part of the money that was raised last year, right? When you think about it, the reason that you didn't see an immediate jump in, you know, all the way to max cash burn is it does take a while once you've raised, you know, all the funds they raised last year to kind of hire the people to start spending the money. There'll be a lag the other way when, as well. That's probably one of the things in the last quarter that we didn't fully appreciate that there would be a lag there. It's hard to answer your question because, you know, you have to look at both of those variables. You have to look at the variable of dollars going in, inflow, but it's both public and private. Then you have to look at the cash burn. As we think about that, you know, this quarter was basically going back to the early part of 2020 from a level perspective. If you go back and look at that. It'll take a little while to get back to that same level of cash burn. We certainly think that cash burn will continue to drop, but it may take two, three, four quarters to kind of get back to a similar level to the way it was last year. I think it's important to note that roughly we're capturing the same amount of venture capital that we have in the past, which is roughly 50%. You can go back and look at the analysis and say, over the last several years on average, when venture capital gets invested in a quarter, we capture roughly half of that, and that was still true, this quarter. It's really almost more of a function of the cash burn than it is the level. My view, I think we're gonna start to see kind of this bouncing around at this level of venture capital where it's at probably at this level for the next several quarters. What we really need to see is an improvement in cash burn. We expect it, but to be honest, that crystal ball is a little bit cloudy exactly when it will happen and to what degree. Yeah. The last thing to say, Steve, is that the chart that you're looking at in the earnings deck is on total client funds. The other thing that we have an opportunity for is to continue to direct both from off the balance sheet to on, as well as for net new money that's being deployed more towards the balance sheet to offset higher levels of cash burn. Just something else to take into consideration. Yes, that ends up costing a bit more from a liquidity perspective, but when you're growing lending that's you know exiting the quarter close to 5% from an all-in yield perspective, that's still accretive. Okay. Thanks. Just final question. On the fourth quarter deposit guide, the $168 billion-$172 billion, what VC investment level are you assuming to get into that range? And what's the assumed mix of interest-bearing, non-interest-bearing? Thanks. Steve, again, you know, what we think about for deposits is, you know, two things, macro venture deployment and client cash burn. In this quarter, we saw total cash or client venture deployment 40% lower than Q2. If we're taking a look at our expectations to get to the higher end of the range, we would assume that w e have a venture funding environment similar to Q3 with a continuation of higher levels of cash burn and continued success in bringing deposits from off our balance sheet to on. The lower end of that range assumes an even lower deployment environment, take another 20% down from there, continuation of higher levels of cash burn and less success of bringing those off balance sheet funds to on the balance sheet. In terms of, you know, non-interest bearing to interest bearing, we're probably exiting the year, you know, in that 45%-50% range. Got you. Okay. Thanks for taking my questions. Yep. Thanks, Steve. Thank you. We go next now to Ebrahim Poonawala of Bank of America. Hey, good afternoon. Hey, Ebrahim. I guess, just following up on this, cash burn, dynamic. If we assume that VC investment pace doesn't change from I think as you pointed out, Greg, this is still the best year ex 2021. Let's say this is the new normal for the next seven quarters or years. Do you have any visibility when that cash burn actually meaningfully slows down where you stop seeing outflows in deposits as a result? And secondly, is it fair for us to assume that unless we see a big shift in VC investments, the mix shift will worsen in terms of non-interest bearing to total? And we could see NII decline sequentially for the next few quarters? Thank you. Yeah. Ebrahim, let me answer the first part of the question, then Dan can take the second one. You know, the visibility into the cash burn is a function of kind of what we see on a day-to-day basis, and then we extrapolate that out. You know, what we saw is a slight decline in the third quarter, roughly 7%-8%. It's again not a precise math. You know, what I would expect to see, it'd be logical to see, I should say, is a similar decline over the next few quarters on a quarterly basis. Your question is if you keep it steady, keep it flat, the level of investment, when would we start to see kind of, I'll call it flattening? You're probably looking at about three quarters out, before you kind of get to that break even from a flow perspective. I haven't done the back-of-the-envelope math, but I would say it's probably generally in that area. That's what we track. But what are the other kind of communications and engagement that we have with clients and venture capitalists to kind of get a sense on that? Here's how I would think about that. If you go back six months ago, the sentiment was definitely of concern. Three months ago, it was of greater concern. Now if you've spent time and talked to venture capitalists, and we just had a global CFO summit for VC and PE, the sentiment's gotten worse. The message that they're communicating are, you know, "Cut your burn now, it's serious. Even if you've got a lot of cash, we'll see how long this lasts and be more defensive." That dialogue would imply that you should see cash burn continue to come down. I just would say we were a little bit surprised, and maybe I was, that it didn't come down even more quickly last quarter, which is why, again, it's just a little bit difficult to predict. To follow on to the question in terms of NII and net interest margin dynamic. Depending on how much of new money we can capture onto the balance sheet which is, you know, generally cheaper, we may have to continue to replace dollars that are rolling off in deposits with off-balance sheet solutions which are higher cost for sure. If I think of, you know, the overall deposit beta associated with those accounts, those are, you know, in the, you know, a much higher range than what's sitting on the balance sheet with the rest of, you know, with the rest of the deposits. At the same time, to the extent that we continue to see good, strong lending, you know, we're picking up close to 90% on commercial bank lending of the beta from higher rates. That could be some offset. Generally speaking, I'd continue to see some pressure on net interest margin and net interest income as we head into 2023 until cash burn and overall deployment start to rebalance. Just tied to the liquidity. You have a ton of excess liquidity off balance sheet and ability to borrow. Is there any scenario where you see liquidating some part of the securities book to provide funding and just kind of restructuring the balance sheet to meet as opposed to bringing on higher cost deposit funding on? Yeah. I mean, I think the way to think about it is, as you mentioned, the balance sheet's really flexible. We have been using, and talked about it earlier, off-balance sheet deposits and wholesale funding effectively supported by the securities book to bridge. I think this is really important this period of time that we're out of balance between cash burn and the amount that's being deployed into the market. You know, first and foremost, the good news is that the securities portfolio is constantly paying down. So we're roughly seeing about $3 billion a quarter, even as interest rates increase to meet those funding needs. Additionally, as the burn and funding comes into balance, that's gonna open up opportunities. You know, we've talked about this before where we're going to be able to drive more expensive funding off the balance sheet to reduce wholesale funding, and that'll provide opportunities to reduce the overall cost of funding. You know, with all of that, we've got a lot of flexibility with the portfolio. At the same time, we're always considering ways to optimize the balance sheet. We've got a considerable available-for-sale portfolio, and we've demonstrated that we've been opportunistic with sales like that in the past. Got it. Thanks. I'll let you go. Thank you. We go next now to John Pancari at Evercore. Good afternoon. Hey, John. Just back to the cash flows coming off the bond book. Dan, I know you mentioned you just said the $3 billion per quarter in pay downs. Is that the total cash flows coming off the bond book per quarter or is there maturities that add to that? Yeah, that's the regular maturity. As we go on in time, we'll start to see some of the bullet maturities come down from a Treasury perspective. But the regular principal pay downs in the portfolio, at least you know, over the next four quarters are in that $3 billion range. Again, as we get out into later duration with some of the Treasury portfolios, you'll start to see some of those bullet maturities come through. Okay. That $3 billion, that is on a fully extended basis? I mean, considering where rates are now and the mortgage portfolios, we think we have the vast majority of the extension in there. Okay. If you could just remind us again, you know, I know market rates, but if you could be more specific at what rates you're bringing on the off-balance sheet deposits. Like for example, this quarter what rate were they brought on? Yeah. As a reminder, those off-balance sheet deposits that we're bringing on, they generally sit in money fund accounts. They're getting effectively money market rates. In order for us to effectively you know drive you know the product that allows for us to you know have those deposits both on or off the balance sheet, we have to pay a bit of a spread to that. We're paying in the, let's call it, you know high twos range associated with that. They do have higher beta obviously than the rest of the organic you know deposits that are sitting naturally on the balance sheet. Okay. Got it. Again, of the $91 billion of the off-balance sheet funds, again, how much of that is eligible to be brought back on? Yeah. We'd say it's you know roughly half. A lot of it is obviously client appetite and we always obviously do the right thing from a client perspective and how we're paying from a rate perspective. You know we we'd say it's roughly half from an availability perspective. Okay. The last thing for me, just in terms of you mentioned the optionality and available-for-sale portfolio, the held-to-maturity portfolio. Just Are you still of the thinking that there's no intent to restructure that portfolio in any way? There is no intent to restructure the held-to-maturity portfolio. Okay. All right. That's it for me. Thanks. Thank you. We go next now to Casey Haire at Jefferies. Thanks. Good evening, guys. Wanted to touch on the borrowings, $10 billion last quarter and another $10 billion early in this quarter. Just what is the, you know, what kind of term and what kind of rate are you guys paying on the borrowings at. Yeah. Casey, it's Dan. We've got a mix going on right now of short-term borrowings in the 3% range. We've termed some of that out to less than a year maturity. Some of that's in the high 3s, low 4% range. Okay. That all that $20 billion, the $10 billion in 3Q and $10 billion in October and the $10 billion in the second quarter? In terms of balances at the end of the quarter, I believe we're sitting at $13 billion, something along those lines. Of that, we're sitting with, you know, I'd say 60% less, about close to a year, and the rest is short term. Okay. Gotcha. All right. Then just on the. Slide 11, you the NIB, the deposit beta assumption and the DDA, you know, it sounds like this VC, you know, the cash burn is gonna take a couple of quarters to normalize. I mean, what's the. I'm assuming that in 2023, you know, the DDA mix is moving consistently lower, and then the deposit beta is obviously marching higher. Yeah. You know, again, as we were mentioning earlier, the visibility on exactly how that's going to play out is harder to come by right now. I think there will continue to be downward pressure on the non-interest-bearing to interest-bearing proportion, you know, as we continue to see higher rates. That being said, at some point I think you'll get to some stability at those levels. You know, I think as we go further into 2023, it'll be a little bit more clear where that reduction effectively slows down. I expect that we're going to, you know, really start to see a slowdown of that mix, and shift from non-interest-bearing to interest-bearing in 2023. Just how much and exactly at where it bottoms out, that's a question mark. I think we're going to see, you know, that slow here at the fast pace in rates, I think for those that are activated, you know, that's already happening. Okay. Understood. Just last one from me. The fee guide for fourth quarter ex SVB Securities, $345-$360, that's a pretty healthy step-up from the third quarter run rate, which I have at $316. What's driving that? Yeah. We continue to see the benefits of you know higher interest rates come through on the spread on the off-balance sheet accounts. And we'll continue to see you know spreads improve there. That that's really the impact of the rate increase on client fund fee income coming through as well as continuing to see good you know progress against our other payment categories. You look at cards, you look at FX and the rest of our activities. As Grant and Greg mentioned, our clients are really active in the midst of you know this slower deployment environment. And we're seeing that come through in that business activity. Okay. Thank you. Thanks, Casey. Thank you. We go next now to Jared Shaw at Wells Fargo. Hey, good afternoon. Hey, Jared. You know, I guess when you look at the companies that have taken the down round VC financing, are there any characteristics that stick out? I guess, you know, for those that haven't, how long can they hold out before they, you know, sort of need to take the lower pricing? Are we closer to a point of capitulation for that? Yeah. Jared, the biggest challenge with you know, I guess the private market repricing at a fast pace is the fact that that many of them raised so much money last year. You don't, you know, if you've got three years' worth of cash, you're not running out to raise more money at a down round. It takes time for them to do that. Now, there's some things that are gonna be happening coming up, right? At the end of the year, you have to start looking at valuations 'cause how you do price stock options and things like that. We could see, and probably will see, you know, more of a capitulation on valuations back to whatever the market is at the end of this year, which we'll filter through in kind of Q1-ish into 2Q, 'cause sometimes there's a little bit of a lag. Right now we're not seeing a lot of down rounds. We're simply seeing more structured rounds, which means you keep the same price, but maybe you do a 2x liquidation preference from a return perspective. We're seeing more of that, but it's gonna happen. We're gonna see more of it. You know, there's always a debate when you sit down with a group of venture capitalists. Some would say. Never do a structured round, take your pain, your medicine and lower the valuation to the market, raise money when you can, et cetera. Others would say, "Protect your valuation if you can keep it and, do a structured round. It's not the end of the world." We're just seeing that all play out. That's the main reason they end up with a fair amount of cash right now, so they don't have to come to that conclusion, yet. More of it's coming. Okay. That's helpful. Thanks. I guess for the investments that you're all holding on, you know, in your own investments, how are you treating valuations if there haven't been recent rounds to give that market check? Are you having to wait and take your lead from the company or are you proactively making any marks on your own? Yeah, Jared, it's Dan. On the warrant positions, we get pretty regular updates and you know really current with those valuations. You know where we have at least you know some gap as in you know these illiquid positions. We took a reserve last quarter associated with those and still had additional losses come through on some older funds where we had an ownership position this quarter. As we think about it on a go-forward basis, we would expect valuations on those illiquid positions. They're gonna be updated as a part of fund audits through Q4 and probably all the way through Q2. That's where we may see additional losses. Think of that as, you know, a pool of about $600 million worth of illiquid positions. We could see kind of order of magnitude, you know, anywhere between 5%-10%, you know, of that, you know, in the form of write-downs over the next couple of quarters. Now, those losses may be offset by the occasional warrant gain, which we continue to see, but that I think is gonna be a more limited quantity so at this point in the cycle. Okay. Thank you. Yep. We'll go next now to Bill Carcache at Wolfe Research. Thank you. I had a question on credit. You maintained the ACL ratio at 77 basis points, looks like, but lowered the downside weighting from 75 to 65% from 40%. Can you discuss what's behind the lower downside scenario weighting? Any color on that? Yeah. This is Marc Cadieux. I'll start on that. In a nutshell, the most recent Moody's forecast was much more aligned with our view on the economic outlook. At the same time, after the forecast, which included an assumption of 50 basis point Fed increase, we saw 75. Our conclusion in so many words was that closer, but not quite. We took our weighting of the S3 scenario down, but not all the way back to standard weights. Kept it at 40%, for this quarter. Understood. Separately, how would you characterize the demand that you're seeing from customers seeking funding from you relative to your capacity to provide funding? You know, how are you determining, customers that get funding? Maybe discuss a little bit on how competitive that lending environment is. This is Greg. Maybe I'll start and then Mike Descheneaux may wanna add. So there's no question we've seen an uptick in demand, and that should be expected, right? Last year we were definitely competing more with the healthy amount of venture capital that was coming in. Yes, while it was a competitive market, but definitely the major competition last year was equity. This year, clearly, it's harder to raise money and so or people want insurance policies, so debt is now back in vogue. The level of activity, new clients coming on board and delivering term sheets, the pipeline, the backlog, and this is specifically in the technology and life science area, across all loan products actually has been very healthy. Your question on, at least I'll interpret it, do you have the capacity to fill all the orders that you may want to? The answer is absolutely. As Dan said, we have the capacity in a lot of different ways to bring those loans onto the balance sheet, assuming they qualify. Of course, that's a given. When they do, we're able to fill those orders. We see no slowdown in that. It's actually one of the many areas that excites us about what we're seeing, what we saw so far, especially in third quarter. Take a look at the growth in the third quarter and what we look at as we roll into or get ready to roll into 2023. Mike, would you add anything to that? I think, Greg, I would just go down the questions around are we doing anything different or being more cautious about who we're lending to and being a little bit more particular? The answer is of course, yes, right? I mean, we've been through economic downturns. Our teams are very well versed into kind of what to recognize and to pay attention to in terms of companies that might be more vulnerable to this during this economic cycle. For example, things such as the consumer area are definitely one area that we gotta keep an eye on because given this macroeconomic backdrop and inflation, certainly that's an industry or sector that's going to take some sort of hit or impact. Those are, I mean, just one example of kind of how we're thinking through and looking at the different sectors where we need to be a little bit more thoughtful than we had if the economic environment was stronger. Thanks. Maybe if I could follow up with one last one. Along those lines, to the extent that you're putting up that growth, if you think about the yields that you're generating on those kinds of loans, and if we think about this sort of funding environment persisting and perhaps the money market type rates as sort of being your cost of funds maybe. Is the spread and sort of the NII accretion reasonable that you'd expect that essentially that you would be asset sensitive? I think there's certainly concern that you know, some liability sensitivity could shine through given some of the dynamics that we're seeing. I know you're not giving guidance, but if you could just speak to that, you know, broader dynamic and your overall thoughts would be helpful. Yeah. Bill, I'll start, and Mike might want to add. If we just kind of look at the dynamics of the loan portfolio, again, we talked about it, over 90% of that is variable rate, and we're seeing, you know, on the commercial lending side in particular, close to a 90% beta coming through, you know, on that lending. So, you know, I feel good, you know, as our entire funding base is certainly not going to reprice, you know, at those levels that not just will we continue to maintain a strong spread there, but we'll actually be able to continue to grow it. So I feel good about that, you know, on the lending side. Mike, anything to add? Yeah. I think maybe what we're getting to is the level impact of competition on the spreads. You know, there's the pricings the premium we can actually have. You know, for the longest time, as we all know, it was competitive. By the way, it's still very, very competitive. There was a drive or a trend downward, spreads were getting tighter. I would say in this environment, particularly, you know, certain segments of the loan portfolio, the downward pressure is not as significant as banks and other non-banks are being very conscientious of their cost of funds. I think that is. I wouldn't say it's abated, but nonetheless, it's, there's a lot less downward pricing pressure on the spread there and a little bit more neutral at this time, maybe neutral to some possible bias to a little of the spreads expanding a bit. That's very helpful. Thanks for taking my questions. Yep. Thank you. We go next now to Andrew Liesch at Piper Sandler. Hey, good afternoon. Thanks for taking the questions. Yep. Just on the increase in criticized loans here. I know it's still relatively small as a percentage of the overall, but is that concerning to you? I guess what drove that? Hi, it's Marc. I'll start. Concerning insofar as, you know, any increase in criticized loans would be concerning, and I think reflective of the environment and, you know, worsening projected economic conditions that we were talking about. At the same time, as mentioned earlier in the call, our clients continue relative to past cycles continue to have more robust liquidity. While we are seeing that uptick in criticized, as you can see in the third quarter, we did not see it translate to an increase in non-performing loans or loan losses. Gotcha. Is it issues with any individual credits or just a general downgrade of, I guess, targets of the portfolio that drove this? Yeah. I'd say, it is concentrated in our tech and healthcare portfolio as you would imagine. Generally speaking, there probably falls more heavily on our investor-dependent segments. Got it. All right. Just a kind of a housekeeping item on the client investment fees. Are those capped at all, or do you continue to benefit no matter how fast or how high the Fed raises rates? Yeah. Based on some good work by Mike and the teams over the last couple of years, they've renegotiated those agreements. We don't you know see a cap on those client investment fees. Now, with where rates are, the expectation is every 25 basis points is probably another basis point versus the like, you know, 1.5-2 that we got at the beginning of the rate cycle. That it is not capped and expect about a basis point for every 25 basis points. Got it. All right. That covers my questions. Thanks so much. Yep. Next we go to Manan Gosalia at Morgan Stanley. Hi, good afternoon. Good afternoon. Most have been asked at this stage, but yeah, just yeah, I sort of recognize there's not enough visibility for 2023. I was wondering if you can just talk about the NII guide for next quarter as your jumping off point for 2023. You know, maybe there will be some more weakness if funding levels remain weak, but I was wondering if you could help quantify that. Also on the flip side, you know, if you see a rebound in the back half of the year in terms of funding and cash burn, you know, how quickly do you think the NIM and NII can pick up in that environment? Yeah. You know, as we talked about, it's really hard with looking at past Q4, where cash burn rates are and the potential for venture deployment to fluctuate, to have a really good sense of exactly where net interest income is gonna at least start the year or jump off for 2023. I do think as long as we're in this environment where we're unbalanced between venture funding and the amount of cash burn, that we're going to continue to see some net interest margin compression. You know, we're gonna have offsets to that by the higher rates and the beta that we're seeing come through on the lending side of the book. That remixing and the use of those off-balance sheet funds, again, where we've got flexibility to drive them off the balance sheet, you know, could continue to deteriorate margin and net interest income. Just how much, I think. You know, the degree of certainty, you know, as we get into the first quarter, I think it's gonna obviously be a lot more clear. Now, how quickly can it rebound? You know, if we start to see cash burn, you know, slow appreciably and not just a stabilization of deployment, some effective increase and some public market activities come in, you can start to see inflows, you know, on the deposit side pretty quickly. From there, as we mentioned in the past, we have the ability to start to, you know, either pay down borrowings very quickly or, you know, redeploy some of those funds off the balance sheet. Exactly how and when that's going to play out is a question mark. You know, as soon as it does start to happen, we're going to be able to really start to move the balance sheet quickly. Probably not a super satisfying answer just 'cause there's a little bit more uncertainty. Hopefully you understand all the pieces. Yeah. No, that's helpful. Typically, cash burn gets worse before it gets better because you have to spend on severance, renegotiating contracts, et cetera. Is that already part of the story on cash burn this quarter? You know, I was curious what you're hearing from the private companies. Yeah. This is Greg. It's all factored into that one chart that we show. You know, it's part of the equation that is built in there. Okay, great. Apologies if I missed this, but how much of the sweep accounts were brought on in 3Q? What does the deposit guide for 4Q assume? In total dollars, we brought in the quarter, roughly $5-$6 billion, something along those lines. In terms of, you know, the fourth quarter guidance, like I said, to the higher side, it assumes that, you know, we continue to be successful, albeit to a smaller degree on those, off-balance-sheet to on-balance-sheet. To the extent that the, you know, that's slower, and you see slower deployment and faster cash burn, that could get us to the lower end of that guidance range for the fourth quarter. Very great. Thank you. We'll go next now to Gary Tenner at D.A. Davidson. Thanks. Good afternoon. On slide 24, the client investment for the client funds slide, you know, one of the considerations you pointed out was, you know, China policy changes and investment in Chinese companies. I just wonder if you could maybe talk to, you know, China policy changes and any considerations as it relates to your strategy over there. This is Greg. I'll start, and I know Mike will add to it. You know, from a policy perspective, you can look at, you know, there's a whole variety of things, and that's the problem. It changes kind of on a monthly, weekly, quarterly basis. Part of the policy is just the overall stance at a very high level. I think about the policy and positioning U.S. versus China and, you know, the softening or the weakening of the relationship. That's at a high policy level. Mike may be able to give you some color on any changes in the local market, local that is happening that would cause it on the ground. My view is just kind of at the macro level. Mike, what would you add to it? Mike, I think you're still on mute. Thank you, Greg. You know, I think, you know, certainly policy changes impact, you know, all of us, right? I think the key focus is kind of the U.S.-China relationship there. A good relationship will certainly help overall. Again, it's still too early to tell where that is actually trending. Setting policy aside, I think really the bigger picture, the bigger question is just on the impact of COVID and the supply chain on how that's going to impact different business and level of activities that we actually have in terms of engaging with China. As we all know, economically, it has been extremely challenged, and that's certainly affected our business levels and business activities in Asia overall. It is something that to continue to watch, but no direct impact one way or the other. It's really just more about the macro picture here at this junction. Okay. I appreciate that. I wasn't sure if it was referencing Xi Jinping's more recent comments or not. Just, you know, lastly, there's been several questions about cash burn and obviously it's not slowed to the degree that you know it would benefit the balance sheet yet. Why is that? I mean, you know, I think we were at this point for several years. It seems like we're kind of you know scale at any cost and money was free or close to it. How much has the I guess you know the founders or the startup you know CEOs of some of these companies how has that population changed maybe over the last decade to you know potentially you know slowing the ability or desire to kind of really focus on that? Have things not sunk in yet on that side? Yeah. I mean, there's some of that does exist, so I will acknowledge that. How I think about it is how I answered an earlier question about this which is, you know, if you raise a bunch of money, you know, let's say you've raised three years or four years worth of cash, and your business is, as you think about it, you're still the business itself is fundamentally sound, although it definitely is gonna be harder for you to raise money in the future. Part of this is, you know, the mentality is why would you cut back costs. You know, lay people off and make the hard calls if you really believe that you're gonna need to add value, grow revenue, and maybe grow back into your valuation over time, right? There's the old saying, you can't cut your way to growth or you can't cut your way to success. Some of that exists, and it's a function of, again, a lot of it's how much money has been raised. But if you fast-forward, you know, six more months, nine more months, these are for the companies that have raised, you know, a long runway. You know, they're gonna have to look at either cutting burn or raising more money at that time. There's a lot of companies out there that are still performing well, right? Sometimes it feels like, you know, that, you know, oh my gosh, all these companies must be really having a hard time. That's not the case. There's a lot of them that are doing really well. One last point. You know, again, if you go back two years ago and you remember what happened in COVID, it was cut your costs. It's gonna be, you know, a horrible situation. They did that, and then literally 90 days later, 120 days later, people said, "No, we were just kidding. Let's go back and, you know, raise more money and increase your burn." So the COVID, call it, you know, fake out, was definitely one that I think is still in some of their heads. So do I think it's fully set in across the board? The answer is no. That's just a little bit of. It's a complex answer 'cause it's every company is slightly different, but those are just kind of the reasons that you wouldn't see or we haven't seen yet, more of a dramatic reduction in burn. Thanks. I appreciate the answers. Yep. We'll go next now to Chris McGratty at KBW. Oh, great. Thanks. Dan, just on the average balance sheet, the bond yields, can you just speak to me a little bit about the yield at which stuff's rolling off? I know you gave the dollars. Yeah. The yield's kind of been stuck around 2% on the HTM and around 1.70% on the AFS. Just wondering what the outlook is for those. Yeah. All-in yields exiting the quarter are roughly 2%. There was some pickup in yield from lower premium amortization in the quarter. That, just so everybody remembers, is also part of the decline in our expectations from Q3 to Q4 net interest income. But net, at least as we look ahead, we are going to see some lower yielding securities roll off, but I think we're gonna bump around, you know, this 2% range here, you know, for at least the next couple quarters. Okay. And then just maybe, Greg, a question on charge-offs. If as you see the world unfolding, if we are gonna get losses, like I'd love a little bit of color on when you think the cadence would be. You built the reserve last quarter and a little bit less this quarter, but when do you think the losses will come? Well, hey, Chris. While I could help answer that question, Marc is probably better. Yeah. I think consistent with all of the uncertainty we've talked about and the challenges with guiding for 2023, I think that's a really very difficult question to answer. I think it really comes back to again that robust average client liquidity, the ability to last longer and wait for that reopening, so to speak, for capital to start flowing again. I think generally speaking, when I think about the portfolio and where borrowers are positioned going into whatever is next relative to past downturns, you know, more of these companies will probably outlast, right? They'll live long enough to make it to that other side than might otherwise have been the case. Exactly when the losses come, if they come, is just too difficult to predict at this point. To add to what Marc's saying, Chris, if you take a look at the reserve, the area that we continue to expect if we were to see those types of losses, to see the most would be in the investor-dependent early stage. If you think about the 2008 cycle, and we're not saying that, you know, we would see something to that magnitude, that was about a 6% through the cycle loss. We're, you know, at the 4.3% range right now, so feeling, you know, pretty good relative to, you know, what that could look like in that type of environment from a reserve perspective. Even if those losses were to come, we've got, you know, sufficient reserves associated with it. The last thing to say is just, again, remember the overall lending portfolio and the concentration of, capital call lending and, you know, our loss experience there, kind of when thinking about, to the extent that we have a slower period, what that might look like in terms of credit losses. Great. Thanks. Yep. We'll go next now to Ebrahim Poonawala at Bank of America. Hey, thanks for taking my question again. Yeah. Just one question in terms of big picture, Greg. A lot of what's happened in terms of the earnings outlook for the company is market driven. Is there anything from a self-help perspective, and I don't mean to say you need to cut your way to prosperity, as you earlier mentioned, but is there anything either balance sheet-wise, expense-wise, capital-wise, that you could do to alleviate some of this market-driven pressure on the earnings and ROE? Yeah, let me talk about it from an expense perspective, and then Dan or Mike may want to talk about it, the balance sheet, anything else, and Mike. When I think about the expenses, Ebrahim, and as you know, I've been here a long time, and from that standpoint, the long-term belief and the potential opportunity we have in front of us hasn't changed. Doing anything that is going to, you know, truly diminish the growth potential, the outlook in, you know, a year, two years, and three years just doesn't make sense. It may feel good or feel better in a short run, but it won't be helpful in the long run. As you know, we're playing the long game. But what are we doing? One area that we're taking a look at, over the last two years, we've had a lot of growth as we build out our, you know, LFI or risk-based function, large financial institution functions. A lot of that actually came on the backs of professional services because we needed to build up the kind of core foundations. Now, as we brought in the expertise in the form of FTEs, we expect, and it's gonna happen faster than even maybe was planned, we're gonna be reducing professional services in a very aggressive way. We've got an incredibly talented team that we brought on board to help us manage through this. I feel really good about it. What are we gonna do? We're gonna again, the biggest thing is reducing professional services as aggressively as possible. That's probably the biggest thing. The second part is really taking a hard look at our overall, the projects that we have and that project portfolio and prioritizing. Say which ones are the more of the nice to haves versus the must-haves. From that standpoint, we're looking at that and we'll make some changes there, and not eliminate it, not say never, but it'll definitely be put on the back burner as we concentrate our efforts and focus on the highest priority must-do initiatives, which includes things like, you know, the digitization of the platform. As I mentioned in my opening comments, we've been rolling out our digital banking solution and have gotten some incredibly positive feedback. We're gonna continue to invest in that and roll out more of that over the course of 2022 and 2023. We have to continue to make those investments. While the expense growth will be lower than it would have been, it's still gonna be healthy as we roll into 2023. I don't know if Dan or Mike, you guys would add anything. I'll start. Mike might have something to add. I think we just, you know, one, I have to add on expenses, continue to go back to 1,800 new clients added to the platform in the quarter. Half a trillion dollars worth of dry powder raised from a venture capital perspective. Those are all opportunities for us, in the medium and the long term. You know, for us to really materially pull back on investment, you know, even cut investment levels, you know, probably cuts into that opportunity here over the longer term. We're still really bullish on that, you know, at some point, we anticipate to play through the franchise. That's number one. Number two, Ebrahim, talk about capital and the balance sheet. Yes, you know, in this environment, we clearly see you know, some reduction in the overall size of the balance sheet. Growth in the Tier 1 leverage ratio is now close to 8% at the bank. You know, as we think about next year, slowing cash burn, potentially seeing you know, venture investments start to pick up, you could very quickly start to be in a spot where you know, you need that capital to be able to support growth on a go-forward basis. I think that's the way we're thinking about it, is that you've got that pent-up amount of venture flows waiting to be deployed. At some point, it'll be good to have the capital to be able to support that. Last but not least, you know, we talked about, you know, the investment securities portfolio, the available-for-sale investment securities portfolio. To be really clear, like, we have no intent to restructure that portfolio at this time. We're always evaluating options, and that's the thing about this balance sheet, is that it's highly flexible, and we've got, you know, a lot of options associated with it. Excellent. Thank you. Yep. We'll go next now to David Smith at Autonomous. Great. Thanks for taking my questions. With SVB Securities, does the current environment change at all how you're thinking about the build-out there in terms of, you know, when or if to bring on new products or hire new teams? Yeah. This is Greg. The answer is no. It's an interesting, I guess a couple points. One is when you look at the league tables, which is obviously one of the ways you kind of look at how your investment bank is doing. The team's doing an exceptionally good job, right? Put the market aside and you just say, how are they competing in the market against, you know, everybody else? They're moving up the league tables, or they're definitely hanging in where they have been getting their fair share, or in some cases more than their fair share. The team is truly exceptional. I see it when I go out in the market and spend time with them, meeting with clients. That's number one. Number two, what we had set out for the beginning of the year for a goal for, the tech and life science team that we teamed with all the people we brought on board, we're going to exceed that. Hit or exceed those numbers. That's pretty amazing given what's happened in the environment, so feel really good about that. The addition of MoffettNathanson, again, what an amazing group of people and research analysts, and they have exceeded their expectations. The people we've added on the research side to that from a tech perspective are also leaders in the market. The final piece is this. One of the benefits of a slowdown in the ECM market is that it actually gives that team, that really strong team, time to spend with the high-profile companies who will be going public when the market opens back up. Those meetings are going really well. I believe that when that market does open up, and it will eventually, it always does, we're going to be really well-positioned. You know, if anything, to be honest, I've gotten more bullish on not only that team of people, the whole platform, but how well it's collaborating with our commercial bank. That collaboration is actually going exceptionally well. I feel good about it. Would I like the market to be more cooperative? The answer is of course. While we're waiting for it to cooperate more, those guys are working awful hard to get us set up for future success. Great. Just to dig in on the securities yield a little bit more. I appreciate the guide for 170-175 in the fourth quarter. When we talk about bumping around the 2% range for the next couple of quarters, you know, are you seeing any kind of meaningful uptick going into 2023 or, you know, is kind of the lower side of 2% more likely for the next couple of quarters given that fourth quarter starting point? Yeah. I think, you know, where we're exiting 2023, absent, you know, additional hedging, you know, opportunities, as we think there's still room for us to effectively put on some receive float swaps to open up additional asset sensitivity in the rate environment that we're in, that could provide some additional upside should rates be higher than what we're seeing from a forward curve perspective. I think there's some opportunity there. I think, you know, over the next couple of years, you will see some roll-off of, you know, even lower yielding securities. To see a material bump up off of those levels, you know, I don't see that, you know, in the actual cash flows coming off of the portfolio. Thank you. Lastly, as you know, it looks like we're getting closer to peak Fed rates. Is there a point where you start to work to reduce the variable component of the lending book or otherwise, protect asset yields in some way? Yeah. I think. Well, first and foremost, I think the positioning right now for us is to continue to look to open up the position for asset sensitivity. At the same time, you know, we, you know, are contractually, you know, as we've done in the past, continuing to embed loan floors just as a matter of practice, you know, associated with that portfolio. That benefited us quite significantly, you know, in one-way protection here during the post-2018 move down. I'd expect it to do the same thing. That's the vast majority of the protection that we're putting on right now. If we see Fed funds and short-term rates move even further, you'll see us, you know, find ways to continue to manage, you know, down rate sensitivity. As folks know, with the higher levels of interest-bearing accounts right now with the off to on-balance sheet moves, that's another great source of potential protection, you know, to downside rates, for us. Great. Thank you. Thank you. We'll take our last question from Jon Arfstrom at RBC Capital Markets. Hey, thanks for hanging on to the end. Just to follow up on that last question. Would a Fed pause help, hurt, or no difference in terms of your outlook? How would you answer that? I'll start. Greg might want to add. I think if you take a big step back and look at venture deployments, there's a, like we talked about, half a trillion dollars worth of funding that's been raised. What's really stopping that from being deployed is this disconnect in valuations between public equity markets that are bouncing around and the expectation, you know, of all these amazing founders that are, you know, working and management teams that are working on these ideas. To the extent that we see Fed pause or slow down, I think that's going to start to bring some more certainty into public market valuations, reduce that uncertainty, and really start the flow of funding across our market. One, just I think from a broad deployment perspective, that would be helpful. You know, second, you know, a pause or a slowdown from a rate perspective, you know, could be helpful just as we would see, you know, likely additional deposit flows that are coming in. In terms of the asset sensitivity, a pause won't really help at this point. Yeah. The only thing I would add is just, and Dan said it, but it's just the market's looking for certainty. They're looking for clarity, and there isn't any right now. A clear pause and the data that backs up a clear pause, I think would be well received by the market. Right now, you know, if you talk to, you know, five different economists, what they would say, what their crystal ball would be is literally all over the map, and that clearly isn't helpful right now. Okay. That's. I appreciate that. Then just speaking of uncertainty, when I do the crude calculations on your fourth quarter guidance, I get at the midpoint, excluding gains or losses, somewhere between $5.50 and $6 for EPS. Correct me if I'm wrong, but do you feel like that represents a trough for you for EPS, or is that just too difficult to predict from here? As we mentioned earlier, you know, there are so many variables that are gonna drive, you know, what things look like heading into the first quarter and, you know, the level of cash burn, what we're seeing in venture deployment and ultimately the interest-bearing to non-interest-bearing mix. Those are gonna be big drivers of, you know, what happens from here from a net interest income perspective. That could be pressured down, or we could see stability of cash burn, you know, materially reduces from here. To go any further than that, I think would go against us giving the guidance. Okay. All right. Thank you very much. Yep. Thank you. Mr. Becker, I'll turn things back to you, sir, for any closing comments. Great. Thank you. Thanks again, everyone, for joining us. I know for people on the East Coast, it's, you know, you're into the evening, so I appreciate it. I'm gonna close where I started the conversation by really highlighting that I know most of the discussion was about the balance sheet and flows, and clearly that's a very important part of the equation. I just wanna make sure that it's not lost on everyone, and that's both investors but also our employees who are listening, all the great things that are going on inside the platform. Again, I talked about it. You can look at record term sheets and all-time high-end client funds and strong credit quality and there's so many really positive things that are going on. We just can't lose sight of that. There's no question the uncertainty is out there, and as we've said, based on the fact that we're not gonna give guidance into 2023, that uncertainty clearly is difficult to predict exactly what will happen. Although clearly we've given you some frameworks to think about for 2023 and what the drivers will be and how that could change. First off, as always, I want to thank you know all our clients. I mean, it's they're stressed right now, a lot of them are. To be honest, that's where I think we end up shining because we've been through a lot of cycles before and we know how to support them and we know what the right questions to ask and how to be there for them in difficult times. Honestly, from my standpoint, as challenging it is to be in an environment like this, it is actually enjoyable to sit down and really, really add value to clients. That's the first thanks. The second one, the bigger one maybe even is, thanks to the employees. We've got a lot of people that have been here for a long period of time. We've added a lot of new people that haven't been through cycles. People are working really hard and sometimes you don't feel that you're getting all the recognition and benefit from all the hard work. On behalf of the executive team, on behalf of the board, just want to say a huge thanks to the team for doing such a great job supporting our clients, weathering this difficulty and uncertainty, and hanging with us as we navigate it. With that, have a great rest of your day, and thanks again for joining us. Thank you, Mr. Becker. Again, ladies and gentlemen, that will conclude the SVB Financial Group's Q3 2022 Earnings Conference Call. We'd like to thank you for joining us, and again, wish you a great evening. Goodbye.