Good day. My name is Emma. I will be your conference operator today. At this time, I would like to welcome everyone to the SVB Financial Group Q4 2022 earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply Press Star followed by one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Meghan O'Leary, Head of Investor Relations, you may begin your conference. Thank you, Emma. Thank you everyone for joining us today. Our President and CEO, Greg Becker, and our CFO, Daniel Beck, are here to talk about our fourth quarter and full year 2022 financial results and our 2023 outlook, and we'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. Great. Thanks, Meghan. Thanks everyone for joining us today. Before we go into questions, I just wanna briefly comment on kind of our business and the market environment. You know, first I think it's important to set kind of context. When we continue to see strength and momentum in our business despite the broader market backdrop, which I'll talk about in a minute. We had healthy loan growth across the board driven by Global Fund Banking, technology, and private banking mortgage lending. We had record core fee income from improved client investment fee margins. We saw healthy investment banking revenue driven by biopharma deal activity, which was great to see. We had more balance in client fund flows as client cash burn in the pace of VC investment decline showed signs of moderation, which was obviously very important and welcomed. We saw continued strong new client acquisition of approximately 1,600 clients in the quarter, which is higher than pre-COVID levels, which is notable. Credit remains solid, although our provision reflects higher net charge-offs to non-performing loans as well as our expectations for deteriorating economic conditions. Now, the markets are still challenging. We admit that, and they're likely to remain so throughout 2023. We don't expect any dramatic change from where we are right now, and in fact, even a little bit more pressure in the first couple quarters. In other words, again, not expecting a dramatic improvement. Global market volatility has significantly reduced private and public investment. In public, there's almost, you know, this is the longest time the window has been effectively shut. We don't really expect that to change until maybe, put a big maybe, in the latter half of the year. There's still a lot of uncertainty over the direction of rates and inflation in the broader economy. We hear about it pretty much every day in the news and on media. What does it mean for us for 23? We expect these conditions will continue to put pressure on our growth in the first half of 23 with net interest income pressure, somewhat higher provision, although we still expect credit performance will remain good overall, and other headwinds that are kind of come on a daily basis. In the second half, we expect continued momentum and balance between venture investment and cash burn. It doesn't, this is important, it doesn't take much of improvement, in fact, no real improvement from where we are on the deployment of dollars. It's more about the cash burn, which we again continue to believe is gonna be pulled back. We expect a shift towards interest-bearing deposits to stabilize and could see an inflection point in net interest income and NIM in the second half of the year. We believe that shift, combined with progressive paydowns in our investment securities portfolio, again, roughly $3 billion a quarter, will provide meaningful revenue tailwinds that build throughout the year. We have enough visibility at this point to provide full year 2023 outlook despite the market uncertainty, and those details are in our Q4, or our Q4 2022 earnings deck filed earlier today. We're prepared if those things don't improve, again, which is important. Even if the market challenges are prolonged or get worse, it's important to note we have a high quality, very liquid balance sheet, which I know there'll be lots of questions about, strong capital levels, a seasoned management team, which we experience navigating challenging markets as well, and a consistent focus on our long-term business strategy. When you put all that together, we feel, you know, clearly better about the outlook than we did, last quarter where there was more uncertainty. We certainly believe that the innovation economy is the best place to be. Even if we're in this prolonged period of time for longer or even a little bit deeper, we know we're gonna weather that fine. With that, I'm gonna turn it back to the operator to open up to questions. Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your first question today comes from the line of Ebrahim Poonawala with Bank of America. Your line is now open. Thank you. Good afternoon. Hey, Abraham. Hey, Greg. I guess, I mean, I think, it was good to see the 2023 guidance, and just wanted to follow up on what you just mentioned around having enough visibility to provide that guidance. It sounds like you're feeling better today, and you look at that slide 10 in terms of the client fund outflows obviously cut in half quarter-over-quarter. If you don't mind, just give us a sense of just customer conversations that you are having with clients. What's added to that visibility today versus nine months ago? I understand all the things that can go wrong, I think, but what are you seeing in terms of green shoots of improvement? Would love to start there. Yeah. I'll start, and I'm sure that Mike will want to add, you know, even more color to my comments. You know, Abraham, here's how I think about it. Where the clarity is coming from is a couple places. One is. I would say we were hoping we would have had seen more of this in the 3rd quarter, and that's why I would say we're disappointed, and that's why we didn't give guidance because it kind of didn't fit with what our expectations were and what we were hearing, which was the following. Companies realized that it's hard to raise money. The level of venture capital deployment's coming down, and we expected a more dramatic decrease in burn rates. That really didn't happen in Q3. We saw clearly much more of that in Q4, and I think you're gonna see more of it in Q1. You hear about it because when you're having conversations with companies, they're talking about, gosh, we hired a bunch in the last couple years and, you know, now we're gonna pull back on some of that. We're gonna cut back 10%, 15%, 20% or whatever that is, and we're gonna look to cut costs in other areas. The only reason I don't think it happened as quickly as we thought it was going to is that companies had a lot more cash than they had in other cycles. That was just a prolonged period. We know that venture capital declined pretty significantly in the third quarter. It continued in the fourth quarter. Again, what our expectations are is that you're actually going to see a little bit more of a decline in first, the first two quarters and then start to see a little bit of improvement in the second half year. Our, our forecast isn't a rosier Q1 and Q2 with higher levels of venture capital deployment. In fact, it's the opposite, a little bit more of a decline. Then you're going to see, again, this continuation of client burn or cash burn pull back. That's the narrative. When we talk to clients, and again, not all clients are the same. As you know, we have some that are still spending more money. They're raising money still, and that's going to happen. That's, that narrative is shaping our outlook in the first kinda two periods, first half versus the second half. Mike, turn it over to you to add any color to that. Sure. Great. Thanks a lot, Greg. You know, Abraham, there's a few data points I think where investors are gonna start to get even more clarity, right? When we think about inflation reports and whether or not the rising rates are having impact on inflation, you know, we just had a 12th January report, and we have the 14th February inflation report coming up. We're starting to see that rates are starting to have an impact on inflation. I think that's really important for investors looking for clarity what's happening. The COVID impact or the zero-COVID policy in China, like, we're starting to see that go through China, and we'll know here end of January or February about whether or not that actually has gone through, and then supply chains can start to come out again, having impact on inflation. The energy impact in Europe, we're gonna get to that and see some more data points on the impact inflation. Perhaps most importantly is the valuations, right? I think you have the auditors that are in at the various companies here that are looking at the valuations, and you're gonna start to get these audit reports that start to come out, and there'll be some valuation adjustments between the companies who have been holding off in terms of readjusting the valuation. I think that's really helpful. Right now, obviously, the investors are still holding off on investments, right? They're slowing the pace, but there's still a lot of good companies out there. There's still a lot of opportunities. They're still investing in early stage, they have to prioritize their investments here, they know they're probably gonna have to hold on to these investments a little bit longer than anticipated because there's just not a whole lot of exits as you know. There's just no IPOs. There's not a whole lot going on out there. Again, I think, you know, there's obviously a lot of dry powder. I think that's very helpful. When you shift to the lens of the entrepreneur, you know, as Greg mentioned, they have had a lot of cash. They've been sitting on that. We are starting to see where they are resetting their spend levels, right? The layoffs, you're starting to see that in the news, which, you know, there's the good news and the bad news. The bad news is the layoffs, the good news is they're really starting to focus on their cash burn because they know they need to hold on to their cash for a lot longer. Advertising spends have been coming down over the last several months, that's been a big thing that we're seeing here. They're all getting back to focusing on client acquisition costs and profitability. Again, growth just for growth's sake is no longer, you know, the thing to do. Economics do absolutely matter. They've been very, I would say, very focused on valuations. They've been holding off in terms of taking more investments, eventually, the cash starts to run out. Eventually, they start to reset their expectations on valuations. We believe we're starting to see some of that breakthrough. Again, I think over the next couple of months, I think that's when you would start to see, as Greg described, a little bit more stabilization there and perhaps as a platform here for the second half of the year to start to see some of those shoots that you were talking about. Understood. I guess, maybe a separate question for Dan. When we think about, from a balance sheet management perspective on the asset side. In available for sale securities about $25 billion-$26 billion. Give us a sense, is there any view of, like, pulling forward some of those maturities and, locking in higher interest rates today, given one, the curve is already inverted, who knows where rates might be six months from now? Just give us a thought process around any piecemeal restructuring of the AFS book that we should think about. Yeah, Ibrahim, good question. In the quarter, for example, we did a $1 billion sale out of the treasury portfolio for AFS, to be very clear. The rationale behind that as we look at the payback period on that sale was roughly nine months. That's really the way for us to look at, you know, from a tangible book value perspective, that payback period and opportunity. I wouldn't say there's any desire for a wholesale, you know, change in the available for sale portfolio. Periodically and with an opportunistic lens on payback period, we could do these small sales that, you know, to some degree can be offset by warrant gains and things along those lines. thinking about it from a tangible book value perspective, but at the same time, you know, looking opportunistically at payback period. Got it. Thanks for taking my questions. Yep. Your next question comes from the line of Casey Haire with Jefferies. Your line is now open. Yeah, thanks. Good evening, everyone. Couple questions on slide 12. First off, so the non-interest-bearing mix, high 30s by fourth quarter 2023. That's obviously very difficult to sort of handicap. You know, just what's giving you confidence around that, around that number? Yeah, Casey, it's Dan. I'll start. Mike might want to add as well. There are two things that we're looking at that, you know, give us a little bit more confidence on where that non-interest-bearing mix is going to bottom out. First and foremost, the teams have spent, you know, a lot more time getting into the detail across our different segments on, you know, where operating dollars lie versus excess dollars in these deposit accounts. Exactly how much, you know, from a deposit perspective, is available to be transferred. Now, that analysis is, you know, never perfect, but it allows us to start to get a sense of where we think that non-interest-bearing piece is going to lie. Then secondly, when we take a big step back, and we've talked about this before, and we look at the total client funds of the company, and you start to think about non-interest-bearing bottoming out in the high 30% range, you know, and looking at the fact that total client funds, you know, is close to the $340 billion range, that high thirties is really when you compare it to other banks that don't have off-balance sheet in that, you know, mid-teens to high teens range, which we think, you know, relative to our whole historical experience is a bottom and is a low. We've got the individual assessment that we've done plus just our historical experience on where that would bottom out in comparison to peer banks. It's not perfect for sure, and we're encouraged by the slowdown of the pace of that change, here in the fourth quarter, and we expect that to continue throughout 2023. Very good. Thank you. In the letter, you guys talk about, you don't need to see VC deployment return to 2021 levels, which were obviously very strong. Can you just provide some color as to why that is? That comes up a lot because that was such obviously a monster year for deposits and, you know, it's obviously, you know, flowing out now. It makes sense the pushback that it's going to be very hard to replace what was a banner year. Yeah. Casey, I'll just go to the results of the fourth quarter as an indicator of why that statement makes sense. We're looking at venture deployment in the quarter, you know, $35 billion or so. Think of that as kind of an annualized run rate, you know, $120 billion-$140 billion of venture deployment. In the quarter, from a balance sheet perspective on balance sheet, while we did see a decline in deposits, it was much lower than what we saw in the third quarter. The reason for that gets to what Greg mentioned, as well as Mike, where we're seeing that lower level of cash burn. Even on a much slower venture deployment number, call it in the mid $30 billion range, we started to see that on balance sheet deposit when we look at cash burn versus, you know, the inflows get to a much more normalized level. That I think is an indicator with cash burn continuing to slow based on what Mike and Greg just said, that we can get back without going to the 2021 deployment levels to not just the deposit being at the same level, but the potential for deposit growth. Gotcha. Okay. Just last one for me. The premium amortization that you guys talk about for the first quarter here, you have it down a little bit, but it's predicated on a 3.75% tenure which is, you know, tenure obviously a little bit lower today, with, you know, incremental pressure on that number if it's, if the tenure finishes 50 basis points lower. Can you just provide some color on the premium amortization because this does create a lot of, I think, confusion? We would still anticipate the premium amortization to decline here in the first quarter. The reason for that is that mortgage spreads continue to come in. Now, after the first quarter, to the extent that we continue to see the ten-year come down, we do have the sensitivity to an increase in premium amortization from that quarter. Just from the fourth quarter to the first quarter, consider that it's going to continue to come down just because of the decrease in mortgage spreads in the quarter. Okay. Thank you. Yep. Your next question comes from the line of Steven Alexopoulos with JPMorgan. Your line is now open. Hi, everyone. Hi, Steve. To follow up, with the pace of cash burn now slowing, has the amount of cash on hand and the burn levels, are those both at what you guys would consider a normal level right now, or are those each still elevated? Yeah. It's, it's Greg. I'll start. Trying to say what normal is really difficult for a variety of different ways. When you go back and the one thing if you go back, you know, five or six, seven years and try to say, "Well, is that more of a normal period?" Our portfolio, you know, we have a lot more mature companies in the portfolio, so you gotta think about they tend to keep a lot more cash. We don't have quite the same level of experience. I think, you know, towards the end of this year, my sense is like we're gonna get more to what I'll call more of a normal cash balance level because you're gonna see the cash burn rates still be elevated from the first half. They're gonna be reducing, but it's they'll still be higher. We'll get to this more, I'll call normal level. I think again, when you get to 24, you know, we expect a modest increase in venture capital deployment. One more thing that gets factored in is, which has been zero for almost all of 22 and into the first part of 23 and most of 23, we don't expect a big impact, is private market or public markets. You know, again, this is the longest time that they haven't really been any IPOs. You know, as we spend more time with our late-stage clients, there's a many of them that are doing really well. When that market opens up, you know, we certainly believe that we're gonna be in a really good position to do two things. One, help them go public, number one. Number two, be the beneficiaries of that, of that cash when it comes in. So all those things are factored in, which makes it's just hard to predict exactly how it will quote-unquote, "settle out to a normal level. Okay. That's fair. I know it's not one for one, but very roughly, what type of year would you need from a VC investment level to get to this 2023 guidance? Like, what is this roughly based on? Yeah. I'll start and Dan or Mike may wanna add. I tried to kind of give a little bit of this color at my opening comments. The way to think about it is that we still expect in the first half of 2023 that you're gonna see kind of a 10%-20% roughly decline in venture capital. Then you're gonna kind of pick back up in the, in the from those low points in the first half and pick up, but not a lot. You're probably looking at, again, if you annualize the fourth quarter, you're at about $144 billion. I think we're in that, you know, roughly $130 billion-ish for the year. again, rough estimates 'cause you factor everything in, you got to think about burn rates and everything else. The point is that the run rate for the fourth quarter, our forecast for 23 is actually slightly lower than that. When you aggregate it's just more front-end loaded the negative, and we'll see a little bit of the benefit in the second half. Yeah. Steve, just to add to what Greg was saying. It doesn't increase very much in the back half, so we're in no way, shape, or form being aggressive, thinking that the market is going to come back with significant amounts of deployment, the back half of the year. You're not talking about a material shift in Q3 and Q4 in investment levels. What we do see in Q3 and Q4 with the guidance that we're going to see the slowdown in the decline in non-interest-bearing deposits, plus the securities pay downs each quarter, that you get to a normalization of net interest income and margin right around the midpoint of the year, and then can start to see some growth into the fourth quarter just with those factors alone. The small increase in venture deployment, a stabilization in the non-interest-bearing levels that happens towards the back of 2023, plus the securities pay down starts to build momentum for net interest income. Got it. Okay. Just to clarify, you mentioned high 30% as the bottom. You said this a couple of times, the bottom in the non-interest-bearing mix. I thought you said that deposits might bottom the midpoint of the year and then grow in the second half. Do you actually expect non-interest-bearing deposits to bottom below the high 30s in the first half of the year and then grow to the high 30% level? Thanks. No, Steve, the expectation is that we're going to continue to see some mix shift from non-interest bearing into interest bearing really throughout all of 2023. We would expect as we get into the fourth quarter that that's where we're really going to see that bottom out from a non-interest bearing to total deposit perspective. At the same time, what we can see in the back half of 2023 is with a small increase in venture deployment and the slowdown in cash burn that we expect to continue, an improvement, small improvement in the overall deposit level. They're really two different things. Okay. It's in interest-bearing deposits where you're looking for that benefit in the second half? That's right. Yeah. Okay. Thanks for taking my questions. Yep. Thanks, Steve. Your next question comes from the line of Brody Preston with UBS. Your line is now open. Yeah. Hi, good evening, everybody. How are you? Hey, Brody. Hey, I just wanted to maybe just follow up on the line of questioning on the non-interest-bearing. You know, I just wanted to get a sense for is there like a natural kind of level of non-interest-bearing deposits, you know, from an account level perspective that need to be, you know, these companies need to keep on hand? I just ask just because you guys have actually done a pretty good job actually maintaining account growth over the last couple of quarters. I just wanted to get a sense for, you know, if non-interest-bearing account levels, you know, if there's an average account level where these things kind of naturally bottom out. Yeah. Brody, it's Greg. I'm gonna start at a high level and Dan or Mike may wanna add some color commentary to it. The challenge with the answer to your question is that there is not any more an average client, because it really depends upon early stage, mid stage, late stage, publicly traded, all those, all those things. Here, here's one way to think about it again, why, again, Dan made the comment about kind of this bottoming out. It was said, but I'll repeat. When you look at that high 30s kind of bottoming out of the non-interest-bearing accounts, you have to think about it and look at the totality of all the total client funds. Right now we're at about a 24% of the, you know, all total client funds. If you factor in this high 30s as a bottom, you're gonna be in that mid- to high-teens against that total, client funds. We believe historically that would be low and when you factor in all the types of clients that seems with all the data and information we have to be where we would be bottoming out. Obviously it can change. Our assumptions could be wrong, but that's the analysis that we've done. Think about it in the mid- to high-teens of total client funds, not just this, 23%-24%, you know, kind of at the end of the year. I don't know, Dan or Mike, if you guys would add anything to that. Yeah. Greg, it really gets back to the same thing. If you look at most commercial banks, you think of total non-interest-bearing deposits, even in these rate cycles being in the high teens, you know, becomes a low watermark on non-interest-bearing. That's effectively where that on balance sheet, high 30% non-interest-bearing range, turns out to be if you consider the totality of client funds. That's one marker plus, like Greg said, the analysis that we do internally. I think when we look at those things, yes, it's subject to change. That, at the same time gives us confidence in the outlook. Your next question comes from the line of Jared Shaw with Wells Fargo. Your line is now open. Hi, guys. Thank you. Hey, Jared. I have to be shifting just a little bit over to the loan side and the growth you saw in, and you talked about, you know, clients, favoring debt over capital here. Have you changed underwriting or have you seen any better terms, on loans that are being originated now, versus, you know, earlier in the cycle for these early and mid-stage companies? Yes. This is Greg Becker, and Mark and Mike probably both will wanna share a perspective on that. You know, it's, the growth has been again, in the three areas that we talked about. It's the technology side of the portfolio. It's been in the Global Fund Banking, then a little bit with the mortgages as well. On the technology side, we've seen probably some of the best growth we've had in, you know, many years, clearly on an absolute dollar volume basis and even on a percentage basis. That's one, it's just kind of the simple discussion. We were competing, and we've said this on many conference calls, we are competing as much with equity dollars as anything else. These companies, you'd sit back and go, "We would love to lend money to you because of all the great fundamentals you have." They just raised $200 million, so why would they wanna borrow $20 million-$30 million? Obviously it's gotten harder. Not that they couldn't raise money, it's they're choosing not to because of the valuation that they would like to see. Those are great opportunities for us. The team's doing a great job of winning really some great business on the technology side. In the Global Fund Banking, you've got again, we've been doing this longer than anybody else, we've got a great experience. That's the term sheets and the new business is still in very, very strong demand, and we've seen some people pull out of the market. That allows us to, you know, in some cases, get a little bit higher margin. But I'd say it's as much making sure we have the highest quality clients that we're bringing, on board, to the platform. It's still competitive, but we're able to bring in some great clients, and we're able to see some nice outstandings in this environment. I don't know, Mark or Mike. I'll just comment specifically on underwriting. That was part of your question. Generally speaking, we try to keep our underwriting standards consistent. What that will mean generally in times when the environment is getting worse is fewer clients clearing the bar. At the same time, as Greg mentioned, that has been offset by more demand. We are continuing to see some great opportunities to grow loans really across the segments, including the core tech and healthcare. Mike, anything you wanna add? Yeah. The only thing I would add is, I mean, clearly we're very cognizant of the economic environment that we're operating in. When we're looking at underwriting, we're very conscientious of business models that are relying on the consumer, as the consumer might be hit with inflation. Starting to think about interest rates and how they might impact the business models as well or their amount of financing. All these things are coming into factor. As Mark said, right, we're very consistent in our underwriting standards, which have served us well for many, many years. Okay, thanks. You know, I guess a corollary to that, you look at the credit expectations and the growth in the allowance. You know, it looks like, you know, in slide 30, you're nearly at peak stage losses, or very close to it for coverage. How much higher do you think we can see the allowance as a ratio, go with sort of your broader credit expectation backdrop for normalizing losses? As Mark, I'll start. Dan or others may wish to chime in. Certainly there's a fair bit of reserve build, as you pointed out in 2022. Could the reserve go higher in 2023? You know, as I think you probably know, economic forecasts can drive the reserve as it did for us this particular quarter. That's one factor. We could, as we've noted, see higher levels of non-performing loans that could drive higher specific reserves. There is that potential for the reserve to go higher, again, recognizing that we have a fair bit of reserve build behind us in 2022. Great. Thank you. Your next question comes from the line of Bill Carcache with Wolfe Research. Your line is now open. Thank you. good afternoon. I wanted to follow up on the reopening of IPO markets being a clear positive for the business. From a timing perspective, would you expect that reopening to coincide with a Fed pause, or are we more likely to need to see rate cuts? Just curious for your high-level thoughts there. Yeah. I wish I had our SVB Securities team on the line right now. They're closer to it than I am. As we talked about it, you know, I think we don't have a lot of expectations for things, you know, in 23 with a few exceptions, right? I think my view, when you start to see the top off of rates, I don't think they need to go down, I think they need to be stable at whatever level they're at. I think just some confidence that that's where we're gonna hold and we're not gonna see a potential for another spike. That's one data point. Second data point is, as I mentioned this earlier, when I've been spending more time with some of our later stage clients that are They have a lot of the metrics that we would say they are in a position when the market opens up to go public. I think there's-- when that stability happens, you're gonna see some go out and test the waters. We need them to test the waters. I think could that happen in, you know, late Q3, Q4? The answer is, yes. I think if we see a, a, you know, maybe a couple more rate hikes of 25 basis points in a quarter or a little more than a quarter of flattening, do I think that the market could open up for a few IPOs? The answer is yes. Just let me again make one more point. Even when it opens up, it's not gonna be a flood. It'll be a trickle because it'll be the ones that have the highest potential to go public, and people are gonna wait to see how they perform. I would say yes, maybe in the late third quarter, fourth quarter, you'll see an opening, but it's gonna be a slow-paced opening when that happens. The only thing I'd add to it, Greg, is then we saw it in the fourth quarter on the biopharma side in particular, good deal flow, good deal activity there. As that, if you think about that business, that's the normal flow of fundraising activity for those types of clients. We're not expecting, you know, a substantially strong year on the biopharma side, but I think that can become more constant, and is embedded within our guidance expectations for 2023. That's helpful. Thank you. Separately, how would you characterize the current willingness of companies to take down funding rounds? How would you say that compares to the appetite for dry powder deployment? Curious if you think we're in any way getting closer to those two sides coming together. Yeah. It's Greg. I'll start. It's exactly what you would expect. You know, we've seen this movie before. You can see this in the venture capital data that was released in the fourth quarter. Late stage rounds, there were a lot fewer of them, but the valuation actually didn't drop a whole lot. The reason for that is that, you know, investors looked at this as an opportunity to go in on a flat round in some of the highest profile companies that had actually done really well since their last round, but they can still get in at it, what they would say is a decent valuation. You have another group of companies that are basically saying, "Hey, I'm gonna take the lower valuation. I'm gonna get it over with." Those are fewer. We're gonna see more of it over the course of 23. The final one is what I'll call the in-between. It's the structured deal where it is, you know, it looks like it's the same round valuation as the last round, but they have preferences and things like that you would say, when you really look through it isn't keeping it at the same valuation. There's structure involved. All those things are happening. You're gonna see more, my view, more down rounds occur in '23. You'll see some more structured deals. All 3 of those scenarios I played out, you're just gonna see more activity happening. Again, as we talked about earlier, more in the second half of the year than in the first half of the year. That's very helpful. Thank you. If I could squeeze in one last one. I really wanted to follow up on your commentary around the non-interest-bearing deposit mix. Sorry to keep coming to that question about stabilizing the high 30% range. The question is sort of around this broad concern around the banking system in general that, you know, we're hearing from a lot of investors that we could see the mix of non-interest-bearing deposits revert to pre-GFC levels. When we look to the pre-GFC era, your mix of non-interest-bearing deposits was in the mid to high 60% range, which is around where you were pre-COVID. I appreciate your commentary around looking at non-interest bearing in relation to total client funds, but maybe like a broader question is, do you envision a scenario where we can sort of get back to that mid to high 60% non-interest-bearing mix as we look beyond some of these more near term liquidity pressures that you're dealing with? Yeah. As, as people would say, hope is not a strategy. While it would be great to be there certainly is nothing in our forecast that would say we're getting back to that at all. you know, is there a scenario that we would see an uptick from the bottom that we think will happen later this year? The answer is yes. We haven't come out with a guidance on what that would look like, but it's gonna be well below our historical level of non-interest deposits. I don't know, Dan, what you'd add to it. Yeah. The other way to think about it is, you know, when you go back to the history pre Global Financial Crisis, just the size of the overall balance sheet, the types of companies that we bank are very, very different. I think as a result of that change in client mix, you know, we're not going to get back to those levels of non-interest-bearing deposits. That doesn't mean that we don't have the quality of the deposit franchises. It's just a different mix of clients, you know, now versus then with, you know, close to, you know, $215 billion balance sheet. Maybe the only thing I would add on to what Dan said, thinking more about it is, you know, there's it's the way you're describing it's either market interest-bearing or it's zero. I think you could see scenarios, Mike and team have done a great job of this, looking at different products and solutions. You're going to see a whole different level on the interest-bearing deposits of different yields based on the profile of clients. I think you have to understand that, yes, interest-bearing is going to be a higher percentage, but the spread of yields on that will be varied. Understood. That's super helpful. Thank you for taking my questions. Yep. Your next question comes from the line of John Pancari with Evercore. Your line is now open. Good afternoon. Hey, John. On the off-balance sheet funds balance, I think it's about $168 billion as of the end of the year. Can you just update us again how much of that is available or you're able to bring on a balance sheet? How much of that do you expect to be used under your, you know, that's baked into your guidance here? Any other dynamics in terms of that could be impacting that balance? Thanks. Yeah. John, it's Dan. We had talked about it in the past. You know, we believe that there's still access, you know, obviously doing the right things for clients, to roughly half of that off-balance sheet balance. You know, sitting where we are, that still leaves, you know, a sizable opportunity across, you know, what's classified as sweep and what's classified as repo. That's a substantial opportunity for us. In terms of how much we're including in the forecast, we're still expecting to see some of that move on to the balance sheet, but the pace of that is expected to continue to slow into 2023. That's all included in our net interest income guidance, and the interest-bearing deposit beta guidance. Okay. Got it. Got it. All right. Any actions considered for your available for sale securities portfolio at this point? John, it's Dan. Very clear that we're only talking about available for sale. In the quarter, we did opportunistically sell $1 billion worth of Treasury securities at a very short payback period with, you know, limited impact to tangible book value considering that we also had some warrant gains in the quarter. I think what you're gonna see from us is less of a broad review across available for sale and actions there. You'll see us opportunistically where the rate environment, the payback period makes sense. You know, also protecting tangible book value. We take some of those actions to effectively, you know, accelerate the pay downs of that book. That's opportunistic. That's for net interest income generation purposes, more than anything else. Again, we did $1 billion of that in the quarter. Right. nothing immediately planned beyond that billion, but. No. No. Again, anything we're talking about is within available for sale. Right ... you know, protective of tangible book value. Got it. Got it. Okay, thanks. Then, separately, on the credit front, just because we still field a fair amount of incomings from investors regarding potentially underappreciating credit risk in your story, where are you seeing stress, materializing, you know, that is worth noting where you expect, you know, some losses to materialize and go against some of the reserve build that you've already put up? What are the most noteworthy areas where you're beginning to see some of that stress? Hi, it's Mark. I'll start. Dan or Mike may wish to contribute. It is consistent with our historical experience. It's the early-stage venture-backed investor-dependent cohort, where we have and would expect to continue to see, the most stress. Okay. All right. Thanks. Lastly from me is just the capital markets, investment banking pipeline. If you can maybe just comment there. Sorry if you've already touched on it, but just wanted to see if you can talk a little bit about what you're seeing there in terms of deal opportunities as you look out into 2023. Yeah. It's Greg. We haven't talked about pipeline. We did give guidance on what we expect, you know, the outlook to be from a revenue perspective, which is an uptick from where we saw it in, you know, 22. Maybe just to kind of walk through, like, why would we, why would we show an improvement. You know, if you recall back, there's kind of three parts, actually four parts to the business. You got the biopharma business, which is really what we brought on board, an incredible franchise with Lending Partners. Then we added healthcare services, we added technology, and the team had sales and trading, and they had research. With the addition of MoffettNathanson, you have to look at the entire platform. You've got M&A capability, full ECM capability across all three verticals. You have strong sales and trading, you have actually, you know, incredible research when you look across the entire platform. You have a full stack platform. It's actually, you know, people are in the saddles, and they're productive. Even though the market's gonna be a challenge, we look across that whole portfolio of opportunities and actually feel very good. I feel very good about the team, the strategy, and their ability to execute. This is gonna be a tough year. Our outlook shows it's gonna be a tough year. I'm actually really excited about, you know, 2024 and 2025 and having that team be on the platform longer and really, I think, take advantage of an improving market at some point. You know, it's gonna be a tough market, but still an uptick in revenue from what we saw in 2022. Got it. Okay, thanks, Greg. Appreciate it. Yep. Yep. Your next question comes from the line of Jennifer Demba with Truist Securities. Your line is now open. Thank you. Good afternoon. Hey, Jennifer. Question, on credit quality. I know you have a very small commercial real estate portfolio. I wonder if you could just kind of give us a characterization of what's in there and if you have any concerns about any piece of it. I know it's really small. A lot of banks have been talking about concern about commercial real estate in a tougher environment. Hi, it's Mark. That is a segment that certainly bears watching, particularly if there is a recession in the offing. Generally speaking, as you pointed out, it's 3% of total loans. It's reasonably well diversified across several different categories. Probably what's most important it is that it's on average well margined, relative to the underlying real estate collateral. That was certainly going back to the Boston Private acquisition. It was a portfolio we were more concerned about, in part because we were at the depth of COVID at the time. It has continued to really outperform my expectations. Okay. Is there any office exposure in that? There is some office exposure. It is not a enormous part of that 3%. Significant, and again, so far has continued to outperform expectations. Thank you. You're welcome. Your next question comes from the line of Chris Kotowski with Oppenheimer. Your line is now open. Yeah, good evening. Thank you. It's a question I guess mainly for Dan. I hear you and I understand exactly why you're saying the only, you know, securities restructuring would be in the available for sale portfolio. I wonder, as you're looking at that held to maturities portfolio, I'm looking at your average balance sheet, you know, just like the $85 billion taxable held to maturities portfolio. I wonder just if you can highlight a few of the dynamics of the runoff there. The first thing I'd say is I noticed like the yield went down from like 1.92%- 1.72% in, from the third quarter to the fourth quarter. Presumably that's the $50 million of amortization. I'm wondering what's the go forward? I mean, was the third quarter a $50 million good guy or is the fourth quarter a $50 million bad guy? I guess that's the first thing. You know, should we expect something like with a 170 handle or a 190 handle? Secondly, I guess I'm wondering, you know, I mean it from the disclosures in the 10-Q, it looks like that has a very long maturities profile. Is there like any significant runoff that would kind of on a natural basis take that portfolio over, say, 3% yield handle at any time in the next, you know, 12- 24 months? It's Dan. I think first and foremost, the payoff profile there, you know, we're getting off that book anywhere between $2 billion-$3 billion a quarter. Think $12 billion annualized, you know, run down in that portfolio. Those assumptions were, you know, where 10 year rates were, you know, just a couple weeks ago. We now think about 10 year 330, 340. You can pick up some pay down acceleration associated with that. We'll see how material that becomes and where, you know, the 10 year ultimately lands. I think you're gonna continue to see, you know, some improvement, but in this kind of $2 billion-$3 billion a quarter, you know, like a clock just continues to pay down, with the opportunity to accelerate if 10-year rates come down from there. We think about yields themselves. I think, you know, as we look at, you know, Q1 we're still talking about, you know, in the high 170 to the mid 180 range in that book. A lot of that, you know, really comes down to where premium amortization comes in for the portfolio. Those are really the factors. Watch the 10-year yield to the extent that that continues to come down. You could see an acceleration of, you know, payments on that book, which, you know, obviously just make, you know, things go faster there. Get us closer to that inflection point of NII and NIM sooner if that were to occur. Okay. Thank you. That's it for me. Thank you. Your next question comes from the line of Andrew Liesch with Piper Sandler. Your line is now open. Thanks everyone. Thanks for taking the questions. Just curious if you look at the Investor dependent cohort right now, how much cash runway do they have? Obviously, they've been trying to slow their cash burn. It sounds like they've been successful at doing that, but how does their cash position stand looking out to the next year or so? Yeah, the, we track remaining months of liquidity, we call it, otherwise referred to as runway. The majority of that portfolio at last check, still had over 1 year's worth of cash on hand. Got it. All right, that's helpful. Then just shifting gears on the funding side. When investment activity does come back and client funds come in, how do you expect the mix to trend with respect to deposits versus off-balance sheet funds? Yeah, this is Dan. I think, you know, based on, you know, a potential recovery in venture deployment, again, we don't have, you know, a substantial pickup at all in the earnings guidance for 2023. Imagining that we do start to see a pickup there, I think we're going to continue to direct those funds on the balance sheet. If we think about the composition of those funds as they come in, they'll likely be less expensive than what we've got from the off-balance sheet to on balance sheet product. Over time, to the extent that that accumulates, we'll look at, you know, over time, shifting more of those expensive deposits. That's one of the benefits of that product is that it's not a one-way door. We have the ability to shift it off the balance sheet, to accelerate the improvement in net interest income and net interest margin. I think we'll for, you know, if you think of the switch and how we toggle the switch, the switch will be continued toggled on the balance sheet, you know, as we drive some of those higher costing deposits, off the balance sheet. To be very clear, we don't expect this to come in, is all non-interest-bearing. It'll certainly be, you know, more heavily weighted to interest-bearing in this, higher for longer environment, but still be cheaper than those off-balance sheet client funds. Got it. That covers my questions. Thanks so much. Yep. Your next question comes from the line of David Smith with Autonomous Research. Your line is now open. Hi, on the capital call lines and Global Fund Banking, could you just say a little bit about how much of the growth was driven by new lines of commitments versus any change in utilization? As far as the new client business, I mean most of it was from utilization, the change from an outstanding perspective. We did have some new, obviously new client fundings, but, you know. You know, I'd say it varies from quarter to quarter, so it's probably not anything to make a, have a dramatic change. I don't know, Dan, if you would add anything to it. Yeah. I think when we look at the quarter from a funded perspective, we did have growth in capital call. At the same time, that was off of lower utilization. You've got some net new clients in there. I think more notable is the increase in the amount of term sheets and net new unfunded commitments, which, you know, over the next 6- 9 - 12 months are really gonna be a tailwind for us, from a loan growth perspective. I think that's most notable, also drove an element of the provision increase in the quarter. Okay. Just to be clear, lines were up, but utilization was down slightly, but on net, the outstandings were higher. That's right. Okay. Just unpacking the SVB Securities outlook a little bit more, it was largely biopharma driven in the fourth quarter as I understand it. What kind of tech recovery is contemplated in the guide for 2023? Very little. Very little. Okay. You know, again, as I said, now having the full platform and people in the saddle for longer and those deeper relationships being built, it's really just able to pick up some market share. You know, we don't, we just don't have a lot of new activity in there. Okay. Is it fair to call it still largely a biopharma story for next year? No. I think clearly you're gonna see more of a mix. biopharma will do fine, but it's, you know, it's M&A in technology, it's M&A in healthcare services. M&A is gonna be the bigger part. Here's how I'd describe it. Biopharm is probably gonna still be a mix of ECM and M&A. Technology healthcare services is gonna be more driven for the year with M&A. Maybe towards the end of the year, you start to see a little bit of a pickup in ECM in the technology side. Okay, thank you. Yep. Your next question comes from the line of Christopher McGratty with KBW. Your line is now open. Oh, great. Greg, your balance sheet historically has been, you know, one of the more asset sensitive. We're going through a period of, you know, really big rate increases. You've moved to the other side. If we look at the forward curve, which begins to price in cuts, and I know your guidance doesn't factor in cuts, how do we think the margin will perform if the Fed funds rate gets cut, you know, as we look into next year? Should the balance sheet, you know, flip to being, you know, liability sensitive in that respect? Chris, it's Dan. I think if you look at our disclosure of what we're talking about for potential rate increases, you start to see that, which is factored, at least the next couple increases are factored into our guidance. You start to see that, you know, we could be liability sensitive associated with that. In the case that the Fed starts to decrease rates, and again, we don't have any of that baked into our estimates, that could start to be a bit more of a tailwind from an NII perspective, reducing the overall pricing on some of those more expensive deposits faster than what we have incorporated in our model. I think you can look to the asset sensitivity disclosure, and look to, you know, the same potential for a reduction, to the extent that rates come down. Maybe, Chris, just to add on, 'cause I think you kind of had two questions. One is maybe short-term and then long-term. I think, you know, when we settle out to find out kind of that, kind of normalization, and then when you see, let's say, you got back to whatever that normal floor is or of a flattening of rates at some point, some lower level. Then, you know, at that point, I think if you saw some rate increases, modest ones, you know, I think we'd be back into the, you know, more asset sensitive side. I think it's just right now, and you said it, we saw such a rapid increase in rates, which we've never seen before, and that's what kind of made the biggest change in addition to the kind of construction of the balance sheet. Those two things caused it to be, kind of out of historical norm, and it's gonna take a little while for us to get back to that place where we can, eventually get back to a base level, although less level of asset sensitivity. That's great. Thank you for that. If I could just follow it up. One of your competitors last week talked about deferring costs into the out year, given the environment. Appreciating the low single digit guide for expense this year. Were certain projects just pushed to next year, or, I know you talked about hiring slowing, but is there a natural ramp that comes back into the expense growth rate once environments get a little bit better? Yeah. I'll talk about, Chris, philosophically, how we've operated from an expense perspective, you know, over years and cycles. And then more specifically about the guidance that you give, and then Dan can add comments to it. You know, and we've said this, when you go back and look at the pace of investment we made in digital, in infrastructure and a whole variety of risk management, a lot of different things, we looked at it and said, "Look, when times are better, we're earning more money, we're gonna kind of accelerate that investment level, because we have an insatiable appetite for investment because of our target market and the market overall and where it's growing and how large it is. When you have times like this, that's just a more challenging, more uncertain market or more headwinds, you're gonna take a look and you're gonna say, you're gonna basically prioritize and you're gonna kinda optimize what you have. Does that mean slowing down some projects? Yeah, it does. Does it mean potentially pushing things out into future years? It does. We have that prioritized list. You know, as things start to improve, we're gonna start to, you know, put more money behind those projects. We have in the deck where we're making the investment focus, so our prioritized list. It's more in the private banking, wealth management kind of go-to-market strategy. Secondly, in the commercial bank, you know, kind of focus there and digital enhancements. Third is this One SVB collaboration, just making sure that we're working across the entire platform. That's just really important to make sure that we leverage our investments, leverage our acquisitions, and really take care of our clients, deliver for our clients in a meaningful way. Then the last one is risk management, which again, we continue to enhance, as we are in this LFI status. Both expectations and just our own needs are increased. That's how we think about prioritization, and so forth. Dan, what would you add to that? Yeah. I think as long as it's clear we're gonna continue to invest here, even in a more challenged 2023 across the elements that Greg mentioned, that's key, I think, for us to emphasize. We're able to optimize that spend also, as we're looking at changing the mix between professional services and cheaper full-time employees. That's just another way for us to get optimization from a cost perspective. We're doing that, and that also helps us from a sustainability perspective. Then I think the last part of your question is, you know, to the extent that the environment improves, are we gonna go back, you know, to that, you know, more traditional, higher expense run rate? I think that's gonna be a balance. I think, you know, for us, the overall return, the profitability of the franchise is continuously important. We'll have to continue to balance those investments, you know, as our profitability returns to more normal levels. That's great. That's great color. Thanks. Maybe just the last one. I know the environment's uncertain, but thoughts on a buyback over time given the valuation? Yeah, Chris, I think we've said this in the past. We're always gonna remain open to looking at our options from a capital perspective. You know, obviously 2023, we're not expecting a lot in terms of, you know, major acceleration in deployment. To the extent that deployment, you know, does come back and does come back quickly, you can start to see, you know, the balance sheet increase and again, you know, more pressure from a Tier 1 leverage perspective. We certainly don't have that now, but it's something that we need to continue to be cognizant of. I think as we look ahead, we're just gonna continue to keep our options open. Again, you know, I think growth over the medium and the long term is the thing that we need to prepare for. Great. Thanks for all the color. Appreciate it. Yep. Thanks, Chris. Thanks, Chris. There are no further questions at this time. I turn the call back over to Greg Becker for final remarks. Great, thanks. Thanks everyone for joining us today. You know, we tried to give as much detail, you know, and again, I give a huge amount of credit to our IR team to put together a lot of information, a lot of detail on kind of what we're seeing, the outlook, what are the key drivers. I think that's really helpful. I think, again, just to reiterate, when you go back and look at fourth quarter, you know, there's a lot of really healthy signs, whether it's, you know, loan growth, of course, fee income growth, you know, nice growth in investment banking, and probably maybe most importantly, this kind of stabilization of this inflow of venture, with, you know, a pulling back or slowing down of cash burn. That was great to see. That being said, look, the market's still very, very choppy. There's still a lot of uncertainty out there, which is why we gave guidance in two ways. One is the annual guidance, and the second one is the quarterly guidance to make sure that, you know, you kind of really have a good sense of how we're feeling about the quarter. We talked about what it, what it means for SVB. Again, just to go back, we think the first half is gonna be, it's gonna be bumpy. We expect that you're gonna see venture capital decline in the first, you know, half of 2022, and then or 2023, and then stabilize and start to improve. Our, our expectations are not for a big improvement from where we are right now. That's just the outlook we think is realistic. You know, could there be some upside? You know, certainly there could be some upside, but that's not what we have in our plan. Especially if it gets worse, as we went through, and you can see in the deck, we have ample resources of liquidity, and other ways to make sure we're taking care of our clients and still being there for them when they need it. That's kind of our view. Again, thanks you guys for joining. As always, I wanna thank our clients. It's one of my favorite parts of what I get to do, is spending time with our clients and just hearing their stories about what they're doing and that they're still excited. Yeah, they're making hard decisions, but they are well-positioned. Quite honestly, I think markets like this in many ways as much as we don't like it, we don't enjoy it's actually healthy because it allows those companies to run more efficiently, run more effective, and position themselves for growth. Then finally, thanks to all of our employees. Can't thank them enough for what they've been doing to support our clients, what they're doing to support each other. Look, it's a tough market and so keeping that positive attitude and client-centric mentality is super important, so we appreciate that. Thanks everybody. Thanks for joining us, and have a great day. Thank you. This concludes today's Conference Call. Thank you for attending. You may now disconnect.